Report from the Russian (Entrepreneurial) Front

11/23/09Follow @BillAulet

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retailer in Russia—and he made it seem perfectly logical that a physicist who loves to experiment and analyze data has a competitive advantage as a retailer. Numerous people in our class of 40 had PhDs. Maybe MIT isn’t so technical after all. Maybe these technical degrees can be useful in other areas. After all, if lawyers can claim that going to law school is good training for running a company, the engineering/science/math training argument seems infinitely more logical to me.

7. Vigorous debate makes it more uncomfortable but also more interesting. Now that we had established rules of engagement to set expectations on both sides and keep things civil, the intellectual battles of the day certainly got the blood flowing and generally (but not always) led to a better outcome. We were learning more about Russian nuances, and they were getting to bend the material to what they wanted to hear and learn.

8. It is different in Russia. Arkady Volozh, the founder and CEO of Yandex, visited the class, which got things really going on the third day. Yandex is the dominant search engine in Russia, like Baidu is in China—and you may be surprised to learn that Google does not rule the search world everywhere. The obvious question is why hasn’t Volozh sold to Google for a huge price? It was fascinating to see how he put a lot of Russia’s best scientists and mathematicians to work to make a best-of-breed search engine. Even more important was the significance that Yandex has in Russia (and Google has in the U.S., when you think about it) over the spread of information. Turns out the Russian government is well aware of this and has procured a single “golden share” of Yandex that it bought for one Euro. This golden share can be thought of as a super preferred class of stock with blocking rights on any sale of the company, and there is only one golden share. The company can never be sold unless this share agrees that Yandex can be sold. It sits in the Central Bank of Russia. I wouldn’t count on Yandex being bought by Google anytime soon, even if Google co-founder Sergey Brin was born in Russia (no coincidence there).

9. It is similar in Russia. While I expected Russia to be dramatically different (I pictured Eliot Ness and the Untouchables going up against the mobs ruling the streets), it wasn’t like that. Once we got used to the argumentative thing and a few other small items, the students were not that much different than young MBA students in the U.S. Many people we met had experiences in the U.S. or understood the American way of life. Walking around Moscow was not a harrowing experience, and the people didn’t seem that different. In fact, other than the Cyrillic alphabet, it didn’t seem that much different from Madrid. If the oil price stays about $60 a barrel, I bet in a year traveling to either of these cities will be a very similar adjustment for Americans—relatively easy. Moscow will be, for better or worse, another interesting and very manageable European city for business people.

10. It is a big market opportunity—and the time may be right. My observation is that Russia represents a 70-million-person market with increasing wealth and industrialization. It is not so far removed from the developed world that solutions and products won’t translate. In fact, I think they will. It is also not that hard to get there (surprisingly only a four-hour flight from London—easier than a lot of places I go in western Europe). And there are a lot of ex-Pats there to help ease you into the market, as well as a soon-to-be fresh crop of newly minted MBAs. Frankly, the barriers to entry are a lot less than most people believe.

11. Still there are mysteries. On one hand (business), I was happy to learn that it is already relatively easy to transition to the Russian market. On the other hand (non-business), I was sad because the world is getting so much more homogeneous. That being said, there are still mysteries. At dinner one night with highly educated Russians, we ventured into the area of politics (we like to live dangerously). Stalin is mentioned in Russia like Kennedy or Roosevelt in the U.S., so we asked, “Is Stalin held in higher regard here today than Gorbachev?” “Absolutely!” the answer came back. “Well, what about all those dead Russians?” we asked. “We need strong leaders in Russia. It is a very big country. There was order in Stalin’s time, and people had their basic needs met. Everything just came apart under Gorbachev.” We decide to move back to discussing business issues. Another mystery is why it is so hard to get a visa. Many forms, one frustrated and very nervous assistant, hours of work, and $500 later, I finally got one but it was not easy. And oh yes, in the streets, the traffic is wild. Next to the BMWs and Lexuses, you see a Russian version of a car, a Volga I believe, that looks like the station wagon version of the old ugly 1970s American Motors Corporation Hornet (if you have no clue what I am talking about, just think of a real ugly car from a long time ago). It presents cognitive dissonance every time you see it.

12. That which does not kill us makes us stronger. We had Sergey Vykhodtsev speak to the class as well. He was just returning from Florida, where he was honored as the Ernst & Young Russian Entrepreneur of the Year—and what a story he had to tell. As a youth, he came to Moscow from the south of Russia with nothing and observed what was going on there at the time. Seeing an opportunity, he set up a business buying watch parts, building watches, and then selling them at great profit on the street. He was so successful that it caught the attention of some local “community leaders,” who kidnapped him and held him hostage for over two days. He escaped by jumping out a third-floor window while handcuffed. Once free, he had to get out of the country immediately. He went to Zimbabwe and started again with nothing (including not speaking the language) and built up a sizeable transportation business for travelers. He faced constant danger from the locals there, but he ultimately was able to come back to Russia. He started and owns a successful international cereal business, Velle, and also has a venture capital fund. When one of the students asked how an entrepreneur could succeed in such a tough environment as Russia today, Sergey got very animated and said: “It is easy. It is a piece of cake. This is the attitude you must have to succeed as an entrepreneur—not making excuses. Whatever you face is nothing compared to what I have faced, and what I have faced is nothing compared to what others had to overcome. I will not hear this.” And he was not boasting, acting, or lying. You could have heard a pin drop in the room. I wish we had it on tape, and we would have a YouTube smash hit.

13. The Russians are coming. The MBA class we taught will be coming to Boston in early August and then staying in town and working with companies for 13 weeks through the auspices of MIT. I am actually looking forward to it now and believe there are some exciting opportunities for international business collaboration. On the last day of class (Day 5) this week, the students produced impressive business plan presentations in a constrained situation. They had very limited time to work on the plans, but their renowned work ethic showed through in the results. This work ethic bodes well for them when they come to Boston, if they can tone down the debate gene a bit. Local companies here will do well to meet with them to gain insights into how to enter an attractive emerging market that they probably have significant misperceptions about. In return, the Russian entrepreneurs are anxious to build their skills and learn from the innovators and entrepreneurs of the New England area. Any companies that are interested in taking part in this program should contact me at aulet@mit.edu.

It should be noted that a good deal of the material for this article was provided by my MIT colleagues, Howard Anderson (who’s also an Xconomist) and Peter Kurzina, faculty members of the host school of Skolkovo, and the students themselves. They might well not agree with this article, however, and even if they did, they would surely argue about it anyway.

* Xconomist and Sloan School Senior Lecturer Noubar Afeyan, thanks to his extensive development work in his ethnic home country of Armenia (a former Soviet republic), is on the international board of Skolkovo Business School.


Bill Aulet is the managing director of the Martin Trust Center for MIT Entrepreneurship and a senior lecturer at the MIT Sloan School of Management. He is also the author of “Disciplined Entrepreneurship: 24 Steps to a Successful Startup”, published by Wiley, which was released in August 2013. Follow @BillAulet

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  • http://www.linkedin.com/in/davidgowel Dave Gowel

    Bill: Loved your article. I’ve taught LinkedIn to over a thousand people, and of those, only one guy tried to go toe-to-toe with me in front of 70 biz leaders on why he thought LinkedIn was going to be a dot com bust and why I was wasting my time teaching it: a Russian (and a friend!) named Anton. Sign Clearly Creative up for the reciprocal visit next year.

  • Vinit Nijhawan

    Bill, reminded me of my several trips to the Soviet Union and then Russia from 1988-2001 when I was at Payload Systems and we negotiated a program to conduct protein crystal growth research on their space station. I have heard that Moscow has completely changed but from your description, not that much! It was clear back then that people from the Baltics would become entrepreneurial since they spent only one generation under communism. People in Russia were two generations away from mercantile thinking and my feeling was that it would take them a while.

    I did pick up one idea from them and that was to mutually sign-off on meeting minutes. It really made communication much better.

  • Rob Lemos

    Bill,
    Great insight and perspective on Russian B-school education as well as the entrepreneurial ecosystem. Perhaps their quarrelsome nature will indeed produce a more creative commercial model.

    By the way, do you intend to write for the MIT Entrepreneurship Review when it launches this spring? MITER has some outstanding support around Boston and is looking to do something that might complement Xconomy.

  • Uri Mariash

    Bill,

    Great stuff.

    It was really interesting to read your impressions on Russia. I agree with you about the culture in Russia and feel that it might be challenging for international companies to operate in Russia without the right guidance.

    I’ve been traveling to Russia recently for work and found the business environment to be very different from the U.S but at the same time it’s a huge market that can’t be overlooked.

  • Bill Aulet

    Rob,
    No worries. I will continue to write for Xconomy and also write for the MIT Entrepreneurship Review. They really address two different markets with different rythmns and different material. Xconomy is a daily rythmn and the MIT Entrepreneurship Review, as I understand it, will be more of a weekly rythmn with an ability to dive deeper into issues. Both have valuable roles in promoting the ecosystem. While people may well read both, the topics and content will be different. Good question. Looking forward to MIT Entrepreneurship Review. When do you plan to launch?

  • Bill Aulet

    David,
    Will take you up on your offer.

    Vinit,
    Thanks for the perspective. There are a lot of smart people over there and it is changing very, very rapidly from what everyone said. Soon it will be like any other European city for business (or very close). For business it is great that things are converging but it is sad in many ways for tourists.

    Bill

  • Bill Aulet

    Uri,
    Great to hear from you. It is a great market opportunity for sure but somethings do need to change — like not requiring a special line on your P&L for bribes.
    But it will.
    Bill

  • Irina Starikova

    Bill, Your comment about Russians being argumentative was the biggest surprise for me and naturally (being a Russian myself) I first wanted to disagree. Yet, after some thought, I can see why your students debated so much in class. They are the young business elite who all should have had very successful careers and developed well-founded beliefs about how businesses and startups should work. It is only natural for them to critically evaluate everything you had to share when teaching and argue whenever they felt it was not matching with their prior experiences.
    Irina

  • Sergey Nikolenko

    Bill,

    Thank you for verifying Russia has a lot of business opportunities. How attractive do you think the students will be for local businesses in August 2010?

    Which industries do they reprsent or what kind of interests might they support?

  • Howard Anderson

    Accurate Bill but would add “Imagine a country where Sergey and Brin would be cool guys”…. “Imagine a country where they tell you that your are full of crap BEFORE you speak”…”Imagine a country where you have a line item for “payoffs, bribery, influence” in your business plan”. All in all, good week and enjoyed it.

  • Bill Aulet

    Sergey Nikolenko,
    I think the students that will be here in August have a strong understanding of the Russian market and what will work there and how. In addition, they will be MBA students so understand the fundamentals of business. Many of them are entrepreneurs already in their careers but have not scaled the companies to more than 10 (with one exception). They are very strong on the technical side and not as strong on the sales and marketing. They are on the young side for MBAs but all have some work experience. They have a terrific work ethic.

    I know however from the emails I have gotten that they are checking this over in Russia so I will let them respond and tell you more specifically and directly what skills they have.

    Dmitry and crew, would you please respond directly?

    Bill

  • http://entrepreneurship.mit.edu/MITER Eduard Viladesau

    Bill,
    A brilliant article! This must have been a fascinating experience. The fact that you’ve been teaching entrepreneurship courses in so many different countries and cultures clearly allows you to have a balanced and integrated perspective!
    Like Rob, I also hope that you’ll be able to bring this perspective to the MIT Entrepreneurship Review when we launch it at the beginning of February.
    It will be a great addition to the ecosystem to have you on board with us and also writing for Xconomy!
    Eduard

  • Nick Sinilov

    Bill, thank you. Great article. Probably not the best season to visit Moscow, though.
    I’m glad you saw my teachers Howard and Peter alive and on their way back to Boston – we missed them in Managing in Adversity class here at MIT Sloan…
    Regarding “Russians feel compelled to argue” What do you mean?! – just kidding

    Thanks
    Nick

  • katya

    Bill, it was very interesting to read the impressions of an American’s first trip to Russia. This gave me the opportunity to see Russia through your fresh eyes (I’ve been living in the US for the last 15 years). I am puzzled by some of your impressions: you are surprised to see normal life and normal people on the streets as if you were expecting to see bears roaming the streets of Moscow. I might be biased given my Russian heritage, but the new Russia is much more similar to the US, than it is different. It is also more similar especially as compared to other former USSR countries, Asia and other parts of the world. It is also similar to the US when some of its citizens are trying to justify “strong leadership” that can help them deal with the modern issues of corruption, erosion of values, underdevelopment, etc. These voices exist but do not represent the majority’s view: not unlike George W Bush is being revered by certain US circles while considered war criminal and mass murder by the majority of the rest of the world. While the role of Stalin is being discussed in Russia, in Mongolia the authorities are basing the whole new national identify on Gengis Khan, the strong leader uniting Mongolia and creating a Mongolian nation, who is considered by the West as the cruelest and blood thirsty killer of many peoples. In the capital of Mongolia they have a DC Lincoln-like monument for Gengis Khan on the main square, the airport bears his name, and do national vodka and beer. His atrocities are not even mentioned in history book for the next generation. The new Russia is more nuanced than you had the opportunity to experience during your visit and I hope it touched your heart to be curious about it from now on.

  • Bill Aulet

    Clearly this article has stirred up a lot of passion from the emails I have gotten which is good (like Katya’s email). A few comments based on the feedback that I should add:
    1. We had limited data from which to deal with.
    2. Moscow does not represent all of Russia like NYC represents all of the US.
    3. The people we dealt with were primarily less than 30 and there is a whole generation from the USSR where they were forced to be very compliant (i.e., not argumentative) and not show initiative. It had been the opposite problem that we saw. We were told about this but it was not evident in our week long experience.
    4. I have no interest to argue politics. I just thought it was very interesting and a different perspective than we see or think sitting in Boston. It was just an observation.
    5. At the end of the week, we had a much deeper appreciation and understanding of the new Russian style and psyche. It is also a very interesting business opportunity. So we did get a much more nuanced view than we had before we left (we never expected bears in the streets) and it certainly stoked our curiousity and emotions to learn more in the future. Great week.

  • Erdin

    Bill, your excitement about Russia is very similar to the excitement of many Americans who visited Russia in the early 1990s — they saw a sea of possibilities and were impressed by the ingenuity and resourcefulness of post-Soviet people. Many of the hopes have been dashed since then, despite Russia’s advances on the economic front in the early 2000s. I hope your hopes won’t follow a similar fate. A prosperous Russia that promotes free enterprise could bring a lot of value to the world at large.

  • Albert Park

    Bill, sounds like you had quite an adventure!

    I recently visited some of the post-Soviet Balkan states, and the smile thing was the first difference to get to me, as well. But as a French acquaintance told me, we Americans are “stupidly optimistic”. Hmmm… I swear I’ve seen that on a top 10 list somewhere for successful innovators… :P

    I certainly hope you’re right about the future prospects of Russia. A recent WSJ article quoted that “untimely death in jail has become almost an occupational hazard for Russian entrepreneurs”. (this is in relation to the Hermitage lawyer’s death) While this may be a firebrand statement, Medvedev has made it no secret that corruption and ethics are limiting growth in his nation. Even if the society is educated, how will they succeed if there is no faith in the [legal] system? Even entrepreneurs need their lawyers…