10 Things to Know — Before Doing Business in Medellín

This article is in response to the 206-page report by the OECD, “Promoting the Development of Local Innovation Systems: The Case of Medellin.”

The claim has become the latest fashion trend, cities proclaiming they are “The Silicon Valley of Latin America.”

Those on the bandwagon include Santiago, São Paolo, Mexico City, and Medellín. Each city attempting to lure entrepreneurs, startups, and multi-national companies, in pursuit of a piece of the tech pie along with its perceived glamour and economic reward.

The scheme is predictable, the cities pitch themselves as the next Silicon Valley, orchestrating marketing and public relations campaigns to support the statement. Some cities offer office space and accelerator funds. Such programs include Startup Chile, Startup Brasil, Startup Peru, Ecuador’s Yachay, Colombia’s Innpulsa, and Startup Mexico.

No city has been more aggressive than Medellín in marketing itself as Latin America’s future headquarters of tech and innovation. Medellín's dream began in 2011 with the construction of a building, which included an appointed Director (Juan Camilo Quintero) and a team of local startup mentors. The OECD report was intended to fast-track Medellín's innovation dream and tech scene.

There is only one Silicon Valley

In an attempt to create a local startup ecosystem and tech district, Medellín constructed Ruta N — a massive, bright orange, LEED certified building. At a cost of 50M USD, Ruta N was intended to anchor Medellín’s innovation zone, which the OECD cites as being critical to the city's tech and startup success.

Ruta N’s Director, Juan Camilo Quintero, stated that Medellín would outpace the rest of Latin America and become the center of technology and innovation by 2021. Quintero branded the idea, ‘Gran Pacto Medellinovation,’ making the announcement with the glitz and glamour usually reserved for Tesla's Elon Musk or Apple's Tim Cook.

Setting his site beyond Latin America, Quintero ambitiously stated that Medellín would surpass innovation leaders — Paris, London, and San Francisco (page 10).

In light of the above, one might ask how Medellín’s tech and innovation dream is progressing? After five years of operation and over 100M USD invested, Ruta N has not produced a single tech exit or patent. During this same period, San Francisco produced over 66,000 patent applications and London over 25,000. With this said, one might say Quintero overstated and under-delivered.

While Medellín is struggling to find its way, some less prideful neighbors have experienced a few startup bright spots, including Mexico’s HoyPido and 99minutos, Peru's CinePapaya, Chile's Nubelo, Brazil’s SambaTech, ContratoRapido and 99, Argentina’s IguanaFix, and Bogota’s Rappi and Platzi. Meanwhile, Argentine-based MercadoLibre remains the only South American startup listed on the NASDAQ.

Recent startup wins for Medellín include Aulas Amigas and Ctzen. But, when Ctzen founder Daniel Marulanda, a Medellín local, pitched his company to Ruta N’s accelerator program, he was denied. After being rejected by Ruta N, Marulanda applied and was accepted to Y Combinator. Y Combinator is is the most exclusive accelerator program in the world, located in Silicon Valley, alumni include Airbnb, Dropbox, and Zenefits.

The Silicon Valley Formula — Cultivate don’t Construct

Leslie Berlin, Tech Historian for the Silicon Valley Archives at Stanford University says, “When it comes to creating an innovation economy, Silicon Valley can be a model, but any attempt at creating a copy isn’t feasible. Silicon Valley can’t really happen anywhere else, and other regions shouldn’t try to re-create it.”

A critical step in cultivating a startup scene is nurturing talent from within, and attracting top-shelf talent from abroad. This strategy is advocated in the OECD Medellín report (page 150).

In the case of Medellín, many leading innovators and multi-nationals who gambled on the city have left. The most notable departures include Hewlett Packard and Kimberly Clark. These departures left a significant void, as the OECD identified both companies as being critical to Medellín’s path toward tech and innovation. Other multi-nationals to recently depart Colombia include PayPal, Ripley, Apex Tool, Lloyds TSB Bank, and Mondelez.

As for the internationals who remain in Medellín, the majority are backpackers, digital nomads, English teachers, and small business operators providing special services to tourists. Other Medellín settlers include pensioners (mostly men), and small operations that farm local developer talent with low-wages (daily minimum wage in Medellín is $10 USD). With due respect to the above types, they are not the ones who cultivate a leading tech and startup ecosystem.

Since Quintero boldly stated that Medellín would outpace all of Latin America, London and Los Angeles for innovation by 2021, why has Ruta N failed to produce a single patent or tech exit? And, in the process, lose the world’s 38th most valuable brand in Hewlett Packard.

In order to understand the macro, we must look at the micro.

The Medellín Failure

Of late, Medellín has received accolades for fewer murders since the days of cocaine cartels and Pablo Escobar, labeling the improvement a 'transformation'. Note, today's violent crime rate in Medellín is nearly double compared to the pre-Escobar era.

Although fewer murders since Escobar, Medellín is nowhere near to meeting Quintero’s promise of becoming Latin America’s capital of tech and innovation. There have been a few small wins in the startup scene, but nothing that outshines any other city of 3.5 million people.

What started out as admirable ambition and enthusiastic promises, has rapidly faded into failed vision and deflated dreams. But, many cities can learn from Medellín's failure.

Silicon Valley did not happen by constructing a massive building like Ruta N, nor by orchestrating marketing campaigns, buying press, winning Facebook contests, installing a couple of gondolas, or buying Harvard-led workshops reserved for the elite. Instead, Silicon Valley was inspired by innovators, attracted to its way of doing business, the California-vibe, forward thinking, and a mentality of prosperity and opportunity leftover from the 49er Gold Rush days.

In his book, The Rain Forest, author Victor Hwang deconstructs Silicon Valley’s success, and says, “The reason so many Silicon Valley imitators fail, is due to overlooking the body of its culture and invisible rules, the mechanisms for trusting strangers.” He states, “Silicon Valley relies on people from vastly different backgrounds and places, driven by passion, coming together to build environments of unusual trust and mutual support.”

The reason why Silicon Valley is successful, is the same reason others fail. Meaning, those who fail, overlook the fundamentals and principals that cultivate a startup destination. In the case of Medellín, broken are the invisible rules, the mechanisms for trusting strangers, and the cultural fabric that cultivates a thriving startup ecosystem.

For Medellín to become a center of tech, innovation, and startups, they must first fix these 10 fundamentals:

1. Trust

Related: honoring commitments, cultivating and nurturing relationships, building rapport, reputation equity, transparency, accountability, paying it forward

Ctzen’s Marulanda says, “One of the things that most intrigued me about Silicon Valley's Y Combinator program is the level of trust amongst strangers. Y Combinator covered all expenses for me and my business partner, without any promise of returns. This was my first experience of what it means to pay it forward.”

Lack of trust permeates deep into Medellín’s culture, where adults are required to provide a doctor’s note for missing a day of work, and employees are subject to routine bag checks before leaving the office. Distrust is woven deep into the cultural fabric. If one is victim of a crime or robbery, the victim is blamed, and told not to ‘give the papaya’. Even worse, most violent crime is not reported due to a lack of trust in law enforcement and no confidence in the penal system. Evidence of this is Colombia's 180th world-rank for contract enforcement.

David Feldsott, an entrepreneur from New York and Founder of startup PanTrek, was promised six months of free rent at Ruta N's incubator program. Feldsott states, “As soon as we prepared to move our operation into Ruta N and take advantage of their offer, Ruta N leadership reneged.”

Feldsott says, “Ruta N’s failure to deliver became a symbol of broken promises while trying to do business in Colombia.” Within due time, Feldsott closed his business operations in Colombia and returned to the U.S., citing a harsh business environment and lack of efficiencies.

While lack of trust prevents broad-scale innovation in Medellín, vice versa is true for others. Hwang states, “A reason why Tel Aviv has become so innovative is an interesting dichotomy, a zero-sum culture of tough negotiators but with a startup community that is based on collaboration and trust. The kibbutz was the foundational culture. What emerges is a body of culture and invisible rules, and a mechanism for trusting strangers.”

Hwang says, “to develop networks of innovation, you must build ‘tribes of trust,’ without it, there will be no broad-scale innovation or tech.”

2. Collaboration

Related: stakeholders, transparency, team building, effective networking

When measuring collaboration, we refer to the Nature Index. Like trust, collaboration-rank parallels a city’s rank for innovation.

For Medellín and other Spanish speaking countries, the most striking example of lack of collaboration is no direct translation for the word 'stakeholder'. Stakeholder meetings are commonplace in Silicon Valley and are instrumental to success; an opportunity to discuss openly and with transparency, sharing ideas, being vulnerable, and knowing that a shared outcome allows all to win. In societies that rank low for collaboration, stakeholder engagement is missing.

3. Open borders

Related: gender, race, income-level, discrimination, diversity, merit, immigrant-friendly, inclusion

Diversity and open boundaries are at the core of Silicon Valley's success, Hwang says, “Instead of thinking of Silicon Valley as this exceptional place, think of it as a result of the world’s biggest experiment—the opening of the American West.” Diversity is critical to Silicon Valley, an example of which is Airbnb's recent #weaccept campaign.

As discussed earlier, the closed-culture of Medellín has repelled multi-national companies and entrepreneurs alike.

Medellín’s closed-boundaries run deep into its cultural fabric. Eduardo López Moreno, Director of Research and Capacity Development at UN-Habitat, directed a 258-page report and it revealed that Medellín ranks worst in Latin America for income inequality. The UN report also reveals that Medellín has a huge obstacle in cultivating a startup ecosystem. Lopez Moreno says, “The same 5 or 7 businesses have managed to control all of Medellín’s resources for decades, resulting in an oligarchy-like ecosystem. Those in control exclude others from the inner-circle and resources. Those excluded are people of color, women, those from lower castes or ‘estratos', and those who did not attend the ‘right’ university.

A raw interpretation of the above is, those in control of Medellín’s corporations and agencies, such as Ruta N, only share resources with their own and discriminate against those who are viewed as 'outsiders'. Those in control are from the inner-circle, known as the ‘niños bien’. Unfortunately for Medellín, the elite culture of entitlement blocks any attempt to produce broad scale innovation, as the privileged are rarely the ones who innovate.

This oligarchy-type of control in Medellín is reflected by the Economic Quality Index, or economic opportunity indicator; Colombia’s world rank is 76. This index demonstrates the ability for one to fully maximize his or her potential. Some of Medellín’s most talented are oppressed due to low social status or being viewed as an outsider.

Striking examples of Medellín’s closed boundaries include:

Women — no woman holds a C-level position within Medellin’s top companies, including Argos, Nutresa, EPM, Bancolombia, and Isagen.

Race — rarely will you see a black person driving a car. Black people are nearly non-existent in upper-management in Medellín's corporations and universities.

Estrato — often overlooked, Medellín has a defined caste system, also known as estrato. The estrato system is disguised as subsidizing electricity for the less wealthy, but is used in social settings and inevitably leads to discrimination.

Internationals — labeled gringos, locals snicker at the less-spoken translation, or 'green - go!'; a sentiment leftover from Medellín’s colonial days and Christian crusaders.

In a culture that rewards social standing over merit, and excludes outsiders, there will be no broad-scale innovation or startup success.

4. Government cooperation

Related: shared vision, policy, cohesiveness, support, ease of doing business, accountability, corruption, planning, execution, enforcement

The UN’s López Moreno states, “In order for a city to find success, it must identify a clear vision, and then align policy to support it and make it successful. In this process, programs and policy must endure change of government and overcome corruption."

If a piece of the tech pie is desired, Medellín and others should take note of Hyderabad, India. In less than ten years — and with government coordination and cooperation, Hyderabad moved from a textile dominant economy to ICT dominant. Government participation included vocational training for the disadvantaged, and aligning vision with strategy and policy.

Recent wins for Hyderabad include, Google setting up its biggest development center outside of the United States, Amazon building its second fulfillment center, and Uber investing over $50 million USD in a Center of Excellence.

Many talented Colombians setup their corporations and startups in the United States, citing ease of doing business, less corruption, and a more favorable tax rate compared to Colombia. These same reasons explain the multi-national exodus from Colombia.

5. Education

Related: equalizers, access for the disadvantaged,

The Education Index ranks countries based on quality of, and access to education. Colombia’s world rank is 79th.

If Ruta N’s Quintero dreams of overtaking Paris, London, and San Francisco in innovation, he and his fellow-countrymen must address their poor education system. Colombia’s highest ranking university is 627th in the world.

López Moreno says, “If Medellín is going to compete with leading tech and startup destinations, they will need to implement ‘equalizers’, or the removal of barriers against the less privileged, allowing for the disadvantaged to achieve their full potential.”

Other education programs for cities to model include QuestBridge, which provides scholarships and mentoring for the under-privileged to attend leading universities.

6. Measurement

Related: metrics, validity, valid-data, accountability, efficiency

"If it can't be measured, it can't be managed"

Along with equalizers and access to education, López Moreno states, “If Medellín is going to progress toward lofty goals of development and tech, it will require efficient benchmarking and measurement.” He cites four steps necessary for Medellín to climb toward a vision of tech and innovation. These include collaboration, measurement, government support that aligns with a clear vision, and education or ‘equalizers’.

Ctzen’s Marulanda said he was most amazed by the metrics utilized in Silicon Valley, stating, “Measurement is foreign to doing business in Colombia, where the attitude is to simply think all will be okay, without defining objectives or indicators. The attitude is day to day, with little or no accountability.”

In 2012, Medellin proclaimed they were most innovative city in the world based on a Facebook contest that measured nothing more than 'likes'. In doing so, the city overlooked key indicators that are necessary for tech and innovation to occur.

7. Time

Related: honoring deadlines, sense of urgency, punctuality, systems, planning ahead, vision

John Kotter, author of Accelerate, and Emeritus at Harvard Business School, says “The more that you understand that the world is moving faster and faster – there’s no way to succeed unless you’ve got this sense of urgency, that you can move and maneuver in a smart way to win.”

PanTrek’s Feldsott states, “Conducting business in Medellin became nearly impossible. Whether meeting with a top level executive or counterpart, I learned to expect the person would inevitably show up late or not at all. Things move extremely slowly, and it makes doing business nearly impossible.”

For entrepreneurs, startups, and multi-nationals alike, speed and efficiencies are a requirement — with little red tape. These basic efficiencies include banking, Internet, setting up a business, getting electric service, renting an apartment, or the simple necessities of conducting business and entrepreneurship.

8. Wisdom

Related: merit, status quo, ageism, gender

For Medellín's closed boundaries, positions and resources are not awarded based on merit. The result, discrimination against some of the city’s most talented, due to race, income, gender, or not attending the right university.

Also discriminated against are those over forty years old. Ageism in the workplace is not foreign to Medellín, where the wisest are replaced with younger, less experienced, and lower-paid workers. The result, very little expertise or wisdom in the workplace.

Some of Medellín’s brightest and most talented are women over 40, who are all but guaranteed no advancement in the workplace due to gender and age. This is reflected in Colombia’s world ranking of 85th for gender equity.

9. Performance

Related: merit, talent, privilege, entitlement, accountability, reputation, effectiveness

As seen with Ruta N’s Quintero, there was no accountability for losing Hewlett Packard. And, no one has held him accountable for investing 100M USD and not producing a single tech exit or patent. Many organizations would terminate this type of non-performer, instead, Quintero was allowed to complete his term and collect a paycheck, prior to being replaced last year.

10. Communication (debate, discussion, and critical thought)

Related: responsibility, empowerment, resolve, togetherness, reputation, active listening, emotional intelligence, transparency, apologies

Open discussion, debate, and active listening are instrumental to the Silicon Valley innovation formula.

Hwang states, “In order to develop networks of innovation, rules or a set of guidelines must be set for entrepreneurs and investors to follow. These guidelines include opening doors and listening, trust and be trusted, experiment and iterate together, and pay it forward.”

When asked about their departure from Medellin, an anonymous source from Kimberly Clark stated effective management became nearly impossible. Whenever positive criticism was offered to a local-hire, or a demand made for a deadline, the response was, “tu no eres amable” (you are not nice). There was little or no accountability.

This broken-style of communication is outlined in Graham’s Hierarchy of Refuation, where many Medellín natives often respond to constructive debate with a common tactic, ad hominem. This tactic blocks all intellectual debate or discussion, and no means toward significant improvement.

Branding: Learning from Las Vegas

Stanford’s Leslie Berlin states, “For many cities, the pursuit of branding themselves as tech centers, they often overlook what makes them unique. Regions interested in building out an innovation economy should play to their own strengths and their own culture instead.”

Like Medellín, Las Vegas, Nevada once had a branding problem, promoting itself as a family destination, which resulted in a marketing failure; Las Vegas is as much a family destination as Medellín is a tech and innovation destination.

Families followed the marketing hype to Las Vegas, resulting in disappointment and little desire to return to the city. This disconnect between a city's branding and reality is parallel to Hewlett Packard and its Medellín experience. Hewlett Packard followed the Medellín tech and innovation propaganda, only to cut losses and exit the city months later.

Laura Ries, President of marketing strategy firm, Ries & Ries, says "After a failed attempt to promote Las Vegas as a family destination, the city embraced its Sin City image with, 'What happens here, stays here.' A decade later the campaign is still going strong, as 2016 marked a tourism record of 40M visitors." Lesson: Try to turn negatives into positives. And, along the way, Las Vegas has attracted a tech and startup scene.

After proclaiming itself the capital of Latin America’s tech and innovation, Ruta N has produced zero patent applications and zero startup exits. In the process, Medellín has lost two global brands, along with many talented entrepreneurs who gambled on the city. At this point, Medellín might consider a rebranding campaign.

Felipe González, Innovation Management Director at Cementos Argos, says "The idea of ‘fresh’ is something special to Medellín. If the theme of fresh is followed, Medellín has fresh flowers, fresh coffee, fresh fruit, and a fresh-feel in its surrounding of tropical green and nature.” Colombia ranks as one of the world's most biodiverse.

Medellín is rich in tradition, and its people are admired for resilience and resourcefulness. Many visitors to the city embrace its slow pace and kind people. But, like Santiago, Lima, and São Paolo, Medellín is no center of tech and innovation, rather each city has their own version of a startup scene, with some being more successful than others.

The painful process toward tech and innovation

Cultivating a tech, innovation, and startup ecosystem is done by taking incremental steps; it begins within the cultural fabric and social justice, not with fancy marketing campaigns and the construction of fancy buildings.

For Medellín, fixing broken business fundamentals maybe impossible, as it would upset a decades-long oligarchy and would require cultivating the right cultural fabric. This would mean doing away with the 'estrato' label or the Medellín caste system, it would mean giving women equality, it would mean a revamped education system, it would mean cultivating a culture of trust, and it would mean the inner circle — or the niños bien — relinquishing resources to the less-privileged. It means awarding merit over social status (known as 'rosca' in Medellín). And, it would mean being open to the debate and discussion voiced in this article, without an 'ad hominem' response.

In the future, will innovators come from Medellín and/or Latin American cities? The answer is yes. But, producing an innovator is different from broad-scale tech and innovation. In the meantime, these cities should focus on their own uniqueness.

Index References

Innovation, Reputation, Gender Equity, Collaboration, Prosperity, Trust, Best University, Patents

About the Author

Philip Beere is a communications and marketing professional — the Creative Director at G Communications. He leads a team of designers who make it possible for organizations to outsource their creative needs — the G Communications team works more quickly and cost effectively compared to traditional marketing agencies. His areas of focus include copywriting, branding, LinkedIn profile building, keynote speaking, influencer partnerships, ghost writing, event management, and podcast production. His work has been featured on NPR, Bloomberg, and Fox Business.