startupi

When the millenium turned we were in the midst of a flurry of investment in Internet-related businesses. Followed by a plummet as investors pulled their money for fear of a sudden devaluation due to lack of returns. The crash affected Brazil, too. Though some were able to withstand the hit, remaining strong and innovative. And I’m not just talking about Buscapé.

I had a nice conversation with Alexandre Canatella, CEO of e-Media (in partnership with Luiz Lapetina). E-Media is a content and online relationship business that’s been up since 1997, with services such as Vila Mulher, CyberCook and CyberDiet.

I asked if the dot com bubble burst had affected his business. “Our revenues from 2000 (the year of the burst) to 2001 fell by 55%” said Canatella. “But we didn’t have to lay anyone off, which was exceptional.”

Why do bubbles burst?

A speculative bubble is formed when the only thing that is sustaining a market is the entry of new participants, creating a sort of natural pyramid scheme. Since the number of possible participatns is finite, all bubbles have an end, though it is difficult to determine when it will come.

When stocks are trading high, many inexperienced people begin to invest, and the values become artificially inflated. More experienced investors realize the values are unrealistic and the risk of devaluation is increasing, and begin to sell off their shares, causing a plummet in prices, and the bursting of the bubble.

This happened between 2000 and 2001. Many dot coms were supported by abundant venture capital at the time. The goal had been to generate competitive advantages that might become profitable in the future. Exorbitant spending on advertising, luxurious offices and the acquisition of additional business were common. Yet many companies did not survive to count their profits.

How E-Media did it

“We had a desire to run the business like a bakery, very methodically. If you have no flour, you have no bread,” says Canatella. “The fact that we started the business before the period of the Internet fever was an advantage. Especially in relation to other business that started then and were driven by the huge wave of opportunity.”

Canatella’s first business was CyberCook, which began with a simple idea: several friends exchanging recipes by email, creating a good online repository. Being simple and positioned in an untapped market, CyberCook served as an example on Joe Soares’ TV program, which created a surge in the number of users. The revenue model was selling advertising.

Two years later the site received an investment from UOL. There were also some e-commerce contracts, but as 2000 progressed they did not come through and meanwhile costs had risen 665%. In August a new idea was implemented: premium content by subscription in the form of CyberDiet. This was launched at the height of the collapse in December. It worked. Instead of 60 monthly subscribers now there were 700. The company is now doing well, with 26 employees and offices in Santos and São Paulo.

The “Fundamentódromo” (Sticking to the Fundamentals)

“We needed to change plans because the game was changing, and changing a lot, and fast. We needed to know how to act in a new scenario. We didn’t want to cut jobs, and we weren’t bloated, which is harmful to the health of any company. We decided on a sort of “fundamentódromo”. What is that? We took everything from CyberCook - all its projects - and classified and ranked what was essential. We had to keep the focus directed to projects that were deeply fundamental to the viability of the operations.”

What the Internet represents for Brazil

“The generation of entrepreneurs in innovative technology at the beginning of this century has paved a very important path for Brazil to seize the enormous opportunity of being involved in this critical new entrepreneurial scene. Through a series of new initiatives that pop out of the ideas generated by labs or universities and land in the real world game field, people are experiencing this new reality - everything is online.

More information about these products and services here. (in Portuguese)