High-Impact Entrepreneurship

Endeavor Entrepreneur Marcos Galperin on MercadoLibre (World Economic Forum report)

In collaboration with Endeavor Global and Stanford University, the World Economic Forum recently released a new report, “Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies.” Click here to learn more.

The report, which demonstrates the importance of High-Impact Entrepreneurship in driving economies forward, includes interviews and insights from eight Endeavor Entrepreneur companies: DocSolutions, Globant, MercadoLibre, Petfor, Pharmacy 1, Refinancia, Technisys, and Yola.

In this special series on Endeavor’s blog, we are reprinting the published interviews with each Endeavor firm. Below is the section on MercadoLibre.

MercadoLibre, Inc. is Latin America’s leading e-commerce technology company. Through its primary forms, MercadoLibre.com and MercadoPago.com, it provides online solutions to individuals and companies buying, selling, paying and advertising on the Internet. MercadoLibre.com serves millions of users and creates a market for a wide variety of goods and services in an easy, safe and efficient way. The site is among the top 50 in the world for number of page views and is the leading retail platform in unique visitors in each country where it operates, according to metrics provided by comScore Networks. MercadoLibre maintains market leadership in 12 Latin American countries and has recently launched operations in Portugal. The company, listed on NASDAQ following its initial public offering in 2007, was named one of the “30 World’s Hottest Brands” by Ad Age magazine and one of 27 “Great Brands of Tomorrow” by the Credit Suisse Research Institute. MercadoLibre became an Endeavor company in 1999.

MercadoLibre’s management today is very similar to that of day one. Founder Marcos Galperin continues in the role of chief executive officer, while CFO Hernán Kazah and COO Stelleo Tolda lead a group of executives that also composed the original management team. Galperin has an MBA from Stanford University and an undergraduate degree from Wharton. While taking a Finance class at Stanford, Galperin asked one of the guest speakers (John Muse of the private equity firm Hicks Muse Tate & Furst) if he could drive him to the airport. After some “fast talking and slow driving,” Muse expressed an interest to invest (and did invest) in what became MercadoLibre before boarding the plane. Galperin is the winner of multiple awards for entrepreneurship.

What was the source of the initial idea, and how did that idea evolve into a viable high-growth business venture? How did it change over time?

Galperin: “While I was studying at Stanford University, I researched several business models related to the Internet and I decided to build a company which could offer an Internet auctions platform to try to solve retail inefficiencies in Latin America. This is a continent where only large cities have good retail alternatives, while other regions remain isolated in this sense. When I returned to Argentina after receiving my MBA, I bought the necessary start-up technology and immediately launched MercadoLibre in all major Latin American countries. The company first offered an auctions marketplace, but quickly converted to an e-commerce platform as users showed their preference for a ‘fixed-price’ model. Through the years we developed new and complementary business units that allow the company to address a wide range of different user needs through an online payments platform, advertising solutions and a new website-building service geared towards our more developed sellers.”

What was the initial growth vision or aspiration of the founding team? Was there a sizeable change in this growth vision or aspiration over time? If a change, please describe.

Galperin: “During the first years, we focused on building a successful company by offering an auctions service through our website. Our main goal was to create a long-term company operating with an innovative philosophy, and relying on technology to change the lives of millions of buyers and sellers in Latin America. However, growth took longer than expected to materialize. In 1999, the Internet only reached 2% of the general population in Latin America, and only 10% of those engaged in some form of e-commerce. With the region undergoing an economic crisis, secular Internet trends grew at a slower pace than originally forecast.
Tracking Trends: Over time, secular trends began to reflect the serious growth potential we had anticipated from the start. In the meantime, the business matured into a wide range of e-commerce services and ever- improving technologies for the use of our clients. The goal was to capture an increasingly larger share of all e-commerce activity occurring in the region. This meant improving MercadoLibre, our online marketplace, as well as the MercadoPago payments business unit, MercadoClics advertising group, and MercadoShops e-building solutions, respectively.”

Describe the strategy or business model that enabled your company to achieve its high rate of growth.

Galperin: “MercadoLibre Inc. is an e-commerce enabler whose mission is to build the necessary online and technology tools to allow practically anyone to efficiently trade almost anything in the Latin American market. The company operates in several reporting segments. The MercadoLibre online marketplace segments include Brazil, Argentina, Mexico, Venezuela and other countries (Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal and Uruguay). The MercadoPago regional online payments platform is available in Brazil, Argentina, Mexico and other countries (Chile, Colombia, and Venezuela). The company attracts buyers by offering choice, value, convenience and entertainment. Sellers are drawn by access to broad markets and efficient marketing and distribution costs that help increase sales and maximize profits.

Integrated IT Platform: The company pioneered regional online commerce by developing a web-based marketplace in which buyers and sellers are brought together to browse, buy and sell items such as computers, electronics, collectibles, automobiles, clothing and a host of practical and miscellaneous items. The trading platform is a fully automated, topically arranged, intuitive, and easy-to-use online service that is available 24 hours a day, seven days a week. The platform supports a fixed-price format where sellers and buyers trade items at a cost established by sellers, and an auction format in which sellers list items for sale and buyers bid on them. Providing more efficient and effective payment methods from buyers to sellers is essential to create a faster, easier and safer online commerce experience. Traditional payment methods such as bank deposits and cash-on-delivery present various obstacles to the online commerce experience, including lengthy processing time, inconvenience and high costs. The company addressed this problem through the introduction in 2004 of MercadoPago, an integrated online payments solution that has enjoyed consistent growth. MercadoPago was designed to facilitate transactions on the MercadoLibre marketplace site by providing an escrow mechanism that enables users to securely, easily and promptly send and receive online payments.

Payment Flexibility: An online classifieds service was also launched in 2004 for sale and purchase of motor vehicles, vessels and aircrafts. Buyers can search by make, model, year and price, and sellers can list their phone numbers and receive prospective buyers’ e-mail addresses on a platform that allows instant and direct communication between sellers and potential buyers. During 2007, the company launched a newand improved version of its MercadoPago payments platform in Chile and Colombia, and expanded it to Argentina during 2008. The new MercadoPago, in addition to improving the ease of use and efficiency of marketplace purchases, also allows for payments outside of a region. Users are able to transfer money to other MercadoPago accounts and to incorporate the technology in their independent commerce websites.

System Updates: MercadoPago 3.0 is designed to meet the growing demand for Internet-based payment systems in Latin America. In December 2009, the company started beta testing processing off-MercadoLibre transactions at selected sites in Brazil using its new direct payments product while maintaining the escrow product for on-MercadoLibre transactions. On 30 March 2010, the company started processing off-MercadoLibre transactions through its new direct payments product to any site in Brazil that wants to adopt it, and on 16 July 2010, MercadoPago 3.0 was launched in Brazil for all its marketplace transactions.”

What were the major growth accelerators for your company in its high-growth years?

Galperin: “The culture and philosophy of the company that enables MercadoLibre to build and maintain a world class team over time results from these major factors:
1. Consistently solid execution of our business plan.
2. The acquisition of several e-commerce companies in Brazil during the first years of MercadoLibre.
3. The launch of MercadoPago that enabled payments through MercadoLibre and other channels. 4. Internet secular trends (broadband penetration, PCs per household and mobile penetration) growing at double-digit rates. 5. Constant focus on upgrading the online platform to improve user experience.”

Briefly describe the financing of your company and how this financing impacted the growth of your company.

Galperin: “We received two rounds of financing in addition to our initial seed funding. The first round, carried out in November of 1999, raised US$ 7.6 million from investors that included J.P. Morgan Partners BHCA L.P., Flatiron Fund entities and Hicks Muse Tate & Furst. The second round of financing was in May of 2000 and raised US$ 46.7 million from, among others, Goldman Sachs entities (GS Capital Partners III, L.P., GS Capital Partners III Offshore, L.P. and Goldman Sachs & Co. Verwaltungs GmbH), Capital Riesgo Internet SCR S.A. (CRI Banco Santander Central Hispano) and GE Capital Equity Investments, Inc.
Strategic Alliances: In September of 2001, we entered into a strategic alliance with eBay, which became one of our stockholders and started working with us to better serve the Latin American online trading community. As part of this pact, we acquired eBay’s Brazilian subsidiary at the time, iBazar, and eBay agreed not to compete with us in the region during the term of the agreement. This agreement also gave us access to certain know how and experience that accelerated aspects of our development. In August 2007, the company successfully completed its initial public offering, resulting in net proceeds of approximately US$ 49 million. With these proceeds, the company acquired TuCarro in January 2008 and the remainder of DeRemate in September 2008.”

What were the major challenges your company had to handle in its high-growth years, and how were they managed?

Galperin: “I would highlight the following steps for handling growth:
1. Build a team and retain talent: We’ve been able to do this by seeking out gifted people motivated by technology and by the enormous growth opportunity we offer. Their commitment is a key element driving our growth, which in turn translates to career advancement and opportunities going forward.
2. Obtain financing: Obviously, we’ve been greatly favoured by the depth and long-term vision of our investors as previously discussed.
3. Develop the technology: Constantly update and improve user- friendly IT tools for speed and capacity to retain customers and grow the company.
4. Face competition. A first mover advantage is obviously huge in this market and we continue to move first into new and subsidiary businesses deals by carefully observing changing trends and their impact on our product. We offer the best service available and then improve it constantly. This obviously implies monitoring competition and being critical of our marketplace by constantly
testing the user experience.
5. Launch new sources of income.
6. Improve the online products and user experience.”

Give examples of dark moments or negative periods that your company or you faced as part of your journey as an executive with this company.

Galperin: “The darkest moment we had to face was when the NASDAQ crashed while we were negotiating our second round of financing. They were moments of great concern and tension because we needed capital to continue operating and many investors wanted to close the company. Fortunately, we were able to convince them about the business potential of the region and this business model, and we could finally close a very successful second round.”

What are the key lessons about entrepreneurship and successful growth strategies you’ve taken from your company experience?

Galperin: “The key takeaways from my entrepreneurial experience would be:
1. Stay focused on the long term and practice patience
2. Deliver the best possible experience and product to your customers
3. Include local managers in each country
4. Select thoughtful investors and business partners
5. Think big and execute.”

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