Medellin Developing IT Start-ups, but Sharper Focus Needed: Expert Advice

Following an 18-months-long overland odyssey from Mexico to Argentina, British expat Nick Aldridge came to Medellin four years ago to launch a start-up information technology (IT) company called Kogi Mobile – and found success.

Having started with just three people in 2011, Kogi  now has more than 30 techies working in its offices near Parque Lleras in the upscale El Poblado neighborhood of Medellin, as Aldridge explained to Medellin Herald in an October 20 interview.

Following his journey through Latin America seeking potential IT launch sites, Colombia and Mexico rose to the top because of relative business-friendliness — and their proximity to the North American market, he said.

Ultimately, Medellin (and Colombia) won-out over Bogota (and Mexico), thanks in part to Medellin’s excellent weather, relatively friendly people, easy access to the U.S., and over-all quality of life, he said.

Aldridge had hoped that availability of local techies in Medellin also would be sufficient for the launch. However, “it was a hope that turned out not to be true. More than half of our office [staff] is from outside of Medellin, due to lack of talent and resources in Medellin,” he said.

Mobile Device App Specialization

Kogi focuses upon development of novel applications for mobile devices including cell-phones and tablets, tapping the open-source platforms of Google and Apple.

The company boasts that it has now developed nearly 200 mobile apps, hundreds of “mobile and responsive websites,” and some 30 “full-stack, back-end systems running in the cloud.”

“Our model always includes working in person from your offices to define the consumer experience (UI/UX) [user interface/user experience] through to full delivery and testing in our development studio. With offices in the U.S. and South America, we have the ability to deliver world-class work at competitive costs, from our different world locations,” according to the company.

About 60% of Kogi’s business today comes from U.S.-based IT start-ups, typically for development projects costing in the range of US$50,000 to $150,000, Aldridge told Medellin Herald.

Such start-ups “need to think on a micro scale,” he said. “You can do a little trial [on a mobile IT application] with 10,000 or 20,000 people, get customer feedback on what they really want. From that, you can make a business case that you can use to raise capital” for a full-scale, commercial product launch, he explained.
 
Serial Entrepreneur

Kogi’s success today can be traced in part to advantages of the relatively low cost of high-tech labor in Medellin (compared to Europe or North America), as well as a strong U.S. dollar, which favors its main business focus: exporting IT products and services to U.S. companies.

Kogi also works with some blue-chip Colombian corporations (such as Une and Bancolombia) — and recently started a project here that would (if successful) help a USA expat now based in Colombia launch another IT start-up.  

But aside from labor costs and the strong U.S. dollar, the real secret to Kogi is Aldridge’s track record of serial entrepreneurship in the IT sector, following a jump-start at the world-famous British Broadcasting Corporation (BBC).

“At the BBC, I started to work in this field,” Aldridge explained. “I worked on the first-ever text-messaging mainstream program at the BBC, called The Joy of Text. This was the first time everybody [in Britain] could text-in to a national program.

“Then I helped the BBC Radio stations set up text-messaging services to communicate with their audience. I went to work after that for O2 — now part of Movistar/Telefonica — where I worked on UK television programs such as Pop Idol, Big Brother and The X Factor.”

Following that, Aldridge and UK partners launched Mobile Interactive Group in 2003, which later sold to Velti (NASDAQ: VELT) for US$60 million. A couple years later, Aldridge and partners launched another IT venture, “4th Screen,” and then sold that company for US$15 million to Norway-based Opera, he said.

Having launched Kogi in Medellin in 2011, this latest of his IT ventures also has appreciated in value, although Aldridge wouldn’t reveal figures.

Nevertheless, Kogi recently attracted the interest of a U.S.-based IT company that has an estimated net worth of about US$10-million to US$15-million. But Aldridge wouldn’t reveal the name of this company, nor reveal whether Kogi might be sold or partnered.

Besides Kogi, Mobile Interactive and 4th Screen, Aldridge has also been involved in two other IT start-ups, including “Legion,” based in Dublin, Ireland (and run by a former Kogi employee), as well as an investment in “Scorebooklive,” an IT start-up based in California.

Just 41 years old — and with three successful IT launches already under his belt — Aldridge says he’s now mulling the possibility of scaling-back to a less-stressful lifestyle. Consulting and mentoring for IT start-ups would be among the possibilities.

Asked whether he’d consider becoming a mentor to future entrepreneurs here in Medellin that might try their hand at IT start-ups, Aldridge told Medellin Herald: “I mentor people all the time.”

IT Magazine Columnist

One example of such IT mentoring: a recent column that Aldridge wrote for Tech Cocktail, an IT web-magazine.

“While the potential [IT] workforce exists in developing countries [including Colombia], it can be difficult to find a team with the right qualifications,” Aldridge wrote.

Reason: While some 25% of the 1.9 million Colombian university graduates in the past decade got engineering degrees, very few of them specialized in IT, he explained.

What’s more, some talented IT grads in “emerging market” nations (including Colombia) eventually may migrate to the U.S. or Europe, where the pay is better, he added. “For example, we recently lost our strongest developer to one of the Uber founders for their new carpooling [application] product, Ride, in New York,” Aldridge wrote.

“Unfortunately, there is very little you can do in these situations as normal incentives such as training, promotions, or opportunities to grow within the business are ineffective when compared with the promised salary increases of four- or five-fold in ‘developed’ countries,” he added.

Ruta N ‘Locust’ Problem

Another problem for retaining quality IT developers in Medellin is the recent trend of foreign “outsourcing” companies coming to Medellin — particularly to the government-funded “Ruta N” center in Medellin, he said.

“Ruta N in Medellin is a great example of when a ‘landing’ area destined for start-ups is in fact filled by international outsourcing companies, the most notable example being the NASDAQ-listed Globant,” he wrote.

“The overall result when you invite a company like Globant to an ecosystem that has limited [IT developer] resources is the same as inviting locusts into your corn field,” he explained.

“Outsourcers simply mark-up the price of a developer and sell-them-on at a premium to a blue-chip company who is not interested in directly contracting resources.

“This model means they are not training or developing staff; they are simply looking for the more experienced resources to make a margin based on the short-term demand of a client’s IT department in the U.S.

“Just like locusts, once they cannot find any more resources in the location they are in, they will move on and leave no value behind,” he said.

In addition, the biggest client at Ruta N’s “landing area” today is Huge, a New York-based marketing agency focused on outsourcing, he said.

“It’s not necessarily a bad strategy [for Ruta N] to say that you want your city to be the center of outsourced development, obviously accepting the fact that this will create challenges for local [IT developer] business and of course start-ups,” Aldridge said.

‘Mentoring’ Problem

While companies such as Kogi can compete on salaries with such outsourcing “locusts,” the lack of highly experienced IT “mentors” in Medellin poses another competitive problem for producing successful entrepreneurs here, he said.

“Start-ups in emerging markets need often seek the services of a ‘professional’ mentor,” he said. “Unfortunately, these mentors have generally worked exclusively as a mentor since graduating, having earned their titles by passing an exam rather than holding the reins of a real company for any period of time,” he added.

For example: The local developers of the “Tappsi” taxicab mobile-app likely would have found broader success beyond just Bogota if they had been able to tap a team of mentors or an influential board of advisers, he said.

Unfortunately, the “Tappsi” app “has not achieved notable success in any other city in Colombia and even less abroad, while its competitors have thrived,” he explained.

Visa Problem

Another big problem for IT entrepreneurs today is caused by Colombia’s overly restrictive visa policy for hiring qualified IT developers from Venezuela, Aldridge said.

Example: Colombia’s Migration Department (“Migracion” in Spanish) recently rejected Kogi’s request for a visa from a qualified Venezuelan IT developer, “which is crazy given the current lack of [Colombian IT developer] resources,” he said.

“The Colombian government has said that there is a shortage of 100,000 systems engineers in the country, yet immigration rejected our [candidate visa] outright. A lot of qualified Venezuelans would come to Colombia, but there is arrogance” in immigration policy, he added.

Tax, Regulation Problems

Another obstacle facing IT start-ups in Medellin and in Colombia generally are confusing and ever-changing bureaucratic rules on taxes and other regulations, he added.

For example, filing paperwork for the “BUCE” system that enables reduction of value-added tax (IVA) for work done for international customers “is passed around to different government agencies,” which results in processing delays that can drag-on for six months, he said.

Another problem today is the result of the overturning of a former Colombian law that required certain contracted employees to give several-months-notice before leaving their jobs. “But now it’s illegal to put a notice period in a labor contract,” he said.  

“So now, a contracted employee can say, ‘as a favor, I’ll stay for one week,’ when you’re right in the middle of a [IT application] project.”

Colombia’s labor laws also make it virtually impossible for an employer to avoid breaking at least one or another regulation, he said.

“We had a Ministry of Labor person come here — and we were told that we didn’t have an emergency plan for a tsunami,” Aldridge said. The irony: Medellin is hundreds of kilometers from the ocean — and high-up in the Andes mountain range.

“Also we hadn’t done a ‘happiness’ study of our employees,” he said.

In Colombia, this sort of study unfortunately measures whether employees are being judged by “control” rules rather than by “results” rules.

This sort of regulatory requirement arises from the “management by control” philosophy that unfortunately is all-too-common among Colombian businesses, rather than the “management by objective” philosophy adopted by most of the world’s best-run companies – and likewise favored by forward-looking, results-oriented, entrepreneurial-thinking Kogi.