“Tell me straight out!”
— I was born in the Soviet Union, in Leningrad. I was six years old when my family emigrated to America. We lived in Pittsburgh, Pennsylvania, but I finished school in Boston. At university, I studied business. During my last year at university in 2006 I founded the Green Fuel Technologies Corporation. I devoted five years to this project, but the crisis came along in 2008 and the market collapsed. The financing stopped.
I had to start again from scratch. Although I preferred startups, I wanted to think up some new ideas. After a few months, I was invited to talks in Brightstar Corporation. This is one of the world’s leading distributors of mobile devices, with an annual income of ten billion dollars. “We have a good proposition for you”, they told me. “How would you like to work in Moscow?” I was taken aback. I could more easily imagine myself piloting a spacecraft than as a manager in Russia.
Flocktory is a system of what is known as referral marketing, an internet platform with services, which enables companies to motivate their clients to recommend them via social networks and other online channels.
The system enables recommendations to be sent by email through the social networks so that the clients of any internet magazine with the Flocktory platform installed on it can share offers with their friends in the social networks Vkontakte, Odnoklassniki, Facebook and Twitter, or send out offers by email. Over 200 companies are already clients of Flocktory. The startup is supported by investments of $1,500,000 from the Digital Ventures Partners fund.
— How did your parents and friends react to the news?
— My parents were shocked. But they knew I liked to take a risk, and that for me, the more difficult it is, the more interesting. Also, they didn’t think I’d stay in Moscow for long. My friends said: “It will be exciting, like in a thriller”. Russian news was always presented in a negative way. In the eyes of the Americans, Russia got stuck somewhere in the nineties: banditry, shoot-outs in the streets, monstrous corruption and poverty.
— What were your first impressions of Moscow?
— When we were approaching Moscow, the airline captain announced “Air temperature minus 28 degrees”. At home, if snow fell, it was a welcome event! A colleague from the consultancy company met me in Moscow. I still have a photo of myself standing in clouds of frosty vapour on Red Square, as if I were on the Moon .
— Did you remember your Russian?
— By the age of 14, I had forgotten virtually all of it. I had to learn the language all over again.
— Was it difficult to become accustomed to Moscow life and the Russian way of doing things? What was unusual, different from America?
— You could not have such an informal way of communicating in America in business circles as you do in Russia. In Moscow, in sorting out business relations, you can forget altogether that the person you are talking to is your client. There is no distance between you. Here a foreign specialist can be told directly: “Enough pleasantries, let’s get down to business. What do you want from me?” When one of the ex-pats begins the conversation in a roundabout way, he may be interrupted by the words: “No, tell me straight out!”
In America, they are very fond of sending emails. But in Moscow, they aren’t. I realised that if Moscow specialists or officials sent an email, it was just a formality. When something happens, here they usually ask: “Why bother with an email? Why didn’t you just phone me at once?” In Moscow, they prefer face-to-face meetings.
“ Who is this clever guy who has come here?”
— How did you manage for accommodation?
— At first I lived in a hotel. I had to fly to America for consultations once a fortnight. It seems to me as if I’ve stayed at every hotel in Moscow. It’s very expensive, and I would have preferred a purely domestic atmosphere.
Eventually I took an apartment in the centre, on Novokuznetskaya Street. It wasn't cheap: 76, 000 roubles (about 1800 euros) a month including all the communal services. But I like this place a lot. It's a very quiet side street, with a green courtyard. But in general, the owners of Moscow apartments take advantage of foreigners: they double their prices.
— You were offering consultancy services. How do Russian clients differ from Western ones?
— There is not yet a consultancy culture in Russia. It’s difficult to sell an idea here. Consultancy is trading in ideas. For example, you suggest ways of improving shops, personnel training, how the goods are set out on the shelves, how to improve the chain of supply and purchase of goods. In other words, the whole cycle connected with the goods, from the truck to the salesperson.
— Electronic commerce drives the Russian Internet, both in volume of sales (estimated at $350 billion from the 2013 results), and in the attention paid to it by investors (about $400,000,000 of investments from the 2012 results). One of the main factors holding it back is the lack of trust and loyalty in relation to Internet purchases. Opinion polls indicate that almost half of Internet users cannot even remember from which Internet store they made the purchase, the only thing that matters to them is the price. Therefore a system of referral marketing, i.e. personal recommendations, not only attracts new clients, but also increases the loyalty of the existing customer base. The main thing is that the offer should be mutually beneficial and not intrusive. However, it cannot yet be asserted with confidence that the social networks will become a significant source of clients for Internet stores. According to various estimates, only 7-15% of purchases are made under the influence of recommendations on the social networks, and for the major retailers, even less: about one per cent.
I would go to a company, and they would look at me and think: Who is this clever guy who’s come here? He thinks he knows how to do it better than we do, does he? And if I did manage to convince them that my idea was better, they didn’t understand why they should have to pay for it. I would spend a lot of effort and energy, and hear: “Great, it works. I worked out the saving from using robots in the warehouse. We’ve gone out to buy some. Well, that’s all, all the best!” Meaning, you’ve told us all of it now, why should we still need you here?
— And is there a difference in the way companies are managed?
— Everything is very centralised. The head offices are concentrated in Moscow. The top management decides on the sort of questions no-one at that level in America would bother with. But the system has its good points too. If a manager believes in your idea, then for example, all the shops will change the colour of their price labels from red to yellow the very next day. I could see the results of my work very quickly, and that pleased me, of course.
“We focus on large companies”
— How did you arrive at the idea of opening your own enterprise?
— In April 2012. I got to know Ilya Aizen. He is from Russia, but received his management education in Austria. We used to sit for nights on end, thinking up business ideas. This was how the Flocktory startup came about – it’s a platform for referral marketing.
— Did you register the company yourselves, or hire a lawyer?
— It is unrealistic for a foreigner to try to open an enterprise in Moscow himself. In the USA, for example, you can do it in three days on the internet, online. And there don’t have to be any stamps. In Moscow it’s all more difficult, both with accounting and with taxes. Registering a firm takes a lot of time. You have to spend all day with a notary public and put your signature on about 30 documents. If you are a foreigner, you have to have brought them all with you. There are plenty of specialists in Moscow willing to tackle all these difficulties for you. Depending on the size of the company, you have to pay between $1,000 and $5,000 for these services.
— How much initial capital was required?
— Very little. We selected a specialist to produce the software for our system. At the same time we looked for investors. We brought in $220,000 in a few months. That was enough to produce a prototype and start selling.
— How many people work in your company?
— In the first stage, we had four people working for us. When we attracted $1,500,000 from the Digital Venture Partners fund, we expanded the company to 14 staff. We now have a group of developers, programmers, analysts and sales specialists.
— How much do they earn?
— Such specialists can get 100-200,000 roubles on the market. It all depends on their line of work and experience.
— Is there a lot of competition?
— We have hardly any competitors. This was an empty niche, and we entered into relations with the top stores and banks. Let me explain. An internet store installs our service. For example, whenever a client makes a purchase worth from 1000 roubles, a gift of 100 roubles may be credited towards his phone bill if he shares the deal with friends on social networks and one of them also makes a purchase. Our platform can automatically determine the “influencers”, those people whose opinion carries considerable weight in their whole circle in the social network, and offer them more favourable terms or proposals. This is one of the best marketing approaches. The Russian internet “grapevine” has huge marketing potential.
— How do your activities differ from what they would be if Flocktory were operating in America?
— Over there, I would concentrate more on small and medium businesses, they are stronger there, it is easier to gain access to them and there are easily understandable channels of communication. But in Russia, about 50 companies control 90% of internet business. We focus on large companies. But the product is developing, this is only the start.
“Our views on family values coincide”
— Was it difficult to find office premises?
— I must say that leasing an office is very expensive indeed in Moscow. We tried to find premises inside the third ring road. What we were offered was awful: windowless cellars with rusty pipes running through them. It’s hard for small companies to find anywhere. We found the estate agents exasperating. They operate in a strange way in Moscow. You get the feeling that they aren’t interested in their commission.
— Russia’s electronic commerce market is growing by 10-15% per annum. However, the main problem for Internet stores remains the same: low conversion, of the order of 1.5-2%. Since changing the conversion on site is quite a costly business, most of the stores concentrate on the problem of attracting site visitors. Western Internet stores, which have been developing for much longer than Russian ones, and in more competitive conditions, have long been concerning themselves with the problem of conversion. As a result, the market in the USA and Western Europe has long been full of various services offering to solve this problem.
Thus, the Russian market is ripe for the appearance of projects which will work on raising the conversion rate of Internet stores by optimizing sites and communication with site visitors, and also on attracting motivated customers. The problem of raising the conversion rate on site requires quite well-qualified developers, which ends up having an effect on the price of entering the market. According to our estimates, about half a million dollars must be spent to start the development of a high-quality product in this field.
This is what Flocktory does. On one hand, they do something which the store can understand: they attract new visitors to the site; and on the other hand, they bring in highly motivated visitors by means of personal recommendations, which cannot fail to have an effect on conversion.
We were on the point of giving up in despair when some acquaintances offered us a former artist’s studio of 125 sq.m. as an office. We were amazingly lucky. For an office in the centre, you have to pay around 40-45 dollars per sq.m. per annum. Any halfway decent premises cost $7,000 to $8,000 a month. In New York, only a penthouse in Manhattan would cost that much.
— Did you have any trouble with your work permit?
— To come in as a tourist or on a business visa is fairly easy. But if you want to work in Moscow, you have to have patience. Everything became much simpler once we became residents of the Skolkovo Innovations Centre, Russia’s Silicon Valley. Our company was a finalist in the Investor Day Central and Eastern Europe competition (we came second). This is an international conference devoted to internet technologies and innovations. We were also a finalist in Russia Tech Tour 2013.
— In what ways are Russians like Americans?
— Here, as in America, you have strong feelings of patriotism. “I'm a Russian. My country has many dark sides, but it is the best, because it is my motherland”, they say here. I would also say that our views on family values and friendship coincide. It sometimes seems as though Russians are discontented about something all the time, they go about looking very serious and preoccupied. But when you get to know them better, you realise that they are kind, warm-hearted people.
— What presents will you be taking from Moscow to America?
— My brother has just had a son. I shall be taking my nephew children’s books and CDs with cartoon films of Pushkin’s fairy tales. Three years ago I took Mom a pair of earrings with semi-precious stones from the Urals. They’re unique, you wouldn’t find anything like them in America.