Report from the Russian (Entrepreneurial) Front
November 20, 2009, Moscow, Russia—I write this from the Moscow airport on my way home to Massachusetts after teaming with MIT colleagues Howard Anderson and Peter Kurzina to teach a week-long boot camp on entrepreneurship for the first class of MBAs at the new Skolkovo Business School. Skolkovo* is a private business school strongly supported by Prime Minister Vladimir Putin and, hence, the top Russian business leaders. It not only has lots of money (the school is currently housed in a 5-star hotel), it has access to the highest echelons of business leaders (we had billionaires come speak to the class) in the country.
Nonetheless, we knew we had our work cut out for us when we came upon a quote from Putin that said, “Anyone who opens a new business in Russia should be given a medal for courage.” Mmmm. I came to Moscow not knowing what to expect, and I leave with many surprising observations, which I summarize below.
1. Russians don’t generally smile. If you expect a lot of smiling faces and “have a nice day” lines, you have come to the wrong place. While they might warm up once you get to know them, on first encounter they make New Yorkers seem like Mr. Rogers welcoming you to his neighborhood.
2. When you arrive at the airport, make sure you have a driver pick you up. As I got off the plane and failed to find my driver, I was pounced on by no less the two dozen taxi cab riders who looked very suspicious. Fending them off is a full-time job.
3. Russians feel compelled to argue. Our first day of class, we were under siege. We fought back, and when it was my turn after my colleagues had been treated unfairly, I moved one of the offenders (Nicholas) from the back of the room to the front and started right in saying that I was not as nice as Howard and Peter and they better look at me as the bad cop, to which one student immediately responded, “we will see.” Midway through the lecture, with the students arguing about most every point possible even if they did not have the background to knowledgeably do so, I announced that, “No matter what, you all just like to argue.” To which Anton in the front row immediately responded, “No we don’t!”
4. After 24 hours, Russia was not high on my list of favorites. Despite the nice hotel, the above developments, coupled with daily snow and a lack of sun, had me wondering why we came here. To cap it off, the New England Patriots had lost to the Colts in a big football game back in the States because I was not able to telepathically keep coach Bill Belichick from making a stupid 4th down “go for it” call. He would never have made that call if I was sitting in front of a TV watching the game. Oh yeah, Howard and I had both lost our credit cards, too. My decision to miss Saturday and Sunday pickup basketball for this was looking like a bad one.
5. Then the tide changed. First of all, we accepted that every point was going to be argued and we pushed back and adjusted our style to fit their needs better. If they were going apply full court pressure, we were now ready to respond. There also appeared to be a silent détente reached between us and the class. The cease fire allowed for more dialogue and we were beginning to understand each other much better. Howard was also discovering the joys of authentic Russian vodka in our nightly sessions. Behind the unsmiling faces of the students, a sense of humor and friendliness started to show through the cracks. A few were buying into what we were saying and small victories were starting to be won. It was a five star hotel after all.
6. Engineers and scientists are everywhere. As we got to know the class and a parade of outside speakers came in to supplement the program, we realized that engineers and scientists were as common in Russia as Red Sox fans are in Boston. There ain’t much else. One of our guests was former physicist Vlad Terziev, who is the founder and CEO of Vesch, a huge 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 email@example.com.
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.