The Chilean Mindset Needs to Change from Extraction to Value Creation

People always ask me questions along the lines of “what’s the one thing holding Chile back from being an innovative country?” It’s a question I’m really interested in, not just for Chile, but for the US as well.

My latest column in the Santiago Times titled The Extraction vs. Value Added Mindset talks about Chile’s current preference for business models that extract value, either from the ground, the sea, or even other people, rather than business models that create new value.

From the article:

I was invited to speak at a roundtable at the Universidad de Desarrollo about the challenges of teaching entrepreneurship in Chile. We had a lively and wide ranging discussion about how best to continue to foment entrepreneurship at all levels of Chilean society. One of the best debates was about trying to answer the question: What is the biggest factor holding Chilean culture back from being more entrepreneurial?

The general consensus was that it’s the Chilean family’s fault. Kids live with their parents until their mid- to late-twenties and generally only move out when they get married. Moms and Dads tell their kids they can do no wrong. Many lead pampered lifestyles with doting parents (and sometimes nanas), who solve even the most trivial of problems.

Since entrepreneurship is opportunity recognition and problem solving, the thinking goes that if you never have to solve problems on your own and always turn to Mommy and Daddy when things get tough, you won’t be a good entrepreneur. And if we just got kids to move out at a younger age like they do in the United States, we’d have more successful Chilean entrepreneurs.

I agree that this is part of the problem, but I actually think the real root of the problem goes much deeper and that the solution is much harder to achieve. The real problem is that Chilean culture values extraction over value creation. Look at the biggest Chilean industries: mining, fishing, fruit, wine, logging, banking and retail (trading). Of the principal exports (mining’s currently 56 percent of total exports), only salmon exports are showing growth in the past 12 months, (+53%) while forestry (0%), wine (-8%), fruit(-16%) are in decline. Some are literally extraction, like mining and fishing, while others are extracting wealth from their fellow citizens via banking or arbitrage opportunities in trading.

Read the full article at The Santiago Times.

If you want to help change the culture to make it more entrepreneurial, we have to start valuing value creation above all else. We need to stop making entrepreneurs (especially those who are using extraction business models) into rockstars and heroes. The real stars of an entrepreneurial ecosystem that’s starting to take root are those who are creating new opportunities and creating value for their customers.

The most important piece of the puzzle is the entrepreneurial mindset. My partners and I have been working on trying to help shape this mindset via teaching classes at universities, but would love to see this effort expanded. I believe changing the mindset is the key to creating a thriving entrepreneurial ecosystem.

Why Have Job Killing Tech Startups Gotten a Pass From Public Outrage?

As I was reading The Everything Store, a book that chronicles Jeff Bezos’ and Amazon’s rise to its current status as retail giant, I was struck by how similar Amazon and WalMart are, but how different their public reputations are.

Walmart is consistently one of the most hated companies in the US. Some people even call them evil. Amazon is consistently one of the most loved. But when you really peel away the layers, both companies are nearly identical. Walmart employs 20x more employees than Amazon and Amazon cloaks itself in startupy, technology marketing, but 0ther than that, they’re pretty much the same.

They both have used advanced technology and inventory management systems to outclass their rivals. They’ve both used extremely low margins for extended periods of time to put their rivals out of business. They’ve used the same bully tactics to punish rivals.

Both exploit their non executive/technology workers by working them to the bone and paying them low wages. Both put their rivals out of business, killing local and online commerce and eliminating choice in the market. And up until this year, Amazon didn’t even pay sales tax, giving it an unfair advantage over brick and mortar stores. (See Amazon infographic)  Yet Amazon is rated as one of the most trusted and Walmart among the most hated.

This dichotomy plays itself out in nearly all tech startups. Although I’d contend that the majority of new startups are net job killers that make huge amounts of money for a small number of people, a bit of money for another larger group and give non monetary benefits to the rest, startups have been able to successfully wrap themselves in the all protecting shroud of being job creators and the engine of our economy. Almost nobody questions it.

The public thinks startups are the way out of slow job growth. So do politicians on both sides of the aisle. Startups are the job creators. They’re completely meritocratic. They’ve (or in this case, we’ve) been almost deified by the adoring public, press and politicians. This deification has brought with it an insidious self righteousness and self aggrandizement that’s reaching social darwinist proportions that we haven’t seen since the gilded age.

Too many founders and the general public have bought the narrative that founders are rugged individualists that succeed all on their own. That they deserve massive rewards because everyone else who hasn’t done it is lazy or stupid. And the most sacred of all, that startups create jobs. Startups and entrepreneurs have wrapped themselves in a narrative of technology and progress that allows people like Jeff Bezos to say things like “were not putting people out of business, the future is happening to them,” and say it with a straight face and a sense of self riotousness. If you want insight into this new phenomenon, look to Peter Theil, who’s best advice for prospective founders is to “find monopolies” where you can take the entire market.

So in our new world Walmart is hated and Amazon loved. It’s bizarre. From my point of view they’re pretty much the same. One just happens to be wrapped in better marketing. I wonder how much longer this tech inoculation will last?

I’d love to get a discussion going, so please leave comments or email me directly.

The Chilean Entrepreneurial Ecosystem: 2010 to 2014

I’m writing a bimonthly column for The Santiago Times, one of Chile’s English language newspapers, about doing business in Chile and the entrepreneurial ecosystem. My first article was published today and it overviews some of the changes I’ve seen in the Chilean entrepreneurial ecosystem since I first came to Chile in 2010. From the article:

But entrepreneurs in 2010 also had to face powerful cultural obstacles. Chile was risk averse and punished failure. A typical conversation went something like this:

Chilean: “What do you do?”
Me: “I have my own business.”
Chilean: Blank look … “But what do you do?”
Me: “I have my own business!”
Chilean: “So you don’t have a job?”

When new businesses failed, as many do, the typical Chilean response was that the entrepreneur was either: a) stupid, b) lazy, c) stole the money or d) all of the above. Almost none of my new Chilean friends even could imagine themselves starting a business and looked at me like an odd duck who was on a weird path — not the traditional one of getting a job at a big, prestigious company with a comfortable salary and three weeks of vacation, plus fifteen days of “feriados.”

You can read the entire article, Creating an Entrepreneurial Ecosystem in Chile, on The Santiago Times.

Travelogue Bolivia: Salar de Uyuni, Potosí, Sucre

IMG_2445Bolivia, wedged between Chile, Peru, Paraguay, Argentina and Brazil, is an amazing country of contrasts. With unmatched deposits of silver, tin, zinc, natural gas and enough lithium to power all of our modern devices for centuries, Bolivia should be a wealthy country. But is one of the poorest countries in the western hemisphere, only slightly better off than Haiti.

Since its “discovery” by the Spanish in the 1500s until today, Bolivia has been screwed over by nearly everyone, first by Spain, then Britain, the United States, Chile, Brazil, Paraguay and Argentina, all in partnership with its small upper class that has exploited its natural resources a labor.  As I traveled through Bolivia over the past ten days, taking in its incredibly natural beauty, I read A Concise History of Bolivia and reread Open Veins of Latin America and began to appreciate just how unlucky the Bolivians have been.

Salar de Uyuni

I started my trip from San Pedro de Atacama in Chile, booking the three day tour to the Salar de Uyuni. I’d done this trip before in 2011, but I still loved doing it again. You can read horror stories about this trip, but both times I’ve gone, I’ve never had a problem. This time I booked with Cordillera Traveller on the Chilean side and the accommodations were much better than with Colque Tours in 2011. We paid about $20 more than the competition but our driver seemed safer and more knowledgable.

I joined a group of 18 people in four Jeeps and we left San Pedro at 8am and made the one hour trek to the Bolivian border, where pretty much the only people who cross are tourists. We climbed from 2000 meters all the way up to 5000m (~16,000 feet) by nightfall. The scenery, along with the altitude, is (literally) breathtaking. We slept at altitude, but kept waking up every hour or so, our hearts racing and throats dry from the altitude.

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Bolivia/Chile Border

 

The next day, we went past geysers, interesting rock formations and more colored lagoons until we reached a tiny town called Culpina K. It looked like a ghost town. Our guide, Humberto, told us that most of the people in the town either cultivate quinoa or work in the mines, so they got to bed by sundown at the latest. It was like going back in time to when most people farmed and lived in small towns.

We woke up early and drove through Uyuni, a poor, broken down town in the middle of nowhere, that wouldn’t exist without the Salar that’s just next door. At 10,000 square km, its the largest salt flat in the world and contains 50%-70% of the world’s lithium supply.It’s so different from anything I’ve ever seen and coming back a second time just brought the point home again. It’s so flat, so white and so big that you can see the curve of the earth. On cloudy days, the guides can’t go too far away from the “shore” or they risk getting disoriented and lost on the Salar. Not taking my own advice from 2011, I got burned to a crisp. Again.

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We arrived back to Uyuni in the afternoon, burned, thirsty and caked in salt and went directly to the bus depot to reserve tickets to Potosí. Bolivian roads are unsafe. Drivers aren’t very experienced, road conditions vary and you have to keep your eye out for mudslides and the occasional llama darting into the road. As a rule in Bolivia, always buy the most expensive bus ticket. Our bus trundled out of Uyuni onto the brand new road that connects Uyuni-Potosí-Sucre and prepared ourselves for the four hour trip. It was the first paved road we’d seen in four days and had only been completed in the past year. The bus seemed safe enough, but it was easy to imagine the bus falling off the hairpin turns.

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Getting squashed on the salar

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 Potosí

We arrived safely into Potosí and got off at the “ex terminal”, which is really just a service station in the middle of the town and took a taxi to the Tukos Casa Real, an old building that’s been refurbished into a hotel. The room was massive, had hot water and the hotel provided a nice breakfast and only cost $40 per night for something that would cost at least $150 in the US. My heart was pounding and I was struggling to breath after walking up the three flights of stairs to get to the room. The 4060m altitude really takes it out of you. I can’t imagine playing a world cup qualifier in La Paz, Quito or even Mexico City.

Potosí was the city that drove Europe’s economy for almost three hundred years. From 1550-1783, it’s estimated that 45,000 tons of pure silver came out of Cerro Rico, one of the richest silver mines in the history of the world. The mine made people fabulously wealthy and the town grew to a peak of 200,000 people at a time when Madrid only had about 50,000. But it was all built on exploitation of natives and africans, who were used as slaves. Some people estimate that eight million people have died in Cerro Rico mining first silver, then tin and now zinc.

Cerro Rico

Cerro Rico

The mine created incredible wealth, which led to some amazing churches, cathedrals, public spaces and houses, much of which has gone into different stages disrepair after the richest minerals were extracted. Cerro Rico’s riches pushed the Spanish to create Bolivia’s first national mint, which has been preserved and converted into a beautiful museum. The original donkey powered minting machines are preserved alongside some of the original coins.

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Potosí Catedral

 

The cathedral has been beautifully restored over the past ten year. During the war for independence, Simon Bolivar ordered the colorful cathedral to be whitewashed. People forgot and the incredible colors were rediscovered during the renovation. Now a UNESCO world heritage site, parts of colonial Potosí have been preserved, but the poverty remains.

Potosí Catedral

Potosí Catedral

Today, it’s a loud, bustling city filled with diesel busses that come directly from China after they’ve been banned for expelling too much pollution, broken down cars honking at every intersection and people everywhere. I only saw a few non-natives during my three days in Potosí. Even today, an estimated 25% of Bolivians aren’t fluent in Spanish and many people are still bilingual Quechua or Ayamar speakers, including a taxi I got into.

You can see the grinding poverty: Potosí is now one of Bolivia’s poorest areas. There’s hardly any industry, other than mining, and the occasional tourist, so locals, mostly indigenous people, are forced into the mines. The miners forced out the government’s nationalization attempt because of rampant corruption, so now the miners have an elaborate series of cooperatives where you work for yourself. If you strike it rich, you can be a millionaire. If not, you may starve to death or be relegated to extreme poverty.

Potosí

Potosí

 

Because life expectancy is so short and families are large, Bolivia is an incredibly young country, with an average age of 22, compared to 33 in Chile and 36 in the US. It’s noticeable. There are school aged kids everywhere, decked out in formal school uniforms. After school, the kids held massive water balloon and squirt gun fights on the main roads and plazas. I got caught in the crossfire a few times.

The food reflects the local conditions, making the most out of less expensive ingredients to provide the highest level of nutrition possible. There’s lots of potatoes, quinoa, corn and vegetables. Meat is a luxury. Llama features on many menus. Coca Cola is ubiquitous, but I didn’t see many international chain fast food restaurants.

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We tried to go to Doña Eugenia, a restaurant specializing in local food, but it was closed. We ended up at a tiny restaurant nearby where I tried Kalapulca, a corn based soup with bits of meat and potatoes that’s served with two superhot rocks that creates a volcano like soup. Another good option was Koala Cafe, which has cheap fixed price menus and featured an awesome quinoa soup.

We did a mine tour with Big Deal Tours, the best company in town. Founded and run by ex-miners, the guides take you on a 3km walk underground through the mine. I felt a bit conflicted about doing a mine tour to basically gawk at people who were working in terrible conditions, but after talking to the miners at the tour agency, I decided to do it. I’m glad I did. It was a sobering tour.

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Miners still work nearly the same as they did in the 1500s. Most don’t have electricity, so they use pickaxes, hammers and dynamite to bust open the rocks. They carry out the ore on their backs in 40-50kg loads or in wheeled carts weighing between one and two tons. If they slip, they get crushed. Life expectancy for miners is between 40 and 50.

It’s dark, dank and filled with ankle deep water. Particles hang in the air, invading your lungs. Miners chew massive amounts of coca leaves to suppress hunger, fatigue and keep them energized, just like the slaves and exploited indigenous did in the colonial era. They drink 96% pure alcohol that costs the same as a beer to dull the pain and for luck to get “pure” veins of minerals and make sacrifices to “El Tio” the God who has domain of the mountain.

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We started at the miners’ market where we purchased gifts for the miners: coca leaves, juice and dynamite. A full dynamite kit (detonator, accelerant and stick) cost $3. As we walked through the mine, crouching down to try to avoid smashing our heads, and not doing so very well, we ran into miner after miner. They all looked similar. Dirty, old clothes. A huge wad of coca leaves. Many missing teeth. Upbeat. Happy to chat with us.

“How old are you?” asked our group to a miner who looked at least 35.

“Twenty-five,” he replied.

“How much do you make per week?” we asked.

“About 1000 Bolivianos per week,” he replied, which is about $140 per week.

“And how long have you been working in the mine?” we all wanted to know.

“Fifteen years,” he said.

His story is fairly typical. There are so few jobs and money is so tight that fathers bring their sons to the mine starting at as young as ten. Or if the father dies and there’s many kids, the oldest kids have to go into the mine to support the family.

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$3 dynamite

 

After a three hour tour or just walking through the mine I was exhausted. The 4400m altitude didn’t help, but the crouching, the head smashing and shuffling through water sapped my energy. I can’t imaging having to hammer all day, run away from dynamite explosions and having to push 1-2 tons carts manually out of the mine for long shifts, with hunger pangs that are only dulled by coca leaves and alcohol.

I’m really glad I got to see Potosí, but it was incredibly sad to see a place that had such natural wealth that has been exploited and squandered to the point where its inhabitants live such a hard life.

Miner pulling 1-2 tons (with help)

Miner pulling 1-2 tons (with help)

Sucre

We decided to leave Potosí via the new bus terminal, which is located about twenty minutes from the town center. It’s brand new and clearly is an investment from the central government, as the location clearly wasn’t chosen for business reasons. We got out of the taxi and immediately felt like we were in a zombie movie. There were ticket sellers bleating like sheep, but there weren’t any customers. The zombies activated and attacked from all sides, trying to get the commission on the $4 bus tickets. Check out the video.

After getting past the zombies, we settled into the four hour bus ride down from 4060m to Sucre’s 2800m above sea level. Getting off the bus was like being able to drink the air. We took a taxi from the bus station to Hostal de Su Merced, a four star hotel in a refurbished building right downtown. It cost about $60 per night for a level of service that would cost $175+ in the US or Chile.

The first thing I noticed was the architecture. Everything is white. Sucre was Bolivia’s capital during colonial times until the seat of government was changed to La Paz during one of Bolivia’s many coups, dictatorships and revolutions and has preserved its historical buildings. The center is designated a UNESCO world heritage site, so there are building restrictions to keep the local character. The main square is surrounded by the cathedral, the municipality and the house where Bolivia’s declaration of independence was signed. There are a multitude of churches and church buildings, schools and universities, including South America’s first law school.

Sucre

Sucre

Although Sucre is a tourist city, the attractions are only open from about 10am-12pm, then again from 2pm-5pm, at most. It was frustrating, but by the second day I’d figured it out. Just like in other parts of Bolivia, the daily schedule is very different from Chile or what you might think of a Latin schedule. Shops open early and lunch ends by 1pm. Dinner is from 7-9 and most restaurants are closed by 9 or 930. People are out drinking at bars by 930pm. In Chile, people are just starting to eat dinner! It’s another example in the long list that show Latin America is not just one homogeneous cultural unit.

I really enjoyed salteñas, Bolivian empanadas, especially from El Patio Salteñaria. They have a sweet, flaky dough and have a bit of sugar on the top and are filled with meat and vegetables. The filling is similar to a Chilean empanada de pino, but the dough is completely different. People eat salteñas from breakfast until lunch and not in the afternoon, whereas in Chile empanadas are a lunch or later food. It was hard to find high quality food, but I really enjoyed Condor Cafe, Cafe Mirador, and especially Cafe El Tapado, where I tired a variety of local, quinoa heavy dishes.

Salteñaría Indoor patio

Salteñaría Indoor patio

I had an amazing time in Bolivia. The country is absolutely beautiful, the people are welcoming and warm and the country just oozes with history. I hope Bolivia has better luck and better leadership as it moves into this century, as it has all of the natural resources to be much better developed than it is today.

Sucre

Sucre

Lack Of Skin In The Game Is The Root Of Our Problems

You can trace nearly all of the problems in the world back to one cause: lack of skin in the game. From the financial crisis, to our broken government, to most wars, corruption, pollution and famine, you’ll find a lack of skin in the game as the foundational cause of nearly every one.

What is skin in the game? According to Nassim Nicholas Taleb, “skin in the game is about being harmed by an error if it harms others.” In finance, it means having personal monetary risk associate with any deal you make. A simple example: If I create an investment fund and invest my own capital so that I own 10% of the fund, I have skin in the game. If the fund loses money, I lose money. My decisions not only affect my investors, they affect me. If I don’t invest any of my own money, but make high fees just for managing the fund, whether it goes up or down, I don’t have skin in the game. Taleb believes that skin in the game is “the most important marker of credibility.” Without it, he continues, people are “frauds.”

When people share in the costs and benefits of their decisions that affect others, they are more likely to make good decisions than if they just impose their decisions on others. Taleb believes skin in the game is “a moral imperative” that should serve as the base of a functioning society. I agree wholeheartedly.

The financial crisis was caused by bankers who made incredible amounts of money whether their investments made money or not. The Iraq war happened because the people authorizing the war didn’t have to fight. Neither did the vast majority of their children. The war was fought by a small sliver of the US: our volunteer army. If George Bush or his supporters would have had to send their sons and daughters to war, I bet we wouldn’t invaded Iraq.

Our government doesn’t work because bureaucrats who make laws aren’t affected by them. Lawmakers don’t have skin in the game because massive gerrymandering has rendered their seats safe, unless they’re caught, as the saying goes, “with a dead girl or a live boy.” Global warming is an incredibly hard problem to solve because we don’t have actionable skin in the game. The consequences will happen far off in the future, likely to our grandchildren.

Lack of skin in the game causes the rich to not participate in their own communities because they believe their outcomes are no longer connected to their local communities. A massive student loan bubble because universities don’t have skin in the game to actually help students to get a job after they graduate. Journalists and bloggers to pontificate endlessly without any consequences for being wrong. Large companies and the top 1% to go to extreme lengths to avoid paying taxes because they feel decoupled from their communities: they can operate from anywhere, recruit employees worldwide and be citizens of the world.

More controversially, Jaron Lanier argues that many internet companies that are worshiped as paragons of having skin in the game in fact don’t. He contends that they’re wrecking our economy and that internet companies, via siren servers, are killing, not creating jobs and pushing too much economic activity off the books. They use the world’s most powerful servers to create defacto monopolies that earn money via arbitrage, solely because they have access to the most powerful computer, not because they are taking risks and creating value. (Read my previous posts for background.)

Taleb and Lanier are two of the most important thinkers of our time. It’s interesting that they both find a lack of skin in the game as the core cause of the world’s problems even though they write about completely different subjects.

So how can we start to fix our broken institutions? Simple. Add more skin in the game. Some examples from Taleb: In Roman times, bridge builders, or members of their family, had to sleep underneath newly built bridges for a time. If it collapsed, the builder lost too. He continues:

I feel much safer on a plane because the pilot, and not a drone, is at the controls. Similarly, cooks should taste their own cooking; engineers should stand under the bridges they have designed when the bridges are tested; the captain should be the last to leave the ship. The Romans even figured out how to deter cowardice that causes the death of others with the technique called decimation: If a legion lost a battle and there was suspicion of cowardice, 10 percent of the soldiers and commanders — usually chosen at random — were put to death.

Now I wouldn’t advocate for the Roman Legion’s solution, but what if we started to design public policy, laws and societal norms that required some amount of skin in the game as a moral imperative, along the lines of “thou shall not steal?” What if we said that it’s immoral to force decisions on others when you don’t have skin in the game?

What if we required bankers to personally invest in any deal they proposed to their own investors? Or their bonuses were tied to long term performances? Or if we devolved more power to local institutions instead of concentrating power at the federal level? What if we forced siren servers to have skin in the game and not make money solely on arbitrage? Or pushed the 1% to once again have skin in the game in their local communities? What if we had a partial military draft? Or some sort of selective service? Or forced banks to keep at least 50% of any loan they originated?

I don’t have many specific proposals yet, but all we need to do is use skin in the game as our guiding heuristic. We should be extremely skeptical of anyone who doesn’t have real skin in the game. The likelihood that they are a fraud is exponentially higher.

What do you think? Is skin in the game as important as I believe it is? Do you have any proposals to push for more skin in the game? What do you think we can do to help push for more skin in the game?

My 2013

Every since I started blogging, I’ve done a year end post summarizing what I’ve done in the past year. These posts are mostly for me, so that I can look back and remember what I did, what I was thinking and what was important to me each year. Previous versions (2000s2009,20102011, 2012).

I started and ended 2012 in nearly the same place: on a friend’s rooftop in Santiago, champagne in hand, surrounded by great people, watching a multitude of fireworks explode across Santiago’s expansive skyline. In between, the first part of 2013 continued on 2012′s theme: a time in flux. I started out preparing to become a professor for the first time. My business partner and friend Enrique Fernandez and I completely revamped our entrepreneurship class How to Build a Startup and began teaching at Universidad Católica in Santiago and Universidad Católica del Norte in Antofagasta.

Antofagasta was a real challenge, but it was extremely rewarding. While the two hour flight eight times in twelve weeks was challenging, the hardest part was teaching a class solo, 100% in spanish. I was really nervous my first class and could see from the looks on my students’ faces that they weren’t looking forward to a whole semester with my gringo spanish, but by the second class, I started getting better and by the final class, my spanish was much better and I wasn’t nervous at all.

I’m glad I got to practice in Antofagasta, because in August I taught another class completely in spanish to undergrads at Universidad de Desarrollo in Santiago. It was rewarding to see my students actually learn something each semester, see their self belief growing each week, and seem projects go from ideas to reality.

My blog continues to build traffic and I was featured in multiple international publications again this year on Startup Chile, Entrustet, Chilean Real Estate and the Madison entrepreneurial ecosystem. It was cool to see Google implement their deceased account option that we’d pushed for back in 2009. While I haven’t written as much as I would have liked, I read more in 2013 than I did in 2012.

I traveled back to Wisconsin in August to help organize the fourth annual Forward Technology Festival and was happy to see it keep growing. Matt, Bryan, Forrest and Preston have done an awesome job since I moved to Chile. Forrest continues to grow Capital Entrepreneurs and Madison’s entrepreneurial scene continues to get more national prominence.

While the first half of the year was a year still in flux, the second half was much more focused. After coming back from my trip home in August, I started Andes Property, a real estate investment company focused in Santiago and published The Expat’s Guide to Chile, a book about living, working and doing business in Chile, which has been consistently ranked in the top ten most popular books about Chile on Amazon. I also launched an ecommerce business, La Condoneria, that sells condoms online. It’s been fun to start to build a business from scratch again and to work with two great business partners. In November, I celebrated three years in Chile.

I also made it back to Wisconsin for my family’s Thanksgiving and my group of friends’ 9th annual Friendsgiving. It really was great to get back and see my family twice this year and it was amazing to see our group continue to grow with more engagements and our group’s first kid. I expect both trends to continue in 2014.

I explored more of South America, but didn’t travel as much as I would have liked. I made it to Chiloé and Uruguay, then visited Mendoza when my parents visited Chile for two weeks, and Pucón, Puerto Varas and Frutillar when my friend Polsky came to visit from the US. I’ve done a better job of taking advantage of going to the beach more in 2013 than in 2012, but plan to do it more in 2014.

I didn’t exercise as much as I would have liked, but continued to play squash and increased my soccer. On the sports side, I went to a Chile world cup qualifying match, some chilean club matches and watched the US qualify for the world cup. Overall, it was a year of transitioning into my next projects that I’ve since been able to sink my teeth into. I expect 2014 to be a very interesting one!

Favorite posts of 2013

What Entrepreneurship is Really Like

Your Internet Business Probably Isn’t A Startup

Privilege

Weonomics

How to Deal With A Smart Disruptive School Kid

My Talk From The Forward Technology Festival

How The Future Might Look

Seven Important Books

Siren Servers: Why are we ok with giving away our data?

How to Survive and Be Successful in a Siren Server World

Financial Times and La Segunda Articles

I was featured in two articles over the last few days. The first, Chile Property: Pro Business Policies Lures Foreign Entrepreneurs, written by Nick Foster in the Financial Times, covers the Santiago’s property market from a foreign perspective. My part:

Nathan Lustig, 28, is an entrepreneur from Milwaukee, US, who came to Santiago in 2010 under the government’s Start-Up Chile programme, which offers grants to promising new businesses, both foreign and Chilean, who set up in the country. Many are in the ecommerce, biotechnology and finance sectors. “Santiago is the most livable city in Latin America and there is wonderful hiking on your doorstep,” says Lustig. “Business-wise, there may be some extra bureaucracy here [compared with the US], but the rules are understandable and you feel confident that they are not going to change suddenly.”

“There is now a real cluster of young foreign entrepreneurs in Bellas Artes,” says Lustig, who has opened Andes Property, a company offering furnished units to the steady stream of expat arrivals in Santiago.

Lustig’s main gripes are air pollution and petty crime, while the distance from home is also a drawback: “It takes 14 or 15 hours to get to Wisconsin. On the other hand, if you are doing business with New York, or just watching sports or talking with friends there, there is no time difference in the southern winter, and only two hours difference in the summer.”

Read the full article over on the Financial Times website.

I was also featured along with my business partner Enrique Fernandez and many other entrepreneurs and stakeholders in the Chilean entrepreneurial community in a special entrepreneurship section of the Chilean national daily La Segunda in an article titled Nathan Lustig: Si Y No Con Santiago. The article talks about the pros and cons about doing business in Chile and how Chile can improve its ecosystem.

nathan lustig la segunda

 

How to Survive and Be Successful in a Siren Server World

My post Siren Servers: Why Are We OK With Giving Away Our Data? did not get a single comment. It got two likes on Facebook and no retweets. But it’s been the post that’s generated the most emails from people of any post I’ve written in the past year.

It seems that a small group of people are realizing the changes that are happening as a result of human choices in technology, but not many are willing to comment publicly. I’m not sure why, but I’d like to keep the conversation going.

To recap, Jaron Lanier shows that we’ve decided that our data does not need to be compensated monetarily. This decision has wide ranging implications, but the biggest is that large companies with powerful servers end up sucking up most of the wealth, leaving the rest of us with the scraps.

So if you want to be successful in this coming world, there are only three choices:

1. Try to operate within the system

If you want to be successful and make money, you can try to become a siren server. But that’s really just like buying a lottery ticket. There are only a handful of successful siren servers in the world and your chances of being one is very small. If you can’t be the siren server, then it’s best to work at a siren server, or provide services to a siren server. These jobs aren’t all that safe, as you’re still exposed to massive competition and disruption.

You could also “sing for your supper” as Lanier likes to put it. You can give lectures, consult, do legal work and anything that’s labor intensive. These jobs will likely pay well while you are working but if you get sick, get old, have a kid, get married or decide you don’t want to physically perform every day of your life, you’re done. There’s little to no security. And to really make big money, you have to become a star, which is probably only an order of magnitude easier than being a siren server.

Put bluntly, if you want to be successful in a Siren Server world working within the current system, you’d better have top notch skills, an incredible work ethic, a bunch of luck and the drive to succeed. I’m talking the top 10%. And that 10% will likely get smaller every single day. If not, you’ll be relegated to menial work or unemployment. This is exactly what’s happening today.

2. Try to change the system and rewrite our social compact

Our current economy is simply a social compact. We’ve decided that our data is monetarily worthless. We’ve decided that we’ll go along with the narratives that those who are winning in today’s society deserve it 100% based on merit. We’ve decided that we believe in extreme meritocracy and we’re using it to justify just about anything. So if you want to be successful, you can work to change our social compact and change the system. You can raise awareness about what’s happening and why, although you’ll likely end up singing for your supper. You could try to create a new solution via technology that compensated people for their data. Or at least gave companies incentives to pay for data.

3. Decouple from technology and find a niche

In the long term, nearly all, if not all, industries will be affected by siren servers, but in the near and medium term, there are many industries will be slow to change or where change will allow people to be successful in niches. For example, even though the vast majority of food is manufactured via big agriculture, there’s a profitable niche for organic, free range and heirloom varieties at a premium price. In the age of Ikea, there’s a niche for handmade furniture that’s one of a kind. In the age of Starbucks, there’s a niche for a small premium coffee shop. In the age of Amazon, there’s a niche for super secure web hosting and niche products. You must be in the top couple percent in whatever niche you choose.

Most of these potential jobs are variations of singing for our supper, but they at least provide jobs that are less dependent on technology and siren servers, at least for the time being.

Conclusion

Notice that I don’t mention programming, nursing, science and engineering. I think as siren servers continue to develop, we’ll certainly still need these professions, but whereas now we can use the top 50% of people who have these skills, we’ll see a smaller and smaller amount who have useful skills.

I’ll use programming as an example. In 2005 if you wanted to create a personal website, you had to hire at least one programmer and one designer to custom build it for you. You’d likely spend at least $5,000 for a decently done personal website or blog, sometimes even upwards of $10,000. Fast forward to today. You can setup WordPress with a myriad of top-notch designs in minutes for as little as $100. Or free if you’re willing to torrent. I’m not a technical programmer, but even I understand enough to launch my own website, with decent design.

This same phenomenon is going to continue so that lay people will be able to do today’s seemingly difficult programming, just as I’m able to do a time consuming programming task from 2005 with software as a service. We’ll always need the top 1%-5% of talented people to do the big, tough groundbreaking work. But what will the rest do? No jobs are safe from the siren servers.

Long term, we face a stark choice. Do we continue to go down our current path of siren servers that accrue the benefits of technology and radiate the risk back into the system, while sucking up most of the monetary benefits? Or do we decide to make a change?

I’d love to get more of your thoughts, so if you’re thinking about similar topics, please comment here or send me a private message.

How to Make Chile a Better Place to Do Business

A Chilean newspaper asked me an interesting question this week:

What should Chile do in 2014 to make it a better place to be an entrepreneur?

I don’t think my entire answer will get published in the newspaper, so I’ll republish it here. What do you think? And what would you do to make Chile a better place to do business?

1. Continue to push ASECH inspired entrepreneurial reforms

ASECH, the Chilean entrepreneurs association, has pushed laws like making it possible to incorporate a business in one day, for free, without going to a notary, pushed banks to allow entrepreneurs to open bank accounts much more easily, a entrepreneurship bankruptcy law, and has pushed for laws that force large companies to pay in 30-45 days, instead of 90-120 that’s fairly common in Chile. It’s been an incredible success and should be continued.

2. Force large Chilean companies to follow Chile’s competition laws

If you want to foment entrepreneurship, you need a level playing field. Chile currently doesn’t have a level playing field, as large companies routinely price fix and squeeze out new entrants to the market. And many large companies receive little to no punishment when they break the law. No laws need to be changed. Just enforce the ones on the books.

3. Push for a law that requires payment in 30-45 days for most sales

The majority of large companies in Chile pay suppliers, especially new ones, in 90-120 days. In the US its 30. Sometimes 45. If you start a new company in the US, you only need two months or so of operating capital before your sales start to pay your bills. In Chile six or seven months. This kills most people’s ability to start a business before they’ve even started.

4. Pass a personal bankruptcy law

I think it’s very unjust that a bank can loan you money without taking risk. Chilean banks know that they’ll get 100% of their money back at some point because there’s no personal bankruptcy law to discharge a debt. Chilean loans are very one sided contracts, which makes it more difficult to take risks and be an entrepreneur.

5. Tell the truth about entrepreneurship

Entrepreneurs are NOT rockstars or superheroes. Having your own business is a lifestyle and it’s not for everyone. It’s really difficult, but there are many benefits. I’d like to see the government and entrepreneurship groups talk about the reality of being an entrepreneur, rather than blinding building up entrepreneurship as rockstars and superheroes. I fear that when the first crop of entrepreneurs who’ve been told they’re superheroes just for starting a business fails, as most entrepreneurs do, they’ll be so burned that they won’t start another business.

Three Years in Chile

Three years ago last week, I was in New York getting the last few things together before my trip to Chile. I’d never been to South America, barely spoke Spanish and really had no idea what to expect when I got off the plane. As I waited in the airport lounge at JFK, it still didn’t feel real. It was just like any other of the numerous flights that Jesse and I had taken during our year and a half running Entrustet.

It didn’t feel like we were going to a foreign country that had promised us $40,000 (that we couldn’t verify we’d actually receive), to a place where we didn’t speak the language, 16 hours from home.

Three years later, I’m still here. I’ve spent 27 of the past 36 months in Chile, learned Spanish, immersed myself into another culture, pushed myself out of my comfort zone, made incredible friends, started multiple businesses, taught at three universities, wrote two books and received my permanent residence. It’s been a long road, but after three years, I think I finally pretty much get Chile.

What have I learned over the past thee years? What’s changed in my life and in Chile? And why am I still here? Why did I stay? And what’s next?

It was a big change coming from the US and resettling in Chile. I’m very privileged in that in the US things usually came easily for me. I almost always knew what to say, how to talk my way into and out of situations, all the cool local tricks, the best places to eat, the best parks, the hidden treasures. I knew what body language meant and what each local reference or slang word really and truly meant. It wasn’t very difficult to be successful.

When I first got to Chile, I was completely lost. I could get around the city, order food, get a drink at a bar, but could barely keep a real conversation. I had to concentrate all the time. I wasn’t myself: I couldn’t be the leader that I was used to.

I didn’t know the culture, I didn’t know what slang meant. Even though most people were very friendly, I really learned what it is like to be an outsider. I wasn’t in on the inside jokes, the turns of phrase, longstanding friendships and so much more. It really made me appreciate how hard it must be to be an immigrant in the US. When people say “immigrants should just learn English” I used to think, yea, they should. But it takes a big effort and it’s not as easy I used to think.

Even after three years, I’m still not truly able to express myself perfectly in Spanish. I’m still not fast enough to make the same jokes I do in English. I probably tell half the stories that I would in English. And the ones that I do tell are half as good as the ones I tell in English! It’s really made me realize what it’s like to be an outsider, or at least someone without all of the built in advantages that I’ve been lucky enough to have.

I certainly miss things. First, my family and friends. In the US I lived my entire life in Milwaukee and Madison and was always within 90 minutes of my family and friends. I miss good customer service. I miss good cheese. I miss being able to listen to every conversation that’s going on around me without actually trying. I miss 250 different beer choices. I miss having a yard. I miss telling an awesome joke with perfect timing. I miss top quality, spicy and flavorful food that doesn’t cost an arm and a leg. I miss my bike. I miss going to northern Wisconsin. Kopps ice cream. Watching all of my favorite sports on a big HDTV instead of illegally streamed on my little computer.

chilean beach

But I can get used to many of the small things because Chile really is an amazing country. I love being close to the pacific and the beach. Amazing seafood. Some great new friends. Playing more soccer. Sun 80% of the year. Being close to Argentina for long weekends. Traveling and exploring in South America. Peruvian food. Pisco sours. Going out dancing. Friends that have taken me into their homes, their families. Asados. The metro. Incredible business opportunities. An amazing $7 bottle of wine. Hearing the entire country scream goaaaaaal, when Chile scores. I certainly miss these things when I go back to the US.

As with all things, there are things that I’ll never get used to. Santiago’s pollution, especially in winter, makes the city just a few notches above unlivable. I’ll never get used to the massive amounts of dust. The classism. The Chilean “two dogs meeting” interview ritual. The rigid conservatism and class structure. Price fixing in big businesses. Going to three separate cash registers to buy an empanada. Waiting in long lines. Customer service reps who flat out lie to you. Living in small apartments. My new expat friends leaving every 6-12 months. So many smokers! Massive inequality and the inability for many people to see outside their own bubble of their own experience.

santiago smog

 

Chile’s changed, mostly for the better, since I arrived in 2010. My two favorite changes are the smoking ban in public places, plus the crackdown on drunk driving. Both of these laws have made Chile much more livable. I might not even still be in Chile if they hadn’t passed the smoking ban. It used to be terrible!

There are way more foreigners in Chile now compared to 2010. When I first got to Chile people asked us incredulously “why are you here???” Now it’s fairly typical to see foreigners in parts of the city. Rents have gone up 30-100%, depending on neighborhoods. I wouldn’t be here if it weren’t for the ban. There’s been a micro brewery renaissance, with a huge increase in of good beer. People seem to be more accepting of foreigners. Chile has become much more livable over the past three years.

Business-wise, from 2010-2013, the startup scene is completely different. While there were a few successful Chilean startups and entrepreneurs prior to Startup Chile, the program really has changed the mentality in the country. In 2010, people would ask me what I did and when I answered that I had my own business, they’d ask “where do you work” again, then look at me as if I were homeless. Now its cool. Probably too cool. I worry that the country has been sold a narrative of startup rockstars, heroes, gurus and celebrities that when the first round fails might ruin entrepreneurship in the country.

Asech, the Chilean entrepreneurs association, should be the model for the rest of the world. They are a lobby group that pushed through a law that allowed companies to register online in one day, for free. Before it cost $2000+ and took 2-3 months. They’ve convinced banks to let entrepreneurs open bank accounts, which was nearly impossible before. There are way more coworking spaces. More chilean startups and some incredible opportunities.

But there’s still not much funding. Not many Chilean success stories. Big companies and established players still crowd out entrepreneurs. The people with money still generally have an aristocratic yet provincial, anticompetitive attitude that seeks to divide up the riches and keep their place in the economy, not create new innovation and grow the economy. And the new rich still isn’t thinking bigger. The government isn’t helping much by allowing anticompetitive banks and large companies to gouge consumers and price fix.

I used to socially liberal and be very free market: I believed that if you just got government out of the way, economies will work. After being in Chile for three years, I’m even more socially liberal and still generally believe in getting the government out of the way, but my zeal has been tempered.

In Chile, I’ve seen what happens when there’s little to no competition and the government doesn’t really enforce price fixing or monopoly laws or just doesn’t have big enough penalties to stop basically institutionalized price fixing and corruption by large companies. Along with tax structures that benefit those in power to keep their wealth, and be extractors, sucking out wealth from society, rather than creating new, innovation and expanding the economy for everyone.

I have a better realization of what its like to try to move up in the world and how hard many people work for little money. I see what a problem inequality is and can be. People are physically, mentally, emotionally divided. The rich live physically separated from the rest, consuming different entertainment, different food, different clothes, everything. They never meet and talk, which causes misunderstanding, jealousy and a lack of empathy. This phenomenon is happening more and more in the US and I don’t want it to happen after I’ve seen what its like in Chile.

Overall, coming to Chile has been an incredible experience. I’ve learned so much about myself and about the world, made great friends, learned spanish and gotten to explore an incredible country and part of the world. I’m currently teaching entrepreneurship at three universities and working on a two projects that I think have the potentially to be very interesting over the next few months. I don’t know what my future really holds, but I’ll always be thankful that Jesse and I took the risk to come to Chile back in 2010.

Thanks to everyone who’s helped me in Chile, helped me learn about myself and this great country. I couldn’t have done it without you all. A final thanks to my parents, who haven’t demanded that I come back yet.