LISBON--Few things encapsulate Portugal better than its bakeries,
where people from all walks of life mingle over coffee and cake. So when
a whole new chain emerges in the depths of an economic crisis, it sends
a glimmer of hope.
"It's almost like a hideout
from the crisis. I was really happy to learn that they are opening more
stores, it dispels the gloom a bit," said Ana Justina, a freelance
designer and a regular at two of the 12 cosy outlets of A Padaria
Portuguesa (The Portuguese Bakery) in Lisbon.
With unemployment at record highs, empty stores and "for rent" signs on
cafes are far more common than prospering new businesses after a 40
percent jump in insolvencies this year.
Still,
the bakery chain is just one example of how a bold business concept can
defy the worst economic slump since the 1970s, a smothering tax burden
imposed under an international bailout, record-low business morale and a
lack of bank loans.
Although not numerous,
other startups in areas from farming to computer technologies and
biomedicine, including in the all-important export sector, are jumping
into action.
"There's an urge to change and do
business better," said Daniela Couto, co-founder of Cell2B biomedical
startup that raised about 1 million euros earlier this year, mostly from
private investors in Portugal, Spain and the United States.
Cell2B is preparing for clinical trials of promising cell therapies
aimed at eliminating transplant rejection in humans, after which the
founders do not rule out a share offering.
Nuno Carvalho, 34-year-old CEO of The Portuguese Bakery, says a crisis is little hindrance to a growth-oriented concept.
"We are proof that by being lean and mean and responsibly managing your
resources one can have a healthy business and expand, even under these
circumstances," he said.
"And the crisis presents its opportunities, like much cheaper leases and available skilled labor," he said.
The stores with tiled floors are modern and clean yet distinctively
Portuguese, while smiling staff are worlds away from the sour-faced
vendors at many typical bakeries.
Set up with
just one store in late 2010 by five members of the same family, it plans
to invest 2 million euros ($2.6 million) from its cash flow next year
into seven new outlets in greater Lisbon.
Carvalho says it is the first chain of street cafe-bakeries in Portugal
and envisages expanding at home and possibly abroad. He says he has
turned down franchise requests from as far as Australia in favor of
maintaining control of the brand.
Challenging old ways
The debt crisis has hammered the economy, depriving it of easy bank
loans and state funding, but it is also helping to drive change, forcing
entrepreneurs to come up with clever, detailed business plans to be
noticed by precious few investors, who typically pick just one to five
deals from 100 proposals.
These ideas are slowly
beginning to challenge the traditional way of doing business in
Portugal that is often criticized as too near-sighted and lacking
ambition.
"Too many companies that are being set
up still think small and are not sustainable enough," said Paulo
Andrez, president of the European Trade Association of Business Angels
and Seed Funds which invest in promising startups.
Local angels' groups and venture capital investors say they have a total of 350 million euros to invest in startups.
"It's better to create fewer but more sustainable firms that think big
in terms of growth. In northern Europe the proximity of countries like
Belgium, the Netherlands and France makes most entrepreneurs think
global from day one," Andrez said.
He cites a
Portuguese case to show how it should be done; United Resins opened a
factory in 2010 backed by angel investors to make resin derivatives used
in printing inks and exported all of its output worth 25 million euros
last year.
As tax hikes and spending cuts under
the bailout austerity program depress domestic demand, the country is
betting on exports to ride out the crisis and return to growth in 2014.
Exports have grown, but still remain below the EU average.
Small and medium-sized businesses account for almost three-quarters of
jobs and 55 percent of company revenues, but their overall quality, and
lifespan, leaves a lot to be desired.
The latest
Eurostat data show Portugal had the third highest "birth rate" of
company startups in Western Europe after France and Holland in 2009,
before the sovereign debt crisis, more than a third higher than
neighboring Spain or Ireland. But the survival rate, at about half, was
the lowest.
The 2011 Global Entrepreneurship
Monitor showed entrepreneurial intentions still exceed those of most EU
states, double the levels seen in fellow bailout receiver Ireland that
boasts low companytaxes. Perceived opportunities lag behind Ireland's
but exceed those in Greece and Spain.
Cell2B's
Couto says defter, young entrepreneurs are emerging. "When I returned in
2011 after a two-year stint in the United States, there were many more
companies being set up, more bright business plans vying for financing
at incubators."
Not a tech hub, but investors keep coming
Startup incubators, often sponsored by municipalities and mainly aimed
at tech companies needing little initial investment and promising good
returns, have mushroomed in the capital and university centers across
Portugal. They offer startups cheap office space and free tax and legal
consultancy.
"We are not a startup hub like
London and Berlin. But when investors visit from abroad, they always
pick one to invest in. They are amazed by the technical quality, the
programmers and engineers," said Joao Vasconcelos, head of the Startup
Lisboa incubator that homes 40 startups, resembling a busy beehive.
It is yet to create a breakthrough computer-based service like
Sweden-founded Skype or a viral game like Finland's “Angry Birds”, but
Portugal is no stranger to world-class technological innovation.
The world's first prepaid mobile phones were launched here, as were single, country-wide electronic motorway tolls.
"Portugal is a demanding, sophisticated market, an early adopter. So if
we test a product here and it sells, it has a high probability of
success globally," said Francisco Banha, head of the FNABA national
business angels federation.
Britain's Seedcamp
startup accelerator fund has invested in four tech companies under
Vasconcelos' tutelage--from golf performance analytics to simple online
tax refund claims, naming them among "70 of Europe's most promising
startups".
Some foreigners prefer to do it themselves.
Nick Coutts is co-founder of the Fitness Hut gym chain whose modest
fees have lured thousands of clients. It is betting on a low-cost model,
saving on frills like saunas, pools and reception staff, who are
replaced with keypad entry.
"I think it's a very
easy story to sell--a low-cost gym is going to work in a recessive
economy. There are people with money still prepared to back startups if
they have the right concept that fits into what's going on," the Briton
said.
The company opened the first gym in Lisbon
in October 2011, and now has four working clubs with 15,000 clients,
including in Porto, with 2012 revenues at 3.2 million euros. It plans to
reach 20 gyms in Portugal and expand to Brazil.
Is doing business in Portugal very painful? Not really.
"Bureaucracy here is challenging, especially in terms of licensing
needed to get things moving at a reasonable speed, but when you get some
momentum, it's like most countries," he said.
Portugal has simplified the process of setting up companies in recent
years, but a lot more red tape is left. The government is aware it needs
to cut it to return the country to growth.
"To
cross this valley of death we need a great number of firms, especially
innovative and export-oriented. The government is doing its best to put
an end to bureaucracy, simplify the licensing to make Portugal a
startup-friendly nation," State Secretary for Entrepreneurship Carlos
Oliveira told Reuters.
Whether this will be done
remains to be seen, but Oliveira's credentials in the startup world are
solid--he was behind the mobile tech company Mobicomp set up in 2000
with a capital of 5,000 euros that later went international and was sold
to Microsoft in 2008, reportedly for millions.
At the peak of the austerity drive he arranged social security breaks
for firms hiring jobless university graduates, tax discounts for 2013
angel investment and set up a venture capital vehicle to invest 20
million euros a year in startups.
Another key
area where Oliveira wants to promote change is higher education, with a
greater focus on entrepreneurship studies and implementing business
ideas.
"I graduated in management knowing how
IBM and Kodak worked, but not how to set up and run asmall business in
Portugal, which is where most end up working," said Filipe Botto, CEO
and co-founder of another company coached by Startup Lisboa. The
incubator already runs workshops for university students.
"We'd have been better off studying that, to have tools to overcome
this crisis, to create our own jobs," said Botto - an investment banker
on an entrepreneurial sabbatical to launch his Yonest company. He plans
to produce "honest" natural handmade Greek yogurt to occupy an unfilled
market niche in Portugal.
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