* Growth-oriented concepts changing old ways
* Small businesses - economy's backbone - fold too often
* Government hopes to build "startup nation"
* Portuguese market good testing ground before global launch
By Andrei Khalip
LISBON, Dec 21 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 labour," 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
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 favour 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 1-5 deals from 100 proposals.
These ideas are slowly beginning to challenge the
traditional way of doing business in Portugal that is often
criticised 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
programme 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 neighbouring 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 company taxes. 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 centres 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
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 Oct. 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 a small 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.
"Some think Greece and Portugal in one sentence spell too
much crisis," he laughs. "To me it's an anti-crisis recipe."
($1 = 0.7628 euros)
(Editing by Philippa Fletcher)