Brazil: the start-up ‘promised land’?

By Paulo Lerner on September 4th, 2012

When people ask me about doing business in Brazil, this is what I tell them: Brazil is a great country, with friendly people and wonderful business opportunities, but the business scene there is… well, complicated, shall we say. Based on my experience doing business in Brazil and from discussions with colleagues, board members and friends, here’s what I think you should know.

There are 180 million people in Brazil. Only 30 million of those are what we might call middle- and upper-class citizens, but 80 million are connected to the internet – 31 per cent of those through public access points and internet cafes. 27 per cent have connections at home. That’s the good news.

But it takes 60 days to open a company, and two years to close it. Corporate bureaucracy is horrendous. Financing isn’t much better: interest rates are sky-high, especially for small companies. Mine used to get short-term loans at 6 per cent a month.

Taxes are complex and you’ll need, from day one, a certified accountant and a corporate lawyer. That said, taxes for small companies are low (16-20 per cent) and dividends are tax free (this means that you can put money in your pocket and don’t even need to pay personal taxes).

There is a need for educated people in Brazil. Most companies have multiple open positions and pay very well. Most big companies are open to hiring foreigners, and I believe this is a good opportunity, though many employers require you to speak Portuguese.

Here’s an important point: you cannot rely on the Brazilian judiciary system. It can take more than 20 years to win a legal battle. This is one of the reasons that connections are very important in Brazil.

Companies here are used to working with high margins as there is very little competition. Brazilian companies are much more interested in solutions that increase revenue rather than lower costs, because they operate with those good margins, but, as competition grows, companies are starting to look at efficiency and cost-reduction solutions.

Opening a company in Brazil is a significant investment for a foreign business. Don’t come with empty pockets. I highly recommend looking for local partners that can test the market for you before you commit to sizeable investment. Make sure that contracts are signed in the US or Europe and can be enforced there.

Your first couple of clients will come from personal connections. If you are a foreigner, find a local partner with strong connections or get someone important on your board. I have seen American companies with senators and congressmen on their advisory boards. Influential board members are a must. At the end of the sales process, you may still need someone to pick up the phone and call the chief executive.

It doesn’t matter how good your software or technology solution is: decision makers are not interested in jeopardising their jobs by hiring small, unpredictable companies. You need to provide social guarantees – that is, common acquaintances who support your business and/or business model.

For the same reason, you should also provide turn-key solutions: those which yield a return quickly and without too much effort on your customer’s behalf. It is much easier to sell a project that doesn’t require hiring people from day one.

(If you do need to hire, LinkedIn works. Brazilians flocked to the social network in 2011. Most of the messages I send through the social network are answered.)

Not even Brazilian start-ups try to sell to the government. Believe me, you don’t want to go there as a new business. If you really want to pursue that path, find a hyper-connected local partner. Selling to the government is tough, and the hardest part – but the only one that matters for you – is actually getting paid for the work.

It’s easier to sell to consumers, and e-commerce is booming. Every venture capitalist I meet tells me that they are looking for e-commerce opportunities in Brazil. (Also, famously, Brazilians love social networks and are very engaged with them.)

Purchases are generally paid for in instalments, interest-free. People look at the cost of each instalment and see if it fits their budget, instead of looking at the total price. Bear this in mind when determining your pricing strategy.

Because products in Brazil usually cost three to four times more than the US. One of the reasons for that is that import taxes are around 100 per cent. Thus, any kind of deal or discount is very popular in Brazil.

Advertising online is inexpensive compared to North America. Most online retailers work with an ROI over 7 and costs per click are usually less than $0.50. Facebook ads are still very cheap: I recently paid 3-4 cents per click. Bloggers are very popular and influential, and can be a very inexpensive and effective way of reaching customers.

Brazil, like the US, is a country forged by immigrants who arrived in the nineteenth and twentieth centuries, and is therefore very open to foreigners. As a Brazilian, I’m proud to see so many people interested in my country and highly recommend it to anyone interested in exploring a new market or just finding a job.

Just make sure you know what you’re getting yourself into.