Today’s economic realities leave Russian tech startups with enough trouble getting to market as it is, but even those that receive the support of Skolkovo must overcome a problem of their own making: failure to pay attention to their customers' needs, the experts say.
“Once you see a problem, don’t say: ‘OK, how do I make money off of this?’ Say: ‘OK, who’s got the problem?’ and analyze the s*** out of it,” says Gil Petersil, a Moscow-based business coach with two decades’ worth of experience working with startups.
“Whose problem is it? Analyze the customer, speak to the customer. Russians don’t do that. Because of this shyness, that they don’t want to talk to strangers, they make assumptions about who their customers are. They make assumptions on what the real problem is, then they’re going to start building a product,” adds Petersil.
Since the death of the Soviet economic model that had no customers to satisfy in the modern understanding of the term, Russia has made strides in catching up with Western client-oriented practices. That ranges from broader smiles at the fast food counters to better airline service (Aeroflot was recently named best airline in Eastern Europe). Still, the changes are too superficial, say the experts: This customer concern is yet to extend to the moment of product conception, let alone catalyze it.
Petersil, who co-runs the professional networking website meetpartners.ru that he helped set up in 2011, has launched more than 15 companies in four countries, and is in the perfect position to appraise the Russian approach to doing business.
“As Westerners, we have many times complained that the Russian market, even Moscow, does not have enough customer service compared to the West. As a customer, you’re not really that important [in Russia]. Companies aren’t thinking about how to retain you as a long-term customer,” Petersil says.
Gil Petersil of meetpartners.ru
“They’re thinking: ‘I need customers for my business.’ ‘How much money can I make from you from this one sale?’ And that’s it. And because of this attitude toward long-term relationships and customer service and a visionary approach to setting up a business, the customer methodology does not really exist. It’s not really there. The business is not being built for the customer. The business is being built for themselves. That is the No. 1 biggest mistake that any entrepreneur can do. If you’re building a business for yourself because of your ego, because you want to be famous, because you want to make money, it’s not nine out of 10 will fail, it’s 99.99999 will fail, if not 100 percent.”
One place the issue is painfully evident is at product pitches in Russia. John Harthorne, the CEO of Boston-based business accelerator MassChallenge, has sat through hundreds.
"The worst pitches I saw were ones where the entrepreneur spent a good deal of time talking about the technology and all its features, but never addressed who the customer was or why they would want to buy that product. Startups need to be crystal clear about their market and why their product is relevant and competitive," he told sk.ru.
In a world of racing technological advancement, a healthy and honest open channel of communication with the client is the only way to stay alive, Petersil says.
“The road to success is full of failure, of course. And it comes down to this. If you are really able to understand what your vision is, if you are really able to have open communication with customers, then along the way when your failure comes, you can always go back to your customer and say: ‘Whoa, hold on one second, this is not what I thought. What do you think?’” Petersil notes.
Steve Jobs once said: “You’ve got to start with the customer experience and work back toward the technology, not the other way around.”
Petersil went on: “And because this doesn’t happen, and again this is semi-generalizing, but most of the Russians I’ve met, and I’ve met many in this country, they cannot handle failure. Failure is very negative. Failure is: I’ve let my ego down. But again, failure is a great thing. Any entrepreneur in the West will tell you: You must fail. You are learning. You can’t just listen to yourself, you must listen to others.”
“It’s a vicious circle. It’s all about customers.”
John Harthorne of MassChallenge.
Harthone says the absence of a philosophy to retain customers means long-term value creation is sacrificed for short-term value capture. Put simply: People are still aiming to make money, not sources of money.
Sergei Mitrofanov, a deputy director at the Pulsar Venture fund who has two decades of experience in helping businesses get off the ground, says naivety in the Russian startup industry is still rife.
“Innovation is a bundle of different products and services,” he told sk.ru. “When I define a product for a startup, it’s not just a physical product, I define it like a bundle of pre-product services, the product itself, then maintenance et cetera.”
“If we are talking about the technology business, you need presale usage and maintenance. It’s about understanding the consumers, the benefits. When you buy a car, you’re not just moving from point A to point B. Then you could just take public transport. You need to think about the entire product experience. Startups, even scientists, they are focused on their small part. This is my product, and that’s it. They focus their research on a very narrow niche. When they are building the product, they don’t think about the bundle of services and side-products around their core product,” Mitrofanov said.
“Companies and people rarely buy just a product. They buy a bundle of physical products and services tangible and intangible.”
“In order to go through the surface, it’s easier to go by knife. But you have to know what’s on the other side. On the customer side. What extra do you need to really satisfy the customer? Then you need to go back and make it narrow again. When we work with businesses, we try to make them understand this,” he continued.
“When I talk to startups I tell them: ‘You are selling not to scientists, not to engineers, but to ordinary people. Aim it at tenth graders.”
“If you are able to explain your product to a child, more mature people will understand you easily,” Mitrofanov said.
Sergei Mitrofanov
This article was to be split into a series that dealt with various issues that afflict startups in Russia, in particular: Poor communication of their product, distrust among researchers (those who are overly protective of their innovations to the point that they seal themselves off from the entrepreneurial ecosystem, repelling potential investment or collaboration), and red tape.
Several startups contacted by sk.ru in the past for other articles have declined to be profiled on the grounds that their ideas might be stolen or misrepresented.
However, the experts insisted that all those issues boil down to the same thing: Failure to put the customer first.
Petersil summed up the thinking.
“The trust, the communication, the red tape. It doesn’t really matter what it is,” he said. “All of these challenges and problems take place in all startups. In Russia, because they’re not thinking ‘let’s think about expansion into the United States within six months.’ They’re thinking ‘let’s make money,’ and ‘let’s be famous.’ It’s not necessarily: ‘Let’s make a difference. Let’s solve a problem.’”
At the recent Slush tech conference in Finland, Europe’s biggest startup event, none of the seven startups from Skolkovo made it through to the final of the Slush 100 pitch competition.
The pitching competition at Slush 2014 was a lesson for Skolkovo's startups. Photo: sk.ru
That was despite going through last-minute training at Helsinki Ventures, a leading Finnish business accelerator.
“The underlying issue really is the product perspective the founders have, mainly stemming from the fact that they're technical experts and lack business development and marketing skills,” said Timo Felin, a partner in the company.
“A lot of the marketing materials focus on the features of the product (or even worse, products) they are creating without any consideration into what are the needs of the customer and, sometimes, who are the actual customers,” he added.
Timo Felin of Helsinki Ventures
“Our main message to them is almost invariably to make the decision to focus on a specific problem and a specific niche rather than sell to everyone who could potentially benefit from their product’s different features somehow.”
What’s more, the startups fail to take into account that customers differ from region to region, Felin said.
“The company might be knowledgeable of the Russian market and the customers there, but in selling to another market outside CIS, it is often the case that the customers are fundamentally different in terms of the problems they experience, the business models they can work with, the needs and goals they have and their processes,” he noted.
None of the experts questioned the quality or innovative nature of the Russian startups themselves. Built upon the firm traditions of quality engineering that date back decades, Russian startups have the talent to produce gamechanging technology, they said. It's just a matter of calibrating that talent to match consumer needs.
As Jobs once put it: “Get closer than ever to your customers. So close that you tell them what they need well before they realize it themselves.”