From America to Russia, With Love
When BayRu co-founder Gene German immigrated to the United States from St. Petersburg, Russia in 1989, his family and friends back home wasted no time asking him to supply them with American goods.
German’s younger brother Anton joined him in the U.S. in 1998 with the entrepreneurial gleam already in his eye. He had an idea: why not make a business out of this impromptu cross-border supply chain? Gene, a technology guru at Orbitz and then Hyatt, was on board to launch a business “by Russians, for Russians” in 2007.
The business was BayRu, a Chicago-based e-commerce platform similar to eBay that sells U.S. goods to Russian consumers online. BayRu, which boasted $19.4 million in revenue in 2012 and a three-year growth rate of more than 900 percent, is one of the companies vying for a spot on the 2013 Inc. 5000. As applications arrive, we thought it would be worthwhile to shine a spotlight on some of these fast-growing private companies. (For more information and to apply, go here.)
The brothers got BayRu off the ground by scraping together less than $200,000 from their own funds and pooling donations from family and friends. They built a website similar to eBay, selling a vast range of products sourced from over 100,000 U.S. vendors. The most profitable and popular products are auto parts, followed closely by electronics and fashion. “If you can think of something that can be sold in the world, we’ve probably sold something very similar to a Russian consumer,” says Aaron Block, the company’s CEO.
Three main revenue lines turned that modest start into big profits. The first is traditional markups--buying low and selling high. The second is shipping, which, like many retailers, BayRu sells higher than it buys. The third is value added services such as insurance or extended warranties.
No individual aspect of what BayRu does, Block says, is brain surgery. But the barriers to entry are high, and the complex combination of things that must be done to successfully conduct cross-border e-commerce at scale--particularly in Russia--can be daunting. “There's a lot of corruption, and a lot of bureaucracy,” he explains. “It's only been a market economy for a few years so there's a lack of experienced talent.”
One challenge is the lack of modern distribution centers to move goods around once they arrive in Russia. To get around that, Block says they have employees in Moscow and St. Petersburg to help facilitate--although the bulk of staff is at the Chicago headquarters. BayRu also has a large Russian-speaking, 24-hour call center; the company does a great deal of customer management, fraud elimination, and has a proficient procurement department.
BayRu does particularly well among middle to upper-middle class Russians, a fast growing demographic across the entire country. These people are, Block explains, fairly well-traveled. “They go to London and New York and Chicago, see the way we shop, then go back to Russia and can’t do that.”
Block expects the enormous growth to continue unabated: by the end of 2013, he anticipates $75 million in revenue.
“It’s cliché to talk about culture, but I can tell you that for us it means shared values: a group of people who put their customers first and pound through problems with determination and hard work,” Block says. “Maintaining those core values and bringing in folks who subscribe to them is a huge part of our success.”
JULIE STRICKLAND | Staff Writer
Julie Strickland covers start-ups, small businesses, and entrepreneurial endeavors of all kinds for Inc. Her work has been published in Brooklyn Based and City Limits in New York, the Free Times in Columbia, SC, Real Travel Magazine in London, and Daegu Pockets in South Korea. She lives in New York City.