Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
Movile – Brazil
Prepared by George Foster and Rhett Morris
Movile is the leading mobile content company in Latin America. Movile’s products include mobile content, mobile TV, mobile learning, mobile games, mobile payment, mobile marketing and mobile commerce. Every month, it publishes content and services to more than 20 million mobile costumers. It has grown substantially over the last few years (with a more than 25-fold increase in its revenue over the last five years) both organically and through an aggressive M&A strategy, including five acquisitions in the last five years. Movile is positioning itself as a kind of Silicon Valley company based in Brazil. For the last two years, Movile has been named in the “Great Place to Work” list for technology companies in Brazil. The company shareholders include the founders of the company plus Naspers, a South-African media conglomerate.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
Bloisi: “When I was completing my undergrad degree, I was very interested in the history of Bill Gates, Larry Ellison and Steve Jobs and the way they created very big technology companies starting with almost nothing. We started Movile inspired by them, with the goal of creating a global technology company – even before defining exactly what the focus would be. The idea to focus on mobile technology came during the first year. Europe and Japan were at the centre of mobile innovation – in Europe, SMS was growing very quickly and some companies were developing the first interactive applications for mobile. In Japan the i-Mode was growing very quickly with the first multimedia phones and the first applications using photos, video and e-mail on mobile phones. Those technologies were years ahead of what we had in Brazil, so we decided to start as a mobile-oriented company and build products that would grow with the connected mobile phone wave that would soon start in Brazil.
We overestimated the speed with which this technology would spread in Brazil. For the first few years, the penetration of multimedia phones and even SMS phones was very limited and we had a very small market. We tried many times, and we failed many times. We tried to develop up to 50 different products and associated business models until we found a combination of product, business model and distribution channel which we could really scale. Within five years, the market started to grow quickly and we started to grow together with the market, leveraging each new technology wave. I believe that the capacity of the company to evolve and keep innovating is much more important than the initial idea, since the technology sector changes dramatically every few years. We started with SMS applications, and later we focused on PDAs, ringtones, WAP, MMS, 3G, mobile TV, 4G, smartphones apps, and so forth. As we overestimated the short-term growth, we underestimated the long-term impact of this wave. We know today that mobile will be bigger than the Internet, and in 2018 5 billion people will be connected to the Internet via their smartphones, using their mobile device as their primary device not only to communicate, but to watch TV, buy products, study, play games, pay for services and much more. We believe, therefore, that the best opportunities to grow come in the next five years.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Bloisi: “The most important accelerators were: a market growing through a technology wave; our M&A strategy; our financial strategy; and a strong culture that values growth, results and innovation.
We were in a market growing owing to the rapid expansion of multimedia phones, so people started to consume much more content on their phones. As the market was growing fast and we were operating efficiently compared with our competitors, we could leverage this growth and expand together with the market. It was critical for us to be very efficient during this growth stage. We managed this by implementing a very strong culture that kept the company aligned with a strong focus on results and growth. A management system complemented this culture through controls and processes and we created incentives as part of our meritocratic/growth-oriented culture.
During this phase, we recognized the importance of having financial resources to explore the growth period of the market. In 2008, we raised capital from Naspers, a South African media group that contributed substantially to our growth with capital that made our M&A strategy viable and with global experience that helped us more quickly mature our operations to support growth. Our M&A strategy was also very important. We have carried out five M&A transactions in the last four years – these transactions have helped us with scale, market reach and talent acquisition, and were critical to support our strong growth.”
Stecca: “Key accelerators for our growth include:
M&A: Mergers and acquisitions of other companies were key to our rapid growth. The rounds of M&A have allowed us to move quickly into new lines of business and regions. The company has learned to cope well with mergers and to maximize the synergies.
Focus on results: It was critical that Movile implemented a management model focused on results and growth, always setting aggressive and challenging goals. This generated a great balance between business, marketing, product and technology, allowing us to properly prioritize projects and initiatives in all areas in support of company goals.
Innovation: We allow ourselves to take risks and move fast. So many times we take on projects with aggressive timelines, new technologies, different channels of media/marketing and new business models. We learned to cope well with the risk, learn from mistakes and continually improve.
Planning: It was very important to have a good balance between our short- and long-term initiatives. The technology market changes very quickly with the introduction of new technologies. We established a good balance in the growth of current businesses, while exploring, developing and preparing offers for new technologies and markets.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Bloisi: “The entrepreneurial ecosystem in Brazil between 2000 and 2010 was very weak. I believe that things started to improve in 2011. Some signs of improvement have included: an increase in venture capital companies; greater presence of international venture capital companies in the region; an increased number of angel investors; an increased number of exits/M&As; a reduction in labour taxes; and a reduction in taxes for start-up companies. Before 2011, however, the environment in Brazil was not welcoming to technology entrepreneurs.
On the positive side, the active presence of Endeavor in Brazil, supporting Movile with mentoring and networking with established companies, was very important. Endeavor also helped with promotion and developing contacts with local role models – very successful entrepreneurs that inspired our team to reach superior levels of performance. Our strong connections with local technology universities were also very positive, especially with UNICAMP. This relationship helped us recruit the best people, keep in contact with other start-ups and always keep our team connected with the academic environment.”
Stecca: “The entrepreneurial ecosystem for Internet companies in Brazil evolved only from 2011 – before this it was very difficult to start a business on account of great difficulties with bureaucracy, difficulties in accessing capital, high taxes and a lack of government incentives.
Strategically, we keep our product development centre in Campinas surrounded by major universities (Unicamp in particular). We seek to partner with these universities on research and development and to foster entrepreneurship. These partnerships have allowed us to recruit the best people and keep our team in touch with the best universities.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges?
Bloisi: “The first point was the weak venture capital ecosystem. The venture capital community was not strong enough in Brazil, so we had always to balance short-term products that generate some revenue but lacked growth potential with our investments aimed at creating a scalable business.
A second issue is a lack of culture/ambition to create global business in the region. Most Brazilian businesses focus only on the regional market, making it difficult to learn from other companies, recruit talent or even plan how to create a global technology company from Brazil. It also meant that the technology sector was not used to mergers and acquisitions, so consolidating the sector was not only an economic and strategic challenge, but also a cultural challenge.
A third point was the legal environment. The bureaucracy to run a business in Brazil is among the worst in the world, with too many taxes, too many reports, legislation that is too complex, a slow legal system and a 70-year-old labour law that reduces competitiveness in a globalized Internet era. Fortunately, since 2011, the Brazilian tech scene has become much more connected to the world and we are now seeing some changes in most of those aspects.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Bloisi: “Between 2002 and 2005, we tried for the first time to expand internationally from Brazil to Peru, Mexico and Spain and we failed. During this phase, we were quite a small 20-person company delivering B2B mobile platforms, so we needed to deploy the services personally in each new market. Although we had customers in those countries, we learned some lessons from this failure. The first was that we should have a clear strategy and define the markets into which we want to expand – otherwise we lose focus and disperse our limited investment capacity across many different geographies, reducing our chances of success. Secondly, we learned that expanding a B2B company to a new geography demands much more than just the product. We needed to invest for the medium term, since we have to create trust relationships, develop our brand, offer local support, offer trials and engage in many personal meetings. We learned that we need to define our target markets and create an investment plan that gives the new market enough time to mature.
We began a second phase of internationalization in 2010. The process this time was very different. We were growing quickly in Brazil and we could use this position to finance our expansion, together with resources secured from investors. We had enough cash to invest for two years and we had the capacity to acquire local companies with a local team and contracts. Although we had opportunities to go to Europe, India, Hispanic Latin America and the USA, we decided to focus on one region and be successful in this region before moving forwards. We decided that our goal was to be the leading mobile content company in Latin America. We acquired Cyclelogic, a company with 100 people in four countries, and used the existing presence of Cyclelogic to expand Movile, defining this process as a company priority for two years. The results were very positive. Today, a big part of our revenue and profits come from Hispanic Latin America (Mexico, Argentina, Colombia, Venezuela, etc.) and we have a strong position across the entire region.
In 2013 we are investing to expand our B2C offer globally, but again we defined our priority as the Hispanic population of the United States and then the rest of the United States. We have opened offices in California and we are starting to roll out our new offers in the American market.”
Stecca: “We invested in international growth when the company was already working well and had reached a good size in Brazil. We learned from our experiences a few years before (2000-2003) when we had tried to export some products. We learned that we would need local operations, a deep understanding of the local market and long-term local relationships.
In 2010, we decided to invest heavily in international expansion. The company was already growing quickly in Brazil, with a well-implemented management model, and we had already gone through three M&A processes. We decided to expand into Latin America and knew the importance of local presence. We acquired Cyclelogic, a company in the same industry with presence and business in several countries in Latin America. We spent some time adapting the new acquisition and, after a year, the results were great. We were able to deploy our culture throughout the company, and in late 2012 the revenue coming from outside Brazil was already quite significant.”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Bloisi: “The most important challenges were the management of a distributed company, the financing of the expansion and talent acquisition/retention. The first problem was the result of growing from 35 people in two offices in Brazil in 2007 to 200 people in nine offices across six countries in 2011. Having a big part of the organization distributed across six countries made the management system a critical requirement to guarantee the company’s growth. As is the case for many technology start-ups, in 2007 we had lots of informal systems, controlled by personal relationships. We had to implement systems to guarantee that our strategy, priorities, best practices and culture could be communicated and monitored in all offices and countries. We invested not only in computer systems, but in hiring a consulting company which helped us implement a very successful management model that reinforced our values of getting the best people, focusing on the customer, innovation, results, meritocracy and ethics.
The second challenge was to have enough capital to invest in the international expansion and give the new business enough time to mature and develop. We did it by raising capital from our investors, Naspers, to finance an acquisition and by having a mature business in Brazil that could finance the new operations for a reasonable amount of time while the new markets developed and started to generate resources of their own. The last challenge was managing people, since we had to attract and retain talent where we had neither operations nor network. We managed this challenge by acquiring an existing company, developing its talent and exporting our human resources practices from Brazil to the other countries in order to create a great place to work and enable us to hire and keep the best people.”
Stecca: “I can highlight two big challenges that we faced:
Culture! We had many difficulties with communication, expectations, management and recruitment. It took us a year to understand all the differences between countries to establish a unique culture in the company and implement the management system and effective processes.
Commitment: for me a big challenge was to empower all local businesses. We wanted local entrepreneurs, vibrating with each victory, creating and innovating new business, and not just repeating Brazilian formats.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Bloisi: “Most people internationally see Latin America as one region. In fact, Latin America aggregates many different countries and cultures that are less homogeneous than most people believe. One source of difference is the language: Brazil is the biggest market and speaks Portuguese, while all other countries in the region speak Spanish. We started our expansion by sending people from Brazil to operate in countries of Hispanic Latin America. But there are so many differences not only in language but also in culture which meant the success of our first international expansion was very limited. Hispanic customers preferred to talk, negotiate and make deals with local people that understand the local culture. We changed our strategy and decided to acquire a company operating in Hispanic Latin American countries. The results of the combination of our existing products, business culture and technology leveraging our new Hispanic team were very good and a decisive step that kick-started our strong international growth.
Stecca: “Our expansion into Latin America was successful due to the following factors: local presence, business culture and a scalable technology platform.”
Q8: Large companies can play an important role in the scaling up of early-stage companies with high growth aspirations. These roles can include being customers, suppliers, marketing partners, joint venture partners, and so on. (a) Describe the key areas where interaction with larger companies helped promote your growth path. (b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Bloisi: “In 2008, we received investments from Naspers, a South African media group. Naspers contributed substantially to our growth as our biggest shareholder/investor. They helped us to better understand the global scenario and to better plan for global and long-term challenges. They also supplied us with capital – critical in a growth phase – and experience in mergers and acquisitions. Despite all this, the relationship with Naspers did not reduce the entrepreneurial style of the company, which was critical to maintaining our growth-oriented culture.
Movile is also connected to a wireless carrier group that operates across Latin America, Brazil and Hispanic Latin America. This business partnership helped us to expand into the markets in which they were operating, leveraging the relationship we already had in Brazil. It definitely accelerated the pace of our expansion in Latin America.”
Stecca: “Having Naspers as a shareholder/investor was very important. Besides the capital, which was critical to finance M&As and other investments, Naspers contributed a lot by bringing a global perspective. They helped us to better understand the global market, supporting us with knowledge, tools and global benchmarks.”
Q9: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Bloisi: “In 2010, Movile was basically a Brazilian company. By the end of 2012 and after two years of expanding to Latin America, our high moment was realizing that one third of our revenues now came from outside Brazil, and one third of our team was outside Brazil. This achievement was even better than our initial expectation and reaffirmed our vision that the path to becoming a big technology company requires us to successfully expand our company globally.
One dark moment was just after our acquisition of Cyclelogic in 2011. We were very confident about our growth after the acquisition, but the results of the first 12 months were much worse than our expectations. Even after adjusting the structure and the leadership, we were still not growing as fast as we believed we could grow, making us question if we had done the right thing by prioritizing the expansion into Latin America. Fortunately, the second year after the acquisition was very good, even better than our original projections. Again we realized that we cannot plan international expansion based on very small time frames, and we needed time to adjust the culture and the management system to really get the maximum results out of the new operations.”
Stecca: “A dark moment for me was during our first M&A process. Our first merger was a disaster, with many significant problems, including a lack of clear responsibility, decision-making taking too much time, power disputes and excessive internal politics. We made many mistakes – but we learned a lot and this phase was very important in our trajectory. After this dark moment, mergers and acquisitions have been critical to our rapid growth and that phase was important to learn how to be efficient in this process. After this first merger, we undertook four others transactions and got very good results.
The greatest satisfaction came in late 2012 when we realized that we had become a company with sustainable business throughout Latin America, rather than a domestic-focused Brazilian company.”