guest lecture @ LUT, march 2011

1. 12 mistakes of Russian SME Entrepreneurship learning practical mistakes with academic background March, 2011

2. Market St Petersburg & Moscow Construction Market Procedural pecularities on how construction is done in Russia Specifics of construction market segments & competition in it

3. The outcome A number of "on the road" notes - currently being turned into a new research paper The story of how it usually is, and what can be done about it: 12 frequent mistakes* with cases from various companies *Criteria for highlighting a mistake: met in at least more than 3 companies within operation network

4. Mistake 1. High complexity of business ideas No place for "simple truth" on a piece of cloth Cultural / educational aspect Systematic outcomes The limits of understanding Examples: architectural & design institutes, construction services

5. Mistake 2. Lack of commercial vision Supplier vs Customer No vision of competition, no desire to improve quality Short term orientation No place for marketing. Advertising = Marketing here. Prevalence of informal tools to compete + Bertran oligopoly competition Example: construction materials dealers, local producers of construction materials

6. Mistake 3. Lack of formal contract infrastructure Poor quality of formal agreements between principals and agents Informal relations instead of structuring business - yet informal contracts are also rarely formulated Poor trust to papers, since "insitutes do not work", hard to use papers This concerns both employees, customer/supplier relations, shareholders relations Example: road construction workers, region cottage developers, construction material dealers

7. Mistake 4. Mess in structuring Inefficient structures: strange positions, double/triple responsibility schemes, poor understanding of "who, when, why & what" by employees. Necessity of "account managers" - who have high knowledge of what's going on - agency problem, due to information assimetry Example: construction firms, architectural design firms, etc.

8. Mistake 5. Tradition of having corruption relations Any normal way to do business may be biased by having an already reached "behind the scene" agreement Lower price is not an argument. Higher price too. The margin and cash rule the game. It became a tradition. Firm has to pay higher margin for similar results then it would get merely by competing with price/quality Examples: Moscow construction areas, architectural design agencies

9. Mistake 6. Chaotic sales management Highest salaries Poor moral standards Informal budgets Contact / sales database belongs to…? Example: construction dealer key sales managers

10. Mistake 7. Paperwork cluttering Getting simple, yet necessary paper for accounting / contract purposes may take ages Getting an archive paper may be endless Orientation: last come, first served. First get the new money, operations next. Increase of lead time, poor customer service Example: all construction market, especially logistics & construction material dealers

11. Mistake 8. Responsibilities vs Actual Powers Unwillingness of top managers to share powers Not just strategic, but also operational issues Necessity to negotiate with top managers all the time Longer lead time, failures in delivering services Examples: construction material productions,construction agencies

12. Mistake 9. Erroneous complexity of financial issues Most of value chains have their part of "hiding the money" Forms of complexity: documentation insanity and artistic figures in final invoices Incredible negotiations of what would be the final price, and how it should be in the books Lead time losses due to unproductive activities, specific assets, trust issues, fear of lawless officials Examples: all segments of construction market

13. Mistake 10. Endless briefings Poor briefings culture Solve the very problems on site, not beforehand Probably started in USSR May take up to 3-5 hours / briefing. Can be up to 10 briefings/project/week

14. Mistake 11. Agreeing to perform without any grounds Short term orientation of most SMEs comparing to large networks Poor trust in smaller firms due to their irresponsibility of contracts The price client pays for a smaller price of SME It becomes the problem of the client Examples: archit. design agencies, construction agencies, construction material dealers

15. Mistake 12. IT piracy Average poor IT knowledge Lack of internal barriers to downloading pirated software Lack of internal corporate software policies Lack of knowledge regarding open-source software: Linux, OpenOffice, ServerSolutions, etc. Source of possible corruption threats Examples: Architectural design institute, geological surveying company