Samba: The Ambitious Brazilian

Gustavo Caetano didn’t have it as easy as his American counterparts. Maybe that’s why he did so well.

This is the story of how he made Samba into a leading South American platform for games and videos by hustling to get customers to take his calls, finding revenue in a business where others didn’t think it existed and capitalizing on foreign companies’ underestimation of his part of the world.

Gustavo Caetano

Gustavo Caetano

SAMBA Tech S/A

Gustavo Caetano is the founder and CEO of SAMBA Tech S/A. Established in the end of 2004 Samba aims to be the biggest digital entertainment distributor in South America. It’s clients include Abril Group, TV Globo, TV Record, SBT, Band, O Boticário, Sony, Banco Icatú, Cruzeiro Esporte Clube, Clube Atlético Mineiro, UOL, Claro, TIM, Warner Music, Universal Music and Grupo Associados (Estado de Minas, TV Alterosa and Portal UAI).

 

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Full Interview Transcript

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Here’s the program.

Andrew: Hi, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart and the place you go when you want to listen to entrepreneurs talk about how they built their business.

So, the big question for today is how do you turn your business around completely? Joining me is the founder of Samba, Gustavo Caetano. He’s a Brazilian entrepreneur who converted his company from a struggling game distributor to a growing online platform. I want to ask him how he did it, and I also want to ask him about entrepreneurship in Brazil. Gustavo, welcome.

Gustavo: Very nice to be here. It’s a pleasure.

Andrew: So how big is the business today? Let’s talk revenue. What size revenues are you guys doing?

Gustavo: We’re probably closing in on$5 million this year, and we’re growing about 300 percent a year.

Andrew: Wow. Big different from the game distributing company that you had before.

Gustavo: Yes.

Andrew: When did you launch that? I want to find out what was going on there, what the transformation was, and then how you grew your business. So, when did you launch the business?

Gustavo: Samba started in 2004.

Andrew: Okay.

Gustavo: The end of 2004. My background is in marketing. So, I was working in a big company in Brazil, in Rio de Janeiro. One day I bought a mobile device with color and a screen. I tried to download some games, and there were no games on the market at that time over there. It was just like ringtones, and so I decided to try and find who was selling games outside of Brazil.

I saw some big companies doing that in England, and I contacted them by Google. And one of these companies, they just sent me an e-mail saying, “Oh, we’re very interested. Brazil is a big country and it’s growing. Mobile is growing there. We want to be your partner, but first you have to bring us a business plan so we can make sure that we’re investing in a good partnership.”

So I prepared a business plan in Brazil, and then I went to England and showed the business plan for this company. And they decided to help us. They said, oh, you can sell our games in Brazil, and we started the company. I went back to Brazil to start the company. I said, “I have a great opportunity here to sell mobile games. I have a big partner now.”

So, we have a good amount of games to start selling, but I have no money. So, I called my father. I said, “Hey, dad, could you introduce me to a rich guy? I need someone to help me in the project.” My father introduced me to one rich guy in software in Brazil. I went there to show the idea for him, and he was like, “Okay, I’ll be in. He put $100,000 to start the business. So, that’s how we started.

Andrew: Wow. Let me unpack some of what you said there. The first thing that I was curious about was what was in that business plan? What did it call for? What was your original business platform?

Gustavo: Basically, we were trying to show that Brazil was a very big market for mobile games, that there were no competitors at that time. And the market was growing very, very fast. So, the idea of the business plan was we don’t want to create games, but we want to be the biggest games distributor in Latin America. So, we did that. After one year, we had offices in Argentina and Chile, and we were selling games for almost all the mobile carriers over there in our region.

Andrew: Your business plan said that you were going to connect with the mobile carriers and convince them to work with you, a new company that they’d never heard of before, that didn’t exist a year before you knocked on their door. What advantage or how were you going to open up those doors?

Gustavo: So, the idea, yes, we know that we had a big problem. We had other problems in our case because I didn’t have experience in that industry. I never worked in a mobile carrier. I didn’t know the problems that they had, but I saw an opportunity there. The idea, the strategy was let’s find a very big partner with a lot of content so I can get a mobile carrier and say, “I have 2,000 games so you don’t need to worry about the games.” That’s our differential at that time.

There were some mobile developers selling games, but like two or three games for the mobile carriers there. Our strategy was let’s get 2,000 games for big players, and we signed an agreement with companies like [06:51] and [06:54] and other big game publishers and thy start to bring a lot of games. So, we had a good differential from other companies.

Andrew: Okay. So, the idea was if you flood them with games, if you say I’ve got all of these, then they’re going to want to do business with you even if they never heard of you. That’s going to be your credibility.

Gustavo: Yes.

Andrew: Actually, how did you know who to call up at these phone companies? How did you know who was the right person to talk to?

Gustavo: Oh, so I started sending some blind e-mails, just sending e-mails and some of them were . . .

Andrew: Really. So, it was just like what you said before to find the game publishers. You would Google to find out who the game publishers were. You’d find their contact information and just do blind e-mails.

Gustavo: Yes.

Andrew: Before I continue with that part of the story, the rich guy, your dad just happened to know a rich guy who was into investing in a new company.

Gustavo: Yes. This guy he has a lot of big companies in Brazil but in other sectors, no technology companies. He thought that he would be a good investor for us.

Andrew: How did your dad know him?

Gustavo: Oh, they used to work together in one of their companies.

Andrew: I see. Did your dad work for him?

Gustavo: Actually, my dad was kind of a board director of the company, and he was also one of the directors.

Andrew: So, it’s fair to say then that your dad was a rich guy, too, who could have invested.

Gustavo: Yes. Actually, my dad invested in the company, also.

Andrew: How much did you raised total?

Gustavo: $100,000 in the beginning.

Andrew: I see. So, this wasn’t just a $100,000 from one person. It was from your dad, from that person, and maybe others.

Gustavo: Yeah, these two guys.

Andrew: Just those two together.

Gustavo: Yes.

Andrew: Gotcha. Okay. So, now you get your funding. You got your business plan accepted by the German company. You’re in business. What’s the first thing you do?

Gustavo: We had other problems. Rio de Janeiro and São Paulo are very expensive cities in Brazil. So, I decided to move to another city called Belo Horizonte. Belo Horizonte is the third biggest city in Brazil. It’s the capital of one big state there. The state is Minas Gerais. I went there because Belo Horizonte is much cheaper than Rio and São Paulo. It’s a big city and can give me all the infrastructure and people that I need. So I went to Belo Horizonte to start, and I started with a very small office with two guys. And we started a company there.

Andrew: Give me a sense of what real estate would cost. For example, this office that’s I’m in right here . . . I don’t know what the square footage is, but it costs me about a thousand bucks just for this little space. What does it cost for an office where you opened up?

Gustavo: Oh, about $300 a month.

Andrew: Wow. And it was big enough for three people.

Gustavo: Yes.

Andrew: Wow. OK. That gives me a sense of it. And who were the first two people who you hired?

Gustavo: So, one continues in the company until now. Rodrigo is his name. He’s the Director of Marketing at Samba Tech, but he started as an intern. The other one was a designer, and then he left the company.

Andrew: Okay.

Gustavo: It was too risky for him at that time.

Andrew: Yeah, it probably was. And what was he supposed to design? Why did you hire a designer first in addition to the intern?

Gustavo: So, the idea was like we were just a reseller. At that time, what we needed was a lot of credibility. So, I invested a lot in design to secure a good website and a good logo and to build some material for our clients that would have some credibility, and it helped a lot. We did a good job at that time. So with three guys we were selling for almost everybody in Latin America.

Andrew: Wow.

Gustavo: Because the big clients, they just see the image of the company. So, we had such a very good image. I also hired a PR firm at that time, and they helped us to start building our brand over there. Usually, when we’re talking with the big guys, they thought that we were huge, like a big company. Oh, you have a lot of content, big brands. So, they imagined we were a very big company. So, it helped a lot.

Andrew: Wow. I can see how those little touches would go a long way. Can you tell me about how you got the first carrier that you ended up with as a client? How did you get that first customer?

Gustavo: The first carrier, we just started approaching a lot of carriers. We were using a lot of endorsements from the big brands that we have. So, we went first to a big carrier in Brazil called Oi. We were kind of trying not to lose money but not to make a lot of money. We understood that at that time we just needed a big brand in our portfolio to say, “Hey, Oi has our content. Why are you not going to have it?” So, that’s what we did. The first deal was not a very big deal, not a good deal for us. But it helped us to bring the smaller operators there and other operators started trusting us.

Andrew: How did you get in the door at Oi?

Gustavo: Oh, we kind of were trying to find using networking of our investors and some friends, and we finally got there.

Andrew: Okay.

Gustavo: When we start talking about the online video platform, I have some good stories to tell you.

Andrew: Oh, about how Samba got video customers. All right. I’m going to come back and ask you about that. So, you said it was a bad deal. What do you mean? How was it bad?

Gustavo: Because the mobile carriers, they were working with, they still work with revenue share. So, you must divide your revenue with them. And at that time we had an agreement of 70 percent for the operator and 30 percent for us.

Andrew: And then you needed to take that 30 percent and pay the game manufacturer for it and pay the rent and grow your business.

Gustavo: Yes.

Andrew: So, was the game creator . . . did you have to pay the game creator more than you were getting from Oi?

Gustavo: No, no.

Andrew: No. Okay.

Gustavo: The good part of it is that Brazil was not an important market for the game players. So, they were like, okay, do whatever you want here we don’t care.

Andrew: Really. Bring whatever revenue, we’ll take it.

Gustavo: Yeah.

Andrew: So, you still made a profit with Oi.

Gustavo: Yeah.

Andrew: Well, what’s more typical then? If a 70-30 split with you getting 30 percent is bad, what’s more typical?

Gustavo: Oh, 50-50.

Andrew: 50-50 is normal, okay. All right. And so, this sounds like a pretty good business. You ended up getting Oi, a major company in Brazil. You ended up expanding to other carriers in Brazil. You went to Argentina and Chile. What’s the problem then with this business? It sounds like you’ve got a great business in a couple of years.

Gustavo: Yes, we were growing very fast. We kind of started making some money with a few people, so we got scale. But I saw big problems in the market. One day I was sitting with Rodrigo, and we started talking about the market and what was going on. We saw that we were selling for four big companies in Brazil. We had four big customers, and these customers, these big operators were starting to be stronger, to get stronger. And that was very risky for us because the revenue would be much lower than that.

Andrew: I see.

Gustavo: I told Rodrigo, “Hey, we are in a very dangerous place now. We must invest in our own technology, and we must get out of the mobile market. We must think mobile as one device that must receive content and everything else. But we can’t focus our company just on mobile.” We decided to hire some IT people to start creating technology to host and distribute content over the Internet.

Andrew: So was sales going down when this happened, or were you just anticipating that they would?

Gustavo: No.

Andrew: No, they weren’t?

Gustavo: They weren’t.

Andrew: So, in my intro when I said that you converted a company that was struggling to one that was growing, I got that wrong. It wasn’t so . . . you weren’t struggling. You were just anticipating that you would be going in the wrong direction, that you would be struggling in the future, right?

Gustavo: Yes, yes. You’re correct.

Andrew: I see. Okay. All right.

Gustavo: That’s the idea. We just started thinking about the future and say, “Hey, we can get this money and put it in our pocket and get a new car and stuff like that, or we can invest this money that we’re getting now in something more sustainable that’s going to help us grow faster in the next years.” That’s what we did.

Andrew: I see. What size revenues were you doing in 2006, the year before the change?

Gustavo: About like $500,000.

Andrew: $500,000?

Gustavo: $500,000, yeah.

Andrew: So, half a million dollars in revenue you were doing.

Gustavo: Yeah.

Andrew: Two years after you launched the business, half a million dollars. What was life like for you?

Gustavo: Two guys, or two or three guys.

Andrew: For two or three guys. How did it feel inside the company to have that size growth so quickly?

Gustavo: So, we were very happy. We kind of have a very strong culture, DNA. We try to keep ourselves very friendly and very happy and we have a very nice environment to work. We always did that. We always work to have the best place to stay. We just keep that in mind. We were trying to do something big. The kind of money that we were doing at that time was good but not too good. Our idea was we didn’t want to be a small company here in Belo Horizonte. We want to be a global company.

Andrew: Gotcha.

Gustavo: So, that’s our focus.

Andrew: And if it was a half a million dollars in revenue, what size profits roughly were you generating?

Gustavo: About 20 percent.

Andrew: Okay. All right. So, about $100,000 profit for a two year old company.

Gustavo: Yeah.

Andrew: And you didn’t need to raise any more money after the $100,000.

Gustavo: No.

Andrew: Sounds like your dad made a good investment.

Gustavo: Yeah.

Andrew: Okay. So, you start to look at new distribution options. You’re going to create a new platform. What kind of new platforms did you create?

Gustavo: In 2007, we started to experiment new things over the Internet, new technologies. And we built a service to distribute games for PCs. So, we signed some agreements and started selling DVD games that you buy on Best Buy over the Internet.

Andrew: I see.

Gustavo: We created a platform to host and manage these and to deliver these games with [20:01] DRM, and everything else. We signed a lot of agreements with ISPs to have distribution channels. So, we have clients like Teja, the ISP from Telefonica, and other big ISPs in Brazil. And we had a lot of white label stores inside these ISPs. It was a huge failure.

Andrew: Why?

Gustavo: Because in Brazil the piracy is very high, and people don’t want to buy games. They want to download games for free. At that time in 2007, the Internet, the broadband connections were terrible. So, a lot of things helped us to fail but to fail fast. So, we failed like in three months. In six months we decided to stop this project. We were losing a lot of money, and we were frustrating our clients and partners. Let’s stop that and we stopped it.

We decided to kill the project, and at the same time, we saw an opportunity to distribute videos using the same platform. We say, “Hey, we have this platform. Video is growing a lot. Nobody’s doing this in Brazil.” We were starting to see some companies in the U.S. doing that, and we say, “Hey, why don’t we use this platform to distribute videos? But let’s not try to do it directly to consumers. Let’s not try to sell or to distribute videos direct to consumers. Let’s do this platform and create a platform for business to business. Let’s sell it to companies, and these companies can do whatever they want with the content.”

Andrew: Would they be selling their content to end users, or would they just be using it to host videos that are promotional videos and other kind of videos?

Gustavo: Both. They were kind of selling some content and distributing other videos for free, free like here in the U.S.

Andrew: I see. So it would be kind of like me using it to sell this interview and maybe, taking some past interviews and giving them for free. Using your platform I could do that.

Gustavo: Yes.

Andrew: Okay. Now, you and I talked before the interview and you told me that MIT’s G-Lab helped you out, helped you make this transformation in 2007. What is MIT’s G-Lab?

Gustavo: MIT G-Lab is a program that MIT sends some MBA students to stay a month in some startups outside the U.S.

Andrew: Okay.

Gustavo: So it’s a good experience for the students, and it’s a very good opportunity for us. And so I was at MIT for a short course, executive program. When I was coming back to Brazil, I started talking with a guy in the airport in Boston, and I showed him what we were doing and this platform that we were thinking about. He was like, “Oh, I’m one of the directors on the board at MIT, and MIT has a very good program called G-Lab. They choose 40 startups around the globe, and they help these startups to grow. And I want to put you guys on this program.” I said, “Oh, fantastic. So, I went back to Brazil, and we applied for this program, and we were approved.” We are MIT’s partner since 2007. Every year they send these students to stay with us. It’s the fourth year that we’re working with this program.

Andrew: What kind of ideas did they give you in that first year? How did they help you shape your business?

Gustavo: So, we had the idea to work with the distribution of videos, but we didn’t know how. These guys, they came with some fresh thoughts about technology that we didn’t have at that time because we were in Brazil. The first one was, hey, you should create this platform using cloud computing. You’re not going to sell software to be installed inside the servers of your clients. You are going to offer that as a service. So, your software will be software as a service, and we did that. We created all the infrastructure here in the U.S. using some data centers here. We built all the platform using these clouds infrastructure, and we started selling this platform as a service. So, we have a lot of recurrent revenue from our clients.

Andrew: I see.

Gustavo: So, we built something that nobody was doing in Brazil at that time.

Andrew: I see.

Gustavo: In 2007, nobody was talking about cloud computing or software as a service.

Andrew: So the way you envisioned it at first was to come to a guy like me and say, “Andrew, you’re doing interviews using video. I’ll give you software to put on your server, and you can use my software to show your videos on your website.” And they said, “No. Andrew does not want to do that. We’ll make it so that you can upload your videos to us. We’ll give you some code. You put it on your website, and that way you can let your audience watch.”

Gustavo: That’s it.

Andrew: I see. And you bought your own servers and your own infrastructure?

Gustavo: Yes. We had the money from mobile, and we bought and we created inside some data centers here in the U.S., some big infrastructure to host these and to do all the video work flow. There’s transcoding, encoding, closed caption, DRAM. Everything that a video needs, we created inside our servers.

We also closed some agreements with CDMs here in the U.S. So, we had several CDMs to help us to distribute this content for several people in Brazil.

Andrew: I see. Why host in the U.S. if your customers are going to be in Brazil?

Gustavo: Because, in 2007, nobody there was talking about it.

Andrew: Ah, the infrastructure wasn’t in place yet.

Gustavo: Yeah. The infrastructure there, nobody was talking about cloud computing. Nobody knew what was that. So, we decided to come here and use the infrastructure here in the U.S.

Andrew: I’ve got a note here to come back and ask you about how you got your first clients. How did you get the first one?

Gustavo: One day I was reading a magazine, and I saw the name of one director of one big TV station in Brazil. I saw the name of the woman there, and I started sending some e-mails, like, the name dot, the last name at the name of the TV dotcom or the name without a dot. And I tried different e-mails, and one reached the person. But in these e-mails I kind of showed them the person that I was. I knew her in the past, but I kind of tried to write an e-mail saying, “Hey, how are you? As I told you, I have a platform.” The e-mail reached the person. She was like, “Okay, Gustavo, I passed your e-mail to the director of technology of our TV station.” So, she sent me to the director of technology, and this person is the daughter of the owner of the TV station.

Andrew: Wow.

Gustavo: And so, the CTO of the group received very good at their headquarters because the owners told him to receive me over there. So, I had the opportunity to show the platform. At that time, we had a platform built in PHP. It was not very good for scale or nothing like that, but we had the first version of the platform. I went there and showed the platform to the guy and he said, “Okay, we want to buy it.” So, we got the first important client in Brazil, and this is one of our biggest clients. They are still one of our biggest clients nowadays.

Andrew: I love that. You were just firing off e-mails testing out different account names, and you can kind of guess what people’s e-mail addresses are going to be. But the touch that I like that you added was that you acted like you knew each other.

Gustavo: Yes.

Andrew: And you were never called out on it. She never said, “Hey, where did we meet?”

Gustavo: No, no.

Andrew: Wow.

Gustavo: That was very helpful for us.

Andrew: You mentioned that the first version wasn’t perfect. Of course, it wasn’t. I’m curious about what it looked like. I’m always curious about what that first version looked like and then how did you improve it later on. Why don’t we start with the first question?

Gustavo: We built the first version in a very simple way, all in HTML and PHP but with a lot of bugs. We had a lot of problems. So, I remember that the day that I went there to the presentation to show the product, my IT guys, they tell me, ‘Hey, you must click here. Please don’t click here, here. Don’t do that. Don’t do that.” So, I’d know exactly what I could do and could not do at that time. I went there and everything went well. So, they decided to hire us to be their online video platform.

Andrew: If they would have taken the mouse from you and said, “Hey, Gustavo, I’d like to try something here,” and click the mouse on the wrong button, the thing would have fallen apart?

Gustavo: Yes.

Andrew: And if you would have done that, the thing would have fallen apart?

Gustavo: Yes.

Andrew: I see. And when you finally got the version to them that they paid for, how many bugs were there in it at that point?

Gustavo: I know that we had a time between the presentation and the contract signing. These big companies in Brazil, they take two months or three months to sign an agreement with any company. So, I thought that we had like two months to do a better version of this platform. When we put the platform on production for these guys, there were a few bugs, just a few bugs. But for the presentation, we had what we needed at that time.

Andrew: But even after they bought it from you and you had that final product, there were still a few bugs, and you just worked it out with them.

Gustavo: Yes, yes.

Andrew: Okay. How about another client story? How else did you get a client?

Gustavo: Today we have eight out of the ten biggest media groups in Brazil use our technologies.

Andrew: Okay.

Gustavo: And we were just going to one client and say, “Hey, all of these other companies are using, but you’re not going to use it.” We started signing a lot of agreements with TV stations. All the top five TV stations in Brazil use our technology. And so we kind of used one company to sell it. In different sectors, when we were approaching one client, we usually ask this client to go to visit our other clients to see what’s going on and how they use the technology and what they think about us. And so, the clients help us to sell the product.

Andrew: I see. I guess once you get one of the top video users in the country it gives you a lot of credibility with everyone else.

Gustavo: Yes, yes.

Andrew: What are some of the key features that you added on later that made the business better, that helped it grow?

Gustavo: We started investing a lot in analytics because we thought that everything was okay. When you build a CMS for videos, the area to manage content is very simple. You insert the metadata and the category and everything else to schedule the date that you want to publish a video or not. But the big value for these companies are the analytics. So, we started investing a lot in creating some real time reports so the companies, they know exactly when the video is played and with one or two minutes of delay.

Andrew: I see.

Gustavo: So they know in real time what’s going on on their website. It is very important for them.

Andrew: I use a service called Wistia to show my videos, and they give me analytics. They’re known for analytics. Do you know them, by the way?

Gustavo: Yes, I know them.

Andrew: You do? And you know then that they offer analytics within the video. Do you guys have that yet?

Gustavo: Yes, we do.

Andrew: You do? So, you can show your customers when people stopped watching, when they rewound, really?

Gustavo: Yes, and much more.

Andrew: Okay. Sorry?

Gustavo: And we have more than that, also. But we have this feature to show inside the video what’s going on. When people stop.

Andrew: What other analytics do you have?

Gustavo: We have several different, like, you can see different CDs with different actions, different profiles of people. If, for eCommerce companies, an example we can understand, if the guys are watching video, after they watch the video they can buy the content if they are buying the content or not, the product or not. So you can understand if the video is effective for sales or not. So, we do this kind of integration, a connection between the videos and the CRM and everything else.

Andrew: I see. Wow. Yeah. I never understood the value of analytics within videos until I started to see it, until I started to see it with my own audience, and then you start to understand, wow, there’s so much that we’re not aware of. There’s so many decisions being made by people as they’re watching the video and then afterwards. If you could understand where they are making those decisions and why they’re making them, you can start influencing the customer.

If you can see, for example, which customer saw your video from beginning to end, you know who is interested enough to buy. And if they didn’t buy right away, you should be able to go back to them and say, hey, we’ve got a five dollar discount or ask for feedback or try something. But you know you’ve got a hot prospect there.

Gustavo: Sure. And that’s the important stuff, the analytics in real time because for these big media groups they need to understand what’s going on this second, this minute.

Andrew: Why? Who are they? What kind of media are they distributing?

Gustavo: Oh, videos from TV, TV shows.

Andrew: So they’re showing TV shows.

Gustavo: Yes.

Andrew: I see. Do you have cat videos being served up on your platform, the way that YouTube does or people’s home videos or smaller companies creating their videos on your site?

Gustavo: No, no.

Andrew: No. It’s meant for the bigger players like the television stations.

Gustavo: Yes. And we’re also now growing in the enterprise market.

Andrew: Okay.

Gustavo: So, the big enterprise are hiring us to do internal communication using videos.

Andrew: I see, to see if their people really watched their videos.

Gustavo: Yes.

Andrew: And is it only in Brazil?

Gustavo: Yes, only in Brazil at this time.

Andrew: I did see that your site is translated into English which is kind of helpful for me.

Gustavo: Yes.

Andrew: What happened to the video game business after you made this transformation?

Gustavo: We decided to close it. One year after we launched the platform, the revenue of the platform was bigger than the revenue from the video game, and we decided to focus on the platform. We said, “Hey, we’re losing focus in maintaining this gaming area here.” It’s something that we couldn’t maintain, and it would generate some money for us. But we were losing focus, so we decided to finish off and focus 100 percent on the video platform.

Andrew: And it was only ten percent of your business, so it wasn’t a big loss.

Gustavo: Yes.

Andrew: Now, you saw how YouTube was growing in the U.S. You saw how related sites, like Vimeo, are growing. Why didn’t you get into the consumer market and help anyone upload their family videos or become a video blogger?

Gustavo: We thought that that’s something that we could do in the past, but we decided not to do because we didn’t have money. So, we just received money from venture capitalists in 2008, like one year after we launched the product. And to build abrand on the Internet, it’s very expensive. So we decided to work for the big brands and say, “Hey, let’s create a lot of YouTubes but using the brands of the big media groups over there.” So, that’s what we did. We said, “We don’t have money to spend creating our own brand for the consumers.” So we decided to go for this B2B market.

Andrew: Plus from all we’veseen, consumers are hard to monetize, right?

Gustavo: Yes, yes, very hard. And for these media groups, if they are monetizing or not, they are paying us every month.

Andrew: I see. And you’re actually going to meet your investors at some point today. That’s why we’re interviewing you in your hotel room where the Internet connection has held up so well, hasn’t it?

Gustavo: Yes.

Andrew: Wow. Who are your investors, and how much did they invest in 2008?

Gustavo: We have investments from DFJ. They have a branch in Brazil that’s called DFJ-Fir Capital. They are based in the same city that we are. They invested $3 million in our company in 2008.

Andrew: Why did you decide to take funding?

Gustavo: Because we needed to scale the technology to hire more people, more professional people, and we needed money to do that. We were one of the few companies in Brazil that got money from venture capital. Because over there, there are no options. There is no available money in the market. So,they decide very carefully about what company they are going to invest or not because the money’s not big.

Andrew: That’s the other thing I wanted to talk to you about in this interview. What’s entrepreneurship like in Brazil? If someone wants to start a company, what do they need to do? How hard is it?

Gustavo: It’s very hard, actually.

Andrew: Why?

Gustavo: There is a lot of bureaucracy from the government. You have to pay a lot of taxes. The taxes are very, very high. Like, if you hire one person with you and you pay $1,000 a month, you have to pay $1,000 for the government.

Andrew: Okay. So, for every person you hire you have to pay as much as their salary to the government?

Gustavo: Yes, sometimes.

Andrew: If you pay $5,000 a month, you have to pay $5,000 a month to the government?

Gustavo: Yes. It’s not exactly. But it’s like 80 percent of their salary.

Andrew: Wow. Okay.

Gustavo: So, it’s very, very expensive, and it’s very hard to compete globally with these taxes. There is a lot of bureaucracy, and it’s very risky for the entrepreneur to start a company there. Also, on the cultural side, we’re not a country that educates each person to create companies. So, in the schools and universities, they educate people to work for big companies and not to create their own.

But it’s kind of changing now. I see a lot of startups, starting now in the market in São Paulo, Rio, Belo Horizonte. And a lot of venture capitalists are going there to invest in these ideas because they see that there are a lot of good ideas, good people, good universities, and these people are going nowhere. They are going to work for IBM or Accenture or other companies or opening their own software house or something like that.

Andrew: Why were you able to start a company, considering the legal environment there and the culture in Brazil? Why you? How were you able to do it?

Gustavo: First, I believe that we had a lot of luck because it’s very hard to do that, what we did. And we were lucky to find this first angel investor. It’s not common to find an angel there.

Andrew: Even beyond that, how did you, Gustavo . . . where did this feeling that you needed to be an entrepreneur come from? It didn’t come from your environment. It didn’t come from watching all your friends be entrepreneurs. It didn’t come from your teachers saying if you’re great in business you should start your own company or watching it on TV. Where did it come from?

Gustavo: Sense of opportunity. The day that I decided to build the company, I remember that I called my parents, and they were like, “Are you crazy? What are you doing? You are going to leave your good job for this, for an idea, a crazy idea of selling games. What is that?”

So, the culture also in the families, it’s something that is very hard to deal with. But for me I kind of knew that there was an opportunity there, and I had to do that because nobody was doing it. I wanted to buy a game. I couldn’t find a game, so what’s going on? There are more people like me who are willing to buy games. And so, I thought it was the right time, and I didn’t think a lot. I just tried to buy, and the other day I was kind of searching for companies doing that. Like two months after, I was opening the company. I didn’t stop to think about my future and something like that.

Andrew: Were you also reading about entrepreneurship or watching movies about entrepreneurs?

Gustavo: Yes, I was.

Andrew: Like what? What were you reading, before you started this company, that you think influenced you to launch it?

Gustavo: Oh, I didn’t know it was before that, but during the process I read a lot of books about startups and Microsoft Works and some other good books. I remember one book that I read, “First You’re Lucky, Twice You’re Good.”

Andrew: Yeah, by Sarah Lacy. But that book didn’t come out until after you made the switch to video. That’s a pretty recent book.

Gustavo: Yeah.

Andrew: Before 2004, were you reading any books about business?

Gustavo: Yes, just business, like Michael Porter and Cutler and [45:45].

Andrew: But nothing about entrepreneurship.

Gustavo: No, no, nothing. I just started thinking about startups and everything after 2007, 2008.

Andrew: I see.

Gustavo: I started to read a lot of books about startups.

Andrew: Yeah, around that time is when you started to get books like “Founders at Work” which you mentioned and “Once You’re Lucky, Twice You’re Good” and entrepreneurship and startups started to become a little bit cooler and a little bit more accessible.

If all this conversation was around when you were younger, how do you think it would have influenced the way you launched your business?

Gustavo: Oh, a lot. So, after 2009, I came to the U.S. to go to a workshop with a guy called Marty Keegan. Marty used to work for big companies, like eBay, Netscape and other companies. He has a workshop about product management. I went to his two-day workshop, and it was amazing that there were a lot of things that I didn’t imagine. I thought that, hey, if I got this information before I started the company, I think it would be much easier.

One thing that I learned a lot here in the U.S. is about scale. When we are starting companies in Brazil, we usually think about selling platforms or services just for the big companies. And when you came here to the U.S. to listen to other guys that did something cool in the past, we see that they’re all thinking about scale. How am I going to scale my business to sell for a lot of people? Over there we were just thinking about sell for a few people and try to get a lot of money from these people.

Andrew: I see.

Gustavo: We changed our focus there. One year ago, we were just selling for big, big companies, and now we’re selling for small companies that want to use our videos, not media companies but small companies that work in different areas that want to train their team and everything else.

Andrew: All right. Final question is one that I’ve been asking entrepreneurs lately at the end of these interviews. What advice do you have for others who are building their company based on your experience?

Gustavo: First, focus on creating a good culture, a good DNA for your company. I think this is global. It’s not just here in the U.S. or just in Brazil. Create something, some environment that’s cool for people to work, and people will wake up in the morning and say, hey, I’m going to work today.

So, we did that at Samba and in Brazil it’s not very common. Here in Silicon Valley it’s much more common to have cool offices and a lot of people, software people. Over there we try to build it, but we were always focused to maintain our DNA, like to be very nice to your clients, trying to understand your clients, sit with them and be flexible. Several times we had to be very flexible with our clients during the bad economy times, and we have this inside our DNA. Everybody company has the same DNA. We are now 50 people working together there, and everybody’s looking about the same. We’re cool, nice, and calm.

Andrew: All right. Well, it’s great to meet you. Thanks for doing the interview. And thanks for finding a way to get the Internet up and running. I know it’s not easy when you’re not at home, when you’re trying to figure out a connection. But thankfully, it worked out at your hotel room.

Gustavo: Yeah. Thanks a lot. For me, it’s a pleasure to be here. It was a fantastic conversation. I learned a lot. And so, thanks a lot.

Andrew: Thanks. It’s great meeting you. Thanks you guys all for watching. Bye-bye.

Gustavo: Bye-bye. Thank you.

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