This week the Journal returns to Brazil once again. Just two years after graduating from their respective undergraduate programs, Florian Hagenbuch (W’10) and Mate Pencz are at the helm of a highly promising venture-backed startup that has its sights set on the multi-billion dollar Brazilian printing industry. Florian and Mate took some time out of their schedules to answer a few questions and tell us their story.
Wharton Journal: Thanks for speaking with us guys. The Brazilian printing industry isn’t exactly the first thing that comes to mind when people think about startups and tech. What was your approach towards idea generation, and how did you ultimately arrive at your vision for Printi?
Mate Pencz: We were relatively opportunistic about the process of finding an idea to tackle. We knew that we wanted to build a start-up, preferably in Brazil, and were waiting for the right industry-fit to come on our radar. We knew that we wanted to enter a market that was unconventional (from a start-up viewpoint) and had not been disrupted yet by existing players, and where the initial barriers to entry were relatively high. Aside from the print industry, we initially considered opportunities in the financial industry. When we discovered some of the issues inherent with Brazilian regulation surrounding online businesses in the financial markets, we started to look at similarly large industries, but with lower exogenous risk factors. While opportunistic, the idea also made sense: Florian’s father had spent most of his career working for a large German printing press manufacturer and provided invaluable introductions here in the industry. His positive thoughts on the opportunity set planted the initial seed for our idea and ultimately led us to have the comfort to devote all our energy to this project.
WJ: These days, raising capital on a pre-product basis is a rarity in Brazil. Yet you guys successfully closed a $1.2M round as first-time entrepreneurs, without having built an MVP. Apart from putting together a compelling deck, what steps did you take to generate investor interest?
Florian Hagenbuch: We had to convince investors that we could quickly execute and deliver on our vision. Even though we did not have a working product or fully-baked team, we had mapped out all of the processes we would need to establish once we would receive the funding. For example, we had had many conversations with potential printing factories about partnering with us, including detailed negotiations about pricing. We knew that once we would receive the funding, we could finalize the online platform, integrate with the factory and start selling products at competitive prices, all within a month or two. Given our business model, it is almost more important to have questions around unit economics and supply chain dynamics figured out as it is to have a working, online MVP.
WJ: You both worked in finance prior to launching Printi. How have you found the transition to the world of entrepreneurship? To what extent do the skills you developed during your time as analysts play into your current roles as founders?
FH: We were convinced that life as financial analysts was hard, but we were in no way prepared for the rollercoaster ride that is entrepreneurship. It’s hard to put it into words, but every single small success as well as failure impacts you extremely. I can probably speak for both of us in that we feel much more engrained and connected with our work, and while much of the tasks are more mundane initially, the reward feels exponential. Even though we were able to raise our round relatively early on and had a “stable” platform to grow from, the almost existential uncertainty continues to linger for a while. Now we are growing revenues, stabilizing margins and continuing to train our growing team. To establish some of these processes and juggle our various initiatives across sales channels, our work in finance is coming in very useful. From relatively simple tasks such as keeping track of accounting and financial projections, to thinking about cohort analysis as well as reporting structures, our experience in (corporate) finance and investing provides a valuable framework. Without our 1-2 years of experience as analysts, we would probably not have been able to structure our financing round and execute on our growth plan nearly as quickly as we ended up doing.
WJ: What has been the most challenging aspect of launching a new business in Brazil?
MP: Given our relatively strong local support network from the investor side, as well as the fact that Florian spent most of his life in Brazil, we didn’t have nearly as many bureaucratic or logistical issues to deal with as other startups. However, we have to tackle a far more fundamental issue of the Brazilian print market, which is the gradual education and confidence building of our customers, many of which are still used to operating offline. Building a B2B business in Brazil, whether it is selling to small merchants or corporates, requires a lot of staying power and a long-term, sustainable strategy. We are already seeing that repeat purchase rates of our existing clients are very high and word-of-mouth is helping to promote us, but acquiring new clients is naturally taking longer than in a purely B2C business. In lockstep with that, we have to consider a broad range of sales channels and resulting hiring decisions that affect the whole organization and financial health of the business. Balancing these structural questions remains a big challenge in taking the business to the next level and there are very few precedents we can look to in Brazil in this regard. It is up to us to chart this road and conquering this challenge will ultimately cement our competitive moat in the market.
WJ: The pace of change within the Brazilian startup ecosystem has been lightning fast. How have things evolved during the few months you’ve been on the ground, and where do you see things going in the months and years ahead?
MP: During our few months on the ground, we have seen several businesses such as Dafiti, Baby.com.br, Oppa, Groupon and Peixe Urbano growing at an extreme pace and taking increasing market share. We are benefitting from this growth as many of the successful e-commerce companies are loyal clients and spend large amounts on offline promotional materials. Our commercial benefit aside, we are watching the growth of the ecosystem with some concern, as many of the start-ups getting funded at a seed stage may have difficulty raising larger, subsequent rounds before being able to prove out their models. This is natural in venture capital, but the Brazilian investor landscape is still spread particularly thin for Series-A investments. Once a start-up reaches the early-growth stage, there are again more ample sources for follow-on funding. This is also true for strategic acquisitions, which are usually non-existent for early-stage startups. We thus expect many of the businesses that were funded over the past year to start facing big challenges, but those that prevail should be able to command a very strong position in the market. The fundamentals for Brazilian internet businesses, such as internet penetration, purchasing power and demographics, remain extremely favorable, even in light of lower overall GDP growth.
WJ: Most aspiring MBA entrepreneurs focus exclusively on B2C. Is this the right approach? What are some of the advantages of building a business in the B2B space?
FH: The overarching theme in our business is that given the inefficiency and lack of transparency in the existing B2B market for print products, we can raise the bar for quality while lowering prices by removing intermediaries and manual steps from the value chain. Through these structural improvements to the system, we have been able to build a growing, loyal customer base with very attractive repeat order rates and unit economics. I believe that this sort of customer loyalty and long-term growth potential presents a huge opportunity for many B2B verticals and is hard to replicate in B2C businesses. Conversely, it is much harder to build and scale a B2B business from a customer acquisition standpoint. Most importantly, understanding and leveraging the dynamics in the vertical and full supply chain (in our case establishing a streamlined, working production), feels much harder than for B2C businesses. Ultimately, it is therefore up to one’s individual skill-set, experience and long-term goals whether a business in the B2B space is a suitable undertaking. Sometimes it is hard to resist the sexiness of B2C, but once you see the margins in some B2B verticals, printing – for example – starts looking a whole lot sexier!
WJ: What advice do you have for current and aspiring Wharton entrepreneurs?
FH: I would think long and hard about whether entrepreneurship and everything that comes with it is the right lifestyle choice for me. Since we have begun working on Printi, our lives have been more or less consumed by the business, even more so than during our time in finance. If we didn’t enjoy what we are doing day-to-day, it would be extremely hard to keep going. We thought that as the business grows, some of these pains would subside, but we are actually facing bigger and more difficult responsibilities every day. Getting a chance to catch a glimpse of life as an entrepreneur, whether through an internship or a longer side-project, could offer an interesting view at what some of the daily challenges will look like. Wharton offers ample opportunity in this regard.
At the end of the day, it is hard to replicate the full experience though; one has to be able to act on gut feel and be able to put all doubts aside and stay focused. This has been said many times before, but we are now realizing ourselves that persistence probably is the single biggest determinant in being a successful entrepreneur.
Visit Printi.com.br to learn more.