Family business vs. start-ups
Today we discussed two completely different company types: Family businesses vs. start-ups or traditional sectors vs. internet.
Most of the big companies in Brazil either belong to the government or very important families. One of the biggest companies
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Camargo Corrêa
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The first meeting was with one of the biggest private conglomerates in Brazil: Camargo Corrêa. They have about 11bn USD revenue and over 16,000 employees. Their main divisions are:
- Engineering and construction: 2nd biggest in Brazil
- Cement: No. 11 in the world, 2nd in Brazil and 1st in Argentina
- Highway concessions: largest toll operator in Brazil, no. 3 in the world
- Energy concessions: largest private power utility company in Brazil
- Others: Everything from airport and port operations, railway concessions etc. etc.
- And, last but not least, footwear! Among other brands, they also own the famous Havaianas brand :)! Although I really don’t know how this company fits into their portfolio. However, even they acknowledge this fact. Apparently they are currently discussing whether they should stay an infrastructure company or develop into a portfolio holding.
I have to admit here that I was dragged into the Havaiana flagship store in Sao Paulo twice ;)! And although I rarely wear flipflops, I actually bought one pair.. 😉
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The meeting was really interesting and insightful! We met with the CEO and the CFO of the company and both were very open and informal about their answers. Great meeting!
They opened the meeting with the famous saying: “Brazil takes off..”
However, in their view the question is “.. but where will it land?” 😉
And they also meant it literally, because the airports in Brazil are horrible 😉
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The second important comment was: “More important than being a good rower, is choosing the right boat!”
Brazil might have some issues at the moment (corruption, bad infrastructure, inefficient economy etc. etc.), but the fundamentals are still strong. Therefore, they absolutely believe in a positive future of Brazil.
Interesting side note is that the CFO actually got this quote from a Finance class at Columbia. He hated the class, but the quote stuck with him. Or as our faculty advisor on the trip said: Never dismiss a course for not being relevant for your career. Because you don’t know what will be important in your future!
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Additional key takeaways:
- International partnerships: They like to work with international partners. Because if the government tries to privatize their business, they get international help 😉 Smart!
- International companies in Brazil: The problem with working for an international company in Brazil is that you will never be part of the decision, because the decision is made somewhere else.
- Infrastructure: Very much dependent on the government (BNDES and pension funds). In their view, there is probably no such thing as a successful public private partnership (PPP); maybe for 10-15 years, but certainly not for projects that last 30 years or longer. However, in the next couple of years Brazil needs to build a lot of infrastructure (World Cup, Olympics, Pre-Salt etc.). Therefore, they probably need some private investments.
- Cement: They are currently betting on cement, because you don’t have to worry about government and regulations. That their client’s problem.
- Airports and ports: They are closely watching this industry, because a lot of them will be privatized in the next couple of years.
- Why Brazil doesn’t have a lot of railroads: Railroads are very capital intensive. Roads are much cheaper and faster to build.
- Lack of engineers: In Brazil, there are 6 engineers per 100,000 people. In contrast, India has 22 and China 25. They have a serious lack of skilled labor at the moment.
- Ageing: In the next couple of years, the Brazilian “baby boomers” will enter the workforce. However, because since then the birth rate dropped to western standards (<2 children per woman) the population will age very quickly. Usually, countries should try to follow the rule “get rich, before you get old”; (e.g. US, Europe, Japan). But they are afraid that Brazil will not reach the necessary level of wealth before the baby boomers retire. Therefore, the next 5-10 years will be crucial for Brazil.
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And, last but not least, the mandatory question about the World Cup 😉
Of course, first of all, they are concerned with the performance of the Brazilian team. However, when it comes to the infrastructure they have a more pessimistic view. In their opinion, it will probably be a “lousy” World Cup! The government will probably solve the infrastructure problems with a lot of last-minute short-term measures (e.g. the holiday rule). Therefore, they don’t believe that the World Cup will be a big driver for innovation and change.
It was very interesting to hear such a pessimistic view about the World Cup. And those guys are experts when it comes to infrastructure.. So far, everyone was always very excited and optimistic about the World Cup organization. Let’s hope that the optimists will win!
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Entrepreneurship in Brazil
In the afternoon we changed from family businesses to start-ups. We met with Monashees, one of the most important VC firms in Brazil, and two of their start-ups:
- Baby.com.br: An online shopping website for moms
- Medicina: A website where doctors answer medical questions from users
Eric Archer, one of the founders of Monashees, is a super charismatic person and it was really interesting listening to him because he basically knows the start-up scene in Brazil from the very beginning!
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Key takeaways about entrepreneurship in Brazil:
- Entrepreneurs: Brazil has one of the highest percentages of entrepreneurs. However most of them are not entrepreneurs by choice, but by necessity. The traditional Silicon Valley type of entrepreneur is still rare.
- Copying ideas: Most of the start-ups here are inspired by proven US concepts. This reduces the risk of a new venture. And the advantage here is that you’re usually the first one and have less competition.
- Failure stigma: The bad reputation of failure is still very strong in Brazil. This does not only affect founders, but also the first employees of a start-up. Why working for a company where there is a risk of failure, when you can work for an established firm? (sounds very similar to the public opinion in Switzerland!)
In Eric’s view, it is also the responsibility of the investors to continue to support failed entrepreneurs in order to change the public perception.
- Equity salary: Doesn’t work in Brazil. People are too much short-term oriented and rather want to see money than a promise for the future. Furthermore, most of the employees don’t really understand what an equity share is, so you have to teach them first what it exactly means.
- High Inflation: The high inflation in the 80/90ies basically killed a whole generation of entrepreneurs. Therefore, they have a lack of successful start-ups today.
- Full circle: They haven’t had a full investment circle with a successful IPO yet (launch, growth, stability/exit). So their concept of Silicon Valley like entrepreneurs is not fully proven yet.
- Monashees financing: In order to make money as VC’s without regular IPO’s, they cash out a little in every financing round. Furthermore, they finance themselves in every financing round instead of having a long-term fund. This means less stability and predictability, but one bad round doesn’t affect the other deals.
- IPO’s in Brazil: In order to get listed in Brazil they need 300m USD, which is too late for a start-up to exit. So it’s more realistic for them to go to NASTAC, where you only need 70m USD. Another possible exit would be to get acquired by a bigger tech company.
- Logistics in Brazil: Transport in Brazil is horrible. But luckily, the wealth is very concentrated in the south east (Sao Paulo & Rio). However, if you’re creative, you can still solve the logistical nightmare:
For example, for Baby.com.br they teamed up with P&G, the producer of Pampers baby diapers. In the beginning, they sponsored all the shipping and in return were allowed to put a sticker with “free shipping was made available by Pampers” on all the packages.
Furthermore, the good thing about the Brazilians in the far north is that they know that they live at the end of the world. So they are used to pay more for delivery than people in the south. Americans on the other hand expect free delivery everywhere in the US, no matter in what kind of backwater they live.
- Law suits: People sue for everything! Apparently, it’s even worse than in America (and I always thought Americans are the worst: don’t burn your lip with a hot coffee, don’t make coffee in your camper while on cruise control.. you know what I mean..). For example, they just had to pay someone about a thousand dollars, because they forgot to giftwrap the package. This service costs a dollar or so and people still sue. Apparently people get very aggressive and serious over these lawsuits.
Key takeaways about entrepreneurship in general:
- “Hope is not a strategy!”
- “You’re crazy! It’s not gonna work!” Great thing for an entrepreneur, because this means that you will not have a lot of competition 😉
- Culture! Build a culture from a early stage on which is different and controversial. For example, at Facebook they decided that they will hire inexperienced engineers. This increased their creativity and the “college” vibe and resulted in a distinct culture (however, it also had the negative side-effects that they had more program mistakes and re-work in the beginning.. but in the end it worked out for them).
At Baby.com.br they choose “family” to be their distinct factor. They have a lot of women and moms working at their company. It’s perfectly fine to work part-time or from home and so on. Therefore, they have a strategic advantage over other start-ups.
Listening to Eric and his team was really cool. It must be amazing to be one of the first one’s who start a whole new industry in a country!
Tags: Sao Paulo
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