In the direction of growth
To deal with the uncertainties of the economy and business in recent years and still reap good results, many small and medium-sized companies reviewed their strategies, a healthy practice that is necessary when the scenario transformsOctober-December | 2017
The doubly challenging scenario imposed by economic recession and by political instability imposed many difficulties for small and medium-sized Brazilian companies, especially since 2014.
In this context, the survey “SMEs that Most Grow in Brazil”, carried out by Deloitte in partnership with the Exame magazine for the 12th consecutive year, brought in its 2017 edition the topic “Repositioning Strategy” with the objective of evaluating the activity of emerging companies in a turbulent national moment. This time, the survey also included large organizations (with revenues exceeding R$ 500 million). Companies pointed among the most successful in the ability of reposition themselves in this edition, during the period evaluated, have shown to have been strengthened with innovation, reprogramming of business plans and concern to diversify or adapt the offered services and products.
The average annual growth of companies that most expanded, from 2014 until 2016, was 21%, while the national Gross Domestic Product (GDP) registered eight consecutive quarters of decline in activity, throughout 2015 and 2016.
Some topics were very critical in the last triennium, such as loss of clients, drop in consumers’ purchasing power, credit shortage and price increase from suppliers. The emerging companies with the best results sought to use software, intelligence and analytics, which caused them to act more strategically, even when facing market challenges., Othon de Almeida, Deloitte Regional Managing Partner and New Business and Innovation leading partner.
For Othon de Almeida, Deloitte’s partner, the survey shows that SMEs became more flexible in the search for new options for credit and investors, as well as in the establishment of partnerships and working with strategic suppliers. “Companies that took care of the investments model in a reasonable manner, innovated or readapted their products and bought new technologies and software managed to grow above the average of those surveyed. This shows a need to maintain investments and those who did this are in a much better situation than the market in general.”
Diversify funding is needed
A chronic problem for SMEs is the difficulty in accessing extended payment terms of financing and healthy interest rates to the business. “The development agencies have sought to expand operations with companies of these sizes because we see efficiency and value generation. SMEs today are the basis of our economy. They proportionately employ, per unit of invested capital, almost twice the number of people than a large company. It is good business to help them grow” explains Alvaro Sedlacek, Chief Financial and Business Officer of the São Paulo development agency, Desenvolve SP.
The financial market also has a vision of great interest on SMEs, according to the Commercial and Development director of B3, Cristiana Pereira. “There is a big challenge in Brazil: companies that manage to raise funds here are very large. And we are coming from three very bad years , with one IPO [Initial Public Offer] per year. In 2017, we are experiencing a resumption, with eight IPOs in the year and all companies raising above R$ 500 million. They are medium to large companies. This is still a challenge for smaller companies.”
Cristiana points other means for a company to finance itself without paying the market’s high interest rates. “One possible way for smaller companies are issuances of debts and receivables. A large part of approximately 300 companies that raised funds through the debt market, in this three year period, are private, medium and small companies.”
Governance addresses the future
The construction of a gradual structure of corporate governance processes and methods, often inspired by big companies, is also on the SMEs’ radar. For Luiz Fernando Dalla Martha, Research and Content manager of the Brazilian Institute of Corporate Governance (IBGC), it is difficult to assess the SMEs’ degree of governance because they do not yet have great access to the capital market. However, according to the executive, the interest exists.
“Today we can see what type of information the SMEs are seeking, how they want to progress on governance and processes. The managers do this in a practical and genuine way and not due to an outside pressure. And when governance is more genuine, it ends up being more beneficial because it is adopted as a matter of fact in its essence”, says Dalla Martha. In times of large investigations and of great impact in the press, this is a form of the organization to protect itself or prevent a value destruction to occur.
Some topics that were restricted to public or regulated companies, such as compliance, internal audit, board of directors and reporting channel, are now part of day-to-day reality of SMEs. This movement is seen as mandatory and definitive., Ronaldo Fragoso, Deloitte Market Development lead partner.
Ronaldo Fragoso, Deloitte’s partner, believes that the governance aspect, which, in some companies, was new, began to become a crucial factor. “If SMEs want to relate, for example, with the public sector or with regulated companies, they will have to observe governance aspects and provide data in a timely and transparent way.”
Cristiana Pereira, from B3, indicates that it is important for the company to organize, prepare and be ready to enter the market. “Even if the company has not, in the short term, the aim of raising funds in the market, the fact of being more organized in terms of governance facilitates the access to credit, even with development agencies. Governance gives access to capital for continuous growth. This is a virtuous circle: the company is organized, has more access, can grow and thus stands out and perpetuates itself.”
Agility and innovation
Heloisa Montes, Deloitte’s lead partner of Strategy & Operations from the Business Consultancy area, highlights the ups and downs of an emerging company’s life cycle. “The life of the small and medium-sized companies’ managers is very lonely. They have to find, by themselves, solutions that the giants have already found. However, at the same time, companies that stand out move much faster because they do not carry large and complex structures.”
SMEs can benefit from their lighter structures to gain agility and assertiveness in the investment decision., Heloisa Montes, Deloitte Consulting’s lead partner of Strategy & Operations.
Unlike large corporations, which often need to deal with complex capital structures, SMEs develop and adopt more flexible solutions to the new demands, according to Heloisa.
Ricardo Blancas, B1 Head of SAP in Brazil, bets on technological transformation and innovation as the key factors for the SMEs’ success. “At this time of transformation, we realize that the companies that have more success and longevity are those that have a much stronger technological operation that is related to their business, whatever it is. We live in the era of digital transformation, and to continue growing, it is essential to transform old processes into digital ones. This is the only way companies can be more productive and make their business continue.”
From change to profit
Cata Company, placed first in the ranking of “SMEs that Most Grow in Brazil”, grew by developing a solution for a common problem of Brazilian retail, the lack of change. Attentive to this consumer behavior, Cata Company’s founder and president, Victor Levy, installed the first CataMoeda machine in a supermarket in the city of São Paulo in 2012. The equipment works in a simple way: the consumer deposits the coins he gathered and chooses to what he wants to change it: gift cards, money bills, cellphone credits or donation to charitable entities.
“Our differential was the creation of a single solution, which hit the spot for a series of supermarkets that had to solve the money change problem and did not know how. We have a two year partnership with a multinational company that sought us and this has boosted the business because we gained a very large exposure” says Levy.
From 2014 to 2016, the company had a growth of 4,658% in net revenues, when they were already developing, in addition to equipment for collecting coins, other solutions for services that involve values, such as smart safes, which destroy up to 40% of the bills within three minutes in the case of theft.
In 2016, Cata Company began an internationalization process and opened a subsidiary in the United States. From this solution a series of other opportunities emerged, which turned into new products and also became more revenues.
With an eye on the final consumer
The managers of the second placed in the growth ranking, Virtual Connection, managed to make the technology services and solutions company’s revenue grow 911% in three years analyzed.
The company with headquarters in Uberlândia (MG) develops, implements and manages client service networks to the final consumer. “We live in a very drastic change market because we interact with clients of our clients, whether through a call center, backoffice and other ways. For this reason, we need not only to develop new services, but to promote the innovation for the best service to our clients. This strategy has protected us these last three years”, celebrates the founding partner and president, Emilio Oliveira.
Oliveira says that the company currently lives the challenge of developing services for people of different generations. “Many want more experiences. So, if innovation is not in our and of our employees’ DNA, we cannot be positioned with our clients with a product that tries to modify and facilitate their lives.”
Financial health in the management
Healthways, which operates in the area of expenditure prediction and planning in healthcare, is the third placed in the ranking, with average net revenue of 625% in the three years analyzed.
The company’s work is done through a populational database. This information will be used in a platform that coordinates activities of different areas of activity in the healthcare chain, correlated with diseases’ stages and incidence. “The work is to point to the companies’ managers and governments what to do in each stage of each disease, or of the population’s life cycle. It is an assertive job, which mainly bets on prevention. The prediction ability assists in the use of services by employees and is also valid to public managers” says Nicolas Toth, managing director of Healthways for Latin America.
Internationalization at the right time
VTEX, company focused on developing native marketplace solutions to retail, recorded, in three years, an average growth of 55%%. The net revenue increased from R$ 41.8 million in 2014 to R$ 100.7 million in 2016. To service the retail, one of the most impacted sectors by the crisis, they developed a strategy to create ecosystems with partners and clients to open new markets in sectors or in other countries. In 2012, the company began the international expansion. Today it operates in 22 countries. “We realized that the Brazilian market is too afraid to look out of the box because it barely explores internally by the fact of being a very large country. We did not have this fear and put ourselves out there in 2012”, says Rafael Forte, VTEX’s founding partner and president.
BEST MANAGED COMPANIES – BRAZIL
With the aim of valuing the best management practices among companies that operate in the country, Deloitte led for the first time in Brazil, and simultaneously to the survey “SMEs that Most Grow”, the prize “Best Managed Companies – Brazil”. The survey, inspired in awards held by Deloitte in countries such as Canada and Ireland, assessed companies to select highlights in four major areas: sales growth , revenue growth, innovation promotion and environmental and social sustainability practices.
Geofusion – company that operates in the management of a database with sociodemographic information, sales and consumption across Brazil to assist retail companies in their expansion strategies – won the award “Best Managed Companies – Brazil” in the category “Innovation Promotion”. Geofusion’s expectation for 2017 is a growth of 40%, according to Pedro Militão, the company’s CFO.
Recently, the company has made a change bringing the focus from product and revenue management to innovation. “We hope that this innovation in the medium term give returns in revenue and market share growth. We recognize that the movement we started at the beginning of 2016 maintained our results now in 2017” says Geofusion’s CFO.