“Why is it (3G and 4G technology – editorial team) still not introduced? The answer is simple: corruption. But I am convinced that 4G is not just a communication technology. This is the impetus for economy, which fills budget, reforms public procurement and so on,” President Poroshenko stated in the summer of 2014. There was no 3G in Ukraine yet.

The head of state himself launched the introduction of 4G a year after this announcement. In late July 2015, he signed the decree by which he requested the National Commission for the State Regulation of Communications and Informatization to develop a plan for the introduction of the fourth generation of mobile communication.

4G/3G/GSM World Coverage map. Source: WTZ

In the case of 3G, the difficulty was that the military used the fraction of frequencies appropriate for this standard. It was necessary to conduct a conversion to clear the required bands. In view of this, there were delays in the launch of 3G in such regional centers as Zhytomyr, where the third-generation communication appeared only in July 2017.

In the case of frequencies for 4G, the suitable bands were unevenly distributed between military, analogue television and current operators. The working group of 7 operators (Kyivstar, Vodafone, lifecell, International Telecommunications, Datagroup, Intellectual Communications (Giraffe) and First Investment Union) invited Analysys Mason (Britain) in order to make head or tail of Ukrainian radio frequency spectrum.

The most popular band for LTE is 1800 MHz. In Ukraine, the Big Three operators – Kyivstar, Vodafone Ukraine and lifecell – use these frequencies for GSM mobile communication, GPRS and EDGE voice and mobile traffic. At the same time, the frequencies are unevenly distributed between the operators. More than half of the spectrum in these bands was controlled by Kyivstar due to Beeline and Golden Telecom takeover. However, according to the provisions of the effective Law “On Telecommunications”, the largest operator could not just set 4G on these frequencies. For this purpose, it would be necessary to obtain an appropriate license.

One way to redistribute the spectrum between the telecommunication competitors and enable them to launch LTE on it was to amend the legislation. In August 2016, the Verkhovna Rada submitted a new draft law “On Radio Frequency Resource”. Among other things, it was intended for introduction of technological neutrality. It is the principle, pursuant to which operators can use their frequencies for the communication standard regardless of what is stated in the license. “If we do not adopt these draft laws, then we will create a setback in the introduction of 4G in Ukraine at least for a year and a half,” Oleksandr Danchenko, head of the Verkhovna Rada Committee on Informatization and IT, said in the interview with AIN.UA.

But things, as often happens, didn’t go as planned. The draft law of Danchenko eventually went no further than the relevant committee and was first withdrawn, then introduced again. The last record on its status is dated May 16, 2017.

Frequencies in the morning, money in the evening

The mobile operators, to whom the emergence of 3G gave a serious impetus to development, decided not to idle their time away. At the end of September 2016, it became known that the Big Three independently intends to make an arrangement and redistribute the available frequencies among themselves.

However, the state regulation could not be dispensed with in this matter. Even in case of a successful exchange, the operators could not launch the standard in 1800 MHz band as the license did not allow it. They would have either to wait for the adoption of a new law on RFR stuck in the Rada or to transfer the frequencies to the state represented by the National Commission for the State Regulation of Communications and Informatization and obtain new 4G licenses for these frequencies.

Nevertheless, the Big Three was not the first to take this step. In November 2016, another operator joined the game. This operator is hardly known to an ordinary Ukrainian. MMDS Ukraine, owned by SCM of Rinat Akhmetov, had a license for frequencies in 2600 MHz band.

These are not such popular frequencies for LTE in the world. In addition, the base stations in this band have a three times smaller radius of action. Therefore, Ukrainian mobile operators are likely to use frequencies as auxiliary ones and only in large cities like Kyiv, Dnipro, Odesa.

Akhmetov’s company agreed to return 80 MHz band to the state, but not gratuitously. In exchange for taking such a step, the company will receive up to 25% (UAH 572 million) compensation for the 2600 MHz band licenses fee. The compensation is equal to 2.288 billion UAH. Such compensation will give a good earning to Akhmetov’s business. The amount of compensation is 147 times higher than the one MMDS Ukraine paid for using frequencies that would eventually return to the state, wrote Economic Truth. The 80 MHz band costed the oligarch’s company only 3.4 million UAH from 2010 onwards.

At the same time, according to Economic Truth, Akhmetov’s company had only 8,000 clients and was present only in 13 regions, while the license covered the whole country. The situation looks as if MMDS Ukraine was just waiting for the frequencies to be needed for a real deployment of 4G in order to earn compensation.

It remained unclear until the summer of 2017 whether such a model would work or not. Part of the reason for this was the disagreement between the Ministry of Justice, which was supposed to approve the terms of the tender, and the National Commission for the State Regulation of Communications and Informatization, which developed these terms.

In the meantime, in March 2017, the Big Three also agreed to transfer to the state the frequencies in 1800 MHz band (total 2х75 MHz). “This is not a simple decision for us. In fact, we are
a “donor”, since we own the largest number of frequencies in 1800 MHz band, which are obtained transparently and legally,” Peter Chernyshov, head of Kyivstar, said then. The National Commission for the State Regulation of Communications and Informatization assigned to the operators the right of the first repurchase of a part of the frequencies (2×60 MHz) – this very condition became the object of criticism of the Ministry of Justice. The remaining 2×15 MHz were to be put up for an open tender.

In August 2017, the Cabinet of Ministers has finally approved all necessary documents for the holding of an auction. The Ministry of Justice signed the 4G tender procedure in September. The telecom-regulator promised to take tenders until the end of the year.

The cherished news about the tender date appeared in early November last year. As planned, the first tender deals with frequencies in the 2500-2700 MHz band and MMDS Ukraine provided the availability of these frequencies. From November 13 to December 22, the National Commission for the State Regulation of Communications and Informatization opened the reception of proposals from the operators and revealed them on January 26.

The date of the main tender for frequencies in the 1710-1785 MHz and 1805-1880 MHz bands was set at the meeting on December 21. The reveal of the operators’ proposals was set for the end of February and the bids for the cherished frequencies themselves were set for early March.

How much 4G costs

2600 MHz band

Public servants of the Cabinet of Ministers and other high officials have repeatedly stated that the sale of licenses for a new standard of communication will not only improve the quality of the Internet access, but also fill the treasury up. As stated by Stepan Kubiv, Deputy Prime Minister, the state should receive from tenders at least 6.3 billion UAH.

As for the licenses for the frequencies in 2600 MHz band, the initial price offers of Kyivstar, Vodafone Ukraine and lifecell were announced on January 26.

There are seven positions put out to the tender:

• Item No. 1 (20 MHz): frequencies 2540-2545, 2565-2570/2660-2665, 2685-2690 MHz
• Item No. 2 (10 MHz): frequencies of 2535-2540 / 2655-2660 MHz
• Item No. 3 (10 MHz): 2530-2535/2650-2655 MHz
• Item No. 4 (10 MHz): 2525-2530/2645-2650 MHz
• Item No. 5 (10 MHz): 2520-2525/2640-2645 MHz
• Item No. 6 (10 MHz): 2510-2515/2630-2635 MHz
• Item No. 7 (10 MHz): 2515-2520/2635-2640 MHz

Vodafone offered the most for the first item – UAH 572 million. Kyivstar plans to buy out the next three at a price of UAH 293 million each. Lifecell intends to purchase the items No. 5, No. 6 and No. 7, having estimated these frequency band sections in UAH 286 million each.

MMDS Ukraine will be the first one to certainly make a pretty penny out of the tender. According to the terms of the tender, their compensation, which according to the Conversion Plan should not exceed 25% of the cost of the license (573 million UAH), was slightly reduced by the National Commission for the State Regulation of Communications and Informatization to 500,092,180 UAH.

Based on the pricing offers, the state will receive a minimum of 2.309 billion UAH.

Operators will pay a minimum of 2.809092 billion UAH for the licenses and conversion of frequencies.

How much each individual operator will pay is contingent on the outcome of the trading by voice. If there are no surprises and the Big Three participants will receive those lots for which they offered the maximum value, the payments will be distributed as follows:

• Kyivstar offered 293 million for each of the items No. 2,3,4. The cost of conversion will be 62,511,523 UAH each. In total, the operator will have to pay a minimum of 1,660,534,569 UAH.
• Vodafone Ukraine offered UAH 572 million UAH for the item No. 1. The cost of conversion is 125,23,046 UAH. In total, the operator will pay at least 697,023,046 UAH.
• Lifecell offered 286 million UAH for each of the lots No. 5, 6, 7. The cost of conversion is 62,511,523 UAH each. In total, the operator will pay a minimum of 1,450,534,569 UAH.

In theory, the operators’ proposals can grow during the trading by voice and they will have to pay more. What happens in practice will be known on January 31.

1800 MHz band

There definitely will be competition between the Big Three during the tender for the 1800 MHz band licenses, as the main LTE coverage will be deployed in this band.

According to the terms of the tender, the following 6 items will be put out:

• Item No. 1 (30 MHz): 1710-1725/1805-1820 MHz (lifecell)
• Item No. 2 (50 MHz): 1725-1750/1820-1845 MHz (Kyivstar)
• Item No. 3 (40 MHz): 1750-1770/1845-1865 MHz (Vodafone Ukraine)
• Item No. 4 (10 MHz): 1770-1775/1865-1870 MHz
• Item No. 5 (10 MHz): 1780-1785/1875-1880 MHz
• Item No. 6 (10 MHz): 1775-1780/1870-1875 MHz

The first three will be reserved for the specific operators so that they can support the operation of the GSM network. Kyivstar, Vodafone Ukraine and lifecell will be able to repurchase at the starting price the part of the spectrum assigned for them. Item No. 1 (30 MHz) will go to lifecell for 795 million UAH, item No. 2 (50 MHz) – to Kyivstar for 1.325 billion UAH, item No. 3 (40 MHz) – to Vodafone Ukraine for 1.060 billion UAH.

The starting price of the last three items of 10 MHz is 265 million UAH each. The operators wanted the National Commission for the State Regulation of Communications and Informatization to arrange additional items along with their main bands. So, they would form a continuous band of the spectrum, which is necessary for the deployment of 4G. Well, then each of the Big Three would take its item and the trades would become a formality. In this case, the state would receive about 4 billion UAH for the licenses.

But the regulator “cut” the frequencies in such a way as to create a situation where a hypothetical fourth player might appear in the competition. Theoretically, this player could buy items No. 4-6 and get a continuous band equivalent to the one owned by lifecell. The telecom market experts interviewed by Liga.net do not believe in the appearance of the fourth player since it would have had to build infrastructure from the ground up to billions of hryvnias. However, such an approach of the National Commission for the State Regulation of Communications and Informatization will force Kyivstar, Vodafone Ukraine and lifecell to compete for a tender for an additional segment of the spectrum closely situated to their main band.

Without a consideration of how the prices of additional items will grow over the course of trading in early March, the state will make 3.975 billion UAH.

If the tender run true to form, and Kyivstar, Vodafone Ukraine and lifecell receive each of the assigned items plus one of the three additional ones, then Kyivstar, as the largest “donor” of frequencies, will receive compensation from its two market colleagues. Vodafone Ukraine will have to pay a competitor 25,453,073.66 UAH, and lifecell – 82,117,244.25 UAH. In aggregate Kyivstar will receive the compensation of 107,570,317.91 UAH.

Consequently, each of the operators will pay in the tender for frequencies in 1800 MHz band such a minimum amount:

• Kyivstar –1,482,570,317.91 UAH (taking into account the compensations from other operators);
• Vodafone Ukraine –1,350,453,073.66 UAH (taking into account the compensation payments to Kyivstar);
• Lifecell –1,142,117,244.25 UAH (taking into account the compensation payments to Kyivstar);

The check, please

If you sum up all the payments, then the state, without taking into account the possible increase in rates during the trades, will gain from the sale of licenses: 6.284 billion UAH.

• MMDS Ukraine, the final beneficiary of which is Rinat Akhmetov, will receive 500,092,180 UAH.
• Kyivstar will pay for the 4G licenses and conversion at least 3,147,07,569 UAH.
• Vodafone Ukraine will receive a check for at least 2,470,068,346 UAH.
• Lifecell will pay at least 2,187,651,569 UAH.

For comparison, almost three years ago lifecell (Astelit at that time) paid 3 billion 355 million 400,000 UAH for the 3G license, Vodafone Ukraine (MTS Ukraine at that time) – 2 billion 715 million, Kyivstar –2 billion 700 million UAH. In addition, all three operators also paid 1.6 billion UAH for the conversion of the military frequency. 10.5 billion UAH in total.

The creation of Nova Poshta in 2001 was not preceded by serious market research and traditional business procedures: its founders Vladimir Popereshnyuk and Vyacheslav Klimov had practically no entrepreneurial experience. Nevertheless, they had a desire to meet the client’s needs – to manage his/her understandable, but not yet solved “pain”.

It started with the banal transportation of goods: Vladimir’s family was engaged in the production of confectionery, and the work of the future Nova Poshta partners was to transport sweets from one city to another. At that time, the company competed not with other express deliveries (there weren’t any competitors on the Ukrainian market), but with train conductors and intercity Ikarus bus drivers.

Contrary to the obvious guesswork, the company did not try to compete with Ukrposhta. “Ukrposhta has never been a benchmark for us,” comments Klimov. “The only common thing we have is the word “poshta”. We focused on fast service and high-quality delivery. Therefore, we did not pay attention to them.”

Vyacheslav Klimov

In Ukrposhta AIN.UA was told that they really work with a wider audience. “We provide services to residents of all localities, while our competitors are concentrated in large and medium-sized cities. The cost of sending by Ukrposhta is 30-40% lower than by other postal and logistics companies. Our main competitors are concentrated on the premium segment of express delivery – the next day delivery, but not everyone needs the next day delivery at a high price,” assures Igor Smelyansky, Acting Director General of Ukrposhta. “Nowadays, the main trend is the growth of the e-commerce market. So, with an ever-growing volume, all domestic players of postal and logistics services market will have enough space.”

A little later, Popereshnyuk and Klimov became interested in the indicators of the express delivery market in the US and Europe and realized that in Ukraine this niche is absolutely free, and demand – though it is unconscious – is enormous. Initially, Nova Poshta invested $7,000 (at that time – UAH 15,000-20,000), and, according to Klimov, these were the only money raised to the company from outside (by the way, this was also the savings of the founders’ families)

First problems

Today Nova Poshta has more than 2,300 offices and 23,000 employees (for comparison, Ukrposhta has 11,500 offices and 73,000 employees). Hardly anyone would think that the first NP orders were delivered by partisan methods and often were even unprofitable. The company made a commitment to deliver in 24 hours, which sometimes led to sending a courier to another city by train or hiring trucks for bulky cargo.

Four months after the startup, the company got the first large customer – there was submitted an order for the return of 200 kg of wooden packaging from the smoked fish from the Kyiv pre-trial detention center.

A few years later, Popereshnyuk and Klimov entered the International Business Institute, where they got acquainted with the marketing director of the Mobilochka chain. For a long time the company has become one of the largest customers of Nova Poshta.

The same customer caused the first serious challenges in logistics. For example, at some point the management of Mobilochka demanded to deliver goods to any point in Ukraine before noon. At first, the task seemed impossible, but without such clients, according to Klimov, business could not develop.

Considering that the company has been increasing 30-50% annually over the last 7 years, they have withstood the challenge of Mobilochka. “According to the classics of management, a growth of over 20% for 12 months is a mega stress for the company, we have been working for a long time at the limit of infrastructure. Of course, the system can malfunction from time to time,” explains Klimov, when we ask why there are so many complaints about the service under each post on the pages of the company.

“We set a very high level of expectations. Whereas previously it was enough for a client to guarantee the delivery and the possibility of cargo tracking, now, in addition to delivery, consumers want a lot of additional services: online services for managing a parcel, delivery outside Ukraine, same day delivery, etc.,” adds Vladimir Popereshnyuk.

The company monitors not only the metrics for service quality, but also shares it in open access. “We regularly publish quality indicators on the website of the company. The latest data are as follows:

We also regularly measure the SSI (Service Satisfaction Index) and NPS (Net Promoter Score). Now these indicators are 8 out of 9 (SSI) and 63% (NPS).” NPS data was provided by UMG agency, the study was conducted on request of NP.

In the press service of the postal and logistics operator Meest Express, one of the NP competitors, we were told that practically the same indicators guide them: cargo damage – no more than 0.05%, cargo losses – about 0.01% and on-time delivery – up to 98%. The company declined to comment how many parcels were delivered by Meest Express in 2016.

Nova Poshta in figures

One of the key decisions having influenced the development of the company is considered to be the creation of the service offices network. “Back then, our colleagues on the market were ironic towards this. They believed that it was enough to open a warehouse at the entrance to the city,” remembers Popereshnyuk. “Nowadays there are about 200 offices in Kyiv. Sometimes, from the window of one office the sign of the other can be seen.” The partners explain that it was done on purpose: if offices are within easy walking distance, delivery will stop being a stress for а client.

The founders of the company tell: for the first ten years they were the main force of strategic decisions, but now the vector is shifting towards management.

“We are still ideologists, authors of many market and technological ideas. This is as it should be. The history of the world’s successful businesses proves it,” explains the state of affairs Klimov, “No matter how competent a manager is, you need someone who can generate even an absurd idea and be its driver.”

Today, many large-scale changes in the company occur without deep involvement of the founders. “The mobile application project was implemented exclusively by management, the creation of the National Terminal is entirely the idea of our directors and their teams,” lists Popereshnyuk, noting that the National Terminal is the largest investment in the history of the company.

“At the same time, we, as concerned owners, can get involved in making solutions that, at first glance, seem very tactical. For example, we participated in the selection of design jackets for drivers. It seems that this is a tactic, but this is a great decision and we want to participate in it,” boasts Klimov.

Crisis and rebranding

In 2005, Nova Posta felt the consequences of a real competition – several companies dealing with express delivery entered the market. Perhaps Mist Express was the most noticeable. They had foreign investment and Western technology.

It became more difficult to fight not only for customers, but also for own employees. Klimov admits (however, without naming specific companies): one of the newly-made competitors started offering to the employees of Nova Poshta the salaries 3-4 times higher than their current ones. The management had to invent new methods of encouragement: the drivers were offered piecework pay, which depended on the number of parcels delivered.

The financial crisis of 2008 ruined the turnover of Nova Posta by 30%. But it turned out that you can also benefit from the crisis. While the company’s competitors cut spending on development, Nova Poshta invested in marketing and hiring sales managers. For several months the company stopped earning money, but already in December 2008 it showed growth again.

The crisis was not the only time when the company had to react to damage from outside.

In 2014, due to the annexation of the Crimea and military operations in Donbass, Klimov and Popereshnyuk lost 15% of their business in Ukraine.

However, soon the losses were compensated as the company entered the market of Georgia and Moldova. At the same time, the Humanitarian Mail of Ukraine was launched. The initiative has made it possible to close the demand for the delivery of humanitarian aid to the front-line zone. The company works with more than 150 volunteer organizations. During the whole existence of the program, together with these organizations, it delivered more than 13,000 tons of humanitarian cargo free of charge. The program exists today.

At that time, they conducted a large-scale rebranding – NP acquired a new logo, packaging and other visual identity elements. We trusted the work to be done by the Kyiv branding agency Fedoriv. Andrey Fedoriv, Head of the agency, said, “In May 2014 only visible identity elements were shown at the presentation, the whole rebranding program lasted several years.”

“We started working with NP in the summer of 2013. They addressed to us to get an advertising campaign. We suggested that we postpone this task and first rebrand the company. They had a good product, but the brand did not match,” remembers Andrey Fedoriv. “The owners accepted the offer, but with one condition – they forbade changing the company’s current logo.”

The strategists of Fedoriv conducted research and proposed an idea about the delivery of the future. Klimov and Popereshnyuk liked the idea and approved it right at the meeting. The only hitch remained with the logo: it depicted a wax seal, which did not match the image of a dynamic company that never sleeps. In the period from May to October 2014, the company completely “changed”.

Fedoriv said that his agency has been working with NP so far. Now there are several projects in work, including those related to communication within the company and further development strategy.

Working with the negative

In the autumn of 2016, Nova Poshta faced a problem: the percentage of complaints about parcels delivery delays and quality of service has increased many-fold. That is around the same time the company launched a delivery service from China. “We faced incredible operational difficulties. These were different cargoes, different customers who did not expect that the delivery of Chinese parcels would be executed by Nova Poshta. In addition, Nova Poshta accustomed clients to the next day deliveries. And our audience was not ready to wait three weeks, even if it was about sending out packages from China,” comments Klimov.

“We, as the executors of the Last mile in Ukraine, could not influence the processes of transportation of goods on the territory of China, it was carried out by SF Express, our local partner,” recalls Liliya Zagrebelnaya, PR-director of Nova Poshta. She says that the problems were also related to the translation of addresses and often they had to call customers in order to clarify the details. It took a lot of time.

The number of requests, multiplied by the size of the company, provoked changes in the work of the remote customer service department. Today responses are received through all channels: in offices, through the site, the contact center, comments or messages in social networks. “All requests are recorded in CRM. The system allows recording the history of communication with each client. Therefore, when we receive calls, an operator already looks through previous conversations. Moreover, since recently, he/she deals with the client’s issue on his/her own – finds out the circumstances of the address, contacts the right people in the company, keeps in touch with the client,” said Liliya Zagrebelnaya, PR-director.

Sometimes, curious incidents take place in call centers, in the company they become its own folklore. One of these stories occurred last year in December. The client wanted to know the status of her package – her daughter’s New Year gift. The girl was curious who her mother was talking to on the phone, and she answered that she was talking to the Snow Maiden about the gift from Grandfather Frost. The daughter snatched the phone from her mother and the contact center operator had to play the role of the Snow Maiden and sing the song.

Innovations

In 2016, the company was on the 1,428 place in the ranking of the top-5000 fastest growing European companies compiled by Inc. magazine.

“Today, Nova Poshta Company is pulling up several related industries, for example, we work with our other client – OLX,” told AIN.UA. Andrei Fedoriv, the marketing expert. “A huge number of e-commerce companies, small and medium-sized businesses in Ukraine also develop because we have good logistics in our country. This is especially noticeable in comparison with projects in other countries, for example, in Kazakhstan or Uzbekistan.”

Ivan Portnoy, Head of the marketplace Prom.ua, also agrees with him. His company unites 720,000 internet entrepreneurs selling 89 million goods and services. 74% of marketplace transactions are made by commercial delivery services, although it is impossible to calculate how many of them were made by Nova Posta.

“For example, in Belarus online stores have to build their own logistics, because in this country there are almost no commercial delivery services and courier services cannot accept payment for purchases instead of store employees. This leads to an increase in the cost of Internet shopping for the end user and hinders the development of the e-commerce market as a whole,” comments Ivan Portnoy, Head of the marketplace Prom.ua. “It is not profitable for small and medium-sized businesses in Ukraine to create their own delivery services and have staff couriers. It’s much more profitable to use logistics services.”

In such conditions, the aspiration of Nova Poshta to introduce innovations is understandable. In this regard, they have role models. For example, Amazon, one of the most prominent players in express delivery, is nowadays called the most innovative company in the world thanks to the introduction of robots in logistics, use of drones, automation of product labeling, online services, etc.

“We still do not shoot our own series, like Amazon Studios does, but we are increasingly looking for solutions to our problems in technology. In early 2018, in area of the Circular road in Kyiv the National Terminal will be launched. The total area of the first stage alone is 15,000 square meters, and, according to preliminary estimations, this will allow processing 600 trucks and sorting over 400,000 barcodes of goods per day,” Popereshnyuk introduces the idea.

After a full launch, the terminal will sort cargo at a speed of 4 m/s, which is the equivalent of 14.4 km/h. For comparison: conventional sorting belt operates at a speed of 0.7 m/s or 2.52 km/h. Later, it is planned to open such sorting centers in another seven Ukrainian cities.

“At the National Terminal “Nova Poshta” there is a scanner, which scans a parcel on six sides. Wherever a barcode is glued, it will be read. If this were done manually, the operation would be 10 times slower. It can be recalculated in minutes or money,” Klimov comments, telling that two divisions are responsible for innovations in Nova Poshta. These are the Department of product development and management and the Department of research & development, in total they employ more than 25 people.

The company did not avoid the administrative digital trends like agile (when the development of new processes is split into small phases) and customer journey (when the full customer journey that is being made when making a purchase or using the service is formed) in the development of new services and products. This was the start of the NP Shopping service, which allows you to order products in online stores in the US and Europe. And if in January of that year, at the launch stage, 5,000 orders were processed, in September their number was already 25,000. In 2016 the company delivered more than 110 million packages, about a quarter of this volume is the deliveries for the customers of the e-commerce segment. Ukrposhta sent 18.5 million parcels the same year.

So far, Nova Poshta cannot boast of total robotization (like Amazon), but the first achievements are already done: for example, National Aviation University has developed for Nova Poshta an unmanned vehicle capable of carrying loads of up to 4 kg. The development of an unmanned vehicle for the large loads transportation (from 500 kg to 1 ton) is in the planning stage.

Innovations also encompass sorting of packages. The system Put to Light operates for international parcels. Earlier the sorter needed to read the marking and only then send cargo further along the chain. Now you just need to scan the parcel, then the system Put to Light turn on signals for the sorters, these signals facilitate the process and eliminate errors in the coordination of the cargos.

If we compare the firsthalf of 2017 with the first half of 2016, the number of operations with goods that NP Logistics carried out has increased by 2.6 times. However, the company notes a market deficiency of space. Today, about 300,000 square meters are used for fulfillment in Ukraine, with the exception of warehouses for food offline retail. The company believes this rate to be insufficient, given the annual e-commerce growth rate of 30-50%. “The vacancy of warehouse space in Ukraine now stands about 10%, while there are very few high-quality A class facilities (these are exactly what are needed for fulfillment),” concluded Lisovets.

Recently, Nova Poshta has entered into a cooperation agreement with DPD Group, the second-largest network for the parcels delivery in Europe. This means that in the coming year more than 2,300 departments of Nova Poshta will be integrated with the DPD network (which is more than 28,000 points across Europe).

Figuratively speaking, parents will be able to send a gift to their daughter from the Nova Poshta department No. 1 in Borispol, and she will receive a parcel at the DPD department No. 375 in Brussels.

Klimov and Popereshnyuk are sure that there are no trends that would not be available to Ukraine. The three main directions for the development of express deliveries in the company are: self-service, 24/7 service and digitalization.

Regarding the first one, the company has already started the development of the packstations network. Self-service zones on the basis of packstations have already been accommodated in 15 offices in Kyiv. The company plans to develop their own network in shopping malls, business centers and supermarkets.

One of the closest competitors of Nova Poshta Company – postal and logistics operator Meest Express – is also actively developing the direction of self-service. In October 2017, the Company launched an order delivery program from Ukrainian online stores – Meest Tochka. The service implies that any store, cafe, hairdressing salon or gas station, which joined the program, can serve as an issue point.

“The main task is to minimize human participation in the process. All actions are performed via the recipient’s smartphone. Meest Tochka operators do not even take part in sending in some cases,” was told AIN.UA in the press service of Meest Express.

Now, 114 participants have joined the project, 51 “points” in a dozen cities of Ukraine have been fully launched. At the first stage, Meest Express plans to attract 1,500 participants across the country.

“In Ukrposhta the advantages of commercial services are considered as the possibility of being more flexible, offering significant discounts and working with foreign private postal operators. Ukrposhta, as a state-owned company, does not have such opportunities yet,” Smelyanskiy summed up.

“Customers want the delivery to be mobile and flexible, so communication will become more digital and more contactless. You can manage the package in the mobile application Nova Poshta and receive it via packstation at any convenient time without the help of operators. In the coming years, these services will become more popular than the traditional visit to the office,” Vyacheslav Klimov says.

Since November 2017, you can change the data of recipient, sender and payer through the application. In addition, they added a possibility of registration for business customers (private entrepreneurs, online stores). Previously this option was available only for individuals.

Photos in the article by: Alexander Kozachenko

I first heard about Burning Man in 2013. I was looking for cool festivals and came across this one, and got a desire to attend it. This year I’ve done it. Burning Man is unlike anything else. It is a new religion, which is more like a sect that you can become a part of. It is a religion for people who were born with a phone, who always had Google and who are fed up with tech wilderness.

In my opinion, at Burning Man you are transformed into three imaginary levels. The first one can be called consumer level. You arrive as a kind of tourist: you make photos and shoot videos. As far as Burning Man is a real museum of contemporary art: music, sculpture, light installations – it all takes place right here and now. You admire colors, people, and clothing – there are a lot of things to take pictures of.

The second level consists in triggering positive emotions. Here they call it gifting. The trick of Burning Man is to give more than you get. The paradox is that the more you give, the more you get. You are allowed to make any kind of gifts: physical things like espresso, ice-cream or assistance: repair of bicycle, guided tour, massage or waste removal. The most important thing is positive emotions.

At this level you become aware that it is not necessary to make any photos at all.

The third level is to be here and now. I used to think that I felt what it was like to live in the moment. However, it is only at Burning Man that I’ve truly realized it. I think that it is the cheapest way to feel what “here and now” means.

Parties and installations

There are a lot of parties. The parties take place on a round-the-clock basis. We slept two or three hours a day, because all the time was spent on hanging out. When you are going from point A to point B, anyone can invite you to communicate, eat and drink. This journey can take five hours. Sometimes you cannot even reach the final destination and come back in two days. That’s fine.

Installations are a different story at Burning Man. There are a lot of them. I’ve managed to see just about a half. The trick of installation consists in the fact that you are able to interact with them. For example, some guys brought an aircraft. It looks like multi-storied building – there were dance floors and activities. It looked as if a half of Zhylanska Street in Kyiv had been brought to Burning Man.

There was an installation, which put clouds into the sky. These clouds floated above the ground and were about the size of shuttle bus. I cannot imagine how they managed to implement it, but anyone could get inside the cloud and fly. Eco-installation turned sounds into dozens of echoes and a room with mirrors blew your mind, etc.

Gifting

As I have already told, one of the basic rules of Burning Man is gifting. Almost all things are free of charge at the festival. However, it is not without an effort. Every participant makes his/her own gifting. Therefore, everyone presents something on his/her own. For instance, a few years ago Mark Zuckerberg visited Burning Man. They arranged a Facebook camp and cooked sandwiches for everybody.

I’ve brought nothing for gifting at the festival, but I collected waste. It is not like anyone deliberately litters here. However, it happens that something can just fall out. There’s a bit of a story to that as well. I was driving and noticed a tin can. I turned back and tried to pick it up. However, it was nailed down to the ground. It turned out to be bait, used by more experienced “burners”. They rushed out and started welcoming me. One of them “adopted” me (such a ritual) and allowed to work as a bartender, if there was no one behind the bar, as well as to stay overnight.

Drugs and sex

There is a myth that a lot of drugs and sex are available at Burning Man. However, it’s not true. If you came yourself, you would not also find there any drug dealer. It is very likely that you will not see drugs there as well. If you attend the festival to find sex, most probably you won’t succeed. It is not so popular here. Of course, there are houses for orgies, although, in my opinion, it is more like tourist spots. Orgies take place there not more often than at Luteranska or Shovkovychna Streets in Kyiv.

At Burning Man there are a lot of police. There are applied the laws of the country, but not the laws of the State. If they catch you with drugs, you will be imposed a penalty in the amount of $2,500 — this was the story with a person I knew. It can have impact on issue of your next visa. There are also policemen under cover. They can promise you to bring drugs and, instead, impose a penalty. Therefore, it can take place at one’s own risk.

Below you can find description of a typical day at the festival. It can help you to better understand what Burning Man is:

• 5:00 Party in a desert.
• 6:30 Watching the sunrise.
• 8:00 Drinking espresso in the center of the desert.
• 9:00 Breakfast with the unknown Dutchmen.
• 10:00 Drinking coffee (or champagne).
• 11:00 Sleeping.
• 12:00 Waking up as you agreed to record a clip.
• 12:30 Recording a clip for the world-known deejay.
• 14:00 Playing on 15-meter swing.
• 14:30 Cooking (if it’s your turn in the camp).
• 16:00 Attending a lecture or masterclass.
• 17:00 Party.
• 20:00 Visiting a chillout.
• 21:00 Arriving in camp to take evening dress and to hang lighting on yourself and your bicycle.
• 21:30 Driving to the desert, meeting new people and watching art objects.
• 23:00 Chilling out somewhere in a bar or lounge zone.
• 24:00 Beginning of a new day and new adventures.

How to prepare for Burning Man and what kind of things to buy

Read the book on preparation for Burning Man – a heavy brochure as it is an extreme festival. You should also watch a few videos. Prepare for the festival, taking into consideration specific features of your organism. All this will help you to survive, as, without exaggerations, it is easy to die at Burning Man.

There are five things that you will not be able to survive at Burning Man without:

• Don’t save on it. You will always need to walk and drive – it is very important.
• A backpack, designed for three liters of water. Such backpacks are, for example, manufactured by CamelBak firm. If you want to save, buy a liter bottle and hang it on a shoelace. It is convenient.
• Ski googles. Last year there were no sand storms. This time we had about five storms. During a sand storm you are able to see just 10-15 meters ahead. If you are caught by a sand storm without the mask, lie on the ground and cry – it is maximum what you can do.
• Face bandana — to protect your mouth from dust.
• Metal cup with a chain for easier transportation. The cup is required for drinking, eating taking somebody’s water if you are running of it. At Burning Man they inspect your age/ Therefore, make a copy of your driver’s license, laminate it and fasten to your cup.

The total list looks approximately like this:

• Waist pack and backpack ($35-50).
• Sleeveless jacket or fur coat ($80 per one, it is desirable to take two). You can see many photos with fur coats. You have a question, why you need it in a desert. It is not always warm here. At night it is very cold. You will also need a hat with brim ($20).
• Seven T-shorts ($5-7 per one), one or two sweaters with long sleeves ($20), hoody ($30) and a few pairs of leggings ($15 per one). So, leggings are the most comfortable clothing here, because of protection from dust and not rubbing sore places. You should also take flip flops ($15), ten pairs of high socks and ten pairs of underwear ($10).
• Bicycle ($100), accumulators ($25), vaseline and locker for it ($20). It would be better to attach a big toy to a bicycle or otherwise distinguish it among dozens of other such bicycles. There can be 200-500 bicycles in the parking lot and you have to find yours. The search can take a lot of time, unless you attach any distinguishing features to your bicycle, which can be seen from a long distance.
• Sun-protection cream, a lot of wet wipes (a pack per day), lip care stick (totally $40).
• A lot of bottles of water. Both of us consumed about 160 liters. It is better to buy three-gallon bottles ($3,5-5 per 3 gallons).
• Zipper-bags, scotch duct tape, clothing storage boxes ($40).
• Tennis ball ($15). In the desert and when you put a bicycle on the kickstand, it can get in sand and the bicycle will fall. If you fasten tennis ball on the tip of the kickstand, your bicycle will be stable. If you also have a tent and you fasten it to the ground, standard tent pins will not suit. Buy long pins and fasten tennis balls on its tips. This will protect other people from scratching their legs. It is very painful and can have complications.
• Snacks and Soylent ($4 per bottle). Snacks are useful to eat calories – at Burning Man I often forgot to eat and snacks saved me. Soylent is a liquid, replacing breakfast. It is popular in San Francisco. Buy at least two items per day. It won’t be needless.
• LED-lighting for your closing, bicycle lamp and head lamp ($50). It is very important for your safety – you should be as visible in the darkness as possible in order not to be hit by bicycle or car. You should also take 50-100 batteries.
• About ten garbage bags ($7), gasoline cans ($80), vehicle curtain to cover the car ($25).
• Winter sleeping bag, as summer bag will be insufficient ($40) and Karrimat ($10).
• In the camp they arranged meals twice a day. It costed $450 for all days. Those who do not pay for this, usually take packed meals, snacks and nuts.

You can buy all the above-stated things, except for fur coat and footwear in Walmart. It will cost around $1,000.

Where to buy tickets and how to get there

You can buy tickets on the website, no more than two per person. As a rule, the tickets run out in a matter of minutes and the website freezes up. That’s why ticket sales are divided into drops and carried out at different intervals. Before each of the drops you should create a user account of the website and sign up for a particular drop. Then, if you log in in the first minutes of the drop and are lucky, you will have an opportunity to buy two tickets.

Ordinary ticket to Burning Man costs $425. However, we have bought it at $500 from a guy in our camp. There are also tickets, which are sold on the website with no need to sign up. Although, its price makes $1,200.

From Ukraine it is better to take a flight to San Francisco. One-way ticket costs $700. Therefrom you can rent a car to drive to Burning Man for the period of 8-10 hours. We travelled from Los Angeles. We rented a car on the website U-Haul at $650.

First you should select a number of miles that you are going to drive. We paid for 1,400 miles and it allowed saving a great deal of money. Gasoline costed us about $500. I advise you to insure the vehicle at $140. We also paid a penalty in the amount of $130 for late return. We washed the car after Burning Man. It took us approximately three hours and costed $30-40.

How much does it cost

Totally the entire journey will cost $3,000-5,000. It includes airline tickets for a person. If you travel with somebody else, it can save money on car rent. However, it is
the cheapest option. If you prefer more comfortable conditions, you can bring a Recreational Vehicle. Rent of such vehicle will cost starting from $5,000, plus a charge on a vehicle at the festival – $80.

Billionaires arrive in big Recreational Vehicles and pay $70,000 for a multitude of services – cooking meals, Jacuzzi, private chillout zone, etc. Nevertheless, the budget in no way affects the impressions from the festival.

Summary

There are two different ways to spend your time at Burning Man. The first way is to visit various performances and events according to the timetable. The second one is to go just to the places chosen according to your gut call. І advise you the second option.

I do not also recommend you to visit Burning Man in order to go crazy. Better go with an intention to visit other planets and become an alien. This will certainly be the first impression ever in your life, when you have an opportunity to make photos and no desire to do this.

I was born in Kiev in 1983, my family immigrated to the United States in 1989, shortly before the fall of the Soviet Union. We were able to leave the Soviet Union because my family is Jewish, and starting in the 1970s people of Jewish heritage were allowed to immigrate from the USSR.

My family decided to leave in search of a better life, but it was a very different process than immigrating these days. Today there’s access to information, you know where you’re going and what life is like in that country, you can take your possessions and money with you. We didn’t have that opportunity.

We left with almost nothing and arrived with even less, selling most of our belongings to finance the journey.

I mention that because it’s the ultimate leap of faith, a bigger risk than any startup venture, perhaps that’s why I’m so comfortable with risk.

We were among the lucky ones and landed in San Francisco, where I grew up. I eventually moved to Los Angeles to attend the University of Southern California (USC) where I studied International Relations. While at USC, I met my wife, Marianna and eventually moved back to the San Francisco Bay Area. Today we live in San Jose and are expecting our first child later this month!

How did you become an entrepreneur?

I have been an entrepreneur my whole career. Before Attendify I founded an offshore software development company in Ukraine in 2005. This was my first professional experience out of college.

The company grew to about 65 employees and incubated several product ideas internally. We used outsourcing revenue to try to develop our own products, those experiments gave me my first taste of how exciting product development can be. I discovered how much I love building things, exploring new markets, wireframing, prototyping, and driving a long-term vision that can hopefully make a difference.

Why did you start a business in Ukraine?

Initially it was for personal reasons… I felt a connection to the country and wanted to explore that part of my heritage. I was always interested in Eastern Europe, that was a big part of why I studied international relations in college. I was very curious about what I may have missed out on. I was drawn by the rapid pace of change, the uncertainty… I felt it was a place where lots of opportunities would emerge.

How did you meet your co-founder Artem Yaremchuk? How did you two come up with the idea to create KitApps?

I met Artem in 2007 or 2008, towards the end of the lifecycle of my first company, and we connected by pure chance. He was working on a project and pitching his first startup idea, which was a local search company, similar to Yelp, but for the Ukrainian market. Artem ended up coming to work with me at the outsourcing company and helped us with one of our in-house projects, a real-estate search engine. Not much came of that project, but we hit it off.

While I didn’t know him very well at the time, it was clear that Artem was entrepreneurial and wanted to build something, entrepreneurs recognize that in each other. That was a rare quality in Ukraine, unfortunately, so it was a really easy and exciting connection to make.

When the 2008 recession hit my business had to close, that was a particularly challenging and formative time for me, but I came away with some good relationships and a lot of experience. Artem and I kept in touch with over the next few years and sure enough another opportunity to work together presented itself.

What were you doing for living after your first business closed?

I just continued doing what comes naturally… I started another company. I wanted to do something very different after my outsourcing company failed, I needed to reboot. I decided to look beyond the technology industry and discovered that it’s very easy for me to get deeply engaged and find passion for almost any kind of innovation.

I started a consumer goods company called Echo. We pioneered an eco-friendly packaging for beverages and launched our own product which got distribution in Whole Foods and around 150 others stores across Southern California. We won packaging design awards, which I was very proud of, and distribution took off very quickly. Despite that initial success and the excitement of building something new, I realized how incompatible I was with the industry. After the product development and launch phase, I almost immediately started thinking about going back to tech.  I learned a lot, including the lesson of how valuable it is to work on something you truly love and make the most of every day. Eventually I sold the company and just moved on. I should never have diverted my focus away from technology, so I was happy to be done.

So Attendify was your comeback to tech? How did it start?

In 2010 I was inspired by the incredible growth in mobile, there were possibilities everywhere you looked. The App Store was still in its nascency and I saw the opportunity to help small businesses go mobile. The high-level concept was straightforward… mobile apps are much harder to develop than a website, so small businesses (SMBs) would have a very hard time competing with large enterprises that have in-house product and engineering teams, or the resources to hire consultants. SMBs would be at a significant disadvantage as end-users shifted to spending more of their time on mobile devices, we wanted to do something about that looming problem.

I was also interested in business models that were truly scalable and product-driven, that was a lesson I learned having been in a service business for a few years. Creating high-quality, vertically focused mobile solutions to help small businesses drive success seemed really appealing. There wasn’t much competition at the time, the few companies in the mobile app creation market had unappealing products that were following the same gameplan as website creation tools did years ago… That struck me as the wrong approach and only emboldened my desire to explore the opportunity.

I put the idea in an email to Artem and he was inspired by it, so we immediately started collaborating. I was actually on a flight to Mexico heading on vacation and started drafting an executive summary which I shared with him. That back-and-forth rekindled our collaboration and things moved quickly from there.

Tell about your first steps, successes and failures on your startup-path.

The first steps were very typical, wireframing, building a prototype, getting our first customers to believe in us, recruiting people, etc. Artem did a great job pulling the team together and we were in the right space at the right time, so we made it past that formative stage.

While it’s often romanticised, there’s nothing mystical about early stage startups. Sure, it’s extremely challenging, but the kinds of things you have to do are straightforward and there are literally unlimited resources to help you learn. Blogs, conferences, books, podcasts, incubators, mentor groups, etc. The rest is up to you, there’s no substitute for hard work and open mindedness.

Were all the team members from Ukraine? Tell us about your and Artem’s roles back then.

Early on everyone except myself was in Ukraine. That’s no longer the case, we have a growing team in Scottsdale Arizona and we’re very proud of the team we’ve been able to build. We have incredible people spread out in a few offices and are hiring in every department. In the beginning we had only a few people: myself, Artem, Andriy Zhovner, Eugene Petrash and one of our very early hires was Olexiy Kachayev, who became our CTO.

Artem was actually the first CEO and worked on the idea full-time at the beginning. I wasn’t able to join full-time at first because I still had my other company and was working to to sell it. I joined full-time a few months later, eventually we switched roles and I became the CEO.

How did you collaborate with the team in Ukraine while you lived in US?

Collaborating remotely was never a big problem, although distance certainly has an impact. It was easy to manage day-to-day work in 2011 and is even easier today with so many great collaboration tools.

We use Slack for almost all our day-to-day communications, we have lots of Slackbots and have done a great job leveraging their integrations. I’m happy to say that we rarely use email for internal purposes. We also use Jira, Confluence and are very active Trello users.

As the business started to scale I began traveling to Ukraine much more often. Today I’m on a pace of about 6 visits per year. That will slow down temporarily for personal reasons, but I take every opportunity to be with the Kyiv team that I can. There’s no substitute for face-to-face collaboration, so we’re trying to find creative ways to bring people together as often as possible.

Did you face any difficulties in first few years that made you consider giving up?

There were no challenges that would cause us to give up, thankfully we were lucky in the sense that nothing overwhelming happened. We were able to stay focused on our priorities of building the product and learning to solve our customers’ problems.

Frankly the biggest challenge day-to-day is unavoidable… it’s distance. We have learned to be very efficient collaborating remotely between the Phoenix, San Jose and Kyiv, but there’s no question we would be even better in one space. With that said, the leverage we get from distributed teams is undeniable and is more than worth any managerial overhead.

What about investors, how did you attract capital back then? How much money did Attendify raise and in how many rounds? Name your biggest investors.

The market was very different in 2010. There was virtually no investor ecosystem in Ukraine and to be honest access to capital is still very limited locally.

We had little chance of raising capital in the US because most of our team was in Ukraine. Attitudes around fundraising with remote teams were not like they are today.

Investing in Ukraine was a scary idea for most seed stage investors, whereas today that’s much less of a concern.

We’ve raised a very modest amount of outside capital, just over $2m to date. Our investors have been a very important part of our journey, but we’ve bootstrapped the company to a large extent. Some of the investors your readers may be familiar with are Digital Future and TMT, but we’ve also raised from a few other angel investors and funds.

What was the biggest success of your startup in its first year? When did you realize that it’s truly alive?

In the first year our biggest success we had was selling the first subscriptions, I remember those moments well. They were a formative experience in my life as an entrepreneur because those transactions represent trust. Trust that Attendify can deliver, trust in our product, service and support. We got $49 and then eventually $249 from someone at the Retail Asia Expo. I don’t remember all the underlying details about their event, but this was one of our first unaffiliated customers.

Those early transactions meant the business was alive. If one person bought a subscription that meant there were at least 100 other potential clients… then 1000, and so on. We realized we can acquire customers cost-effectively and reinvest in the business, chipping away at a big opportunity in a huge market.

How did you get your first big client? Describe your efforts to make them believe in you.

There were two types of clients early on:

1. Custom Development – we did some contract engineering work to help build core features and drive revenue to keep the lights on. Some of these clients were events, others were not… so this kind of client was much less rewarding and important in the long run.
2. Product Customers – once we launched our self-service app creation platform every transaction was incredibly rewarding. There aren’t many relationship driven stories because customer acquisition and service was almost entirely product driven.

Initially we offered our apps for $249, which seems like such a small price today. We could have definitely charged more 🙂 Eventually we built relationships with some of these clients that came back again and again. A few of our earliest clients are still with us today, 6 years later! That’s amazing and something I feel really good about personally.

How did KitApps transform into Attendify? What did you change and why?

KitApps mission was to help small businesses go mobile, we just happened to launch our first template for the event industry. Our initial plan was to create solutions for other verticals, but we started to get lots of traction with the event product.

We got around 100 customers through the platform in the first year with almost $0 invested in sales and marketing. We knew we had a business.

Having seen some of that early growth we realized how much upside there was in the event market. We also identified lots of interesting problems to solve with our mobile-first event platform and the vision for a truly impactful business started to crystalize. In 2013 we decided to focus exclusively on the event industry and rebranded to Attendify.

If I was doing it all over again we would have focused on events from day 1, but that’s 20/20 hindsight, unfortunately life doesn’t work that way. I’m just happy that we’re in a really fascinating market that is often overlooked and in position to do great work and have a big impact.

Tell about your product. What kind of services do you provide for your clients and what value do their customers get with your help?

Attendify is a mobile-first event management platform. We started with mobile event apps but now we offer event registration, data management, lead retrieval and event websites. Our mobile product is the centerpiece because it allows our customers to capture event engagement data in real-time and that’s central to how we see the future of our industry.

Our company’s mission is to “bridge the gap between digital and event marketing” by bringing the same level of measurability that you find on the web, which drives opportunities to optimize and personalize event experiences. Ultimately we’re helping our customers run more successful, engaging events. We’ve served over 14,000 events and 3,500 customers.

What is your business model today, how has it changed? Tell us about your current prices.

You can find our pricing online, that’s one thing that has always made Attendify unique in our market… we have open pricing and a transparent business model.  Our pricing has changed over the years, but the core model has remained the same.

How fast is revenue growing year-over-year in percentage terms? How many new clients did you get every year? Name your biggest clients.

I can’t disclose that, but we’ve served over 3,500 clients. Among our biggest clients are companies like Google, Uber, PayPal, Coursera, Princeton and Harvard Universities. You can find more customer names and case studies here.

Do you have clients in Ukraine?

We have a few clients in Ukraine, but they’re a tiny percentage of our overall customer base. Less 0.79% to be exact.

Almost 60% of our business is in the US. We also do very well in the UK, Australia, Canada and other English speaking countries. About 22% of our business is from the rest of the world, which is a significant chunk. It’s great to see that diversity.

Do you work in China? That event market is booming they say.

We don’t work with China too much because Google services are unavailable and it’s a very difficult market for western companies to crack. It’s just not a priority for us at this stage and I would not recommend that early stage companies spend much time thinking about China.

What about the competition: who are your competitors? What countries do you focus on and what is your market estimated volume in general?

Event technology is roughly a $30 billion dollar market, and it’s growing. I think the best days are ahead for our industry and the level of innovation we’re seeing today is unprecedented. I’m proud that Attendify is an important part of this market, we’re working hard to accelerate into the exciting trends we’re seeing.

We have lots of competitors including companies like DoubleDutch, Guidebook and Eventmobi, but also larger event management solutions like Cvent. We even compete with Eventbrite on some level, but I feel we’re uniquely positioned to take advantage of the longer tail of the event management software market.

How big is Attendify today? How many offices do you have and where?

Attendify has just over 70 people today, and 57 of them are Ukrainians.

We have 3 offices, San Jose, Phoenix, and Kyiv. We have a flat organizational structure and are very process driven, so everyone knows their role. The Kyiv office houses our engineering and product teams, but also other roles as well like sales, customer success, research, support, operations, etc. Our marketing team is in Phoenix as well as people in customer success, support, and operations roles.

How important is Ukrainian team? Do you have plans to growing that office?

The Ukrainian team is essential, I’m really proud of the people we’ve been able to bring together and we’re hiring for every team. You can see a list of open positions on our website.

What do you think about current situation and changes in Ukraine? From business and political perspective.

First a disclaimer: I’m not an avid observer of the political situation in Ukraine and spend very little time thinking about it. What I can share are personal observations from the time I’ve spent in Kyiv over the years, as someone who feels a deep connection to Ukraine… It’s hard to see so many missed opportunities.

Entrepreneurship is about making the most of limited resources to achieve disproportionate results. Ukraine is arguably going in the opposite direction at the macro level, there’s so much untapped potential.

I’m hopeful because there is so much amazing talent in Ukraine, but the business and social environment is not very conducive to innovation.

I don’t think the solution can come from the top, we need to find a way to foster entrepreneurship at the cultural level among the next generation of Ukrainians.

There are some encouraging signs, but I know we can do much better.

At Apple I was around 13 years in product design division in California. I worked on both the iOS and Mac product range, heavily focusing on materials and material development, also on sustainability, removing toxic chemicals, finding substitutes, making more energy efficient, more recyclable versions. At the time we were the first company to deliver green environmental performance through product design. This is something Steve Jobs and I worked closely on, when the rest of the industry was focusing mainly on environmental housekeeping.

We did lots of life cycle analysis and what we found was that improving the performance of your buildings accounts for about 1% of all environmental footprint of a company. And about 75% of it has to do with the products that you and your customers use. So we decided to focus our best engineering efforts on making products greener.

You personally were acquainted with Steve Jobs, Tim Cook and other famous CEOs of the Valley. How did it feel to work with them?

It was intense. Steve ran a very tight ship. And he was the most remarkable person I’ve ever worked with, and certainly the most demanding. He expected you to be the world’s expert in what you do. And if you weren’t – let’s say there was not a lot of wiggle room. He would call me Saturday mornings at 10 am and to this day I don’t know why he would choose that particular time. We would talk about all sorts of things, product design issues on the environmental side, recycling programs. And it was always a good idea to have a strong cup of coffee before 10 am on Saturday 🙂

How did you join Nest?

During my time at Apple I worked  with Tony Fadell.. He left Apple before me and in 2010 he came across an idea to build a smart thermostat for a new house that he was building. At that time thermostats that were available on the market were all very poorly designed. Most of them hadn’t have any design engineering at all, and those that had looked very old-dated, like they were released in 1980-90-ties.

He saw the gap in the market, and a  team of around ten engineers from Apple and started developing the first generation of Nest, that was in fact the world’s first smart learning thermostat. First generation was launched in 2011.  In the early days at Nest I built business development and international partnerships which was a very big career change for me but in the end it became something I really enjoyed doing.

You were able to get more than 100 partnerships for the startup, and eventually to help build a company that was sold for $3.2 bln to Google, how did you do that? Can you offer a piece of advice on success in sales for young startups?

We had a couple of big advantages. We invested a huge amount of effort and engineering detail on the design of the hardware and software. And at the time we were the only company that had both engineering corners under our control. Most other manufacturers did the hardware part in China and outsourced the software. We didn’t take that approach because that device really had to produce beautifully choreographed user experience and because it had a lot of algorithmic complexity to it. We knew that the only way to do this was to have  complete control over software and hardware.

So we could go to our partners and quickly show them the difference in performance and features between our product and our competitors”. It also meant we didn’t have to follow the same retail channels that our competitors  relied on. Many of them were more or less stuck selling their products through DIY retail chains and we went into mass and high end electronic market, gadget stores, we opened an entirely new channel with energy companies. One major difference was our relationship to energy companies throughout North America.  We figured out a way to aggregate the control of air conditioning units across hundreds of thousands of Nest thermostats. Suddenly Nest was were no longer a smart home gadget, instead it was now a virtual peaker plant that energy companies could call on to help manage grid stability during hot summer afternoons, .

During first year we more or less had to educate retail about what our product can do, but during the second year people were reaching out to have partnership with us.

What was your role in preparing deal with Google? Was it hard to negotiate with Google?

Google has a division called Google Ventures. They were following our journey from the start, because they were one of our six very early investors. They knew Tony for a long time and knew his track record as a God father of an iPod and iPhone.

As in every acquisition you first and foremost want to take care of your colleagues, especially if you had taken them out of high flying roles in other companies including Apple to take risk with you in building a thermostat. In negotiations it is always important to make sure that everyone gets a fair outcome and more importantly – you don’t want to do anything that has a risk of them leaving.

You can compare being independent entrepreneur and a hired worker. What are ups and downs in both modes and why did you choose to run your own projects?

I certainly can’t see myself going back to a big corporation. On the one hand if you asked me the same question 10 years ago I just wouldn’t have been ready to go to be a CEO or investor. But 12 years at Apple and 5 years at Nest and Google – that’s a sort of a training camp that prepares you to just about anything in the business world. With all that experience I feel that my impact on early stage high growth companies can be quite profound. For me it is one of two very important ingredients for feeling happy in my career: Am I having an impact? And am I dealing with something that is on the leading edge of a very new direction, disruption?

When you get into big corporation as an executive, you end up becoming much more detached from high impact product related decisions, instead you get a lot of people related and governance related issues. Some people out of business schools love that kind of thing but for me I feel like I’m wasting time. I’d much rather be with a smaller team that could grow triple digits every year, helping them to make meaningful decisions.

Please tell about your new projects, especially – about Ukrainian startup that you joined.  

There are two companies to speak of. There is company in Ljubljana called Sleepy Bottle, which is the world’s first smart baby bottle. You plug it into USB-port by your bedside table and it heats the water to a perfect 37 degrees Celsius. When the baby is ready to feed, all you have to do is to twist the neck of the bottle and shake it. We are launching in three weeks in London in a big department store.

The second one is in Kyiv and it’s an IT-recruiting company. From my experience in Google it was extremely difficult for us to get high end developer talent. If Google can’t get enough developers with its resources and reputation, what must it be like if you are a bank or oil company or pharmaceutical company? So I was introduced to a company named HireHunt [Ed.note: now called as  Global Talent Advantage ] which is located in UNIT.Сity. At the time they had an ecosystem of 20,000 developers and during six months that turned into 52,000 developers. And I have taken CEO position with them. I’m helping to bring London and Silicon Valley based customers who need developers in Kyiv.

How did you find them and why did you choose to become a part of the team?

They were part of an accelerator in Ljubljana. I was giving a keynote speech there and the representative of that accelerator was in the audience. She invited me to meet some of the startups and that’s how I’ve got to know the team. I never jump into things immediately, I take my time to peel the layers, to understand the culture of the company, skill set of the management team. But in that case the potential was immediately obvious. Seeing how much talent was available across Ukraine and particularly in Kyiv was not news to me, but having met the company that established themselves on almost no budget and became top brand for job search and training – that seemed like a remarkable achievement to me. What they needed was a channel to North Western Europe and North America and I could see how I could build that channel, make an impact.

Did you get an equity in the company, under what conditions did you take a role of CEO?  

For most people in my position who were in large corporations and built startups from scratch it is really about impact and growth. For sure having a package which is based on equity is important for any startup that is looking to attract right business experience. But in most cases it is really about the chemistry, opportunity and timing. If there’s equity linked to that, it just helps with the decision.

What would you say about Ukrainian IT-community and IT-market?

It seems that every time I go here I learn something new about it. First of all I’ve fallen in love with Ukraine. It’s a wonderful place to visit and it has so much potential. And there is no other area on the Globe that I’m aware of, with such a concentration of highly ambitious and highly skilled IT-specialists, both hardware and software. And of course when I say that people often respond like: Yeah but what about Silicon Valley? In numbers these places can compete, but they cannot compete in ambition and drive. Developers in the Valley have lot of expectations from employers, huge salaries, bonuses. Whereas people I meet in Ukraine are driven mostly by the need to move forward, to develop exciting new projects. It is really about innovation for the sake of innovation.

Ukraine for now is in near-war conditions, and economy is not at its best – didn’t it scare you off when you were thinking about doing business here?

Most of the people I know who have that sort of fears, just don’t understand Ukraine. If they visited Ukraine and spoken to local people, as I did, they’d change their mind.

All this time AIN.UA is built based on professional journalism and verification of facts, we recognize freedom of information and value personal opinion.

There are no boundaries for Ukrainian tech industry: Ukrainian startups are initially focusing on international markets. Product companies are included into global industry ratings. Outsourcing works with clients from all over the world. Global players enter Ukrainian market, opening R&D offices, acquiring and investing into local companies.

At the same time there is a very limited amount of available verified and regularized information on the Ukrainian tech scene in English. Lots of truly remarkable Ukrainian stories have never been told in English. While North American, European and Asian tech markets are still acting quite independently and anchored around their historical hubs, Ukraine remained “terra incognita” for global technological newsfeed. AIN.UA is committed to fill this gap so everyone could understand what is really going on in Ukraine.

AIN.UA/EN is not starting from the scratch – 6% of the current audience are from Germany, USA, Poland, Netherlands, Israel and UK. Most of those visitors are immigrants who still follow up Ukrainian tech news, second part of the visitors are journalists, funds, clients and partners of local companies who are forced to seek and translate into English by their own. We also plan to reach and expand new English-speaking audience, so join us in separate English Twitter, Facebook, RSS feed and weekly e-mail digest.

Ilya Boshnyakov
Publisher
AIN.UA

Mining

Mining is not prohibited on the territory of Ukraine. Basically it is the activity in the area of utilizing equipment in order to obtain assets. Here are some practical tips for miners:

Your mining equipment must be of legal origin. You either bring officially the imported one, or buy components in Ukraine and order the assembly of the miner, which will have Ukrainian origin. It is not the right decision to use for a commercial purpose the equipment, purchased for cash without supporting documents. Because if your equipment is seized during the search process, it will be impossible for you to return it. No documents, no equipment.

The situation is better in case of private entrepreneurs as the equipment does not need to be placed on balance sheets. It is enough simply to have a documentary confirmation of the legality of its acquisition. For enterprises using the general taxation system the placement on balance sheets and commissioning are mandatory.

It is important to have a confirmation of the legality of the money that your equipment was purchased with. When it comes to hundreds of thousands of dollars, you should have a clear explanation for the regulatory bodies where you got them. Because they will ask. Usually they notice the fact that a natural person has not declared the income sufficient to purchase such expensive equipment in the property status declaration. And if you are a private entrepreneur of the 3rd group then you operate with an amount, which does exceed 5 million UAH per year, do not forget about it.

Pay for electricity to the full extent and enter into relevant contracts. Otherwise, you will get into trouble with the law.

Cryptocurrency

Of course, we are very pleased that financial regulators have finally decided what is NOT a cryptocurrency and have excluded from the list “cash equivalent” along with currency, electronic money and securities. We consider that we still have to draw the line under this issue and finally decide whether cryptocurrencies should be classified as products or financial instruments.

Now we adhere to the concept that cryptocurrency bears the marks of intangible assets, which are defined in the Ukrainian Accounting standard No.8 “Intangible assets”. According to the given Accounting standard, an intangible asset is a nonmonetary asset that has no tangible form and can be identified.

Taxation of income received from the sale of cryptocurrency is a complex issue. However, we come to the decision that it can be done more easily by individual entrepreneurs engaged in mining, rather than by an enterprise operating based on the general taxation system. An individual entrepreneur does not maintain accounting records and is obliged to declare monetary funds, constituting the part of his/her income. Therefore, we see no obstacles to declaration for those individual entrepreneurs selling cryptocurrency without cash transfer and receiving money to a bank card. If the sale is on a cash basis, then an individual entrepreneur shall also indicate this cash in a ledger of income and expenditure and pay a single tax thereon.

The most thorny issue is the issue of control. The tax authorities are entitled to inspect the accuracy of calculations of the taxes paid. In theory, as a part of the inspection tax officers may ask to show your wallet content to make sure whether the amount of received income is understated or not. In practice, we don’t know any cases of such monitoring. It is known that some international audit companies certify the legality of purchasing cryptoassets on the basis of the blockchain transactions analysis.

Tokens and ICO

This activity raises the greatest number of suspicions on the part of the controlling bodies. Some representatives see signs of fraud in the sale of tokens for money. Therefore, the tax structuring of ICO occurs, mainly, not under the Ukrainian Tax Legislation. However, do not forget that a natural person, who is a citizen of Ukraine receiving income within ICO, is obliged to declare such an income and file a declaration of property. Build your tax history thoughtfully and in advance.

Nazar Polyvka, partner of Axon Partners, Oksana Kobzar, lawyer and freelance adviser of Axon Partners on cryptocurrenсу taxation:

Despite the ambitious statements of the regulators, there would be no boom in declaring the income received from cryptocurrency operations. The guys from the National Bank of Ukraine, of course, did a great job. They explained what a cryptocurrency does not include. However, they did not give any clues how to deal with it. In fact, everybody avoided the responsibility by having removed cryptocurrency from their competence and having left a huge space for imagination to lawyers and, unfortunately, tax inspectors.

The Tax Code does not comprehensively regulate the issue of paying taxes on mining or trading. That is why there are only speculations. If the cryptocurrency status is not regulated by law, a court will take care of it. In addition, a court shall take into account the presumption of legitimacy of the taxpayer’s actions. If there are gaps in the law, it should be stretched in favor of the payer.

A tax inspector can interpret operations with cryptocurrency in a variety of ways, depending on what the intended purpose is.

The operations of legal entities should be viewed in two contexts. First, the financial result of transactions is the subject to profit tax, and secondly, the transactions themselves are the subject to value-added tax.

If tax inspectors check the transactions where the resident of Ukraine paying VAT sells crypt and decides to assess an additional VAT, it will be more advantageous for them to call this operations for the supply of products or services. The supply of products or services is the subject to VAT only if it occurred on the territory of Ukraine or when importing products. In this case, the key issues are whether cryptocurrency is a product or a service and where the movement of products occurred, what should be considered as the place of service supply.

Intangible asset, derivative, service and tweaking

In the Tax Code, a product is understood as tangible or intangible assets or securities or derivatives. Our regulators have already expressed their opinion concerning securities and did not recognize cryptocurrency as a security. Based on the International Accounting Standards, cryptocurrency is the closest to the concept of intangible asset. Nevertheless, it is possible to talk about an intangible asset only when an object is recorded on the balance sheet of the enterprise as an intangible asset.

In fact, cryptocurrency is often similar to such a variety of goods, in the understanding of the Tax Code, as a derivative. But according to the formal criteria, it is not always suitable for this definition and if a regulator denies the status of cryptocurrency as a security, then it hardly recognizes it as a derivative. A crypt can also be called a service, but such a definition will be tweaked as well, since the subject in question is the one providing service and the nature of the service itself lies elsewhere. Although the Tax Code calls a sale of services essentially all transactions with other property objects, except for goods. In other words, it can hardly be said whether cryptocurrency is a product or a service.

Where is the delivery and how to tell heads or tails?

Now the second question is where the delivery takes place. If we have bought cryptocurrency on a foreign exchange and consider it as a product, so it was the import of products including VAT? But if we have sold it to a foreign exchange later, it is the export and 0% VAT? Say, a crypt is not a product, but a service, how to tell heads or tails then. VAT on services is available when the place of services delivery is on the territory of Ukraine. In order to determine the place of services delivery, it is necessary to choose what type of services is the operation with cryptocurrency.

There are four categories of services in the Code. The place of services delivery, depending on category, can be the location of the property related to the service (it is not our case), place of actual delivery of the service, location of the buyer, or location of the supplier according to the residual principle. Nothing can be applied to cryptocurrency except for the residual principle. It means that when buying cryptocurrency from a non-resident, VAT is excluded, and when selling it to a non-resident or resident, VAT is included.

Base for VAT

This is not the end of these terrible reflections. The base for VAT is determined at a rate not lower than a normal price, the question arises how to determine this price. But if you still can accept the idea of VAT theoretically, then the brain will explode having reached practical questions – how to issue and register a tax invoice for the operation with cryptocurrency, for example.

Income Taxes

In the context of taxation of income received from the operations with cryptocurrency, the reasoning is the following. In theory, if tax authorities call cryptocurrency a product or a service and VAT is included, then the financial result of such operations for a resident seller will be subject to income tax at the rate of 18%. In this case, tax authorities will have to recognize the right of the payer to deduct the costs of cryptocurrency purchasing or “mining” (by the way, where are your purchasing supporting documents?) for electricity payments, right to the mining equipment amortization. It could be a very high-margin business, by the way. Everything is fine, but the income from the operation with cryptocurrency runs counter to the definition of income according to the Accounting Standards. It is difficult to estimate the amount of such an income and calculate costs reasonably, and there is no certainty in obtaining economic benefits as required by the rules of accounting.

In the meantime, if the law on the tax on the withdrawn capital is adopted, at least, this will greatly facilitate the situation of the income tax, and then there will be no need to consider incomes and expenses at all, but only the dividends withdrawn from circulation will be the subject to taxation. However, those are sentiments.

Things are easier for those who are not required to pay VAT

Let us assume that the seller is a person, who is not required to pay VAT. Then it makes no sense for tax officers to prove whether it is a product or a service. You can make it easy on yourself. You have received money from the sale of cryptocurrency on non-commercial operation. You cannot prove that this is an operation of transfer or a loan? Then you have received other income or irrevocable financial assistance. The list of types of income in the legislation is non-exhaustive and includes other incomes, in case a legislator forgot something.

If the seller is a natural person, then of course there will be no VAT on the operation, and most likely, they will also call the revenue from the sale “other income” and try to subject it to tax at a rate of 18% and military duty of 1.5%. In this case, it is possible for a natural person paying taxes to take the position that cryptocurrency is a movable property, information or property rights, for example. The proceeds from the sale of cryptocurrency in this case will be the subject to income tax of natural persons at a rate of 5% and military duty of 1.5%.

However, this position is suitable only if the money for cryptocurrency is received from the resident of Ukraine. If cryptocurrency is sold on a foreign crypto-exchange, then 5% do not work, and the income will be considered a foreign income and will be subject to income tax at a rate of 18% and military duty of 1.5%. Depending on where the crypto-exchange is located, a different mechanism of tax payment is applied. The trader will either have to declare income (if the exchange is outside Ukraine) and pay income tax of natural persons, or the exchange will withhold this tax as a tax agent (if the exchange is in Ukraine). If the exchange has withheld tax abroad, it will be possible, under certain conditions, to use Double Taxation Avoidance Agreement and deduct the tax in Ukraine. But in general exchanges do not withhold taxes. This is stated in the rules of the exchange.

Investment asset

My regret is that cryptocurrency is not formally qualified as an investment asset. It would not be convenient to subject crypt to taxation as an investment asset.

What to do

If you agree to pay 5% of all proceeds to the account of the sale of cryptocurrency and the turnover will not exceed 5 million hryvnias per year, then you can try operation on a simplified taxation system. But first, select the correct NACE code and prove the tax office that the crypt operations are business activities. Otherwise, you will have to prove that the proceeds from the sale of cryptocurrency are not the income from the sale of property or non-irrevocable financial assistance or other income of a natural person, being the subject to taxation at a rate of 18 + 1.5%.

That is not all

If after all you have read above you are still here, then consider the currency barriers. 50% of currency proceeds from the sale of cryptocurrency are the subject to compulsory sale.

Unfortunately, most of the above questions will have to be answered by business empirically. It is a thankless job to foresee what level of abstraction the tax authorities will reach. By the way, the Ukrainian court once spoke on the cryptocurrency status referring to the practice of the European Court.

In one case that was tried in Kharkiv in 2016, the court, referring to the fact that Ukraine recognized the jurisdiction of the European Court on all issues of application and interpretation of the Convention on the Protection of Human Rights and should apply the judgments of the European Court of Human Rights as a source of law, decided that it is necessary to apply the European Court of Human Rights decision in the case of Hedqvist vs. Sweden. In this case, the European Court of Human Rights decided that operations with bitcoins and other virtual currencies are not subject to VAT on the territory of the EU.

After reading, you are probably very confused. Now the answer to the question of how to pay taxes should be obvious to you. We, as tax consultants, do not have the moral right to write this advice directly. We put reputation to hazard even by giving hints. Only the fact that it is a zugzwang justifies us: a tax office can appeal against any action aimed at paying taxes no matter what option you choose. There is no reason to wait for assistance from tax authorities, you all know or heard that instead of clarifying they just copy quotes from the Tax Code. Therefore, it is safer to just stay in a state of legal uncertainty for some time.

Andriy Tsiatsiak, lawyer of the tax practice Sayenko Kharenko:

A natural person, engaged in mining, and investors of the cryptocurrency market have to declare income from such activities on general grounds, since there is no special regulation for mining of cryptocurrencies and cryptocurrencies are not recognized by financial regulators as money, currencies or means of payment of other countries, currency valuable, electronic money, securities, cash equivalent.

Most likely, as for today, the income of a natural from mining and investment in cryptocurrencies cannot be regarded as any other category of the Tax Code, except to “other incomes”.

Such incomes are the subject to taxation on general grounds at a rate of 18% as well as to military levy at a rate of 1.5% of the amount of income. A natural person is obliged to declare these incomes independently according to the results of the calendar year, except when these taxes were withheld and paid to the budget by the paying party as a withholding agent (a very rare case for cryptocurrency market).

The entire amount of money, received in exchange for cryptocurrency, will be the subject to taxation. In most cases, there is no difference between the receipt of income in the form of cash or non-cash funds.

Regarding the terms of use of most cryptocurrency exchanges, the funds, received by users on personal account, belong to the user. In this regard, there is a conventional wisdom regarding the need to tax incomes from the sale of cryptocurrency on the exchange, even if the user does not withdraw funds to bank account.

In addition, in light of the forthcoming start of trading of bitcoins derivative financial instruments (derivatives), it is worth noting that the situation differs somewhat from investing in bitcoin. If such a directive was sold at a higher price than it was purchased for, the financial result of such operations constitutes an investment profit. At the same time, it is an investment income (the difference between the purchase price and the sale price, not all the money earned) that is subject to taxation. The investment income received by natural persons is the subject to taxation at a rate of 18% as well as to military levy at a rate of 1.5%. If the stock trading inflicted investment losses, then there is nothing to impose taxes upon.

The term “marketplace” is used in a broad sense and denotes an online trading platform integrated by a common set of rules of different stringency, explains Mykola Paliyenko, co-owner of Prom.ua (the controlling stake belongs to global media group Naspers headquartered in Cape Town). “This is a model helping business to develop faster,” he says.

According to Prom.ua, the audience of marketplaces is growing faster than the one of traditional online stores. From 2014 to 2016 the audience of traditional online stores added only 4% in traffic, while the one of marketplaces 78%. They also can differ depending on the set of services. “The minimum of services provided by the platform is a price-aggregator (price comparison website services) or bulletin board, the maximum of services is what is called “fulfillment” in the west,” explains in detail Alexander Olshansky, president of Internet Invest Group holding. The extreme conditions, he notes, are the least stable, so online merchants try to experiment by introducing some additional services or by refusing them.

So far, Rozetka, the largest Ukrainian online store, is far ahead of all others. It is the only one of all Ukrainian online retailers offering fulfillment, that is, a full range of services for its partners from storing goods at its warehouse to delivery and after-sales service. So what is the point?

As early as 2013, there were 160,000 unique commodity items in the company’s assortment. Nowadays there are already 1.5 million.

However, it is not enough for the company. The goal is to sell online all products that are in retail. If you focus on Amazon selling almost everything then it is 12 million unique SKUs (Stock Keeping Units) presented on one online platform.

“The processes are not yet ideal. We are torn between clever and beautiful ones,” Vladyslav Chechotkin, Founder and co-owner of Rozetka, is full of self-irony. The company is haunted by the success of OLX (a bulletin board, Naspers affiliated company as well), admits Chechotkin. Although Rozetka, as he says, will never go along the path of an irresponsible ad aggregator, he likes the idea to reduce risks without damaging the assortment. “We want to offer our buyers the maximum quantity of goods and the best choice. That is the strategy” Vladyslav Chechotkin almost repeats the Amazon Founder’s credo. “But not everything we want we can actually sell,” he adds.

Vladyslav Chechotkin at the lecture “What’s eating Ukrainian e-commerce today?”. Photo: Olga Zakrevska

In 2013, the most successful year for e-commerce in terms of turnover, the online retail market grew by 25% compared to 2012 and amounted to about $ 2,2 billion (UAH 16 billion). At the end of the year, Rozetka took 135th place in the Forbes Ukraine rating of retailers with the revenue of UAH 2,13 billion ($ 350 million) and became the largest online store (Allo and Mobilluck stores took the second and the third places respectively).

At that time, Rozetka was already selling on its website various products for outdoor activities, sport and tourism, for children, household goods, games and gifts. The website had 160,000 stock key units. Chechotkin felt quite confident and tried to experiment by displaying certain products at the website. However, the company maintained strongest positions of the traditional categories – engineering and electronics. While the share of Rozetka at overall online market was 13% (Ernst & Young assessment), the share of 35% in the segment of household appliances and electronics assured its absolute leadership.

However, the crisis burst out in 2014 collapsing the market in dollars to 1,5 billion (it grew only slightly in UAH to 16,6 billion). Ukrainians became poorer because of the fall in exchange-rate. An average check in stores has been cut in half. Later the pessimists forecasts would come true: the decline would continue in 2015 pulling back the online commerce market to a volume of $ 1 billion.

With the onset of the crisis in 2014, the experiment of Rozetka with product categories entered an even more active phase. The section “railway and air tickets” was introduced already in February, clothing and footwear appeared on the website in April. These segments are much more profitable than electronics, for instance: the margin in the trade of footwear and clothing can be from 50 to 200%, says Valentin Kalashnyk, president of Ukrainian Association of Direct Marketing. It rarely exceeds 10-15% in the segment of engineering and electronics.

Realizing that the usability of the site is affected because of such an intensive expansion, the management of Rozetka completely updated its design. The new version of the website adjusted more to the expansion of categories was launched in March 2015. “We can no longer be called a specialized electronics supermarket. We are moving towards the actual Internet supermarket, where you can buy almost everything from mobile phone to clothing and seeds for your summer house,” the company’s press service reported.

Rozetka before/after the redesign

Within 2 years, Rozetka introduced the categories of seeds, auto products, jewelry and cosmetics to its product assortment and began selling alcohol. In 2016 the company entered the grocery segment and launched a sale of books, and in January 2017 pharmacy products became available for sale.

Chechotkin claims that the company has already been working on the marketplace model for several years. “A little more than a year ago we released it to the public as an offer for partners,” he said. Today there is a direct link “to sell on Rozetka” on the main page of the website. By clicking on it you will be requested to fill a short application form for partnership.

Long way

When Amazon decided to start selling something other than books, DVDs and CDs were introduced to the product assortment and then Jeff Bezos set his sights on children’s toys and electronics. However, he did not even imagine what difficulties were ahead: these goods required a completely different approach than those that were already familiar to the retailer. In 2000, with the Christmas boom on toys coming up, the head of the company made all possible mistakes in the estimation of both the required range and volume. Still not knowing this, he invested $ 120 million in a new sector and swore to the team that he would personally landfill all the leftover stock using his car should there be any after the holidays. In the end, it would be problematic to implement this, especially considering that Bezos was driving Honda Accord at that time: the company could not manage to sell toys for $ 50 million.

The expansion of Rozetka has not passed ideally either. Competitors assure that Chechotkin was not selling sport goods very well and there did not seem to be a surge in railway and airline ticket prices. “I admit that the traffic of Rozetka could be monetized in this direction. But the way I would do it is very different from how they did it,” says Serhiy Kravets, director of Tickets.ua. “Tickets pay off, but they are not something outstanding for us so far. They generate hundreds of sales a day, not tens of thousands as we expected,” agrees Chechotkin. Rozetka is not interested at all in selling such products like books, for example, he says, as its logistics is simply not tailored to such low-margin products. “Or tires. There are strong players here who have well established processes. It is more profitable for us to cooperate with them and not to enter this market,” he continues.

In general, the head of the company reluctantly talks about the categories he succeeded in and the ones he failed. “And it makes sense, because it is also a competitive advantage if you know what you need to sell by yourself and what should be outsourced,” Alexander Olshansky agrees.

“Quite logically, they have failed. For example, we clearly understand that selling electronics and clothing are absolutely different things. Everything is different: from displaying on the website to communicating with clients and delivery,” Dmitry Pokotilo, Founder of F.ua, notes. He recalls how Fotos (the forefather of F.ua) for a long time has been losing money on delivering large-sized household appliances, until the logistics of the store was adjusted to this category new for the photography equipment seller.

“Why are we doing so well? Perhaps we really love money,” Chechotkin jokes. He also adds that commercial risk is the main point in trade.

“Marketplace fixes this problem for us, the risk whether a product will be sold or not is taken by an entrepreneur,” – the businessman tells.

It is indicated on some products on the Rozetka website that the seller is not Rozetka itself, but one store or another its partner. There are about 30 such stores publicly available on the website, although the head of the company claims that there are several hundred of them. As he said, according to the assortment, most of the products on Rozetka are the products of partners, although in retail trade the greater part is the production of Rozetka. He does not give exact figures, but says that the positions of Rozetka in the field of household appliances, children’s goods, and clothes remain very strong.

According to AIN.UA, the categories of such products as books, car tires and pharmacy goods are almost completely outsourced. In the categories of auto products, footwear, clothing, children’s goods and household utensils, the assortment of Rozetka intersects with its partners ones. How is it possible to compete with one product on the same platform, for example, in clothing? The segment is very large and lucrative, there is enough space for everyone. “For the purposes of discussion, there are expensive ethno brands. Each vyshyvanka costs UAH 10,000. Do I believe that they will be sold? Not sure. But my partner believes, then let him take this risk,” says Chechotkin. The market of organized clothing retail in Ukraine is estimated at about $ 5 billion. Online retailers have only a small part of it, no more than 3% (according to UADM estimations, $ 140 million in 2015). However, given that more and more Ukrainian Internet users prefer to shop online, these figures will obviously increase.

The most significant competitor of Rozetka in terms of marketplace is OLX ad aggregator. The companies compete for the attention of the Internet audience. According to Factum Group Company, in 2016 OLX outrun Rozetka in two key categories audience reach (45% vs. 40%) and average daily share (17% vs. 9%). Why is that important? Sellers use both websites to attract attention to their product. “Sales on Rozetka do not provide us with a special additional revenue, although their percentage is very loyal. The partnership with them serves more to the image purpose, it is like an alternative to promotion in Google,” Artem Kiryahno, head of the online store for clothing trade GrandUA, admits.

In this context, both Rozetka and OLX are akin to online media: they act as advertising platforms and monetize their traffic. However, the conditions are different. OLX places advertisements free of charge, but sells packages for business users, who are not satisfied with the limited number of placements. Prom.ua charges a subscription fee from customers for the period of service.

Rozetka can offer its partners a wide range of services communication with customers, warranty service, delivery and storage at its warehouse. The company does not act as intermediary, but guarantees the quality of goods to buyers by its name and reputation. In doing so, it charges a commission for the effected transaction from partner rather than a fixed fee, as competitors do. “Commission can be different, from a fraction of a percent to tens of percent. It depends on the range of services and the terms of the agreement, which may differ for clients,” says Chechotkin.

Problem logistics

Amazon began its activity under the motto: “to sell as much as possible, to carry as little as possible.” Bezos was obsessed with the idea of creating such a virtual store that would not exist offline. This model was hardly intended for stockpiling and the right to form the assortment was initially delegated to Amazon trading partners and publishing houses. The cost of storing books was also delegated along with this right. But the businessman quickly understood that customers want fast delivery and they had to do it on their own. So the focus of the model shifted to efficient logistics, the company launched a grandiose investment project for the construction of fulfillment centers throughout the USA and later in other countries around the world.

“The construction project of Rozetka is very expensive. It is necessary not only to have funds to buy it, but also the volume of the market, so that it will pay off. We cannot afford this and hardly anyone else can,” Dmitry Pokotilo from F.ua says. We are talking about the huge warehouse complex in Brovary acquired by Rozetka in January this year. The A-class warehouses of a total area of about 49,000 sq. m are located on a plot of 9.5 hectares in 10 km away from Kyiv and 15 km away from Boryspil International Airport. $16 million spent on the purchase is not everything. “Twice as much as we spent on the warehouse, we will spend on its equipment,” the owner of Rozetka says.

The point is that the warehouse will be automated. The dimensions and equipment make it almost unique in Ukraine. They say on the market that even large offline networks do not have something like that. They do not have to, as their business model does not involve creation of such large stores as they trade “off the shelf” and not from warehouse. For comparison, the size of Auchan network in Kyiv Region is 27,000 sq. m, the warehouse of EpiCentre occupies an area of 20,000 sq. m. in Kalynivka urban-type settlement. Fozzy Group uses its own distribution center with an area of 30,000 sq. m (although the total storage area of the group exceeds 100,000 sq. m.), and fulfillment area of Nova Poshta, that is two warehouses in Brovary and Belgorodka, reaches 18,500 sq. m.

“No distributor stores at his warehouse more than 5,000-7,000 names of goods. Perhaps some electronics distributors have up to 10,000 unique products at warehouse. We have 1.5 million items, we sell 250,000 unique SKUs every month. These are completely different challenges, technology and processes,” Chechotkin says.

“Is there something like this in Ukraine? I do not know, I’m not sure. In fact, Rozetka is one of three largest companies in Ukraine (by the number of client transactions) along with PrivatBank and Nova Poshta,” Olshansky believes. According to Chechotkin, logistics is now the most cost-intensive part of the company’s budget: the company spends about $ 1.5 million on it every month.

The purchase of a warehouse and movement towards the marketplace are interrelated processes, confirms co-owner of Rozetka. “We are setting a new logistics and this will allow us to offer full service to our partners,” he says. It is interesting that in this niche his company will have to compete with Nova Poshta, one of its best partners. Not so long ago, Nova Poshta started rendering fulfillment service based on outsourcing. “You can just bring them the product, everything else they do by themselves – sorting, repackaging and delivery to the buyer,” – says Dmitry Pokotilo. Many online and offline retailers are among the company’s clients: Allo, WOG, Nestle, Philip Morris, Garna Mama, Rozetka and others.

However, Nova Posta is not only fulfillment. In fact, it saved Rozetka many troubles that neither Amazon nor many other global online retailers could avoid. We are talking about the most important, “last mile” of delivery delivery to the buyer. “Once Rozetka tried to develop its own delivery, they had a company for this purpose. But it could not manage to compete with Nova Poshta and it was closed down,” the market participant, who asked to remain anonymous, says. Chechotkin partially confirms: yes, Nova Poshta can do it more effectively in terms of economy. Rozetka has not disbanded its delivery service, but limited its activities to the territory of Kyiv, he clarifies.

Nova Poshta made an enormous contribution to the development of e-commerce in Ukraine. You cannot even imagine how big it is,” Chechotkin assures.

“Ask our neighbors in the north or north-east what is the situation with delivery in their countries. They will howl and swear. We do not have that kind of thing.”

Gods of content

What else, besides effective logistics, it is necessary to have to be a marketplace and make money on growth of your partners? In Amazon, huge value has always been seen in creating a convenient infrastructure for website users. At first Bezos invested tremendous funds in the purchase of technology companies and start-ups that could join the structure of the company and raise it to a new level of innovation. During the dot-com crash in 2000-2001, many of them went bankrupt, and Amazon began to develop independently. One of the company’s notable achievements is the 1-Click online shopping system allowing reducing the number of actions a buyer takes before buying up to 1 step. Once Bezos tried long and unsuccessfully to defend his patent right to this system and today hundreds of stores around the world use it (or try to adopt it).

Amazon paid much attention to technologies aimed at attracting users to the website, as well as at analyzing their behavior on it. Two different departments, the editorial and personalization ones, with hundreds of employees have worked on these tasks for a long time. In the first department, copywriters and editors dealt with the buyers, who played the role of product experts and made individual detailed descriptions on them. The second one employed analysts and programmers who worked with dry figures and designed algorithms. When the crisis started and the question of one of the departments dissolution arose in order to cut costs, the editorial department fell victim to it. Tests have shown that the stereotyped recommendations are more effective. Algorithms defeated people.

In Rozetka, there are people working on content: there are about 60 copywriters and editors in the staff, even more people are working on outsourcing. Chechotkin clearly understands how to catch the Internet user on the hook. After all, most people search through the network in order not to buy, but to get information. “We relied on content from the very establishment of the company. Not to brag, but if they start talking about some new trend in e-commerce in terms of content, it means that Rozetka has been in this trend for several years,” the businessman tells. He states that the base of videos, reviews, comments and product descriptions, which was created by Rozetka during its existence, is the largest in the Russian-speaking segment of the Internet. “I agree, they are the gods of content, we can’t reach this too soon,” the representative of one of the competitors, who asked to remain anonymous, confirms. For example, the video channel of the store on YouTube is ahead of e-Bay and Amazon channels in terms of traffic and number of subscribers.

$400,000 Rozetka spends every month on IT development

The technical department of the company employs even more people than the editorial office over 100 developers apart from outsourcing. Chechotkin says that Rozetka spends $400,000 per month on IT development. The company strengthens its IT infrastructure every month, constantly rewrites modules, optimizes load and just physically expands capacity by increasing the number of servers every year. “Perhaps, the infrastructure of the website is the least problematic place for us now,” co-owner of the company states.

Of course, the gap between Amazon and Rozetka is huge, if only because of market volumes and over recent years the American retailer has gone even further. In fact, today it is not only an online store, but also a technology company. In 2015, 55,9% of Amazon’s revenue came from the product of Amazon Web Services, a cloud-based operating system, an e-commerce platform for many companies. It is the logical continuation of marketplace development: IT infrastructure improvement and automation of processes reach such a high level that it allows scaling service and selling it separately as business services.

Does Vladyslav Chechotkin consider such a path for himself? So far, he believes that e-commerce in Ukraine cannot exist without a strong off-line component and intends to develop this direction first of all. However, who knows, maybe one day Rozetka will also become not a trading company, but an IT one.

Tell us about the direction and methods of some of your research

Scanning tunneling microscopy is a method that allows humans to see a separate molecule or atom in a direct space. Regular microscopes help us observe objects through a system of optical lenses and refracting light. You can see single-celled organisms this way, but molecule-size objects remain invisible to the naked eye. Their size is smaller than the length of a light wave. A tunneling microscope uses a special edge that seemingly “bombards” a substance with a stream of electrons, allowing us to “see” and photograph the structure of a molecule, as well as the separate atoms.

Why is this important to observe? The electronics that we use today are predominantly non-organic. But we’re stepping into the age of organic electronics. A prominent example are the displays of mobile phones that work on organic substances, among them – liquid crystals. So, studying how exactly organic molecules settle onto a surface and how they change their qualities based on location is vitally important.

A scanning tunneling microscope in Anton’s laboratory. This kind of equipment costs hundreds of thousands of euros.

We study the molecules of various substances, for example: alkanes, arachidic acid and others. They all vary based on just one group in the “tail” of the molecule. If you change these groups, the molecules rearrange themselves in different ways. Consequently, “playing around” with these substances allows us to create surfaces that have radically different qualities: in terms of light refraction, friction, etc. The photo below shows an alkane molecule on a sheet of highly oriented pyrolithic graphite. Each white dot is a group of CH2 or CH3 from the “tail” of the molecule. The size of the frame is 6×6 nm (nanometers). To compare, the width of a human hair is 75 000 nm.

We are able to show how the world is built on a nano-level. Some scientists create nanotechnologies, we visualize them.

Your tunneling microscope seems to be quite expensive. What can you say about the financial support of Ukrainian scientists and the supply of necessary equipment?

Modern equipment really is quite expensive, hundreds of thousands and sometimes – millions of euros. Everything that could have been discovered using copper wire and glass vials has already been discovered. Our microscope was bought in 2004-2006, when at least some funding was allocated to our scientific sphere. Since then, this microscope has allowed us to write several serious scientific papers.

Artem Vasko, a postgraduate student of the department of physical electronics, doesn’t let the lack of equipment get him down: he printed the levitation tribometer necessary for his experiments on a 3D printer. He built the 3D printer himself.

The issue is that the equipment isn’t only expensive but when scientists import it into the country, we have to pay customs fees. The result is absurd: non-profit organizations have to (de-facto) return money to the government for fulfilling their primary, government-dictated functions. The customs code obviously needs to be amended so that scientific equipment shouldn’t be taxed this way. We submitted a proposal for this to the Ministry of Finances.

The levitation tribometer requires extraordinary precision in its construction and is used to measure friction between two substances.

As far as we are aware, this provision has been entered into the mid-term agenda of the government that should be completed by 2020. Meanwhile, we have to find creative solutions for our problems. In other countries, scientific equipment is changed or updated every 5 to 15 years. Sometimes we manage to get used equipment through our personal connections.

How is Ukrainian science financed at the moment?

The financing of science in Ukraine currently amounts to 0.18% of the GDP. The average for Europe is 1%, the optimal level is around 2%. UNESCO 2015 statistics place Ukraine second to last in Europe in terms of the number of scientists. Only Romania is below us in this rating. 2016 has further worsened this decline: 6000 people left their jobs just at the Academy of Sciences.

The walls of the Institute have been decorated by artist Daria Marchenko, the author of the famous “Face of war” project – the face of Putin made from bullet shells gathered in the Donbas region. Later on, the colored background will be covered with drawn formulae of the basic laws of physics.

The country’s scientific budget for next year mirrors the current one. But considering the changes in state financial standards, we’ll still have to lay off people. We usually pay for repairs from our own personal funds. Due to a lack of resources, most of our infrastructure is in a horrible state. A pipe burst recently on the fourth floor, ruining the recent renovation. The utility bills are also quite depressing. Heating costs eat through most of our humble budget. We’ve already been forced to shift to a 4-day work week due to this.

Alexander Marchenko (PhD in physics and mathematics, associate member of the Academy of Sciences, specialist in physics of surface phenomena): “Ukrainian science is currently being exterminated. Everything that’s achieved is done based on bare enthusiasm. If this continues, science here will die and we’ll get a country of pseudo-scientists. This is the opinion of a professional physicist.”

The NASU is often accused of doing “god knows what”. But we often don’t even have the right to talk about the things we’re working on. The Academy, for example, develops measurement devices for anti-rocket defense systems, as well as technologies for extending the life of nuclear reactors. This is extremely pragmatic work, without it – we would have had to import electricity from Russia years ago. I published a list of 473 useful Ukrainian inventions. There was simply no financing to implement a large number of them.

How do Ukrainian scientists survive? From time to time they go abroad to earn a little money, to bring back some equipment and reagents. I’m not kidding. For example, the gold sheet for the tunneling microscope is used by French researchers once, but we cut it into 9 pieces, since every sheet costs 60 euros.

When I was teaching an American student to work with the tunneling microscope in Paris, he asked me once how much I earned. I said: “$200”. He clarified: “Per week?”. Usually, though, we don’t talk about wages, it’s unethical.

There was a story recently with the biologist Oksana Piven. She does research on heart problems and received a grant to continue her work. But the grant didn’t specify that she had to transport research components from abroad. The Germans gave her some expensive certified lab mice as a gift. Due to bureaucratic provisions, she couldn’t take money from the grant fund to bring the mice to Ukraine. We needed 1000 euros, so, we had to crowdfund it all through Facebook.

My academic adviser could tell you how Kyiv scientists lived in the 90s. How they would bring one loaf of bread for the whole lab team and everyone would be over the moon because they had food. And every evening they would work a shift on a construction site to earn additional money. It’s not that different today. Many of our colleagues become private tutors for the same reasons. My neighbor, a professional botanist, loads wooden planks during the weekends. A scientist shouldn’t have to do that!

How many scientists leave Ukraine?

Government officials tell us: “Look for Western grants.” But Western universities would rather bring our scientists to their own country than financially support the infrastructure here. It’s just cheaper, it makes more sense. By most estimates, science can support itself, create an intellectual environment in the country, combat pseudoscience and support labs if the field is financed by the government at around 0.5% GDP. We have only 0.18%. A young researcher receives a salary of 3000 UAH [around $120], this is the wage standard for a pizza delivery person or a cleaner. People just can’t survive on that money here. And they leave.

Financing for science is growing globally, as is the number of scientists, but Ukraine had 1200 researchers per one million citizens in 2015. One of our young scientists left for Switzerland this February. Another one left to work in IT, a female colleague went to Turkey on December 30th.

Why does UNESCO emphasize the ratio of scientists to citizens? It’s because science needs a stable environment. The community will always have unproductive “fringes” and a productive “core”. It’s specifically this core that makes the breakthroughs and creates the scientific environment. Science is a big bowl of soup, a brewing ecosystem: researchers communicate, share ideas. But how can it stew if our scientific environment is dissolving?

I spoke to Natalie Jaresko when she was still the Minister of Finances. She said: “we created a harsh financial environment so that the ineffective employees would be filtered out and the effective ones would be left.” But it doesn’t work that way. Scientists are the people that are in love with their research. They’re willing to endure hardships. But they also need basic things like equipment. If the government doesn’t provide it, the scientists will go where it’s available. You can’t do research with a shovel.

The result is that many accomplished and motivated people just leave. We end up with a negative selection system. I recently heard a poignant joke: “Dad, what’s a botanist? A botanist, son, is someone who works two-three jobs so that he can study plants in his free time.”

When Ukraine becomes a strong country, it will need a strong scientific community. To catch up with Western technologies, at the very least.

Why haven’t you immigrated, personally? You’ve already worked in Paris.

Yes, in 2013 I had an internship at the Pierre-and-Marie-Curie University and was later invited as an independent researcher. When the events of the Maidan happened, I came back to Ukraine. The tent of our scientist-colleagues was one of the first ones to appear on the Maidan. It stood right in the empty fountain.

I remember after the slaughter in Mariinsky Park, Sasha (Alexander Skorokhod – head of the Young Scientists’ Council) and myself were sitting in the dorm and he showed me his helmet. It had a huge dent from a rebar strike. A pseudo-protestor backed by the Yanukovych government had hit him. I sat there and though about the differences between the Maidan and the Anti-Maidan [a minority movement set up in response to the Maidan, largely believed to have been composed of petty criminals paid by Yanukovych’s government]. I came to the conclusion that it was a battle of civilizational approaches. It was a time when a criminal could kill a scientist. And the scientists were there for a peaceful protest. In moments like this, you can’t just stand by and watch.

By the way, I had an interesting experience in 2014: I came back to Paris and some people (EU citizens, mostly) asked me how things were going in Ukraine. I told them how Russia had invaded, Crimea was annexed, a war had broken out. And as I relayed this story, I realized that it was met largely with indifference. But things changed drastically when the MH17 Boeing was shot down. All my European colleagues came to my lab and asked: “Anton, what’s going on in your country?”. In all honesty, it was a fairly unpleasant, almost hurtful experience.

After the tragedy, Ukrainian flags sprung up all over the university, but the shift in perception from our European colleagues really shocked me at the time.

Going back to the question of immigration, by then I had already started working in the field of popularizing science with a civil activist group. Â They were pushing a progressive law to support scientific and technical activities. I realized that I couldn’t just leave and watch it all from the sidelines. You can’t build a country from the outside, even though we’re always thankful for any sort of help. But you need people working “on the spot”. Our community, the scientificjunta [a humorous/sarcastic play of words on the term used by Russian propaganda against Ukraine], as we used to call ourselves, along with the passionate citizens that supported us.

My general stance on immigration is a harsh one: no more retreating, no more backing down. But I can sympathize with the scientists that leave. If the cure for cancer can be discovered by a Ukrainian researcher in the U.S., where he/she will have the necessary equipment, then it’s only right to go. The brain drain is what leads to people complaining that we don’t get any Nobel prizes.

When will Ukrainian scientists get a Nobel prize?

Nobel-worthy research takes decades. The first seeds of the research that was recently awarded a Nobel prize in physics were planted by a Kyiv scientist in the 1960s and 1970s. If he was alive today, he would have received the award. However, as far as I’m aware, there have already been several Nobel prize winners that were Ukrainians by birth or ancestry.

I think that the next Nobel prize might be awarded for the confirmation of gravitational waves. But just imagine how many years it took to develop the equipment to prove this theory. Look at Ukraine in this regard: if we take our relatively new independence as a starting point, 25 years is a very small period of time (for science in general). If we had received around 1% GDP worth of financing constantly since 1991, then the question of “where are all the Nobel prizes?” could be legitimate. Sadly, that isn’t the case.

Marina Viazovskaya, a Ukrainian scientist, recently received the Salem award. This is the second-to-last step before the Fields award, the Nobel prize counterpart in mathematics. Marina is a Ukrainian, why did she leave to work abroad? Probably because the temperature in the Institute of theoretical physics in Ukraine rarely goes above 5 degrees Celsius [41 Fahrenheit]. Marina Rodnina, a biochemist who works in a German research facility, is Ukrainian as well. She received the Leibniz award. Why did she leave? Likely due to the fact that scientists were paid literally several dollars per month in the 1990s.

It’s a similar reason to why our army couldn’t defend Crimea from Russia in 2014. The army was being dismantled and robbed for 25 years. How is Crimea different from the Nobel prize in this regard? For some reason, a harsh cost-cutting environment didn’t make the armed forces better. The unproductive weren’t filtered out and the productive people weren’t the ones left. It was the exact opposite. How is the issue of financing science any different? It isn’t.

Same story with the police back in the day. During the Maidan, citizens formed self-defense brigades to protect our neighborhoods. We knew that Yanukovych-backed criminals were being shuttled from other cities to Kyiv to fight for his government. So, we took up Ukrainian flags and any sort of improvised weapons and defense we could find. When we passed the police precincts, we saw the law enforcement hiding in the building, looking out with frightened eyes. The police in general just disappeared from the city during the Maidan revolution, they weren’t protecting anyone. Why? Negative selection, just as in all the other scenarios I described. It was the unproductive ones that were left.

There’s a social contract: professionals receive their financing and then they produce results. So far, Ukrainian science is striving to produce results without any decent support.

Tell us about the new science bill. What does it change?

It’s a progressive reform bill that cost a lot of sweat and blood to put forward. It implements transparency in financing. It creates the National Research Fund which will accumulate money both from the government and from private investors. The fund will work similarly to ProZorro [the award-winning Ukrainian e-government system, focused on transparency of state procurement]. We’re very supportive of this model. Scientists will apply to the Fund for grants. The latter will be provided based on impartial and independent analysis. This is good as well, since we’re not always happy with the level of transparency and objectivity within the current grant selection process.

Scientific groups from the Institute sometimes manage to secure grants for the purchase of modern equipment. For example, Yelena Fesenko, head of the Surface-enhanced spectroscopy lab, succeeded in purchasing a micro-Raman spectrometer thanks to international funding. The device is equipped with a microscope and allows for the spectral analysis of objects. It enables research on even separate cell or their components, the identification of carbon substances – telling the difference between graphene and oxide graphene and much more.

The law also has a provision for the creation of a scientific committee that will include world-class researchers. It will define the long-term strategy of scientific development in the country. All this was supposed to start working last January but it drowned in red tape. Now we’re hoping that the Fund will start functioning in 2018.

Do scientists turn to businesses for financial support?

Scientific developments that provide billion-dollar profits need multimillion dollar investments and decades of work. But our businesses are used to short-term timelines and outrageous profit margins. If you mention a clinical trial that takes 10 years, you get blank stares from the other side of the table. For example, our researchers are working on anti-burn bandages for the frontlines. They did a presentation of the product. They were praised for it but nobody gave any money.

Furthermore, even IT companies are pressured by law enforcement. If the police storms in with no reason and shoves everybody in the office face-down into the ground what sort of high-tech business environment are we talking about? Clinical trials need sterile labs with a controlled temperature level and so on. And in Ukraine, even the automotive industry doesn’t communicate with scientists.

Dmitriy Balakin, senior researcher at the department of absorption phenomena, tells us about super-vacuum lamps. With the help of these devices, physicists have been studying the behavior of ultra-thin membranes on surfaces for over a century. But the manufacturing of these lamps was done by hand, day and night, from 5 to 10 years, with an extreme level of accuracy. There’s a story about a scientist that worked on a similar lamp for 5 years and when it accidentally broke, he literally couldn’t live through the tragedy… The Institute is currently planning on creating a museum to show young physicists what kind of equipment was used by their predecessors in the past.

I talked to our colleagues in the Institute of metal physics: in the 90s, one of the most prominent global automotive brands placed orders with them for the development of shock absorbers. Our car manufacturers never bothered with such cooperation. There are rare cases when our oligarchs contract scientific facilities to work on various alloys for the railroad industry, but those are few and far between.

Science is picking up in popularity around the world. The Mars rover has a twitter account. NASA streams videos from the international space station. What about popularizing science in Ukraine?

There is some encouraging progress here. If we compare the level of public interest for science 3 years ago and now, the difference is staggering. My inbox is overflowing with invitations to read lectures or visit schools. Our scientists give speeches and visit science fairs. The NASU created a Facebook page a couple of years ago. Our researchers are a lot better known today, they often get asked to come on the radio, on TV, on Hromadske [An online news channel that rose to prominence during the Maidan].

Dmitriy Balakin prepares the equipment for his experiments. This device allows him to observe catalytic effects on the surfaces of refractory metals in super-vacuum conditions (10-9 Pa). Working with this equipment requires not only a knowledge of physics, but also actual physical effort. It gives Dmitriy the chance to research new types of catalysts. For example, in modern cars, catalysts based on palladium and other expensive elements are used to measure CO emissions. Dmitriy’s team is researching more stable and inexpensive options based on iridium, cerium, ruthenium.

We have “bastions” for science popularization. The chemist Gleb Repich has a popular science show on the 1+1 TV channel [one of the oldest and largest cable channels in Ukraine]. The Kunsht magazine is also active but it needs constant crowdfunding to stay afloat. There’s no stable system or network, though. There’s no “Discovery Channel”, so to speak. That’s what we should aim for.

Can this type of public popularization help science?

Definitely. That’s why we’re doing it. In reality, I’m always loathe to leave my work to give interviews, explain the intricacies of the field, analyze financial laws and so on. Looking into a microscope to discover something new is a lot more fascinating. And that’s one of the huge problems of communicating with scientists. Their brains are mostly wired to understand the world. They don’t do well in public speaking and PR activities.

As a rule of thumb, the stereotype of the shy introverted genius is based in reality. These are the people that usually reach astounding heights in science. Of course, there are people like Richard Feynman, who wrote a bunch of popular books for the general public and was also one of the brightest minds of the century. But these cases are exceptions.

As a result of this communication problem, you get the media writing absurd articles about black holes that will appear from the large hadron collider. Not to mention even more ridiculous stuff.

Yes, unfortunately, science isn’t regarded as a lucrative or popular subject by the media.

I wouldn’t say that’s exactly true in all situations. For example, the news about the confirmation of gravitational waves was quite resonant.

Not in our country. We have a “bug” in our communication with Ukrainian journalists. They either describe inexistent sensations or promote outright pseudo-science. Interestingly enough, not only journalists fall victim to sensationalism. Science often turns into some sort of commercial affair. Researchers start fighting over projects. If you didn’t produce some spectacular results based on your current grant, you likely won’t see another one. That’s why we see articles that embellish or exaggerate various research.

A lot of effort is put into discovering new things, but there are nearly no articles that re-check existing results. I recently saw the statistics for medical trials: 10 out of 100 are confirmed, only 1 out of 100 is implemented. Sometimes these results are even ascribed to statistical error. Unfortunately, the grant system is still the best one we have, even though it isn’t perfect.

[An elaboration from AIN.UA] There’s a famous humorous science story: at the beginning of the 20th century, the French physicist Prosper-Ren Blondlot announced the discovery of the so-called N-rays that had numerous fascinating properties. One of his experiments was as follows: N-rays, focused in a spectroscope through an aluminum prism, fell on a string covered in cadmium sulfide which would start to glow as a result. Approximately 120 scientists around the world confirmed that they had supposedly observed the glow. However, after one such demonstration, an English physicist named Robert Wood confessed that he had removed the prism from the spectroscope, yet the glow still persisted. The discovery was soon proven to be false. If the sensationalism that Anton describes continues to thrive, the amount of “N-rays” in science will constantly increase.

You mentioned pseudo-science. How popular is it in Ukraine?

When you tell people that you can cure cancer with some kind of wave technologies or “charged water”, this leads to the general population losing sight of the scientific truth: people refuse to vaccinate, they neglect their health. When “scientists” state publicly that leptons [a subatomic particle, such as an electron, muon, or neutrino] have a mind of their own, it has terrible consequences. As an individual, you have the right to believe in anything, even in the spaghetti monster, but when public scientists start spreading myths about the magical properties of water, it discredits science as a whole.

What defines the scientific method? The most complex effect can be reproduced and demonstrated through its components, observable by anyone. Even the large hadron collider is based on fundamental mathematics. But if people are trying to sell you a battery with some supposedly “unique” qualities that break the law of the conservation of energy… that means they’re charlatans.

How do you identify pseudo-scientific claims?

The promise of some fantastical results, a panacea, lack of comprehensive publications in respectable scientific journals. Stories of how “the government is hiding the truth from you”, of how “the intelligence services are hunting scientists”. Throw in some tales of the “pharmaceutical industry mafia” and “reptiloid aliens” and you’ve got a party.

On a more detailed level, these “inventions” often obviously contradict the laws of the conservation of energy or matter. A prominent example are the solar panels that the media has promoted so much lately. Their creators promised that the panels take 1 kilowatt of energy and produce 3 kilowatts. Ok then, why don’t we create a loop? We’ll get an infinite source of energy, apparently. That’s just utter nonsense.

I was at a meeting once between representatives of business and science. I remember a young man goes up on stage and says: this lamp over here, there’s cold nuclear synthesis going on inside it. I asked him: Where’s your Nobel prize then? This is clearly an astounding discovery. And he says: “Well, our invention contradicts official physics. We’re being persecuted for it.” You can’t be serious… It always boils down to conspiracy theories. These people love mystifying everything and are extremely afraid of direct questions and answers.

And this is one of the reasons that the brain drain of scientists is really bad: the number of people who can call out charlatans is diminishing.

You’re involved in the Prometheus online education project. What does that entail?

I’ve always dreamed of learning to code. Not knowing how to code nowadays is like not knowing how to read. I signed up for an online Python course taught by lecturers from the Kyiv Polytechnic Institute. It was the first time in my life when I understood every single thing in an online program. I was so proud! 🙂 That was the moment I realized that online education really works. What I also love about it is that it completely negates the idea that “I can’t learn this because I have no money.” The main culprit behind ignorance is laziness. End of story.

I contacted Ivan [Ivan Primachenko, co-founder of Prometheus] and offered my help. I’m currently searching for lecturers, organizing online courses and many other things.

What about launching scientific classes for the general public? “Physics for students of humanities”, for example?

It’s in the works. We’re looking for teachers at the moment.

Which scientific discoveries really impressed you in recent years?

I’m less focused on discoveries and more on the equipment and research programs that are aimed at enabling them. The gravitational wave registration device – LIGO, the Curiosity rover, the Rosetta and Philae. Beyond that, I’m fascinated by everything that’s new.

The interview and tour of the Institute lasted for the entire day instead of the one-hour affair that we initially planned. Anton kept telling us stories about science and the people who move it forward. He even brought us beyond the security checkpoint in the research facility:

I remember during the events of the Maidan, when Yanukovych ran away, people were lighting candles for the Heavenly Hundred [the one hundred civil activists killed in the streets by pro-government forces during the Revolution of Dignity]. But there were also smiles and hopeful expressions: finally, Ukraine has stepped onto a new path, everything will be OK now. This absolute optimism led to disappointment down the road. Ukrainian science is similar in this regard. Many people left feeling dispirited. But we’re not giving up. While there’s still light in these windows, there’s hope.

Maxim Bakhmatov commented, “We went out from VDNG, because we realized that we would spend a lot of time with uncertain result due to many unclear things, which take place in the legislative environment. For the same period of time here we will finish construction. It is a private business and private territory, and we can do here whatever we want based on the concept that we now develop and improve.”

We are going to make considerable investments to the project: for the period of four years the main and sole investor Vasiliy Khmelnitskiy intends to spend up to $200 million on UNIT.City. He said, “In the world such projects are commonly referred to as innovative parks. However, we would like to create something more than that – the whole innovative city that will become a unique ecosystem for companies, operating in the sphere of high-tech and creative industries.”

UNIT.City project goal is to integrate educative, business, cultural, medical, sports and entertainment facilities, aiming to provide small and medium-sized innovative business with access to all infrastructure and expertise, required for rapid development, in the same territory. Something like that was described by Dave Eggers in his book “The Circle”. This book will soon be filmed in a movie starring Emma Watson.

A city within a city

Now we have opened five facilities in UNIT.City, which will be described below. According to Maxim Bakhmatov’s evaluations, it is about 2% of the future city. The total area will cover around half a million of square meters.

By the way, the first stage of UNIT.City already makes quite strong impression. The territory with its buildings and decorative elements reminds well-known campuses of Google, Apple and other Silicon giants.

Total area of future innovative city is rather impressive – about 25 ha of the old Kyiv motorcycle factory, which is going to be fully built up. Construction works are in progress and, for today, the work is humming just behind the building of business campus.

Meanwhile, the team of UNIT demonstrated already finished facilities. Business campus, sports complex (free for residents) and café are located on the area of 4,000 square meters.

Another 3,000 square meters are occupied by free of charge programming school named UNIT.Factory that we were talking about earlier. It is the key educational element of the city that, in fact, UNIT.City started from. Here they also have one more educational project -Bionic University (course of studies started on March 1, 2017).

It is noteworthy that when AIN.UA had a tour of the school, all these new buildings in high-tech style were absent around the school. The city is growing with really high speed.

Who are those that UNIT.City is built for?

The center for entrepreneurship creative development, as partners see it, is primarily intended for representatives of innovative business: small Ukrainian and international product companies, R&D-centers and startups.

A building with mirror walls is the first business campus on the territory of the city, but not the last one. For today, 25 residents, including the well-known Ukrainian startup Concepter, the companies Forland and SmartFarming, the associations Hi Tech Office Ukraine, two laboratories: virtual reality (Sensorama) and 3D-prototyping (FabLab Fabricator), have settled in this campus.

The infrastructure is provided to the residents by a partner of UNIT.City —Technology Companies Development Center (TCDC). It is a project, focused on technological transformations of resident companies. TCDC render them assistance in search for ideas, talent management and team building. Project partners are represented by Kyiv-Mohila Business School and Hi Tech Office Ukraine.

Concepter will move to UNIT.City in May and will occupy the entire floor in business campus. Oleg Malenkov, a cofounder and COO of Concepter, told: “We have chosen UNIT.City, because it offers all required conditions to the companies, which create innovations in Ukraine and sell it throughout the world. We met these guys and grasped their vision. It is similar to ours. We also found out who our neighbors would be. We came here, viewed this place and liked it.”

Previously, office of Concepter was located in the notorious business center that the team was forced to move out. Today, the team of 30 people temporary works in coworking space.

Ukrainian creative agency Fedoriv, which, by the way, is engaged in brand development, communications and design for UNIT.City, will also become the resident of UNIT.City

Andrey Fedoriv, a founder and CEO of the agency, told: “We understand that there is a number of tools that we would like to work with, but have no skills to do it – it is not about classics, like SMM, but about certain experiments. Therefore, we decided to open here a new digital segment Fedoriv Digital Lab, and the experiments will be carried out within the framework of this segment.

Initial office of Fedoriv in UNIT.City will cover an area of 150 sq. m. Andrey Fedoriv shared his vision, “We are not going to make a classic office where people come in, sit at the desk and do their job. It will be like in case with Fedoriv Hub —multifunctional space. Fedoriv Hub proved that it is justified and makes a good story. In “Arena” we already have 1,000 sq. m, and we will continue building up capacities there and, at the same time, will make progress here.”

Andrey Fedoriv also added that it is important for the agency to stay within UNIT.City, in order to remain an innovator in their sphere. He explained, “The clients have divided into two categories: those, who are in the future or seek to be there, and those, who stay in ultratraditional categories. We can cooperate with the companies, which deal with cheese and alcohol in Ukraine and Belarus, as well as with startup, incorporated in Germany and focused on Swiss market. Although, these companies are very different mentally. That is why we need to have faster speed of our internal changes in the agency than the speed of external transformations.”

How campuses work

Business campuses work in the format of club offices under sharing principle. Max Yekover clarified, “Imagine, you have a small company intended for 10 employees. In fact, all that you need is a small premise. You don’t need all other office infrastructure – meeting-rooms, etc. Therefore, you share this infrastructure with other companies. WeWork operates according to the same principle.”

Sharing principle is one of the key ideas of business campus organization in UNIT.City. Therefore, it is not so important how the offices are built in here, but it is much more critical who dwells in these offices. Yakover exemplifies, “Upon completion of repair works, Fab Lab will move in. It means that the opportunity to prototype will be provided in UNIT.City.” Accordingly, presence of Sensorama provides the residents with access to their own VR- and AMR-laboratory.

What is next?

By the end of 2017 they promise to open 20,000 sq. m more for business campuses on the territory of UNIT.City. If the first premises of UNIT.City are the reconstructed buildings of motorcycle factory, the new ones are built from scratch. These facilities will have high ceilings, special ventilation system, required for hardware laboratories, and other constructive solutions, taking into account demands of future residents.

The first building of the second stage is half-finished – the construction completion date is scheduled for June. A huge coworking space will be located on the first two floors and club offices – on the third floor.

Nearby they lay foundation for one more object, much larger in scale. According to Max Yakover, it will be a seven-storied campus with an area of 11,000 sq.m. Old buildings of motorcycle factory will be demolished. On this place they will build a few more facilities that will be finished approximately in November and January next year.

Max Yakover states, “All this will be completed during the next 12 calendar months. Now we hold negotiations with those who will become residents of these spaces. We have a lot of interested people. One building has already been sold for leasing.

UNIT.City expects to become the key location for creative layer of Ukrainians, particularly, those who are engaged in IT sphere. In fact, it will make the project a competitor for such projects as “Chasopys”. However, Max Yakover, being the owner of “Chasopys”, does not worry about it. He explained, “In “Chasopys” I have a management team and here – I am a management team. We will compete, but it is absolutely different scales. “Chasopys” is a nice place in the downtown of Kyiv. And here we are building the city! We also don’t worry about Creative Quarter. We wish them good luck and are ready to cooperate, cooperate with everyone.”

What does the government think?

According to evaluations of Khmelnitskiy, UNIT.City will contribute to creation of up to 15,000 high-paid jobs and will provide the talented youth with an opportunity for self-realization within their own country, thereby reducing brain drain.

Such aspirations and noble intentions, of course, draw attention of senior state officials. On the day of official opening of UNIT.City, Vladimir Groysman, the Prime Minister of Ukraine, visited the territory of the city. He personally inspected the facilities and declared that the government will create all conditions for development of the innovative city.

As for now, the team of UNIT.City is just doing its job. Max Yakover promises that we have a lot of interesting discoveries ahead.