Top 10 obstacles to Puerto Rico Web Startups

Top 10 obstacles to Puerto Rico Web StartupsIn my last post I had a stimulating discussion with Speaking Boricua where she pointed to the Internet as a way to help the Puerto Rico economy. We couldn't agree with her more.

However, things are never as easy as they seem. In probably one of the biggest business lessons of my previous life, I was planning a Project Management business. When I identified that there weren't really any companies providing the service, a business associate commented that maybe the reason there wasn't anyone providing the service was because there wasn't any demand for it. Ahh, I thought to myself, he's right. Project management is an almost unknown business skill or practice in Puerto Rico. How can I sell a service that no one sees as valuable or necessary?

I guess you could say that I forgot that lesson when we started DóndeEs.com, but I think it's more of a situation that I didn't realize the similarity between the two ideas. So, as I promised to Speaking Boricua, I'm going to document the challenges we've faced so that anyone who launches a company after us will have a clearer idea what they face when they attempt to build a high-technology company in Puerto Rico.

To start off, I'm going to identify the top ten obstacles we've encountered in building DóndeEs.com, the first Web 2.0 company in Puerto Rico. While this list focuses on an Internet start-up, most of the obstacles will exist for any type of start-up.

Top 10 obstacles to Puerto Rico Web Startups

  1. Stranglehold on advertising industry - In 'An Inconvenient Truth' Al Gore quotes Upton Sinclair "It is difficult to get a man to understand something when his salary depends upon his not understanding it." Most Internet start-ups rely on Internet advertising in their business plans, we are no different.

    Between the El Nuevo Dia which receives over 60% of all advertising expenditures and the advertising agencies, the bulk of the benefit of the current advertising marketplace are shared between these two entities. Moving to Internet advertising would significantly cut their revenues. Therefore, they have little motivation to develop this new medium. Only advertising buyers can push for Internet advertising, however, they tend to do whatever the agencies recommend.

    While I think that our poor economy will ultimately create the demand for Internet advertising, it will be over the wailing and gnashing of teeth of the advertising industry.

  2. Kleptocracy - The level of corruption in business (in Puerto Rico) is much larger than most people are willing to accept or admit. Therefore in order for a new company to have a fighting chance they require either deep pockets and the willingness to grease the wheels of a deal or have the right family name recognition. Furthermore, when you have a society that is so wrought with a complete disregard of rules, you end up with a society that treats each other with little respect and dignity.Even though people SAY they are going to do something, and may even sign a contract, if some of the obstacles arise, they are quite comfortable in disregarding their promise or word and become irresponsible, unresponsive, and disrespectful. In the end, those who try to play by the rules are left at a huge disadvantage.

  3. Life style business are the goal - The majority of business owners and employees in Puerto Rico are only willing to work as hard as they can until they become comfortable. After that point they become extremely risk averse and essentially stop investing in their businesses and their careers.

    A life-style business is a company that is built up to the point that it supports the life-style the owner wishes to have, but never grows any more after that point. So even though these businesses might have the potential to continue growing, providing much needed employment as they grow and expand, the owners are content to let the potential waste away.

  4. Panismo - Strongly related to kleptocracy, however, this extends out further. Panismo is where people are only willing to help their family and friends. While this is not unique to Puerto Rico, it still undermines many ideas, and causes unworthy businesses or projects to get funded and supported when rebels or unconnected projects and businesses go ignored.

  5. Zero sum theory - Taken from game theory, this is when you look at economics (business) as a pie. Essentially in order for someone to help a new company or collaborate with a company, there is the the perception that it is giving pie to that company. And if they give away some pie, it means they will have less pie. Basically the mentality is that you can't get more pie, therefore, you must hoard the pie for yourself. In Silicon Valley, start-up central, the mentality is let's make more pie, some for me, and some more for you.

  6. Information Technology (IT) is a cost center not a strategic asset. - As I've stated many times before, Puerto Rico is about 10 years (or more) behind the United States in terms of the Internet. On any other technology they are probably 3 to five years behind. This perspective goes along with a general consensus that information technology only costs a company money, therefore, the amount of investment in technology must be restricted. This is contrary to what the leading companies in the world, such as GE, Microsoft, Google, Amazon, Walmart, etc have proven.

    IT is a strategic asset that can drastically improve the performance of any company. It increases the opportunities available, it provides a significantly detailed analysis of a company's performance (i.e., reporting), plus IT is an investment that can be amortized, and written off against profits. The typical Puerto Rico manager's weapon of choice is manpower, which is THE MOST expensive way to address a problem, because it goes right to the bottom line reducing profits.

  7. Group think - In Puerto Rico there are a few people that are seen as the experts within the Internet community. No, I'm not one of them. Everyone looks to these people as the leaders and always seeks out their opinion, even though none of them have had any significant success to speak of. However, when there is such little innovation, results, or revenues, limited success stands out as a towering success. So when someone new comes along that is not well connected, isn't willing to buy recognition, and contradicts "the experts" they are marginalized and disregarded.

  8. Follow the leader, leader. Follow the leader! - As you can see, some of these obstacles work in conjunction with others, or serve as amplifiers. So while information technology is undervalued, due to group think you have Puerto Rico always becoming late adopters of any technology. However, this goes further to drive nearly everyone in the market to follow what the leader does, whether it is technology, Internet marketing and advertising, or the tendency to ignore business practices that have been proven to improve the efficiency or effectiveness of a business. Remeber, since most of the businesses support the owners life-style, they are risk averse and therefore only willing to invest in something new until it is clearly what everyone else is doing.

  9. Anti-small business support by government - Do you remember that front page news that we were the second most competitive Latin American country, based on the World Economic Forum Global Competitiveness Report?. Well in that report Puerto Rico ranked 130th (Out of 131) for "Burden of government regulation" and 105th for "Wastefulness of government spending". In addition, Puerto Rico ranked 67th in "Favoritism in decisions of government officials", 64th in "Transparency of government policy making", and 94th in the "Extent and effect of taxation." Seeing a trend here?

  10. Brain drain - There just aren't enough resources on the island with sufficient information technology or engineering experience to sustain any type of high technology research or development. And while we consistently produce a respectable pipeline of engineers in the University of Puerto Rico - Mayagüez, they are quickly lured away with higher salaries in the United States. Why? Puerto Rico ranks LAST in technology pay out of all fifty of the United States. Unfortunately, most of the resources in those fields that stay are firmly trapped within a majority of these obstacles.
Sure we're bitter, who wouldn't be? We've struggled over these last two years to bring a steady stream of innovation to market. We have the most sophisticated Internet technology made in Puerto Rico by Puerto Ricans. Our mission is to be the spear point in the attack on the current advertising industry and our vision is to create a new economic engine for Puerto Rico in the form of Internet technology aimed at the United States Hispanic market. Sure we're idealistic; we choose to ignore these obstacles, ignore how difficult it is, and place our hope in our future customers that are willing to break from the status quo and reward our sacrifices with market acceptance.

Flickr Creative Commons Contributor: foxypar4

6 comments:

Gabriel

28 de julio de 2008, 16:02
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dijo...

I showed this to an entrepreneur friend. He says you can change the name of the post to"Top 10 obstacles to Puerto Rico Startups"

MC Don Dees

28 de julio de 2008, 20:20
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dijo...

I was out working in the patio the other day and thought the same thing. There are some differences, but yeah, for the most part, they are obstacles for everyone, even established businesses. That's something I'll be blogging on soon, the obstacles to PR's economic recovery.

Thanks for sharing though! You see, everything you needed to know about business you did learn in kindergarten.

Ian

31 de julio de 2008, 11:38
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dijo...

Nice Blog. Interesting perspective. As editor/owner of El Insider restaurant guide Ive come up with some of the same problems and frustrations. Heres my thoughts on the list.

1. I cant agree more. El Nuevo Dia and the publicity agencies have a stranglehold on ad spending. ENDI is a marvel of broad spanding adveritisement and has taken its leadership position in the market and exploited it to the fullest. They should be commended for it. But I have found that tailing them is a good strategy. They create markets that were not there that you can go in and expolit with more detail.

The Ad agencies however, and I mean ALL of them from Saho Garcia to Marketing Management group to all the others are corrupt bastardts that must be taken DOWN. every last one of them will shun our smaller products which would benefit their clients with more bang for the buck in favor of their primo-hermano who sets up mega dollar billboards that are not even effective for the given industry just so they can cash the big commissions. They are crooks, but let em be, in the end we are lighter and hungrier and will get the last laugh.

2. Dont be mad at life style business. It is, in the end, my belief that business is a means to to a good lifestyle. If you have achieved happiness in work, family, and spirit, you have no obligation to work harder and take risks for the sake of the free markets. I suggest you not waste energy angry at people who have achieved that and instead concentrate on looking for hungry up movers that want to work with you. Dont follow the real money, follow the potential money. The real money has already been divided.

3. Zero Sum is a hard nut to crack. 99% of the time it takes major capital to make "a new pie." I am a VERY STRONG preacher and supporter of alternate complimentary monetary systems with zero to negative interest rates that promote spemding as the best way for the middle class and smaller players to achieve "making new pies" The best example I have seen available here is Caribbean Barter. I am currently making one of my own.

4. Internet is behind in PR beacause people just dont use it like they do in the states. I would say that here intenet sales are still amere 10% of total sales...at most. I think its a great time to get set up now so you can be a mature business by the time it really starts to hit. I think that the 10 yr gap will close very quickly, but dont expect t make a living off it yet.

Anyways keep up the good work. We will win in the end my friends. i have no blog but my email is insiderpr.ian@gmail and my site should be up pronto and will be available for connectivity.

MC Don Dees

31 de julio de 2008, 18:12
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dijo...

Great comment Ian, thanks for sharing. I guess I feel consoled that were not alone in discovering these obstacles.

I know you're right about life style businesses. The problem is that when you exclude all the small businesses that would never advertise, all the large businesses that only work through agencies, you are only left with around 10% or 15% of all medium size businesses that might be our target market. If you then eliminate those life style businesses, the resulting market almost becomes too small to be worth pursuing.

We appreciate your kind words, and good luck to you too. The best we can do is continue to produce the best products we can and hope that the market will eventually need the local marketing platform we've created.

Francisco Tirado

30 de noviembre de 2008, 16:42
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dijo...

Since 2005 I have cofounded a couple of Puerto Rico startups, a list of some are:
ML Studio - a web development company,
Qoodos.com (down),
WiFiwyg.com - A Wi-Fi Mesh network with its landing page (map),
and Clasificadosmejores.com

Since then, we've blamed most hardships on the recession and the world economy in general. However, we manage to keep our heads up and growth forward by partnering with others and keeping a positive approach towards our industry and related ones.

We currently work with most advertising agencies in Puerto Rico and a couple of startups such as EyeTour.com, sponsorships from Coors Light and the Tourism Company have also helped projects such as WiFiwyg.com grow to their current state.

What I'm trying to point at is that acknowledging “the system” and recognizing which cog we are has helped are businesses and kept the fun alive.

I'll expand on this blog post in my Blog

Next comment will be a link to the actual post.

Thank you for keeping blogs alive in Puerto Rico.

Ftancisco Tirado

2 de diciembre de 2008, 23:50
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dijo...

http://www.mlteam.com/mlblog/?p=134