Alex Lutskiy: “The Ukrainian IT industry is about to switch from selling resources to selling expertise”

BUSINESS SPECIAL EDITION FOR WEF IN DAVOS 2019
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Alex Lutskiy returned to Ukraine after 18 years of working and living in the US. He is well-known as an Industry leader, as the Co-Founder & CEO of Innovecs, which has earned a spot, for the second time in a row, on the prestigious Inc. 5000 list, as one of the fastest-growing companies in America. Recently Alex also became a co-investor for BUSINESS-100.

In the context of a maturing Ukrainian IT industry, Alex would like to share his views on the trials and tribulations of his company, Innovecs in a changing Ukrainian IT landscape.

— Could you please explain what Innovecs does for those who are not familiar with the IT industry?

— We’re a global service company with offices in the US, Europe, Israel, and with R&D facilities in Ukraine, that develops software for the clients from all around the world. Hence, we are not creating a product or any intellectual property under a separate brand, but are offering a necessary service of implementing service solutions for our clients’ products. Our core expertise lies in the development of B2B software solutions, with a focus on software product engineering. Our 50+clients are, in the majority, from developed regions — Western Europe, Israel, and North America.

— How did you come to the software development business? Did you start as a developer?

— In the early 90s, it was really easy to get some experience and a job due to the global IT boom. I started as a developer and made my way up to senior levels in large corporations. This gave me substantial experience in business management. In 2010, I received an offer from an American company and had to move to Kyiv in Ukraine for 1 year. The move interested me so I accepted it. Whilst working here, I learnt more about the business and operational models required to run a service – from client side and internally. This allowed me to shape my own perception of a service company. This was how Innovecs was founded. And all that experience, knowledge and business culture that I gained in the US helps me to run the business here in Ukraine.

— Which industries Innovecs works with are the fastest-growing?

— IT in general is fundamental to and is constantly evolving in every industry. Any industry that doesn’t evolve within a fast changing digital era will suffer. Take for example, in high street retail, Toys “R” Us, which was highly successful 50-60 years ago, is now leaving the market, primarily because it did not move with competition and customer need in a digital world. It’s just a matter of time.

Innovecs works with industries such as Supply Chain & Logistic, HealthCare, Retail & E-commerce, Media & AdTech, Gaming & Entertainment. There are several interesting digital trends occurring in each industry, where Innovecs participates in.

— Could you name some projects or companies Innovecs currently works with?

— We have plenty of them. e.g. in Healthcare, we are working with a client, who requires a user friendly platform that monitors vital signs, provides diagnostics for cancer patients. One element scans body temperature, vital health statistics within the current environment, and notifies the clinician in case of extreme variances. The company itself is based in the UK, and we proactively manage the full product engineering — for sensors and backend platform — remotely from Kyiv.

In general, we have various projects. We try to pick the most interesting ones, since they help us to attract the most talented engineers. These days they want to be a part of the major projects, not just to code in exchange for money, but to create some socially responsible products. It’s pleasant to know that you took part in the life-changing product development.

— How does the company get new clients? Is it a result of the sales-team work or just recommendations from the existing partners?

— I’d say that 80% of all clients come from through word of mouth and recommendation. This is a vital part of business growth for Innovecs, where clients can act as ambassadors of our business, particularly vital in B2B. We of course supplement business growth with an experienced international team.

— What kind of image and reputation does the Ukrainian IT industry have? Domestically and Internationally?

— A coin has two sides. Everyone is already aware that Ukrainian engineers are highly talented. There is no issue here — they’re well-known abroad. However, Ukrainian companies aren’t that attractive. Why is this?

First of all, there are only a few purely Ukrainian companies present on the global market. Even those companies that are present in Ukraine won’t promote their regional affiliates, but just central ones. Hence there is a lack of Ukrainian companies prepared to compete in international markets. Consequently, as a result, we have a strong brand of local engineers, but weak brand of Ukrainian companies.

There’s an issue with the brand of Ukraine itself and I guess it should be solved by Ukrainian business. Last year I had a chance to attend Ukraine House Davos during the World Economic Forum and I’m planning to take part this year as well. It’s crucial to promote not just separate companies on the global market, but Ukraine as a brand in various industries, e.g. IT, agribusiness, etc. Our collective aim should be to promote a positive and unified message that will showcase Ukraine not just as a source of resources, but as a country with incredible intellectual opportunities.

Right now, Ukraine reminds me somewhat of China — during a specific period, when it was perceived as a source of cheap goods and services. Nowadays, China is not cheap at all; in certain markets, more expensive than US– primarily due to a focus on monopolizing premium expertise, not found elsewhere. I often quote Tim Cook, CEO of Apple, when he was asked why the company hadn’t moved production from China to Midwest, even in the face of decreased tax rates and an overall lower cost of labor. He made a valid point by saying that “it’s no longer about the price”. “That production that they already have in China and they way it’s produced simply can’t be recreated in the US, Austria, or Holland. Such quality and such efficiency is only possible in China.”

“IT industry has organically grown up to 3-4% of GDP in 15 years without any Government investment or intervention”

Ukraine is about to switch from selling resources to selling services and expertise, and eventually clients will come for the valuable high-quality service or product. It’s definitely our next step, however, not every Ukrainian company will reach that stage, since it demands absolutely different expertise, experience, and corporate culture. It’s a different kind of competition, different tasks and people. I guess it’s another image of Ukraine, Ukraine 2.0, our switch from selling resources to selling services and expertise.

— Is there anything the government should do to help the IT-industry to increase its international value?

— It definitely doesn’t depend just on the Government. We need some time. We just don’t have to disturb that process of evolution. Industry has organically grown up to 3-4% of GDP in 15 years without any Government investment or intervention. Therefore I’m sure that the only thing such business must demand from the Government is stability, a fair and reasonable tax system, protection of intellectual property, etc.

— What are the major IT trends? Since everyone is waiting for something absolutely innovative.

— The main trend is the economy transformation into the digital world. Every client from logistics, healthcare, etc., has already allocated quite huge budgets for the digital transformation. I’m quite sure it’s going to be the main trend in the nearest 5-7 years.

Secondly, it’s obvious that lots of new technologies let various businesses become more effective. E.g., McKinsey was previously focused on management consulting, but these days they already work with machine learning, artificial intelligence, etc., which help them to make decisions not only based on people’s opinion, but on specific algorithms. I’m sure it’s going to be the next trend and most of the service businesses will be based on the machine learning and thorough data analysis, which will provide them with clear solutions.

— Sometimes you can hear that there’s too much hype around IT industry e.g. blockchain, machine learning etc, This creates fear in companies, who may not understand or see the return on investments that soothsayers tell us all.

— Such fears arise when the popularity of the specific trend attracts non-technologists. I know many people who became venture capital investors when they thought it was trendy. They decided to invest into IT-industry without being familiar with the field itself and having no experience at all. 99% of them “got burned” and figured out that it’s better to invest with the help of venture capitalists, that have a specific experience in various industries. The same thing can be implied to almost everything. As soon as blockchain and cryptocurrency occurred, everyone decided to somehow get involved. Obviously, some of them were able to earn something, but mostly people “got burned” again.

It’s crucial for anyone to estimate how familiar you are with the trend, or one can just risk it all. After all, in high-risk investments it’s all or nothing – high returns or zero. I always do what I’m familiar with, and if I don’t know something, then I’ll do it with someone, who is well versed in this.

Well, if we talk about blockchain, it remains the same, but it’s not something breakthrough. It’s just another technology that help to proceed with some specific things and that’s it.

Self-education plays a great role here. Everyone reads about some successful cases, but among 10 000 various startups just one will end up prospering. I notice that in Ukraine people read lots of books about WhatsApp, Viber, and Facebook success stories and want to earn the same way. However, it’s not how it works in real life. Business is a long and tough journey. Someone is lucky enough as Instagram, when it was once bought by Facebook for 1 billion dollars, but such rare situations happen once in 20 years. Having your own business doesn’t mean that you’ll definitely earn lots of money.

— Are you able to keep the balance between your business and your family?

— When one chooses to be an entrepreneur, one has to accept all of its advantages and disadvantages. One of the main disadvantages is lack of time that one is able to devote to one’s family.. However I see that at some point, it will be possible to achieve a balance. Overall, for any businessman, time is devoted to one’s business, and family should be prepared for that.

I personally enjoy running the business, however I try to persuade myself from time to time that it’s not right. So I do my best to keep the balance. I try to at least take some breaks on weekends or during the vacation, however it rarely happens, just because I truly enjoy it.