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THIS POST WAS ORIGINALLY PUBLISHED JANUARY 22, 2007


VARIATION OF TACTICS
The general who thoroughly understands the advantages that accompany variation of tactics knows how to handle his troops.
                                                       (Sun-Tzu (500BC) Chinese Military Strategist, Philosopher )

This indeed may be applied to the Russian businessmen. Those who understand this – they make it, those who hesitate are destined to overwhelming decision-making that takes forever. Unfortunately, the majority are the victims of mass media and fanfares, that accompany any serious transaction. “OHHH... IPO!!!! WE ARE DESTINED FOR IPO!” - and immediately make announcements. But what is the reality? Do they really need IPO at their stage of development? Can they MAKE it? Way back ago a Roman Poet Publius Ovidius observed: “If you want to be loved, be loveable”. I guess, the major responsibility of the financial advisors and consultants is to make the client loveable and only then to present all viable variations of tactics in pursuit of investment attraction.
But before we speak on tactics (and strategies) let us have a look at what the average Russian mid-cap company has:

•     it is common that the same owners run a number of small-sized entities that are doing practically the same business – this is very true for gold-mining, as an example; hence a great deal of effort is required for consolidation;
•     most of these companies are registered as LLC – thus no shares are present; hence this requires special procedures for equity financing process;
•     no accounting reporting according to IAS or GAAP – and this is the huge, huge problem, that takes a lot of time to straighten out;
•     some of the businesses operate under the holding structure – however, the Russian Law does not have a clear definition and appropriate procedures, set up for the holding companies. This usually leads to a lot of legal restructuring;
•     although in recent years many have heard about “transparency”, but the practical reality is far from desired (However, it is amazing, but many entrepreneurs are ready for disclosure);
•     one of the big problems - there are lots of opportunities in the country, so the owners try to be engaged in various industries. Thus it is very common to find, as an example, a developer construction company that owns an agricultural facility. Such Russian perception creates an impression for the investors that the owners are not concentrated; so we have to persuade them to get rid of non-core businesses;
•     almost no one have ever heard about the exit strategy per se, that requires a lot of schooling – but the results are amazing: once they understand it they are yours;
•     one of the biggest deficiencies that we are faced with - is the desire of the owners “to save money”. It is very common to witness an unwillingness to turn to professional lawyers - “Listen, my lawyer works with me since inception – he knows everything; why the hell I need these foreign law firms?”. And this is aggravated by the announcement of the average rates for US or UK lawyer job. I found this the most tedious task of all – to talk into engagement of “a reputable law firm” . And these examples are numerous: assigning of investment memos and business plans preparation for unqualified companies – that leads to loss of time, effort and money; and here last, but not least:
•     almost no one can formulate the company's strategy in the proper way. It is not uncommon, when we define out a strategy to receive a remark: “Oh.. we knew it before you came here...” But why did not you formulate it then???

So, when we approach the client – this is usually what we have. Now we need to straighten it out and move to tactics and strategies.