Midway through lunch with Leila Velez, she mentions that in 2005 she flew to Miami with the leadership team from her hair-care products company for a crucial meeting. They went two days early, she told me, so they could visit Disney World – and I laughed: Brazilians, I have learned, adore Disney.
I imagined the workaholic Ms. Velez, who grew up poor, rewarding herself with a once-unimaginable visit to the Magic Kingdom. But even though we were still on the salad course, I should have known Ms. Velez better: This was no joyride to meet Cinderella.
"Disney is well known around the world for being a place with great service, and a lot of lineups, and we said, 'They manage to make people want to come back, to line up in the sun, 40 degrees, with families and kids, and still everybody loves it. They have to have some secret we can learn from,'" Ms. Velez went on in a rush. "After Disney, we changed the whole circuit of our salons."
We were lunching at Rascals, a vast airy restaurant in Barra da Tijuca, the sprawling suburb to the west of Rio's traditional core that has emerged as a competing business hub. Ms. Velez, 41, likes the buffet – bright vegetables and fresh pastas – here, not far from the headquarters of Instituto Beleza Natural, the chain of hair salons that is one of the most remarkable business success stories of emerging Brazil.
At 14, Ms. Velez got a job flipping burgers at McDonald's; by 16, she was the youngest-ever manager in the franchise in Brazil. She struck up a friendship with a co-worker, Rogerio Assis, and met his sister Zica. Ms. Assis was then a hairdresser, trying, in her spare time, to invent a better hair relaxer for Afro-descendant Brazilians who wanted to loosen and tame tight curls. The only product available back then left your scalp charred, Ms. Velez recalled. Ms. Assis finally came up with a formula (after several attempts that left her guinea pig brother bald) and they decided to launch a salon of their own using what they called their "super relaxer." She was 19.
"We had our angel investor," Ms. Velez says, a tiny smile playing at the corner of her lips. "Zica's husband sold his old car; he was a taxi driver." She and Rogerio, by then her husband, put up their savings from the fast-food chain.
Ms. Velez had fallen in love with McDonald's standardized production and she planned their new business with the fast-food model in mind, breaking the hair-relaxing treatment down into stages so that each could be performed faster by a specialist who had only one skill to master. Then they could afford to offer their treatment at a price point accessible to her target market.
Ms. Velez always carefully uses the phrase "curly haired women" to describe her client base, and notes that 70 per cent of Brazilian women have hair that lies on the spectrum from Afro to wavy. This is a reflection of the country's racial heritage, a legacy of slavery and European colonialism. Some 55 per cent of Brazilians identify as black or mixed race; not all poor Brazilians are black, but a disproportionate number of black and mixed-race people are low income. And they are the market for her super-relaxer product and Beleza Natural salons (it means "natural beauty" in Portuguese).
Their first salon was barely bigger than a closet – but they took pains to make it feel entirely different from the usual establishments for their target market: impeccably clean, with fresh flowers and coffee served in chic cups. That, and the soon-patented super relaxer, drew a huge word-of-mouth crowd, Ms. Velez recalls: Before long they were keeping the salon open from 6 a.m. to midnight, and women were lining up outside, holding their numbers on slips of paper. Caravans of women were coming by bus from outside Rio, making a day of it, and within a year and a half, Beleza Natural was expanding.
But they couldn't get a business bank account for ages – despite standing in the bank with sacks of cash for hours to wait for a manager who never bothered to appear for the meeting. And they couldn't get factories to take the contracts to make their products – because no one believed in the business model.
"They wouldn't even consider it a real business because it was focusing on a solution they could never understand – most of them come from a very high-end social group and most of them don't have curly hair, they don't understand the issue, the needs," she says, in a delicate reference to race: There is not a single company on Bovespa, the Brazilian bourse, headed by someone who is not white.
Today, the company has 29 salons in five Brazilian states, a factory of its own, and in 2013 sold a stake to GP Investments for $32-million (U.S.). At the end of 2013, Beleza Natural was valued at 210-million reais, then about $100-million (Canadian); they plan to add 120 stores in the next five years.
Ms. Velez tells her story in near-perfect English, one of myriad things that makes her different from the typical Brazilian chief executive, in a country where English is still a rarity. She grew up in some of Rio's poshest neighbourhoods, where her father was a janitor (a post that often comes with a tiny apartment in the back of a luxury building): She saw rich kids taking English classes at private institutes and, at 13, persuaded one school to let her swap her services as a cleaner at night for free classes.
Beleza Natural's business model is built on harnessing the buying power of the group known in Brazilian marketing parlance as Class C – those whose family income is between about $580 and $1,700 a month. Their lives have been changed substantially by new jobs, higher minimum wages and a network of social programs, and in turn their new consumption habits have driven much of the economic growth here in the past 15 years. Beleza Natural's backers believe Ms. Velez's intimate understanding of their behaviour as consumers gives the company a huge edge.
We order lemonade – hers sweetened with a sugar substitute – and then Ms. Velez explains: A typical resident of a favela – a poor hillside neighbourhood – has only one bathroom for the family, and so will most often wash her hair in the main sink, bent over (she demonstrates, whisking her own tumble of shiny black curls to one side) and will likely get suds in their eyes, so no-tears is critical. They have tiny bathrooms, and no counter space, so products have to have pump-tops, not lids to be screwed off and set down.
Other companies think the way to tap the Class C consumer is to make a lower-quality, cheaper product, she says, while a spinach ravioli in tomato sauce and shredded mozzarella cools on her plate. They're wrong: "Sometimes the person wants to buy the most expensive one, in order to show a daughter or a boyfriend that they care – so they pay for it with a lot of struggle, in a thousand instalments, but they want the best."
After the Disney World visit, Beleza Natural remade its salons so that at each station on the circuit, there was an experience – a specialist describing new treatments, a guest lecturer talking about parenting, an Internet kiosk for free surfing – the equivalent of Mickey Mouse entertaining the folks in line for Space Mountain. And of course, the visit winds up in a shop, with Beleza Natural products to purchase for home.
Working flat-out on the business and raising two kids, Ms. Velez also carved out time to get an undergraduate degree and then an MBA. She knew now they needed help to expand, and in 2005 she learned about Endeavor, the international non-profit incubator that nurtures entrepreneurs. She managed to get a chance to pitch them – a room full of Brazil's top entrepreneurs, including Jorge Paulo Lehmann, of 3G Capital, the country's wealthiest person, better known in Canada as the man who bought Tim Hortons. They were, of course, all white, and all men. Ms. Velez and her team were the only people of colour in the room.
"Our first impression was, 'A hair salon, are you serious?'" Paulo Veras, who at the time was managing director in Brazil for Endeavor, told me later. They had never been pitched such a thing before. "But we knew in two minutes," when Ms. Velez started talking, that they would take on Beleza Natural – a nod given to only 1 per cent of those who pitch Endeavor.
"We knew it could be 10 times bigger in 10 years. We look for businesses that can be huge."
Ms. Velez, who is tall with a light dusting of freckles on her nose and cheeks, was a big part of the appeal, he said. "I've seen very few people in my life as driven as her. There are so many people complaining that it's difficult in Brazil – she says, 'I'm gonna make it, don't get in my way.' She feels invincible and in a way she's been proven right."
Through Endeavor, Ms. Velez had the chance to take business programs at Harvard, Columbia and Stanford universities, and to draw on mentors and advisers. A few years ago, she concluded that Beleza Natural needed a partner and drew up a profile of her dream investor: "It should be someone who won't buy a majority of shares, someone in it for the long term, an investment fund that gives freedom in managing the company."
Fersen Lambranho, chairperson of GP Investments, had been her mentor at Endeavor, and watched the firm grow. "He said, 'I think you're big enough for us.'" Ms. Velez reacted with horror – GP is known for taking a controlling stake, appointing a CEO and focusing on short-term returns. "I said, No way – I love you as a mentor, but …"
The flinty Mr. Lambranho, however, persuaded her to consider it. She sent him out to visit salons and customers – while she asked for a list of people to talk to, to hear the good and the bad about a GP investment.
"I said, 'I want to really get to know what the day after looks like.'" But even the bad things she heard sounded good – "that they are very demanding in terms of results, they are very serious in terms of the speed of the growing process – this was music for me, this is exactly what I want." After nine months of talking, GP bought 33 per cent, and 18 months later, Ms. Velez says it's still a honeymoon.
The company employs 3,200 people today, but aims for 15,000 through the expansion; Ms. Velez talks about these employees, and the transformation she hopes the company will make in their lives, with a sort of missionary zeal.
Ms. Velez ends her meal with a carioca coffee – the local word for a Rio denizen, it's a watered-down espresso shot. Despite the fact that economic growth in Brazil has stalled to zero and inflation above 6 per cent is taking a bite out of the small disposable income of her target market, Ms. Velez does not seem overconcerned about the impact on her business.
"We won't give up our expansion plan, but maybe we will do it a little slower than we would like to, maybe this year or the next one," she said. "Maybe this year will be a tougher year, but it will pass and Brazil will still have 200 million consumers looking for new solutions with low prices, with good quality."
And after that? Well, she says with a grin, there are plenty of countries with lots of curly haired women.
In Her Own Words
On mixing business and family: Ms. Velez and Rogerio Assis were married for 20 years and have two teenage children, but are now amicably divorced; he reports to her as vice-president in charge of expansion. She says there is no conflict: "It's important for us that the company comes first, so it's easy." Today, Zica Assis is the company's brand ambassador – a household name in Class C Brazil – while her husband Jair sits on the board.
On hiring newbies: For 90 per cent of Beleza Natural's employees, their job with the company is their first experience of formal employment. Most are women, and a great many are single mothers supporting their children and their parents; Ms. Velez calls them "warriors." Since the new recruits have no résumés or references, Beleza Natural looks for other signs of leadership: women who have responsibilities at their church, for example. "Anything that gives us a hint that that person cares about others, really takes pleasure in serving, in leading – that's what we look for."
Racism in Brazil: "People deny: They would never never say to you, 'Oh I have issues with race.' But look around this restaurant. See if you can see any black woman or man who is not cleaning or serving tables. That is our reality. And if there is a black man being served, people will say, 'Wow, maybe he's a soccer player, maybe he's a samba singer.' That's the truth. I experience it every day."
On change: "For a few years now, we've been watching a slight change in terms of economic power that these people have now. When they have more consuming power, they become more important and they are a lot more visible and this importance changes the way people think about themselves – there's new confidence, new self-esteem."
Serving low-income consumers: "There is a huge gap in education, and if we say '20-per-cent discount' people won't know what it means, but they won't say so. There is a huge sense of community, everyone helps each other, so they are motivated to promote products they love, and that means word-of-mouth is hugely important. Say they can afford to buy juice once in a month – if they buy it and it's not good, that's it."
Succeeding in Brazil: "There's a tendency here, when you achieve a certain amount of success, to enter a comfort zone: 'It's okay, that's it.' I think you can be a lot more than that. As an entrepreneur, I have a commitment to changing this country and showing that it's possible to be honest, to be serious, to have a company that is not dependent on corruption, to create jobs and create growth for people – that it's possible."