Red Stars Rising
The biggest challenge to building a company in Russia is finding the right people. They often show up in the darnedest places
In the late 1980s my partner and I found ourselves sitting atop a fortune in rubles, then widely regarded as the world's most worthless currency. We had amassed the money through our promotion of an American rock-concert tour of the then Soviet Union and the sale of souvenir T-shirts, and we'd spent the better part of the next several years navigating the byzantine Soviet banking and commercial bureaucracies in an attempt, eventually successful, to realize its value.
During that odyssey, which included a variety of business ventures large and small, we noticed that the hardest task we ever tried to accomplish was making a simple telephone call, whether across town, across the country, or overseas. So we did what any entrepreneur would do. We started our own telephone company.
Russia is a particularly difficult place to do business, for several reasons: the pervasive influence of organized crime, unpredictable and onerous tax laws, and underdeveloped legal and commercial structures, to name a few. But the experience of building a business there reveals a lesson that's just as applicable in the United States: often it isn't how much you know about business that counts, but how much you know about people.
Long before the collapse of the Soviet empire threw Russia into both economic free fall and a free-market free-for-all, even a casual visitor could see signs of a fledgling, if amateur, entrepreneurial class. On the streets of Leningrad or in the shadow of the Kremlin itself, young hustlers offered deals on fur hats, Soviet military garb, rubles, cigarettes, vodka, and various cheap souvenirs. At the higher reaches of the Communist Party apparatus, too, some ideologues were wheeling and dealing for the forbidden fruits of Western civilization -- VCRs, Sony televisions, and the like.
When we formed our Russian telephone company, Rustel, we naturally looked for managers from the state telecommunications industry who had had some dealings with the West, had been in decision-making positions, and showed some entrepreneurial spirit. We also needed managers who understood how to maneuver in Russian society and in the Russian bureaucracy. What we found was that those qualifications proved invaluable in some ways and enormously frustrating in others.
Take Spartak, for example. The former head of the Soviet national satellite telecommunications company, Spartak was hired to draft our business-license application and shepherd it through the Ministry of Communications. We soon realized that Spartak typified many Russians we knew: he couldn't meet a deadline, and he was very secretive about what he was doing. In Russia the bureaucracy grinds so slowly that few people have a sense of urgency about their work. And the influence of Russia's totalitarian past had made people reluctant to share information beyond a close circle of trusted friends.
So it was very hard to find out what Spartak was up to once we gave him his assignment. And when he left the company, and the time came to apply for an additional license, we had no written record of what he had done, whom he had talked with, or where in the Russian Ministry of Communications maze to begin. Nevertheless, Spartak had moved our application successfully through the bureaucracy, a feat that few people, and certainly not we, could have accomplished. He was very effective, though he went about the job in a way that was foreign and sometimes frustrating to us.
So we learned that when you do business abroad, your expectations have to be culturally appropriate, and figuring out what to expect is part of the cost of doing business. For example, we hired several top engineers and experienced technical people to help us develop a plan for a telecommunications center in the remote region of Norilsk, home of the world's largest nickel mine. It seemed an ideal market because its telecommunications system is woefully underdeveloped. We had planned on investing about $1 million in a single telecommunications center in the region.
Our "dream team" returned from Norilsk with a plan for 30 telecommunications centers costing $20 million. They had absolutely no information about how much revenue the system might generate, what we'd be able to charge customers, where the centers should be located, and how we could bring in the equipment. Their approach was to design a system regardless of whether the investment would be justified by the earnings. Market considerations weren't even on the radar screen. In a country where the state still ran everything and profits were irrelevant, that might have made sense. Build it, and maybe they will come. We didn't build it, and we ended up retraining the Norilsk team.
For us, the exercise was yet another lesson in adjusting expectations, and we soon began looking for employees who might have some sense that business was about sales and customers. Oddly, we began to find those people by hailing some of the thousands of "private" gypsy cabs that ply Moscow's streets. I first met Misha that way.
During our conversation, I learned that Misha was fairly typical of those making their living by turning their own cars into cabs. Highly educated, displaced from their jobs in the reform process, they had a lot of initiative. I hired Misha as my driver, but he quickly showed a willingness and the talent to do whatever was asked of him. Today he's our commercial director. Igor also came to us as a driver. But one day he offered to help us set up a trade-show exhibit, and he displayed exceptional talent in design. Trained as an architect, he serves today in Rustel as a manager in charge of all architectural planning, which includes overseeing building permits, wiring diagrams, and structural drawings of the equipment placement at each installation.
Like many entrepreneurs, I believe in empowering individuals to take responsibility and to be bold enough to make mistakes. That's especially important in a start-up like ours, in which you need to get the most out of every employee. That approach is novel to our Russian employees and foreign to our Russian managers, who run the company during my frequent travels.
Traditionally, the only accountability in Soviet state enterprises has been at the very top. As a result, experienced managers are typically autocratic micromanagers who are quick to claim credit for success and assign blame for failure. In Russia accountability and responsibility are two different things altogether. The top guy is accountable but not responsible. His subordinates may strive to be responsible but are held accountable only in failure, not in success. In time, therefore, they learn to shun responsibility. Turning that modus operandi around has been tougher than I imagined.
As we make the transition from an entrepreneurial company to a more established operating entity, the challenge remains the same: hiring talented Russian employees and managers who will be, as we are, open to new ways of doing things, even if it means breaking old habits and modifying expectations -- on both sides. That's why as we continue to grow we're hiring people who can navigate the old structure and who also display the skills necessary to adapt to a free-enterprise system. Individuals with the intellectual flexibility and willingness to innovate and take risks will be indispensable to Rustel as it grows and to Russia as it makes the difficult transition to a market economy.* * *
James Hickman is the president of Rustel, a $10-million telephone company based in Moscow.