Ever since our Red Hot Startups contest last year, Nearshore Americas has kept a close eye on the gradual increase of tech innovation coming out of Latin America. Unlike Silicon Valley – where angel investors, tech talent and other vital ingredients to nurture startups are abundantly available – Latin America is not widely known as a paradise for tech entrepreneurs. (Just ask Oscar Arias who recently condemned the region for failing to stimulate an entrepreneurial environment.)
But there is no doubt that there are lots of success stories about company founders finding the courage and capital to turn their vision into reality. We selected three founders of IT/call center outsourcing firms – in Argentina, Colombia and Brazil – to find out how they crossed the infamous ‘chasm’ between failure and prosperity.
As we talked with the founders of these companies, we noticed several elements that were repeated in their stories. Firstly, all three firms were set up at approximately the same time – the mid 1990s, when the internet revolution was just beginning. They had to learn not just to adapt their business strategies and selling techniques, but also fundamentally redefine the way they create and deliver software. Secondly, none of these firms received external funding as they got off the ground. In other words, they had to bootstrap their way through the first few years, and make sure they were profitable from day one. Latin America was not as good a startup environment as it is today in terms of incubators, equity funds and the IADB.
Finally, and perhaps most importantly, all three of our companies immediately focused their attention outwards, on multinationals in the US market. In those days, that was certainly bucking the trend. Most LatAm startups even today try to first build a strong domestic presence and only then consider expanding internationally.
Despite these common themes, we got very different stories from each founder. One thing is clear: It wasn’t easy. Here are the three firms:
1. Ci&T (Brazil)
Ci&T was founded in 1995 by current CEO César Gon, and two friends Bruno Guiçardi (COO) and Fernando Matt (CFO) in Campinas. It was a time when the IT industry was showing signs of globalization, but the Brazilian local market was relatively untouched. “We were at the University of Campinas, which is one of the best science universities in the country, and a great environment to start up”, says Gon. “I was excited by the talent I saw there, which was at the same level of knowledge and ability to execute as in the US. But I couldn’t find a single Brazilian company that was respected or represented that talent”. So at a time when the only large multinationals in the Brazilian space were IBM and HP, he started Ci&T.
Funding – Right from the beginning, the company depended entirely on its customers in order to raise capital. “We had to be profitable or we wouldn’t survive – there was no other alternative”, says Gon. The founders designed a set of capital injections that were implemented from 1995 onward, but in fact the first external funds they raised were in 2001, six years after they started. It came from the Brazilian Development Bank (BNDES), who has been Ci&T’s major financial supporter since then. In 2005 BNDS became a partner, by investing in Ci&T equity. The share of ownership has remained the same,, with the founders holding 70% of the company and the bank owning 30%.
Customers – Ci&T’s first customers were two R&D labs from IBM, in France and the US. In other words, since day one they started to export services. In a market where 99% of Brazilian firms were focused domestically (that figure hasn’t changed much), they immediately stood out.
We asked Gon whether the LatAm market today is more conducive to startup companies. “Absolutely. We definitely got a slower start without those advantages. But the good thing with no support and depending on our customers so much, is that we really had to focus strongly on them and their needs. It made us a better services company”.
Challenges – Think of three 23-year old university students trying to manage a hundred people. That was Ci&T in the early years. According to César who had just finished a Masters in computer science, his biggest challenge was not the technology or the pace it was evolving; it was learning how to be a leader and entrepreneur. “We were afraid of how to scale up, and whether we could find the right people. We weren’t looking just for talent, but also people aligned with the culture of the company. And I didn’t know how to foster that culture and leadership”.
2. Belatrix Software Factory (Argentina)
Belatrix, based in Mendoza, has a very different story than most ITO players. Launched in 1993 by CEO Luis Robbio, the company was at first focused on industrial automation. Its most successful product was an automotive industry testing device in 1998 that gained it a big reputation and almost 100% of that niche market in Argentina. Luis is an electrical engineer, but the company’s technology base was closely related to software.
Funding – In spite of that good start, when the currency crisis hit the country in the next year, Robbio lost nearly all his market and investment. In order to survive, he refocused the entire business on IT services and development. “We were entirely self funded”, says Robbio. “In Argentina it was difficult, and still is, to find capital to fund startup companies. Funding was always an issue, and we had to continually re-invest our earnings”.
Customers – Belatrix started marketing internationally as soon as it shifted into the IT services industry. Luis’ son Alex Robbio (current VP Business Development), moved to the US to target clients directly. Their first customers were in the Utah area, which has a large presence of direct sales companies, and a strong homegrown software industry. “We were literally going door to door at the beginning”, says Luis. “But what we realized very quickly was that because of the devaluation of the currency, we were suddenly much more competitive as an Argentine firm in terms of exporting services to the US”.
Belatrix now works mainly with independent software vendors as its main market, and provides varied SAAS functions as well. Its client breakdown is 80% US, 2% Canada and the rest in Europe.
Challenges – As with many firms at that time, Belatrix had to constantly work against the fact that there was no Latin America brand recognition. “We had to constantly explain why Argentina outsourcing was good, and why our services were good. People didn’t know anything about the location, and no one had heard of nearshore services”.
3. Outsourcing SA (Colombia)
It was the first call center company in Colombia according to Ricardo Duran, Founder and President. In the 80’s, Duran worked in the US for a company that did all its purchasing over the phone. He later decided to take that model to Colombia, and started Outsourcing SA in 1993. In fact, his company was also the first in Colombia to move from call center to IT contact center.
Funding – Duran’s first client was Compaq; an extremely lucky break for a small Colombian startup. “We didn’t have any funding, so I asked Compaq to pay me in advance, so that I had something for the employee payroll”, he says. “I had the leverage to pull that off only because there were no other real call centers in Colombia. Yes we were very lucky – nowadays it’s impossible to get that kind of deal”.
At first it was just Duran and his IT guy. But once he got those payments in, Outsourcing SA started hiring and scaling up by ten people every month. Current employee numbers are at 850, all in Colombia, and the company is still fully independent.
Customers – Compaq was the one that really helped launch Outsourcing SA. “Because of their business, suddenly I had hundreds of people calling me on the phone for tech support”, says Duran. “Six months later, Microsoft Colombia found out about us through Compaq. They came to visit us, and became our second client”.
Outsourcing SA is now at more than 100 clients, mainly pharmaceutical and technology companies, with 80% of them being multinationals. It also just landed a large contract with Mexican telecom giant Telmex.
Challenges – “Believe it or not, the biggest challenge for me in Colombia at that time was getting proper phone connections. I had to wait seven months to set up a PBX (private business exchange) line”. There was also a lot of uncertainty over how the market would respond. All purchasing in Latin America in those days was done personally – nothing was over the phone, according to Duran. “To be honest, we didn’t know whether or not the phone would ring”.