From Y2K to AI: Scaling Through Chaos with Rafael Krug of Zero-Defect

Jeff: [00:00:07] Ever wonder what it really takes to build a business from the ground up? Welcome to Owner’s Roundtable, where successful business owners pull up a chair and swap stories and lessons from their own adventures in business. From surviving their first half baked business plan, the time they almost went broke, the time they got lucky, and the strategies and tactics they used along the way. This isn’t about a polished success story on the Company “About Us” page; it’s about the real story behind the business—the pain, the people, the setbacks, and the big break that changed everything. Each episode, you’ll sit down with the owners who’ve been in the trenches, built something meaningful, and lived to tell the tale. Whether you’re starting out, scaling up, or just curious what it takes to go the distance, there’s a seat at the Owner’s Roundtable for you. Subscribe now on Apple, Spotify, or wherever you listen to podcasts. I’m Jeff McLarty, seasoned entrepreneur, executive coach, and business trainer, and I want you to have your own seat with us here at the Owner’s Roundtable. Real owners, real stories, real insights.

Hello, and welcome to Owner’s Roundtable. We’re here at the table with Rafael Krug of Zero-Defect, who will be sharing with us the story of how we built Zero-Defect, the third largest software testing firm in Brazil, and how he now finds himself in Canada despite having to survive several business challenges on the biblical scale, including a flood, a plague, among many others. So pull up a table, get subscribed, and join us here at the Owner’s Roundtable. Let’s get to the conversation. All right, welcome to the Owner’s Roundtable. We’re here with Rafael Krug from Zero-Defect. He’s going to tell us some stories about how he got into business in Brazil and then somehow found his way to Canada. And we’re looking forward to hearing that. So welcome, Rafael.

Rafael: [00:01:53] Hi, Jeff. Thank you so, so much for having me today.

Jeff: [00:01:58] I know I’m looking forward to the conversation. You know, it’s quite the path you’ve traveled from sunny Brazil to wintry Canada. Why don’t you start at the beginning? How did you, how did you first get into business? Where did you start?

Rafael: [00:02:12] It’s a long story, but I would be delighted to share a little bit about my trajectory so far. So basically, I started on it back in 1999 when I was an intern, and I was hired to, you know, to do all the book conversion for the Millennium Bug. I don’t know if you remember that, that every mainframe in the world were going to fail. They change. So I was hired as an intern to do a conversion for mainframes in a lot of problems for a large bank in Brazil. So this was my first experience with book or in this kind of thing. And I, you know, I earned a lot of money at that time because no one knows how to handle COBOL. You know, this kind of language. So basically, we… I just started on that way and I, you know, I was very well paid to just, to change a variable type. So it was, it was amazing at that time. So later on, I think that our, the project is over because, you know, they changed it to year 2000 and I was without any job because I was not needed anymore. So I applied to work as an employee for HP on that HP resume. And I went to the quality assurance, you know, the department, and from that time I started to learn that this kind of thing, the quality assurance thing that there is a lot of opportunities, you know, to work around the world. So basically, I started doing, you know, testing in the R&D lab in, at HP Brazil.

Jeff: [00:04:11] One question I’ve always wondered about. So there was that whole thing about millennium bugs. Did any actually come to fruition that didn’t get fixed? Did anything go bad that didn’t get fixed?

Rafael: [00:04:21] People around here were a bit scared about that. So I heard that, you know, nuclear missiles are going to be launched, you know, and the ATMs, will throw a lot of money, you know, suddenly in the street. So, but anything occurred so.

Jeff: [00:04:41] So you’re the reason that the ATMs didn’t give us all free money?

Rafael: [00:04:44] Yeah. Yeah. Especially because in Brazil, in Brazil, the banking system is so advanced. So they basically, I’m a little bit concerned about that because you had the ATM every quarter in Brazil. So it was a very big concern for everyone there.

Jeff: [00:05:04] But you got all the bugs fixed and nothing bad happened.

Rafael: [00:05:08] Yeah, not just the bugs. You just need to change the, you know, the the variable type for integer 16 bits to integrate 32 bits. So it was so, so I had to fix it.

Jeff: [00:05:22] So interesting. You know, one thing I should have asked you before we get too far into it, tell us a little bit about the company that you run. Zero-Defect. What do you guys do?

Rafael: [00:05:31] Yeah, we are a software quality assurance company in Brazil. So we operated since 2004. And I want to explain how Zero was born. But, basically we do a lot of software testing. We do performance testing, we do functional testing with automation. We do security testing. And right now here in Canada, we are just launching our AI tool to do automatic testing. So we do, we do a lot of cool things here. But basically we are the guys that are on the development team, you know, trying to find bugs and, you know, problems in their code, so.

Jeff: [00:06:12] So what’s the craziest bug you’ve seen in a piece of software that…?

Rafael: [00:06:18] I think we have a lot of, you know, if you’re going to write a book, I think that anyone, I think said that, no one will believe me because we saw some strange things in the past. But basically they were the most, you know, annoying bugs. Not annoying bug, but the most fraught one was one bug that was called about, you know, three trucks of merchandise, you know, to a very big retail store. You know, it was a book that just sent to the CRM and to the ERP and just triggered that, you know, a lot of corn flakes, you know, the trucks full, three trucks full of corn flakes, you know. So it was a very messy thing, you know.

Jeff: [00:07:14] So the system was just automatically reordering box after box of corn flakes?

Rafael: [00:07:18] Yeah. Yeah. It was. There’s a lot of promotion in Porto Alegre. That was my home city, you know, because you can, you know, buying three and take four corn flakes. Yeah.

Jeff: [00:07:30] Oh, I have to hate to be the one that had to explain that to the manager.

Rafael: [00:07:35] Yeah, yeah.I remember the I.T. guy. You know, the I.T. director, just screaming on the phone. What did you do? Everyone you know, how am I going to park three full loaded trucks, you know, right now. So there’s a lot of mess all the time.

Jeff: [00:07:54] That’s crazy. Awesome. All right, let’s go back to the origin story. You talked about working for Hewlett Packard and then. How did you make the transition to working for yourself?

Rafael: [00:08:05] Yeah. I think that we started to work, and I was able to work with a lot of other countries, especially US. And it was so amazing that I thought to myself, okay, I think that I have an opportunity here. So I decided to, you know, to make a spin off of that department that R&D department focuses on. And on that time, I took all the money that I was saving for my wedding and threw it into the company. So this is my tip right now, if you want to avoid to get married, open a company, incorporate some company.

Jeff: [00:08:50] So so so, did you still manage to get married after you spent all the wedding money on starting the company?

Rafael: [00:08:56] It was a great excuse, you know. So everyone asked, well, when am I going to get married? I cannot marry anymore because I just opened a company. So it’s a good, it’s a good excuse if you want to do that. Please. I think, believe me, that it’s worth it. Trust me, it’s worth a lot.

Jeff: [00:09:13] So how did that conversation go with your fiance saying, hey, I know we have this money saved up, but I want to open a company?

Rafael: [00:09:22] Yeah, it’s like, I need this opportunity, you know, because if you if you… You know, and I think that is the good thing that we are going to do some entrepreneurship, you know, that we need to believe that we are going to thrive in the future. So I think that at the time, it was so good because she was so comprehensive to support me all the time. So it’s, it was amazing. And you know, you know we are married, so okay.

Jeff: [00:09:52] You know it’s funny, that’s kind of how I got into business too. I had a similar conversation with my wife and we had just been married. We’d had a bunch of money saved up, and instead of buying into a bigger house, we decided to buy into a business. And that was an interesting conversation. We never talked too much about the people who come along with us on this adventure of starting a business.

Rafael: [00:10:15] Yeah, it’s with her for sure. For sure.

Jeff: [00:10:17] Yeah. Did she work with you in the business as well?

Rafael: [00:10:20] Yeah, she’s with me. So she just, you know, go, go. She went with me, you know, with this adventure thing. So but you know, it’s like a, it’s a good thing to do. Yeah. To get married so soon. So, and after that we start to, and so we just incubated the company in the technological part that was there is a big technological part back in Brazil that is attached to the university there. And then we start to thrive. But, you know, at that time it was very fun about that, Jeff, is that, you don’t have… we didn’t have the “startup” term. You know, there is no startup. So it was “incubated” company. So so when you are going to tell people, I mean company people start to look at you… “incubated.” So you are not, so you know, you are not so strong. So now nowadays. I think that if you tell someone that you are a startup, oh, it’s a cool thing, but all that time incubated company, it’s not. They don’t… they didn’t see us like a very serious company all that time.

Jeff: [00:11:40] So it’s hard to get started, to get that initial credibility, to get people to take you seriously.

Rafael: [00:11:45] Yes. For sure. And then we start to thrive a lot. And we did a lot of cool, you know, works there, especially because we were able to work with Big Brother Brazil. That was a big TV show in Brazil. And, you know, it was the first time that we just didn’t trust the system that make a direct interaction between the audience and the TV in real-time. So it was a crazy thing that we did, because we just tested the performance of the system that we were going to make, the voting system, you know.

Jeff: [00:12:22] Like the Big Brother TV show. Yeah. Oh, yeah. Okay. That’s crazy.

Rafael: [00:12:28] Yeah. So imagine that that we need to just to to assure to the TV network that they are going to be about 100,000, or almost 100 million people voting at the same time because Brazil is so big. So, it was a very challenging thing for us all that time. And that was the… I remember at the time I was a little bit scared because I don’t want to be the local news because I was responsible to a great failure, you know, in the system, in the voting system. So… But everything went, goes well. So it was amazing all the time.

Jeff: [00:13:14] That’s awesome. So how did you get from like, being this startup incubator company to getting somebody to take you seriously enough to work on an international TV show? Like, how did that work?

Rafael: [00:13:25] Yeah, I think that the word of mouth worked so well in Brazil, you know, because we are the guys that, you know, we are like the Ghostbusters, you know? So every time that people see a ghost in their systems, they start to be scared and they need someone to call. And I think that we have a lot of luck in all that time because we are, we were one of the first companies focused on race in Brazil. So the word of mouth started to work. So, so bad. It was bad. We started to work good for us, you know. So a lot of people, you know, they probably they, they heard about us, say, okay, I have a problem with my system and I need someone to try to figure out what’s happening, what’s going on. So they just call us like Ghostbusters. So and and we want to know from company to company, you know, to what, but you know, so these kind of things and, later on, I, we have also, a lot of big challenges, like to test military resistance to test a lot of very mission critical, retail system. So, and, right now, people just, you know, try to search our, trying to hire our services, especially because we are very good trying to solve things, to find bugs, you know.

Jeff: [00:14:59] So but one of the things a lot of people struggle with in business is they have a great idea, they have some skills. But getting that first customer or to the point where they can be taken credibly. How did you get your first customer? I’m interested to hear that story.

Rafael: [00:15:14] Yeah, but the our first customer was the HP itself. So.

Jeff: [00:15:18] Okay.

Rafael: [00:15:18] Yeah.

Jeff: [00:15:19] So that kind of gave you an initial credibility?

Rafael: [00:15:20] Yeah. When we spin off, when we did the spin-off, I just asked and, you know, have a lot, a lot overseas with HP directors and they just support us. Okay. We are going to work with you. So open the company and incorporate the company and moved to work with you for, you know, in a test mode. And if everything goes well, we we could, you know, you can go on. And so basically we started with our first big client was HP all the time.

Jeff: [00:15:55] And so when you were, if you were working for HP and then you decided you were going to start a company, didn’t… did they give you some static about, hey, well, you work for us like you, we’re not going to hire you? Or was it a pretty mutually agreeable transition? Or how did… like were they okay with it? Or did you have to convince them that this was a good idea?

Rafael: [00:16:15] I need to convince them because, you know, I think that we create something that was very interesting for them, all that time that a lot of people didn’t have any experience with. For instance, working with HP UX. That’s the kind of UX. So basically we start to train a lot of, uh, people to use HP UX, you know, to provide services for HP. So all the time. So we, we just, we just attach it to the ecosystem. So basically we just started to train a lot of people to work with their systems. So it was like a, you know, it’s like a big, big car industry, you know. So we basically, we start to create the wheels for them. So.

Jeff: [00:17:15] So when you first started the company, when you spun it off, how big was your team when you started?

Rafael: [00:17:20] It was me and three people.

Jeff: [00:17:23] And I know you got quite a lot larger than that. So how did the scaling go? Did you run into some hiccups as you were getting bigger?

Rafael: [00:17:29] Yeah, so I had a lot of problems all that time because I didn’t have any experience, you know, hiring people. I didn’t have any experience, you know, to do a lot of HR thing. So I got a little bit struggle, you know, with this kind of process, you know, this kind of things that we need to adapt to, to grow faster. So I think that this was a… I think that was a difficult thing that we need to, to learn so fast, you know, to try to be around the way that we are starting to grow.

Jeff: [00:18:01] So what were some of the key things you had to learn to kind of help you make that transition and grow?

Rafael: [00:18:09] It’s like we need to put some process so fast. So we need to define process, you know, to… from the hiring, you know, how to do the feedback to the employee. We need to do the feedback to the… to get feedback from the client also. So I think that the worst thing is, was to how to put the process. So we need to focus on the process and how we are going to grow, you know, on that time. So the ideas, I think that this was the key success for us, that we are very fast adapting our process to grow very fast. So.

Jeff: [00:18:47] So when you… like, say when you got to around a team of 20, did you start to experience like communication problems, keeping everybody on the same page?

Rafael: [00:18:55] Yeah, we have some problems, you know, mainly because… also we have, you know, how to, to we have some we have some problems, you know, regarding the competitors also because, you know, there were other partners from HP that are, that were working with HP. So basically we need to put everyone in the same page because we need to do a better job from the competitors. So, so basically we and and CCP are working as an outsourced people inside HP for us was a little bit difficult to know, to get everything everyone together to try, you know, to improve the communication and to tell them that, okay, we need to we need to to do a very good job because we have competitors right now with us at HP Labs. So probably we need to do better than the others, you know, to try to increase. So it was a little bit challenging because… especially because I think that the people from HP didn’t allow us to talk so much with our employees all the time. So this was a very difficult thing to do.

Jeff: [00:20:12] So how did you deal with it? How did you get past that?

Rafael: [00:20:14] Yeah, we at that time we started to use, and I think that, everyone that is listening to us right now, you remember that term? So we created an intranet. But on that time we just created, you know, you start to use a lot of internal communication, you know, because since we are, we are unable to talk with everyone because they are outsourcing to HP, we just created an intranet, you know, where we can, you know, put our, you know, our communication that we need to to our to our employees. And at the same time we start to use at that time, you know, and know that it’s a very real thing. So we started to use a Java that was like, you know, a messenger that we had on that time. So we basically start to communicate with people what we have today, we have Jabber in the past. So these are very ancient things or, you know, Slack and this kind of thing.

Jeff: [00:21:17] So what year was this that you were doing?

Rafael: [00:21:19] Yeah, 2005, 2006. So so so so so ancient I think.

Jeff: [00:21:28] So did you actually share with people who are listening, like, how big did this get over time? Like what was kind of your maximum size?

Rafael: [00:21:35] Yeah, we had about 70 people inside the company. Yeah. And this went so far till 2009 when we had the Asian crisis. I don’t know if you remember the Asian crisis. So everything in Brazil went down. So we need to, you know, to fight a lot of people. So it was a very sad, you know, year for, for everyone. And this was my first scar as an entrepreneur, you know, so you have, you know, suddenly in two months you have less than half of your company with you.

Jeff: [00:22:22] Like how did you manage that on the operational side? Like, did you have a plan to combine jobs or how did you deal with that?

Rafael: [00:22:30] We started to create an outplacement services for our employees. So we are a little bit concerned about that. So basically we created some, you know, outplacement projects and outplacement plans to help our employees to find another job. So this was the first, you know, concern that we had all the time. So we need to support people because it was not our fault. It’s because HP and the other clients started, you know, to shrink. So basically we need to help people to get, you know, another job. So, it was a very thoughtful time. And like I said, it was my first scar as an entrepreneur.

Jeff: [00:23:21] Yeah, that’s a hard day to go to work when you know that there’s nothing you can do and you have to let some of your team go. Yeah.

Rafael: [00:23:29] Yeah. So you see, because it was a very difficult thing because we, we also were unable to put people in our other clients because they are our, they were shrinking, you know, as, as HP. So it was a crisis. So.

Jeff: [00:23:51] Right. So how did you manage the team that was left? I imagine morale wasn’t exactly awesome after having to go through that downsizing.

Rafael: [00:23:59] Yeah, I remember all that time that, we take everyone in the end of that year to a very large club in Brazil that has a lot of swimming pool, you know, a lot of sport, soccer square, you know. So basically we just took everyone to have a good time and to try to heal the wounds. So we know, we knew that the next year will be a very challenging one, because probably the crisis, you know, is almost ending and it was almost finishing. And we need to compete again. So we need to put everything, everyone together and give them a good time and try to create, you know, some kind of, you know, team spirit again, because we are going to face another competition run in the next year. So it was a very, it was a very good time because it was, we were able to, you know, some kind to heal our wounds at the time.

Jeff: [00:25:08] That’s picking yourself up off the ground and getting back after it. That’s the way… the way of business.

Rafael: [00:25:14] Yeah, yeah. Because I think that I think that I put some, and also believes that I have, because I’m a black belt in karate. So. Yeah. So I learned that, if you fall seven times, you need to rise eight. So it’s like, you know, to quit or to give up is not an option. So we need to keep going. So, yeah. So basically we just. Okay, let’s, go to the bed now again. So and I think that later on we feel, in small team, we became more agile. So we could adapt ourselves to the new challenges. This was a very cool thing to do. So because, you know, the marketing started to have other demands for our, for our services. And we try to adapt very fast. So we start to breathe again in a very fast pace. And we are, and later on we start, we were, we started to work with a lot of, a lot of other big companies. So it was so good for us. Till 2020. So when COVID arrived. So this was our second scar.

Jeff: [00:26:40] Yeah, COVID was a big scar for a lot of people I think. Yeah. Yeah, so what happened when COVID hit?

Rafael: [00:26:47] Yeah, so in COVID, and also I think that, I think our story is no different from anyone else, but basically we need to shut down the company and for me, what was a big shock, because we have about two floors in the downtown in Porto Alegre downtown. And we need to shut down everything. So I remember when I asked him for the realtor that we need to, you know, to just just to give the keys because we are going to shut down all the offices and I put everything in a small storage area in Brazil. So for us it was a big impact. This was a big impact. So and we could manage to work remotely and we, I think that everyone did that. And after that when the, you know, the pandemic was ending, you know, and people start to work again, we decided to go to an innovation hub, in Porto, that is the Caldeira. It’s a very big innovation hub. So basically we just, you know, get our rent. Rented a small room there and we start to brew again. So we again, so let’s start to work again. So we are now attached to a very innovative hub in the south of Brazil. The major innovation hub in the south of Brazil. And we start to work again till… we have our third scar, till 2024. We had had the big flood in Porto and we lost everything. So the company was underwater for about 24 days, two meters of water.

Jeff: [00:28:54] Literally underwater, not figuratively, literally underwater.

Rafael: [00:28:57] Literally.

Jeff: [00:28:59] So let’s get knocked down nine times, getting up ten. Yeah. Wow.

Rafael: [00:29:06] Yeah. And I remember that it was a shock because, you know, we had everything, we rebuilt everything. And, in a matter of a few hours, everything was beneath the water. So we lost our computers, you know, all the testing device that we had, all the employees’ documentation, you know, everything that we had on that time. So we lost everything. And I remember that when the, you know, the flood, you know, just passed. And we need to return to the, to our room there and everything was oh, it was, it’s a war scene, you know. And I thought to myself, okay, we need to build it again. And I was wondering that our strength was not in the physical thing. Our strength is, you know, our people, in the mind of our people. So, you know, physical things can be replaced, but you cannot be replaced. So for this reason, we decided, okay, let’s start all over again.

Jeff: [00:30:23] You just can’t keep you down. You just keep getting back up. That’s amazing. So then, so that was in 2024. And then, so you started rebuilding in Brazil as well as you decided that you have a crack at starting in Canada here as well?

Rafael: [00:30:42] Yeah. So at the time so basically we are, you are working, you know, because when I choose the name Zero-Defect back in 2004, I was very sure that we were going to be an international company. For this reason, I chose this name. And this was a dream, you know, I really dreamed to have an international company. So, when we arrived at Caldeira, they did a, you know, an entrepreneur, a business, you know, mission to Canada. I went to this mission and we visited Toronto. But at the time, I was realizing that, okay, I think that we need to move to Canada, you know, because I think that, from here, we are going to be an international company. And I started to figure out how, how we are going to do that. So we just know later on, I tried to study a little bit more about the Startup Visa Program, you know, how things operate, and what we need to do, you know, to be here.

Jeff: [00:31:59] So what are the things you’ve had to adjust to having doing business in Canada versus doing business in Brazil?

Rafael: [00:32:06] Yeah, I think that the Canadian market is more focused on relationships, you know, than Brazil. So but at the same time, Canadians are so nice. They are not so, they are not so… People from Canada, I could say that they are very humble and they know what they are talking about. In Brazil, people, it’s just time to talk a lot, you know, to say, oh, I do that, I do this, and oh, it’s like they like to talk the hype. And in Canada, people are… they don’t want to talk about the hype, they just want to do the things. So this is the difference. I think.

Jeff: [00:32:56] It’s interesting. And, feel like you’re making good progress getting restarted up here in Canada as well as building your operations in Brazil?

Rafael: [00:33:04] Yeah, yeah, it’s a challenge. I think that… No, because right now I need to be in sync with Brazil. Especially because our operation is still running there. But I’m willing to, you know, to try here. And, I talked to my business associates and, it’s, this is the thing that I believe that right now we are a Canadian company, and we want to thrive as a Canadian company. And we came here to create jobs, you know, and we came here to get North American market as a Canadian company. So in the future, I think that we are going to be… we are going to have more Canadian people than Brazilian people working at several different.

Jeff: [00:33:53] Yeah. That’s great. So knowing what you know now, what would you go back and tell yourself over the years as you were building, getting bigger, getting smaller, anything you wish you would have known?

Rafael: [00:34:03] Yeah, it’s a good question. It’s a very good question. You know, I think that… that’s a good question, Jeff. I think that, if I could go back in time, probably I asked myself to spend a little bit more English, for sure. But at the same time, I think that, I think that I need to ask myself to try to focus on some products as well, not solely services. So right now we are shifting. So we are a services company and we are going, we are shifting to a product company. And I believe that in the future, you know, companies will rely on services and product products as well. So I think that it’s… I think that we need to do that in the past.

Jeff: [00:35:01] That makes a lot of sense. What other advice would you give somebody that’s getting started in business today? If your friend told you “I’m starting a company tomorrow,” what’s one thing you’d tell them before you get started?

Rafael: [00:35:12] Okay. I don’t want to be so obvious, but the first thing is that you need to trust your gut. You know, it’s like, it’s like I was… I trusted my, when I, you know, just had an idea. Okay. I’m going to have, I want to incorporate, to open a company, and I’m going to be an entrepreneur. So some, some times I think that this decision, you know, this the way that we’re going to take this decision to try to, Okay, now I’m going to, to be an entrepreneur. I think that you need to trust yourself a lot to do that, you know, because you’re going to be alone from now on. You’re going to be alone to be your. You are going to be someone that you’ll be all by yourself, you know. So. So I think this that trust your gut because probably you are going to succeed. And don’t be afraid. I think that is the second tip that I can now give is that you trust yourself and…

Jeff: [00:36:30] And keep getting up.

Rafael: [00:36:31] Yeah. For sure.

Jeff: [00:36:35] Yeah. Well that’s awesome. Well, I really appreciate the time today. I enjoyed the conversation and learned a little bit more about the journey that you’ve had. Is there anything else that you want to share? You wish you would have mentioned along the way?

Rafael: [00:36:46] Just to say that I’m really, really, really, really, really, really, really glad to be Canada. I think that was the best decision that we had in the last ten years, I think. And I think that for us it’s a… we have a, we are very proud to be here and we want to to help the country to thrive. I think that we are, we owe this to Canada and we are going to honour this promise. So for, we are very happy to be here. And I really want to be integrated even more in this ecosystem, especially here in Edmonton.

Jeff: [00:37:27] That’s awesome. Canada is happy to have you, Rafael, and we’re happy to have you here on the Owner’s Roundtable. Appreciate you coming on the podcast. So with that, I think we’ll wrap it up and I will say, thank you very much, and we’ll see you next episode.