Founders of Russian startups that have shot up explain what really hinders our young IT entrepreneurs.
We recently published. material In which representatives of the gas pedal FRII, Innopolis University and Kazan IT Park discussed why there are many ideas but few startups in Russia. Experts noted separately that Russian universities do not teach to develop ideas into a working business, that it is more convenient for IT entrepreneurs to build a business abroad, they lack positive examples, it is difficult to get profit for a project, and legislative requirements take much time.
Last year’s article was hotly discussed by representatives of the startup community, so we prepared a sequel. In this post, the startups themselves described what infrastructural, legislative, and personal problems young IT entrepreneurs face in practice.
Andrey Makeev, founder of Flowwow:
Flowwow is a flower marketplace where, on the one hand, stores and florists place their goods, and on the other hand, customers who want to deliver flowers profitably, conveniently and quickly. We attracted little investment, there was from FRII and a round from a private investor. (The service received 1.4 million rubles of investment from FRII and 4 million rubles from a specialized business angel, more here ) The business is owned by a team and a small fraction of investors. The company is growing at 300-400% a year. We work in different cities, we go online2offline.
There are lazy people in Russia who want to spend a couple of months working and then sit back and get dividends. But there’s no such thing, you have to work hard every day.
In terms of infrastructure, IT entrepreneurs don’t have any problems, just their head – what has been hammered into it for years by those around them: "You won’t make it, you don’t know how to do anything. You don’t have to listen to anyone, you have to do your job well and dream more.
There are points in the Russian legislation which should be reviewed: to pay attention to transparent taxation systems in Western countries and to allow the acceptance of different currencies. Russian companies cannot accept foreign currencies. Our marketplace with a simple scaling model can bring money into the RF budget from other countries, but we are prohibited from doing so.
Ainur Abdulnasyrov, founder of LinguaLeo:
LinguaLeo.com is an English language learning service. It attracted $200, 000 in investment from business angels and $3 million from the Runa Capital venture capital fund. Now the project has three main owners: I am the founder of the project, the Attair.vc fund is business angels and the Runa Capital fund is the venture capitalists. The project is slowly growing and developing.
Russia lacks a culture of entrepreneurship and development of technological projects. Almost nowhere do they teach the profession of managing a technology company. Beginning entrepreneurs lack practical examples, so that current IT companies share their experience, knowledge, motivation: how to do things to get results. This should be taught, to show examples with an explanation of all the details, to tell how to attract investment and expand grant support for the very beginners. And introduce incentives for educational companies to support the process.
Before founding LinguaLeo, I took a course in technological entrepreneurship at the Higher School of Economics and was a resident of a business incubator with another project. But it took me a long time to get into many aspects of creating an IT company on my own.
In Russian law there is no convenient and universally understood form of implementation of flexible agreements on options, angel and venture capital investments. It is worth paying attention to the legal instruments in English law, because investors more often choose it for transactions.
Konstantin Ivanov, co-founder of 3DPrintus.ru and DigiFabster:
3DPrintus.ru, an online 3D printing service; DigiFabster.com, a cloud-based sales automation and lead generation system for commercial 3D printing services worldwide. Attracted a total of about $1 million in angel investment from Russian and U.S. private investors. We are twenty people in two companies with offices in Moscow, New York and Munich. We work with clients from the United States, Germany, Great Britain, Australia and Mexico.
People justify their laziness by their fear of a bad ecosystem, the lack of a venture capital market in Russia, and terrible legislation. You have to start with yourself and change your attitude to entrepreneurship, risk, and opportunities.
Russia traditionally has a lot of ideas and there are no problems with generating them. We have to be taught how to sell-marketing, packaging, persistence in sales. In our country sales managers disappear after the first refusal and never come back. In the UK salesmen can sell me something for a year, sometimes two – they do not have a "stop" button. They look for any way they can to convince me that I need what they are selling. This is one of the fundamental things that should be taught at least on a basic level.
Nothing stands in the way of starting a business: all the basic things you can do yourself. There are now hundreds of services that make life easier for entrepreneurs – from registration to accounting, bookkeeping, sales funnel control, telephony, and banking.
IT entrepreneurship is conditionally tied to the country. No one is stopping you from making an IT product in Russia, but with a market and clients in other countries. You have to understand what the advantages are in your home country and use them, adjusting to the mentality and market of the other country.
A huge number of "nurseries" have been created for IT entrepreneurs in Russia: gas pedals, experts, programs, venture investors, and much more. The only problem is that the market is still young and undeveloped. Like the venture capital money market, so is the startup market, and the MA market – MA. But you can’t blame the market for being young.
Over the next 5-10 years, the fundamentals that exist in the same US market will continue to take shape: clear and transparent incorporation of the company with the investors brought in; regulation of options and vesting; regulation of rights and transfer of intellectual property. Everything should be integrated into an ecosystem which will tell what is venture money, how it works and what are the options for its use; how and why options are needed for employees and why they are better than high salaries. With all this knowledge, all that’s left to do is get started.
Dmitry Stepanenko, founder of Hot-WiFi:
Hot-WiFi is a service for solving business marketing tasks with the help of a wireless access point – advertising the establishment via guest Wi-Fi. Investment raised from FRII in 2014 and 2015: 1.4 million rubles in 2014 – pre-seed, 5 million rubles in 2015 – seed. The business now belongs to me, the two co-founders – the developers of the product, the investor – FRII.
A strong team with a good in-demand product is not hampered by anything – all the problems are in the head. We faced neither infrastructural nor legislative constraints. Reduced tax rates for IT companies and software manufacturers provide significant support for business.
The path from an idea to a successful and profitable business is difficult, but surmountable. When I was a student in Moscow, I was looking for an investor for my idea at an event, and I met Ilya Korolev, who offered to be our mentor. He believed in our team, not in the project. Investors invest first and foremost in the people who will lead the startup to success.
The right mentor plays a big role in the success of a business. Ilya helped us at the start: at weekly meetings, he explained how to structure ideas correctly, taught us the right approaches to testing hypotheses, and talked about hadi-cycles and customer development. Thanks to him we avoided serious mistakes.
The next mentor for us was the FRII gas pedal, where I applied. After a three-month acceleration period, we showed growth, and they invested in us.
Alexander Shcherbina, general director of ITECH.group:
There are more than a dozen companies that I am involved with – ITECH.group, ITECH.service, ITECH.games, WIZL, Giftd, LifeHacker and others.
Money is either not needed – for web development or digital advertising, or I add private investor funding to my money. In 2012, we raised investment from the professional fund AddVenture in the project MedBooking.com, in which I sold my share in 2015.
Some companies are wholly owned by me, some have a controlling or minority stake. Some companies I have sold. Each project develops and grows in its own way.
Not only in Russia there are many ideas, but few successful and profitable startups. This is the case everywhere, and it is normal that successful ones are just a few out of hundreds, sometimes even thousands of startups, ideas, inventions. And I do not see any serious infrastructural or legislative constraints in our country that would prevent a young IT company from moving forward.
The most important problem is the number of places to get knowledge. There are dozens of events every day in California: conferences, meetings, workshops, and just talking to people around: on the street, in a restaurant, in a company. A lot of big IT companies, from which employees come out with their projects, have received a lot of experience and funding from former employers. The lack of that infrastructure makes it harder to access information, but it doesn’t make it impossible to get it. It just takes more effort.
There is a shortage of qualified personnel in the market, which universities are supposed to train. But this problem exists in other countries as well. Look at how many foreigners work in Western IT companies.
There are reasons beyond a person’s control, and he does not succeed because he is not an entrepreneur by nature, but this is normal. Then it is still possible, taking into account previous experience, to move on – to move into the role in the project that suits him best.
The size of the market in which the company operates can be a limitation. It is harder to enter large markets than it is to work in a local market that you know well. But nothing will stop an energetic and motivated entrepreneur.
Mikhail Sverdlov, guest professor at Innopolis University Founder of Afisher.info and Pomnim.pro, IT Director at Innopolis City Hall :
I have two federal projects: Pomnim.pro – a service to search and care for graves in Russia and the CIS, Afisher.info – event content aggregator used by the largest federal and city portals, receiving from us quality content on the city events, posters sports, business and social events. Our content is purchased by Yandex and Hearst Shkulev Digital Regional Network. Both projects are federal, working in 50 cities, their number is constantly increasing as the companies grow.
On investments there have been rounds from FRII and business angels, but I am skeptical about investing in startups from scratch. I have stepped on the rake when both the team let me down and the people with whom there were agreements did not fulfill their obligations. An investor should be presented with an established project with a proven team, and most importantly, the project needs to understand why it needs the investment. If it is just for the team’s food, this is not the best motivator.
In Russia it is easy to start a startup or a business; it is difficult to make it profitable. But this is true everywhere; miracles do not happen. Ever since Soviet times, there has been a stereotype that an entrepreneur is someone who, from day one, drives a "six hundred" Mercedes and has a big shovel to collect money. And when people are confronted with business, they have a substitution of notions: not every entrepreneur is bathed in wealth. Many of them, both in Russia and America, are poor and miserable people who have sold or mortgaged their apartments and put all their money and energy into a business they work on 24/7, sacrificing their health and time for their families.
It’s a difficult job: you have to form a team, fight for your place on the market, meet the demands of consumers. To find your niche in the market, you have to experiment, try different approaches. But we have no culture of error, after the first failure many people give up, although it may be the best lesson. The society is also intolerant to mistakes. In the West, people with mistakes are treated easier and are appreciated because the chance that they will step on the same rake is many times less than that of an MBA graduate. When all is well is bad, mistakes help us grow as entrepreneurs and professionals.
The state helps entrepreneurs in their work. They are trained, development institutes are created, there are a large number of grants and benefits for beginners. Chairs are appearing in universities all over Russia where they teach the basics of entrepreneurship, the legal and accounting aspects of business. I now teach courses in entrepreneurship at Innopolis University, and I consider business training essential. Rarely is anyone born with an entrepreneurial mindset, they are nuggets and few of them, so it is important that people who have successful cases share their skills with newcomers.
You have to learn how to sell your ideas, understand market and customer needs, and create value that solves the customer’s and consumer’s pain. Since an idea by itself is not worth anything. If a person managed to adapt some successful Western idea to the Russian market, it is no less success than coming up with something new. There are already billions of ideas, you just have to get up and start working.
And there are no restrictions in Russian law that cannot be overcome. It is absolutely realistic to open an IE or OOO, spend a day or two on it, then just do everything according to the law, pay taxes on time and run your business quietly.