Small Business in Ecuador – the Challenges

The Daily Brief – Challenges in Starting a Small Business in Ecuador

When considering a small business in Ecuador, it is far too easy to get excited by all the wonderful opportunities.  It is a largely virgin market, where a variety of products and services would be brand new players, in an open arena.  Even where existing product and services exist, plenty of opportunities exist to expand upon marketing options and to enhance service levels.  It is a business entrepreneur’s paradise, especially when one considers the nascent and burgeoning middle class.

However, pour yourself a good cup of coffee, pull up a chair and let me tell you why some obstacles still remain.  Paradise has its virtue, but a bit of vice, as well.

The first concern for a small business entrepreneur in Ecuador, quite candidly, is in the process of being fixed.  However, for larger businesses, or for small businesses in certain sectors, the process to establish a new business in Ecuador is archaic and bureaucratic. In fact, it has been a 13-step process to date.  However, in a separate Daily Brief update, I recently noted that President Correa has ordered a streamlined operation, to include a one-step process, handled online, lasting at most…six (6) hours!  Now, that is rapid improvement, where needed, at maximum capitalist efficiency.  Still, I cite the concern, because until the process is fully implemented, Ecuador’s new business start-up process will be a work in transition and a possible minor obstacle.

Secondly, there is the language and cultural barrier of entering the market in Ecuador.  No matter how much I emphasize it, I am always surprised by how often small businesses forget to truly address this reality in detail, when constructing a business plan.  How will your company address communicating to a workforce and a target commercial market, which is Spanish-speaking and views the world from a Latin cultural perspective?  Marketing strategies that work at home, may not work in Ecuador.  Product market placement may need to be adjusted, as the local market audience may prioritize your product differently here, or may even utilize the product somewhat differently than accustomed. In marketing, one must be careful to avoid imagery or wording, which could have a negative connotation in Ecuador, but be completely benign in your home market.  These are very real concerns, which need to be addressed in a business and marketing plan.

Lastly and, likely, most importantly, how will you get your business funded?  Just like in the real estate arena of Ecuador, there is no mortgage market for foreigners, in any consistent sense, in the business start-up arena, bank funding is non-existent.  Traditionally, even Ecuadorian companies have been hard-pressed to obtain bank funding, let alone a start-up with foreign origins.  Even secondary funding markets, such as “hard-lenders” or “incubators” are a nascent industry sector in Ecuador.

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How, for example, have Ecuadorian start-ups managed?  Actually, the answer to that question may offer some insight as to an option that can be applied by the expat community, in order to facilitate their funding needs.  Most Ecuadorian owned small businesses are either the byproduct of a previous successful business, whereby funds from that venture are applied to the new, or a collective familial effort of pooling financial resources together, in order to raise initial seed capital.  In the latter example, we may find hope for the funding requirements, of the newly arrived expat, looking to fund a small business.  A popular trend, oft overlooked.  Just one word: crowd-funding.

Crowd-funding is a relatively new funding model, perhaps quite ironically, tracing its roots to a 1997 effort, by a popular British rock band to fund its reunion tour solely based on contributions from fans.  This then radical concept took flight and a scant 12 years later was somewhat institutionalized as a cogent and heavily promoted funding model, with many variants.

In short, overcoming the funding shortfalls of Ecuador, you can crowd-fund your new business.  Prior to departure, perhaps you can get friends and/or relatives to pool financial resources, if you can sell them on your entrepreneurial vision.  Likewise, you can go the informal route of targeting general market investors, via webpage…blog…forum postings, or all of the preceding.  Perhaps, formalizing the process, you can consider the entities that now exist that help you source crowd-funding options, or directly provide crowd-funding financing.

Two last options, in this sector, even less considered.  When you arrive at your new expat destination of choice, what are you likely to find there?  Yep…more expats.  Many of them, like you, wouldn’t mind a nice little investment or two.  Be patient…ask around…see what the coconut telegraph of your local expat locale is telling you.  Need a new bakery in town? Coffeehouse? Internet cafe?  Chili joint? Consider starting one as your new small business venture and inviting the local expats to crowd-fund invest in your project. Think about it.  You provide a needed service or product, while making some of your new compatriots a buck or two on the side.  What could be better?

Well, what could be better, of course, is why not make your new small business venture a crowd-funding operation?  You move to your new expat hangout, knowing that just like you, many are yearning to start a new business, but are at a loss for seed capitol.  Why not become the guy that sets up the crowd-funding entity, which provides the seed capitol?  Your business, becomes making the entrepreneurial dreams of others, become a reality.  What can be more satisfying, rewarding and potentially profitable?

Wherever your particular business dreams take you in Ecuador, be weary that pitfalls exist.  However, here in the new land of opportunity, those pitfalls are generally offset by staggering opportunity, especially for those willing to do their homework and think outside the box.