The case of Russia: How the trading floor was able to monetize the project to reach payback

In a previous article we talked about how in November of 2014 began intensive work. Then we had money only for four months. Now tell you how we started and where monetization was looking for financing, while the revenue didnt cover all our costs. In short, we entered the ROI (now our revenue by about half a million rubles a month), we made a takeover bid, from which we refused, we were IIDF accelerator and received from it investments, and are currently negotiating with several venture capital funds and business angels.

In January 2015 we began monetization through paid subscriptions. Let me remind you that before this, the site worked for free and for buyers and suppliers. Initially we planned to use a advertising model, but after a year of work it became clear that due to the organic growth we fail to reach the attendance that would be of interest to advertisers. For all the advertising we earned about 20 thousand rubles.

We began to look for other business models. Since January, we have become consistently through the site and letters to offer users premium features — individually and as part of tariffs. Suppliers we have provided the following options.

Suppliers interested in all paragraphs but the last two. While individually the rooms not selling very actively, but in the same package sales have gone. We have tried to offer paid services and those who is purchased on our platform (they benefit from significant savings in procurement), but not a single sale was not possible.

So we decided that for buyers all services are free. In January 2015 we made 15 thousand roubles, in February — 35 thousand, in March – 50 thousand, in April — 61 thousand in may — 62 thousands. The trend is positive. The sum of 62 thousand rubles covers half of all costs (of course, excluding the salaries of the founders).

Items of expenditure were. Office rent 30 square meters and wages of Manager users, the marketer and the programmer. Yes, in Tomsk wages are low and inexpensive office space. My personal money for six months of work is almost over, and on return to the spring of 2015 we went, so began to look for other sources of funding.

In late December 2014 I received a letter from a specialist in M&A (mergers and acquisitions) Company — a major Russian electronic trading platforms, which are purchased by the largest companies of the country. The company And creates a platform for small business. From other sources I learned that the Playground for them is developing is not the first team. One they already broke up because nothing worked.

Discussion of potential partnership was long enough. First, on Skype and by mail, then we held several meetings in the companys office in Moscow (in the winter of 2015 and end of summer), then again in Skype. The second party has not outlined exactly their intentions, and we dont find opportunities for collaboration. But we continue to communicate with this company and see it as a strategic partner who might want to buy us in the future, when the company will grow.

In the beginning of 2015 in one of the newsletters from DFII we read that they are willing to send reference letters to the Bortnik Foundation to support projects that have passed the absentee acceleration (we passed it in the first set FRÍA in the fall of 2013) under the program “Start-1”. Under this program, the company can be received free of charge grant of one million rubles for the first year, 2 million rubles in the second year (if you can attract the same amount from investors or private funds) and $ 3 million in the third year. At the end of 2015 is changed to 2, 3 and 4 million rubles, respectively.

The application was difficult even for me, a man with a degree of candidate of physical and mathematical Sciences, which has issued not one grant. At the first stage of selection to fill a very large questionnaire that included questions about the project idea, scientific novelty, market, competitors, prospects and commercialization team. To fill it took us two weeks. As we told representatives of the Fund in Tomsk, the application should focus on the scientific component, we have therefore paid special attention to it.

Then there were video interviews with representatives of the Fund. For example, we asked the question why we plan to spend on annual office rent of 200 thousand rubles. But is it a lot. In the month turns 17 thousand rubles for the office of 30 square meters, which employs six people. I thought to myself.

To use the grant to pay for the rental of office better than to pay his wages, because wages are subject to high taxes and contributions. In March we received the good news. We won the competition. It is interesting that the first we were aware of the representatives FRÍA.

After approval of the application it was necessary to form a contract, which described the substantive work, and agreed with the Fund. It was almost more difficult than to win the grant. For example, the Fund rejected the first version of the contract with the phrase “Lacking innovation”. As we won the competition, when we have no innovation.

We fought the Treaty more than a month, I even started to think that the grant we receive. All managed to agree on only during the meeting in the Moscow office. In late April we received the first tranche in 500 thousand roubles — this money, we covered half of the expenses, not enough revenue.

The first time we talked with FRIA in the fall of 2013, when qualified in absentee accelerator. After the withdrawal of us called to full-time, but for several reasons we refused. Face-to-face acceleration includes investments in the amount of 1.4 million rubles for 7% of the company. From them 600 thousand should pay for the acceleration. Educational program, tracking and expert consultation.

In 2014, we several times applied to the accelerator, but we didnt take. The main reason for rejection was “lack of involvement of the founders in the project”. Its true. On the heels of we undertook in November 2014.

In early 2015 we decided to try again to submit the documents in DFII and unexpectedly passed. It happened when things, apparently, and so it was adjusted. We received a grant from the Bortnik Foundation, and there is a small income. It was previously known in March, then was starting training (also part of a selection process) and the procedure of security check.

The news that we just passed and can be issued documents, come 9 April. Company B is one of the largest shopping venues in the country. Their development Director himself got in contact with us and immediately made his position. It turned out that they made a platform for small businesses looking for on the market those who work in this area and want to hear the price for which we are ready to sell your company.

To sell 100% of the company at this stage we were not very interesting, but, in the end, everything has its price. We had decided to sell the business for $1 million. It is for the money we were willing to part with the independence and the dream of building a big company. That there is space for trading, we announced the price at $1.5 million.

In addition, tell us that we are doing pretty well. There are 6 million rubles from the Fund of Bortnik (for three years) and little sales revenue — in this situation we may develop independently. In early April I went to Company B in one of the skyscrapers “Moscow-city” to discuss possible deal. I was immediately told that the price I indicated in the letter higher than the one for which they expect.

They hoped to create a marketplace for small businesses for 15 million rubles and were willing to invest the money in developing and buying the company that already has the product. My arguments were so. First, to sell the company for 15 million rubles, Im not interested, because I may in the future receive 6 million roubles from the Fund of Bortnik, and 1.4 million rubles from DFII, while maintaining 93% of the company for the founders. It should be noted that at that time I still did not have confirmation from FRIA — I received it just four hours after negotiations.

Secondly, I have already built such scale of business in Moscow. Taking into account the superheated labour market it took 20 million rubles. This despite the fact that I like the Director General had no separate office. The development Department was in Tomsk.

There were other features of employment in a startup. Company B is a large organization could not afford that luxury, so the cost would be more. In addition, I was told that their competitor (company a) cannot be a platform for small business even with the third attempt. If you multiply 20-30 million rubles on the number of attempts that may be required, — is about the amount that was stated in my proposal.

Thirdly, we need to understand that Company B invades into the niche, without having the necessary competence and. Their business is “Spud” a very big company. the level of RAO UES of Russia at the expense of an administrative resource, and require all its contractors to work through a particular trading platform. In the niche of the small business administrative resource does not work — it is necessary to do a really convenient service. Marketing specialist, who could build such a business, they have, and to find it in Moscow is quite difficult.

“These professionals are all good, they are not looking for work,” he agreed with me, the Executive Director of the Company B. Very good, before that I was in negotiations with the Company and understand the model development sites for large business — this allowed me to show that I perfectly know the specifics of the market. We discussed the prospects of this niche. A platform for small business quite easy to scale to other countries, while a large business is highly regulated by regional laws.

In addition, outside of Russia does not work an administrative resource. A couple of weeks, Company B gave us a proposal via email. They are willing to buy up to 51% of our company at a total estimate of 15 million rubles. However, they indicated that there would be due diligence, which may affect the assessment. This offer is not arranged — we decided to take the money from FRIA and to develop as an independent company.

If we at that point decided not to invest FRÍA, Company B would be our only way to survive. It must be remembered that in the process of due diligence they could just decrease the score and we would no longer have a choice but to agree. To lose the start-up for several million rubles is not wanted. In the future, I never regretted this decision.

In March we received a call from a venture Fund of one of the engineering company of St. Petersburg, which has earned a lot of money on the construction of facilities in Sochi and was looking for projects for investment, to diversify their business. Their representative immediately said that they are considering a share of 33,4%, but willing to discuss more investment than we needed at the time. We agreed to meet in St. Petersburg in early April — where I went the next day after negotiations with representatives of Company B.

At the meeting they told me that they themselves once wanted to do a similar project but lacked resources. They gave me a very good idea to attract customers through contextual advertising. Potential investors should communicate including in order to know their point of view, the vision of the market and ideas for business development. In the end we agreed that we will continue the dialogue after will be the acceleration FRÍA.

But then they apparently lost interest and stopped responding to emails — this also happens. In late may I got a call from one recruiter staffing Agency. His Agency worked for an investment Fund who has invested in one of the largest trading platforms of Russia, and he needed to find this trade site project Manager who would be engaged in the product for small business.

The recruiter is not called directly, but by asking a few probing questions, I realized which one is it. Several years ago, the investment funds have invested in the Company And about $50 million, and now they were clearly unhappy. In open sources it was possible to find information about the turnover And about one billion roubles in a year, $20 million. On the Russian market Mature a company is estimated at two to three annual turnover, in the best case — ten speed.

Thus, for several years is absolutely not the funds earned on this investment (my estimations, of course, can be very inaccurate and be misleading). As a result, the venture Fund puts pressure on a company in which I invested, and even tries to solve its personnel issues. From my conversation with the recruiter I guessed that the next attempt of the Company And to create a platform for small business and fails, they plan again to disperse the team. The offer to interview for the vacancy of project leader, I refused, citing the fact that plan to grow their business.

We started working in the accelerator of FRII June 4, when did another start of training (prior to him, which looked, what commands to take, and what not). The whole month we had lots of lectures and individual consultations. Traffic, sales, legal issues, PR and so on.

Alexander Zhurba, a famous person in the Russian venture market, told me that I was “dumb”, not accepted the offer for 7.5 million rubles. And when I answered the question, what are our plans for the end of the accelerator, he concluded. “Well, well, as revenue of a stall with Shawarma near the metro in a week”. In General, training well sobering.

To work then there was not enough time, besides, we were constantly testing different hypotheses, are not always successful, and revenues for June have slipped a bit to 56 thousand roubles. Tell how it looks in the working week FRÍA. Saturday.

From 11 to 15 hours the traction meeting at which teams report for the past week and make plans for the future. Sometimes you are very criticized, sometimes praised. Saturday is the free day. On Sunday.

From 10 to 18 hours training on presentation skills, sales, and other things. Most of the tasks we do, which is useful, carried out by the example of their projects. Laid out offers on PPVVC, prepared presentations. Many techniques I have after returning to Tomsk began to broadcast in other business “Smartfold”.

Monday. After a hard week we can relax a little. Ahead a week, to perform scheduled. So you can work out nice for the soul of the Director-General things. Send reports to tax and to transfer income from the client banks in the “Elbe”, to pay bills (if any), salary (if relevant), update the task in Asana for programmers, thoughtfully to read, “Megaplan” and see who we paid last week.

At six PM I know its got something to do on the plan, and to call its late, so make up a table to write and call scripts. Were leaving from the office at eight. Tuesday. Its time to work.

To make calls, to sell, to test hypotheses, to explore users. Two hours having lunch in the local canteen. Understand what occurred the night of 17-18 hours almost all suddenly stop responding to calls. You can go to eat sandwiches and to talk about what happened today. Then we need to process and reflect on the results.

Were leaving from the office at eight, and on the way discuss business. Wednesday. In the morning, writes our tracker Dmitry Torshin. “Hi, today is already Wednesday, the middle of the week, what are the results?”.

Then I realize that actually its the middle of the week, and made only 20% scheduled, and begin work on a plan with double tempo. In the evening comes the understanding that the most labor-intensive of the hypothesis is clearly not confirmed. If you planned to make six sales cold calls, but after 50 calls the result is zero — it is necessary to change something. Were leaving from the office at 21:00.

Thursday. We changed something — plow on and look at the result. Any day of the week, middle of the day may suddenly come Rita (administrator of the accelerator, which, unfortunately, has already resigned) and say. “You really wanted to go for a consultation (or a lecture) to such and such”. I wanted.

She must read minds, because consultation is really to always be very useful. Some nights there are workshops, which end at 21-23 hours. Friday. From morning to lunch we finish off the last calls and cases.

After lunch we start to analyze, what do have, and think, what are we going to do next. About five oclock in the evening start to put together a presentation for the traction of rally that makes clearer to Express the results and plans. By seven or eight in the evening presentation ready. To nine some of the users will definitely pay 290 rubles, and have to make changes to the stats and slides from home.

When we arrived at FRII, weve had about 100 sales. We thought all of us understand. And what problem we solve, and what value give to our users. But at the insistence of the trackers we start to talk with users, hear and listen to their objections, to pay attention, what words they formulate their problem and what solution you want to get.

Putting words in sentences on the website and in email, we doubled the conversion rate into sales. We have heard from users that they want more orders. Began to motivate them to move to a paid tariff is not the advantages that I cited at the beginning of the article, and only one new. “As a paid option you will get four times more orders than now”.

We are dropping the free version and began to send users on a free fare only 25% of the orders, randomly. Fully, we have implemented it only a month and a half after I realized that it actually motivates people to buy our rates. As a result, the revenue for July increased three times — up to 155 thousand rubles.

We tried to work in several segments. Printing, wholesale clothing, building materials, metal products, electrical equipment. In the end, decided on the accelerator to focus on just one industry — printing — and thoroughly study it. It turned out that there are a lot of specifics.

For example, when printing packaging is a lot of unused surfaces cardboard, which are simply thrown away. At the same time with the boxes, you can print business cards. For printing it is not an additional expense, just the ability to earn, and the customer can obtain their business cards for half price. All this became clear in the conversations.

For three months Ive been on mobile about three thousand minutes (two maximum subscription Yota plus a little more). Growth in three times happened due to the increase in traffic. We began to use to attract customers cold calls. At first these calls were made including I and marketing Director Kate.

It turned out that in our case it is a very effective channel for attracting users. In August, we increased revenue to 320 thousand rubles and went to the return. This time it was the net return, taking into account the salaries of the founders. As said Dmitry Kalaev, Director of IIDF accelerator, “only startup from Tomsk can pay for itself with revenue”.

It is worth noting that a significant portion of 800 thousand rubles, which amounted to investments FRÍA, we spent in Moscow. One only accommodations cost us about 200 thousand (three months rental of an apartment, plus Agency Commission).

In August our staff has expanded to eight people. We took three people to fill the database and cold calls. This was achieved thanks to a strong Manager in Houston, which was able to organize the employment and work of new people and rent another room for office, do not forget about their responsibilities. My performance on the demo-day FRÍA.

. After demo day I was approached by two potential investors. One business angel and people from the venture Fund, which invested in the Company And a few years ago. Accelerator of FRII — really very cool stuff that helps develop business.

In the accelerator are very intense pace of work, and want to get the most from the resources that are out there. Therefore, in order to recuperate and think things through, I decided to take the first year vacation and two weeks left with my girlfriend to the sea. Then on the day I returned to Moscow to meet with the invest-Department FRÍA and the business angel, and flew to Tomsk.

The first thing was to clean up in business. To equip the new office, which was rented in my absence, to optimize new processes and to execute various documents. It turned out that the increased load on the moderator we can two times to speed up moderation, if you are implementing a few useful buttons on his panel. And if you move on to another calling, we will save about 10 thousand rubles a month.

Three weeks after returning to Tomsk, I realized that for the most part are engaged in any nonsense, instead of developing the business. Then I remembered how disciplined weekly reports on the traction rallies FRÍA. In Tomsk was not enough of an objective view from the outside to understand, not the stuff we did this week, and the people with whom you can think aloud.

So my friends and partners were carried out in Tomsk analogue of the traction rallies for four companies. Notice of it here only we — the other members were doing offline business. Due to the methodology of business development from FRIA managed to increase the turnover “Smartfold” one and a half times in two months.

Despite the name “Foundation for Internet development initiatives”, in the accelerator are taught mainly business, and not some pieces about the Internet. To a few years I was in business and did not even think that the accelerator can me so much to give in terms of business skills and knowledge. In October, we squeezed the maximum from the most efficient channels to attract and began to connect new. One of these channels became contextual advertising.

Our first contractor in three weeks refused to work with us, arguing that we are too demanding. In order not to delay the case, we decided to pass context to our head of marketing Kate, who learned to work him in the accelerator. Now contextual advertising remains our top priority, and we are still looking for an experienced traffic.

In October and November we have overcome a lath in 500 thousand rubles of revenue per month, but in December and did not leave on the planned indicators. It turned out that at this time our rates are sold very poorly, because advertising budgets in companies are already distributed and no one wants to make decisions, especially in the second half of the month. Expect that by attracting customers through contextual advertising and scaling cold calls by February of this year we will be able to reach the revenue of one million rubles. In December managed to get a grant from Tomsk innovation cluster for reimbursement of acceleration costs — 600 thousand rubles.

With this money we purchased the necessary jobs, has expanded staff and created a financial “cushion” in case of failed experiments. With the business angel, whom we met at the demo-day FRÍA, we eventually agreed on price. To give too large a share of 2-3 million rubles did not want. Besides, I knew that for the business angel is just fun — he admitted that he thinks whether to buy a fourth car or to play in venture investments, so I didnt have significant leverage.

Maxim Chebotarev from FRIA recommended that in this situation, use a cool scheme — contract convertible loan. If strongly to simplify, the essence of this. If we dont fulfill the plan, then the investor receives a larger share (in smaller businesses), but if performed, then the investor gets exactly as much as we please now, so hes got a much lower risk. But even with such a scheme we could not agree.

In November in the business incubator of Tomsk state University we met with a representative of Ernst & Young Paul Okoniny, through whom came to us the representative of one venture Fund. I loved that this Fund does not just invest money ($10-12 million), but also helps the company to develop. Month we communicated via Skype and email, then I was invited to meet in Moscow.

Coincidentally, the meeting was scheduled in the Starbucks, near the metro station “Pushkinskaya”, in which I sat for six months before that, when he received a letter from IIDF on passing the final selection in the accelerator. Went to the cafe at the appointed hour — and there is Alexander Zhurba. It turned out that it also a coincidence. At the meeting we not only exchanged views on the vision and strategy of business development, but also discussed the issue.

The Fund invests exclusively with the renewal of the entire company under Cypriot jurisdiction to protect their interests, and FRII, which currently holds 7% of our company, such a scheme cannot be a party. The only way to receive investment from this Fund was to buy back the share FRÍA, but it turned out that the Fund doesnt want to leave a good company. “Look for other investors with whom we can work”. Of course, this is a very bad moment and, as I understand it, with him facing many of the companys portfolio of FRÍA.

But the interests of the Fund are also clear. He is invested with the expectation that startups that survive three to five years will return the investment tenfold. With this position we have to face. In addition, FRÍA recommended at this stage not to contact the Cyprus jurisdiction because the founders, having no money for legal fees, and it is from $50 thousand, in the event of disagreement with investors simply not able to defend their interests.

Now we continue to communicate with the venture Fund and FRIA about round 10-12 million rubles and try to solve the situation. At this stage, we would have enough investment in the amount of 1.6 million rubles, which would accelerate our development. The money will be spent on scaling for a contextual advertising campaign and increased sales. Here our invest-presentation.

In addition, these investments (along with 1.4 million rubles, which we have already received from IIDF) will allow us to obtain 3-million grant “Start-2” from the Bortnik Foundation in the first half of 2016. We hope that the information will be useful to startups who are just at the beginning of its journey. And our next goal is in 2016 to have a turnover of 20 million rubles.


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