South American Start-Up

La Paz, Bolivia

Brian Reale has just pulled his dirty, 1986 Toyota Land Cruiser to a stop on the edge of the single-lane road that the Inter-American Development Bank has named "The World's Most Dangerous Road." It is nothing more than a ribbon of dirt notched out of the mountainside, winding narrowly around tight, blind curves. To use this road, drivers must register with the police as they enter and depart, so that authorities can account for vehicles lost over the edge.

Six inches to the left of Reale's front wheel, a cliff drops more than a half mile to the jungle floor, or so it's said--the night is so dark that we can't see anything outside the beams of our headlights. Keeping a steady eye on a large truck muscling its way up the mountain toward us, Reale breaks a tense silence: "Like I said, this is best done at night. You can see the headlights approaching, which gives you plenty of time to pull over." As the truck lurches toward us, there appears to be no room for it to pass, and even the cocksure Reale white-knuckles the wheel. A bump will likely send us over the cliff. The headlights flash brightly and finally the truck barrels past, missing Reale's bumper by what seems a microscopic margin. "Okay, let's roll," says Reale, as casually as if we had just stopped for sodas. He executes this heart-stopping maneuver a dozen more times en route to the Bolivian jungle town of Coroico.

A day later, Reale (pronounced reel) is back home in the heart of downtown La Paz--at once a modern Latin American city and a global backwater. Its handful of tall buildings jut from the city's center, which occupies the lowest point of a bowl whose rim is formed by the spectacular Andean peaks, including the 21,000-foot Illimani. La Paz, unlike most of Bolivia, does see at least a trickle of Hollywood films and European fashions. But at the same time, the capital is a fine place to shop among countless competing vendors for cultural vestiges like desiccated frogs or llama fetuses, which are believed to bring good luck.

Colosa together: Vernon, left, and Reale. Photo: Lelis Vernon

Walking the Prado, or main boulevard, to work, Reale weaves through streams of well-groomed businessmen, politicos, and longhaired students. A billboard with SONY in sleek, blue letters vies for attention with a crude portrait of Che Guevara painted on a bed sheet and hung from an iron fence. Reale stops to chat with business associates in effortless Spanish. Shoeshine boys, their faces hidden behind cloth masks, hustle him for business. Everywhere the scene is punctuated by cholas, indigenous women of Bolivia, in long, full skirts and wool bowler hats. Many carry babies slung across their backs and swaddled so completely in colorful, striped aguayos that only a head or, occasionally, a foot is visible.

It is against this unlikely backdrop that Reale '93 and childhood pal Bobby Vernon M.B.A. '00 have launched a new software company, Colosa, Inc. A young firm with only seven employees and two primary software products, Colosa is crafting a new approach to survival in the beleaguered high-tech industry. The two directors are rethinking not just where on Earth to plant a tech firm, but also how to use a combination of flexible products and inexpensive labor to streamline the way industries get work done.

The idea for Colosa was born in 1999, in Buenos Aires, where Vernon was living and working as an executive in the insurance industry while simultaneously earning his M.B.A. through the Fuqua School's Global Executive program. Reale, living even then in Bolivia, made a trip to Argentina to visit his friend. "We were jogging in a park near where he lived," Reale recalls, "and he was talking about how inefficient the insurance industry was, how it would be easy to cut out the middleman. And then he asked me, 'Could you build an application to address that?' As if I'm some kind of specialist!"

The pair decided to take advantage of Vernon's business education to flesh out their idea. As a Fuqua project in 1999--still the height of the technology-sector boom--Vernon wrote a business plan for a company that would offer a software tool enabling insurance and reinsurance companies to make transactions securely, online, across continents. Nearly four roller-coaster years later, the project has metamorphosed into a company that offers a range of highly adaptable software based on two core packages--SegurosMarket, which facilitates risk-sharing and the sale of policies between insurers, and FLUID, which allows myriad businesses to upload bureaucratic paperwork to the Internet. Colosa has targeted the small- to mid-sized business that needs quick turnaround and cannot afford a Microsoft solution. Remarkably, it is working. Colosa broke even at the end of last year.

Inside the company's two-room office on the twelfth floor of a boxy building just a block off the Prado, Reale checks in with the company's graphic designer, Tom Barnett, a New Zealander and former backpacker. Reale diverted him from his globetrotting and persuaded him to settle in full-time at a computer monitor, putting a user-friendly face on the company's new software. The office has the seat-of-the-pants feel of a Silicon Alley start-up circa 1999, minus frills like Aeron chairs and video-conferencing systems.

At the only other desk in the office sits Bolivian Carlos Gili, senior programmer. It is Gili who translates the brainstorms of Colosa's non-programming directors into functional code. His salary of $700 per month, about what a programmer in the U.S. earns in three days, has a buying power here roughly equivalent to a $40,000 annual salary in the United States. Physically absent from the office is Vernon, who lives and works in Miami, handling Colosa's finances and hustling to expand the business.

The office windows look directly across the street to the building that houses Reale's other company, an Internet service provider called Unete, which he started in 1997 and still runs. Eleven stories down, looping just above the traffic, hundreds of loose, black telephone cables run out of Unete's building and across the street into Colosa's. Eyeing the primitive cable system with an undiluted air of incredulity, Reale says, "That's how you get the Internet to the people in Bolivia."

Mixed markets: Reale on the streets of La Paz. Photo: Frederic Savariau

Bolivia is probably the least likely country in the Western hemisphere to serve as home to a technology company. It is South America's poorest; more than 60 percent of its people live in poverty. Only about one in thirty Bolivians has a telephone line, and people here use computers in their homes at roughly the rate that Americans grow their own food. The rate of illiteracy is high. On the plus side, the low cost of living makes what educated labor there is in Bolivia inexpensive. The challenge for Colosa has been finding enough tech-savvy employees in the country. As a result, the firm has had to become creative in its staffing efforts. Reale points out two makeshift workspaces--narrow tables against the windows--and says, "I think this is where we'll put the interns."

For the third summer, Reale has recruited young programmers from Duke to come to La Paz on a three-month internship. It's a mutually beneficial relationship. Because Colosa is so young and small, the interns take on more challenging jobs--including developing new products--than is typical in more established corporate settings. And they get to practice their language skills and indulge peripatetic longings at places like Machu Picchu and the Island of the Sun.

Perhaps elements of the firm's operations style will one day be seen as visionary, but Colosa's unconventional approach to start-up survival is equal parts chutzpah and dogged determination. It is the denouement of a fifteen-year story of two boys striving to build something together. Two Florida kids--and later Duke graduates--with a passion for invention, a grown-up tendency toward the world of free markets, and more energy than they could find activities to sink it into.

Reale and Vernon first became pals in 1984 as eighth graders at Boca Raton Middle School in, appropriately, beginning-Spanish class. By the end of middle school, the two had become best friends, seldom seen apart, even though Vernon would attend Spanish River High School and Reale would head to Boca Raton High.

Like a lot of teens, the two were drawn to the unknown. But, unlike most, they actually institutionalized the pursuit of new adventures. Says Vernon, "You know how, when you're kids and you're bored, you sit around and ask each other, 'Well, what do you want to do?' I remember one day where we finally said, 'Let's just go. Let's just start walking. Let's just see where it goes. Let's see where it takes us.' We always found ourselves on the coolest adventures, up a tree somewhere, swinging into a canal. We've followed that theme all of our lives."

Staff member tweaks technology. Photo: Frederic Savariau

Even then, Reale and Vernon were fascinated by the idea of creating a business, and they brought their adventure-seeking approach to the whole affair. The two came up with their first "invention" in high school--a "study hat" designed to provide the easily distracted with the wearable advantages of a lonely, austere study carrel. In fact, recalls Reale, "it was designed after the blinders that horses wear. It had flaps that came down on the sides of the eyes so that you could only look forward at the book you were supposed to be reading. One of the big debates was whether we should have earplugs dangle down from the hat." The two envisioned putting college logos on the side and marketing them to university students. Reale and Vernon saved $500 to have six prototypes of the hat made. That's as far as it got; they soon realized they didn't have enough money to keep the project going.

After Reale, an English major, graduated from Duke, he worked in a refugee camp in Guant·namo Bay, studied stage lighting with a Cuban theater group, and hopped freight trains, hobo-style, across the United States. In 1996, he entered the work world, selling computer modems to businesses. The job led him in the direction of emerging technology in developing markets and, in 1998, to Bolivia to live.

Vernon, on the other hand, has walked a more conventional line for much of his post-collegiate career. Not only did he choose the strait-laced insurance industry, but even his method of settling on that career showed a deliberation foreign to Reale. Hoping to capitalize on his love of travel, foreign language, and adventure, Vernon bought a book that listed companies with international operations and systematically scoured it for one that would allow him to indulge his interests. He pounced on an opportunity with the insurance and finance company American International Group, because it appeared to be the one that would most quickly toss him into the thick of business action. From there, he climbed the ranks in the insurance industry, following his original love of foreign cultures to jobs in Argentina and Brazil.

Despite their differences in style, the two, now in their thirties, have maintained their friendship and constantly revitalized it through the primary thing they have in common: the desire to create a company of their own. Like the founders of most start-ups of that day, Reale and Vernon began by soliciting their families for cash and by throwing in as much of their own money as they could afford--about $25,000 each. From there, they turned to friends and social contacts. But, as the two quickly realized, gone were the days of angel investors ready to spend their old-economy dollars on a chance to ride shotgun with a small group of bold young entrepreneurs.

As soon as their business plan was polished, Reale recalls, "We said, 'Okay. Let's get a list of venture capitalists and get a million dollars.'" But it was March 2000, and Reale and Vernon were thinking in decidedly February 2000 terms. On March 13, the tech-heavy NASDAQ closed below 5,000 and headed south on a zig-zag course. With it went the bread and butter of the late-Nineties start-up venture--the more calculating and predatory venture capital that had kept young businesses afloat into 2000.

In addition, both held demanding, full-time jobs. They decided that at least one would have to quit his job to go full-time with the new company. Reale was hopelessly bound to his first company, Unete, which was in the midst of frenetic acquisition negotiations. Vernon, on the other hand, had just become the father of his first child. Feeling that it might be a good time to leave Latin America for the safety and familiarity of the United States, he decided to make the jump to full-time with Colosa. He moved to Miami, which was close to where he grew up and, at the same time, a vital hub for business between the United States and Latin America.

Back in La Paz, Reale was building the core of the Colosa team. He found a few programmers by spreading the word of his need for talent in the small technology community in La Paz. In the summer of 2000, Reale brought his first intern from Duke to Bolivia--David McMillan '00, who had come down to work for Unete, Reale's first company in the summer of 1998. McMillan moved into Reale's apartment for the summer and was immediately thrust into developing code for what would become Colosa's prototype workflow software products.

Meanwhile, with Vernon working full-time for Colosa and paying first-world prices to raise a family in Miami, the firm's need for investors grew. In early 2001, Vernon entered into a promising dialogue with one Japanese investment bank. Then came the World Trade Center attack. "Our contact called up and said, 'I've been fired. The Third World is at war with the First World. And we're not going to invest in the company,'" Reale recalls. In January 2002, Mexbrit Ltd., a Miami-based reinsurance intermediary, agreed to invest in Colosa, take on Vernon's salary, and establish a business partnership between the companies.

Back in Coroico, the town on the other end of the World's Most Dangerous Road from La Paz, Reale looks across a wide jungle valley to the opposite mountain range. "Do you see that road over there?" He points to a modern, paved roadway that snakes its way along a ridge. "That's the new road to La Paz. That road is perfect. But what's wrong with this picture?" he says, using his hand as a visor against the sun. "There is not a single car on it. Why? Ten years ago, the government decided to put the funds up to build a safe road to Coroico. But in Bolivia, the government must give a job to the contractor with the lowest bid, regardless of whether that bid is realistic. To save money, as they dug the road in, they simply pushed the loose dirt down the mountain, totally destroying the beauty of it.

" After five years of construction, the road reached a mountain, which was to be tunneled, but the company had torn through all of the contract's funds. So now, construction has stopped, and that beautiful road takes people from Coroico right into the side of a mountain in the middle of nowhere. This kind of thing happens in Bolivia all the time."

Reale and Vernon are alike in their ambivalence toward life in Latin America. Both have enjoyed the area enough to call it home for stretches of their lives, and both have developed a general frustration about the region's inefficient modus operandi when it comes to operating anything from a car to a business. Colosa's products seek to streamline projects--whether scheduling appointments or selling financial products--and to reduce inefficiencies.

In their search for industries in need of improved efficiency, Reale and Vernon have taken aim at one of the trademarks of contemporary Latin America culture, the tramitÈ. The two face a Sisyphean task. The tramitÈ includes any of thousands of bureaucratic errands or processes Latin Americans must confront to accomplish rudimentary facets of daily life, from obtaining a permit to paying a bill. It is as indigenous to modern Latin America as strong families and income inequality.

" You need a license to chew gum and walk down the street in Latin America," says Vernon. "Just to pay phone bills in Argentina, you have to actually go down to some place and walk in with cash. They then hand you a substantial amount of paperwork, which you must save. If you don't save it for ten years, you can be audited and forced to pay anything you can't show a receipt for. That's a business-to-consumer issue in Argentina, but those exist throughout Latin America. Latin Americans are very fearful of being defrauded. In the insurance industry, there are regulations just to submit advertising. All kinds of documents must be filed and you're constantly waiting for approval."

The culture of tramitÈs even supports its own sub-economy. Men sit behind typewriters on the city sidewalks awaiting customers in need of their ability to type X's in the small check boxes found on bureaucratic forms. Businesses, which can grind nearly to a halt under the burden of tramitÈs, have taken to hiring tramitistas--people whose full-time job is pushing paper between necessary parties--to stay legal. In this baroque system, if you fall behind in your licenses and permits, you effectively are breaking the law and, thus, operating illegally. And, the tramitÈs system is self-engendering, in part, because a highly bureaucratic system offers opportunities for kickbacks at virtually every point of contact.

Reale and Vernon became inspired to find a better way. They gave Colosa's senior programmer the challenge of creating software that could be used in Bolivia's most bureaucratic sectors--government agencies and regulators--to reduce the strain of tramitÈs. A mere two weeks later, a new so-called "workflow" product, eventually named FLUID, was born. Shortly after, Reale sold the product to Bolivia's Economic Ministry and then to the Superintendency of Telecommunications.

FLUID now allows a business to file applications with the telecommunications regulator online rather than carting a stack of accordion files to a government office. What's more, says Reale, "you are now able to track your tramitÈ at all times. This is based on the very same system that FedEx and UPS use." In addition, by uploading these processes to the Internet, Colosa is bringing a much-needed degree of accountability: "This should make it more difficult for it to get 'stuck' somewhere," he says. "When something like this gets stuck in a Bolivian institution, it is usually waiting on a coima, bribe. We want to put an end to that."

Assuaging the exhausting hassle of tramitÈs has become Reale's personal mission. He imagines creating a network of "e-tramitÈs," public-use computers throughout Bolivia and beyond, that would allow even Aymara- and Quechua-speaking indigenous people with no computer experience to tackle everything from obtaining a driver's license to applying for a government benefit. He imagines doing the project in cooperation with an international organization such as the World Bank.

Although in the beginning Bolivia was used as a mere default location and a place for cheap labor, it has since so informed the agenda of Colosa that it is difficult to imagine the company's being located anywhere else. Colosa could certainly pick up and move to a new home base--and the directors have entertained the idea-- but you can bet it won't be in a place as well trodden as New York or San Francisco. After all, Colosa's home in Bolivia is a function not so much of thorough market research as it is of the personalities of its directors.

The depth of Reale's comfort with his surroundings in Bolivia is striking. He invited some friends and Colosa's Duke interns to a small dinner party in his apartment last year. One guest recalls, "Brian explained that there's an indigenous tradition in Bolivia that when you get something new, like a house, or open a new office, you have to offer some sort of sacrifice so that it will be blessed. For laughs, Brian said he had a dried llama fetus in his closet."

In fact, Reale was only joking. He keeps the llama fetus in his car.