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Denis Kovalevich: An entrepreneur is a person who answers the question “What is to be done?”

Denis Kovalevich: An entrepreneur is a person who answers the question “What is to be done?”

Denis Kovalevich, the entrepreneur and the Director General of the Troitsk Technospark Nanotechnological Center launching dozens of new technological start-ups every year, tells the Snob what large corporations pay builders of new companies for, why it is important to be able to copy and what did engineers of the XIX century have that today’s engineers lack.

Denis Kovalevich: An entrepreneur is a person who answers the question "What is to be done?"We are talking to you at the site of one of your companies, directly at the production site. And we see all these units around us that have appeared owing to engineering talent. So, I’ve got a question for you: What is today’s engineer like?

I suppose most of people think that an engineer is a genius who is meant to invent one unique thing which will be the best one in the world. Such a view of an engineer has the long history and its heroes such as Leonardo da Vinci, for example. For me as an entrepreneur, the key role of an engineer is to create more and more cost-effective technologies and solutions, reducing daily the volume of consumed process resources and time spent and, thus, making the product cheaper. I have started an argument on this issue with school teachers recently. This has happened most likely because every teacher is dreaming of their student being a Nobel Laureate. And not the one working painstakingly on labour efficiency. In this context, an engineer for me is someone who works for Ford.

And designs a conveyor line.

And devises how to manufacture an automobile for 300 dollars while there are only cars for 3,000 dollars on the market of the beginning of the XX century and in the amount of several thousands cars per year. Ford manufactured million cars two years after the conveyor start-up. And we are able to buy cars now only because Ford made this entrepreneurial revolution in the automobile construction technology.

So, we need a person who must combine construction skills with economic knowledge.

Russian engineers of the XIX century would have understood better what I’m talking about now than today’s engineers formed in the Soviet system. That’s because engineers worked in partnership with entrepreneurs then. They built the industry of pre-revolutionary Russia together, one of the most developed industries of that time. And then that partnership split.

I’ve devoted seven years of my life to work in the Rosatom State Corporation in the institutes of which more than 20 thousand people work. These are scientists and engineers who can make unique things very well but for whom it is highly complicated to perform tasks of reduction of product prices and improving labour efficiency.

Actually, they say in the world market: If you want to get a unique thing, go to the Russians; if you want to get many similar things, go to anybody but the Russians. And what is entrepreneurship in Russia from your point of view?

My parents are originally two nuclear physicists who went into entrepreneurship at the beginning of the 90s.

So are mine. Mathematician-physicists. Now my mother is in the banking sector, and my father was an entrepreneur. And when my father went into entrepreneurship, his former colleagues in the Research Institute called him…

Salesman, money-grubber.

Money-grubber, yes.

Such attitude to entrepreneurship is the standard of the society we are living in nowadays. But at the same time, the completely different attitude exists because we all know Henry Ford, Steve Jobs, and Elon Musk. And even those who criticize entrepreneurs calling them “salesmen” and “money-grubbers”, respect these people. In this regard, the society lives in the state of continuous schizophrenia.

However, I’ll note that many physicists are coming back to the science after the quarter of the century.

Yes, but mostly in another role. My parents came back to technological activity but in the entrepreneur position. In my opinion, nowadays we just begin to see the germs of what is actually called the technological business. After breakage of planned production chains of the USSR, the first wave of entrepreneurs assembled them all over again; they became owners of enterprises by means of the intermediary and reconstructive type of entrepreneurship, as well as formed large industrial conglomerates. And only over the recent years, we started to see new technological companies which earn money not with old assets but with producing its product or service faster and better than anyone in the country or in the world. So, here, in Technospark, we are trying to perform such an operation with the process of start-up creation itself. We are trying to create start-ups cheaper and faster than anyone else. 

Are you an accelerator, as a matter of fact?

No, we are a business on business construction. We are the partnership between a group of individual entrepreneurs (and I’m one of them) and the Foundation for Infrastructure and Educational Programs (which is in the RUSNANO Group). Private partners are responsible for the business in the TechnoSpark. Now you are on the territory of the individual entrepreneurship. And there are about 100 companies here which were created from scratch over the last 4 years. So, we begin to build 20–25 new companies per year. 

On what principle do you start them?

There was a field of dandelions here five years ago. We started to settle it from scratch. Over the first year–year and a half, we created the significant part of new companies (about 30–40%) together with Troitsk entrepreneurs who were engineers and scientists in our institutes formerly. Let’s conventionally call them spin-offs from the Research Institute. By the end of the fourth year of work, the percent of such companies in our portfolio decreased down to about 10%.

That is to say, they were engineers who already started to commercialize their product..

Yes. For example, our partner on the market of medical and industrial lasers, the Troitsk Optosystemy company, created by Sergey Vartapetov, one of the best laser specialists in the country. When we started our partnership with this company, it already delivered 50% of ophthalmologic lasers to Russian clinics. We created the femtosecond laser of a new generation together which allows eye surgery without damage to corneal outer layers. Only two or three companies in the world have such a technology.

And here the following question arises. How does a scientist, a developer become an entrepreneur? What is happening to him/her at that moment?

At least two things happen. Firstly, he/she alienates the developed technology from himself/herself, and hands it over to the company, and stops considering this technology as his/her own. A certain technology is always a replaceable component inside the business. Secondly, there is a transition from a wish to create something unique to the thought that your invention will begin to make profit only if you improve labour efficiency continuously, i.e. decrease production cost of this product.

Is it possible to learn how to do it?

In the philosophical language, the question sounds as follows: can anyone pass to somebody the world view which is different from the one the latter has already had?

When we are watching a film, we accept the director’s world view one way or another.

It’s true. In fact, a contribution of Hollywood to the formation of entrepreneurship in the USA as an acknowledgeable type of activity with an assumption that an entrepreneur is the key economic powerhouse is gigantic. In our country, the consensus is still reached on the opposite opinion: any entrepreneur, especially the one working in partnership with state companies or institutes, is a potential suspect.

So, the process of changing public opinion is man-made. Is it the one called propaganda?

In my opinion, narratives and world views are much better passed over through families. For example, if million of people in our country had left entrepreneur’s capitals, family businesses or just experience of such work to their descendants over the last century, attitude towards the contribution of entrepreneurs to the national welfare would be completely different.

We seem to have some businesses in our country; perhaps, the issue of their continuity is complicated but it is under consideration this way or another.

Most of them are still structures which are inseparable from their authors —they are all tied up in them. Those who are trying to make real companies, i.e. businesses which are capable to operate without their founders, of these structures face gigantic problems. Moreover, most of the companies have so outdated technologies that it is cheaper to build something new than to upgrade the old one. As one of my elder friends says, an injection to the artificial limb won’t help.

Denis Kovalevich: An entrepreneur is a person who answers the question "What is to be done?"How were other start-ups of the TechnoSpark formed?

The second third of companies are made by copying. I don’t know what you think, but I consider that the skill of copying is one of the greatest of all possible skills.

Steal as an artist.

The main thing is not that the idea is your own but that it’s to the point. The question “who does it belong to?” doesn’t make any sense to an entrepreneur. So, for example, we started a company on logistic robots in 2014 after we saw that the corresponding market started to develop. We saw that the company which developed and started to produce similar robots was bought by Amazon for almost 800 million dollars.

And they had robots with small loading capacity.

Yes. Our company is developing two lines of robots. The first one includes heavy robots which carry 1.5 tons — we are starting to deliver them in a year already. And the second one includes robots of up to 300 kg. The situation is that nowadays Amazon and other retailers lose billions of dollars a year for goods storage. The only way to reduce these losses is to deliver robots there to reorganize the warehouses. We founded this company because we clearly understood that there were at least 5, 6, and, maybe, even 10 places for such businesses in the world. And we started to create a company on development and manufacturing of robots from scratch.

Is there any sense to start from scratch? Didn’t you check what already existed on the market?

From scratch means from the decision that the company will manufacture such a logistic robot that may have relatively low production cost and may be manufactured in the amount of tens of thousands pieces per year and even more. That is because if you make a robot which can be produced in the amount of 1,000 per year, no one will need it. And the robot must be designed in such a way that its parts can be produced at the existing production facilities in Russia and in the world. Otherwise, additional investment in the industrial assets will be required, and the product will again become too expensive. Moreover, we have a separate company which deals with the integration of different robots into storage solutions.

There must also be the third part. You must have engineering, service all over the world, mustn’t you?

100 percent. But it is important in entrepreneurship not only not to miss anything but also not to start too early. Now engineering and service are under the responsibility of the company which deals with storage solutions. As soon as the situation draws to a head, we’ll set apart maintenance and service of robots into a separate kind of business.

Then, what is the last type of companies in TechnoSpark like?

The last 30% are our own ambitious assumptions on which technological businesses it is reasonable to build.

How did you define areas of attention? What is the basis for the assumption on in-demand businesses in the future?

Generation of assumptions is not a problem — everyone who does something always has plenty of ideas about new businesses. The complicated part is to implement them on time. The English economist William Jevons wrote 140 years ago that an entrepreneur performed un-investment. He also said that each entrepreneur had the time limit for this un-investment. You are either in time for taking a chance (within the limited time and with the use of limited capital) or not. An entrepreneur is a person who answers the question what is economically reasonable and appropriate to do with his own work. In a way, large and medium technological corporations pay specifically for the answer to this question when they buy young start-ups. By the way, in 2017, the share of purchases of young technological start-ups exceeded 50% on the global scale of mergers and acquisitions deals for the first time. In 2012, there were only 25% of them. And in the 90s, there were only several percent of them.

What is the reason for that?

Roughly speaking, entrepreneurship divided into two parts, i.e. working on developing companies from scratch to their true-to-life readiness for sale and working on development and operation of existing companies. Nowadays, decent global companies prefer not to hire a new vice-president and not to form a new subdivision inside it to start a new business function. They give a command to their corporate venture fund to start buying a certain amount of start-ups on a certain market per year.

How does Russia fit in with the world statistics?

The share of Russia in this sector of the world statistics is almost unnoticeable by now. Over the previous three years, from 2014 to 2016, the whole network of nanotechnological centers, one of which is TechnoSpark, sold about 30 companies, young start-ups. Herein, we are dealing with hardware – it is clear from our status of the “nanotechnological center”. If we are dealing with software, it is only the one integrated into hardware. And these 30 companies over three years are almost 75% of the whole Russian start-up market in material-based-industries. Approximately the same amount of IT start-ups were also sold.

However, there is some movement. Did the government resolution to open corporate venture funds have such an impact?

It hasn’t had any impact yet, but I hope it will happen. Now we have three types of buyers. The first one is Russian private equity funds investing into business scaling of start-ups created by our center. The second type is foreign companies localized on the Russian market for which such practice is already a part of their business culture. And the third type is entrepreneurs with whom we formed joint companies some time ago and who are buying out our share nowadays.

Denis Kovalevich: An entrepreneur is a person who answers the question "What is to be done?"What other remarkable projects have you got here?

Behind your back, you can see operating units where man-made diamonds are growing. These units do not only belong to those of the highest quality in the world but also to the fastest and cheapest ones — owing to our and our partners’ contributions to improving performance and their operation speed.

Where are man-made diamonds used?

For example, in special optics. Where glass doesn’t hold, for example, laser radiation power, the glass has to be replaced with a more durable material. Material which can be made transparent; this is diamond. It has the black colour at the unit outlet, but when it is polished within the accuracy of 2 nanometers of roughness, it becomes transparent. Such an industrial product we have. Another example is our company manufacturing electric energy depot systems.

In the sphere of alternative energy?

Meanwhile, the Russian market of photovoltaics integrated into surfaces is behind the rate of development of storage systems, but eventually, yes, there will be a photovoltaic roof, face, and window which will gather solar energy in daytime, a battery will save it and in the evenings will give it away and switch your washing machine automatically.

You have a wide range of activity areas.

Yes. We are also starting, for example, a group of companies in the sphere of genetics. Nowadays, genetics in the world medicine is, primarily, a specification of medical disposal. Conventional diagnostics tells a patient: a) that he has cancer; b) names a certain organ. That is all. However, tens of different types of diseases with the common name “cancer” stand behind this diagnosis, and hundreds of meds already exist which are capable to fight it (however, not any cancer but a certain type of cancer). All over the world, genetic contractual companies receive results of diagnostics with the use of traditional medical equipment and a patient DNA sample from medical men and give them back its interpretation. And on the basis of this, a doctor selects a certain med which will help.

How far is such cooperation integrated into the healthcare system?

Practically, in no way. It requires a significant change of the structure of labour division on the medical market and retraining of doctors. Nowadays few doctors can work with information received from geneticists.

Who must tune the segments? What can and must be done by such a structural player as the government?

My answer will seem obvious. The main thing is not to disturb genetics development and work of geneticists with doctors

I’m sorry to say this but I consider it’s wrong to take such a line. The government must anyway perform its part of work: adjust infrastructure, remove chains of intermediate agents, eliminate absurdity, and loose interpretations of laws. Don’t you think so?

Of course, you’re right. It can also take part in personnel retraining.

Do you and the Foundation for Infrastructure and Educational Programs influence schooling anyhow? In order to get specialists on new technologies?

You’ve asked a very correct question because we are working primarily with school children, and not with students. As building of any new company in our spheres takes 10–15 years (this is our operating planning horizon), the issue of who is going to work here in 10–15 years is also very specific for us. These are school children who are in the fifth-eighth grade now.

How do you interact with them?

We are not the Ministry of Education, and we can’t change the system. We build a block of additional training near schools. Two thousand children pass through our sites here and in the center of the town every year: excursions, workshop sessions, engaging shows, summer schools, and even design work.

What do you teach?

Of course, we acquaint children with technologies we are dealing with. But the main thing is that we are trying to hand over “the sense of labour”, i.e. the skill of working with high efficiency every day, to school children. Unfortunately, the level of devaluation of attitude to long-lasting and repeated labour is catastrophic. This is a more widespread problem than the search for markets, capital or anything else. We teach school children to get the job done and impart skills of resources saving to them.

Does it make any sense for Russia, in general, to concentrate on anything specific or it is better to work in all areas at once?

This is a key question. As an entrepreneur, I consider that maximum specialization is needed. It makes sense to do only something that you can do (at least potentially) more thriftily and efficiently than others.

For example?

In all areas which Technospark is dealing with, we see such an opportunity — of manyfold increase of efficiency and by means of opening new markets. Old industries won’t help the national economy to grow, we need new ones. I think there is a chance that 100 years after the revolution the economy of our country will restore its movement towards work on global markets and not slide down to next self-sufficiency. And technological entrepreneurs will “select” these new industries by means of their actions — this is their main role in the economy, in my opinion. You see, I’ll be able to earn money only if I answer the question “What is to be done?” correctly. This is my function as an entrepreneur and my motivation at the same time.

Source: The official website of the Snob magazine
Autor: Elena Nikolaeva 
Photo: Tatyana Khesso 
Date: December 12, 2017