The Importance of Scale in Entrepreneurship
I recently wrote an article titled “People in Third World Poverty Are More Entrepreneurial Than You”. If you haven’t read it, you should check it out. It got me thinking though. If so many people in third world poverty are the very definition of entrepreneurs, why aren’t more of them uber successful?
It comes down to scaling a business. Something we do great in America, but it’s a bit different in less developed countries.
Pain Points of scaling in A less developed countries
Lack of Well Defined Logistic Networks
Picture trying to ship items into Peru. If you’re selling in Lima, no problem. If you’re trying to hit any of the other 20 million people in the country, you’ve got a problem.
Outside of less demand, there’s a reason companies haven't expanded rapidly in these countries. It’s a nightmare to get around.
If you want to ship from La Paz, Bolivia to Cuzco, Peru (400M). There’s at best one flight a day or a 14 hour drive requiring many dirt roads. Your options are to build out your own logistics network, use a slower mode of transportation, or pay a premium for what would be simple elsewhere. It really boils down to the physical infrastructure in many of these countries.
Lack of Infrastructure
Have you ever had to wait 5 minutes to pay your bill because a credit card processing machine went down? Well things like that are a constant in so many places in the world. From not being able to board a train due to the internet being down for a day, or nonexistent credit card machines due to the lack of reliability, it’s never easy to due business.
Whether it’s internet or the roads, it’s hard to run a business without good infrastructure. Weak infrastructure also means higher costs. Higher costs means no business at all since the locals will not be able to pay the premium.
Government Relations Can Be a Necessity
As corrupt as our politicians are in the west, they don’t hold a candle to many in other countries. From needing the blessing of local politicians to sometimes having to pay off impromptu groups to get things done, business isn’t always as straightforward as it seems.
Lastly, in many countries like Thailand, foreigners can’t even own more than 49% of a business.
Opportunities That Less Developed Countries Overlook
I’m going to be speaking mostly about tourist businesses. I think there’s a big opportunity for entrepreneurs in the tourist industry to do a better job. The reason I say this, is because tourism is the first area that countries can deliver on that will help grow their economy by injecting foreign capital into the local economy.
I don’t want to come off as the ignorant westerner that thinks other countries should adapt their culture to fit western culture. That’s not what I’m saying here. What I’m saying is that business owners need to adapt their business to serve their customers’ wants and expectations.
It’s the same as with any business in the world. You figure out what your customers want and are willing to pay for, then you provide that service.
This is a problem in all businesses around the world. It’s one of the reasons so many older companies are being dominated by startups. Companies that get this right will generally crush their competitors.
It’s not that businesses in other countries are bad at customer service per se. It’s that customer service means different things to different cultures.
Restaurant servers in America are a different breed compared to the servers in other countries. This is due to the fact that America’s servers work for tips where that’s not the case in most other countries. This causes them to be much more attentive to the needs of the patrons. The restaurants catering to American patrons that realize this fact, have a huge competitive advantage in drawing in new customers.
Imagine showing up in a city in a foreign country. You’re trying to find a decent cup of coffee or anything for that matter. You pull up Google maps and not a coffee shop to be found. I had this experience recently.
It’s not that there weren’t any coffee shops. It’s that none of them were registering themselves with Google Maps. To someone that already knows their town, Google maps is useless.
But as a business owner, you have to realize how your customers find businesses. If your business is based on tourism from Western countries, you have to understand the process of how Westerners find places to visit. This is generally from Google maps or Yelp and then looking at the ratings and reviews.
Even in the west, many small business owners still ignore this basic concept. When customers are considering purchasing from you, they go online to see what type of experience they’re going to get for their money.
This will be a shock to anybody on their first overseas trip. The price you pay for anything is largely determined by how gullible/needy you look. While it’s not an issue for people that love to negotiate. For many though, it gets tiring rather quickly.
For many businesses, price gouging is the name of the game. If I’m selling bottled water in the Sahara, I’m going to get every dollar I can from you… However, businesses that don’t have a monopoly or rely on repeat customers, you’re playing a losing game.
You may make more on that one sale, but over the long term, it’ll show up in customer reviews. This will ultimately end up in only attracting one and done customers and put off the all valuable repeat customers.
Delegating to Grow
This is an issue in micro businesses that rears it’s ugly face again and again. Yes when you start a company, you should be cleaning the toilets and doing all of the menial work. You have to. You don’t have the resources to outsource it. However, as soon as you do have the resources, you should hire someone else to do it.
Business owners should spend their time doing the most valuable work possible. Why spend an hour mopping the floor when you can pay someone $10 to do it while you go make a $50 sale during that same time. A great and classic book on this concept is The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It. It is required reading for anybody in their first few years business.