Mistakes to Avoid When Starting or Buying a Business in Paradise
Sep 11, 2013
We are huge advocates of chasing your dreams, escaping the ‘grind’ and reinventing yourself in a faraway land… but just because you’ve surrounded yourself with balmy weather and a tropical backdrop, doesn’t mean you’re invincible to the idiosyncrasies associated with owning and running your own business.
There are a variety of ways to bring in an income if you’re ready to trade cold and snowy for warm and sunny… especially if you can bring that income through a foreign source such as a North American or European company. But what if you’re ready to really reinvent your life? No matter where you are in the world, starting your own company is an exciting and daunting endeavor… take that experience into a foreign environment and there’s even more room for things to go wrong.
These are some of the more common mistakes made by expats when starting or buying a foreign business in paradise:
This might seem like common sense, but you’d be surprised by how many people believe they’re capable of running a business in a foreign country without knowing the native language. How is this even possible? It’s usually because all dealings they’ve had in the country are with people (read: other people in business) who speak English, leading to a false sense of security. Of course, it’s natural to gravitate towards English speakers when you’re in a foreign environment, but doing business is a completely different monster, and not the time to be hanging out with those speaking the same language as you. Basically, if you haven’t dedicated yourself to learn the native language, you may not be dedicated enough to run a successful business.
Permits, Approvals and Licenses
Although a fairly simple procedure in your native country, these required documents can bring your dreams to a screeching halt in Latin America. Assuming that you will be approved for all permits that you apply for in a reasonable timeframe is naïve, plain and simple. Applications for paperwork can proceed at a snails pace in this part of the world, and being a foreigner will likely not work in your favor if there are locals ahead of you in the ‘line’. In addition, be mindful about the business you’re starting, and where you’re starting it or you may find yourself being vetoed by an unhappy competitor who’s had their government friend for dinner, ensuring your permit(s) never get to you.
Plenty of Capital
Having ample cash flow can be as much a benefit as a detriment when starting a business abroad. Not only should you factor in time delays and unexpected expenses, but also substantial cost overruns. And we don’t mean an additional 20 or 30 percent more then your original estimates… it’s possible for prices to be 200 or 400 percent more then your initial estimate. Not only can these uncertainties complicate your estimated timeline and increase your overall risk, but your pocket book can also take a real beating.
Doing Things the ‘Right Way’
When you move to a new country, especially Latin America, it won’t take long for you to realize that procedures are different, timelines are stretched out and the overall way things are done, aren’t done the ‘right way’ or the most ‘logical way’ in your opinion. Well, guess what? Regardless of whether or not your way is the ‘right way’, you’re a foreigner and you’re dealing with new customs, cultures and other local quirks. No matter where you go, people are resistant to change and you can expect the resistance to be exacerbated by the fact that you’re a non-local, coming in with supposedly ‘better’ methods. That’s not to say that change is impossible, it just takes time and patience – usually years and decades as opposed to weeks and months. Trying to change everyone to follow what you believe is the ‘right way’, will likely result in failure before any change even takes place.
So you’ve decided to move to Latin America… you’ll live on the beach, open a yoga studio and surf school and live out your days enjoying the tropical locale and endless piña coladas. Sounds like paradise! Except for some small details… you don’t do yoga and the only time you’ve surfed was that one time you vacationed in Costa Rica. Hmm… again, it may seem like common sense, but if you dream of moving abroad and reinventing your life, stick with what you know! Starting a business in a foreign country is hard enough if you know your product/business inside out… trying to enter a sector you know nothing about is grounds for major frustration and likely failure.
You Follow the Rules
Doing things ‘by the book’ is all well and good (and necessary!) in North America, but if you’re heading to Latin America, you may as well throw the book out the window… that’s because most small and medium sized businesses in this part of the world can only succeed because they’ve cut some corners, work their connections and relationships and operate just under the radar. It’s not that we condone you starting a business this way; it’s just the reality. In most of this part of the world, ‘the book’ isn’t enforced and is interpreted differently, depending on whom you talk to. As a matter of fact, if you do try to start and run your business ‘by the book’, the odds of delays and higher expenses while navigating the bureaucratic processes are inevitable. Breaking the law is never a good idea - in any country - but by observing other businesses in the area and being creative in building your business, you’ll discover the loopholes that can work to your advantage.
Cheap Labor Doesn’t Necessarily Equal More Productivity
It’s no secret that wages in developing countries are considerably ($1.50 per hour in some cases!) cheaper then they are in developed countries. The problem is that many folks looking to set up shop in Latin America forget that low wages usually equate to little or no knowledge or experience of the job and a much lower rate of productivity then they may be used to in, say, North America. There are also hidden costs associated with hiring locally that you may not have thought about; social security payments, sick pay, severance pay or – in a worst-case-scenario situation – dealing with disgruntled employees that threaten to shut you down with a visit to their brother in the permits office. You’re not in Kansas anymore, and although labor may be cheaper, don’t expect that your business is going to be more profitable because of it.
The odds that you’re going to up and start a business in a Latin American country without even visiting and/or living there for a while are slim to none… or at least they should be. You wouldn’t start a business in your native home without assessing the area, competition, potential customers and start-up costs, right? Well, it’s no different in Latin America. In fact, certain aspects will be more difficult, even with a firm grasp of the language. You’re likely familiar with the term, ‘it’s not what you know, it’s who you know’, right? Well, in Latin American countries this term couldn’t be closer to the truth… having true, deep friendships and relationships will help you navigate the system much easier then those that don’t. Not to mention the support and potential referrals they can provide when you’re building and operating your business!
If you’ve been contemplating a life change that involves moving abroad, why not visit one of our developer partners on a Discovery Weekend? It’s a great way to experience a new country, receive a personalized tour of affordable properties and to explore your new backyard. After all, living in your new neighborhood is key before jumping into the business pool. There’s also the potential of starting your business out of your home before committing to an actual shop… the possibilities are endless once you’re living in your new paradise!