Four Mistakes of Russian Start-ups

4 mistakes

This article was authored by Pekka Viljakainen, an advisor to the Solkovo Fund President. It originally appeared in Russian in Vedomosti, a major Russian business news source. It is here provided in English translation.

I can say without false modesty that I am quite familiar with technological entrepreneurship in Russia. In recent years, I have traveled to 84 Russian regions during the start-up tour – an initiative to support the communities of beginning entrepreneurs in Russian cities and towns. My colleagues and I met with 65,000 entrepreneurs, investors and business people from all over Russia. The most popular question that we are asked is: where can I get money? And I tried to explain to entrepreneurs from the regions that “happiness in not in the money”. Before looking for external financing, many other problems must be solved and common errors avoided.

The first mistake: the idea is more important than the business. In Russia we often encounter scientists and engineers who are in love with their idea, but who do not think about who needs it and about what value it can give to a potential client. They make presentations featuring a bunch of formulas and photographs of patents received, but there is no serious study of the intended purpose and commercial attractiveness of the final product.

The second mistake: ignorance of the market and competitors. Without this, you cannot build a sustainable business. Many times during presentations made by startups, the same situation was repeated: “are there any analogues of your product on the market?” We asked. “No,” the local start-up responded firmly. I had to open a laptop, and, via a simple Internet search, immediately show that the product is far from unique. Or we were told: “We have analogues, but not in Russia.” However, you cannot limit yourself to the Russian market alone. Our world is so global that it is not enough to make a product only for Russia – you must know your foreign competitors and how to best them.

The third mistake: the desire to build a team of their own kind. Indeed, it is easy to work with people of the same age, education, and sex as you yourself, all speaking the same language. Similar people have similar views, but they also have similar flaws. Therefore, the team needs a variety of members. If you are strong in technology, your colleague should be a designer. If you are strong in science, take on a sales person. If you want to enter the foreign market, you need a Russian living in the country where you want to go. All this will complicate life, because you will have to take into account different views. But the chances that you will be able to create a world-class product will be significantly increased.

The fourth mistake: the desire to own production. It is typically a Russian dream – to completely control the entire process from idea and development to production and marketing. However, in today’s world, especially in the sphere of high technologies, there is not a single successful company that does everything itself. Even leaders such as Apple are trying to focus only on areas where they are strong, whether it is product design, engineering, or digital content. They do not produce anything themselves. They do not have their own logistics. They do not even manage their own stores. Therefore, my advice, perhaps the most important one, is to create a business model based on a network of partners. You do not need to control everything – you need to learn how to work with and trust your partners.

If you managed to avoid the above four mistakes, you can return to the main question: where to get the money? Best of all is a major investor. The problem is that many Russian startups do not understand the role of the investor at all. And it often happens that a potential investor rejects a good and promising project, because its founder sees the investor exclusively as a money bag that will give an unlimited amount of dollars and will not voice an opinion on anything. But this does not happen. We, investors, finance only those companies in which we become full shareholders. This reality is a shock for many startups. Every young Russian entrepreneur has heard terrible stories about big investors who only dream of swallowing minority shareholders. It is for this reason that many entrepreneurs only dream of government grants and other types of state support, where they will retain full control over the company.

But shareholders are partners, whose job it is to jointly make the business more successful. And if it succeeds, all shareholders will equally benefit. Therefore, I advise start-ups to look for active shareholders who will bring in so-called “smart money.”

It would be very useful if every successful Russian businessmen tried out the role of business angel. There are thousands of Russian technological start-ups with great potential, and not only in large cities, but scattered all over Russia. Supporting them, as well as large mature businesses, will be at the forefront of the new Russian digital economy.

 

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