It seems that a great many students of the first SKOLKOVO MBA class have firmly decided to establish their own businesses.We have already told you about the "Knopka Zhizni" project ("Life Button") by Irina Linnik and Dmitry Yurchenko; about Marina Parfeonova's geolocation service; and recently - about Artemy Subbotin and the quality control technology for metal industry. Today we are presenting another technology project - Forest Lab.
Tigran Chibukhchyan and Murat Halishov, the founders of the Forest Lab project, became friends in SKOLKOVO while working on a project to develop an investment programme for the town of Svetly in Kaliningrad Region. The backgrounds of the young men are very different: Murat worked for five years in financial advisory services (Unicon, Delimiter) and Tigran was a medical school drop-out who helped to develop Apaga, a family business specialising in eco-tourism in Armenia. He also had his own business, a flooring company. During trips to Svetly, the young men came to understand that their views on the project are the same and they are comfortable working with each other. Why not come up with a joint business?
“I wanted to make use of the resources that the business school gave us,” said Murat.
The idea of the first project – the creation of an entertainment complex near Moscow – was immediately cut down. It was capital-intensive and needed an operator, and there was the reasonable question of why are two students doing this. They began to look for projects in which the intellectual component played a large role in the success of the venture. Before SKOLKOVO, Murat was thinking about his own logging business and knew the problems in the industry. One of them is a limited supply of hardwood and growing demand for it. The choice of business sector was indirectly influenced by what they had learned in lecture, and it was clear that they must look for a non-consolidated industry, where one could become a niche player (the Blue Ocean concept).
Deciding that it would be nice to find a technology to make oak out of aspen, the two friends rang institutions of higher learning with wood processing departments. Some refused to talk to them at all, and the more progressive schools asked for US$ 1 million for development and a waiting time of five years.
The idea was dying slowly, but then the students came across an article about Professor Vladimir Shamayev at the Voronezh Forestry Academy, who invented a way to make wood stronger than steel. They immediately travelled to Voronezh to meet him. The material that he made in the laboratory was actually stronger than oak. But it cost more. The two men asked him if there was anything easier. Professor showed them an interim solution, a ten-year old invention: processed wood, obtained by modifying the chemical and mechanical plasticisation with urea under the Destam brand. This was exactly what the young entrepreneurs were looking for. Hardwood made out of soft varieties that was moisture-resistant, fire-resistant and did not rot. In addition, the technology made felling softwood profitable, which had always been a headache for the logging industry.
The sixty-year-old professor wanted to commercialise each invention with different investors. How could they convince the scientist to become a member of the team? This proved to be one of the main difficulties that Tigran and Murat faced. There was new input at every meeting.
“In any venture project, income is a function of risk,” said Murat. “If there is a technology for which there is demand, we must be prepared to fight for it.”
There was a long period of negotiations, discussions, sizing each other up, and only after six months of communication was trust and understanding of the mutually beneficial goal established.
During their internship at MIT, Tigran and Murat showed their project to venture capitalists and they came to have a clear understanding of who the customers would be: people who want affordable furniture, floors made of expensive types of wood that is durable and easy to maintain. They calculated amount of necessary investment and the approximate recoupment period. Destam costs several times less than walnut. A whole line of products is now available: they resemble rosewood (which usually costs RUB300,000 or more per cubic metre), walnut, Caucasian oak, and mahogany (broadleaf mahogany).
“These same features will be at least 50% cheaper for consumers,” said Murat.
In December 2010, the laboratory produced a wood sample suitable for display in presentations. Interested people came forward. Having accepted money from a private investor, Tigran and Murat ordered a professional business plan and environmental study by an independent laboratory in Germany. The plan was to open a pilot plant and debug the production process over 18 months and test the equipment assembled from original blueprints. Tigran and Murat would then sell the first consignment of wood to furniture manufacturers, perhaps on their own. And subsequently profit from the sale of the technology and the software for the mini-mill.
The plan is to secure the first tranche from investors in autumn 2011; the negotiations involve three Russian funds and one European one.
“There are global prospects: we are a green company, saving the world’s forests,” said Tigran. “Similar technology is out there, but our advantage is price.”
Nevertheless, many unresolved issues remain. For example, where to promote first: in Europe or China, where there is growing wood consumption.
“I wanted to make use of the resources that the business school gave us,” said Murat.
The idea of the first project – the creation of an entertainment complex near Moscow – was immediately cut down. It was capital-intensive and needed an operator, and there was the reasonable question of why are two students doing this. They began to look for projects in which the intellectual component played a large role in the success of the venture. Before SKOLKOVO, Murat was thinking about his own logging business and knew the problems in the industry. One of them is a limited supply of hardwood and growing demand for it. The choice of business sector was indirectly influenced by what they had learned in lecture, and it was clear that they must look for a non-consolidated industry, where one could become a niche player (the Blue Ocean concept).
The idea was dying slowly, but then the students came across an article about Professor Vladimir Shamayev at the Voronezh Forestry Academy, who invented a way to make wood stronger than steel. They immediately travelled to Voronezh to meet him. The material that he made in the laboratory was actually stronger than oak. But it cost more. The two men asked him if there was anything easier. Professor showed them an interim solution, a ten-year old invention: processed wood, obtained by modifying the chemical and mechanical plasticisation with urea under the Destam brand. This was exactly what the young entrepreneurs were looking for. Hardwood made out of soft varieties that was moisture-resistant, fire-resistant and did not rot. In addition, the technology made felling softwood profitable, which had always been a headache for the logging industry.
The sixty-year-old professor wanted to commercialise each invention with different investors. How could they convince the scientist to become a member of the team? This proved to be one of the main difficulties that Tigran and Murat faced. There was new input at every meeting.
“In any venture project, income is a function of risk,” said Murat. “If there is a technology for which there is demand, we must be prepared to fight for it.”
There was a long period of negotiations, discussions, sizing each other up, and only after six months of communication was trust and understanding of the mutually beneficial goal established.
During their internship at MIT, Tigran and Murat showed their project to venture capitalists and they came to have a clear understanding of who the customers would be: people who want affordable furniture, floors made of expensive types of wood that is durable and easy to maintain. They calculated amount of necessary investment and the approximate recoupment period. Destam costs several times less than walnut. A whole line of products is now available: they resemble rosewood (which usually costs RUB300,000 or more per cubic metre), walnut, Caucasian oak, and mahogany (broadleaf mahogany).
“These same features will be at least 50% cheaper for consumers,” said Murat.
The plan is to secure the first tranche from investors in autumn 2011; the negotiations involve three Russian funds and one European one.
“There are global prospects: we are a green company, saving the world’s forests,” said Tigran. “Similar technology is out there, but our advantage is price.”
Nevertheless, many unresolved issues remain. For example, where to promote first: in Europe or China, where there is growing wood consumption.
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