COVID-19 Venture

Latin America’s Copycat Advantage: Not Being First To Market

Written by Victor H. Cortés who is CEO and co-founder of Contxto, a Latin America website for tech, startup and venture capital news.

I’ve always thought it was odd that people think being first to market is a good thing. It’s mostly not.

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Full of bumps, expensive falls and sometimes even downright failure, being the pioneer or even creator of a market is not something every founder should look for.

We all know most of the products we use nowadays aren’t actually from the first company to have come up with the product or idea.

Latin America is, most of the time, not a first mover. Contrary to tech powerhouses such as the United States, Canada and (now) China, Latam’s innovation possibilities and pathways most of the time come from adapting, tropicalizing or copycatting startups that previously worked (or didn’t) elsewhere.

The advantage? Literature, and lots of it.

We’ve been first movers before. Mercado Libre and Taringa! in Argentina, both started very closely (timewise) to Amazon and Facebook. But it is not the norm. Just take a look at SoftBank’s Latin American portfolio, it’s practically a Spanish and Portuguese translation of its Vision Fund and its companies in India, China and the U.S.

Other equivalents include Ayenda from Colombia–thought of as the Oyo Rooms of Latam; Rappi, aiming to be a regional WeChat; Selina being compared to WeWork; Grow as the Lime of Mexico, so on and so forth.

But, is there even an advantage to being late to market?

Well, in Latam, it is not so late. Most local tech products are relatively new, in fact. But these companies have already seen the rise and fall of their foreign counterparts and have been able to identify what works and what doesn’t.

Take Ayenda Rooms, for instance. After the massive losses experienced by India’s Oyo in 2019, Ayenda’s founders looked at the situation and probably saw it was not the right way to go. The result? This quote:

“We’re not going to go into 10 countries or start buying other companies,” stated Andrés Sarrazola, the startup’s co-founder. “We believe in self-sustaining growth instead.”

Stuff happens here too

That doesn’t mean we’re immune to screwing up. Many companies, in fact, jumped into a business model at the same time as their foreign counterparts did and others just don’t learn from prior mistakes.

Grow Mobility—basically the merger between Mexico’s Grow and Brazil’s Yellow—started not too long after Bird and Lime inaugurated the e-scooter market. The result? It’s going through the same restructuring as both of the Valley’s companies—including the massive layoffs. And that was before this whole COVID-19 debacle.

Indeed, this year was a bucket of ice-cold water to many high-growth startups.

It has now become clear that 2020 is the year that forced founders to ponder their business strategy and reassess their action plans.

Rappi—Latin America’s largest last-mile delivery company—raised $1 billion led by SoftBank last year. Nowadays, it is laying off 6 percent of its entire workforce and facing a challenge on its home turf by Domicilios.com and iFood.

Now, to be fair, Rappi is indeed aiming to restructure its priorities. So, less uncontrolled growth and more focus on user experience. Something all Latin Americans may agree it needed.

Still, the point is the same. Latam still has time to turn around and learn from what has happened elsewhere.

Latency during the COVID-19 era

What started as a natural economic recession cycle got put on steroids by COVID-19’s worsening health and economic crises. If profit over growth was gradually gaining traction as a philosophy among founders and investors, suddenly it was spreading as fast as the virus.

Lockdowns all over the world have caused many retail businesses to shut down. Many startups were agile and digital enough to avoid the same fate. However, what no one is going to be able to avoid is the reduction of income from traditional clients who shut down or paused operations.

Startups will have to stand and endure as the worst happens. Many will not make it through. The silver lining will certainly be that there will be ever more literature and data points of high- and low-profile business failures to use as references in future scenarios.

Interestingly enough, data suggests that, not only is Latin America lagging behind the U.S. and other countries in terms of technological innovation, we are also behind when it comes to what stage of the pandemic we’re in.

This means that Latin America can learn from what U.S.-based startups are doing to confront the pandemic.

  • How are they pivoting?
  • How did they ensure their (now remote) operations remained smooth and efficient?
  • What features can they launch or retrieve from the market?
  • How much runway do they have and how do they decrease burn rate for the time being?

If there’s a two-month latency window, local startups should make the most of it and learn. Quickly.

It’s not all about copycats, though

Alongside the pandemic’s pressure to adapt or die, technological advances will keep on naturally accelerating and reaching broader parts of the region.

In this sink-or-swim situation we’re living through, I am pleased to see many startups adapting.

Rappi, for instance, is one of the few companies seeing a surge in demand, not despite the crisis, but because of it. What’s interesting and impressive is that it didn’t just take it for granted and continue operations as usual. Despite its success, it looked for user-friendly and anti-coronavirus alternatives to handle deliveries. For that reason, it partnered with Kiwibot to let small semi-autonomous robots handle the deliveries, limiting human interaction. Talk about Colombia’s ultimate crossover.

Spot.io from El Salvador, whose founder I interviewed last month, told me the company had adapted its product to fit the market’s most urgent needs. Spot.io usually used its computer vision algorithms to provide data on foot traffic, vehicular traffic, and even identity recognition for government and companies. Now, it’s tweaked it to recognize body temperature in public spaces and match it to a personal identity, so it’s easier to track.

Loft, which has an asset-heavy business model, is rewarding clients who keep paying by offering discounts and rewards post-pandemic. Those funds will go toward paying construction employees while buildings’ remodels are paused.

Strength in diversity

Inevitably, newer, more innovative companies will keep sprouting up here and there regardless of the macroeconomic conditions. This is an exciting development to witness, considering most of Latin America’s biggest companies are still brick-and-mortar family-owned corporations.

Furthermore, the underappreciated diversity of the regional ecosystem has protected many of its most innovative startups in the long term.

It is true that some of Latam’s first-movers, whose products and business models are new and disrupting, may have a harder time finding precedents to work from. These are some of the region’s dearest companies, but their novelty means they will need to experiment; try things out on their own and see what works best, without a guide or example to follow.

Take Chile’s The Not Company, for instance, a revolutionary application of machine learning on food’s biomolecular structure. Although not as dramatic as other companies, it too is letting some of its workforce go.

Fortunately, more innovative companies are being launched in Latin America every year. Some of the strongest countries in terms of new products in the region include Mexico, Chile, Colombia, Argentina and Peru, not to mention Brazil.

Latin America’s most recent deeds, such as Nubank becoming one of the world’s largest neobanks, Rappi turning into Colombia’s most valuable tech company and YC’s increasing interest in Latin America, as well as the rapid growth of the local venture capital ecosystem, may trigger a dejà-vu as to what has happened before in the history of other parts of the world.

I’m talking about other high-growth and eventual shrink cases, such as Uber, WeWork and even media companies like BuzzFeed. Turns out, COVID-19 is more catalyst than game changer in many respects.

I believe it is a good thing that new, innovative companies are arising, and I believe being history’s favorite sidekick or second-to-market will allow local companies to learn from the past and other ecosystems’ mistakes, and now, from those same companies’ response to this virus. I hope they do.

Undoubtedly, they will have a lot of road bumps, and failure will also be an inevitable destiny for many.

Fortunately, there’s more literature than ever before. It’s just a matter of consuming it as quickly as possible and acting–based on observable patterns–with speed.

Like an intern learning from a mentor’s mistakes, Latin America’s ever-learning ecosystem is in an advantageous position from years of observing at an extremely close distance.

Photo courtesy of iStock

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