Oleg Krot, the Managing Partner at TECHIIA holding talks about innovative business during the pandemic and advises for the IT industry
You need to understand that any business is still a risk. And prepare plans B, C, D.
- For six months the world and Ukraine have been living in the "COVID-19 mode". Is your business affected by its impact? Or it isn’t?
- It is hard to find anyone who was not affected by COVID-19. Maybe a koala on the tree. Of course, we had to make adjustments. First of all, we are talking about trips abroad, meetings with foreign partners. Offices had to be shifted to remote mode.
- What has changed, how much did you have to adjust your strategic and current plans?
- Many conferences which we were to be part of, were simply canceled. Events moved online have not been as effective. In the first half of the year, we planned to open several foreign offices, but due to the lockdown, we decided to postpone their opening to the next year.
- A few months ago you told BUSINESS about your plan to launch a new WP Merchandise factory. The start of the project for September was announced. Did it take place?
- Yes, the factory was opened and it is operating now. We only had a couple-of-weeks delay. We have renovated the Kyiv factory, but we already plan to create a new one in the regions, completely from scratch.
- What do you mean by saying that this factory will set a new level for the Ukrainian light industry?
- We plan to solve two big problems of the Ukrainian light industry. The first one is education, we will educate the new staff. Currently, the demand for working specialties exceeds the supply. If you plan to open a factory, keep in mind that no one will work there. High-tech equipment will not make it on its own if you do not have seamstresses or cutters.
We did not want to build a ghost factory, an enterprise that we can not provide with people. On the contrary, over the next three years, we plan to increase production 10 times. That's why already started building the training centers.
The second problem is the social component. At the same time, we launched another project, we are forming a kindergarten at the factory. Most Ukrainian preschools for children do not actually allow parents to work fully, they open too late and close too early, no proper child care is provided there, and so on. We researched the market and did not find any company in Ukraine that would try to overcome these problems. So let's try to solve them on our own. This case can be an example for others.
- Robert Schiller, an economist, the Nobel laureate, noted that the course of the economy in the upcoming months will determine many point decisions, big and small. Meaning that it is impossible to predict the long-term consequences of the crisis. Do you agree with that statement or not? How is it possible to build strategic business plans under such conditions?
- I have a lot of respect for theoretical economists, but in fact, the impact of any crisis on business can be predicted. The question is how detailed such forecasts will be. Even before the lockdown, Bill Gates warned that humanity is not ready for epidemics of such type. Many experts have long noted that climate change will lead to disaster. And who is really preparing for this?
Due to the pandemic, many economic forecasts did not come true because we faced a factor that was neglected and not taken seriously. Can this situation happen again? Of course. Should we forget about the forecasts completely? No. It’s just that each forecast has its own probability. These are the probabilities that need to be embedded in the business development model. And isolating one factor from a whole bunch of probabilities (such as the impossibility of predicting the scale of the second wave of COVID-19) is the theorists’ prerogative. Businessmen use this method only partially, realizing that the stronger the business is able to adapt, the more flexible it is, the better it will withstand any crisis.
- Has the planning horizon narrowed or expanded?
- Our planning horizon has not changed. As before, short-term plans change infrequently, and long-term ones are adjusted regularly. Has COVID-19 changed this precision? When the pandemic was just starting, we had to adjust not only the long-term but also current plans.
Thanks to the epidemic, many businessmen have pumped up an old skill. they have learned to react much faster. In fact, there were only two options, either the business learns to react instantly to changes in the situation, or it dies.
- What scenarios does your team consider as optimistic, and which ones as pessimistic?
- We do not divide them into two types. Usually, we consider a dozen scenarios that change each other depending on the market situation. We take into account not only the pandemic, but also competitors, and the world situation, and our capabilities.
- According to you, your businesses have grown more than 10 times in 2.5 years. Experts warn of the classic mistakes of fast-growing companies, which are a weak business model, lack of strategy, problems with recruitment, the desire for total control, lack of long-term goals, and some others. How is the situation with these pitfalls in the TECHIIA holding? Have you come across them? How did you solve them?
- Any young company faces similar problems. This situation is called a growth disease. On the one hand, the number of orders increases, it gives the opportunity to enter new markets and gain new resources. On the other hand, you need to saturate the market with a product and remain a leader even though many people start copying your business model.
Growth diseases are treated by competent management, the ability to react to changing situations rapidly while scaling the company and making the delegation of authority. We constantly distribute responsibilities among C-level managers and modify the structure and management methods.
For example, two years ago the TECHIIA holding did not even exist. Each company had a board of directors. But last year we realized that this was not enough, because, entering new markets, it is impossible to evenly distribute competencies between our companies. The task of the holding is precisely the distribution of these competencies, training, creating a foundation for the expansion of enterprises in other regions. But we will also modify these structures. As IT professionals, we are constantly patching these structures, releasing updates.
- How are the roles distributed between the two partners of the holding, you and Yura Lazebnikov? What are your zones of responsibility? How did the split of powers happen?
- When it comes to a new business, one of us can take it under his wing and dive into details more deeply. What we don't do for sure is that we don't run for one ball on one pitch together. It is inefficient to use two managing partners to solve one problem. For example, I do more corporate structuring, while the development of new directions is on Yura. But there are actually only a few of such tasks, so the split of responsibilities in most cases means taking care of various projects.
Each of us work with a certain group of CEOs. It is necessary to understand that we are the Managing Partners of the holding, not Chief Executives. Each company has its own CEO. This is a completely independent figure to whom we have entrusted business management. With CEOs, we approve long-term company development plans and complex financial issues.
If we were CEOs, no scaling would be possible. But for many leaders, this is a huge problem. I used to know what every employee of my company was doing. After that, it is incredibly difficult to delegate business management to another person, because you get used to doing it yourself, on your own. Therefore, our strategy is to grow self-sufficient employees, turn them into partners, and make our business a part of their lives. Otherwise, you simply do not have enough resources to expand and manage all processes.
- TECHIIA holding is most often thought of in the context of esports. It is clear. But TECHIIA is also about innovative development and technological projects. Tell us how EcoTechnoPark by TECHIIA is doing?
- Your first question was about the WP Merchandise project, so even in this case we are not talking about esports solely (smiles).
If we are talking about the eco-technology park, at some point we had a pause in the development of the project because Ukraine’s government has changed. And without such interaction, the development of such projects is just simply impossible or very risky. You need to be sure that local authorities are not to prevent state-owned companies, including Energoatom or Ukrenergo, from signing the agreements.
In the case of a major change of government, serious innovation movements usually stop for almost a year. And this is understandable. As a businessman, I can say that the people you hire for certain positions often have to be changed. Especially in the new business. And the new president and deputies have to get some time to choose people.
This spring, the government became more or less consolidated. At least the heads of state enterprises, ministries, institutions, so we began to receive professional answers. We started to invest money again, prepare project documentation, make adjustments. Much depends on the legislature and the executive. But we still hope that the pace we have gained again will allow us to start implementing the park not on paper, but directly on the ground in early 2021.
- What investments is this project designed for?
- Now we have calculated only the first turn. Its implementation will cost $200-250 million. But we will have the final numbers only before implementation. Because, for example, if we see that the risks are growing, we can easily divide this amount by 2, just to put less money from our partner into that risk.
- Who has so far agreed to become a potential investor in the project?
- We will reveal the first list of investors when we pass to the construction stage. Because they can join or leave the project until the final agreement.
- What service will your "cloud" be ready to provide to small and medium businesses? What tasks will it solve?
- We are a technology curator in this project. If you are waiting for the TECHIIA price list for data center services, it’s not here. (laughs). The holding does not plan to launch its cloud services and provide them to the end-user. For us, this is a B2B High-Level model, we are working on creating the technology park itself. That is, we provide large companies with a technological opportunity to implement their services and products.
- Tell us about the work of the VRTX Lab venture studio as part of the holding.
- There Studio has two tasks. The first one is the research and analysis of the effectiveness of the purchase of certain technologies and assets. The second one is the preparation of the accelerator for the opening. We are to launching an esports venture fund for startups in the fourth quarter of this year, and this is the result of the VRTX Venture Lab work.
As part of the holding, VRTX transfers competencies to companies. But this is probably not the end. We will open micro- or macro-accelerators in our areas of work. They will allow us to support and develop the profile products of young teams in the early stages. In the future, these teams will either be able to join the holding or with our support to develop as effectively as possible.
- What does Ukraine need for the development of the IT industry in terms of investments? We do have specialists, we do have ideas, but only IT outsourcing is developing. Is this outdated information and does the Ukrainian IT business feel good?
- We do have an IT industry growing, because it is a simpler and less risky business. It is easier to scale just havong some money and technical knowledge. And it’s quite unwise not to develop this industry. The big global banks have decided not to expand their IT departments, but to work with EPAM or GlobalLogic companies. As a result, these companies will hire thousands of people who will serve the bank and receive a decent salary, pay taxes. Does it make sense? Sure it does!
Another thing is product companies. According to all forecasts, there will be a demand for IT specialists in the future. But will the demand for a specific SaaS service registered in Ukraine as a limited liability company, whose intellectual property rights will also be in Ukraine? I doubt that. Because for such service you simply will not receive investments. Because investors do not believe in the effectiveness of our legal system.
We need to understand one thing, as long as any intellectual property rights in our country are not protected as in the West, it makes no sense to register them here. To do this, law enforcement and judicial systems must work properly.
Imagine that an official takes the initiative to give preferential terms to an innovative business. A businessman who has nothing to do with it immediately adjusts to it and uses this scheme to launder money. This is where counterbalances and restraints in the form of courts and law enforcement should work. But we understand that if the "price" is appropriate, no restraints will work.
That is why we are in such a situation. It is impossible to inflate one of the four punctured wheels on the car and fly into the bright future. The whole vehicle needs to be repaired. This is tough and difficult work. Do our people ready to do this? So far, people are more eager to believe in "I will make charges twice as cheap" promises from politicians rather then do hard work. The short-sightedness of the people is the short-sightedness of power. And hence we have the non-competitive conditions for business here, which pushes business to go abroad. We all need to tighten our belts, work and ask for particular results from those we have chosen.. Then we will have normal courts, law enforcement agencies, excellent legislation, and everything we need, in short time.
- What ideas can go big today?
- Any idea that have a commercial meaning and arise in the head that is able to implement them can go big. You can turn an idea into a business or acknowledge its failure and move on.
- From the list of venture investments, investment funds, business patrons, what do you advise Ukrainian IT startups to choose?
- In Ukraine, unfortunately, it is unlikely that you will find the most effective partner for a startup. There are good funds, but they are few and they take only few projects.
Therefore, businessmen who want to attract investments needs to be patient and gain as much international experience as possible. One should understand the size of the requirements set by large foreign accelerators like the Y Combinator. See how international projects work and put their best practices at the heart of yours.
You have to understand that in IT, on the one hand, you have money from all over the world, and, on the other hand, competitors from all over the world. How much of your resource is enough to gradually bring the project to a level where it will be interesting to the investor? Most importantly, you need to understand that any business is still a risk. And prepare plans B, C, D.
- What form of cooperation is more attractive for TECHIIA and why?
- We as a holding with many areas and products, of course, are interested in investing. But we don't need just $1 million or even $200 million, we are firmly on our feet and constantly reinvesting our earnings. We need funds that we can effectively dispose of. And we need such a class of investors who can give more than money, experience and competencies that will help the business accelerate significantly. To do this, we are gradually building best practices in everything from corporate security and management policies to products. We will take foreign money only when it is really relevant.
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