These guys are money--$5 billion at least, probably $10 billion. They don't look like money; they look like duffers playing euchre on the 19th hole, the way they're kicking back in khakis and golf shirts, one of them scratching his sockless ankle. They don't look like much, today, because they're not expecting much: They've turned this Thursday into their own casual Friday because they're going to be stuck all day in a Miami industrial park, listening to a boy genius yap about how he's going to conquer the world. With their money, of course.
Not all day, actually--there is a later flight back to New York, but these three venture capitalists are catching the first one out at 3 p.m. That's all the time they need, they figure, to hear everything worth hearing from Marcelo Claure, a 33-year-old Bolivian who was hustling cell phones out of a car trunk 10 years ago, and his Brightstar Corp., which frankly doesn't sound a whole lot different than his car-trunk operation, except by scale. The VC trio wouldn't have even bothered getting on the plane this morning if it weren't for two things:
1) Marcelo Claure raked in a billion dollars last year.
2) They have no idea how.
The Brightstar basics aren't hard to understand. Marcelo buys cell phones from Motorola and sells them to wireless carriers across Latin America. Couldn't be simpler. Except--how come no one else can do it, while Brightstar has seen near triple-digit growth every year? Marcelo could barely get manufacturers' credit in 1997; still, his annual revenue hit $14 million that year, and $73 million the next, and $355 million the next. Though 2000 was the year that telecommunications took a nosedive, Brightstar was banking $631 million. Today, Brightstar has 700 employees working out of 21 facilities in 16 countries, selling or reselling cell phones to 160 wireless network operators and an assortment of 15,000 other agents and retailers. Its 2003 revenue will come in north of $1.2 billion.
And now, even though the telecom industry is still smoldering from the wreckage, Marcelo is looking to raise $50 million so he can hustle yet more phones. He's got world domination plans for Asia, Europe, and Africa and deep veins of untapped consumers right here in the United States--even though rival distributors have well-established beachheads on all those fronts. Marcelo is sure he can beat them; he's sure he's got a system that will let him move cell phones faster and cheaper than anyone else in the world.
He's also sure he can convince this VC trio, no matter how skeptical they are. Marcelo is a showman, a charmer, a bit of a braggadocio, and accustomed to winning over doubters. He'd better--the stakes are high, and he won't have many chances. Marcelo will only be making his pitch to a small number of specially chosen potential investors (including a very well-known big fish, one of the world's richest men) because he's determined to keep maximum control of Brightstar and only wants investors who will give him cash, frankly, and leave him alone. If he fails in this round, time will be short for another: If Brightstar doesn't grow, it could suffer the same fate that it once dealt to its competition.
The VCs are impatient; one is already checking his watch. Until they know a lot more about this Brightstar, they don't even want anyone to know they're in this room. It's 8:59...no, make that 9 a.m. on the button. Marcelo wants their money, and he has exactly five hours to get it.
Hold up--he's late. The future of his company is waiting in his conference room, but Marcelo is stopping for a sweet, Cuban coffee from the sweet, Cuban coffee woman pushing a cart down the hall. It's hard to blame him: The Coffee Lady is so well known, one Brightstar client even cites her when asked to rate the company's performance. "I'm telling you, she makes the best coffee in Miami," he says. She's also powerful subliminal advertising. "This old woman with her espresso pot sets the perfect tone," he says. "It tells people, 'We respect Latin American tradition here. We take time to do things right."
Okay, here he comes, smiling and sort of sleepy-looking. At times, Marcelo looks like Friends star David Schwimmer, even down to the gelled black hair, the sly-goofy grin, the awkward big-guy mannerisms. This morning, he's wearing a dark-blue suit and cloud-blue shirt, like he's got nightclub plans after punch-out time. He just might: Paulino Do Regos Barros Jr., the head of Latin American operations for BellSouth, confides that the divorced Marcelo likes to "party" an extra night when he's in Mexico City, hitting the clubs after business calls. But Regos Barros also stresses that "he's the hardest-working guy around--he'll work 16, 18 hours, then hop a flight to Brazil at a moment's notice if a customer needs something."
Apart from the VC trio, Marcelo is the only tieless guy in the room: His Citigroup financial advisers along the left flank of the U-shaped table are buttoned-down, their ties neatly Windsored, his CFO and COO beside him are just as tightly tailored. Even the VC trio on the right, in their golf getups, look more intense. Marcelo has the most riding on the meeting but seems the most relaxed, probably because he's playing to strength: Ever since he bought his first strip-mall cell phone store with no money down, Marcelo has been talking people into sales with cash he doesn't have. Marcelo is a consummate talker, a master at getting people to see the world his way.
Marcelo isn't even ruffled when one of the VC trio interrupts his opening banter with a question so blunt, so let's-cut-the-BS, it sounds like an invitation to fight.
"So how do you make your money?" VC 1 asks. "I don't really get it."
Marcelo shoots a glance at his COO, Denise Gibson, formerly head of Motorola's cell phone ops and logistics. Marcelo and Denise exchange barely perceptible grins; they remember when Motorola COO Mike Zafirovski fired the same beanball at Marcelo's head back in 2000. Zafirovski had just come to Motorola from GE, where 24 years under "Neutron" Jack Welch had taught him to piss on politeness and ax the middlemen. Jack Welch liked to open partnership meetings with the most aggressive, insulting question he could think of. If the guy came firing back with facts, great. If he tried fluffernutting around with PowerPoint pictures, look out. Zafirovski had learned that rocking a guy back on his heels was the best first step toward finding out if he's for real, and what he wanted to know was this: If Motorola makes the cell phones and Verizon sells them, why is there a Marcelo Claure in the middle draining millions of dollars out of the deal? Why doesn't Motorola just ship phones on its own and add that 5% markup to its own bottom line instead of Brightstar's?
VC 1 must have had Straight From the Gut on his night table.
"You mean, why do we even exist?" Marcelo answers, his Spanish-tinged enunciation lending an almost theatrical air of melodrama to the question. Despite his childhood in American schools in Latin America and North Africa and his bachelor's degree in business from Bentley College, Marcelo's accent is still as rich as his caf? con leche.
"Right," VC 1 says. VC 2 and VC 3 are nodding along. "That's my question."
Marcelo sits back from the laptop and instead of launching his presentation, he roughs out the same answer he gave Zafirovski.
"When we started the company in 1997, it was just me and three crazy guys. We did a beautiful business plan and went to the banks. They said, 'Fellows, come see us in six months if you're still in business.' We tried the manufacturers for credit, but they weren't interested. So we had to improvise."
They came up with a just-this-side-of-shady scheme: "Motorola used to sell phones cheaper to Bell Canada than in the U.S., so we convinced Bell Canada to buy extra phones and sell them to us," Marcelo tells the VCs. The Brightstar boys poured all their cash into buying U.S. phones in Canada, then reselling them to retailers in the U.S. "Bell Canada got benefits from Motorola for increased purchases," he explains, "and we would sell the phones in the U.S. for less than Motorola. It took us one week to figure it out. We were making millions of sales in weeks." As he gets to the end of the story, Marcelo is almost cracking up too much to continue. "We managed to make Motorola miserable," he laughs.
These days, Motorola and Brightstar are on the best of terms. Motorola eventually learned an important lesson: Let Brightstar do what it's best at so Motorola can concentrate on its strength, which is making phones.
Back then, flush with their new bankroll, Marcelo sent his buddy, Dave Peterson, on a scouting expedition to Indonesia, Hong Kong, and the Philippines. "We didn't know anyone in Asia, so we figured, let's find out what's going on there," Marcelo recalls. What was going on, Dave soon discovered, is that bootstrapping cell phone traders who've never been to Asia before can have a pretty miserable time. "I called Dave the next day, and he said, 'I love you, but I'm not staying in a room full of cockroaches," Marcelo laughs. Nevertheless, Dave toughed onward with his recon project, and the partners were soon making a fat profit from reselling cheaper, Asian-assembled phones.
While Marcelo pauses for a sip of coffee, everyone mulls the impression this little tale must have made on Mike Zafirovski. How'd we get into business? By ripping you off! Who's getting rocked on his heels now? Marcelo continues: Even though Motorola was taking the hit, it was Ericsson that learned the lesson first. In 1998, it made Brightstar its main distributor in Latin America. Ericsson, of course, had little to lose by partnering with these rookies: It held only a sliver of the Latin market and previous distributors hadn't budged those numbers upward.
"The problem was, Ericsson had the ugliest and most expensive product on the market," Marcelo explains. "So when we got the account, we went to customers and said, 'How can we make Ericsson more attractive?' 'Make the phones prettier,' they said. 'We have no say over that,' we responded. 'Make them cheaper.' 'We can't control the price, either."
Brightstar had no input, let alone control, over price point, design, or even marketing strategy. All it controlled was shipping--so it made the shipping irresistible.
"What if we make Ericsson the easiest brand to do business with?" they said. "You'll have no minimum order, no projection requirement, you can pay in longer than 30 days, and we'll deliver direct."
That raised some eyebrows. Few manufacturers wanted to deal with the hassles of figuring out customs requirements and import duties for dozens of Latin American countries, so they usually just shipped the phones as far as Florida or Texas and left it up to the network carriers--the Sprints, and Verizons, and BellSouths--to bring them in-country. Brightstar was making a tempting offer: Our phones may be ugly, but they're awfully handy. "After a while," Marcelo says, "the carriers got dependent on us. They knew that if they needed a phone tomorrow, they could get one from Brightstar." Within one year, Brightstar had doubled Ericsson's market share in Latin America.
Now Motorola had to take Brightstar seriously. At the time, Motorola was having enough trouble clawing at Nokia, which owned 60% of the Latin American market, without Ericsson suddenly getting into the hunt. When Ericsson's contract with Brightstar expired in 2000, Motorola zoomed in and made Brightstar its master distributor in Latin America. The payoff came fast: By 2003, Motorola's share of the Latin American market had more than doubled, from 16% to 33%. Nokia's, during the same period, plummeted from 60% to 33%. Within three years, Motorola had shot from distant also-ran into a dead tie with the dominant player on the continent.
Brightstar's role in Motorola's tremendous surge was unmistakable. It was the biggest and most sustained growth Motorola had seen anywhere in the world--in Asia and Europe, in fact, Motorola was either losing ground or negligibly gaining. Latin America had become such a triumph for Motorola that, in an unprecedented move, it invited Brightstar to become one of its major distributors in the U.S. as well. Within 10 months, Motorola was already seeing a 24% increase in the number of phones it was shipping throughout the United States.
"The secret was," Marcelo says, "that I changed the rules of distribution."
Marcelo was smart enough to outthink the risk.
"Well," VC 2 says politely, "we don't really do much with distribution companies."
He's got good reason: Based on market principles in general, and what they know so far of Brightstar in particular, middleman investments smell like risky business. Distribution is notoriously hazardous because the companies rarely own a product, or intellectual property, or even assets; all they have is a system, which any competitor can copy and use to lowball away customers. Worst of all, they're symbiotic creatures linked to other financial organisms, so their existence depends on the performance of the manufacturers they buy from and the customers they sell to. These are factors they can't control, so if either runs into trouble, the first bit of fat they'll look to cut is the middle--the distributor.
"Those aren't really the projects we get involved in," VC 2 apologizes.
"Good!" Marcelo responds. "Distribution is something we do--it's not who we are."
VC 2 looks doubtful; everyone in the room knows that Brightstar exists precisely because the two worst-case scenarios that can cripple a distribution company had wiped out its competition. This is the critical moment: Marcelo has to blast away the VC trio's doubt and convince them that Brightstar isn't just better, but fundamentally different from any distribution model they've ever seen. In this instant, he has to make his point about "changing the rules of distribution." His next words will determine whether the VC guys will be listening for the next few hours or just killing time till the plane takes off. Everyone in the room feels it. Even the bankers, who've been checking BlackBerries and jotting notes, are now watching him.
So Marcelo takes off. "You guys must be getting bored with me," he says. "How about you listen to the really smart people, and I'll catch up with you after lunch?" He then yields the floor to Denise Gibson and his CFO, Oscar Fumagali. "They know the company as well as I do," he shrugs, patting Oscar on the back as he heads out the door. Suddenly, amazingly, he's gone.
That kind of quietly confident move, says Rick Darnaby, the former CEO of Somera Communications Inc., is vintage Marcelo. "He doesn't have to show you he's the smartest guy in the room by talking," says Darnaby, who signed Brightstar last July to move Somera's network infrastructure equipment in Latin America. "He shows you by the kind of people he hires and his belief in them. That's the sign of a true leader, and it's one of the things I immediately liked about Marcelo--he's wise beyond his years when it comes to managerial skills."
And so, with Marcelo pulling himself out of the game in the crucial inning, his two lieutenants open the back of the clock and show what makes Brightstar tick.
In 1997, the two biggest names in U.S. and Latin American cell phone distribution were CellStar and Brightpoint. Right from the gates, Marcelo and his partners weren't shy about bleeding away both companies' business in Latin America: First, they took part of each name to form "Brightstar"; then they took their customers. The relationship was filial at first; CellStar adopted Brightstar as sort of its industry gopher, using the tiny company whenever it needed a few phones on short demand. In return, it sold small batches of phones to Brightstar on credit. "We put them in business," says Osvaldo Pi, CellStar's former CFO. "We were a $1 billion company, and we gave them their first credit line." After all, what was the danger? Marcelo and his guys only had small regional offices in Miami, Brazil, and Bolivia, while CellStar was dotted throughout the world.
"But over the past three years, Marcelo has taken away all of CellStar's business in Latin America," says Pi, who left the company in 2000 and now watches Brightstar's progress with interest. "What he has done in such a short amount of time is amazing." Brightstar seized the advantage in 2000, when CellStar and Brightpoint were hit by two simultaneous storm fronts: Up north, the telecom industry had begun its slide, while down south, key Latin American countries were spinning into turmoil.
Venezuela's economy was in free fall. Argentina was close to default on external loans. Peru's recovery had bottomed out, and President Fujimori was facing ouster. No one knew what was going on in Mexico, where the government was in disarray after outsider Vicente Fox won the presidential election. Bolivia was in the midst of its worst money crisis in decades. "Everyone got scared to death," says Pi. "The telecom industry was already in a tailspin, so no one wanted to take on the added risk of doing business in areas where they couldn't be sure they'd get paid."
"That left the door wide open for Marcelo," he concludes. "When there's turmoil, big companies either hunker down or cut and run." CellStar and Brightpoint, he adds, didn't really have much choice when they chose the haul-ass option; they were public companies with shareholders to answer to, so neither chief exec wanted to stammer to the board about why he'd shipped that quarter's profits into a war zone. "Marcelo was free to take the risks that perhaps others should have," Pi says. "But keep in mind, Marcelo was also smart enough to outthink the risk and make his money while reducing his exposure."
Just to make sure, Motorola commissioned a McKinsey team to dig into Brightstar's operation and see if it was really worth the cost. Motorola won't officially release the results of that study, calling it proprietary information, but Motorola's then VP of Latin American services gives a tantalizing hint at the contents. "You can draw your conclusions from this--after the study, Motorola not only renewed Brightstar's contract but also improved the terms and expanded the reach," says Rafael de Guzman, now CEO of the Latin American branch of the Foote, Cone & Belding ad agency.
"Marcelo seized the market, because the crisis forced the manufacturers to fall back on their area of excellence," De Guzman explains. Nokia, Samsung, Motorola--they were all furiously trying to figure out how to stick a digital camera inside a cell phone and how big the keypads should be. "This was a crash-and-burn situation for the entire industry, so do you think Motorola really cared about [cell phone] stock levels in Honduras? It had a million other things to worry about. If a company comes along that can handle supply, letting them take a cut is a small price to pay."
Outside the conference room, Marcelo tells a more down-and-dirty version of the story that the VC guys are hearing inside.
"CellStar, Brightpoint, they really sucked," he begins. "When we were first getting started, they were these two huge companies, completely unreachable, untouchable. But when I started buying phones from them, I saw they were so disorganized. We made a fortune buying from CellStar Miami [which supplied Latin America] and selling to CellStar Dallas [which supplied the U.S.]. CellStar Dallas would call and say, 'Do you have any Motorola Startac 2000s?' I'd say, 'Hold on,' then call CellStar Miami, make the order, and tell Dallas I'd send them right over."
He shakes his head. "God, I wonder what they're going to think when they find out what we were doing to them?" he says. "They were really bad. The director of operations [for CellStar] had a conference room bigger than my entire office building. Why does he need that?"
"My biggest fear is that someday, someone will do to me what I did to CellStar. I don't think it will happen--I came up too hard, and it's made me as good a street fighter as you'll find."
Marcelo grew up in Bolivia, the poorest country in one of the world's poorest regions. Luckily, his grandfather earned enough as an accountant for a supermarket chain to send Marcelo's father to study in the U.S., where he became a geologist. After Marcelo and his brother and sister were born, the family moved every few years across the Americas and North Africa, following their father's United Nations Development jobs. At each port of call, Marcelo's parents scrounged to make sure they could enroll him in an elite American school. "I always complained that my friends always had a lot more money than we did," Marcelo recalls. "My dad said, 'The only thing I can give you is good education, so I spend everything on that." (It's an investment that paid off for Marcelo's dad: Today Marcelo employs both his father and his sister at Brightstar.)
As he bounced from school to school, the perpetual new kid developed into a serious goof-off. "I was a horrible high school student, always getting kicked out," Marcelo admits. Still, his mother, Marta Claure, insists she knew he'd do well; Marcelo had been a profit-wise hustler since kindergarten. "As a six-year-old, he was selling canicas [marbles] in the schoolyard by the case," says Marta Claure, "and whenever I went to the market, he'd be outside selling cans of condensed milk from a crate."
By the time he arrived at Bentley College, Marcelo had steadied enough to do well but still had nothing to pursue after graduation. He found the answer over a couple of Scotches. "I was flying home to visit my family, and I met this guy on the plane who was about to take over the Bolivian national soccer team," Marcelo recalls. "Maybe because we were having a few drinks, he offered me a job as his right-hand man."
Guido Loayza, Marcelo's new boss, was a dreamer and fierce innovator. He was determined to get tiny Bolivia, which had finished at the bottom of the Latin league standings for decades, into its first World Cup.
Within a year, Guido would get his wish, and Marcelo would get the lesson of a lifetime in leadership, strategic planning, radical institutional restructuring, and basic motivation. Everything Marcelo learned during that march to the World Cup he would later deploy with Brightstar. They relocated the team to Spain to reboot its thinking from a culture of losers to a culture of winners. The players had been promised lots of money in the past and stiffed, so the new management offered less money but always paid on time. Finally, they scheduled as many games as possible against the toughest teams in the world, so the Bolivian players could learn by seeing the best in action.
It worked. In the qualifying rounds, Bolivia ignited national hysteria when it shut out international powerhouse Brazil, 2-0, then defeated Venezuela 7-0. In its World Cup debut, Bolivia nearly pulled off the upset of the year but ended up losing to Germany, 1-0. Back home, Guido and Marcelo were heroes. Guido went on to become a senator, then chairman of the Bolivian FCC.
The first appliance a consumer buys is a phone.
Marcelo could have followed him into government but felt it was time to strike out on his own. He went back to Boston; needing cash, he answered an ad in the Boston Herald and sold his frequent-flier miles for $2,000. A week later, he had to fly back to Bolivia, so he called the number and tried to buy some back. The same miles, he was told, were now worth $8,000.
A 400% markup in seven days! That was the business for him, and it yielded two more crucial lessons.
The first was skepticism: When Marcelo and his best friend, Alan Mota, got into the gray-market miles business and it grew very big, very fast, the airlines came after them. "They told us it was illegal, but we found a way to do it legally," says Marcelo. "It taught me that you don't have to do what people tell you, no matter how powerful they are. A lot of times, we live by the limits that are given to us, and it stunts our potential."
The second was service: Because his mile-buyers would often call only once, on impulse, Marcelo vowed to be available 24-7. It's a lesson he never forgot: Today, Brightstar is still known for "overwhelming the client with service," as BellSouth's Paulino Do Regos Barros Jr. puts it.
To handle their constant calls, the air-mile buccaneers went shopping for cell phones. Every store they visited around Boston had terrible service. The owner of one place complained to his two new customers about how much he hated the business. On the spot, Marcelo made him a deal: If the shop owner sold him the business for no money down, Marcelo would pay him in full in six months. He kept his promise: By the end of those six months, Marcelo and Alan had the largest cell phone franchise in Massachusetts, with stores in strip malls across the state.
They did it by applying the same impulse-friendly technique that had worked so well for air miles: Marcelo would have salespeople stationed in cars all across the state, just sitting in convenience stores with phones in their trunks. As soon as a potential customer called for information, Marcelo would dispatch his nearest rep. "You could buy a cell phone from us faster than you could get a pizza," he says. "My goal was to remove every possible barrier between an impulse and a purchase."
Never one to miss a meal, Marcelo slides back into the room shortly after the food arrives. Perhaps in deference to his guests, lunch is surprisingly all-American; instead of grilled Cuban sandwiches or rice and beans from Marcelo's favorite Latin diner, one of the tables is laid out with cold cuts, pickles, and side salads. While Marcelo loads his plate with a thick turkey sandwich and coleslaw, the VC guys are bringing up disaster scenarios.
"What about the ongoing risks in Latin America?" VC 2 asks. With Venezuela suddenly freezing its currency, and Colombia embroiled in drug wars and kidnapping epidemics, and Zapatistas still roaming free and angry in southern Mexico, how secure could any U.S. business be, especially one that depends on shipping lots of merchandise across desolate terrain?
"That's our strength," CFO Oscar Fumagali responds. "We get the best people on the ground, and we protect ourselves by knowing more than anyone else about how to secure and move our product." Brightstar has become highly skilled at scheming up ways to get paid in the midst of chaos; because no one can afford to have cell phone operations shut down, Brightstar has perfected methods for getting their collectibles transferred around currency freezes.
It's because the area is so tricky that Marcelo got into Latin America in the first place. When he and his three "crazy" buddies decided to get out of vendor sales and into global distribution, they had just enough money to make one serious stab. Dave Peterson, who is now vice president of sales at Brightstar's Chicago office, mortgaged his house for $250,000, and Marcelo borrowed his father's life savings.
They set up a small office in Miami because they'd decided that Latin America had three perfect components for budding entrepreneurs: confusion, demand, and disfunction.
The confusion came from dispersement: Latin America is made up of dozens of countries with a dizzying mix of currencies, government regulations, import tariffs, and trade restrictions. If Brightstar could make themselves into Latin American Talmudists and find ways to safely go where other companies wouldn't, that information would have concrete market value, because phone manufacturers would gladly pay to outsource that nightmare.
The demand aspect was obvious: The region's populations were growing rapidly, and typically the first major appliance any consumer buys, even before a car, is a phone.
Which leads to the disfunction: Because only 17% of the Latin American population had access to telephone landlines, the market was wide open for affordable satellite service.
"Okay, so what's to stop your customers from just going to the manufacturers directly?" VC 2 asks. "Yes, let's talk about this for a moment," VC 1 presses. "What would happen if you got Telefonica Moviles all set up, got their logistics and forecasting all tidy, and they said, 'Thanks, guys, we'll take it from here,' and went to the manufacturers themselves?"
Once again, VC 2 seems to be on to something; earlier, in private, Marcelo had talked about the backstabbing he'd suffered during Brightstar's early days. "There are a lot of honorable people, but there are a lot of scumbags who would kill to save 25 cents." He shrugged. "We got cut out of a lot of deals, $10 million to $12 million deals, but we just moved on to the next."
But those days are long over. "We deal with this every day," Marcelo begins, and as he answers, the full impact of Brightstar's accomplishment is finally revealed.
During the 2000 telecom crisis, Brightstar didn't just content itself with seizing the business the bigger companies had abandoned. Marcelo knew that telecom chaos and Latin American instability wouldn't last for long, so he had to move fast to fortify his position before the competition came storming back in during the recovery.
And that was Marcelo's brainstorm. He worked up the supply chain in both directions, appropriating as much of the inventory process as he could from both manufacturers and network operators. Ordinarily, there's no reason for a distributor to penetrate beyond the loading dock door, but what gave Marcelo his opening was the fast turnover in technology. He could just drop new phones off at stores in, say, Honduras, but how would they get rid of the old ones to open up shelf space? No problem; Brightstar would buy them back (at a markdown, of course) and ship them to one of their other country-clients where last month's fashion was late to arrive.
"There are a lot of scumbags who would kill to save 25 cents."
And what if the retailers made a mistake in forecasting and ordered too many phones or too few? What if sales slumped for a day--where could they get secure storage for just a day or two? The network carriers didn't want to deal with those problems--they were too busy trying to convert their systems to GSM and making decisions on subscription plans. It was easier to let Brightstar tell them how many phones they needed, and at what price, and let it handle warehousing, inventory control, forecasting, customs, and shipment.
For instance, when the biggest network in the Dominican Republic, Codetel, asked for logistics help, Brightstar dispatched two of Marcelo's inventory aces to do an assessment. The Brightstar guys ended up staying eight months. "It was so chaotic, we couldn't even find the workers, let alone the product," says Alejandro Miranda, one of Brightstar's setup managers. "We'd chain the doors shut from the inside and make everyone stay there till we were through. We'd have food sent in, but no one left until we had each day's orders in shape."
Funny, how the room has seesawed: At the beginning of the meeting, the VC guys were hunched forward at their table, squinting and almost scowling in concentration as they took notes and fired questions, while the Brightstar team sat back and answered. Now, the VC guys are lounging back, arms thrown across the back of one another's chairs, while the Brightstar execs are leaning forward and rattling off info excitedly. Body language tells it all--the VC trio is relaxed and really getting a kick out of this show, while the Brightstar team senses that they're close to winning them over.
"Let's talk about Telefonica Moviles," Marcelo is saying. "They spent untold millions, they wanted to do their own logistics. Then, they're calling us in emergency mode, saying, 'Hey, guys, come in and take over this whole nightmare." Today, Brightstar is the purchasing agent for Telefonica Moviles, buying phones from all manufacturers on its behalf and delivering them directly to the point of sale.
"Are they ever going to want to go directly to the manufacturer?" Marcelo asks. "Difficult--they'd have to redeploy the warehouses, redeploy people, get insurance, security..."
When Brightstar asks carriers how much it's costing them to carry inventory, Marcelo says, they almost always reply, "Two to 3%." By the time Brightstar's analysts get done ripping through their costs allocations, looking at such hidden debits as duty fees, obsolescence, lost interest from holding inventory instead of cash for 90 days, advertising costs to fire-sale unwanted stocks, the most efficient carriers find that inventory is costing them 10% to 12% of the purchase price of the phone, and the worst realize they're losing a whopping 30% or more.
"So the best think they're at 2% or 3%, and you convince them they're really above 10%?" VC 2 muses.
"Then we charge them a percentage of the savings," Marcelo continues. "For example, one carrier network is very good, so we might charge them 8% for the exact same service we're doing for another company at 18%. Exact same services. The only difference is, that company's cost of managing was in the 30s and 40s, so when we offer them 18%, it sounds good to them."
"So you've got value-based pricing?" VC 1 says admiringly. "Can't beat that."
"What do CellStar and Brightpoint charge?" VC 3 pipes up. Everyone looks over, surprised to hear him ask his first question all day; up until then, he'd been watching and scribbling notes on his legal pad. Just the sound of his voice suggested that another barrier had been broken down; whatever roles the VC guys had decided to play before coming into the meeting room, they had now dropped.
"They're out of Latin America," Oscar Fumagali says.
There's barely time for show-and-tell, which is Marcelo's way of addressing the unasked second part of the distribution question: What if the manufacturers decided to cut you loose and ship on their own?
The answer is back in the Brightstar Batcave, a giant, nicely lit and smoothly laid-out assembly plant on the ground level of its headquarters. As Brightstar logistics chief Tony Faraco explains, "Each carrier wants phones configured its own way, and there are different technologies for each carrier. Fifty percent of the phones we get from suppliers aren't ready for the carrier, so down here, we plug in the software, snap on faceplates, change PINs for chargers." Faraco's teams will handle 500,000 phones down here every month; even more will be handled at Brightstar's plant in Mexico.
"More and more, Motorola is sending us generic phones and letting us do the customization," Marcelo says. "If it ever gets rid of us, it would have thousands of little tasks like this on its hands." And while Motorola was spending money to handle its own customization, Brightstar would be making a call to Nokia, or one of the smaller players in the market like Erikson, Samsung, or LG, who'd most likely be happy to help themselves and hurt Motorola with the same contract.
And essentially, that's why Brightstar wants the VC trio's money. With $50 million, Brightstar can bankroll its own expansion into Asia, Europe, and Brazil, build its own assembly plants and shipping operations without having to rely on financial assistance from any of the phone manufacturers.
Since the fat new bankroll will make Brightstar much less dependent on manufacturers' credit, it will also make the company more attractive when Marcelo launches Part II of his plan: Sometime in the near future, he plans to defy the terrible reputation of telecom stocks and take Brightstar public.
Guess who just sold the world's toughest, wealthiest sell?
The killer question comes just as the VC trio is glancing at their watches and pulling together their notes. VC 1 fires it: "Aren't you guys setting yourselves up to fail if you extend outside your comfort zone? Why do you think you can do the same thing in Asia and Europe?"
Because in the end, what they'll be financing will be Marcelo Claure's bid to rule the world--as far as cell phone distribution is concerned, at least. They like the fact that Marcelo has never expanded so fast that he couldn't return 2% to his bottom line every single year--even during the worst crisis the telecom industry has seen--but at the same time, they know that businesses that run on as low margins as Brightstar does can be an all-or-nothing proposition.
"It only takes a few things to go wrong for it to be in serious trouble," says one Latin American specialist who is familiar with the intricacies of Brightstar's finances. "On the other hand, if a few things go right, it makes many millions of dollars without its costs going up."
With only minutes left before the VCs must leave for the airport, Marcelo doesn't hurry as he tells them how he'll gamble their $50 million. He'd set out to become the biggest in Latin America by 2013, and he came in a decade under deadline. The key to his success wasn't from any special knowledge of the region--true, he speaks Spanish, but what did he know about Patagonia? It came from hiring the best people on the ground and teaching them his method. He'll simply do the same in every new country Brightstar targets.
Already, he's in the crowded U.S. market. Brightstar has made fast strides by targeting the lower-income demographic everyone else has ignored.
"We do what they don't want to do," Marcelo says. "Motorola doesn't want to sell to gas stations, convenience stores--it wants to sell millions to Verizon. There's a gigantic market out there in prepaid cell phone chips that no one has touched."
Those same markets exist in abundance in Eastern Europe, Africa, and Southeast Asia--all those cut-off corners of the world where there are more phone customers than there are phone lines.
Oscar has to remind the VC guys that it's time for them to go. "With construction traffic around the airport, you never know...," he's warning. But VC 1 is lingering. He's been asking the thorniest questions all day, and now it seems there's one more thing on his mind. Marcelo is saying goodbye rather absent-mindedly; he'd gotten a message about a problem in Mexico, and he's eager to get on the phone upstairs and start kicking the appropriate asses. He knows that anything he could have down here has been done; any more selling at this point, he guesses, will be a mistake.
He discovers he's right when VC 1 takes him by the arm. "Whatever we decide, I have to tell you," VC 1 says, pumping Marcelo's hand in a gesture more of congratulations then departure, "you've created one hell of a company."
Several weeks later, Marcelo and his girlfriend are clinking martini glasses in Manhattan. Marcelo is just back from a trip to Seattle, and guess what? Guess who just sold the toughest, wealthiest sell in the world? That's right, Marcelo announces triumphantly to anyone within earshot--he just convinced Bill Gates to privately invest $60 million for 15% of the company, which would give Brightstar a whopping $400 million valuation. If a genius like Gates believes in Brightstar, who else would dare to doubt it?
Actually, as it turns out, Marcelo is stretching a bit. It becomes clear two weeks later that while Gates is involved in the deal, he is a partner in a $61.75 million investment by four funds, including Grandview Capital Management, which Gates personally controls, Falcon Investment Advisors, Prudential Capital Group, and the Ramius Capital Group. In its official announcement on January 14, 2004, Brightstar is mum on valuation (and doesn't even mention Gates, only his investment company), but insiders say Marcelo's $400 million appraisal is also somewhat overblown.
So, Marcelo's days of winning over doubters aren't over. His new millions will allow him to punch into Asia and Europe, but before ruling the world, he still needs to wallop Wall Street.
This coming summer, Marcelo plans to take Brightstar public, launching Brightstar's first stock offering in a market that's terrified of telecom companies. Stock traders still have "Worldcom" and "Enron" ringing in their ears, and Marcelo wants them to trust him. But that's okay; he's not worried. They haven't heard what he has to say yet.
Marcelo Claure began by leveraging his knowledge of select Latin American markets. But as his expertise as a value-added distributor grew, Brightstar spread to the rest of the hemisphere. Up next: an aggressive plan to enter Asia and Europe.
Chris McDougall's profile of an entrepreneur's 10-year struggle to commercialize a Russian miracle fabric in the United States appeared in the September 2003 issue of Inc. He is the winner of a Clarion award for his feature on the seamy underside of the voting machine industry. McDougall's book, Girl Trouble, about Mexican pop star Gloria Trevi's involvement in an infamous sex scandal, derives from an article he wrote for The New York Times Magazine. It will be published by HarperCollins in June.