The Latest Imports

Russia is a resource-based economy. Fully 80 percent of its exports are in oil, natural gas, timber and metals. But few foreigners doing business in Russia work for Gazprom or Lukoil. In fact, many self-starting foreigners are running rather diverse and interesting ventures that have little or nothing to do with natural resources.

The Russian business environment turns basic commerce into an ordeal. And while ever-changing laws, poor infrastructure, and widespread corruption have caused many ambitious expatriates to throw up their hands and leave, often minus their investment, some intrepid expats cannot be discouraged.

None of the five entrepreneurs profiled below came to Russia intent on starting a business. But, after working for others or exploring the market, they all saw an opportunity and seized it, signing themselves up for an adventure course jousting with the bureaucracy.

All That Glitters

Swedish-born Jasminka Bach had been working in St. Petersburg since 2009, in the buying department for a large Russian clothing company's children's line. Previously, she had lived in Shanghai for three years, visiting factories and doing quality control for Swedish retail companies.

Yet throughout her career in the fashion industry, Bach had always wanted to work with jewelry. Russia turned out to be the perfect location for her startup. After a year of working out the kinks, she recently launched Favoritini.com, a fashion jewelry website. Bach landed on the name while flipping through a book of martini recipes in her well-lit apartment, also her office, in the center of the city, located near the St. Petersburg circus.

"In Russia, you can find luxury jewelry everywhere," Bach said. "Diamonds and gold you can find here. That's not really what I wanted to work with; I wanted to work more in the fashion aspect."

Bach noticed that while Russian women now have money to spend on consumer goods – and a strong interest in spending it – their choices were limited. Luxury may not be new to Russia, but fashion is, and most Russian women find it by looking abroad.

"I just want to give the Russian woman something that she has had to go abroad to buy; now she can actually buy here," Bach said. "And there's almost no competition. You don't have to step on so many toes. There are [competitors], but they are very few, and they don't work the way I'd like to work."

Bach is among a growing number of Russians and expats who are tapping into the potential of Russia's booming internet.

"What's happening now on the Russian internet market is quite remarkable. It's like ten years ago in the Scandinavian market," Bach said. "Russia is now number one in European internet users, while just a year ago it was in third or fourth place. It's growing so rapidly... They are just getting used to the idea of buying online… if you can ride on that now, you have a lot of advantages, because in a year you're going to have to fight for the customers."

Bach is making sure that her company's offerings differ from what's currently on offer in Russia.

"The way the [currently available] websites look — they are old fashioned, and the fashion jewelry they sell is not very fashionable."

Bach also offers her customers free shipping, something virtually unheard of in Russia. Bach thinks the convenience factor will override her shipping costs, particularly since most orders will be under one kilogram, and the costs are easy to anticipate.

"I want to make it easier for the customer to buy," Bach explained, "and I'll make it up with higher turnover, since more customers will be buying with free freight."

Despite the internet boom, many Russians are still uneasy about making online purchases with credit cards,* a cultural conviction that Bach will have to contend with to limit the high costs of courier services in Russia and the potential hazards of cash delivery, which the website offers. According to Bach's market research, 60 percent of Russians pay in cash when ordering online.

"It used to be higher, so it's going down," she said.

Bach's website is also bilingual – in both Russian and English – so that, if the business succeeds, she can easily take it beyond Russia's borders.

Luxury Flowing

Expat Ismael Nuckchady is also bringing luxury to Russian residents – but one decidedly more mundane than high-end jewelry.

Nuckchady was working for a financial consulting company in Vladivostok, traveling around Siberia and tidying up the financial records of large Russian companies that sought to be more transparent to foreign investors.

"I said I was going to be here for six months. Six months turned into five years," Nuckchady said, remembering the culture shock of landing in the remote Russian Far East from his native London in 2008.

In Vladivostok Nuckchady met Adam Gould, his future business partner, when he overheard him speaking English in one of the city's few nightclubs. The two soon became fast friends.

Not too long after that, one day the pair was discussing the problem of tap water in Russia, which is non-potable in many places.

"We thought, wouldn't it be nice if someone could deliver us good water?" Nuckchady said.

And so the idea for Water From France was born, a home delivery service of high-end water brands that will launch in St. Petersburg in the next few months.

Nuckchady is hoping the convenience factor will sway rich Russians and expats to order Evian instead of buying large, two-liter bottles of cheaper brands at the grocery store.

"You can have it delivered straight to your door for less than what's in the shop," Nuckchady said.

Yet the notion of a luxurious, prestigious water is just as important as the convenience factor, so Nuckchady and Gould are reaching out to a group of Russian residents who dine at elite restaurants and aren't shy about using their credit cards.

The good thing, Nuckchady said, is that "Evian speaks for itself. It doesn't really matter what language you put it in. Everyone knows it's a great product."

Like Bach, Nuckchady and Gould are taking the time to develop a sleek, easy-to-navigate website to educate consumers about arranging for a monthly, credit card financed delivery plan.

"The issue is going to be to make the Russians think that it is real, and that it's not some factory in Parnas [an industrial section of St. Petersburg] putting fake water into Evian bottles."

Nuckchady said that if they can convince Russians to use Evian, instead of tap water, for the tea and soups that are so integral to the Russian diet, they will be in business.

Still, Nuckchady said he has found starting a business to be a challenge, even though he is an accountant, which ought to help him navigate many hidden traps.

"It's the first time I'm being an entrepreneur. I've always worked in a corporate environment. It's definitely challenging in Russia, more so because of the culture."

Staffing is something Nuckchady feels will be a particular challenge. "Russians are much more task-oriented," he said. "They won't really try to find an easier solution to the problem, they'll just do what they're told... In the beginning, we need them to be very proactive, which culturally, they're not."

If things take off, the pair hopes to expand their business to Moscow and other cities. And part of their success will depend on marketing.

Marketing perhaps involving scantily-clad Russian girls giving out free water, per the stereotype?

Actually, yes. But also including handing out bottle-shaped flyers advertising the convenience of home delivery. Nuckchady and Gould plan to set up a team of pretty, young Russian women to talk up their product in the city's well-trafficked public places.

"That's the fun part, I think," Nuckchady said.

The Real Deal

Ian Day moved to St. Petersburg from England in the late 1990s to work as an interpreter, and soon after started buying up property. An engineer by trade, he had always had a hobby of buying properties and fixing them up.

This introduced Day to the strange, just-emerging world of Russian real estate, where properties were often officially sold at a price far below market value — at something called the PIB price, set arbitrarily by local authorities — while the real deal was done with suitcases full of cash.

Day sees this as one of many ways that Russian laws are designed with the rich in mind. Most people with money, he said, declare far less income than they actually earn, in order to pay less in taxes. But the falsification would be exposed if they bought a piece of expensive property and had to explain where the money came from. So the PIB price allows – and tacitly sanctions – people with money to avoid declaring their real income.

Regardless of what price properties are sold and bought at, officially and actually, the transactions are all still done with hundred-dollar bills.

"If it's cash, nobody sees anything except the documents that were signed in front of the notaries," Day explained. "You end up with a load of cash slopping around," he added with a laugh. "It's an awful situation to find yourself in."

Day recounted how he once rented a safety deposit box and transferred the cash to it from an apartment he'd sold, bit by bit, for an apartment he was planning to buy. He said he went back and forth to the bank over the course of a day more times than he can remember, "So that if I got robbed on the way, I only got robbed once!"

Even after years in the business, Day said he finds it a constant chore to keep pace with ever-changing legal standards for renting out properties he owns. Authorities can demand details as minute as health and safety certificates for each cleaning product his hotel uses.

"If you're missing a document, you're completely knackered," Day said.

The headaches may be large and frequent, but Day would not keep at it if it were not profitable. Day's mini hotel and apartment rental business virtually runs itself, with the help of a staff of receptionists who take bookings. But Day noted that he bought in when the moment was right, in the late 1990s. And now, especially considering the seasonal nature of the business, the high cost of current St. Petersburg real estate makes investment in the sector rather iffy.

"When I first bought, there was a calculation: everybody said that you should recover your money, including the cost of the renovation, over a seven-year period. And it all sort of worked out financially, more or less. But when you consider now that rents have gone down, and the cost of the properties have gone up tenfold… if you try to get into this business now it's not profitable."

And then there is the general difficulty of doing business. Day said he feels it is somehow – be it for reasons of corruption or simple incompetence – counter to the government's interest or inclination to facilitate small business.

"They don't seem to want ordinary people, who aren't making a massive sum, to make money without complicating it beyond belief," he said. "It's not just that they create this bureaucracy, it's that the people who police the bureaucracy – the tax people, the local police, everyone who's got a little power – when they're at work, they're nasty people, and they're corrupt. I've had a bit of a bellyful of corruption."

Vis-à-vis

Stan Jacox, a Californian in the tourism industry, has a different take on the Russian business environment.

Jacox, a long time traveler with a special fondness for St. Petersburg, walked out on his successful pro-audio business in San Francisco in 2003 to settle permanently in Russia's northern capital.

"I landed on Nevsky Prospekt at the metro station with two suitcases and not a clue as to where I was going to live, what I was going to do to support myself, or any plans. It was the best decision I ever made," he remembered.

Jacox spent his first months in St. Petersburg socializing, networking, solving daily problems, and then helping other people solve problems in their businesses.

"It was fun to go in and observe what they were doing, being a little separated from it so I could see it objectively, and also see it from the view of a customer."

This, Jacox said, is what is chiefly lacking in Russian businesses, from nightclubs to carwashes. In fact, Jacox has become something of a local expert in entrepreneurship. Having established his own pro-audio business and worked closely with a local tour company, Jacox advises other small, mostly Russian businesses. And if these businesses are fledgling, he said, it's not because of the powers that be.

"It is very different than just ten years ago, and in many ways it seems tame. Fifteen to 20 years ago it was like the Wild West, and many attempted to create businesses in the western model but few succeeded... Now, if a startup fails it's because of conventional reasons, not corruption, extortion or intimidation. In many fields, it is easier now to start a business than in the US," he said.

Jacox points to the evolution of industries like hospitality and restaurants, which have vastly improved their service quality in recent years. "If a company came in, no matter at what level, and in this particular niche area based [their business] on customer service, they would have a very successful business," he said.

Jacox said he believes that entrepreneurial success in Russia can mainly be attributed to whether one has basic problem-solving skills, and he applied his own well-honed skills in this area when establishing his most recent venture, a tour company for cruise ship passengers that opens its doors this spring.

According to current Russian visa regulations, cruise tour groups stopping over in St. Petersburg are exempt from Russian visas, yet they are not allowed to leave a guide's supervision. Everyone involved assumed this meant the guide had to physically accompany the group around the city.

Jacox went to the tourism office and asked if the guide was in fact required to physically accompany each tourist at every moment, or if tourists could go off on their own for a few hours. The officials agreed that, for a limited amount of time, tourists could explore on their own, while within reasonable reach of the guide.

"No one ever approached it that way," Jacox said.

So he developed a new kind of tour. After preparing tourists to interact with the city, he will give each couple a map and turn them loose in a neighborhood with a variety of interesting sightseeing options. He will give them suggestions for restaurants, sights, and events going on in the area, as well as a cheap cell phone so they can stay in touch.

What "cruisers" really want, Jacox said, is to interact with locals, to find out what life here is like.

"They'd really like to meet locals. Every place else they've been, when they stop in Germany, when they stop in Helsinki, they never get to talk to a local. They talk to someone that's paid to entertain them."

Jacox discovered what was missing from current "standard" tours by doing market research: tagging along on the tours currently offered to cruise ship passengers. He found that they were led by guides who were all taught with the same textbooks used to train guides in the 1960s and 1970s.

What is more, during their lunch breaks, Jacox said, the guides would go off and sit by themselves. Jacox, on the other hand, would sit with the tourists – and leave his food untouched.

"As soon as I would sit down, everybody would start asking me questions," Jacox said.

Tourists were starved for real life information – the cost of a loaf of bread, or what a typical student's life is like – yet never seemed to have the opportunity to ask their guide such questions.

"The guide's talking too much the whole time, and giving anecdotes and stories, and you can tell it's rehearsed, even though they're trying to be funny, because they know their tips depend not on how accurate they are, but on how funny they are. But it's obvious. [Tourists are] not asking about who was Catherine the Great's second lover or what year a particular wing of a palace was added," Jacox said. "What they're really interested in is being entertained by beautiful, amazing things. Interesting things, interesting stories, and seeing how people are different or the same."

Throwing Parties

Anna Jackson-Stevens was born in London, but co-publishes a magazine and runs a PR and event planning business in Moscow. She arrived in 1991 as a student, and has witnessed the vast transitions in the Russian economy.

She even remembers the days when hard currency – American dollars – were everything,

"I don't remember particular hardship, but there was nothing to buy. There was absolutely nothing in the shops. You'd have windows full of one product, and then you go and ask for that exact product. Then the sales assistant would bark at you and say they don't have any. You'd say, ‘It's all in the window.' [And she would reply,] ‘The window's locked.'"

"You built up relationships with these people over time, and eventually they'd call you and tell you when they got deliveries," she laughed.

Jackson-Stevens recalled how restaurants had menus listing dozens of dishes, but only put the prices next to a few dishes (those actually available), or how, following the crash in 1998, she would request the check as soon as their party ordered, to avoid an inflated price at the end of the meal.

"We drank a lot of Soviet champagne, vodka, smoked, ate back bread, caviar, gherkins. I remember a couple of anorexic-looking chickens a girlfriend did something with," Jackson-Stevens said.

This is all in a sharp contrast to Jackson-Stevens' current businesses, which are both geared to a small group of Russians with significant disposable incomes. With her husband, Viktor, Jackson-Stevens publishes a thrice-yearly magazine, a travel glossy called Coast. Targeted at "discerning Russians who love to travel," the magazine is distributed in hotels, restaurants, and cafés in, France, Italy, Russia, Switzerland, and the United Kingdom.

Amidst the advertisements for luxury jewelry and champagne brands are fashion shoots, hotel reviews, and interviews with chefs and artists – many written and photographed by Jackson-Stevens' friends.

"We run around visiting places, meeting people, and building all sorts of experiences, and sharing them. And we encourage our friends to do this as well," Jackson-Stevens said. "It's quite dynamic. There's something really for everybody."

The magazine was what led Stevens to her current, main business, doing media relations, event planning, and public relations for corporations and luxury brands.

"During the crisis, when we felt it, we lost advertisers," Jackson-Stevens said, "but at the same time, some of the advertisers still wanted the event activity. Moscow loves parties. Friends who work in international luxury brands were saying, ‘Interesting, nowhere wants parties – New York doesn't want parties, Paris doesn't want parties, London doesn't want parties – but Moscow's still throwing parties!'"

Perhaps this enthusiasm is due to the novelty of "going out" – something Russians hadn't experienced during harder times, when the peak of socializing meant inviting someone to drink tea in your kitchen.

In the early 2000s, as Russians gained income and opportunities to travel, dress up, and experience nightlife, people stopped entertaining at home (at least those in the demographic Jackson-Stevens serves). This cultural shift is the reason a business like Jackson-Stevens' exists in Russia – though some things have been lost in the process.

"I end off explaining to my clients a lot about entertaining and hospitality that normally comes from home," Jackson-Stevens said. "Even things like greeting your guests, because when people are working in big corporate environments nowadays, they look at entertaining as a sort of science, and forget that actually there's something just humane in it. If your guests are coming to your home, you would personally open the door, you would take their coats. At a corporate activity, certainly in the capital, they want to outsource that. So if it's your party, they'd still rather have a team of ladies greet their guests."

Along with etiquette, Jackson-Stevens works with her clients to develop a more subtle, streamlined approach to entertaining – a display of taste, rather than wealth.

"Years ago in Moscow, if you went to any party the tables would be just groaning with food… Whereas nowadays I encourage my clients to be a bit more focused," Jackson-Stevens said. "For instance, we might do just champagne and strawberries, Pimms and oysters."

Jackson-Stevens noted that for all the money that's poured into an event, hosts often lack the warm touch of making party-goers feel comfortable and welcomed. "You often feel like you're part of the marketing program. You may very well be, but you're not supposed to feel like it!"

This entrepreneur's business life, however, is not all glamour.

"There's quite a lot of psychology in it," Jackson-Stevens explained. "I've been here for years and I recognize where a box of chocolates helps somebody over the counter, or just catching somebody unawares with – ‘Oh, that's a pretty picture. Is that your daughter?' just to change the dynamic of the conversation, to get this person on your side. It's very psychologically driven."

Of course, despite the frustrations that Russia presents, it's also the perfect place for Jackson-Stevens' particular businesses, and perhaps for Jackson-Stevens herself.

"I think if you're an extreme personality, then Russia is absolutely perfect," she said. "You don't do anything by halves here… You're either out or you're in. You can't sort of go out for a quiet one. But that's why I love it." RL

* According to the 2012 State of the Internet report, Russia is the world's fourth largest source of online attack traffic, after China, the US, and Turkey. Just over 4 percent of all attacks originate from Russia.