Diving Into the Red Ocean. How to Break the Rules of Retail and Come Out on Top

And as Andrey reflected on it, a vision of his dream store became clearer. On the one hand, natural products with short shelf lives; on the other hand, producers with organized systems of quality control and certificates of compliance, rather than farmers simply with notes from their veterinarians. And there would be no contact between the vendor and the final product.

THE NICHE THAT ANDREY DISCOVERED WAS OF NO INTEREST TO THE BIG CHAINS. FOR THOSE CLUMSY GIANTS, THE SECTOR WAS FAR TOO COMPLEX AND WAY TOO SMALL TO WORRY ABOUT.

Right on cue, Andrey was reading W. Chan Kim and Renée Mauborgne's book, Blue Ocean Shift[1 - W. Chan Kim and Renée Mauborgne.Blue Ocean Shift: Beyond Competing – Proven Steps to Inspire Confidence and Seize New Growth (New York: Hachette Books, 2017).], which became the lodestar for the company that would become Izbyonka. Andrey embraced the concept that the best way to win in a competitive fight is not to get involved in the first place. The company's strategy should be oriented on the client rather than the competition. This would allow the company to focus on innovation and do anything it cared to without looking over its shoulder.

At first glance, the retail grocery business is a classic "red ocean," where big chains can easily crush any retail start-up. But the niche that Andrey discovered was of no interest to the big chains. For those clumsy giants, it was far too complex and way too small to worry about.

Andrey summarizes: "After looking at these facts, I understood that there was an idea to work on. And after that, there was only one thing left to do: get stuck in."

RULE 2

Doing and analyzing is more important than analyzing and not doing anything.

First, Andrey began by recruiting employees who shared his approach to business. At the outset, it was essential to find someone with an excellent grasp of the dairy production process who was also a seasoned retail specialist. Andrey, the financier, confesses he was ill-informed about these aspects of the business.

"People often ask me what they need to start a business," Andrey explains with a helpless shrug, "… and I think that the key thing is to find people who understand at least something about that specific business. I did not have any clue about the inner workings of the dairy industry. All I knew was that the milk from the market was much better than from the store. But as for a cash register, or how to work with one? I had no idea."

Andrey searched for employees on a free job vacancy site; that is how he found Dmitry (Dima) Kozyrev, a dairy production technician, and Evgeny Semery, a retail manager. Though Andrey could pay only a minimal salary of about 20,000 rubles, he convinced the two men that the venture would become prosperous and would soon see a sharp rise in turnover. Semery did not last long – later, in an interview, Andrey explained that they "just did not get on in ideological grounds." But Dmitry remained, and today he is one of VkusVill's most successful and productive technicians.

From the start, Dmitry played a key role in the company, thanks to his expertise in the production process. He could speak in the language of the production line rather than using layman's terms, such as "salty," "tasty," "hot," or "sweet". He knew how to treat the product, what to add, and how to improve it, for example, by removing excess moisture or replacing one starter culture with another.

"In 2009, I ran across an ad online for a dairy production technician and rang the number," recalls Dmitry. "A young man answered and introduced himself as Andrey. We met at the food court of the Molodyozhnaya mall. He said he wanted to start an unusual venture, creating a small retail chain to sell natural dairy products. I found that a very appealing idea, though now I cannot recall why exactly. I suppose that was because this was not going to be a typical Monday to Friday, 9:00 a. m. to 5:00 p. m. routine. It was interesting. The idea of working with natural products did not embarrass me at all: I understood that if we did everything right, it was real. Andrey has an excellent capacity for sincerely engaging people if he believes in something himself. He could do it then, and he's continued to do so throughout the history of our company."

With Dmitry at his side, Andrey went in search of suppliers. They visited almost fifty producers in a radius of 200–300 kilometers from Moscow before they found someone willing to produce milk products for the Izbyonka brand without the general powdered milk, starch, and preservatives.

"They looked at us like we were idiots," Andrey recalls. "We did not have a single store, but we were making as many demands as if we were a large retail chain such as 'Auchan'."

They found their first supplier – SAPK-Moloko – in the tiny village of Zherdevo in the Kaluga Region. It was a small plant that had just opened a new production line and was looking for any possible sales distribution channels. Their products were already available in local stores, but that demand was insufficient.

Andrey and Dmitry convinced the director to accept a delayed payment, thus, clinching their first supplier. On 12 May 2009, the first Izbyonka location opened.

They started with minimal expenses. Renting 5 square meters at the Troitsky mall in Strogino cost only 16,000 rubles a month, and a commercial refrigerator cost them 20,000 rubles. They made the sign themselves in the back lot of the Tushinsky market. They shelved any thoughts about proper marketing: the primary goal was to get started. Andrey and Dmitry traded shifts transporting the product from the plant to the mall.

"You wake up at three in the morning, drive to the plant in Kaluga, stuff the car with a product, then unload it at nine in Moscow," recalls Dmitry, reminiscing about those early days. "Andrey took two shifts delivering the product, and I took two shifts. Of course, we were not following the established rules: we were not adhering to storage regulations; we wrapped the product up in blankets to make something that looked like a refrigerator. After a month and a half of this, we realized it was time to look for someone with a proper vehicle."

The initial stage of a business is an ideal time to go slightly off-piste (within reasonable limits) and bend the rules a little, while avoiding any penalties or fines. As far as the authorities and regulators are concerned, your company does not exist yet; the few clients you have are not highly active. For a start-up, each day can easily be its last. Bending the rules at this stage is a necessary evil, but only insofar as this "illegal" period enables you to finetune your business processes and hone them until they are functional, efficient, and legal.

Over three months, Andrey opened two more Izbyonka locations, and created an intuitive software program to automate product ordering, oriented to the volume of sales from the previous period, so that each day the program became "smarter."

But success still eluded them. For nearly four months, each of the three locations had been losing money, and none of them enjoyed heavy customer traffic. The initial start-up capital of a million rubles was running out.

It was time to start Plan B.

"At first," recalls Andrey, "I opened four locations. However, the first three Izbyonkas proved this was not the right thing to do. I was ready to end this project and look for a new, more promising niche. But I did not have any new business ideas, so I opened the fourth location – to at least fulfill my initial plan."

If it was not for that one decision, nothing would have come about: no VkusVill, no producers doing well because of VkusVill, and no book…

The fourth store opened in a new location. Before this, Andrey had intuitively chosen available space at farmers' markets, counting on the considerable traffic from the market's customers. But the final experimental location was in a shopping mall, close to a Billa supermarket in Mitino (a large suburb of Moscow).

The experiment was a slam dunk, and Izbyonka found its target audience. The suburb – Mitino – was a young district with a lot of young families with small children. For them, high-quality dairy products are a priority when shopping for groceries. It turned out that foot traffic in a shopping mall suited Izbyonka far better than the farmers' markets.

The first day in the shopping mall showed Andrey and his team that it was far too early to admit defeat. Izbyonka's refrigerators were empty by lunchtime. News of a new and innovative dairy shop with domestic products spread like wildfire, simply by word of mouth. And on that day, we grasped the immense power of the grapevine.

We modeled each successive Izbyonka on the Mitino experience. Being focused on young mothers with children, we were "squatting" near major supermarkets by offering a dramatically different product from the large chains. We abandoned the idea of farmers' markets and everything that was excessively local.

"I learned an important lesson from Izbyonka's identity crisis," says Andrey. "When you try to offer a brand-new product or service, it is important to try all kinds of different tactics and options. Your vision may very well differ from your customers' needs and desires. And never judge the success or failure of a project just on one attempt. Opening a business is a process of experimentation and adjustment to the situation. Often something that seemed to flop at the start ends up being the winning formula for your success."

RULE 3

Hire people who you find interesting and feel comfortable with, especially at the beginning.

By the start of 2010, Izbyonka was safely off life support. Its retail locations began to pay off, and the company took its first tentative steps. It was still a start-up, affected heavily by the world around it, but – borrowing yet another medical term – we observed an improvement in the patient's condition.

That is when the key employees appeared at the company, the ones who remain at its core: Alena Nesiforova, Renata Yurash, Tatyana Berestovaya, Evgeny Kurvyakov, Maksim Fedorov, and others.

The company now lives by the rules of a unified, well-functioning organism: perhaps not an ideal one, but certainly a harmonious one. In a perfect organism, all the organs work flawlessly, as if in a laboratory. Entire systems can fail in a coherent one, but the organism will turn on its immune system's defense mechanism to fix them.

Meanwhile, the concept of "us" is developing; an important phenomenon in terms of a healthy corporate culture.

Henceforth I will use "we" to mean our collective hive mind, although I can anticipate many questions from readers: "Who are 'we'? What do you mean, 'we decided'?"

Honestly, we do not have a standard answer to these questions. At some point, it became difficult to determine who produced an idea and who developed it into a working concept, or who first questioned the viability of an idea, or the person who caught the whiff of a mood, then set a rule and was the first to follow that rule. We became such integral parts of each other that, over time, distinguishing the "I" became meaningless.

Today, if you look at the way we assembled the puzzle pieces of the small but ambitious Izbyonka team, you might conclude that it was merely dumb luck, because some coincidences are otherwise impossible to explain.

Now, Alexey Ilyichev owns a medium-sized transport company that provides delivery services for Izbyonka and VkusVill. His success story amazes and defies any logical explanation.

"I live in the Tushino district, near the mall, where the second Izbyonka opened. Once, my wife asked me to buy sour cream. She told me to look in the dairy stall there. I did not find a single dairy stall and bought sour cream elsewhere. Later, my wife brought me to Izbyonka and told me to mark it as the place she wants me to buy all our dairy from. I recall a salesperson and a young man running around with boxes, and later I realized that the young man was Andrey Krivenko and Nadezhda Spirova was the salesclerk."

Ilyichev continues: "I had already been working for myself for a long time in the (private) transportation business. Out of curiosity, I asked Andrey what trucks they drove. He answered that they were just getting started and driving products around by themselves but were looking for someone to take the job on. I gave him my phone number, and ten days later, Andrey called me back. We met at the warehouse, and he showed me products and said: 'Here is the milk, and here is the kefir.' I answered: 'Right, but what is next?' Andrey said, with a surprise: 'What do you mean, what is next? Take it, drive it, unload it.' I did not even show him my passport!"

Alexey recalls the early days, "I could not believe that Andrey just handed me the keys to his warehouse full of product! It was fun back then. Such enthusiasm! Of course, I knew from the beginning that I would not be the only driver for long, and that is what exactly happened. After we opened the sixth outlet, the question of a second vehicle came up. But Andrey stepped away from solving transportation questions from the very beginning, so I handled everything." The next story is about Alena Nesiforova, who worked as a market researcher for DuPont. Nevertheless, she swapped her business trips to Paris and Barcelona for work trips to Kaluga and Ryazan after deciding to work for Izbyonka:

"I studied at the Moscow State Linguistic University, the best linguistic university in the country, and at one point tried my hand at tutoring. I posted an advert on a website, and the first call came from Alena Krivenko (Andrey's wife). She had a lot on her plate, not a lot of time, and a need for English. I was the perfect choice, as I lived right across the street from her son's kindergarten. We started working together and understood that English was not the only thing that we had in common. We talked a lot about life. A couple of years after we met, Alena told me that her husband Andrey was planning to launch Izbyonka and suggested that I give it a shot. I agreed it was a significant risk – I was leaving a large, stable company to jump into the unknown. When I look back on it now, it seems like such an adventure!"

Nadezhda Spirova was one of the company's first salesclerks. She came to Izbyonka in June 2009 and is still working today. She has happy memories of those early days.

"In 2009, I moved to Moscow and worked at Kroshka Kartoshka[2 - Fast food chain serving baked potatoes that is popular in Russia.] for a few months. Then my sister saw an advert in the newspaper for sales staff at Izbyonka and suggested that I go for an interview. The company still did not have an office – I met with Andrey Krivenko and Dima Kozyrev in a café. I liked everything. Andrey told me to come to look at the location on Friday, and on that Saturday, I started work and have been there ever since. In 2016, I transferred to VkusVill.

Nadezhda recalls the early sales tactics of the first Izbyonkas: "We grabbed people and persuaded them to try something. As soon as a person opened his mouth, you shoved a spoon full of cottage cheese[3 - Cottage cheese, or "творог" (tvorog in Russian), is a type of soft cheese like quark or curd, made by warming soured milk. It is white and unaged, and usually has no added salt. It is traditionally used in the cuisines of Baltic, Germanic, and Slavic-speaking countries.] in, and while he chewed, you told him who you were and why he should buy dairy products from you. We, the first salespeople, were like the Three Stooges rolled into one. We were not afraid of being funny, and we deeply believed in the products we were selling."

There are dozens of these kinds of stories. These people, our priceless employees, were the ones who created this company. They erected this fortress, brick by brick. And they did this not because they were paid phenomenal money, or because they were being threatened with fines and punishments, or even because they were consummate professionals. It was just because each of them was first and foremost a human being, and only after that a market researcher, clerk, or analyst. Each of them created their world and did so sincerely. These people just cared.

WE, THE FIRST SALESPEOPLE, WERE LIKE THE THREE STOOGES ROLLED INTO ONE. WE WERE NOT AFRAID OF BEING FUNNY, AND WE DEEPLY BELIEVED IN THE PRODUCTS WE WERE SELLING.

And when someone asks at another conference: "What HR strategies did you use to create your team while launching your business?", we just want to walk up to that person, hug them, and wipe all those HR strategies out of their head. Life, intuition, and engagement are so much more effective than any HR strategy out there.

RULE 4