Palermo Valley: Where Creativity and Venture Capital May Meet

This afternoon on West 56^th Street, the Argentine Consulate was buzzing with activity. A good number of entrepreneurs, lawyers, venture capitalists, and hedge fund managers gathered for the first meet-up of Palermo Valley in New York. The host, Philip Hordijk, a Dutch entrepreneur and globetrotter, introduced the audience to Palermo Valley.

Those lucky to have visited the beautiful city of Buenos Aires, Argentina conjure up stimulating visuals with the mere mention of the name Palermo, the largest barrio of the Argentine capital. While Palermo’s urbanism dates to the 16^th century, its urbanity developed through the centuries. Today one distinguishes the palpable sophistication of Palermo’s inhabitants in the creative designs of its bars and restaurants and in the creative production of web-production agencies based in the neighborhood.

According to genuine Argentine, and co-presenter, Lucas Lopatin of United Virtualities (http://www.unitedvirtualities.com/) the world is seeing “Argentina as a digital production-outsourcing hub” thanks to Palermo Valley. Lucas demonstrated that Western agencies outsource work primarily based on reliability, then quality, and finally costs, in order of priority. When the job needs to get done, cost may even become irrelevant, while “Argentina delivers on time.” It does not hurt that Argentina is only 20% more expensive than Asia but 50% less expensive than the US. Ironically, its own financial crisis just a few years ago has helped this sector of the digital industry grow. Considering that Argentines share our Western culture and are only one hour ahead of New York, it is not hard to imagine that outsourcing projects to friendly and reliable porteños contributes to successful project management. This is the reason agencies return to the Argentine creative designers for more, either in the field of strategy and creative direction or execution and project management.

The caveat: Infrastructure in Argentina is still lagging behind. “No internet” days are common but easy to laugh off, since there are back up servers at various locations (including the US). In addition, wi-fi connections are always booming in the streets of Palermo allowing project managers to “remain on the grid.”

What distinguishes Palermo Valley from Silicon Valley is the stream of capital. There are plenty of start-ups in Palermo and vivid enthusiasm for new projects. Outsourcing has been a catalyst for this community of creative minds as they have been sharpening their skills in strategy, creative thinking, and implementation/product development. In addition, they have been absorbing new business models and their lessons as they travel to them from their clients. Despite the abundance of start-ups, capital in either form of angel investing or venture capital is scarce in Argentina. There are very few Venture Capital funds in Argentina (perhaps no more than six or eight) and only two among them are US-based. This sounds like a great business opportunity for US investors. If not anything else, the first step would be to either visit Buenos Aires or connect with the people who run Palermo Valley.

Research, Development, and Engineering: How Germans Work with Flaws

“You cannot only look at how expensive Germany is—what you get is quality, strong motivation and extreme flexibility,” Mr. Winterkorn, Chief Executive of Volkswagen told the Financial Times recently.

Yet, what the CEO of Europe’s biggest carmaker perceives as a strength, many industry analysts and investors assign to Germany’s “flawed business model: good technology and a stable of brands paired with inefficient production, a spider’s web of vested labor and political interests and an almost purely Teutonic management.” (http://www.ft.com/cms/s/0/9d83f602-7a71-11df-9cd7-00144feabdc0.html)

These observations become very relevant today when businesses are looking for ways to update their business models abandoning the old staple of “shareholder value” and seeking instead a more comprehensive approach to production, one that takes into account all stakeholders’ interests. The cohesiveness between management, unions, and shareholders in the German business model strikes a chord with those who, among business owners and CEOs, are questioning their own research, development, and engineering approaches.

Applied research: The most creative individuals on your team are drawn to long-term projects beyond the current state of your technology or strategy. Learn how to shift their focus back to short-term research and product development. This implies their ability to work on their own to develop new ideas and to supervise other production employees.

Development process: While quality is at the epicenter of the German business model, it may become destructive when it encourages perfectionism. Well-designed details and efficient engineering should not be equated with stalling perfectionism. Allow the perfectionists on your team (who are not necessarily among the most creative thinkers of the previous category) time for experimentation after the desired quality of your product has been reached.

Engineering management: Define the strengths of those on your engineering team and experiment with sub-teams that you can direct to either exploration of new technology or new heights of perfection.

Technical knowledge: One among the founding members on your team should be the expert in technology and its applications and keep current as the company is growing so that he/she is able to supervise the entire research/development/production process.

This discussion is really about your own ability to understand the research and development process as it relates to your product but also as it relates to other branches of management, for example workers’ unions, customers’ reception (and therefore marketing), and industry conditions (and therefore long-term strategy). What has been perceived as a flaw within German industrial production is actually the management’s foresight to work along various constituents and not towards increasing shareholders’ value exclusively.