Why are official and private funding initiatives failing? Part 2

Hundreds of IT companies in Colombia keep trying, once and once again. They want to be the next Whatsapp, the next Fruit Ninja or the next Evernote. IT companies with different levels of experience in the Colombian market strive to make it a first success and as much as wanted, this hasn't been the case.

2. In Colombia, there is not enough people that takes joy in consuming technological products or services

You may argue the whole world is the best startup market. This isn't always true, not all value propositions are adaptable to the whole world (as in the case of Tappsi) and it's very hard for a colombian startup to compete in a global market: huge international tech enterprises would sweep it all with much more funds and power. For many colombian startup companies the hope and first realistic target is Colombia.

However, it doesn't matter what your experience as a developer is, how much you invest and how hard you try over and over again, if there's no local consumption, we're doomed. Unfortunately, in Colombia, there is not enough people that takes joy in consuming technological products or services.

Why?

I'll briefly outline some of the reasons.

a) Because our history

Colombia is rich in raw materials and natural resources. This has made us pretty good at trading commodities and has also made us think we're allowed to make our brains a bit more lazy and rely forever in natural resources to survive. I'll leave details of this rather interesting topic for another post. For the moment, let's realize we colombians are far more familiar with buying (and move our economy and hopes around) commodities. 

Technology is different! The kind of work needed to boost an information based economy relies on the brain, not in weather trends or in our arms and legs. For the most part, for you to understand how to take full advantage of a technological tool in general, you need to learn it and optimize your usage of it. This requires a continuous and analytic thought process in the consumer, who has never faced thinking for consuming.

The days in which consuming needed at most some physical effort, are gone!! And you, my dear reader, know this.

b) Because learning software has almost always been seen as a mere requisite for a job

Most educated colombians hate to use office software (uneducated colombians need no mention here). It is there to make their lives easier, but it has more often seen as an obstacle to be happily unproductive chatting around and drinking coffee. 

Learning software requires an extra effort, a thinking endeavour. This has lead many people to associate software with pain and despite we know not all technology enterprises are for productivity, there is a long road ahead in persuading for acceptance of technology as an ally.

c) Because investing in technology is the least important 

As long as you are in a developing country, chances are you're always barely paying your bills, your taxes and your food with your salary (this also applies to 99% of the companies). In Colombia this is the case of most (each time less) people. The problem is that even if economics change for the better, the illusion of scarcity has been with us and will be with us for a period of time, preventing technology consumption.

There's a big difference in attitude when we talk about american citizens and colombian citizens. It's not just the economics. More than everything else, it's about attitude.

d) Because most colombians don't trust technology, even less colombian technology

Last time I went to a small city in Colombia, I saw people avoid withdrawing money from the ATM because it was not trustworthy. Of course this isn't the case for most of us, but it's a sign we are still much behind in relying on technology. The yearly number of credit card payments through the web has steadily increased in Colombia, but using an app to see a tangible benefit is still encountering a huge obstacle in distrust. The first thought crossing a colombian mind before using a made-in-colombia app is "There are colombians behind this. This is not of quality, this is not trustworthy". Any international competition from a developed country is far likely to win over the colombian startup, mostly due to credibility.

Distrust obstructs communication and none or very little feedback will any business receive, in order to improve its customer experience.

Lack of trust is, please listen, the worst enemy for our development as individuals, as a country and as a global civilization.

A little gift for you. Listen, listen...

To be continued...

(If you want to know a bit more about me, please visit andresacostaescobar.blogspot.com)

Why are official and private funding initiatives failing? Part 1

The sole purpose of this post is to bring a clear view to people who does not understand what it looks like to be a tech entrepreneur in Colombia. These are all rough numbers, which may vary a bit on a case by case basis. 

As a technological entrepreneur in Colombia, one is often advised to apply to a set of programs designed by national government institutions such as Sena, Colciencias and Innpulsa (among others) in order to get funding and grow the company. Who advises you? Presidents of multinationals, presidents of foundations, owners of small and large companies, your aunt, your friends and the government itself.

After some months of reportedly being told the same and a short glance to the investment opportunities offered, our answer to this advice wouldn't be as positive as expected. I know this attitude is not special among technological entrepreneurs in Colombia.


Why?

1. Early Stage programs are not considerate with the entrepreneurs and are not adapted to this century

Please recall Early Stage capitals are given to business ideas with an early market traction. As an example I'll consider one of the Early Stage programs by one of the recognized institutions listed above. The early stage program has the following advantages for the applying company

a. Give feedback and evaluate in the technical, legal and marketing of the business.

b. Adjudicate a maximum of 300 Million Pesos (around 160 000 USD), with the condition that I fund myself at least 30% of this amount.

Ok, doesn't seem bad. What are the conditions?

C1. Having sold more than 400 Million Pesos (around 220 000 USD) in 3 years, if the business isn't older than that.

C2. Having done promising market studies and market plans, with clear business models.

C3. Have at most twice as much debt as patrimony. Otherwise, would have to agree with one large certified software company to partner.

C4. Other conditions that take not less than 4 months to certify.

Let's assume my company fulfils C1. Otherwise, this program is of no use to me.

Ok, please help me out here. If I'm less than 3 years old and I'm very lucky, I'll get 210 Million Pesos. Then there are two cases:

Case 1:  I happen to have at least 90 million Pesos debt (something expected for a very small startup with some traction), I must have at least 45 Million Pesos in startup patrimony.  In this case, I will have more than 450 Million Pesos (Around 240 000 USD) to invest in my startup, before any funding program.

Exactly why should I commit and invest 4 to 6 months of my valuable time, when I have quite a traction, much more than 210 Million Pesos and will probably have more than 500 Million by the time I get the 210 Million funding?  Moreover, at this stage I will surely have more than one private investor after me.


Case 2: I happen to have at least 90 million Pesos debt (something expected for a very small startup with some traction), but I don't have at least 45 Million Pesos in startup patrimony.

Then I should partner with a certified, large software company. The case is even worse.

These guys will hopefully let me keep 50% of my stake, but will definitely take over with all the strategy and concept, completely killing my passion for the startup. Also, I'll have a minor voice in decision making and all the decision making processes will be at their bureaucratic pace. I won't have the people of preference in my company, but even more, I'll marry a company that has not been successful in escalating any tech business with innovation. No colombian company has ever escalated an innovative tech business and in addition to their old fashioned business concepts, they have no bigger chance than what I stand by my own.

Don't forget that Case 2 has for granted I have around 500 Million Pesos to invest in my company. Little motivation, huh?

On the other hand, business plans and market studies are almost completely useless in the tech startup world. I'm not expanding in the topic. In case you haven't, please read our bible, Adam Riesz's Lean Startup. If you haven't read about the lean concepts, how are you up to the task of qualifying startups? Exactly based on what?

Finally, there are other opportunity costs and risks. What if my business is not selected? What if as the great developer I am (what they seek) I'm being offered the same money for a similar period of time to work on a different project?

This is about viability, only viability. We've gotta start with viability for the resources, the entrepreneurial teams.


To be continued...

Tappsi: One developing success story

Alright, let's get closer to the matter. Being one of the most entrepreneurial countries in the world, colombians don't lack imagination to propose new business models, innovating mainly in value propositions and channels. However, as economy in developed countries evolves towards information-based businesses, leaving a long tail of profitability and scalability, markets in the developing countries have been clear in sending the message: "We're still in commodities and other tangibles".

This is not to say tech startups will never have its way in developing countries. Tappsi, the first colombian startup gathering much more than the critical customer mass for an MVP evaluation, is the only tech startup company deploying its wings in Colombia. With a business model similar to that of Uber, Tappsi allows its customers to ask for a taxi via a mobile app. Tappsi's success, contrary to what one may think, is not due to a coolness and pragmatism resounding in taxi takers (this is not the United States).

Who's behind Tappsi?

From the Tic's national minister, to the founder's grandparents, passing through the (still useless) official and private national initiatives to promote innovation through technology. All these people is quite interested in having one success story to tell the world. The topic of uselessness in trying to promote tech startups via official and private national incubators is such a controversial and fascinating one, that I just decided to discuss it in another post.

So what's behind their success?

Tappsi's success relies on the fact that people feels more secure ordering a taxi via the app, than taking it directly on the streets, or calling one by phone. Does this sound like bad news to you? It sounds to me. Taxis in Bogota have been for years a no-no for many afraid citizens. In general, the chaos in Bogota's traffic is mainly due to insecurity issues, as I may address in another blog.

Some insights

These are, of course, bad news. The message across Tappsi's success is crystal clear: Colombia is not yet ready for the innovative technological consumption culture, despite being quite ready for adopting whatever leads to more security, in general. What I mean by "innovative technological consumption culture" includes the following:

1. Joy for using mobile or web apps, only because they are doing by technological means, what was before done in a more rudimentary fashion.

2. Enjoying the understanding about how to manipulate mobile apps.

3. Trend towards demanding and enjoying a better Uex (user experience). Let's agree on something from now, if a market is not used to mobile apps and can't sometimes manage to understand a simple desktop app, there are few chances a great Uex design will help.

4. Spending a peso on information technologies, simple as that.

5. A critical mass for the viral model to make sense.

Will Colombians start to enjoy and value colombian-made mobile apps more from now on? Yes, would never hesitate. Will Colombians start to value better Uex design? I don't doubt it. A brief history of downloading mobile apps made in the USA, along with strong and expensive Government campaigns have been slowly fighting point 1 and 2 above. You may say point 4 is a rather global matter, what you don't know is that in developing countries spending in information technologies is still not seen as an investment for the future. I'll expand on this later on.

In order the solve point 4, Tappsi bills per ride exactly the same as would be charged to the customer if the taxi was called by phone. In other countries, you might be able to try other revenue streams. Right now in Colombia, this is the only one possible. Quite a good hit, a great alternative considering latin america is still trying to put itself in the online purchasing mood.

A quick calculation will show that Colombia as a whole has about the minimum critical mass for a viral business model to be sensitive. This strongly correlates with the fact that, despite its small success, Tappsi is still not viral and may need other countries to be so.

Of course, competition has quickly gathered and now Tappsi also faces other issues than those cited here.

Finally, solution for point 3 is a slow turtle that doesn't move by itself but is being moved randomly forward by the ground-shaking steps of a big elephant called insecurity. I know Tappsi's owner personally and I've jokingly insisted him to take my advice: Change your slogan to "It's all about security".