Scaling Services: Software Startups Confront Challenges to Growth

The path of a software services firm growing in the Nearshore region is almost never straightforward. The challenges of achieving growth and scaling a workforce are complicated by the specific skillset and English-language skills required to work. Add to that the past year of Covid-19, and the industry-altering issues it has thrown up, and a the feat grows taller still.

According to the UN’s Economic Commission for Latin America and the Caribbean, 42% of SMEs in the region were found in sectors that were “highly affected” by the arrival of the pandemic. Yet small companies across the region survived the recent storm and, as the global economy rights itself, are positioning themselves to capture increasing business demands as the U.S. renews its interest in Nearshore.

We spoke with a selection of small companies across Latin America to generate a broad view of the challenges that they and their determined leaders face ahead of expansion.

Plugging the Talent Gap

Digital product development company UMVEL, based in Mexico City, has been in operation since 2020. Co-founders Frank van de Ven and Jaime Reixach identified a space in the Nearshore market for companies that could provide end-to-end project execution, focusing on UX and design. As a UX-focused tech company, UMVEL is an unusual animal in the Nearshore scene and that makes finding talent tricky.

“It’s easy to find good IT specialists in Mexico because there great universities that have trained this talent for 10+ years. However, if you look at what I do – service design and UX design – few universities offer these courses. Traditionally, Nearshore industries are well versed in technology but aren’t so strong when it comes to design, client services and understanding the customer journey. Some miss the glue between the challenge and the final execution because that talent is not here,” Van de Ven told Nearshore Americas.

The company supports its core team with freelancers from Europe. But the founders don’t want to continue having to outsource work – they want that talent in-company. To do this, UMVEL reaches out to universities, offer courses and training. This helps attract talent and offers the best young graduates a company to thrive in. “When we do find the talent that we really believe in, we try to bind them to the company and give them responsibility so that they feel part of the larger project,” said Reixach. 

In Uruguay, Giuliana Corbo, CEO of fully-remote staff augmentation company Nearsure, believes that the arrival of the pandemic has blunted one of the company’s major talent acquisition strengths. “Our value proposition, based on remote work, was obviously stronger before the pandemic. It also helped to find talent quickly, but as most companies are working remotely competition has increased,” she said. 

For Javier Aranda, president and founder of Truextend, the situation is a little different. Operating from Bolivia, the staff augmentation and engineering services company faces talent acquisition challenges unlike those of competitor regional markets. The company employs 130 engineers and has sufficient client demand for an extra 30 personnel, but finding the personnel that can provide for the breadth of services the Nearshore industry demands is not easy.

“Bolivia doesn’t do everything,” Aranda said. “For example, in Bolivia you won’t be able to find a developer with C++ that has lots of experience working with embedded devices. Nor is there a great deal of experience with certain legacy technologies or more specific skillsets like business intelligence or data mining. Other countries might be able to provide that but there isn’t talent for all technologies available here at the moment.” To scale up properly takes time in a country the size of Bolivia and talent will likely have to be found abroad, Aranda believes. 

Offering Differentiation

Not surprisingly, the pandemic’s increased demand for tech workers in the U.S. has had a knock on effect for Latin American companies when hiring suitable talent. 

Andrés Perea, co-founder of on-demand software development and engineering provider Willdom, sees wage increases one of the major obstacles ahead of scaling up in Argentina. “Recruitment is changing because the demand from the U.S. has pushed salaries up, in some cases, by 50%,” he said. Questions over stability in the South American countries are also prompting the most experienced talent from the country’s rich tech pool to look abroad. “A lot of companies are relocating Argentinian talent to Canada, Germany or Ireland. Companies like Amazon are attacking the best talent in the region and offer all the paperwork required to relocate,” he explained.

But small businesses offer employees many advantages to working in a large corporation. Empathy, respect and responsibility are just a few. “It isn’t all about money. It’s money plus benefits that are as important as that salary. Freedom of where to work is one big factor,” Perea said.

In Mexico, company hierarchies can be traditional and inflexible, UMVEL’s Jaime Reixach believes. As an organization founded by two non-Mexicans, UMVEL leverages its distinction to offer graduate employees experiences they may only otherwise receive when they reach senior level. “We try to break down barriers,” he explained. “For example, we worked with a major Canadian company developing a physical receipt solution. We flew our 21-year old engineer out to Montreal and he ended up being questioned by the CTO of this multi-million dollar firm while they were taking notes. This might not have happened with a more traditional company,” he said. 

ParallelStaff, a Mexican staff augmentation company founded in 2018, has taken a proactive stance to resolve the issues it meets in its journey to scale up. Though English-language skills in Mexico are among the best in the region, the level of competence required can still be a barrier for some employees. “Not all engineers that graduate know English. For this reason we’re fostering our own talent with English and other additional languages. But this is not a Mexico-specific problem,” said COO Mike Hernandez. 

Access to Capital

Growth must be funded, but for small to medium-sized Nearshore service providers, finding that financing is not always straight forward. 

Nearsure’s Giuliana Corbo says that her company is considering all potential avenues for funding. “We have always had clients and were profitable so we did not previously need extra financing. Now, as we are growing, we are searching for capital. The idea will be to have loans from our parent group, Digital Wire Group, but we are considering options outside of the company including banks in Uruguay and the U.S.,” she said. 

Without a legal representative in the U.S., it is difficult to access loans from banks, Corbo explains. But banking institutions in Uruguay do have a positive mindset when it comes to aiding the growth of the nation’s tech ecosystem, she adds.

This isn’t the case for every country. In Mexico, a pervasive risk-aversion environment within the financial sector poses barriers to company growth and diminish the potential for Mexican companies reaching the next level, says Reixach. Worse still, this idea of risk is not based in fact, he believes. “Small business loans are inaccessible,” said Reixach. “It’s an endemic problem that isn’t a response to real risk factors.”

ParallelStaff’s Hernandez agrees that for companies starting out, access to funding is restricted. “Banks in Mexico aren’t keen to offer small businesses loans unless they have a certain name or historical background,” he said.