This post is part of Accel’s Secrets to Scaling series, where leaders from across our portfolio share their learnings and advice with the next generation of European and Israeli entrepreneurs building global winners.
Avito is not only one of Europe's largest Internet companies, but Russia’s dominant online classified and market-based business, the second biggest classifieds site in the world and a pioneer in the space. Founded in 2007 by Swedish co-founders Jonas Nordlander and Filip Engelbert, Avito has become a verb and cultural phenomenon in Russia. You can “Avito” anything, with listings ranging from real estate, vehicle sales and business goods to jobs, services and electronics. Although the company has 15 million+ monthly active users, operates in the largest landmass in the world, and generates hundreds of millions of dollars of profit, Avito’s origin story is little known. And yet it’s one of the finest stories of courage and exceptional leadership. I caught up with Jonas to discuss more about the company’s remarkable story, its rise to success against all odds, how he views risk, what he looks for in senior hires, the company’s “don’t F*&k it up” mantra and more.
Avito is a phenomenon in Russia. I’m curious to know how it all began and how two Swedes came to set up a business in Russia. Tell me more about the early days of the company.
Before Avito launched in 2007, I co-founded Swedish online marketplace Tradera and Filip was running the Russian Yellow Pages. After selling Tradera to eBay in 2006, several of us from the company became interested in the Russian market and the idea for Avito started to form. At the outset, Filip wasn’t yet involved in the business. I was on the ground by myself with four guys popping in and out of Russia. I then asked a Russian guy who’d worked with me at Tradera to move from Germany back to Russia to work with me. His help was invaluable, as I didn't speak Russian and it's a tough place to not speak the language! A year later, the original set-up wasn’t working, so I had an honest discussion with the people I’d brought on with me and we all agreed to part ways. Around the same time, Filip and I got to know each other. His expertise and personality were a perfect fit for Avito, so I brought him in as co-founder. We decided to give it a go and remake the model into a more pure play classified model.
It’s incredible that you could have such a transparent discussion with the Tradera team and we’ll talk about culture later. Let’s talk about risk first. Risk is core to how entrepreneurs build large businesses. What’s your personal approach to risk and how did it play into your decision to enter the Russian market?
Most of my friends and family have a different view of how to measure risk - I like risk and I’m not afraid of it! In terms of going to Russia, it was a great time to enter the market. When we came into the country, internet penetration in the country was less than 30%, but it was growing fast. Russia had seen 10 years of huge consumption, but there was nowhere for people to resell the stuff they no longer used or needed. If you wanted to place a classified ad, you had to go to a kiosk and wake up an old lady to hand in your ad for a paid-for print classified.
There are always some harder aspects of setting up in a new country - especially a rapidly evolving country - but we saw it as a challenge. Instead of deterring us, it just made us more determined to prove to everyone that we could make it. We saw the numbers and they told us that we were onto something really, really big. The online space was – and is – growing in Russia. More and more people are getting online and getting connected. We took a risk at the right time and our timing was very lucky.
Let’s discuss talent, recruitment and leadership. What do you look for in your first critical hires?
The reason I’ve succeeded isn’t because I’m brilliant, it’s because I'm good at finding the right people. I don’t believe in overlooking people because they don’t look right on paper, because often in context, those are the people who work well together and create some amazing stuff.
The first 20 people in a company are crucial. For a long time, I was the HR (Human Resources) manager, on top of everything else. I focused so much of my energy on finding the right people. Those first employees really set the tone when it comes to culture and values.
If you get the first twenty hires right, the next twenty are easier, and then it becomes a natural cycle of good people attracting good people.
When I was still really part of the recruitment process, it was easy and there was a lot of loyalty to me and Filip as we were loyal to our team. As the company grows, it becomes more difficult, but we invested a tremendous amount of time into finding the right people to be both the local leaders of teams, but also HR and creating this nice working environment where people felt that they were really seen.
Leadership is also time - it’s like being a parent, you need to invest time. It’s not just about qualities. So, I was running around a lot, meeting people I didn't know when the company got to that point. Ensuring I was visible, bringing a group together and talking a bit about what's happening to give them a sense of the vision and goals. When we got to around 2,000 employees, the focus became more on how much people get paid and what the stock options package looked like. We also had a super nice office. But we were founders that were very present and there was a lot of great talent. Talent wants to work with talent, and there wasn’t any moment in the company where a lot of people left. When people did leave, it was for the right reasons.
Did you experience any challenges with recruitment at the start of your journey?
Russia was booming when we arrived and many talented people were either starting their own companies or working with established companies, so we didn’t have as much access to talent at the beginning. In 2008, the recession changed things and many talented people were looking for work. There was also a lot of insecurity around at the time as many people had experienced issues with employers in the past. There is a big difference between Swedish and Russian culture when it comes to trust.
Once people realised that Filip and I were for real, they started to talk to their friends and we built our reputation as a trustworthy employer by word of mouth. If we promised people a bonus, they got their bonus, if we gave people responsibility, we trusted them to do it. At one point, our company accounts were closed down due to a cyber-attack, but we made sure everyone got their salaries. We paid people with money from our private cash accounts. In fact, when the conflict in Crimea broke out, we had 200 people in Ukraine and made sure every single employee got their salaries on time. When we ended up having to shut the office, we also paid for everyone who wanted to to migrate to mainland Russia.
Many of our employees wouldn’t have been able to rely on their previous employers in this way, but for me, trust is a super important part of leadership – you must deliver on your promises. As a leader, building and maintaining a culture of trust is key and I think we’ve been extremely well-rewarded for creating a culture of openness and security. We have always trusted our team to make the right calls each day, every day.
It’s not just companies in Russia you stood out against, you really built your own culture. I’ll never forget when I walked into your new office and your mission statement on the kitchen wall said: “Don’t f*&ck it up”. What did you mean by this and what does it mean to the people at Avito?
The painting was done by our employees at an off-site we had when we celebrated a profitable first quarter in 2012. In times of hyper-growth, it’s easy to forget the simple stuff, so having that statement painted on our kitchen wall was a great reminder.
It's so easy to stray off the path of success. As soon as you start to grow, you start to get money and as soon as you have money, you're in a position of more control. For us, “Don’t f*&ck it up” means get the simple stuff right — and if something is working well, we shouldn’t mess with it.
So, as an example of that in action, we didn’t change the way we recruited. We tested EQ and IQ, and did a lot of personal interviews. If we were recruiting a senior person, we’d spend a ridiculous amount of time in private meetings, dinners and drinks, because it's such an important relationship that you enter into from both sides. Our way of recruiting worked, so we didn’t mess with it! When people didn't work out, we were very quick when it came to sitting down and discussing it with them and were completely transparent. Equally, if it was someone we loved working with who’d been with us a long time and had delivered great results but couldn’t take the next step, we’d have a super open discussion around that too.
Moving on to focus. The current market offers the allure of new things for entrepreneurs. There’s a lot of capital and opportunities available, and it’s becoming less common for entrepreneurs to say “no” and focus. When building Avito, you had every opportunity in front of you too. Can you share your insights on building companies, moving into different marketplaces and figuring out where to focus your efforts for today’s entrepreneurs?
When you have momentum, capital and talent behind you, there can be a lot of push to do new things. Filip and I wanted to do something outside of Russia. We looked at the MENA (Middle East and North Africa) region and I even moved there. I went back and forth between Morocco, Cairo and Moscow for almost two years. It all worked well on paper, but in hindsight - considering the dilution of time and resources created by moving into a new region - it was a bad decision. If we’d put the same time and resources into Russia, we may have added a couple of 100 million dollars more to the business, compared to adding 10s of millions of dollars in profit in MENA.
In addition to looking at MENA, we tried a few other things. Some of those ventures worked out and some didn’t. After a time, you get a bit humble and consider how much you can focus on and when is it time to start something new.
When capital is easy to access and there are a lot of ideas, there can be a tendency to start new things before you’ve really landed your core business.
My key takeaway is to keep things simple, stay focused and don’t stray away too early because it takes time to build the core of your business. We were pretty good at staying on course. We talked about this highway that we were on and we could make the highway wider or we could put more cars on the highway, but would stay true to what we did.
In the current climate, everyone's raising money all the time and there's a lot of capital around. Avito could have raised more money at headline-grabbing prices, but you didn’t go that route. Can you share your approach to fundraising?
Our approach has been strategic from the start. At the point Avito got close to profitable, we still saw the benefit of more growth capital. It was very easy to understand what that capital would do to the business. We did our rounds and had some splashes in the press, but only at the time when they actually meant something. We never enjoyed this and only did it when we really needed it.
Then we met you (Accel) as well as a few other investors and we started recognising how much value there was in your networks and backgrounds. A lot of other investors didn’t have those backgrounds and connections. We had the benefit of being able to cherry pick and very quickly became profitable, which meant that we didn't have to go after capital. We did an acquisition back in the days where we had to accept some capital because that was part of them getting big enough in the cap table, but we never touched that money. We were lucky. But I truly believe entrepreneurs shouldn’t spend too much time on fundraising and running around trying to win prizes and headlines. Obviously, there's a balance and sometimes it’s good to be seen, but focus on what you do first and the right investors will follow.
You have your own investment business, which Filip and a few other Avito folks are also involved with. How are you approaching this stage of your journey?
It’s a big responsibility to invest. It's not just something you can do and then leave alone. You have to be willing to follow up and help when you need to. Being an involved investor takes time, but that’s all part of the journey. We still have time for some fun stuff too! A while ago, Nicholas Zennstrom from Skype advised us to take it easy and think carefully about each investment and I think that’s a really good way to go.
Be thoughtful about your investments, follow up when you need to and can offer support, and don’t forget to have fun!
Read our Secrets to Scaling interviews with:
- Spotify’s Paul Vogel here
- Humio's Geeta Schmidt here
- Zepz' (formerly World Remit Group) Ismail Ahmed here
- Snyk's Guy Podjarny here
- Personio's Hanno Renner here
- Chainalysis' Michael Gronager here
- BlaBlaCar's Nicolas Brusson here
- Supercell's Ilkka Paananen here
- Miro's Andrey Khusid here