Building a Startup: Developed vs Developing Markets

I have now had the pleasure (and the responsibility) of founding a few start-ups and pickin up a few scale-up projects throughout my career. I’ve also worked on the ‘other side of the fence’, working with major, global listed companies. 

Each of these journeys has had its own challenges because of the sector or the competition, but a factor that is often overlooked is the difference between building a start or scale up in a developed economy, like the US, vs in an emerging or developing markets. 

So let’s explore that in a little more detail.

Market infrastructure and Competition 

In mature economies, start-ups benefit from well-established market infrastructure: access to capital, reliable logistics, readily available payment solutions, skilled talent and - in some cases - a culture of entrepreneurship. The result of this combination of favorable factors creates a low friction environment where businesses can scale quickly. 

However, the flip slide is intense competition, detailed and often archaic regulatory framework as well as high opportunity cost. Developed markets are often saturated, with well-funded incumbents and loyal customer bases. 

In contrast, developing economies often lack robust economic and business infrastructure, relying on fragmented systems and infrastructure. But therein lies opportunity: the lack of entrenched competition and outdated systems with missing or incomplete regulatory framework create room for innovation and disruption. The potential to be a first mover perhaps offers the greatest appeal of launching a start-up in a developing country. 

Founders can introduce entirely new models - like mobile banking in Africa or ride-hailing in Southeast Asia - and thus leapfrog legacy systems entirely, introducing last generation business models that can disrupt and transform legacy industries.

Openness to New Ideas

A key advantage in developing markets is their openness to innovation. In mature economies, consumers and regulators may be sceptical of disruptive ideas, especially if they challenge entrenched systems. For instance, fintech start-ups in the UK or US must contend with decades of financial regulation and well-entrenched banking habits. 

Developing countries, by contrast, often have less to unlearn. Consumers are more willing to adopt novel solutions that directly improve their quality of life - whether that’s digital wallets in unbanked regions or telehealth services in areas with poor medical infrastructure. This receptiveness gives start-ups a faster path to traction and impact.

Ease of Administrative Services

Developed markets typically offer more streamlined administration. Registering a business, securing licenses, and complying with regulations is often more transparent, albeit sometimes bureaucratic and more costly. Legal protections for intellectual property, contracts, and investors are usually well-defined, giving entrepreneurs confidence in the system.

By comparison, start-up founders in developing countries often navigate complex bureaucracies, unclear regulations, and unfair competition. Administrative processes can be slow and inconsistent, creating uncertainty. However, some developing nations are rapidly improving - introducing digital government services and start-up incentives to attract investment. Entrepreneurs who can navigate or creatively bypass these hurdles can often move faster and with fewer constraints than they could in a tightly regulated mature economy.

Conclusion 

So, which is better? The answer depends on the appetite for risk as an investor or entrepreneur. 

Although not exclusively true, a business in a mature economy is probably a safer bet, but with more limited growth potential. For those who can get it right and navigate the additional complexities, there are huge upsides to be found in developing economies. 

Like in any good investment portfolio, perhaps a mix of both is best.