The Inc. Russia article that includes Mindbox’s story, testimonials, and references by market industry professionals.
A Surgeon and a Programmer Set Up an IT Company that Today Brings in Hundreds of Millions in Revenue — How Therapy and Quitting Smoking Helped
In the 1990s, Ivan drove taxi in an old ZAZ Tavria and sold computers part-time in the city of Inta, Russia while attending Sechenov University. By and by, he met the owners of a local computer store in Fidonet, one of the communities within his service area. Ivan’s only comment regarding his eclectic range of activities is that he «wanted to eat».
Nevertheless, his «hunger» for business led him to later start his own cellular phone store. After graduating, he began his career as a hospital surgeon based in Moscow. Meanwhile, he set up ITCom, a virtual mobile services company. Being a low-margin business, Ivan started to look for other opportunities that would suit his desire to diversify his business ventures.
In 2006, Ivan started a new department in ITCom; one that dealt with developing websites and services that included the capability of sending a text to download a ringtone. This was also when Ivan fortuitously got word of the tender from Liggett Dikat (now JTI). The leading tobacco manufacturer was seeking a promotion developer. It required data organization whenever secret codes were redeemed from sold cigarette packs, and prize distribution to participants. Happily, our surgeon/entrepreneur became the bid winner.
Ivan explains that, since his team was already involved in the development of «Behind the Wheel» magazine’s website, he decided to outsource a developer, hence involving Alexander Gornik. This was thanks to recommendations from friends. The project turned out successfully and grossed $250k. This was followed by a line-up of FMGC companies and agencies such as L’Oréal, Baltika, and ADV Group who wanted the same software. Naturally, Alex was invited back for these projects as well. For two years the team managed the flow of incoming requests without actively seeking any clients. By the end of 2006, thanks to these projects, the company grossed $536k-$715k in profit turnover. By 2007, turnover had reached $1.2 million.
The company designed the DirectCRM platform with the capability to run promotions such as, «Enter the package code, send text, win prizes». For Ivan, it also meant leaving his medical career, as the challenge of juggling two full-time professions became overwhelming, not to mention the distinct difference in wages. Alex also decided that this was the right time for him to depart from his other freelance projects, which included product development for MTV and the Accounts Chamber of the Russian Federation.
I shared the common goal of ensuring that what I earned corresponded with my contribution to the business. This left me with two choices: either I could start up my own outsource software development agency or I could go full-time with Ivan’s company. I decided to join Ivan’s company as, at the time, only two people had been employed in the software development department. This is where I came up trumps.
Over time, Ivan became unsatisfied working as a virtual network operator and instead began to immerse himself into the marketing side of product development. As marketing projects brought them significant earnings, Ivan decided to start a separate company that solely dealt with marketing projects, thereby formulating ITCom D&D (Design and Development).
In effect, Ivan was left a bit poorer after having sold his mobile communications company to its former employees. However, it was no sour grapes as he took the developers team with him and partnered with Alex in running the business. Ivan explains his decision for partnering, «He somehow always inspired confidence; he always did more than was expected».
The two partners in their new company were off to a rocky start as initially there was only enough money to pay their employees and not themselves. The minimum monthly salary amount they agreed on to pay themselves was $2,000. Ivan recalls that, for a few months, he could not afford to pay his mortgage or other debts. He had to quit smoking because he could not afford cigarettes. Yet Ivan sees the silver lining, «I realized that the tobacco craving was all in my head. It has been a huge life-changer in terms of my health, productivity and mindfulness».
Although the start-up founders have witnessed a huge demand for their services, the company has found itself on the brink of bankruptcy. After the first wave of popularity had begun to die out, from then on their survival depended on their determination to fight for each client. It would seem that Mindbox had perhaps run its course. In addition, working within the FMCG market, Mindbox faced some difficult restrictions between clients. For example, Baltika Brewery did not allow working with Efes, and JTI did now allow working with BAT Russia.
The good news is that these restrictions made it possible for a contract change. Payment negotiation on a subscription-basis instead of a one-time fixed price or fixed-term payments could take place, particularly with those companies that prohibited working with their competitors. This is where it came to light that a subscription is the best payment model for large project software development.
Ivan comments on the cash-out deal, «Looking back, I think it might have been a mistake. We were of the mindset that there was a constant need to cash in and run faster. But back then, the mere fact that such big companies were willing to invest money — seemingly a lot — was very significant to us».
Although the money that came from investors was a big help, some of the bigger advertising shareholders dramatically helped in other ways, too. For example, they helped build up financial statements and brought in several big clients. This is where Danon and Aeroflot were added as clientele. Once these success stories began spreading, Sportmaster, Daughters and Sons, Eksmo, and Hoff came to Mindbox as well. This time, however, Ivan was able to attract them through his own power of persuasion.
The Way Mindbox Works
Mindbox gathers and arranges customer data received from a number of different sources, such as in-store checkouts, websites, and mobile apps. From here, a marketer can separate customers into segments vis-a-vis the customer base. They can then launch personalized advertising campaigns for a number of different audiences. This can be via email, text messaging, push notifications, phone calls, and loyalty programs with personal offers.
The 2014 Crimean crisis affected everything, and so there were fewer promotions. As a result, our clients’ budgets began to decline. Our partners realized that, in fact, Mindbox had been responsible for bringing in half of the promotions automation market projects. At the same time, it was clear that the market had become extremely volatile and risked imminent collapse. Moreover, the tedious anti-competitive agreements prevented the company from growing any further. So, Ivan and Alex started to look for new opportunities. In the meantime, they asked themselves, «What’s next?» To their dissatisfaction, it became clear that they would have to again sell shares in order not to lose the business entirely within the near future.
Mindbox is a typical example of a SaaS delivery model that makes use of cloud computing, providing subscribers with ready-to-use software. This type of system helps to automate sending personal offers, to create parameters for offer distribution, and to program online promotions. However, the partners decided to change their service pricing, offering any marketing mechanic at one, $450 rate. An Abandoned Cart is one good example of a popular mechanic. Its operation is to ensure that customers receive an email reminding them of their cart’s contents after having visited the online store. Another example of a mechanic is the use of promo codes. Should a customer have stopped shopping at an online store, they receive a personal discount code to encourage a return store visit. Ivan comments, «It’s a common practice now, but back in 2014, it was breakthrough technology».
On the one hand, it seemed unprofitable to sell product mechanics for $450. Sometimes clients asked for some complicated automated reporting, would apply the mechanic once or twice, then abandoned it and stopped paying. On the other hand, the company affirmed that their product was flexible, and that the price was cost-efficient in terms of automation technology for the times. The logic worked, and over a year’s time the company’s growth began. Their number of clients doubled and revenues increased by 50%.
In 2016, the partners decided to test their business acumen abroad, starting with Great Britain. They were drawn in by the immense English-speaking market, a time zone close to Russia’s, and the possibility to fly to meetings quickly. These aspects also reduced costs, as it was possible to sell remotely, avoid moving abroad, and take advantage of cheaper and simpler tax laws. So, a Netherlands Mindbox company was launched. Although a lower reputation risk than companies registered in Cyprus, nevertheless, conducting business abroad and in Britain required a completely different set of financial and human resources. Although Ivan and Alex had not initially been ready for that, their new foreign company proved to be very useful.
It now became convenient to sell software to businesses in the USA, Great Britain, Europe, and South Africa; products mostly of Russian origin. Among them are Amazon Scout, SEMRush, and Oriflame; the latter attracted via cold sales. Since then, the company has been generating stable revenue.
Borovikov attracted clients through messages over LinkedIn. Long communication chains were, at the time, the most efficient method. Once he became familiar with someone through some small talk, «What about parking in Belfast? Is it expensive?» he would then get to the point. «We have this product, it deals with problems of this kind. It seems relevant to your business. Would you like to discuss it?» Ivan certainly had left an impression on a particular U.S. marketer, who notified her boss. He turned out to be a Russian expat who was open to new, innovative ideas. Almost immediately, a new contract was signed. However, not everyone had been that easy to work with. One businessman had a peculiar bias against Russian products. But the partners simply chalked it up to experience, stating that «It didn’t really work out with him».
Since 2017, Mindbox has been certifying the company’s clients in platform integration. It began with one agency’s employee who attended a free course on how to handle the platform. He completed the course, took the exam, and got his certificate. The real payoff was from his feedback, whose suggestions increased the course’s quality. In turn, sales increased to 8 certified agencies, bringing in 4–5% of the profit turnover.
During this time, Mindbox also took part in advertising and consulting. Yet this LOB’s turnover had been decreasing over the years. In 2016, it was bringing in only one-third of the turnover, and by 2020 it was less than 10%. At the beginning, the partners provided consulting services themselves. Then they started hiring employees. The first hired analyst made a big difference, and overall it became clearer on how best to approach offering a consulting service. As a side note, Mindbox’s first hired analyst, Svetlana, and Alex married, and they have recently celebrated having their first child.
While Alex had always been responsible for the product development side of things, Ivan was in charge of sales. In 2014, a difference of opinions arose between the two partners’ almost decade long relationship. Alex had been taking on more of the company’s involvements that Ivan felt appropriate for a 50/50 partnership. A disagreement that almost led to a permanent split. Ivan now admits that he isn’t the greatest at administrating, and that the best person to run an IT company is actually an engineer, not a businessman. Due to Ivan’s competitive nature, it was difficult for him to accept Alex’s behavior, and misinterpretation of intent, even paranoia, soon followed. However, this partnership was a committed one, through thick and thin.
So they attended counseling sessions together to sort things out, which years later, they did. It truly helped.
Ivan reflects back on his counseling experience, «I stopped being a sovereign of everything for the first time in my life. Alex was good at what he was doing and he was, in fact, not trying to offend me or steal the business. During those pair sessions, a frightening thought came to my mind: It was all my own paranoia and distorted perception».
As a result, a company role redistribution occured. In 2016, Ivan passed on the position of CEO to Alex, and then started to look for new markets, desiring to expand the business both in Russia and abroad. Eventually, Ivan took a 6-month sabbatical to Israel, and even considered moving there for good. However, after returning from his retreat, Ivan experienced a second-wind of energy. He was ready to manage, build, and shape the company’s product and strategy. The partners agreed to synchronize their actions; Ivan would participate in scaling sales within Russia, while Alex would handle things outside Russia.
This is how the company came to identify with the teal model. All employees’ salaries became open knowledge within the company. Employees started setting their own salaries through a collective discussion in Trello. The team now shared a wide range of responsibility, while corporate, financial, and legal documents became general company knowledge.
Alex states that the company had switched to the teal model because there wasn’t enough in the budget to pay C-level managers. Therefore, they were trying to create a structure that was as horizontal as possible. Ivan saw growth opportunities in teal structure, where the partners’ shared their authority while lightening their administrative load.
«At the time, none of us knew that it was a real thing; everything happened naturally. Later on, we read some books and learned about the Teal Theory. So, sure, let it be called a "teal model".»
Ivan and Alex began preparing the Mindbox platform for offline projects. The platform implemented the mechanics for additional sales at the POS, where the software analyzes the scanned items from the receipt, and the cashier and customer enjoy a positive communicative exchange. For example, the cashier can assist the customer in earning or spending bonus points, calculating a discount based on their purchase amount, or buying a pair of shoes at a 25% discount. In fact, the Mindbox platform works with 50 CIS retail chains, including Burger King, 12storeez, Rigla, and Kant.
To try and attract new clients, Mindbox became more active over social networks. Originally, Ivan posted the Facebook adverts himself. In 2016, he spent around $250k on target advertising alone. Some investment also went into contextual advertising, mass media adverts, and PR. It worked, and 50 new clients appeared. In terms of facts and figures, the cost of attracting a client added up to $5000, with the cost of a qualified lead being $250. On average, client LTV came to about $87k. It is, however, tricky to accurately calculate an LTV ratio since the smallest and largest monthly payments could significantly differ by as much as 100 times.
Today, Mindbox is a tool used by middle and senior CRM Managers. The platform’s functionality requires careful study, but Mindbox’s Customer Success department is ready to help. This is what deems the product both valuable and exclusive. Expert support and successful implementation is all part of Mindbox’s unique offer. And that is how Mindbox is changing the market — by applying tangible growth strategies through customer return and retention.
One of the most apparent strategies used for rapid scaling is lowering the price entry threshold. This does, however, come with its own disadvantages. Firstly, it overshadows the premium reputation of the Mindbox brand. Secondly, making the tool easier to understand increases customer churn. However, mastering the platform is not always a bad thing, as it often increases the retention of customers who have experienced a complex and challenging integration process. At the same time, it also means that a simple set of tools can quite easily be replaced with a similar set from a competitor.
With regards to the marketing automation industry, it is expanding, but not as fast as all services would like. Today, services demand a more complex set of mechanics, not to mention, there is no guarantee that a lower threshold price would benefit the market.
We treat Mindbox with great respect, despite the competition that exists between our companies. In my opinion, Mindbox and our company have similar values, as we both teach our clients the importance of effective marketing. The CDP market is actively developing, and we believe that those who can manage both customers and product data will be successful within the market.
Ivan and Alex started attending specialized conferences in an attempt to try to understand the language of e-commerce clients. It helped in understanding terms such as automated mailings, as well as typical scenarios for triggered mailings, such as an Abandoned Cart. As a result, it became easier to explain Mindbox the product to others. Ivan then started to actively sell, calling potential clients, inviting them to meetings, telling them about the product, and building up the sales funnel. The company then went on to employ their first-ever salesperson with experience in a similar company as a large-scale integrator. Unfortunately, the relationship didn’t pan out, but again, it was a learning experience. Ivan states that it had not been fully clear what the sales process should look like nor the sales hiring procedure.
Ivan states, We were at a loss as to what to do with him. There were no well-formulated processes. Later on, we hired a second salesperson and a third. Now I’ve acquired the systematic knowledge of scaling the process and organizing sales. I took courses, read books, and listened to other vendors. I compared everything with my experiences and implemented my new knowledge. Currently, there are 10 salespeople in our company and we are looking for 5 more.
The service pricing is built in such a way that it is not overly expensive for a client; they are only charged for the use of the platform. This is actually the main driver of revenue as most clients utilize the platform for an average of 4 years. The average order value is also increasing.
This is because Mindbox creates and develops new modules which they then sell to their clients. One popular main attraction is the list of client success stories. This started basically by chance, when the partners found out that four new clients had been attracted by a published case story about Mindbox helping a client increase their sales. This was traced back to the website where the story had originally been posted. Since then, more than 160 client cases have been posted; essentially being every third client’s case.
Alex mentions, «A key aspect of our marketing is not talking about how cool we are. Who needs that? We just talk about our clients’ outcomes and how they achieved those results».
Mindbox has lots of ideas about how to make their product better. One of their most ambitious plans is to grow by 10 times and enter the IPO in 2028. In order to make this possible, the company is following a clear plan for sales, product functionality, finances, and M&A deals. One could say that the company is exceeding expectations, as it plans to register an American-based company this year.
Another company aspiration is to teach the platform how to segment the audience on its own using machine learning. The smaller the segment is, the more accurately an offer is formulated, the higher the conversion rate and client satisfaction. The partners believe that, ideally, audience segmentation should be an AI task. The development plan is set for two years, so in the meantime the company plans to hire more employees. Of the 150 team members, 60 are developers, but by no means is this the limit.
Ivan comments, «As long as we can hire, we’ll hire. We are not afraid of new staff eating into our revenue. Just the other way round—too much revenue remaining means that the hiring rate is too low».
Ivan and Alex are also seeking to attract partners with whom effective collaboration can be developed in an area where there is no pre-existing expertise. For example, in 2019, Mindbox bought a 10% stake in PopMechanic, a service that creates pop-ups and widgets for websites. In May 2021, they invested in the Letteros modular letter designer.
It has been 2.5 years since Mindbox and our company became partners. Over this period, we have increased our number of clients by three fold. The year 2020 saw the growth of our shared website and site personalization by 2 times more than the growth of Mindbox itself. What is clear to us here is the effect of having an «older brother». We have improved our development processes, and have an understanding of business and sales. This effect continues as our friends appear to have learned from us and have integrated small teams into their projects now, too.
The main challenge for Mindbox is to make their product more mainstream. Now, the minimum order value is $625, but there are plans to make a self-service product that clients could use without having to consult with a manager. The lowest price for that would be $125. These options can also help Mindbox enter into the Western market. In the form that it is now, Mindbox requires considerable investment to scale up its presence abroad. We need offices in sister company countries along with qualified local support. The sales cycle of such products is several years, and it is expensive. Ivan and Alex comment, «Making a cheap mass product that any small and medium-sized business can buy with a lot of functional benefits is a more realistic business plan. Then, once reputation and popularity have been established, it will be possible to attract larger companies».
- A management and administrative mistake. We had one systemic error where we overestimated employees’ desire to grow, take responsibility, and self-manage. It would have been better to start shaping the management and organizational strategy earlier on.
- Poor structuring of a deal with our partners. Back in 2013, we could have and should have organized everything better with our partner, as well as better structured the agreement with them. There were gaps concerning both assessment and shares. At the time, we knew absolutely nothing about those things.
- Problems with assessments and goals. It turned out to be too late when we started to assess market niches and set sales goals.
- Zero delegating. Ivan states, I realized that I needed to stop working on my own a bit too late. It was necessary to start teaching, delegating, and managing with employee help, and set goals as soon as possible. I, therefore, had to try to remove myself from intervening in ordinary, everyday activities. It turned out to be me who was in the way of employee and company growth.
- Zero self-development. Ivan states, I immensely underestimated transparency. Rationally, the idea of open salaries and transparent processes was appealing, but emotionally, it took a very long time to accept it. My unacceptance contributed to my burnout and a very challenging period. I could have managed it earlier and better through vipassanā and some other self-development activities. Still, it happened the way it happened.