Between government and entrepreneurship
On our first official business day in Rio, we visited two completely different companies: BNDES, the state-owned development bank, and Peixe Urbano, the Brazilian Groupon.
Welcome to the government..
During the 90’s, a lot of Brazilian companies got privatized. However, the government secretly still owns the power. One of the most important levers for the government is BNDES, the Brazilian development bank. Its asset base is over 300bn USD. In comparison, the total nominal GDP of Brazil is ~2.5 trillion USD. So in a way, they own over 10% of the economy. In order to not get too powerful, they officially limit their investments to not more than 30% of a single company.
However, in addition to BNDES, the government has also significant influence via the pension funds of their national companies such as Banco do Brazil and Petrobras. Therefore, even if most of the companies are officially privatized, the government is still pulling the strings.
The funds of the BNDES come from two sources: 1) a general revenue tax for Brazilian companies, 2) funding from the national bank (although this was only significant during the financial crisis in order to fund the Brazilian economy with liquidity).
This opens room for a lot of questions. First of all, if their main source is from a general tax, who makes sure that they reach their goals and do their work? As it turned out, their success measures are not really well developed. So basically they can do whatever they want (as long as Dilma doesn’t disapprove it).
Furthermore, one could question their rules of investment. They gave us the example of one stadium for the World Cup, which they didn’t finance, because it didn’t meet their requirements. Although this seems like good governance, I would question if this is always the case. If the government really wants to push an investment, they will probably get the cheap money from BNDES. I really doubt if the directors at BNDES will say no, if Dilma is behind an idea.
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The opposite world – Entrepreneurship in Brazil!
In the afternoon, we visited “Peixe Urbano”, the Brazilian Groupon. It was founded by a Stanford alum in 2010 and is one of the most successful start-ups in Brazil.
Peixe Urbano means literally “urban fish” 🙂
Their vision is to combine different platforms such as Groupon, Yelp etc. to become the one stop shop for everything you want to do when you go out. Therefore, their logo and slogan is not tied to daily deals but is called “exploring the city”.
We met with Julio Vasconcellos, one of the founders and a Stanford MBA alum, and talked a lot about entrepreneurship in Brazil.
Key takeaways:
- Internet Market in Brazil: population: ~200m, internet access: ~75m, actually active internet users: ~50m, thereof active Peixe Urbano users: ~15m. So in a way, they will reach a ceiling for growth very soon. Therefore, the diversification into other offers except daily deals is very important for them.
- Talent: Good technical skills are very scars in Brazil. They can’t grow was much as they want to because of the lack of talent.
- Equity salary: People are not used to get paid with equity. Therefore, their salary costs in the beginning was higher than expected.
- Competition: They got a lot of followers once their business model was proven. In his view, the main reasons why they’re still the market leader is probably their strong brand and their ability to scale very quickly.
- Silicon Valley: Even though he travels to the silicon valley at least twice a year, it’s still very difficult to keep up with what’s happening there. However, being closer to the main hotspot of entrepreneurship and new ideas is still a key differentiating factor for them compared to other start-ups in Brazil. They’re actually one of the first start-ups in Brazil with an American entrepreneurial culture.
General advice for entrepreneurs:
- “Through yourself into the action”: Go where the main things are happening! When he was at the GSB, he literally did everything around start-ups. Fully immerse yourself in whatever you’re passionate about!
- People, people, people: Probably their most important hire was their “HR and Recruiting” manager. His main advice is to hire a lot, but to cut out low performers very fast as well. They often solved a problem just by “throwing more people at it”.
- Scale and delegation: As soon as your business starts growing you realize that you cannot do everything yourself. So delegate everything you can to someone who is better than in you at this specific task. Focus on those things that only you can do (e.g. strategy, key hiring decisions, communication etc.)
- Acquisitions: Be clear why you buy a company – people or assets. If you buy it because of the assets, then if it comes down to hard decisions, don’t care about the people, take the assets. However, if you buy a company because of the people, then your main job is to keep them, not the assets (e.g. don’t care about using their technology going forward.. shot down their website, take the people and go). Everything else gets really messy..
- Data: Try to collect as much data as possible from an early stage on. It allows you to improve your product and your communication tremendously.
- Legislation: Law changes are always a hidden risk, because it can turn the whole industry upside down in a way you’d never expect it.
The meeting was really insightful and inspiring. However, it started a discussion among the trip members about if copying an existing platform is ok or not. Some thoughts..
- It’s part of the innovation process: Entrepreneurship is about ideas and innovation. Getting inspired by other people is part of this process. A lot of good inventions developed out of coping other people’s work.
- Making money: Where it gets blurry is when someone takes an idea, brings it to another country, quickly grows it to a nice size and then tries to sell it to, well, let’s say, less well informed companies, before the original player takes the country over. There are a couple of examples where people made millions with this approach and left behind poor investors with an unsuccessful business model. If you sell something knowingly which doesn’t have any value, that’s where you cross the line in my view.
- Taking it to the next level: However, there are also examples like Peixe Urbano, who not just take an existing approach, but also try to develop it further. You will never be successful by just blindly coping other peoples work. In order to stay on top of the game, you have to be innovative yourself.
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One last thing I have to mention about Peixe Urbano is that their office is incredible! Two top floors in one of the beautiful skyscrapers in the middle of the city :)! Not bad! It definitely had the same entrepreneurial vibe when we entered the floor.. but the building itself seemed more like big business than “start-up garage”. And here’s their view:
Tags: Rio
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