KupiVIP creator Oskar Hartmann on why it is so important to find an idea that can ignite, and why the novelty of this idea is not the main thing for success

Forbes continues to publish interviews with famous Russian Internet entrepreneurs and specialists. founder Oskar Hartmann talks about what a shopping club is, how to create a company with a turnover of more than $100 million, and why it is necessary to copy business models . This time, KupiVIP

You can listen to the full audio version of the interview on the Runetology program website

Maxim Spiridonov: In recent years, in RuNet one can increasingly observe both the creation of successful businesses by foreigners, and the construction of large projects by people with Western business education or even upbringing, those who spent a significant or even most of their lives abroad and nevertheless came build your business in Russia. One of the brightest stories is the rise of the closed online club KupiVIP.ru. Today our guest is the founder of this project, Oskar Hartmann.

Maxim Spiridonov: Oscar, have you ever regretted that you built your business in the Russian segment of the Internet? You lived in Germany and in the USA, you had a choice.

Oskar Hartmann: I lived in different countries and cities, I moved 36-40 times from one point of the world to another. When it came time to choose where to stay, I thought that Moscow was the city in which I felt happiest. In addition, my wife is Russian; we met when I was an exchange student in Russia. So I decided to live in Moscow. Only after arriving here did I begin to think about what to do here. This is very important because many come for business.

- You are 30 years old. By this age, many people are just trying to imagine where they want to go. You already have a rich biography, both in terms of geographical movements and from a business point of view.

- In my opinion, this is normal. At the age of 17 I left Germany for America. This was a key episode in my life. I realized that Germany lacks many things that are wildly popular in America. I can give you an example. When I lived in America, there was a bodybuilding boom. Everyone was into bodybuilding, and everyone used bodybuilding.com. Where I lived, there were no sports supplements, but you could order them online. When I returned to Germany, this resource that I used in America was not available. I asked, “Why is it that something that creates a lot of value in one place is missing in another?” Then I decided to create a copy of the bodybuilding.com business model. I launched my first online store in 2001 - an online store for sports supplements. I did this for three years in parallel with my studies. Then he founded another company in which we made computer systems for small businesses, installed computers, connected them to networks, and created basic solutions.

I started earning money myself very early, from the age of 12. Before I left for America, I worked as a courier, then I created two companies. So I had my first experience very early on, which helped me when I went to university and started studying economics. I realized that everything I did before, I did wrong. You need to do big business, not small tools for making money. After graduating from university, my dream was to build a real big business, where I would do everything right, everything as it should. I didn't want to do anything else but this.

— Many people want to build a large company, but only a few succeed. Those companies that you built at age 19, what size were they?

- They were tiny. In one company, my partner bought out my share when I left, and the other company simply went out of business. When I worked there, I had 50 to 100 orders a day.

- Let's go back to the beginning. Was awakening your entrepreneurial consciousness a key moment for you?

- Yes. I’ll say right away that back at university I made a tough decision that I would work only for myself. I wanted to start my own company. This decision was fundamental for me; I excluded all other options. I was not interested in other opportunities to build my career or make money. The Boston Consulting Group was needed only to find the right idea. I was in search of an idea that could ignite me. I've been looking for this idea for a year.

— And in the end KupiVIP appeared?

— KupiVIP was the answer to all the questions I asked myself. I wanted to work in Russia, I loved Russian people, Russian consumers, I wanted to create a consumer company where my success would depend only on my ability to satisfy customer demand. The Internet is a very pure sphere in this sense. I didn't want to make a business model from scratch, I wanted to make a business model that already works in at least three countries around the world. I believe that business transfer is the fastest creation of value. If I want to create more value, the fastest way is to move the model that creates value elsewhere.

I did this when I came from America to Germany. I wanted to do the same thing again, but on a larger scale. I was looking for a model that was different in terms of positioning from what was on the market. I looked at companies like Zara, which says you can look like a runway supermodel on your budget because we copy everything they do and do it for much less. All businesses in Germany are working towards elevating the consumer, giving them more for their budget and giving them the best for less. There were very few companies in Russia that had such a positioning.

When I arrived in 2007, I was shocked by how poorly companies communicated to the client. Everyone says you get what you pay for. If you pay a lot, you get good, if you pay little, you get bad. I wanted to build a company that lifts the consumer up. I can tell you about 10 more things that I knew before I saw the club sales model. I already had a list of ideas that I wanted to do. It was an online shoe store because it worked in America and Germany, these were companies such as Vistaprint, Booking.com, etc. These were billion-dollar companies that did not yet exist in Russia. When I saw the club sales model, I felt a powerful energy. This idea was everything I wanted. I believed in her very much!

— What does it take to build a large holding?

— I can give an answer, but I say right away that my answers do not claim to be complete. I think that every listener can find at least 10 cases where people thought differently, did differently and achieved success. For example, Google, Facebook or Apple.

Why don't other people succeed? I think that many people dream of creating a big company, but they dream of creating it without a lot of work. In Russia, I see a global search for “get rich quick.” Everyone is looking for some scheme that will help them get rich quick. They don’t dream of working like crazy for five years. They dream that this will happen very quickly.

For example, yesterday I met with entrepreneurs and they told me: “We will set everything up in 6 months, hire a team, give them the operating business, and we ourselves will move to the board of directors.” After three minutes of conversation, I lost interest. After the person told me that he was moving to the board of directors in 6 months, I became uninterested. Maybe he will succeed, but the probability of this is very small.

— Is personal investment critical?

- Yes. Then you can leave, but initially there should not be such an attitude. If you have such thoughts when starting up, then you should invest, be a business angel. I see people all the time who think that all the value is in the idea, that the most important thing is to have an idea and everything else will happen automatically. There is no value in an idea; all the value is in building a project, in solving everyday problems. A company is not built in 3-6 months, a company is built in 10 years. Then, perhaps, you can hire a team and leave yourself. People think about it too early, they lack the desire to build a project over a long period of time.

— KupiVIP seems to be a fairly successful story with a quick rise. Essentially an entrepreneur's dream. Or not? Have there been situations when you, having invested personal money, understood that the company could collapse under its own weight due to the lack of operating money?

- There were an infinite number of them. For example, we outsourced shipping early on and the company we chose used our cache to cover their operating costs. It was the first six weeks and we ran out of all investment money in the second month of activity. This company did not pay us money, and our turnover was 0 rubles. We were in a very difficult situation, close to bankruptcy. Ultimately we found a solution. We launched our own delivery service. Such situations happen every day. Unfortunately, building a company is not an easy task. With many disasters happening every day, the number of bad news emails I receive only increases as the company grows in size. We had 2-3 occasions when I thought it was completely over. In general, I have enough stress in my life.

— Is it true that you deliberately chose the crisis year of 2008 to open a business or was it just a coincidence?

— We started when times were good, and the crisis only helped us. A crisis is a crazy time, the best time to be an entrepreneur is when you want to introduce something new into the industry. When an industry is growing, developing and feeling very stable, it is difficult to do this, because people do not understand why they should change anything if everything is already growing for them, they can barely keep up with their growth. This was the case in 2007. People said that they didn’t need any KupiVIP. People used any leftover inventory to open new stores. And when the recession began, people started thinking. During the crisis, all businessmen in the market realized that they needed to work differently.

— I’ll tell you briefly about how KupiVIP works. In a nutshell, the business model is this. Large brands have inventories. They can sell these remaining inventory, but it needs to be done beautifully. For this purpose, closed clubs are organized, in this case online, where these inventory balances are offered within a limited time period, usually within 1-2 days, at a significant discount. It turns out that through typical marketing efforts of limiting access and time, a club is formed. People receive these offers, feel like they've saved, that they're chosen, that they've gotten the brand they want. Right?

- Yes, I think it’s impossible to describe it better. A girl in KupiVIP can afford much more.

— Girls are the main contingent, right?

- Certainly. This is true not only in shopping clubs. The entire fashion industry is based on women's demand; men do not play a big role there.

—About 80% of them?

- More. Girls buy for themselves, for children, and for men, and men buy exclusively for themselves.

— Which brands by group are in demand today?

— All Italian brands come first. Russian consumers really love everything that comes from Italy. French brands come in second place, followed by German ones. Russian designers are also very popular, but they are loved by a narrower category of people, individualists who want to get rare things. If we talk about groups, the most popular products are dresses, followed by shoes. The brands, of course, are the most popular - these are the TOP 50 that everyone knows. In Russia, consumers are still ready to experiment.

— While browsing the site, we discovered the Smesharikov brand. Between Baldinini and Spalding it looks nice.

— We have a large children's segment. All housewives and “ideal” mothers are a large segment, therefore, products for children are very important.

— Now there will be KupiVIP in numbers. We have prepared a short information about the company.

Today, the KupiVIP.ru holding employs more than 1,000 full-time employees. The market share occupied by the company among all shopping clubs is 62%. Over 100 servers are used to ensure the service operates. The website traffic of the company KupiVIP.ru is 15 million visits per month. 500,000 unique visitors per day. The average time spent on the site is about 6 minutes. The average number of pages viewed on the site is 10 pages per visit.

— It turns out that the big company was a success?

“A person always sets limits for himself. When I was in school, the most I could imagine was that I would earn €10,000 a month, and that was the limit of what you could achieve in life. I didn't even think about hiring people. After my MBA, I realized that I used to think too small. I decided that I would build a large company. For me, a large company was a company with a turnover of $100 million. Of course, we have already achieved this. What I wanted to do already exists today. Now I need to rethink everything. When I created KupiVIP, I was thinking too small. I didn't expect to have the chance to build a market leader. I still set limits for myself. It’s good when you pass these restrictions and realize that you put them in vain.

— What numbers are you putting in now? Now you have 1000 employees, more than $100 million in turnover per year, but what will happen in 2015?

— I think that in Russia there will be at least 5 e-commerce companies that will make a turnover of more than $1 billion. KupiVIP will be one of them.

— As far as I know, KupiVIP is operationally and investment profitable?

“It’s as profitable as we want it to be.” We invest a lot in development, reinvesting everything we can. We move around the point where it doesn’t really hurt us to exist.

— What is the structure of the company today? What are the main divisions?

— The first division is the shopping clubs KupiLuxe, KupiVIP, Odnoklassniki. The second division is e-commerce as a service, where we open online stores for brands. Brands started asking us very early on to open online stores for them because they saw that we could do it. They had a desire to have an online store, but they didn't want to do anything other than products and marketing. We took care of everything else. To date, we have opened 13 online stores for brands. We are invisible, we stand behind the scenes, but we operate the store.

— Outwardly, it looks as if the store has nothing to do with you?

- Yes, sure. We do everything according to the brand's requirements. We program the store, fill it, take photographs, descriptions, and manage it. We take care of all warehousing of goods, delivery, processing of returns, call-center and other features of online stores. At the same time, the brand has its own online store, it belongs to the brand. This is also a business model that works all over the world. Nowhere in the world do brands create online stores themselves. Brands use the services of companies that have all the infrastructure.

KupiVIP has all the infrastructure - warehouse, delivery. We deliver 80% of all orders in Russia ourselves. We have a large call-center with 500 jobs. It is not profitable for a brand to create this entire infrastructure on its own, and they prefer to leave all online store operations in the hands of experts. When there is a mono-brand, the key success factor for it is product and marketing, and we do the rest.

— What does the KupiVIP website itself consist of? Is there a technical development division, a marketing division, etc.?

— We have three business areas: shopping clubs, e-commerce as a service and our own online store ShopTime.ru, where we sell the same products, but at full price, new collections are sold there. These three areas have great differences, but they also have something in common. Everything else is pretty standard. There is a commercial department, marketing, HR, finance, accounting, analytics. All departments are standard, there is a call-center, digital production, warehouse operations, delivery, internal and external logistics. Here we are no different from any e-commerce company like Amazon or anyone else.

— By the way, regarding marketing. You need to understand that your marketing activity is related to the latest investments? I saw that at Domodedovo airport, your leaflets are in paper pads for clothes that are handed over for candling on special units.

— Yes, we were the first to brand locker boxes. I love to be first. It costs quite a bit, but if you remember it, it's effective.

— How does discount pricing work? How do you negotiate with companies? Who offers the discount amount?

— We work with each brand individually. If we take this winter, then November was warm, December was very warm, winter began only on January 15th. All fashion market players ordered a winter collection in the spring of 2011, respectively, they did not know that there would be a warm winter, and they ordered a completely different volume. Sales in November-December were very low, 40-50% less than last year. Nobody could have predicted this. In any best year, any fashion player sells a maximum of 60-70% of the goods before sales, and then sales begin, and then he has some goods left. If we talk about the winter of this year, then at the end of December all the players began to understand that they would only have 25-30% of the goods before sales, and they clearly understand that if they cannot return the working capital from this product in order to purchase goods at next season, their business will be at risk. At this moment they order 2-3 shares on KupiVIP. The most important purpose of these shares is to return money to working capital. Then there is no longer any question of markup. Sellers are ready to create an offer that will help them move the maximum volume of goods into the market with maximum brand protection.

— Do you form pricing together or do they do it?

- We are together. We have many protection tools. We will never launch a promotion before we are 100% sure that what we are offering is a very attractive offer. Since we bear all the costs of creating a promotion, we must be sure that the promotion will be very large. This is free for the supplier. If we talk about the recommended retail price, then we have 20-30% of all promotions - this is the current season, this is what is currently on sale in the store, and we give a 40-60% discount. If it is the end of the season, then a 50-70% discount is given. If this is last season, then a 70-90% discount is given. Here pricing occurs, free of the cost of goods. This is about maximizing your money back. Everything else fades into the background. Pricing occurs in different ways. Sometimes we first do one promotion, then a second one with even lower prices if the goods remain. We have an entire structure within the company that is solely responsible for the attractiveness of each stock. It’s easy for us to negotiate because we have 8.5 million women behind us. If I come to a supplier and there are 8.5 million people behind me, then the supplier receives an additional advertising effect. If you buy a share as a media value, it will cost at least $20,000, but of course we do it for free. We will make money only if there is turnover. The third motivator is the information brands receive.

— KupiVIP is also interesting because it has received one of the largest investments in RuNet. If I'm not mistaken, $86 million. Do you know how to work with investments, what do you think?

— I really value money and investments. I understand perfectly well that everyone who supported KupiVIP must achieve their goal. They made investments for a reason, they also want to increase their money. My goal is for all KupiVIP investors to make money. This is the basic principle by which I operate. All the first investors of KupiVIP have already earned money.

— How do you see the future of such closed clubs in the future? Aren't you afraid that strong Western players will come, for example Brands 4 Friends from Germany - your second homeland? How will you deal with this?

“We’ll fight whoever comes.” Large groups have already come, for example OTTO, the co-owners of Mail.ru created a shopping club. Over the past three years, we have had 30-odd competitors, of which about 12 are currently operating. Let them come, competition is good. I'm more concerned about us achieving our plans. For me this is the most important thing. I don't think there is much room in Russia for such big players. There will be a lot of competition in the “Full Price” segment, in the segment of online stores of clothing, shoes and accessories. There will be very interesting developments there in the next 5 years.

— Do you yourself intend to remain in the management of the company? When will you meet on the Board of Directors?

- I will not move to any other status at all. I am now in the place where I want to be. I was already an investor, I tried everything, and I decided for myself that what I love is operational activities. I will do what I do now in the same form. I don't plan to change anything.

“The fastest way to create value is to shift your business model.”