Vasily Khmelnitsky: “Ukraine will not disappear anywhere. Therefore, you need to think in the long-term perspective.”
This publication opens up a regular rubric “Magazine”. The rubric will contain shortened variants of the articles before the printed issue is published and full texts – afterward.
Today we present an abbreviated interview with Vasily Khmelnitsky. We have always been interested in Ukrainian entrepreneurs who were not born with a Bitcoin tattoo on their breast, but have evolved from traditional Ukrainian businesses to some elegant things. Khmelnitsky in this regard is an exemplary case.
In addition to investing in traditional businesses – heavy industry, and then construction, pharmaceuticals, and energy sector, he is actively investing in education. Moreover, these investments are not limited to a showy renovation of a school facade and cutting a ribbon to a new toilet, but lead to construction projects like new education centres.
The word «investment» is not used randomly. The businessman believes that young ambitious professionals – students at his UNIT Factory, will become the most solvent Ukrainians in the future. This, according to Khmelnitsky, will attract good money to the entire economy, his business included.
LeadershipJourney (LJ): You are one of those who has been building the new Ukrainian economy: Zaporizhstal, the banking business … And now – large-scale investments in education and innovation. And this is not for show, like in the cases when peoples just want to be in the trend. You are managing an independent and powerful channel of financing. How did you come to do this and what was the root cause?
Vasily Khmelnitsky (VK): This was a slow evolutionary process, step-by-step. The world is changing rapidly: new approaches to management come into being; new concepts and products are born. Today, a construction-site of any plant demands innovations and lean technologies, and not just thinking about creating jobs. It is necessary to keep up with the times, and even more – be ahead of progress by half a step, creating new trends. For example, in Silicon Valley, the main task was to find a promising startup and attract talents, while we are concerned about keeping a talented person in the country. So that he would live and work in Ukraine, would create breakthrough products and help the country to be competitive at the global level. These are different tasks.
In addition, large business cannot exist in a vacuum: it is necessary to support small and medium-sized entrepreneurs. Create some kind of anchor points so that prosperity grows and people buy more products and technologies, including from big business. Only in this way will the economy move forward.
Large business cannot exist in a vacuum: it is necessary to support small and medium-sized entrepreneurs
LJ: You have an interesting concept of partnership in business: you participate in joint projects with a share not to exceed 25%. I think I understand why. After all, when Vasily Khmelnitsky joins a project, say, with 80%, the other partners can relax: OK, now he will make our business successful and profitable. However, 25% force the partners to work really hard and take full responsibility.
VK: Yes, if in a joint project I take on the main role, the rest simply sit and get “kaif” (enjoy themselves). I want to get “kaif” myself. Therefore, yes – there is the concept of «25 percent.» In addition, I will join a project only with competent people, who know what they are going to do. In my practice, there were many projects, and not all of them were successful. For example, I wanted to build an industrial park to create conditions for attracting investments into the country. Foreign investors are afraid to come to Ukraine: economic and political instability, corruption, lack of protection of private property rights… However, even after the creation of the park, investors did not crowd to the country. Ok, I changed the strategy: now I invest in relatively small domestic business projects with a clear sales market. My share in them can be at the level of 25–50%, not more. Because it is important that the process is managed not by me, but by the person, whose project I invest. His project is his responsibility. Young people should create new projects, look for new approaches and achieve success. Moreover, I will be kind of a mentor: I will teach the things I know myself, and I will help to find the right path.
LJ: During the time of managing businesses in different areas, have you probably developed any universal management techniques that work in 99% of cases?
VK: In life, nothing can be for sure (a hundred to one). Well, and people themselves tend to change over time. Let us take me, for instance: earlier I used to avoid partnership projects in business, and now I have quite a lot of them. Partnership opens up new opportunities and reduces risks, allowing you to share responsibility. I used to think that people arguing with me are a priori wrong, but now I think that they just think differently. You know, this (understanding) immediately reduces the level of internal aggression and motivates you the search for points of contact.
As for management techniques, I try to make the business operate without my direct participation. I like to motivate people with great opportunities for taking initiative and to delegate responsibilities to them. However, the responsibility, in this case, is higher. A control does not offend a person if in his actions and decisions he is open and honest. I am involved in the process only at the stage of making global decisions.
LJ: In our country, there is an obvious lack of trust of company owners to hired CEOs. You have a fairly high level of delegation of authority in your company. How did you come to this?
VK: I can answer in one word: motivation. In my company, the person who manages the process earns a lot. You can say that every top manager of my company is my partner. Therefore, it is unprofitable for them to work carelessly and steal because as a result, they will lose more than they gain if they work with full dedication.
At the same time, I would not say, that I trust everyone. No. I trust some people more, some – less. There is a great book “Everybody lies” (Seth Stevens-Davidovits, “Everybody lies. Search Engines, Big Data, and the Internet know everything about you” – Ed.). It says that people are deceiving even themselves. After all, I myself do not always fulfill the promises I have given myself. It happens, I think: “Enough, since tomorrow I start jogging”. And in the morning, I give up: “Ok, not today”.
People are deceiving even themselves
LJ: Is there any kind of “lies — not lies” test method for people who work for you?
VK: I have a separate service for this. It carries out financial monitoring – how much a top manager earns, how much he spends … We can track such subtleties that remain unnoticed in other companies. This allows us to make a conclusion about the decency of a person. I must say, in 90% of cases, managers behave quite responsibly.
LJ: What about engagement, corporate patriotism?
VK: One of our prime ministers, I will not give his name, once voiced the idea: say, we will now invite young people who graduated from Stanford or Harvard to rule the country, and they will build a “garden city” here. The trouble is that a young ambitious Stanford graduate who in the USA or Europe can earn $ 10,000 or euros a month from the start is unlikely to work selflessly for a salary of 5,000 hryvnia. Even if he is a patriot to the bone.
LJ: There is an opinion that Ukrainians, talented people living in rich land were spoiled by this rich land. Could be the phenomenon of Israel explained by the fact that they have built a prosperous country in the desert? And this motivates them to move on.
Among the developed countries of the world, there is none with an economy based solely on agriculture.
VK: Among the developed countries of the world, there is none with an economy based solely on agriculture. Technology, industry, and manufacturing are much more important. After all, the harvest – it’s just raw. We have a paradoxical situation: we export wheat and then import spaghetti from abroad. But we can produce the finished product ourselves, producing added value, and trade them in the market. It is necessary to create conditions and incentives for processing raw materials within the country. I’m not talking about the benefits with which our government likes to juggle, but about incentives — economic and financial instruments with which average Ukrainian farmers could produce anything from canned peas to the same spaghetti. And would sell their products around the world. That will be the right thing to do. Export of grain and the subsequent purchase of tractors produced in China with the money raised is a non-viable economic model.
LJ: What do Ukrainian leaders lack in politics and business?
VK: You know there is a fair statement: we live the way we deserve. We ourselves, and not on orders from above, choose authorities, deputies, and chiefs. Therefore, complaining about a bad economy and bad power is the last thing: you yourself have made your choice, and now reap the rewards.
Do we want to do better? Well then, to do this we need to change ourselves. Among other things, (we need) to change the education system so that it would give not only academic knowledge but also skills that will be useful to a person in life and help him become successful.
LJ: Many experts believe that a successful business leader of the future is not one who practices an authoritative management style, but one who adopts and undertakes the so-called service leadership and will show empathy towards employees.
In a country where young people want to work not in business, but in the prosecutor’s office and in tax agency, it is not easy to talk about empathy
VK: You know, in a country where young people want to work not in business, but in the prosecutor’s office and in tax agency, it is not easy to talk about empathy. I think a tough but fair leader, like Prime Minister Lee Kuan Yew of Singapore in his time, would do us no harm. I have a portrait of him on the wall here. Yes, for sure it was hard for him to change the country, to struggle with opposition from the reactionaries, but have a look at the result: now Singapore is one of the most developed and progressive countries in the world! Well, as to the soft socially responsible system at this stage of development of Ukraine, such policy seems unlikely to help quickly overcome our economic backwardness.
LJ: Some experts believe that now is the time for corporations to take on an educational role. What do you think about that?
VK: Of course, business gives people new knowledge, but this is a narrowly focused learning. All the same, the primary role in education remains with the state. In addition, we can cite the example of Turkey, where companies can invest part of taxes in the educational system of the country. And if I invest money in school, then, as a good manager, I will try to give quality knowledge. I also like the Canadian education system, where there is a very high level of knowledge — from kindergarten to university. There is a very powerful public education system, so there are practically no private schools.
A soft socially responsible system at this stage of development of Ukraine is unlikely to help quickly overcome our economic backwardness.
LJ: You invest a lot in education, but this is not pure charity. As a businessman, what return do you expect from these investments?
VK: First, I grow up my future customers. Now I give the opportunity to earn a lot of money to people that in the future will use my infrastructure and my services and, accordingly, pay me for it. Moreover, I create in Ukraine an ecosystem that increases the attractiveness of living in the country. Yes, at this stage, it is necessary to invest and kind of to have losses. But in five years it will begin to pay off, and in seven-eight years this will bring a serious income. Whatever happens in the future, Ukraine will not disappear anywhere. Therefore, you need to think from a longer-term perspective.
LJ: The country is facing an acute problem of outflow of highly qualified specialists. How does your company select personnel for leadership positions?
VK: This is a rather complicated process. First of all, I don’t hire people into the company myself, and the HR department doesn’t directly deal with this — we are working with leading western recruitment firms that have branches in Ukraine. Yes, it does not come cheap, but we also get better quality staff. In addition, the background and experience of the candidate are important to me.
As a rule, I will never take a person into the company, who does not work anywhere. He should be in business and feel good there – I will give him better conditions. This is his value for me.
I will not launch a new business, no matter how attractive it may seem if there is no one at hand to be responsible for this (business) direction.
I will never hire a person to the company, who does not work anywhere now
LJ: Many professional businessmen perceive the inevitability of mistakes as a given. What do you think should be the ratio of successful projects and errors?
VK: The value of success is always higher. You can make 10–20 errors, but one successful project will overlap the unsuccessful background. People always notice and remember the good. In this case, in business, one must be prepared not so much for failure, as for loss. You can run a profitable business for years, and then – oops! – and at once you lose 20% of assets. However, this does not mean that life is over. You need to draw conclusions, write off losses, reformat the team, identify new goals – and move on. Therefore, internally, I am ready for losses. And to failures … In any project, at a certain stage, there are always difficulties, sometimes very serious ones. This is business, and this is normal.
The value of success is always higher. You can make 10–20 errors, but one successful project will overlap the unsuccessful background
LJ: There is a perception that MBA degree makes more harm rather than help people with an entrepreneurial mindset by driving them into a kind of rigid academic framework. Can you differentiate between a manager and an entrepreneur? Which of the two do you think you are?
VK: I think, I am more of an entrepreneur. But to some extent (I am) a manager also. As for the MBA, in my view, it can do no harm to an entrepreneur. Of course, there are examples when a person, being, as they say, without education, achieves success. But such person is one in a few thousand. And among graduates of Stanford or Harvard – every second person. Therefore, an entrepreneur who graduated from Harvard, and even has an MBA degree, may well become another Elon Musk.
LJ: What is the main lesson, insight or knowledge you have adopted from people you meet in life and in business?
VK: I realized a long time ago that all things and phenomena around are not constant in nature. This fully applies to people. Whatever we do, this is already the product of yesterday. Therefore, we must constantly move forward, change ourselves and change the world around us, keeping in mind its natural volatility. And we should not adapt to anything or anyone.
Whatever we do, this is already the product of yesterday.
LJ: When you look at how the world is changing, how new global challenges appear, what is the philosophy that drives you?
VK: Ukraine needs finally to find its niche and occupy it. The country should not be pro-American, pro-Chinese or pro-Russian – exclusively Ukrainian. We must develop our economy and build a country with the rules of the game that are transparent to everyone. Other countries envy our assets: talented people, good location, great prospects for the development of agriculture and industry. So let us use correctly what we have, and not blow off the things we have received from nature and inherited from our ancestors.