On June 25, 2009, the U.S. Russia Center for Entrepreneurship held a meeting of the Nizhny Novgorod Entrepreneurship Group, which focused on the topic of entrepreneurs opening a new business. The entrepreneurs shared their experience of switching to a different area of activity and talked about the difficulties on this path, and about introducing the know-how that they learned from their previous business. Also touched on during the event was the issue of how the present economic situation can be used in a positive way for developing a business in a new field.
The first speaker to share his experience was Sergei Tanenkov, General Director of the ProstoDom Group and previously the owner of Slavianka, a confectionery plant. The company acquired a plot of land in the Balakhnin region. He chose to build using Canadian technology that makes it possible to quickly erect inexpensive, strong, non-flammable buildings.
Chosen as guides for operation were the books by Brian Tracy and Igor Mann. “We read [these authors’] books, dismissed everything that was not of use, and were left with a realistic plan of action,” says Mr. Tanenkov. “Changing from one business to another is very complicated. But our people plunged headfirst into this problem. We calculated that our offerings would be sought after in the Nizhny Novgorod market, and we were not wrong.”
To promote the product, the decision was made to publish 10,000 newsletters. “We decided to tell the residents of the city about something they weren’t yet aware of. After all, this is an entirely different philosophy of life: anyone who earns up to 30,000 rubles can live in a single-family house,” says Mr. Tanenkov. “We did an analysis of all the suburban housing developments that are around, thoroughly analyzed construction, and understood that this is an ‘unploughed field.’”
Mr. Tanenkov described three key stages for the new business: production, construction, and sales. It was decided to create three companies for each stage. The sales and marketing company got its name from the technology concept and was translated as ProstoDom (SimpleHome in English, Editor). Materials for finishing out and decorating the houses are done with materials from Nizhny Novgorod manufacturers.
As a result, a housing development was built. Affordable housing was the concept selected; that is, the cost of a house is comparable to the cost of an apartment in the city. Among the company’s offerings is the opportunity to exchange an apartment for a house at no additional cost. Also offered is a selection of more than 2,000 sketches of suburban houses and villas with floor space of 80 square meters and up. The company regularly holds presentations of ProstoDom model houses, lots, and technologies.
Dmitry Moskalenko, another participant in the meeting, also made a radical change of business direction. “I know three ways to lose money. The first way is gambling, the second is women, and the third is investment. The first is the quickest, the second is the most enjoyable, and the third is the most reliable. However, despite that, we open new businesses, and now I’ll tell you the story of creating the Laguna Yug resort complex.” Eleven years ago, Dmitry Moskalenko set up the enterprise Ridan, which today is the leading Russian producer of heat transfer equipment. In 10 years, 500 employees were hired, and the company recorded high rates of growth (50-70% per annum), opened 18 branches throughout Russian, and built a plant in Dzerzhinsk. One year ago, Mr. Mosalenko sold this business, and was not intending to open a new business. But, life took a different turn.
In 2008, the entrepreneur acquired a plot of land near the Yug River, which flows into the Gorky Reservoir. “I understood that later on, with this land, I could do whatever I liked: sell it, sub-divide it, build a country-house development, etc.,” says Mr. Moskalenko. The site itself, highly suitable for leisure use, decided its fate. Thus was born the idea of creating a resort complex called Laguna Yug. At first it was decided to start with family recreation. The landowner started organizing recreational facilities for himself and his children; that is, the project began as a not-for-profit one, and at this time it is being replicated. In August 2009, the official opening of the resort complex took place. Laguna Yug is designed for 130 guests. Among the offerings for vacationers are a Japanese bath, an area with tree houses and obstacle courses for climbing, a professional soccer field, the services of a sports instructor, organized recreation for children, various programs for active and passive recreation, and so forth. The complex also is designed for holding small corporate events, such as seminars and team-building for 30-50 participants.
The in-house motto of the project is “business, thought out in detail,” and its goal is to create the best place for rest and recreation in the Nizhny Novgorod oblast’. On the way to that goal, Mr. Moskalenko has faced a number of difficulties connected with forecasting investments, income, and expenses. Consultants from the hospitality and tourism sectors were involved in the project, and market research was done on countryside hotels in Moscow and the Nizhny Novgorod regions. In particular, it revealed that resort complexes have full occupancy in summer, but in winter there is a lull. As a result, a number of offerings were developed that make it possible to fill the resort complex with guests regardless of the season. Special attention is being given to easing the reservation and payment process. In terms of personnel, training is ongoing.
The general economic situation played right into the hand of the new project. “People have started spending less on vacations, and consequently there is a substitution: less travel abroad and more vacationing here at home. But this substitution is possible only if we can offer the same level of service that people were getting abroad,” notes Mr. Moskalenko. The entrepreneur is certain that the business will work thanks to the well-chosen site. After a year, there are plans to replicate this project, but here new difficulties arise, linked with the choice of a site, which plays a major role in setting up a resort complex.
The entrepreneur sees as his competitors not only camping sites on the shore of the Gorky Reservoir and Nizhny Novgorod region, but also a far broader category: resorts abroad, sports and recreation clubs, and movie theaters; that is, practically the entire leisure industry. Plans call for including all of these activities, to one degree or another, into the Laguna Yug complex.
The topic of leisure activities was continued by Elvita Barbashova, General Director of Event Make, which is positioning itself as a “company that creates events.” Among the services provided are organization of business events (seminars, dealer conferences, presentations, press conferences, etc.), development and organization of training programs involving top experts and coaches, and also consulting services in the area of organizing and managing business events.
The economic crisis has altered the activity of the company, because advertising and activity connected with seminars now have dropped off. However, six months ago, the project had an opportunity to develop in a different sphere. In particular, a proposal came from investors for a project development in the hospitality industry, specifically for development of a vacation site at the Cheboksary Reservoir. “Changing direction is transferring your knowledge and technologies into another sphere,” Ms. Barbashova thinks. “The hospitality industry in Russia lags 20 to 25 years behind the European hospitality industry, not to mention the camping sites. People from other fields who were successful in sales might be successful in the hospitality industry. The technologies we employ in our company also must be transferred into this sphere.” Relying on this idea, the company is hiring personnel for the new project from other fields of business. This is the first and mandatory condition, in Ms. Barbashova’s opinion. The second is that the management personnel must be able to solve any problem or any task. As of yet, there has been no official opening of the site, but clients already are coming, and work is being done on a trial basis.
Oleg Kudryavtsev, the advisor to the president of the international commercial investment bank Rossita-Bank, summed up the results of the meeting. He spoke as an expert in the field of starting a new business. One of the key elements that Mr. Kudryavtsev emphasized was the idea that a new business most often is born as an offshoot of a business that already exists. As an example he cited a company that manufactured flooring, which decided to change the technology, and the result was an entirely new business. Another alternative that helps in opening a new business is advice from friends who already have successful experience in this field. “You have to find a successful person for whom this is working, and that will help polish your project,” Mr. Kudryavtsev notes.
For a future project, one of the most complex issues is the question of financing. “Here there are no exceptional pieces of advice,” says Mr. Kudryavtsev. “To just get money at a bank for a project that doesn’t exist yet is practically unrealistic. If you can convince investors that the project is interesting, then don’t ask for much either. But there are banks that get involved in interesting projects in order to earn money themselves.” The second element mentioned by the expert was the importance of a precise financial plan for the future project, which must clearly show a businessman what to strive for.
“As for the present situation, the financial crisis showed us very important things. The high level of profitability of operating in our markets allowed people to do nothing and get a lot of money. But immediately after the crisis started, the drop affected precisely those companies where the managers failed to understand what was going on with business. To draw some conclusion, one can say that now, on the one hand, it is fairly complicated to open a business. On the other hand, it is important that the crisis is helping, because some companies are leaving, and to capture the market in several sectors, niches, is fairly easy, and here success can be accomplished far more quickly,” Mr. Kudryavtsev said, summing things up.
© The U.S. Russia Center for Entrepreneurship
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