1. Country Overview
Opportunities at a Glance
There is a lot of opportunity in the underdeveloped Brazilian market. Competition is much lower than in the US and the government’s intense bureaucracy can shield a startup from a foreign giant that is looking to expand internationally.
The World Startup Wiki covers a list of 58 internet business models in the in the B2C, B2B, B2B2C and C2C categories. These are common startup business models throughout the world and are usually the first ones to succeed in an emerging country, hence the term “commodity innovation” coined by the World Startup Wiki founder Bowei Gai.
Based on World Startup Wiki’s Market Saturation Rating System, Brazil scores an average of XXX on the market saturation, which means the market is between semi mature and mature. In terms of the mobile opportunities, this country scores an average of XXX which is between nonexistent and infancy for most startups.
The Brazil opportunity data below is fully open and available to the public. You can click the EXPLORE button to review, filter and visualize the data for your own needs.
Some key opportunities are:
Fast Growing Middle Class: The growing middle class (50% of the population) is consuming everything from cell phones and laptops to Coca-Cola and Nikes. They are mobile, connected and are buying online.
World Cup and the Olympics: Millions of foreigners will pour into the country for the World Cup and the Olympics. For this reason, the government is investing billions of dollars in infrastructure. If you can solve some of the logistical bottlenecks that these projects face, the government is providing them with the capital to pay top dollar.
B2B/Saas Startups: Brazil is following a similar evolution as the United States. The first entrepreneurs pursued the exponential growth curves that are typical in B2C startups. However, companies are still running software that is ugly and hosted on servers that are physically located in their offices. Companies such as ContaAzul and Resultados Digitais are thriving because of this move to the cloud.
Basic government services are mind-bogglingly frustrating: Services that are regulated by the government such as incorporation, filing tax returns and signing contracts are not efficient and creating a huge opportunity for disruption. Making these processes more efficient is something that a lot of people are willing to pay for.
Brazilian entrepreneurs don't need to be great innovators or visionaries: Early technology adopters and following global startup trends can signal to an entrepreneur when an international business model is ready for the local market. Just make sure you are the first to see it and relentlessly execute to be poised for success.
Brazil’s Market Opportunities Overview
Brazil’s E-Commerce Market Saturation
Brazilians are willing to pay large amounts for good products and services
The government has set high tariffs for any imported good or service which has caused Brazilians to be accustomed to paying double for basic necessities. (Cars are a huge sign of wealth in Brazil. The cheapest car in Brazil goes for $10k without airbags, and very little comfort. This is mostly due to high taxes and willingness to pay of the locals)
Brazilians are even willing to go into immense debt to buy simple goods. “Brazilians are buying shampoo with a boleto and paying for it in "parcelas" (installments) over 8 months.”
The (internet) population is huge, tech-savvy and growing at a fast pace.
As a foreign startup, competition from local incumbents is relatively weak. Foreigners can find more access to funding and introductions to local heros. Just remember to learn the language.
Mobile is exploding: ecommerce and services penetration in the mobile market is in its absolute infancy.
- The infrastructure of Brazil is 1.7x behind developed nations.
- Roads aren't well maintained which causes huge logistics costs and traffic in the biggest cities.
- Wealthy executives will choose to travel by helicopter instead of waiting in traffic in São Paulo and Rio.
- Commodity exporters from the interior of Brazil are trying to meet the demand for raw materials by the Chinese and United States. However, Brazilian ports lack of capacity to meet demand cause trucks to wait for weeks in line.
- Corruption costs Brazil almost $41 billion a year. 69.9% of the country's firms are identifying the issue as a major constraint in successfully penetrating the global market.
- Local government corruption is so prevalent that voters only perceive it as a problem if it surpasses certain levels, and only if a local media e.g. a radio station is present to divulge the findings.
- Transparency International's Corruption Perceptions Index ranked Brazil’s corruption as 69 out of 178 countries in 2012.
- The purchasing power in Brazil is eroded by the so-called Brazil cost.
Taxes are high and complicated! Labor laws are not startup-friendly and there is a lot of litigation risk from employees, customers,suppliers, etc; Local service providers are often unprofessional and expensive.
Online legal services, peer to peer lending and online gambling are very complicated or even banned. Several startups were shut down over the last few years because of these issues.
Startup culture is not Brazilian culture
Companies and people are having a hard time thinking long term and BIG. There are many risks associated with doing business in Brazil which is why entrepreneurs and investors will typically take the first opportunity they get to sell the company.
“To innovate, it takes risk. And for a high-risk business to succeed a long and uncertain investment return is required. The investor in Brazil has to deal with an inhospitable environment and can not support the risk to build a billion dollar business. Let’s say we put risk on a numerical scale. The investor typically can handle a risk of 10. Our economy now accounts for 5, then the other 5 are insufficient to truly innovative sectors of the economy which would be incredibly beneficial to the economy.” @gusguida
Fighting Foreigners: Commodity business models are being taken over by foreign entrepreneurs with high ranking business degrees. Harvard Business School and the Stanford Graduate School of Business graduates run the show. Oliver Samwer, founder of Rocket Internet said, in a leaked email that he wants "more Mckinseys, Goldman…alumni" for his local companies.
There's an insanely high cost of capital: This is probably the biggest limitation for entrepreneurs in Brazil. In the United States, entrepreneurs can theoretically survive on credit card debt and loans to bootstrap a startup. This is not a reality in Brazil. Most credit cards have insanely high interest rates. Business loans are even harder for foreigners, since they require a local friend/family member to assume liability for any company's debt that goes unpaid.
Bureaucracy: Everything from getting a visa to incorporating your company takes a long time and can be very expensive. Expect to enlist the services of a local service provider who can effectively navigate the process.