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.

Note 22 January 2017: Santiago Times no longer hosts my article, so I reposted it here.

Chile needs to foster value creation over extraction if it wants to establish a real entrepreneurial ecosystem.

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 prizes 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 percent) while forestry (0 percent), wine (-8 percent), fruit(-16 percent) 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.

The Chilean adjective “vivo” is used to describe someone who is alert to opportunities and takes advantage of them. But almost every time I’ve heard this expression used, it’s been to describe a situation where someone has seen an opportunity to extract something from someone else. To be a “persona viva” is really to be someone who’s open to opportunities to extract from others.

It all starts back in the 1500s with the Spanish. The entire business model of the Spanish conquest was to extract wealth from the “new world” and transfer it back to Spain. They used brutal methods to extract their bounty. As the new extraction aristocracy broke away from Spain and declared independence, they continued the Spanish business model. Although there have been some changes in owners of the extraction economy since independence, the economy is still mostly based on the same business model: taking from the Earth or taking advantage of fellow citizens. Chilean culture values the same business models that the Spanish valued back in the 1500s.

Back to entrepreneurship. This extraction culture is the silent entrepreneurship killer. Why take risks and put in a massive amount of hard work to create new value, when you can follow the less risky and more socially valued route of extraction? There are so many Chileans who start extraction businesses today who have the capacity to create some real value. But not many are.

If Chile really wants to become an entrepreneurial nation with a real entrepreneurial ecosystem, it needs to change the cultural mindset to regard value creation as above pure extraction. This means:

1. Encouraging businesses that focus on adding value along the lines of companies like Cumplo, ComparaOnline and Propiedad Facil.

2. Embracing technology driven businesses that provide new opportunities and leverage the creativity and knowledge of the next generation of entrepreneurs.

3. Encouraging risk taking in new, developing industries that will enable Chile to take the leadership position in the creation of new modern industries in Latin America.

4. Regard growing the pie for everyone to be above earning off someone else’s back. And to really mean it.

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.

Photo credit: Daniel Mennerich