being left to founder
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Contxto – It seems as if we’re back to Too Big To Fail for some, and Too Small to Care for the rest.
In the brutal world of entrepreneurship, capitalism is allowed to function by the book—profit and loss, where if the latter gets ahead of the former for too long, your company dies.
But, capitalism’s brutal logic seems to stop after companies reach a critical mass. Suddenly, they have to clout to threaten the stability of entire countries if they go under.
In the 2007 crisis, the banks said they were too big to fail because the financial system would collapse without them. They were bailed out. Today, we are seeing airlines and giant consumer goods manufacturers plead to governments to bail them out, threatening mass unemployment.
They’ll probably be bailed out too.
I don’t dispute these corporations’ facts. Rather, I would like to argue that the fact that we, as an ecosystem, get overlooked is perhaps even graver for the economy and society at a moment like this.
You see, small and medium-sized enterprises (SMEs) make up the vast majority of employers and taxpayers in this region. A 2019 OECD white paper on Latin America found that, excluding that informal economy:
SMEs represent over 90 percent of firms […] they represent 40 percent of GDP and contribute up to 60 percent of employment, creating 4 out of 5 new formal jobs.
OECD
Moreover, it is this ecosystem at the cutting edge that is providing the solutions that will get us out of this mess.
They do it through digitalization, providing payment, supply, and other basic needs to those in isolation.
They do it through innovation, it’s not just Novartis pushing the medical frontier to defeat the pandemic.
And they do it through sheer force of will. Indeed, the solidarity I’ve seen from the startup community has really shone in contrast to the revolting self-interest of the likes of some multi-national corporations.
Yet, the ecosystem just does not have the political clout or a loud enough voice to make itself heard.
I’d like to take the Cornershop debacle to illustrate this point.
A not-unreasonably-sized startup is about to go under because the Mexican government cannot sort itself out internally to decide if it can be acquired by Uber or not. This crisis will probably mean they’ll take even longer than Cornershop can afford to wait.
Sure, if they go under we’ll see less jobs lost than if, say, Ford did. But Cornershop (along with other Latin American last-mile delivery startups) is, at this juncture of the pandemic, providing essential services and care to those in isolation.
Many corporations are just waiting to ride out the storm. They do not focus on the social impact issues like most of our ecosystem’s members do.
Unite or die
It doesn’t have to be this way. Cornershop is not being allowed to function as well as it could because there is no political will. The type of political will you’d see deployed for massive corporations who have the government’s ear at the push of a button.
Therefore, while there are predictions I could make as an optimist, I’d rather share these stark warnings as a student of reality:
- Governments will spend inordinate amounts of money on large companies, leaving the small ones to founder.
- Startups will have to start paying attention to politics beyond regulations that directly impact them.
- The diversity of this ecosystem is legendary, and yet, to survive in troubling times, actors in the ecosystem must recognize each other and act in unison. Individually founders, VCs, and the like are powerless before other interests that lobby government. Together, the ecosystem’s voices may just get heard.
As an amalgam of startups, we are too big to fail, but as an ecosystem, we should become too important to ignore.
Tweet me your thoughts @AlexGonzor and let’s get this ball rolling.
-AG
