The Moscow Times Jobs&Careers, март 2009

Entrepreneurship is something that Richard Branson said he fell into by mistake. For Sergei Vykhodtsev (left), the founder and CEO of Velle Oats as well as the 2008 Entrepreneur of the Year, it was a conscious choice. He believes it’s the best use of his time and resources. Victor Sedov (right), the president of the US-Russia Center for Entrepreneurship and a competition judge, believes it was the right choice. Chris Willett spoke to the pair to find out more about entrepreneurship in Russia.

Jobs & Careers: Sergei, you won this year’s competition. Was this a surprise?

Sergei Vykhodtsev: Very much so. I was shocked. There was a number of giants from Russia’s main industries represented too and I didn’t expect that the jury would be interested in a cereal entrepreneur creating one start-up after another.

Victor Sedov: Sergei was shocked that he was selected by the judges as the winner of last year’s competition. In some ways he’s right. In terms of financial resources there were huge companies among the participants but the judges were unanimous on Sergei’s nomination being number one in Russia. Sergei’s was not the largest company but size, in our case, does not matter — attitude is also very important. He has the right attitude. He’s very responsible socially, especially in terms of education. He was a great candidate and he really deserved to be the winner.

J&C: Sergei, can you give us a brief description of what you do?

S.V.: I’m a cereal entrepreneur and, as Forbes said, that’s cereal beginning with a C not an S! The last three projects I have worked on are directly related to different types of cereal. I started back in 1991 in southern Africa, particularly in Zimbabwe, and ever since I’ve been starting up new projects, developing them and then selling them.

J&C: Victor, how has the center been promoting entrepreneurship in Russia?

V.S.: It’s really a long story. We started the center in 2002 and were given the very significant task of accelerating entrepreneurship in Russia. We began by looking for different partners, tools and strategies. We developed educational materials for entrepreneurs to help them to get the additional knowledge they needed. These included educational modules on cash-flow management, presenting to investors, entrepreneurial marketing and the power of numbers — a purely financial module. However, we knew from American experience that sometimes formal education is not as effective without informal education. U.S. experience has proven that networking is the most valuable thing for entrepreneurs. It is more important even than access to capital because through networking entrepreneurs learn from each other. They use each other’s experience and they don’t repeat somebody else’s mistake. So, besides formal training we run a number of different events. One event is the Entrepreneurship Group business breakfasts in Moscow, St. Petersburg and Nizhny Novgorod. We invite three speakers: a successful entrepreneur to tell his story about branding or raising capital; an investor to explain why for private equity it is more reliable to invest in a famous brand rather than an unknown company; and a service provider, usually a consultant or a lawyer to explain to participants how they can help, for example, to build a brand. At the end people exchange business cards and information.

J&C: How did you come to be a judge for the competition?

V.S.: Although the training and events helped, they weren’t enough. When we started six years ago I don’t think entrepreneurship was that popular among Russians. As the post-Soviet history of Russia is so short we realized people had forgotten what the entrepreneur’s role was. They didn’t appreciate that an entrepreneur takes on both the risk and responsibility of starting a new innovative project. An entrepreneur creates jobs and the country’s wealth. So we realized that it was very important to find role models, successful entrepreneurs, to show society. The Ernst & Young Entrepreneur of the Year award was a great tool. We knew that the company was running this competition in many other countries so we went to their office and asked, “Why don’t we start this competition in Russia?” and they said, “No, it’s too difficult Victor. Business is corrupt. It isn’t transparent. How can we find people to be role models?” We explained that in our experience there are great people out there who are transparent and implementing good corporate governance. So, six months later we had another meeting and then another and in the end they listened to us. The center offered financial support too because this type of competition takes people’s time and resources. There are receptions and the final ceremony to organize. So that’s how the competition started in 2003 and how I was invited to be a judge. It has been successful ever since. We have had great winners in Russia and they go to Monte Carlo to represent Russia at the World Entrepreneur of the Year awards. Essentially it’s a chance to show to the world that we do have great entrepreneurs, because sometimes the newspapers describe Russian entrepreneurs as dinosaurs. The honor definitely gives good examples for students to follow and for Russians to find out more about the role of entrepreneurs in society. This competition was well covered by the Russian media. The final ceremony was, I think, as good as the Oscars in the U.S.! It was a really great ceremony that was recorded on DVD, which has been well distributed. The winners have all been really great people to represent Russia but at the center we are also interested in all those who are finalists. We regularly invite them to share their stories at our business breakfasts and through this networking many things happen: people find investors, clients, partners or even buyers for their businesses. I think this competition is the best, as it’s on both a federal and an international level. But our center also supports similar competitions at a regional level in St. Petersburg and Nizhny Novgorod.

J&C: You mentioned that there’s more to being an entrepreneur than formal education. How do you try to teach something that can’t necessarily be learnt in a classroom?

V.S.: I think our main role, which society really demands, is organizing various events. We create an environment for communication, of which the business breakfast is only one type. Also we use techniques such as color-coded badges to help people find each other at events, say, green for entrepreneurs, red for investors and yellow for service providers. Every time the official part of the breakfast is over people stay in the room another hour and a half to network and discuss ideas. We also run other events. For two years we have organized a Russian-American entrepreneurial forum, an international event where we invite speakers from the U.S. and Russia to discuss the role of angel investors and why venture capital is important. Again it’s an opportunity for entrepreneurs to learn, cooperate and find partners.

As I said, networking is the most important thing for entrepreneurial growth. For that reason we support our partners in Russia and abroad. One of our partners is OPORA, the small business association, and we do a lot of events together. The Entrepreneurs’ Organization is a famous international association and we helped to bring them to Russia to launch their first chapter in the country. Before they had no chapter in Eastern Europe at all and now we have two chapters – one in Moscow and the other in St. Petersburg. This organization runs so-called universities around the globe where entrepreneurs gather and they learn from leading experts and each other. For example, the owner of GameLand, a Moscow-based magazine publisher, went to a university held in Australia and spent two days talking to the owner of a similar business in the US. He came back and said, “Guys, I now know what to do”. He restructured his company and in six months he got private equity investment capital and the company has been growing ever since.

J&C: Sergei, why did you decide to go into entrepreneurship rather than joining an established company where, it could be said, things are less risky?

S.V.: I remember that one of the major bank robbers in New York back in the prohibition era was asked why he was robbing banks. He replied, “Because that’s were the money is”. Basically in a condensed period of time I believe starting up new companies is the most effictive way of spending my time and resources. Secondly, that’s where my passion is. I’m really passionate about exploring new opportunities and trying to go where nobody has yet been.

J&C: You’ve traveled extensively, including in Africa and to the North Pole. Do you think this is a driving factor that pushed you into independent business or is it the consequence of a personality trait you already had that goes with being an entrepreneur?

S.V.: That’s a good question. I’ve never thought about it. What I really enjoy and am passionate about is seeing different people in different circumstances. Basically, the main founding of my entire life was in Kenya a long time ago when I spent a couple of days in prison on the border between Tanzania and Kenya. The Tanzanian police believed my visa had not been issued correctly. It was a very difficult time for whites in Tanzania during apartheid. Anyway, I spent two days in prison and I learnt that the Maasai, the main inhabitants of that region, were never kept in prison because they committed suicide. The reason is that in the Maasai language there is no future or past tense. They’re living it up now, living for the moment. If they spend more than one day in prison, then that’s the end of the story. For me it was a whole new approach to life and ever since I’ve been trying to collect new experiences from people.

J&C: Victor, is there any particular unifying factor or characteristic in all the finalists that you have identified over your years as a judge?

V.S.: I think so. All the companies demonstrated significant growth. Each company has to submit information from the past three years. If the judges can see that a company is really growing in many areas then it’s a possible winning candidate, but it’s not only numbers that are important. The company’s social responsibility is considered, as is the attitude of its owner toward his or her employees and whether anything is done to educate them. It’s not only based on numbers. Let’s say we have two great manufacturing companies, one dealing with natural resources and the other focused on innovation, perhaps software development and export. The judges will most likely support the second company not the one dealing with natural resources, because it is important for Russia to develop other industries and diversify its economy.

J&C: What do you think the advantages are of owning your own company and being your own boss?

S.V.: Freedom. For me the most important thing is freedom, the freedom to choose a different path, to think differently, to employ people whom I trust and who will succeed and help them to succeed.

J&C: Are there any disadvantages to being an entrepreneur? Are there things you miss out on not working for an established company?

S.V.: I’m afraid I don’t really have much experience in employment. I’ve worked twice in my life for an employer. The first time was when I was in Grade 8 in Soviet times. I worked on a Georgian expedition and that was too far away. The second time I worked for Colgate-Palmolive as a sales rep on commission. Basically, I had one supervisor, a great guy, who gave me a lot. But I only did that for less than half a year and I didn’t really experience the true culture of Colgate except for the person with whom I was dealing.

J&C: We’ve already used the term many times, but how would you define an entrepreneur?

V.S.: I would say it’s somebody who can start new innovative projects by marshaling the limited resources available at the time.

S.V.: Basically Victor said it all. Entrepreneurs are people who reshuffle resources. That’s the main theme. There are a lot of opportunities but there is a great lack of resources. We find somewhere to get them and somewhere to use them.

V.S.: It’s definitely a person who can take a challenge in Russia. The environment is very difficult. The bureaucracy is far-reaching and it is a well-known fact that corruption still exists. In many spheres it is more difficult to start a business here than in Europe or the United States. So you really need to be strong to be an entrepreneur in Russia.

J&C: Do you think that Russia has been a good environment over the past few years to be an entrepreneur?

S.V.: It’s definitely getting better. Five years ago the definition of entrepreneur was completely alien. The transliteration of the English word means something else; it’s usually connected with the circus or performing but it has nothing to do with business. What’s more, predprinimatel, the Slavic-root Russian word for entrepreneur, still has a different meaning from the usage in the West. The vast majority of Russians still have the attitude that working for the state, or better working for an oil company owned by the state, is the best career path. A predprinimatel is the owner of one of those small kiosks that you find in front of metro stations or a small cafeteria – a small private business. I have done a lot of research in different parts of Russia and in Russian business lexis there are three people: a businessman means you work in energy, an oligarch means you own everything and an entrepreneur or predprinimatel runs these kebab stands.

J&C: How do your school and university friends react to your choice of going into entrepreneurialism?

S.V.: Entrepreneurship is definitely my passion and I love seeing people succeed and I love making it to the very top. That’s the reason why six years ago Victor and I brought the Entrepreneurs’ Organization into the country to give people the opportunity and the idea that you can change your life completely, if you trust in yourself and focus on the bright side. Every story has a bright and a dark side and, if you focus on the bright side, sooner or later you will win. No one knows when but the harder you go the faster you will succeed. That’s why the majority of my classmates support the idea. Some of them have even begun their own start-ups and are members of organizations or in direct discussion with me all the time for advice. But there are, of course, a few who are very far from this idea. I don’t want to say that they don’t like the idea but they are skeptical about it.

J&C: Are there any particular traits that you believe are common to all entrepreneurs?

S.V.: Optimism — all these people see the bright side of things. They are risk takers, people who are risk adverse and whose risk factors are much, much stronger than any normal person. Most of the entrepreneurs that I have been lucky enough to meet are more givers than takers. Generosity is usually very common among this group of people.

J&C: What would you say to young potential entrepreneurs who have thought about starting their own company but considering the current situation think it’s safer to go and work for a state-owned gas company?

V.S.: I’m totally convinced that they are thinking differently, because at the moment we are experiencing the collapse of big companies. If before many finance students were dreaming of working for CitiBank or LUKoil or Lehman Brothers in the U.S., now we have seen what happened. It is no longer reliable to be employed by a big company and think that it’s a safe job forever. I’m sure young people are thinking more about starting their own businesses. It is government policy in Europe, the U.S. and Russia to promote the growth of new companies, start-ups and medium-sized companies. This is the way to employ people in the near future. Because when large companies go down it takes time for them to grow back and during the crisis many assets are cheaper to buy, the government supports you more and there is less bureaucracy. So it is probably a good time to start.

S.V.: I’m afraid I wouldn’t echo those thoughts in my case. I think Victor is saying great things regarding vision. It is definitely the way I would love things to go. From my perspectve the reality is different. We have a mentality supported by a very strange system, which in Russia works like this: there is an enormous surplus of oil money, it doesn’t matter whether it’s three percent or five percent of the nation generating that extreme wealth; there is a system of spending that money. The majority of it stays outside Russia but the money that does come into the country is spent on real estate, because the taxation and government systems have no understanding of free stock exchange or any kind of exchange where entrepreneurs can get funding. Therefore, people who want to invest their money invest it in real estate. That’s why we have had inflated real estate prices, which are, I understand, far to high. Meanwhile there is a huge lack of money going into other parts of the economy. Entrepreneurs worldwide are funded by the four Fs — family, founders, friends and fools; however, elsewhere middle class entrepreneurs can get funding from so-called angel investors, investments vehicles or through the investment markets, which in this country do not exist. I think this is one of Russia’s biggest policy mistakes and it is continuing to discourage active people from going into entrepreneurship. This is one big problem; the second basic problem is mentality. The Russian mentality, like all eastern nations, is communal. This isn’t bad or good; it’s just part of our culture. Entrepreneurship is more concerned with the individual, which means that certain cultural changes are needed. These have to be supported by people such as Victor and by the business media. We’re going in the right direction but it will take time. If you compare today’s business press with the media covering gossip, vanity or fashion, the percentage of business is still far too low. In other words public interest still has to be generated. To succeed in generating this interest we need to somehow motivate the media to talk about businessmen — not just those who pump oil but those who have any business interest — and encourage government support for this market so that they control real estate prices with the taxation system and support investment in any type of business.

V.S.: Sergei is sharing his practical views while my answer is more theory-based. I believe that in a crisis there is an opportunity. A crisis opens many people’s eyes and I agree that definitely we are doing everything possible to support start-ups and family businesses. Indeed, if we are a communal society, then family businesses can prosper here. In fact, one of the finalists of last year’s Entrepreneur of the Year award was a family firm from Siberia. They have a bread-making business with their own retail outlets. We need more families like that.

J&C: How can Russia build public trust in investments so as to provide money for entrepreneurial activity?

V.S.: I think it will be difficult. Usually in developed markets it goes through a stock exchange. However, this has collapsed in the US — it’s at its lowest for 13 years. But there are some new trends to give us hope — I’m talking about the world of microfinance and microloans. This business in Russia is developing very rapidly. The majority of investors are individuals. People contribute $10,000 — maybe some can give $50,000. But in the majority of cases they are small contributors who trust the microfinance organizations that they are giving money to. It is more reliable than consumer loans as the organizations look at the applicant, who is usually a small entrepreneur hoping to buy some kind of equipment for manufacturing. In fact, these loans are often more profitable than the consumer loans provided by normal banks. It’s a rapidly growing business.

J&C: Sergei, do you have any new plans or ideas that you think you’ll pursue in the next few years?

S.V.: Yes, definitely. I’m heavily involved in biochemistry and the innovative end of it called biotechnology. Right now there is a unique opportunity for us, as oil resources are really being wiped out and in the current severe crisis there will not be any money invested in new drilling. I think this is a once in a lifetime opportunity to give a big kick to alternative energy, because after the crisis oil prices will not be $100 but may rise to $200 or $300 because we have used up the existing oil resources and during the crisis new ones have not been discovered and developed. The demand for oil after the crisis will be enormous and that’s where investment in alternative energy can be really justified. I’m really focused on solar energy and algae. There is an enormous amount of energy generated by seaweed. What’s more, it doesn’t occupy land space or generate carbon dioxide; in fact, it consumes carbon dioxide in a quantity you can’t imagine. Therefore, the cost of the energy will be reasonable from the outset. If you take all these factors together, it gives us the opportunity to break through the economy of scale. I’m also planning to continue with Velle. Velle has worldwide potential. The information we have from market research around the world is very optimistic regarding the general attitude in different cultural groups towards oats and, what’s more, people are very keen on fermented oats. Everyone knows what oats are but nobody knows about fermented oats. But, the results of fermented oats are positive. People like the taste and the properties of the product. These are the two big projects on which I’m hoping to focus in the coming few years.

V.S.: You see again this is why, I think, the judges chose Sergei. It was another message to society that we support people who really are serial entrepreneurs. As you just heard he is already thinking about a fourth and fifth business. This country needs more people like Sergei.

Источник: careercenter.ru