HOT TOPIC

Business Coaching in the Former Soviet Union

By Michael J. Horner

Having spent the past seven years in the Republic of Kazakhstan, part of the former Soviet Union, I can say that it will be an uphill road to see business coaching done there with any degree of success. When we went to Kazakhstan in 2001, it was as volunteer humanitarian aid workers joining a NGO (nongovernmental organization) that asked us to design and build a microenterprise development project for the villages around the main economic capital of Almaty. After a couple months of language instruction, we launched into full-scale training and held our first seminar in February 2002. Almost 50 people attended from the city and many of the small villages, and we taught them how to come up with a business idea, how to formulate that idea into a plan and then, in one-on-one meetings after the seminar, we helped them to write a business plan including a full three-year cash flow.

In the summer of 2002, we funded our first group of business owners. We continued this type of training through December 2004 when we returned to the US for a couple of months break after coming close to nervous breakdowns. In total in the first four years, we trained more than 100 people and personally funded 25 people. This formed the basis for our return in June 2005, when we decided that in order to move through the obstacles I will describe in a moment, we needed to open a for-profit consulting and micro-lending firm, which we did in the fall of 2005. Little did we know that this move, combined with me going into partnership with a Kazakh man in a combined law/real estate/investment firm, would open us up to new and adventurous challenges.

The challenges that will face anybody (including Russian or local nationals) in the former Soviet Union are real, but not insurmountable. However, the cost of overcoming them must be counted before attempting to launch any type of venture in the former Soviet republics.

  1. Corruption - Corruption was bad when we arrived in Kazakhstan in the summer of 2001, but with the increased amount of oil money and governmental controls, it is getting worse, not better. When we arrived, there was corruption in the government but it was mainly in the customs control and tax police. In 2001, I was working with a Pakistani national who was opening one of the first sports stores in Almaty. During one of our sessions he told me that if I wanted to I could become extremely wealthy, but one thing was standing in my way. He told me that I was too honest and advised that I stop paying my taxes like I had been doing and applying for my business license like the law called for. He said if I would just pay a bribe to the officials that they would always look the other way. Well, corruption has become worse; now it is like a mold that grows and grows. At every level of government, bribes are not just commonplace, but expected. If you want to register land you bought as agricultural land and actually want to farm, you have to pay the register's office a bribe to register your land as what it is instead of something different. If you want to register it as something different, the bribe gets higher. And any and all officials' signatures and pichat (the all-important Russian stamp) are for sale. Corruption will not go away as long as the price of oil remains high and as long as the current regimes are in place, so be prepared to have to make very tough choices. We chose not to pay a lot of these bribes and it was part of the reason we are no longer working or doing business in the former Soviet Union.
  2. Distrust - Nobody trusts anybody! During the long, hard years of the Soviet Union, nobody knew who was an informer for the KGB, the dreaded secret police. Nothing has changed since the dissolution of the Soviet Union. In order to gain trust, you have to trust people who are not always going to trust you back. In order to be an effective coach, you have to be able to trust and be trusted. The key to overcoming this is to take on a lot of stress and continue to trust people even when it isn't reciprocated. This trust can have another effect. It can make you constantly look over your shoulder wondering when one of the people you have a trust relationship with will get caught up in the system of corruption, become too big (next point), and then be turned by the authorities into an informer. Will they put your name out there to get the spotlight off of them? My partner was somebody I trusted. When he overstepped the invisible boundary that is placed around you in business (almost like the caste system of India), he became a target. He eased the stress by pointing the arrow toward me, which very directly led to our leaving Kazakhstan. There are ways to overcome this distrust, but it is still many years from happening and with the current political maneuverings, I wonder if it is even possible.
  3. Invisible Boundary - When we first started to do business training, one of the people we funded told us that his plans for his cattle business were to build his herd up to 25 cattle and then all other cattle he would register in a relative's name. When I asked him why he would do such a thing, he looked at me like I was an idiot, and then explained the way the "mafia" works. Depending on the clan you were born into, you have certain rights and a set boundary as to just how much money and how large your personal business enterprise may become. If you overstep this invisible boundary, then you will be visited by the local official (may be government, may just be some guy who everybody knows is connected to the right clan—that the locals call the "mafia") who will inform you that your entire business is being bought by another "buyer." This "buyer" will give you a very "attractive" offer for your business, which you do not have the right to refuse. If you choose to refuse this "offer," then other things will happen and you will have no money at all. So the way to keep the spotlight off of you is to only grow your business as high as what you "think" the invisible boundary may be. This is at best a guess, but it is real and there are many small businesspeople today who, through hard work and perseverance, grew their business too big and then paid the price and had to start all over again. The going rate for a "buyout" of a business is about ten cents on the dollar. You will always know the "buyout" person, because they never seem to work but drive Hummer H2s, Porsche Cayennes, or whatever other $100,000 vehicle you can imagine. They live in the largest house in the village and have no apparent source of income, yet have large spending tastes. And they own everything around you: the largest plots of land, the best buildings in the region, you name it, they own it. The only way to overcome this challenge (especially as a foreigner) is to grow a small enterprise. Once that enterprise has grown to a size where you get your first visit from these guys (they call themselves "agashkas" meaning "older father" in Kazakh), it is time to downsize or outsource and create an entirely different business from the one that is now successful. This does mean more taxes and more outlay of capital in the beginning, but it is better than having your entire business taken away.

Those are the three biggest challenges to business coaching in the former Soviet Union. As one who has experienced all three of these challenges and lived to leave, this is not something that should deter somebody from wanting to start a coaching enterprise in this region. However, you should go with your eyes wide open and make great use of your local embassy. The local embassy can't keep things from happening to you, but they can keep you from going to a local prison on some trumped up charge that was only brought to separate you from the work you have started so somebody else can reap the benefits of your investment (if you don't believe this just read what is happening to the big oil companies today in these republics). You can grow a coaching business in these areas, but the ideal way is to find somebody who is well connected, pay them a large salary to stay away from the business and just use them as your shield. Be aware that when this person loses their shield through a change in governance, you should be ready to pack up and leave.

Michael J. Horner spent seven years in the former Soviet Union, initially doing microenterprise training and advancing into coaching those business owners upon their successful funding. Now returned to the US, he continues to coach small business owners on how to be more structured and invest themselves fully in their businesses. Contact Michael.


We want to hear from you — send us your feedback!

Return to Table of Contents | Print