Russia's IT industry needs business-plan culture
The Russian IT industry is a frustrating business. It has the technical resources - above all, an abundance of talented and highly qualified specialists. But what could be a fast-growing and profitable sector - if properly fed with investment.
Dec 11, 2001
The Russian IT industry is a frustrating business. It has the technical resources - above all, an abundance of talented and highly qualified specialists. But what could be a fast-growing and profitable sector - if properly fed with investment - is kept underdeveloped and underused by lack of money.
Recently, on behalf of a friend looking for investment opportunities in the Russian IT industry, I asked more than a dozen Russian IT companies that desperately seek investments to submit their business plans. After many reminders, and some four weeks, all I had was one polite refusal of interest.
Of course, the Russian IT industry is looking for funding, but the problem is that its traditional search methods are no remedy. Rather, they are the cause of the problem.
Current state programs for developing the Russian IT industry and the enthusiasm with which the sector greets them are symptomatic of the dead-end situation the sector has got itself into. The Y2K fuss is a perfect example of what is wrong. The IT sector chose the tactic of scaring the public with horror stories of planes falling out of the sky and other calamities if the state didn't do something - or rather, pay something.
The sector is still playing the same game today, only the threat now is that Russia will look backward and undemocratic, and lose its defense capability and international respect if it doesn't make progress in IT fast.
This amounts to a "your money or your life" highway robbery approach. Faced with tales of doom, the government or big business coughs up the dough to stave off disaster. Just remember how much money U.S. high-tech firms raked in during the Y2K scare and how many millions were wasted by agencies like the World Bank's Infodev.
So, the strategy can work, but it's ineffective as a model for attracting investment into the Russian IT sector. The best way to attract investment in business, as anyone in the U.S. technology business would tell you today, is through presentation of a clear business plan - something not widely used in Russia. The difference between the scare tactic and the business plan is that instead of describing horrors that can only be avoided by handing over money, the business plan describes what steps will be taken to ensure that investment in the business will bring the investor a rapid and solid return. Indeed, to delay investment could cost the potential investor a great opportunity.
In the United States, business plans are ubiquitous, while in Russia they are still exotic. Even large IT companies or IT consumers don't bother making detailed business plans. All too often, Russian managers don't look into what specific contribution information technologies will make to their specific company, but see these technologies as necessary simply because "everyone has them now."
The introduction of business plans to the Russian IT sector would be just the cultural revolution needed to open the floodgates of investment. But as always, it's not so simple. There is a staunch literary tradition in Russia of sighing and lamenting how awful everything is, or of comparing Russia to the United States (or India, in the case of IT) and dissolving in rhetorical exclamations over just how far Russia lags behind. But there are no such literary luminaries specializing in writing business plans.
What can be done to change this? One option is to popularize business plans through the business press and professional associations. Another option is to encourage U.S. and European firms to propose investment packages that would include help with both the search for investors and with drawing up a business plan.
But perhaps the most practical approach would be to go through the investors and venture capitalists first. Potential investors would have to first become used to the idea that just because a Russian firm doesn't have a business plan, it's not worth investing in. Potential investors would search for attractive firms - and there are plenty of them out there - and would then help them get over their "investment shyness" and help them to draw up business plans. A couple of portfolio successes and some good publicity would help spread the model and act as a great stimulus for the business plan culture.
(Leonid Malkov, a Virginia- based software entrepreneur, is one of the founding members of Russian Digital Alliance. He contributed this comment to The Russia Journal.)
Recently, on behalf of a friend looking for investment opportunities in the Russian IT industry, I asked more than a dozen Russian IT companies that desperately seek investments to submit their business plans. After many reminders, and some four weeks, all I had was one polite refusal of interest.
Of course, the Russian IT industry is looking for funding, but the problem is that its traditional search methods are no remedy. Rather, they are the cause of the problem.
Current state programs for developing the Russian IT industry and the enthusiasm with which the sector greets them are symptomatic of the dead-end situation the sector has got itself into. The Y2K fuss is a perfect example of what is wrong. The IT sector chose the tactic of scaring the public with horror stories of planes falling out of the sky and other calamities if the state didn't do something - or rather, pay something.
The sector is still playing the same game today, only the threat now is that Russia will look backward and undemocratic, and lose its defense capability and international respect if it doesn't make progress in IT fast.
This amounts to a "your money or your life" highway robbery approach. Faced with tales of doom, the government or big business coughs up the dough to stave off disaster. Just remember how much money U.S. high-tech firms raked in during the Y2K scare and how many millions were wasted by agencies like the World Bank's Infodev.
So, the strategy can work, but it's ineffective as a model for attracting investment into the Russian IT sector. The best way to attract investment in business, as anyone in the U.S. technology business would tell you today, is through presentation of a clear business plan - something not widely used in Russia. The difference between the scare tactic and the business plan is that instead of describing horrors that can only be avoided by handing over money, the business plan describes what steps will be taken to ensure that investment in the business will bring the investor a rapid and solid return. Indeed, to delay investment could cost the potential investor a great opportunity.
In the United States, business plans are ubiquitous, while in Russia they are still exotic. Even large IT companies or IT consumers don't bother making detailed business plans. All too often, Russian managers don't look into what specific contribution information technologies will make to their specific company, but see these technologies as necessary simply because "everyone has them now."
The introduction of business plans to the Russian IT sector would be just the cultural revolution needed to open the floodgates of investment. But as always, it's not so simple. There is a staunch literary tradition in Russia of sighing and lamenting how awful everything is, or of comparing Russia to the United States (or India, in the case of IT) and dissolving in rhetorical exclamations over just how far Russia lags behind. But there are no such literary luminaries specializing in writing business plans.
What can be done to change this? One option is to popularize business plans through the business press and professional associations. Another option is to encourage U.S. and European firms to propose investment packages that would include help with both the search for investors and with drawing up a business plan.
But perhaps the most practical approach would be to go through the investors and venture capitalists first. Potential investors would have to first become used to the idea that just because a Russian firm doesn't have a business plan, it's not worth investing in. Potential investors would search for attractive firms - and there are plenty of them out there - and would then help them get over their "investment shyness" and help them to draw up business plans. A couple of portfolio successes and some good publicity would help spread the model and act as a great stimulus for the business plan culture.
(Leonid Malkov, a Virginia- based software entrepreneur, is one of the founding members of Russian Digital Alliance. He contributed this comment to The Russia Journal.)