'We shouldn’t be afraid to admit when we aren’t yet capable of doing something'

If you can explain why your project will be a success, investments in your business are guaranteed under any conditions. HSE alumnus and chairman of the board of directors at the R-Pharm group, Alexey Repik, told Success Builder what how to phase out of imports properly, how the government can help entrepreneurs, and how to turn extending people’s lives into a business.

How did you start your business and why did you choose pharmaceuticals in particular?

When I was younger I worked at a distribution company called Rosmedkomplekt, where they offered me $300 a month – big money at the time. That is how I came to the industry I’ve built my business in. During my first year working at Rosmedkomplekt, the company’s turnover grew more than tenfold. This is because I used my knowledge of English and familiarity with the rules of Western business conduct to approach foreign pharmaceutical companies. I went to foreign pharmaceutical companies – which I just found in the Vidal telephone directory and called – and offered them the opportunity to work with us like they learned in economics school – that is ‘civilized’ and not in the ‘style of the 1990s,’ as was common then.

ПAfter parting with Rosmedkomplekt in 2001, I sold my car, borrowed $15,000 from my mom, and created R-Pharm with startup capital of $40,000. I was 22 years old. Two years after I created R-Pharm, Evgeny Yasin suggested that I join HSE’s economics faculty. And by 2005 R-Pharm had beat Rosmedkomplekt by sales, becoming the most important business in my life.

It turned out that pharmaceuticals and biotechnologies is an extremely dynamic industry that is developing rapidly. This is partially occurring due to the fact that current pharmaceuticals no longer satisfy the healthcare system; the life expectancy is increasing, and the product has to change in response. The majority of medicines being developed will be used in the future not for treatment, but for supporting people during old age, and it’s simply interesting for me to take part in the evolution of pharmaceuticals. And it’s not just me – the world’s largest investors think the pharmaceutical industry is the industry of the future.

That is, people are going to live longer and be sick more – is this what you're hoping for?

If we're talking about human psychology in relation to drugs and medicine as a whole, we simply don’t have a culture for disease prevention. Oftentimes a person starts treatment only after the fact, and this is much more expensive. So in this sense, pharmaceuticals also has to change and push people to approach their way of life, as well as disease prevention, more carefully.

An obvious increase is occurring in life expectancy. For the first time ever, in 2014 Russia joined the list of countries that are considered ahead as concerns life expectancy – an average 71 years. In Japan, this figure is 84, and I’m almost certain that you and I will live to be between 110 and 120. If we aren’t sick, we are still getting older, and this process requires a different approach. This is why new industries not connected with illness are popping up to fight aging. In this case, tons of new services will be needed that weren’t needed before. For example, our pets live for around the same amount of time they did 30 years ago, while the human lifespan is on the rise. But I don’t doubt that a boom will occur in veterinary medicine to increase the life expectancy of animals too. The companies that invested in this niche two years ago have already capitalized. Everything is simplified by the fact that almost all medical solutions are applied to animals that are applied to humans.

Let's say you invented a medicine for aging. Will it be easy to patent the drug on the Russian market?

To register a medicine, it has to go through clinical testing to prove to the Ministry of Health that there is a need and that it works. Medicines that already exist in that field of medicine are used as a standard, and if your product produces the same effect as the rest, registration is denied. This is how it is with antibiotics; bacteria adapt to the new types of antibiotics every four years, so the field is in constant need of development. This has to be done rather quickly and profits have to be received. That is, continuous innovation is supported only if truly effective medicines are put onto the pharmaceuticals market. This regulates the market and makes it stable.

And what about the counterfeit medicine market?

This market exists in Russia, albeit very small, but even this is dangerous for patents. The problem is also in the medicines that are being produced in violation of the developer’s rights. It is oftentimes not important for the buyer whether a medicine is counterfeit if it contains the same substances and works, while the official producer looses any sort of motivation for further developing the company. One of the main criteria for counterfeits is price. If you know that a medicine really costs twice as much, then this is definitely a fake…either that or it’s expired. It is better to seek clarification with the producer. If it’s necessary to save, you shouldn’t focus on brands. Famous medicines usually have a cheaper and higher quality equivalent.

Why are foreign medicines of a higher quality than Russian ones?

To hold onto your consumer niche, your product has to meet the consumer’s demand for quality. And you have to earn popularity. In the food industry, we have a ton of great products, but producers repeat in unison: ‘How are we going to compete with large foreign corporations?’ So long as foreign corporations share our market, our companies have the opportunity and time to get good at creating new technologies and products that are able to compete and will be in demand among Russian and foreign consumers.

We shouldn’t be afraid to admit when we aren’t yet capable of doing something. Let us remember Peter the Great, who learned how to build a navy from the Dutch and then beat the Swedes. Our level doesn’t allow us to make things better than others, which is why we have to take the best in the world and bring it here. Not through direct foreign investments, however, but within Russian companies with Russian entrepreneurs and staff that would learn how to make something of high quality that is now the standard in Europe, Japan, and the U.S. And then using this standard to create new products for the entire world. This is simply called transferring technologies.

You are also the co-chairman of the entrepreneurs union Delovaya Rossiya. What are you trying to change in how business is conducted in Russia?

I think that a new entrepreneurial development paradigm is developing in Russia connected with the national technological initiative. Really, there are a great deal of new challenges and opportunities in Russia right now like in no other country in the world. It’s just that we do not yet have a well-formed culture for earning money, and we’re moving blindly, often without support from the government. The Russian economic arena is largely intelligent and calm because, as they say, large wealth should be made in silence. So our union unites, supports, and gives direction to ideas, and most importantly, it engages in a dialogue with the government so that an economic policy is formed in our country in which small business is able to evolve and develop the industry as a whole. Actually, one of the most important parts of Russian business is simply talking about it.

Does our government help entrepreneurs at all, and do they even need help?

The idea of supporting the Russian manufacturer is a sensible idea, but you can’t rely on this alone. As trivial as it sounds, you first have to create a competitive product and then receive help in development.

Look at how the majority of us have wear Western brands, and have phones in our pockets that were made in Japan or China. If you want to buy a vehicle, you’re most likely dreaming about a German or American car. And if you go to grab some perfume for your girlfriend, you’ll buy one produced in France.

Just think, what have you bought that was Russian? Russian brands aren’t well known around the world. The only real ‘Russian’ brand among the top-100 global brands is Smirnoff vodka, which belongs to the British. For the majority of consumers in the world, Russia means nesting dolls, vodka, caviar, and the Kalashnikov.

But the Soviet Union had strong brand positions. We made products that were in demand around the entire world, though this was mostly in the defence industry.

At the same time, we have surpassed the U.S. in an entire range of defence areas. Why weren’t we able to achieve such stunning results in producing industrial goods of a wider use? The thing is, the U.S. allowed private entrepreneurs enter into defence technologies. These entrepreneurs, guided by consumer demand, started using these technologies to produce ‘peaceful’ goods. In the USSR, technologies of the defence industry were kept secret, and the programmes that were launched later to reorient the defence industry towards producing goods for the general public were introduced from the top down and did not factor in the demands of real consumers.

The government by definition cannot be focused on the final consumer. It shouldn’t know or factor in consumer preferences in production. Paternalism is good in issues of foreign policy, but in industries where the final consumer is you and I, you can’t expect the government to guess your desires. The private entrepreneur has to play this role.

It is the entrepreneur’s job to turn a profit by creating a sought after product. If you produce what the consumer needs, you’re going to be successful. If you make something wildly new and explain to the consumer why he or she needs it, then you’re going to be wildly successful! You have to listen to your consumer and remember that the strategies all successful global companies pursue are centered on the customer.

Do you have any strategic ideas to get the government to turn towards small business and support production?

The main area of support in starting a good project is a lack of administrative barriers and having the opportunity to use your competencies and strong technologies without unjustified restrictions. In his address at the end of 2014, the president talked about the need to do away with total control over business and shrink the administrative burden. Entrepreneurs are still forced to fall back on regulatory acts, some of which have been in effect since 1935. There is a multitude of GOST and industry standards that haven’t been revised in half a century, and this slows down business development. So when we talk about phasing out of imports, it’s necessary to think about creating a platform that will allow us to be able to compete irrespective of what external situation lies ahead of us.

History is full of examples where the business community has become the very group around which a country's brands are created. When the formation of the new South Africa was underway, a great man named Nelson Mandela came along who gathered up the entirety of local business and said, ‘colleagues, we have to become a country whose products are sought after around the world, and “made in Africa” must become a strong promotion, not a gloomy insult.’ Thanks to the efforts of local businessmen, the country’s GDP grew fourfold over a 15-year period, and now South Africa is the continent’s only country that is considered developed, not developing.

What is special about Russian business?

No matter how charismatic a company leader you are, or how robust a business you have, developing is only possible if you rely on people who don’t just voice their opinion, but impact the business’ overall strategy. The story of Steve Jobs and Pixar is a textbook example. Russian business is unique and strong in that it is young and often built on friendly relations. And in working on a team, it’s necessary to put not only your own effort and creativity to use, but that of the people around you as well. This is why companies that produce high-tech goods, for example, need young leaders who have fresh knowledge and form an image of the new consumer generation.

Maybe our problem is a lack of technologies?

This is a common misconception. There was recently a story that shook the internet – in cold Syktyvkar, local average-Joe inventors came up with the idea of delivering pizzas by drone. Naturally, they were sued for violating the airspace. So when there’s an idea, it’s the government’s job to create an atmosphere around it that does not stifle development, but fosters it. Technological initiatives only work when they aren’t forced from above, but come from below. Then this really pushes traditional business towards innovation. The main thing is to take note of this innovation and support it. Russia could have its own Gogglemobile car if they wouldn’t drag it off somewhere because of a parking violation.

When an aspiring entrepreneur is looking for an investor, how should he or she assess risks? After all, an investor could just steal the idea.

First of all, you have to do business with people you trust and use your inner instinct. The likelihood that they will steal your idea is low. If the idea’s good, then your role in its development and realization is critical. Plus, the most important asset for good businessmen is not just an education, but also a reputation. If you come to me with some idea and I steal it, I don’t think your neighbour will ever approach me. We live in an open space, and businesses that still live in the paradigm of the 1990s are becoming more and more motivated to play by the rules. You have to go to those for whom a reputation is not just a word and show them that you don’t simply have an idea, but that it is precisely you in combination with this idea who will be useful and supply the real benefit.

There are a lot of ideas floating around out there that have simply not yet found the right entrepreneur. For example, we live in a world where our own personal information field is being broadened with the help of social networks; our every move can be traced, and we are becoming more and more visible. It’s obvious that there will be a need for certain shelters in just a few years – refuges where you can be alone and are closed off from the rest of the world. I hear about this idea constantly. How it can be carried out I do not know, which is why I don’t try. You have to not only be the generator of an idea, but also think about how to carry it out. Then believe me, no one is going to steal anything from you.

Your business rule?

In my own business, I always try to rely not on government support, but on the product's competitive advantage. You should always rely on the quality of the product or service you’re trying to offer. All in all, there is a golden rule for any entrepreneur – if you have a good project and can explain why it will be successful, people will listen, support, and finance you.