palankas - smart formalization

In Latin America, the formalization of micro-enterprises is a trap. 90% of the 70 million entrepreneurs who start businesses in our regions will fail (Source: GEM, statistic referring to the number of closed companies in Peru, Ecuador, Mexico, Chile, and Colombia). However, state agencies, NGOs, tax administrations, and other actors offer formalization solutions "for the good of the countries." Indeed, formalization can bring long-term benefits, such as access to credit, security in conducting business, legal compliance, job creation, workforce development, and personal property development for the entrepreneur. But, in the short term, the effect of moving from informality to formality for a micro business involves complications, stress, waste of budget, and a sense of failure.

Being formal means doing business within the legislation, with limited liability, and maintaining accounting records. Not being able to manage the change that being formal represents and ending up failing has three serious consequences:

1. It generates violence that disrupts social peace as people who fail in business lose confidence in the system. Plus, they often vent their frustration through violence, especially against women.
2. It deepens social polarization as only the affluent classes are thought to have economic growth opportunities, creating a desire not to participate in democracy or fulfill citizen obligations, thus adding more instability to our economies.
3. It excludes people from the financial system as their business does not qualify for credit. Many lose their savings before correcting their course or closing their company in time.

Faced with this scenario, we ask ourselves:

Given the urgency of the situation, How can we create a comprehensive solution that helps micro-entrepreneurs transition from an informal to a formal economy within three years while quickly unblocking the benefits of formalization?

We propose a horizontal SaaS software that addresses the components of the question: "Which benefits of formalization should we quickly unblock to help micro-entrepreneurs, and how?" 

So, palankas includes the following modules and benefits:

1. Generative AI-Supported Chat for: 
   a) resolving basic legal and accounting queries.
   b) addressing low-difficulty credit-related doubts.
   c) analyzing the accountant's work by automatically reviewing business balances and suggesting questions to the micro-entrepreneur.
   d) acting as a first line of psychological support to safeguard the mental health of the micro-entrepreneur (integrated with ChatGPT API).

2. Access to Smart Microcredit: 
   Through machine learning, we propose an algorithm that detects the business's needs in the face of changing social and climatic scenarios and suggests microcredits tailored to specific needs.

3. Electronic Billing with added value: 

   We propose an electronic billing system ethically designed to help micro businesses comply automatically with privacy and data legislation (integrated with billing APIs).

4. Document Management: 
   A space for micro-entrepreneurs to manage their business documentation in an organized and automatic way (integrated with automatic document creation software APIs).

5. Tax Planning: 
   Micro-entrepreneurs can visualize their tax payments in advance and take measures to optimize their payments (integrated with accounting software APIs).

6. Community: 
   Micro-entrepreneurs can share their business problems and receive support and advice from other entrepreneurs.

7.- Financial Understanding: The micro-entrepreneur can access their company's financial information and easily understand it by design (the information is loaded through APIs to accounting software).

Benefit:

Emergency Fund: 
   The high repayment rate of microcredit in the region allows us to allocate a portion of the payments to create an emergency fund that micro-entrepreneurs can access in case of bankruptcy due to natural disasters or situations of violence.

Our solution works with managers of micro-businesses in Latin America. The micro-business manager is a person who needs more time, human resources, and money. They invest the little money they own in starting their business. The vast majority are young people between 25 and 45 years old who start businesses out of necessity rather than opportunity, reducing their failure rate even more urgent and stressful.

Through palankas, they find answers and solutions. There's a saying in Latin America that translates as, "I'm looking for some contact that can help me make this happen." In Spanish, it says "Estoy buscando alguna palanca." Our SaaS provides the "palankas" (hacks) that entrepreneurs need to achieve the benefits they deserve by formalizing.

By using our software, micro-entrepreneurs not only enhance their business but also become part of a supportive community. They increase their success rate, access microcredit easily, enhance their level of security in case of bankruptcy, and manage to correct the course of their business before it fails or exit it before becoming indebted. Being "palankeado" can have a positive and inclusive connotation, fostering a sense of belonging and support.

We started simpleSAS to assist in formalization three years ago during the pandemic. Today, we are the company that incorporates the most companies in Ecuador, with over 1000 companies formed each year and growing. Our incorporation process has an NPS (Net Promoter Score) of 9.8 points. It concludes with the delivery of the company's documentation via video call. In that video call, we suggest the next steps for the micro-entrepreneur. The client, happy and fully confident in the work we have just demonstrated, immediately takes all our recommendations. That's why our following recommendation will be to set up their company on our software "Palankas."

On the other hand, this isn’t the first time simpleSAS has launched a new product. In 2023, we tested marketing electronic billing and minimum viable accounting. Also, we created a chatbot for micro-courses to generate knowledge about SAS-type companies via WhatsApp to our clients. All three products were a resounding success. Hence, we know that suggesting installing our software, which offers many more hacks than just electronic billing for the same price, is good business for everyone.

Finally, we have a solid and fully multidisciplinary team that loves what they do and builds the formalization people deserve daily.

The pilot module we built for the software is the company incorporation module. We designed it so that our client can immediately track their process and make any inquiries to the team. 

Until March 2024, we managed this process entirely via WhatsApp and Google Sheets, and we decided it should be the first for "Palankas" to validate whether people would stick with the app. We have tested the solution with 50 clients, and 48 have decided to stay. On May 15, 2024, the final version of this module will go live.

The formalization figures we have built since April 2021 are 2300 companies incorporated, over 3500 entrepreneurs formalized, and a presence in 220 cities across Ecuador.

Allies and solvers are those with whom we should form a community. And here's why: even more important is the connection we can establish, for example, with the GSR Foundation, with whom we hope to evaluate opportunities for collaboration in financial inclusion, particularly concerning cryptocurrencies. Similarly, the guidance on ethical AI construction that we can obtain from The Patrick J. McGovern Foundation seems invaluable to us as we also seek to protect human dignity. Additionally, the Morgridge Family Foundation understands complex systems and can see how formalization does not have a simple solution; we know they can guide us in approaching the problem. It still needs to mention the network of collaborative technology and banking institutions and MIT itself.

On the other hand, through the Solve MIT community, we seek to connect with change agents who can help us expand the reach of our solution to other countries in Latin America. We have found Solvers with whom we would like to interact and learn, as they have developed tools that technologically relate to ours and have the user reach that would allow us to expand our solution to other Latin American countries more easily.

In Colombia, we have SEXPERTO, which received over 800,000 consultations in less than a year, demonstrating its impressive reach.
We want to connect with DESTACAME to learn from their experience helping MSMEs access credit and pay their debts by obtaining financing.
Contacting Solver Laboratoria in Lima-Peru would help us better understand our female users.
We want to exchange opportunities and experiences in chatbot technology with Lucrefy.
And yes, we also need the funding to develop the modules :)

We will deliver the first SaaS software specifically created for the initial moment of formalization to people. Nobody has done it like this before. The innovation lies in understanding the problem as a complex system filled with small bumps that we can correct with a focus on human beings and the planet. It's not enough to implement electronic billing or grant microcredits if people continue to risk their little savings without limited liability or order.

Using cutting-edge technology to enable micro-entrepreneurs to reap benefits from formalization quickly will have a multiplying effect. Right now, we see people from more remote and smaller cities approaching us. Imagine what could happen if we transform long-term benefits into short-term ones. Similarly, leveraging these benefits will improve micro-entrepreneurs' digital culture, the use of technologies, understanding of what's happening in the world, make them feel better about themselves and their peers, create jobs, pay more taxes, and participate in the economy.

The long-term change we aim to achieve is to increase in Ecuador, Peru, Mexico, Chile, and Colombia at least seven million micro-entrepreneurs success rate in the next ten years and help them create at least seven million decent jobs in the next ten years (considering success as the business's survival for more than three years, the employment of at least one person, and the generation of annual profit in the industry). The action we will take for this is a longitudinal survey.
To achieve the long-term change we have described, we have the following actions and consequences:

1. Action: Deploy a scaled-down version of the AI chatbot on WhatsApp. Result: People can learn fundamental aspects of business and mental health for entrepreneurs before incorporating a company.
2. Action: Make available a business trial module. Result: Micro-entrepreneurs who want to test and validate an idea can do so through our company without entering formal bureaucracy.
3. Action: Implement a preliminary filter to create companies only for those who are ready. Result: People enter the formalization adaptation stage more confidently because they have clear concepts.
4. Action: Design ethical technology for company formation. Result: Transparency generates trust, and micro-entrepreneurs want to continue using our technology.
5. Action: Listen to clients in the design of additional modules. Result: We have a comprehensive list of modules that serve our clients well, and we do not offer what they do not need.
6. Action: Gamify our solution to reduce churn. Result: More and more people want to meet the milestones of formalization and access its benefits.
7. Action: Deepen the development of new technologies. Result: Serve more people, including those who did not incorporate their company with us.

8. Action: Scale our impact internationally, starting with Peru. Result.- Improve our understanding of the solution and our numbers.

9. Action: Scale our impact internationally to Chile and Colombia- Result.- reach our first 5 million customers. 
10. Action: Scale our impact internationally to Mexico. Result.- reach our first 7 million customers.

Transversal Action: Conduct measurements in all business cycles. Result: Measurement results allow us to improve.

Impact Goals:

1) Increase in Ecuador, Peru, Mexico, Chile, and Colombia by at least seven million micro-entrepreneurs' success rate in the next ten years and help them create at least seven million decent jobs in the next ten years. 
2) Create a culture of “slowpreneurship” in Latam. Slowpreneurship means body and mental health, decent jobs, and time for your family (both for workers and founders).

Impact KPIs:

1. Number of companies incorporated per month.
2. Average monthly usage time of the platform.
3. Company billing frequency.
4. Number of challenges achieved in monthly periods.
5. Platform NPS.
6. Loans placed.
7. Repayment percentage.
8. Percentage of micro-enterprises that pass the three-year operational mark.
9. Number of positive interactions in the community.

At the heart of our company incorporation service is an unwavering commitment to ethics. We do not incorporate those who are not ready, ensuring the integrity of our service. This, coupled with the use of tools like Typeform, Turn, Zapier, Calendly, Mailchimp, Canva, Bounsel, WhatsApp, HubSpot, Contífico, Dátil, and Bubble, makes our service both ethical and spectacular.

Our formalization SaaS utilizes Machine Learning with public and private databases (this way, we can recommend intelligent microcredits to clients) and an LLM trained to perform the following functions: a) resolve basic legal and accounting queries; b) resolve fundamental credit-related doubts; c) analyze the accountant's work by automatically reviewing business balances and suggesting questions to the micro-entrepreneur; d) act as a first line of psychological support to care for the mental health of the micro-entrepreneur (integrated with a ChatGPT API).

11 full-time workers with all legal benefits and private insurance.

3 years.

We have a diversity and inclusion written policy within the company.

Our value proposition is to help micro-entrepreneurs undertake smart formalization. To achieve this, we provide them with gamified hacks (palankas) designed to address the main issues around the first three years of formalization: access to credit, document management, community support, electronic billing, compliance with data laws, financial understanding, and tax comprehension.

Our critical activities are:

1. Assisting the entrepreneur in knowing when they are ready to be a microenterprise.
2. Conducting a memorable incorporation process that builds trust.
3. Mapping user-engaging gamified milestones.
4. The financial balance between loans and collections.

Our allies include electronic billers, document automation services, accounting software, ChatGPT, and WhatsApp, which we integrate with through APIs.

Our cost structure is divided into human resources and technological resources. Our revenue streams include fees for the automatic incorporation of companies, fees for specialized accounting support for clients who need it, corporate procedures for companies, interest on loans, payments for installing electronic billing on platforms, and platform monthly fees.

In our early years, our primary focus was on establishing a solid marketing channel which has helped us become the leading formalization solution in Ecuador. When we first started, we had an invoice of USD 9,000. However, with our consistent efforts, we managed to increase our revenue to USD 96,000 in 2022. In 2023, we aim to reach USD 180,000 in revenue, and as of April 15, 2024, we have already invoiced over USD 90,000. These figures have made our business model sustainable and allowed us to provide dignified and permanent employment to our team. 

We plan to raise capital and apply for grants to develop the most advanced technological solution. However, we are confident that the repayment will be swift as we have users who are ready for activation and use. In the early years, we focused on establishing a solid marketing channel. Currently, this strategy has made us the leading formalization solution in Ecuador.