Last year marked a change in the economic cycle for the world economies, and now all eyes are on the technology sector that is starting to simmer.
The Mexican ecosystem seems to be stuck in yesteryear. The first weeks of the year within the Mexican ecosystem continued with the inertia of last year’s enthusiasm: new events, programs and never-ending news coverage about the startup scene. So much so, it seems we have not been paying attention to what is really going on the world. If January in public market performance is any indication of what lies ahead, 2016 will be a tough and tumultuous year for Mexico, Latin America and the world in general. Last year marked a change in the economic cycle for the world economies, and now all eyes are on the technology sector that is starting to simmer. It would appear that the Venture Capital industry is beginning to stir after too many unicorns and too few IPOs.
In Mexico, it also feels like the end of a cycle for the ecosystem. Several years ago, when the startup ecosystem was literally devoid of interesting initiatives, any new idea — however small or improvised — was coronated as it contributed to creating the density any ecosystem needs. The more the merrier we said. More recently, unprecedented public and corporate support mesmerized by the success of Silicon Valley suddenly created more players, more panels, more attention and more funds than perhaps we ever needed. Conventional wisdom argued that market forces and early results would bring order and reveal the best players. Mexico has become a new force in the region but may have created a hype that could vanish as quickly as it surfaced. Last year, Brazil’s troubles seem to have permeated into Mexico giving rise to the flight of international investors against a backdrop of record low oil prices and a struggling Mexican Peso, plummeting in value by the day.
This new environment calls for a change in founders’ priorities and expectations in Mexico and Latin America. Being focused and working hard is the only way to deliver results. Despite rough global markets, the opportunity of bringing great products to Latin American consumers and businesses has never been greater. I have no doubt that this new era will herald in some of the best success stories yet, however the taste of victory is only ever as sweet as the hard work invested.
Walk the talk
Latinos are a talkative culture. We love to share our views and plans. As an ecosystem, we may have created one too many platforms to talk about our good intentions. Since the startup scene caught the media attention, there are more lists of ‘successful founders’ than of actual exits. Hence, some founders are better known than their startup. Teams often compete and work harder for seals of quality and to win startup contests, than for their clients. The threshold to participate as a panelist or Mentor in a startup competition appears to be lower than ever. It feels that showing up will always be rewarded by a participant trophy. More and more founders are becoming angel investors and community organizers, before completing scaling or exiting their first company.
It’s time to get real and avoid distractions. It seems impossible to build a great company while being a founder celebrity, creating a portfolio of angel investments and having the time of your life. Going for that media interview or appearing in that panel is taking time off improving your UI, calling your client or following up with potential investors. Promoting your future success may very well prevent you from actually achieving it.
Reality check
If you are planning to launch soon, ask yourself if the opportunity you are pursuing is worth a decade of your life working 24/7 and living with uncertainty. If you are creating a technology company without a tech co-founder in the team, start looking for her immediately. If you have already launched and your beta is not going well, cut your losses and build something different or join a team with traction. Remember being accepted in a founder program, being a finalist, appearing in a magazine is not a validation of your product. If you are in it for the fun and thrills, startup tourism is a dull way to spend the next three years of your life.
If you recently raised a financing round, it is worth double checking your plans. Stretch your budget from 18 to 24 months before the next round or better yet, make a plan to reach break-even before raising again. Well-funded competitors are going to be fewer and farther apart. If you are fundraising right now, be ready for a longer and more difficult process. For Mexico-oriented startups, revise your pre-money and raise in pesos to keep it real while you watch your dilution and make sure your investors value your team and vision. However, you will face investors with receiving more investment opportunities than ever and more careful with their investment decision.
Do fewer things better
There are no shortcuts to building a great company. It takes time, sustained effort and perfect timing. Unicorns have captured the imagination of entrepreneurs and would-be entrepreneurs all over the world. You no longer need to be a serial entrepreneur from the Valley or a drop out from a PHD at Stanford to impact millions of lives and create unimaginable wealth. From a distance, it looks easier than it is. Even if you get to become a unicorn, you still haven’t built a great company.
As we enter a period of scarce financial resources and higher standards for fundraising, focusing your time and resources towards a simple objective is a requirement. Nothing is harder than prioritizing and sticking to your plan. It means you don’t open a physical retail store if you are an ecommerce nor develop new product categories nor launch a new B to B version of your business. Working harder on fewer fronts is not a guarantee but will definitely increase the probability of success.
I believe the name of the game in 2016 will be trying harder. Showing up won’t do it. Most ecosystems in Latin America will face this new challenging environment as they consolidate. The good news is that fundamentals in the region are still sound and operating in a turbulent financial environment might prove to be a blessing. Adjusted cash burns and more reasonable valuations may help startups grow in a stronger footing. 2016 should be remembered as the year worked the hardest!