Mikhail Dubakov, ex-CEO of Targetprocess, discusses the advantages and perils of taking outside investment

Mikhail Dubakov talks candidly about the mistakes of his company, the fears of Belarusian entrepreneurs, and his feelings about losing money during the crisis of 2013.


Targetprocess develops Agile-based project management systems. In 15 years, its products have benefited more than 1,000 companies in 80 countries. In April 2018, Targetprocess raised $5 million in investment from Zubr Capital and the EBRD. In an interview for The Heroes, Mikhail Dubakov explained what his company has learned from investors (and whether young entrepreneurs should take money from them), and why Decree No. 8 is not a panacea for companies in all industries.

— Mikhail, what changes have taken place since you accepted investor funding? For a long time, you were against taking money from the outside, so why did you change your mind?

— We have a much clearer direction, plans, requirements, and metrics now. Strict plans partly narrowed our freedom. Not much has changed at the level of teams, but the work-stream leaders have more responsibility and less freedom.

At some stage, it becomes clear that you need extra money if you want to grow quickly. You can do it on your own, but it will be quite difficult and slow. Sometimes it works out; but in general, this approach is not typical.

Yes, financial investments allow you to surge forward. But this process can be both positive and negative, and you won’t know definitively right away. The organization of a normal marketing or sales department in the USA is a one-time investment of several hundred thousand dollars and a couple of hundred thousand every month for six months until the money starts to flow in.

Finding this money is quite difficult if you’re developing by bootstrapping. At the stage when we reached a number of 100 people, we realized that we needed venture capital if we wanted to build a serious project. By that time, our competitors had investments from the outside, and we remained almost the only company in that niche without them. We started slowly looking for venture capital, asking ourselves, “Maybe it’s not necessary? Maybe it is?”. We looked closely at Russian funds, but then we refused that option.

Two years ago, we began to look for capital quite confidently. We found the EBRD fund. To invest in us, they needed a partner, and they found Zubr Capital. By an amazing coincidence, we work in the same building, so it was convenient to organize all the negotiations.

Then there was a rather long due diligence process of checking the company — Zubr Capital approaches these things very carefully. VC-funds work faster but Zubr is private equity, and the transaction was not typical for them. It is also important that they usually invest in companies that operate in Belarus and in the CIS countries, while we’re mainly focused on the American and European markets. But in the end, the deal was closed in April 2018.

— What terms did Targetprocess accept in order to work with the EBRD and Zubr Capital?

— On the same conditions that would be offered by Western funds. I can’t disclose specific figures but the conditions are perfectly adequate. The EBRD and Zubr Capital know well how to develop business in the CIS countries, and they bring a lot of expertise in this field to our processes. An important aspect of their advice was to suggest that we focus one of our business areas on CIS countries. “There is money there, trust us, ” they said. We were at first skeptical about that. But now we’re convinced they’re right.

Zubr Capital is learning something from us (for example, working in the US and European markets), and we learn something from them (first of all, financial discipline and a fresh look at the markets of the CIS).

— What do investors expect in return for their $5 million investment?

— If you have high growth rates, nothing else is needed — they will immediately like you! The growth of at least 30% is a more or less attractive story. If the growth is less than 30%, the funds will look suspiciously and ask, “Why are you so slow, guys?” Of course, it depends on the phase of the business. If you’re a very early business, then 30% growth is not enough. If you’re a “mature” business, then 10% is still interesting for the funds. Also, there must be a very good team of founders and key people in the company.

If investors like you in a conversation, if you can convince them that you know where to go and what to spend money on, it can greatly influence the final decision. Even if the indicators are not very good, your confidence can close the deal.

Our average growth rate was about 30%. We slowed to about 20% in the last year. But for a company of our size, which started with bootstrapping, this is normal. This is enough to attract investment.

— But your company has been around for 15 years. What should startups do for capital—attract investment or grow on their own to a certain level?

— It very much depends on the founders. There’s a business philosophy that encourages growth without outside investments. This approach is now experiencing a renaissance; quite a lot of successful companies are now starting to work that way. In software, the most expensive thing you pay for is the programmer’s time.

But they may work either without receiving a salary in exchange for equity. You can gather a team without money, which can work in a garage for a year. When the product is already on the market, you can reach the point of profitability very quickly. Take Slack, for example. It had investments, but the team that made Slack was just 9 people. They did it in a year and showed the fastest rise of a B2B company in all time. Slack took money simply because it was given on such conditions that it would be foolish not to take it. As its founder said, “We were given $100 million at a valuation of $1 billion, well, ok, why not take it?”

By default, probably everyone wants to take money — this is the airbag, which gives some time. But we must understand that with the money usually comes some additional responsibility — external control, reports, loss of time at the negotiations. All this distracts from the business.

You need the right investors who a) understand how everything works; b) intervene only at the level of advice; and c) if things go wrong, act as an advisory board without preventing startups from trying, getting feedback and developing.

It’s difficult for me to say outright, “just take the money”. It depends on the person’s situation, on the size of the team he wants to gather, on how quickly he wants to grow. There are businesses that are simply impossible without external financing. If you want to do something significant and immediately, and you need a team of 100 people for this, then you need investment. If you want to make a mobile application or a simple B2B product, this can be done by a team of 2-3 people in six months. Perhaps this can be done without money.

— What are the three main mistakes over the last 15 years?

— One of the main mistakes was to stay engaged in a product for a couple of years when it wasn’t interesting for me anymore. This seriously slowed down the development of the product. When you plunge into the project management system and spend 10 years on it, it’s starting to seem that there are more interesting things, which began to appear then — machine learning, blockchain, and stuff.

Gradually, I moved away from the tasks of the manager and owner of the product but I should’ve done this earlier. If you lose interest in a product, you need to step away from it. Pass it to another person who is interested. You will find other activities for yourself.

The second mistake was that we didn’t start looking for investments earlier. It had to be done in 2009-2010, well, at the latest in 2011. But we started to do it in 2015, and “closed” only in 2018. It’s too late, we lost a lot of time and missed the point when it was necessary to accelerate, but we slowed down. The third mistake is probably related to some people whom I didn’t hire, and I regret that I didn’t. And, conversely, I often postponed the moment to dismiss some people — and this never had a happy ending.

Managers in Belarus are often afraid to be frank and transparent. They are afraid to talk about some about erroneous decisions. Perhaps this is part of the mentality. It’s changing but it happens very slowly. I’m not at all afraid to say that we made a bunch of mistakes.

Most stories about companies accentuate the positive and ignore the tough negative lessons that teach you more than success. You read it and it just becomes boring because you understand that it’s not true.

— How much money did you lose during the 2013 banking crisis in Cyprus?

— At the time of the crisis, the company lost several hundred thousand dollars there. As a founder, I lost some part of this amount. Well, it was unpleasant — all our accounts were closed. But the company was working with a profit then, so this didn’t come as a kind of a shock for us. We got out of this situation after a few months.

I felt angry at the government because it was a rather inadequate solution. Perhaps there was such a situation in Cyprus that the government couldn’t make any other decision. But why should private companies suffer? They shouldn’t. After all this, I don’t really trust Cyprus. Now, it’s probably no worse to open an IT business in Belarus than in Cyprus.

The Cypriot financial system is still unstable. It’s better not to keep money in banks there, to be honest. We don’t do that anymore.

— You have repeatedly stated that Jira [the error-tracking system](is your main competitor. Are you afraid that it will outrun Targetprocess?

— They already did, we’ve already lost at the team level. Our solution is used by many teams around the world, but Jira’s list is longer. When we come to new companies, Jira is installed everywhere at the team level. They started a little earlier and knew better what the developers wanted. We were distracted from the developers at some point and began to engage in some things of a higher level.

Jira expands horizontally, keeping the focus on teams; they don’t want to go to a higher stratum. We went up, and as soon as we did, after a few years, we lost the level of teams. But this was our strategic decision, and it is rather difficult to say whether it was good or bad.

We can compete with Jira only at the level of Scaled Agile when something above teams is needed to be done. For example, to manage Agile processes at the level of departments, divisions or the whole company. That’s where Jira has no good solution, and we’ve been moving into this niche in the past 18 months.

— How do you feel about the recently given opportunity to use English law in Belarus?

— I am incredibly positive about what is happening in the ecosystem. If this continues for a few more years, the world’s trust in Belarus will increase substantially. With the appointment of Vsevolod Yanchevsky, HTP got an incredible boost. Nobody expected this, but the results speak for themselves. He did something incredible, in my opinion.

He changed the rules by which companies are accepted at the HTP. The permissive principle is used now — “If you want, we will accept you, and then the market will show what company you are.” There used to be a very careful selection, very difficult procedures, and many companies simply didn’t want to go through this. The adoption of the Decree number 8, the more positive President’s statements in relation to businessmen, the abolition of criminal prosecutions for economic cases — all this is very positive. But the business community in Belarus is cautious, people watch how something works for several years, and only then they say, “OK!”.

It is clear that most businessmen don’t violate the law on purpose. And anything may happen by chance. Imprisoning someone for five years for such a thing is rather strange. Let a person compensate for what he misunderstood or even intentionally committed, but why put him in prison for five years? Weird. Such rudiments of the Soviet era must go.

**— How would the economy of Belarus be affected if the conditions of the Decree number 8 were transferred to business areas other than IT? **

— Our IT sphere is quite unique — it was developing without the HTP as well. The Park simplified and accelerated the development but I wouldn’t say that the IT sphere would be in bad shape without the HTP. No, everything would be more or less good.

I don’t think that the introduction of legislation similar to the HTP would help MAZ or the tractor plant. I understand that there is a problem of social employment, that tens of thousands of people work there, and they need to do something with them, but in general, Belarus needs to develop high-tech production, intellectual projects. Heavy machinery is still closer to the USSR. I don’t understand why we need to keep this assembly shop of the Soviet Union. Transferring preferential conditions to such companies is unlikely to help them with anything — in fact, they should not exist at all.

Agriculture? Maybe it would make things easier for farmers, although I think they already have some preferences. But I would make such experiments — take, for example, the Grodno region and set up such an experiment with agriculture there. To see what happens.

We can come up with some theories but the practice test, most likely, won’t confirm our theories. Therefore, the best solution is to try. The scientific method works everywhere.

— For a successful entrepreneur, you seem to have modest needs. Why?

— To earn a lot is a relative question. Although, compared with teachers, I probably earn a lot. Nevertheless, in comparison with some successful businessmen in Belarus, it’s not the case. I don’t have millions of dollars in accounts, for example. I don’t feel like a rich man. I have a share in a company but this is not money. For me, money is, by and large, just oxygen for a business. I feel free, I live as I want. But I live modestly enough, wealth and luxury is not a goal for me. I do the cool things people need — that’s my goal.

There’s a range from $50 to 100 thousand per year, which is enough for life anywhere in the world, including Belarus. Everything above is just showing off. "I’ll buy myself a Bentley!", "I’ll go to a five-star hotel for $10 thousand a day." What’s that for?..

To me, these show-offs, to be honest, cause a negative attitude. Although it’s probably wrong, it’s better to treat such things with indifference. For me, it’s important to do interesting things and do what I like. I like making products. I like writing good articles. This is what I try to do.

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