Belousov’s Parallel Worlds
Sergei Belousov has earned several hundred million by developing and selling his computer software all over the world. In his interview with Expert, he explains why it is so difficult to work with Russian programmers and US venture financiers
Sergei Belousov
Photo: Parallels press service
Sergei Belousov is famous among his colleagues in business; Westerners consider his software companies their own; in Russia his companies do not even rate as software developers. Nevertheless, the general turnover of Belousov’s two companies, Parallels (formerly Swsoft) and Acronis reached $200 million in 2007. The well-known Kaspersky Laboratory earned about the same amount, which is noticeably more than the turnovers of EPAM and Luxoft, which are engaged in so-called tax haven programming. Parallels is developing and selling programs that make it possible to launch different operation systems and complex, sometimes hardly compatible applications on one computer. Belousov’s customers include some in the Fortune 100: from the renowned General Electric to the world’s biggest banks and leading Wall Street investment companies, they all employ Parallels products on their servers.
Acronis, Belousov’s second company, produces reserve copying and data restoration systems that sell like hotcakes in electronics stores the world over, from New York to Tokyo.
In the nineties, just like many others, Belousov was involved in assembling and manufacturing computers and peripherals and became one of the founders of the now well-known distributor Sunrise. Several years after, he abandoned Sunrise to launch a company that initially assembled computers and TV sets and later on turned into Rolsen, a major manufacturer of household electronics. Concurrently, Belousov began experimenting with software development and at one point switched over to that industry completely. Nowadays, Parallels has 300 full-fledged developers in Moscow, 200 in Novosibirsk, and 150 technical support specialists in Novosibirsk as well. Marketing, finance, sales, and management are located in the USA. Over 95% of the cash flow of Belousov’s companies is formed outside Russia. Other Russian developers are eager to enter the Western market, but very few can boast of success, apart from ABBYY and Kaspersky Labs.
We decided to talk with Sergei Belousov about Russian programmers and their problems, the weariness of Russian entrepreneurs, and the difficulty of their dialog with US investors.
Exercise for the Brain
Expert: You began your development in business as an ordinary computer reseller. After that, you created the Rolsen Company, which manufactured television sets, a much more complicated business. Finally, you entered the obscure, unpredictable, and risky software development business. Was it just because you were bored simply making money?
Sergei Belousov: I was not bored. I just do not like being idle. I need to do something. I am not into entertaining myself and I sleep very little. I cannot be different. I tried various things, but they did not work. However, when I got involved in software, things went very well.
E: You have come a long way from simple outsourcing to making a product that sells all over the world. However, most Russian companies have remaimed at the beginning of the road. Why is it so? Why do we have so few good software products?
SB: Developing software requires a certain culture. In the Soviet Union, there never was any culture of developing commercial software for a big number of users. There was no such industry. Therefore, we are starting anew, and it is a long process. In the USA, the culture emerged over the course of the past fifty years. What is there to expect of Russia if we have only started? Therefore, it is not worth saying that we do not have the products; we just do not have them yet.
E: You once said in an interview that our programmers are good at developing platforms. What did you mean?
SB: We may conditionally subdivide software products into three types. There are ordinary applications; they perform a function or a set of functions. A platform is a thing that incorporates thousands of different functions, and it can facilitate the work of hundreds different applications. Now, about our programmers, or as I prefer to call them, engineers. Programmers usually type something on their keyboards, while engineers develop products. Writing a program code is one of the stages, but a product is much more than that. It includes designing, interface, and usability. Anyway, developing a platform is something that requires a large amount of fundamental knowledge, and an ability to think in a systemic way and to construct complex models. Historically, fundamental science used to be the strongest in the US and the USSR. Both countries invested a lot in it in order to win the arms race. As a result, both the Americans and we are capable of devising platforms, and that is something different from plain programming. You can learn how to program by reading one book.
E: What platforms can you give as an example?
SB: When a rocket flies into space, there is some kind of software platform in it. Alternatively, take a nuclear submarine: there is a platform, and there are applications developed for it. A commander turns the lever and triggers some functions, thus controlling the vehicle.
E: You have not mentioned a single commercial platform.
SB: There was different ideology; nobody in the USSR developed software separately. Nobody would think of writing operating systems for the SU-27 and selling them on the market. We did not have a separate software industry; there were just groups of engineers that were developing certain platforms.
E: This has become the main problem with our contemporary programmers….
SB: There is a package of three programs. The first one is as follows. In any competitive society, there is a tendency toward creating suitable products. Those that are completed, finished, and packaged. What is a five-star hotel? Many engineers cannot even imagine what it is. However, it is just appropriate service. A Russian engineer has no idea of what a product is, of what product support might be. However, in ten years’ time the understanding will develop.
The second problem is what we call “the culture of management”. In the US, everybody comes across the art of management beginning in childhood. In Russia, people do not have this kind of experience. They are only geting to know finance, management, and motivation. Managing a software business has its own singularities, so the art is developing even more slowly. Managing a team of developers is a complex set of managerial techniques. The efficiency of managing processes somewhere in Microsoft is higher than in my company, but it is also higher in Parallels than in some dump of an enterprise. In the US, it is much simpler: When I start up, I employ a person from Microsoft or IBM or Intel; they know perfectly well how to manage a team of developers. It is definitely a trade, and it is extremely difficult to find such specialists in Russia. They are almost nonexistent.
There is also the third problem. Among other things, we produce business software. In the US, they have all known since childhood that they have an allowance, and later on, credit cards, loans, pawns, mortgages, etc. They lead their business, and at least partially, they understand the essence of the process. The average age of Russian programmers is 35, but their financial expertise and understanding of a business is very modest. It is much more difficult for them to write a business application than for their counterparts elsewhere on the continent.
E: Take the millions of Indian programmers, for example. They should probably have the same problems. Are Indians good programmers?
SB: Yes, there are many of them, but they are different. For them, programming is just a trade similar to those that existed a thousand years ago. They are an ancient caste society. Their ideology consists in mastering some trade and practicing it until your dying day. Preferably doing it well. Programming is a trade that is no worse and no better than any other. Once you have mastered it, you do your work. In Russia, programmers very often have quite a different education. In the former Soviet Union, they believed they would work as physisists or mathematicians. Then all of a sudden, the situation changed radically. Some took to programming, some to commerce. Some were successful, some not. Only now do they get the feeling that they have obtained a new profession and that they will never be involved in something they have neither the skill nor desire to do. Most of those who have achieved success in software products did it spontaneously. Take Evgeny Kaspersky, David Yan (ABBYY), Arkady Volozh (Yandex) for example….However, those who work with us nowadays are different. They have experience. They are now capable of planning.
E: You invest in Russian education and organize research laboratories in technical universities. Why?
SB: For exclusively selfish purposes. We want to train employees for our company.
E: Nevertheless, they will not necessarily be yours.
SB: That is true. However, it is a rather efficient way of training your employees even from a financial point of view. We expect them to get interested in application-oriented problems and to be willing to work with us. We have the idea of involving talented people in resolving complex tasks. Motivation is very important. Getting kicks from using your brain to full capacity is one of the most powerful motivations. Many scientists do research just because they enjoy the process. Our task is to find people who like to use their brains.
An Apologia for Venture Rapists
E: In 2005, when your business was developing steadily, you borrowed money from venture funds. Why did you do that?
SB: Parallels is involved in a very difficult and special kind of business. Our partners, clients, and potential employees have difficulty assessing how stable we are and if we are worth dealing with. They have no opportunity to test our due diligence. However, a venture fund can do so and decide if our company is worth investing in. Therefore, the presence of the fund signals that everything is OK with us. There is yet another factor. We have plenty of advanced employees at our company. They have to be motivated somehow – by option plans, for example. However, is there any means of determining whether options will turn into money someday? If there is a venture fund, it is almost inevitable. Nevertheless, one might work for 30 years for a company where the options just remain on paper. Finally, you may consult your investors. They might lose their money, so they would think over their words a hundred times before saying them. You could also seek advice from other companies with the same investor and analyze their experience.
E: Is it not possible to stay on your own?
SB: It is possible, but in our business, you will need resources eventually. In the technology business, there are two ways of creating a product – using your own workforce and purchasing. There always emerges a situation when purchasing is required.
E: Is not it easier to do otherwise, to sell instead of buying and relax with a cocktail under a palm tree? Some Russian entrepreneurs are so tired that they sell their businesses. Do you feel like doing something similar?
SB: I enjoy my lifestyle and am not planning to do something like that.
E: What is your final objective, then?
SB: Good business is my target. Good products, satisfied customers, and happy employees and partners. However, there is one problem here. The more successful your company is, the less desire the venture fund has to sort out why everything has turned out like that.
E: What do they think, then?
SB: The investor wants to increase his share by any means, ignoring the opinion of the management, even if this would hurt the company in future. For instance, there is a company worth $3 billion. A certain fund owns 10% of its shares. If the overall value of the company increases by 5%, the fund will possess $15 million more. This is big money, and in order to get it, you might spend some on lawyers and on other means of exerting pressure on the management. In fact, it is some kind of venture rape.
There is yet another thing. Numerous private equity funds invest on later stages, expecting huge profits but a small multiplier. For example, they assess your company at $500 million; a couple of years after investment, there may be $1.5 billion. Having invested $100 million, they get $300, earning $200, which makes 45% per annum. However, if a company has an IPO in four years’ time and is valued at one billion dollars, that is around 19% annually. Feel the difference: you could make money like that investing in real estate, which is much safer. That is why such an investor would struggle for an IPO or selling the company as soon as possible. Investors, particularly venture ones who have the experience of raping the management of a company, could be tempted to do the same to your company. Therefore, it is important to scrutinize their history. Particularly that of the US companies.
E: Why them?
SB: Because money is everything to them. That is a very old and very developed capitalist society. In the US, your business and your personal relationships are separate. Money is incompatible with one’s personal life. Choosing friendship often means losing money, but they usually prefer money. If an investor ruins your life because of money, it is not bad at all in American understanding. In Russia, that is something incredible; it may even spoil your reputation. In the US, venture rape is practicable with investors, and it does not mean you should not do business with them afterwards. You may, but with great attention to detail, with particular precision. You just should not relax.
