Ukraine: The startup scene in Odessa
Eastern Europe’s main claim to fame in our eyes is the cheap outsourcing of development, rather than its own startup scene. I get multiple emails a week from Eastern European firms specializing in offshore development — and fortunately most of them go straight to spam. Ukraine, in particular, was a popular outsourcing hotspot a few years ago outside the EU. In 2011, we had a new version of our Rayneer iOS app developed in Kiev, but the collaboration quickly broke down; connex.io, the former startup set up by my friend Marcus Kuhn, soon had its entire development team based in Ukraine.
Odessa’s lively startup scene
I recently spent a long weekend in Odessa, a beautiful city on the Black Sea. Odessa is Ukraine’s third-largest city, has an important port, and is the country’s cultural heart. The majority of Odessa’s inhabitants speak Russian; most young people are able to understand English passably, or even very well, whilst older people generally only speak Ukrainian or Russian. There is free WiFi, financed by advertising, offering a highly stable connection across almost the entire city. Almost 6,000 people work at approximately 150 IT companies within Odessa. There are currently two co-working spaces available: Impact Hub and Terminal42. I plumped for the latter when I settled down to work one day. A day’s membership costs around USD 4: very cheap by our standards. Terminal42 is located slap bang in the middle of the city. It’s got modern furnishings and hosts not only a number of spacious workspaces, but also its own cafe and a presentation space. I quickly got to know people at local startups, and we spontaneously decided to organize a meetup where I talked about my own startup experiences in Switzerland. At the end of the event, a few Ukrainian startups took to the floor and revealed their experiences of entrepreneurship in Odessa. I thought the startup scene was positively flourishing: most entrepreneurs were really outgoing, wanted to share their experiences and knowledge, and were always happy to help. The standard of education in Ukraine is really high, so there are lots of talented developers using startups to promote their ideas. In addition, salaries are very low by European standards: you’ve not got a lot to lose, but you’ve everything to gain. So people are very willing to take risks.
BalMuMu: Selfie app
At the meetup I got to know Sergey, who works at BalMuMu: a selfie app that inserts famous people into the photo. More precisely, you pick out a celeb to star in your selfie, click the shutter, and BalMuMu automatically puts together a realistic photo montage. At first glance the idea might not seem revolutionary, but given the current selfie fad, the concept could be successful. According to Sergey’s business model, the app’s future is to include in-app purchases (B2C) and the licensing of B2B technology. I can imagine that BalMuMu could be just the ticket for a large-scale campaign, like Swisscom’s recent collaboration with Bryan Adams.
Misha: News audio reader
Karina has worked as a startup coordinator at Yandex and other companies, and is currently testing an app (Misha) that reads out the news in a computer-generated voice at the touch of a button. There are a range of English- and Russian-language media to choose from as the news source. I think it’s great that Karina and her co-founders always try to see things from the user’s perspective, designing the app to fit with how people interact with the news during activities such as driving or jogging, when it’s not so easy to fiddle around on your cell phone. The first version included voice commands, but tests showed that these weren’t used. It will be interesting to see how Misha develops in the future.
Kaznachey: Ukraine’s answer to PayPal
Paypal was unavailable in Ukraine for a long time, and can now, as before, only be used to a limited extent. To get around this issue, Yaroslav has developed its Ukrainian counterpart, Kaznachey (Казначей, “treasurer” in English). The bootstrapped startup offers a simple payment solution for websites and cell phones. The startup is now enjoying great success, thanks to its firm focus on the Ukrainian market. Yaroslav’s experiences taught him that Ukrainian investors hadn’t quite grasped the concept of a startup yet. The first investment offer he received when he launched the startup six years ago was somewhat unfair: the majority of shares were to be held by investors, whilst the founder would be liable for all the risk. After a few attempts he finally decided to bootstrap the company — a wise decision, in hindsight.
Black Sea Summit in September
The second Black Sea Summit is taking place this fall. Anastasia and her team want to draw techies and entrepreneurs to the Black Sea from across Europe. Their aim is to improve the exchange of ideas between Western Europe and Eastern Europe. Three stages and a host of networking events are lined up to allow the participants to inspire each other, learn from each other, and share their experiences with each other. This year’s Summit will take place in Odessa on September 9 1& 10, 2016.
Odessa — the right place for startups?
From the perspective of a Western entrepreneur, Odessa has much to recommend it: the infrastructure is better than average, developers are highly educated and the younger ones speak perfect English, you don’t need a visa to visit, you can get to the city with Ukraine International Airways within half a day, the food is delicious, and prices are unbeatably low.
However, I can’t shake the feeling that Ukraine is no longer the favored offshore base for startups. The war in Eastern Ukraine is definitely one of the main reasons for this — whilst it’s taking place 700 km away and there’s no trace of it in the city itself, its effects still make themselves felt. The economy has nosedived since spring 2014: this set Yaroslav’s payment startup Kaznachey back more than a few steps, for example. Although Odessa seemed very peaceful to me, there were pro-Russian uprisings there two years ago, although they quickly died down. Ukrainian warships previously stationed in Sevastopol are now moored in Odessa’s port — and Crimea isn’t far away. And there’s corruption to think about too: Ukraine is the most corrupt country in Europe. I didn’t notice anything: but then, apart from showing my passport on entering and leaving the country, I never came into contact with public officials or government agencies. Reading between the lines, entrepreneurs in Odessa implied that the public authorities aren’t always easy to work with.
Outsourcing in Odessa
Our spontaneous meetup played host to a fascinating discussion about the right setup for people looking to base their startup in Odessa. It quickly became clear that someone who can’t speak Russian or Ukrainian fluently, and who doesn’t know how to handle public authorities in the right way, would likely run into a wall before too long. It definitely makes more sense to find someone on the ground that you can trust — and to transfer the technical lead and local management over to them. I’m not a fan of outsourcing a startup’s main assets completely, but I can imagine that collaborating with a co-founder from Odessa could work well. In any case, many startups nowadays work from multiple locations, and in my opinion, there are plenty of arguments for Odessa — and very few against.
