In the last two years, around 23,400 startup businesses have become relevant in Latin America, as emerging companies valued at more than a billion dollars are usually called, as is the case of MercadoLibre, Rappi, Nuvank, and many others that are quickly becoming the new startup boom in LATAM.
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Of this outstanding figure, at least 40 unicorns stand out for having climbed during the last two years of the pandemic and paving the way for other startups to have the same growth opportunities among investors.
According to a study by Platzi called “The Latin American startup ecosystem in the seed stage for 2021”, many startups work in the retail and logistics sectors, but others are managed with business services such as education. In this article, we will precisely talk about how the pandemic accelerated the startup boom in LATAM.
What caused the accelerated growth of startups in LATAM?
First of all, we must clarify that although the pandemic accelerated the growth of these emerging businesses, the startup phenomenon had been brewing long before, approximately 10 years ago. Therefore, we should say that the pandemic is responsible for accelerating growth that was already underway.
Reality is showing us that there is more and more investment in these projects precisely because many of the first unicorns like MercadoLibre generated trust among investment funds. This later allowed other emerging companies to be encouraged to invest because of the security and guarantee that these first startups were offering them.
Consequently, Latin America is becoming a training laboratory, where companies invest to occupy a place among the most important startups. In the best of scenarios, they will become unicorns with high possibilities of expansion to other countries outside of LATAM.
On the other hand, Luis Paredes Izaguirre, director of the IPADE Entrepreneurship Research Center, maintains that the fact that many CEOs of these companies were trained in non-Latin American universities should not be overlooked, as was the case of Marcos Galperín, who completed a doctorate in the United States.
This is not to say that a business career abroad is an inherent condition for business success, but rather that these individuals took advantage of all available resources to better understand the current market landscape on which to build a more solid foundation for their business model.
Undoubtedly, investing in professional training outside the country has provided these entrepreneurs with more robust tools to launch their projects with a better market-focused vision and objective. In the long term, the results are obvious when these emerging companies become successful startups.
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Challenges for Latin American startups to survive
The first idea was to launch into the market after investing time in training and carrying out the business strategy, but then the matter of surviving in the current scenario for the future remains since, at some point, the new normality will become normal and many consumers may return to physical stores.
But it is also possible that most consumers will not return to physical stores and will continue to buy their products through e-commerce to receive their purchases in their own homes. It is a more comfortable alternative that not only avoids crowds and the circulation of COVID but also avoids wasting time in physical shopping centers.
For this reason, if we talk about the main challenges that startups in LATAM must face since the advent of the pandemic and the new normality, we can summarize the following 3:
1. Sustain business success after the pandemic.
For many emerging companies, the outbreak of the pandemic, more than an obstacle, meant a growth opportunity to consolidate the online business that was just beginning to take its first steps. As we said at the beginning, it accelerated the process and the companies that were emerging were favored by these advantageous circumstances.
Now, the objective is to survive after the pandemic, bearing in mind that it will not last forever and that sooner or later we will end up living with the virus, vaccines, and health protocols. Therefore, it is expected that after this boom in startups in LATAM, only those that best adapt to market changes will survive. This implies anticipating these changes by implementing strategies aimed at the needs of consumers at all times.
The needs of this time may not be the same as those that will arise in 3 years, for which you have to prepare by understanding that there will be people who will continue to buy online, but there will also be others who prefer to have closer contact with the product and the sales agent from the beginning.
Faced with this reality, a hybrid modality of electronic commerce and the setting up of a physical location for people who buy in person can be a good measure to cover both needs.
2. Personalize the business.
On the other hand, in addition to including a physical store, another challenge for Latin American startups is to personalize their business by focusing on the specific needs of the consumer and the times they live in. In this way, companies should give a satisfactory response to the demands of their customers, generating products or services that are adapted to their needs or problems.
Amid technological innovation, the customization of products or services is the best alternative to remain in the market and generate higher income. Companies that resist change and don't personalize their business for the benefit of customers end up stagnant. In today's world, people are looking for immediacy and innovation, and that is what you have to offer them.
3. Add value by attending to the relevant needs of people and the environment.
Lastly, and depending on people's needs, a third challenge may be to add value by generating a perspective of sustainable improvement at an environmental level. If we seek to improve people's quality of life by introducing sustainable products or services to the market, in the long term the improvement for the planet will be perceived at the level of renewable resources.
For example, reducing the amount of non-biodegradable waste such as plastic can help stop environmental pollution and, at the same time, control carbon dioxide emissions generated by the excessive waste of non-renewable resources. Promoting a business model based on the reuse of certain materials can help preserve these resources, favoring sustainability.
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In short, if there is something good that the startup boom in LATAM can generate, it is the opportunity to generate value from technological innovation. Since well-used technological tools represent a competitive advantage, directing them towards a customer-focused business model that is also sustainable will allow these emerging companies to become market-leading unicorns.