пятница, 1 июля 2011 г.

Lawrence Wright: Russian Science is Rich with Great Ideas but It Really Lacks Good Managers

Lawrence Wright, SKOLKOVO Startup Project Director, speaking about how to build venture startups on the Soviet legacy, why Russian scientists need no billions, and how to find a right entrepreneur for each inventor. The original text in Russian is available here

Is venture enterprise in Russia just a faded copy of the Western innovation mechanisms or is it quite a sustainable industry? Is it worth investing your life into venture startups here or is it better to try to force your way to the West and make money there?

Lawrence Wright is an American who is working on commercialization of innovation projects in Russian since 90s. This spring he was appointed as Startup Project Director of the Moscow School of Management SKOLKOVO. Slon.ru decided to ask Mr. Wright about his view of challenges and opportunities for start uppers in Russia. He told us, why we need to invest not billions but hundreds thousands of dollars into innovative projects, how we can make business incubators efficient, and why our own innovations cannot outplay copies.

- To start with, I would like to ask you, why have you decided to work in Russia?
- You mean, not in this particular time – in general?
- Yes.
- Well, that’s a long story. I became interested in Russia when studying in the University, and even earlier. At school I had a teacher of Latin who also gave some Russian lessons. That was the time of Reagan presidency, and the President once had a well-known speech about the “Evil Empire”, speaking of USSR. I was curious of how an empire of evil can exist. I thought, so is everybody really evil there? But wait; there are children there, right? I became interested in politics and started learning Russian. I had good results and continued to study the language in the University. In 1987 with a group of students I visited Russia for the first time – we arrived to Leningrad. The group split up: the first part felt love and passion for the country, and the second part – rejection. I was in the first part.

I made good friends here. Then I started my doctoral studies. And after the collapse of the Soviet Union I got a job in a large American corporation dealing with high tech and engineering. I was with that company for eight years.

- What were your first impressions of working in Russia?
- The job was very interesting. We tried to create a high tech company of a Western model in Russia that would have a Western mindset. Our clients were from the conversion and R&D sphere. We were pioneers. We built relationships with ministries, searched for partners, held numerous negotiations. We started from the basic things: what a contract is, what an export control is, how to build an agreement with a scientist for developing new technologies. And we achieved good results – the company showed good growth through the 90s.

- So you say, when you communicated to bureaucrats you didn’t come across any specific cases. Was it really that easy?
- Surely we had a lot of problematic situations, but this way or another we coped with them.

- And now why did you decide to stay and work for SKOLKOVO?
- I was working with technologies’ development and commercialization – that was sort of a sowing fund that brought the technologies to the market. The results were great, so with my partner we decided to create our own company. We invested in the start uppers’ projects ourselves, wrote business plans for them, created teams, raised funds from investors for development of the projects. And when the prospect of working for SKOLKOVO business school occurred I was really interested. That’s because I enjoy entrepreneurship!

Innovations in entrepreneurship and actually innovations as a whole in Russia now are linked to many challenges and problems – inspite of many resources, much attention and support from the government. This is a complex and very important challenge for the country. With the school’s management team we have discussed the entrepreneurship and start ups’ issues, and I became really interested in working with them and trying to build something unique here.

- What is the main problem, from your perspective? Is the allocated money spent for other purposes?
- I can’t speak of all the supporting programmes – probbaly, some of them are really needed and useful. Everybody wants to see the serious and quick results; but when we are speaking of innovations – it’s not that quick. We start from small ideas, find markets for them, and then we grow these ideas. What do I see in the recent years? Many young people with big wishes appear, there are incubators and technoparks created, supporting programmes are opened… Though many companies receiving grants are what can be called “copycats”. They copy Western models, and that is definitely profitable; but if some trends are copied from the Silicon Valley, then the Western groups are leading, they are atop the wave, and Russia while copying is just inside the wave. You may think of it in two different ways. It may be good and really needed because it helps to earn money; but this way doesn’t reveal the power and potential that we have in Russia. Here we actually haven’t even opened the innovations’ latch.

- How can we open this latch?
- That’s a complicated question. But we can. We have some legasy of what exhisted in the Soviet Union. There is a huge scientific and technological network which is not broken up, though historically cut from the economy. Thank God, this network is financed now; there are grants and supporting programmes. But still the main challenge for us to deal with is that the scientists themselves try to promote their ideas to the markets with great difficulty. When I headed the International Science and Technology Center from the American side in 2002-2005 I created the programme for projects’ commercialization there. We had a lot of scientists with good ideas. Our problem was that we lacked good managers and entrepreneurs willing to work with those scientists in order to develop their products, get them into shape.

- And what about SKOLKOVO?
- SKOLKOVO is on the opposite side of this issue. Our students represent the developing class of managers and entrepreneurs. Plus we are able to find thousands, dozens of thousand of scientists with great ideas having good scientific and technical potential. This is a wonderful opportunity to create sinergy between students-managers and scientists, to create a team of managers.

- Your department is working with students, not with scientists, isn’t it?
- Actually inventing ideas is not a task of the students having humanitarian education; it is important to attract scientists. That is why we are going to create the flow of projects and develop new companies together with scientific institutions and strategic universities.

- And students will do only managing and promoting, right?
- We will try to create some kind of “matchmaking” between students and technicians. I am sure that young scientists will become good partners for our students.

- So you are going to create an ecosystem based in SKOLKOVO. What are the components of such an ecosystem?
- There are a lot of components in this ecosystem. Last Friday we held the first meeting of the Entrepreneurship Club which is open for participation. Mostly its participants will be the school’s students and graduates, friends and invited guests. During this year I plan to organize several workshops where the participants will work together on business cases on convergence of techinal and marketing issues, and much more.

- Are you going to instill in students the feeling for good projects worth investng? What is your task?
- Our task is not only to give them traditional education; we focus on experiential and practical learning. We give them some tasks, help them develop their projects, teach them how to evaluate projects, see pros and cons, estimate risks. Besides, we have an incubator at SKOLKOVO campus – sort of an Entrepreneurship Club – where the newly born companies of our graduates are located, along with some other external renters.

At our MBA programme we actively develop mentorship – when the students communicate to our founding partners, discuss their projects and ideas with them. We plan to broaden this practice during the start up module, to attract the CEOs and experienced entrepreneurs who are ready to share their vast experience with students. They will help our students avoid some mistakes that they themselves may have done, and create right work conditions.

- Do you have any agreements already?
- It’s too early to speak of that; I have worked here only for a month now. And the start up module will begin only in October. Anyway I do have a list of persons and companies, many of them from the United States, and I hope to attract business leaders from Europe and Russia as well.

- Whom of Russian start uppers do you consider to be a good example to follow? Who has the most successful start ups, who could become a mentor for your students?
- We plan to attract professionals and business leaders from various spheres. These should be people with expertise in biotechnologies, nanotechnologies, materials sciences, IT, and various services. This Friday, for instance, we welcomed Mr. Ron Lewin, Managing Director of TerraLink, at our Entrepreneurship Club. The students have numerous questions: how real people solved real life problems, how they developed the IT services company – and this opportunity to ask them in person and get the answers is very useful.

- Which projects do you think will prevail in your incubator?
- We won’t have strict specialization in the beginning – we actually can not have it, because Russian science is well-developed in many spheres. We should give broad range of services, possibly consulting, finance. I think that the sphere of financial technologies is very promising for Russia. Besides, I go for the development of battery technologies for cell phones, cars, mobile devices. So we will aim for working with various spheres.

- Venture capitalists are eager to invest into IT projects nowadays. Do you see any risk of a lop development?
- I agree that this kind of risk exist. We have a SKOLKOVO-RUSNANO Venture Fund at our campus, and we will work on searching projects for the fund. I think that venture business in Russia was launched too early. We can see the general trend here – many funds and lots of money available, but the quality of projects in these funds is rather low.

- Because of low availability of money?
- Because of lack of mechanisms for project development at the early stages. American scientists are brought up in the conditions of capitalism, and it is in their blood. We can find some exceptions but in general scientists are poor businessmen, so what is crucial for success is the mutual cooperation of scientists and businessmen. It is well set in the West, but here we don’t have a mechanism of getting a technology into a shape and avoiding barriers of introducing a product or service to the market. We saw a lot of examples of projects being unsuccessful because of rather silly reasons which could have been avoided. We don’t have the environment; there are few mechanisms for project development at the early stages.

Let’s compare. In Russia venture capitalists come across approximately 5-10 super projects ready to become successful and worthy of investments – and investors usually have to seek for such projects. In the West, a hundred of good projects emerge every week, and investors choose the best ones. They will form a portfolio of, say, 10: seven of them will not be successful but the rest 3 will hit, and that will be enough to close the fund with profit. We don’t have such flow here. I don’t know any cases when venture funds in Russia have been closed with profit, but I may be just not aware of those facts.
The question of sowing funds ready to make investments at the early stages, this is what matters now. I wish we can create this kind of fund here.

- So only the SKOLKOVO-RUSNANO fund is going to finance the projects, right?
- The issue of financing the start ups is not finally decided yet. I have told you about the SKOLKOVO – RUSNANO fund, plus we are working on attracting other investors. It is well known that each start up is financed by friends, family and fools. It sounds a bit funny, but this is what often happens. As a matter of fact, it is not money what matters but the quality of the start up.

- Which features of the Russian market does your programme account for?
- Our MBA programme’s final module is devoted to start ups. Students will learn how to become entrepreneurs, manage risks, write a business plan, create a team, build a business model, and thoroughly describe the model understanding all the aspects of business. It is a false assumption that Microsoft was built by Bill Gates only. Someone has to be a leader, someone – a product developer, someone – a marketing person. It is important to understand how to manage conflicts in a developing organization, how to communicate with partners, with investors, etc.

- I was actually talking of something different. Many Russian business schools, regardless of their level, say that their main advantage in comparison to Western schools is their knowledge of the market specifics and that they teach how to work with government officials. I was talking about these local complications, not about issues that arise everywhere.
- In this regard SKOLKOVO has a great advantage in its learning-by-doing education. Students work on five projects during their studies: a public project in Russia, corporate projects in one of the BRIC countries, again in Russia, and in the USA, and the crown accord is their own start up project. If we were teaching students to work in Russia only – that would be only a part of the issue. Innovative companies and technologies in general don’t have boundaries. If a company grows only on the Russian market, it will be a very small company. In one way or another it will face global challenges. We teach not the particular characteristics of the Russian business, we teach how to grow beyond its limits, how to think global.

- And do you yourself often communicate with Russian officials?
- I used to. And now I also will.

- Did you sometimes have any problems with them?
- (Laughing) Problems always occur.

- Do entrepreneurs today need any government support? How should this support be applied?
- On the one hand, entrepreneurs may find it noxious if the government takes part in their projects – many of them don’t want to consociate with the government. On the other hand, government plays a very important role. The question is how to structure it. For example, it may become a public–private partnership where not the officials or bureaucrats rule but the real business people who can understand the start up challenges.

I am sure that dealing with those challenges in a large scale and investing billions in large programmes is not always the best way to do. Good promising entrepreneurs, innovators, scientists and engineers do exist everywhere in Russia, so the problem must be solved locally, with the help of middle-sized funds. Not with billions. I have seen lots of medium projects with the value of $ 100000 -200000 were able to achieve very good results wit the help of small inflows of money on the local level.

- Could you give some examples, please?
- During first two years at the International Science and Technology Center (ISTC) we commercialized 7 or 8 projects and created more than 350 workplaces. This was the early stage of support of hi-tech companies.

- Could you name these companies, please?
- For example, it was the Vocco Company basing at Volgograd Chemical Factory. They produced fire retardant fabrics used in trains and airplanes. A British company, their strategic partner, invested money, and now they successfully develop and export the product to India and many European countries.

- Have you worked only with international partners so far?
- And with Russian also. What is important in each case is the value for the business. If we don’t force it, the company will grow in Russia only. That is a very naive approach. We work where it is profitable to work. If we find a partner in Portugal or India – we should go there. We should be where it is better for the business.

- What do the investors go for nowadays?
- Each investor or fund has their own aspirations. Some are interested in green technologies, some – in IT, some – in media. Lots of investments go to IT but now we already know that this market is overestimated.

- Don’t you see any crisis of ideas for startups now?
- I would say that the main challenge is not in the crisis of ideas. That is very judgmental. You may go to a business incubator in Moscow and they will tell you that there is nothing like that. The main problem is that people who are in charge of that process aren’t actually the ones who would work on development and growing of the ideas.

- It is often for regional business incubators to be inhabited by the officials’ projects – do they digest the space so that the building doesn’t lie empty?
- Yes, and if a business incubator just serves some real estate games – that is a no-win prospect for Russia. We need good work to be done. An incubator is needed so that it can share the risks with the entrepreneurs. And here are a lot of challenges asking for solutions. There is a successful model of business incubator in the West, but environment there is much more different. Why are they so successful there? Because they exist in the middle of the ideas’ cluster. They receive hundreds and thousands of applications, and they select the best. Working with high quality start ups in the environment with high concentration of projects they are able to invest moderate funds and grow companies with a good percent of successful cases. That definitely strengthens their stands.
We can adopt something from their experience, but Russia needs a different model. It needs to be started with project selection, experience and risks sharing, attracting some professionals, mentors, lawers, businessmen, etc. What’s improtnat is the initial stage when the technology cannot be implemented. I have seen a lot of situations when the scientists themselves think they can easily grasp business rules if they know their technology well, but that’s not true. Scientists can’t become good businessmen, as a rule. That’s why we must study market application; and this should be done by businessmen, not scientists. I do understand why that doesn’t happen in Russia yet – it is too easy to make money in the other places – sales, restaurants, etc. Only it is much more interesting here, in the innovations’ business – it asks for more intellectual input than pure commerce does.

- Are you going to select the start ups by yourself?
- That is a complex process, and many people will be involved, including me. I see our priority task right now to receive the universities’ support and build good networking. We are already negotiating with potential partners. I hope that we will get a good projects’ flow from various sources.

- Whom are you negotiating with?
- I’ll tell you the details only when we make agreements.

- What main challenges with start uppers themselves do you see and what stereotypes, along with the assumption that a good scientist can handle a business?
- There are a lot of stereotypes. Many of young entrepreneurs and scientists overestimate their know-how, and that is really hard to fix. Scientists typically want to be compensated for all their investments in R&D for the last 20 years. Surely that is nonsense; it’s just a raw technology nobody is going to buy. A patent or know-how as it is costs almost nothing; a product in demand for customers – that is what costs something. Further development is an art, especially if that is done propperly. SKOLKOVO is a great platform for creating innovative projects; we are open to any ideas. Only time will show how this all’s going to turn up; we are just making our first steps. We will be able to discuss some particular examples of funds raised in a year’s time, I think.

- What is the estmate ammount of investments you yourself count for?
- Let’s say, our MBA students graduate and launch their own companies. A million dollars is too much for them, I’m not sure how they can digest it. At the same time $100 000–300 000 is quite possible for them to digest – that is the level of a sowing investment in Russia.

- How long can the graduates stay in the incubator?
- They are to leave as soon as they start earning money. As for the time limit, each case should be discussed separately.

- Do you have any students’ projects ready to start working in your incubator?
- We have an interesting project, “Life Button” ("Knopka Zhizni"). This is an analog of an American project in mobile medicine. Imagine: there is an elderly woman who lives alone; she fells down and can’t get up; she presses the button – and an emergency arrives, her relatives come… It gives an opportunity for the elderly to live alone for a longer time. This technology is widely spread in the U.S. Our graduates now work on implementing this project here, in Russia.

- How far is the project developed at the moment?
- They’ve got their first investments, and are now negotiating with various stakeholders of the project. I think they need a year to start producing and selling the devices. A pilot stage will start soon. That is a very interesting project.

- This is copying again. Can we stimulate innovations somehow?
- Yes, we can. Thought I suppose that it is much more complicated than adoption. That’s why we can’t reject this – it is necessary. Still I wish we had more innovative projects at our incubator, may be half and half.

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