I spent the summer of 2005 happy as a puppy, in Tuscany, cycling and relaxing. I felt pretty pleasant—removed from it all—as I had just sold my Tinkoff beer business to the Belgian company InBev for 260 million dollars. At 37, I had become a true multimillionaire.
My life offered an interesting vantage point on the evolution of Russian consciousness. When I sold my Tekhnoshok chain of stores in 1998 and my Darya business in 2002, people felt sorry for me. It was as though the sales meant I lost the businesses and that, therefore, I was a loser. When I closed the Tinkoff deal, however, I was praised. This was a sign of rapid evolution in the business world: people now realized that selling your business can be cool. Fortunately, I understood this 10 years before everyone else did. I knew that there is nothing like selling. It’s the only thing that puts your business, your investments, and your talent into monetary terms. And it provides you with both the time and the resources to get started on something new.
After our vacation on Italy’s Tyrrhenian Sea we returned to Moscow. Next, our whole household, nanny included, packed our things and took a Lufthansa flight to San Francisco. Our destination was our home in Marine County, which is made up of a dozen or so small towns just on the far side of the famous Golden Gate Bridge.
In terms of infrastructure this is the best place in the world. Downtown San Francisco is only twenty minutes away. At the same time, however, you’re basically living in the forest with deer nearby. The schools are amazing—and I’m talking about the public schools, not the private ones. My eldest son Pasha went to first grade, and my daughter Dasha started seventh grade at the most ordinary of public schools in Mill Valley. The town is well-known as the birthplace of Timothy Leary, the famous LSD enthusiast, and although my feelings towards drugs are negative, the fact is worthy of note.
I like to spend a year in America once every five years (at least this has usually been the case in my life). The children go to local school and spend time with their peers; I look for new ideas and enjoy the freedoms, so to speak, that America has to offer. To tell the truth, it only takes about a year for me to get tired of it—there’s an awful lot of stupidity in America. The country has a few things in common with the Soviet Union. Its best features are worthy of detailed study and analysis, beyond anything that I can provide in this book.
America has an interesting array of people and a fascinating mindset and it is a very good place for learning about life and business. Of course, I’m not talking about a two-week trip, but rather a longer period—a year or two. Things are starting to change, but in the nineties, many successful people in Russia, from those in show business to entrepreneurs, were connected in one way or another to the States and came from there. Some examples from show business include Alexander Gordon, Vladimir Solovyov, Tatyana Tolstaya and Oxana Pushkina. Many Russian businesses, such as Don-Story, Unimilk, and Wimm-Bill-Dann, are connected to people who lived in the States and who, upon their return, were able to successfully conduct business in Russia. It was in America that their first steps were taken.
The statements that follow may seem ungrounded; they constitute my own opinion. America has the highest level of competition of any country. And it’s the only country where business has been elevated to the level of a science. In Russia, we have sociology, political science, physics, and math; in America, they have another science—business. There are massive universities, faculties, schools, and colleges where business is approached from a scientific viewpoint. For this reason competing with American businessmen proves a great challenge indeed. They are the most aggressive, strongest, and at times the most cynical of them all, but they are very effective in their work. They get what they want. They are capable of sharing and of coming to compromises, but they do so with only one goal in mind: to make more money.
In America, business is gutted, cleaned, and sorted. This is partially due to the American mindset and Protestantism, but it is also a result of the way the nation is structured. Our early education involves counting apples, but little Americans learn their numbers in dollars and cents. Everything boils down to money and its accumulation. There is a deep understanding that if you have no money, you’re a loser, and that if you do, then you and your family are doing well. This is what the American dream boils down to.
At the same time the Americans have managed to create a society where businesspeople don’t just talk about their social responsibility; they take an active stance on the latter. They cannot be bought by a phone call from the Kremlin; rather, they do as their hearts lead them to do. Feel the difference!
In general, Americans make interesting and shrewd businesspeople. This may not apply to all of them, but it is true as a general guideline. Due to the recent crisis, however, capitalism has suffered more and more attacks. Every couple of days, people on the radio and television remind us of Marx’s claim (I’m not sure he actually said this) that any businessman is willing to commit a crime to double his profits and willing to kill in order to triple them. It may be true that nineteenth-century mores were much baser, and society less civilized than it is today, but the businessmen of today display high moral standards.
Is it profitable to invest in Russia? Yes, of course! Would it be more profitable than investing in India, China, or Brazil—not to mention Europe? Yes, probably. You could earn twice as much in Russia than in these other places, but a number of American businesspeople feel that the rules of the game that have become established here are incompatible with their social and religious convictions. They have been brought up differently and how they live their lives is different. They feel no need for the extreme profit margins—which helps us answer the question of whether a capitalist is indeed capable of a crime to double his profits. The answer is: not always, by any means. One of America’s richest businessmen, for example, the deeply rational Warren Buffet, would not be.
In America I prefer to hang out with Russians and other expatriates, because it’s hard for us to understand Americans. They are strange people. Immigrants try to stick together. My neighbor John, an Australian, helped me to hook up my home phone. Within a week of our arrival, without having to leave the house, I had opened a bank account, got my TV working, set up insurance policies, connected to the Internet, enrolled my children in school, and bought a car at a nearby dealership. The paperwork was all done over the phone, quickly. This was the land of the telephone!
But don’t think that all I did was play sports and mess around. My main focus was to get a new business up and running. My thoughts were drawn to the idea of a credit card business, and it was in America that this notion was born.
I had been in every database since 1993, when I first came to America and bought a house in Santa Rosa. There is no privacy or secrecy once you’ve filled out a form for a purchase or in order to get something for free, be it diapers or ballpoint pens. It’s not surprising that you start getting mail as soon as you provide someone with your personal information. There is nothing strange or unlawful about it. The form usually states that by default you are releasing your personal information for transfer to third parties. Sometimes you don’t even notice it. This is how your information gets out there, into the world.
The same thing happened to me. After I bought the house, I began getting letters personally addressed to Oleg Tinkov, 21 Little River Avenue. In particular, I was bombarded with credit card offers. I got a couple and started to think that this would be a good idea for Russia, a massive country just like the U.S.. Russia’s roads and airports may be sub-par, but you can send mail anywhere. Sending offers to clients through the mail! This was not a bad idea that had come into my head.
When I was studying marketing at Berkeley in 1999, I started to become more interested in how the system worked. Of course I realized that in order to open a bank I would have to have a huge sum of money and, in this respect, I didn’t picture myself as a banker.
Having sold my beer business, however, I found myself in a position where I had enough liquidity to turn my dream of opening a bank into a reality. I’ve always revered banks. Walking by, you see a massive building, and imagine the safe inside, full of cash, and you’re moved. When I talked to bank owners and clerks, trying to get business development loans, I always wondered what it would be like if the tables were turned. Were they really that smart? Not really; they were just like me. But for some reason it was they who were giving me money and not the other way around. On top of that, it wasn’t even their money; they were attracting it from someplace. I thought about it for a while and decided that things needed to change, that I should be the one lending the money.
Everything came together: my desire to be a banker, on the one hand, and my love of plastic, on the other. Some uninformed people now accuse me of copying Russian Standard Bank. I hope Rustam Tariko reads this book (or this page, at least). He can confirm the accuracy of my next story. It happened in 2004, one of the times we met at my office. He had come to discuss selling his company’s vodka in our restaurants. The purchasing departments at our restaurants wouldn’t accept his offers and he was ambitious, keen to get what he wanted. The Tinkoff chain in Moscow and in the regions was made up of some of Russia’s leading restaurants, and he wanted to know why he was not allowed in.
Rustam and I quickly came to an agreement with respect to selling his vodka. After all, he is a rational and competent businessman. There has been talk that he foolishly gets himself into trouble, along with other negative publicity. As for me, I know him well and greatly respect his business talents. His lifestyle and love of luxury and glamour do not correspond to my values, but that is his private life and has no bearing on his effectiveness as a businessman. It is possible that he is one of the smartest businessmen in Russia. He, along with Andrei Rogachov, Sergei Galitsky, and a couple others conceived of business ventures that are now worth billions of dollars and created these from the ground up.
During that meeting I said:
“Rustam, why don’t you start making plastic cards? It would be fantastic! It’s profitable, simple, and sexy. What’s the point of these consumer loans stores are giving out?”
“What makes you think we don’t make them? I have three million bank cards.”
“Are you kidding? I’ve never seen any. How come I don’t have even one?”
“Oleg, you aren’t part of the target market for my credit cards. We need people a little poorer than you,” joked Rustam.
“You know, the credit card business is really neat. I’ve watched Americans using them for a long time, and wouldn’t mind getting into it myself.”
“Yes, it’s a serious business, but it would require major investments in both infrastructure and loans.”
“Well, we’ll see. Once I’m done building the brewery works, maybe I’ll sell them…”
The subject was dropped. Now I understand how funny I must have looked then and what sorts of things must have been going through Rustam’s head. At least I found out that Rustam wasn’t just giving out consumer loans at stores, though, but also offering credit cards—and also that he was working in the sub-prime market, that is, with the most ordinary of people.
The scheme he followed was simple: if a person took out a loan at Russian Standard for a fridge or TV and paid it back, the bank would issue a credit card in the client’s name and send it to the person in the mail. The client would then make his or her own decision whether or not to activate the card. Of course a large percentage of the cards were unwanted and a lot of people felt the bank was pressuring them. After all, they hadn’t asked, themselves, for the card to be sent. Some, however, liked the fact that the bank had sent them the card and that it was left up to the customer whether it would be put to use: if you don’t want to use it, don’t activate the card—it is your choice.
Naturally, I analyzed the experiences of Russian Standard as well as Home Credit Bank and decided that my bank’s distribution model would be different, closer to what’s done in America.
* * *
Early in the Autumn of 2005, I met with Stephan Dertnig, chief at the Moscow office of Boston Consulting Group, and asked him to do a feasibility study examining how realistic it would be to turn my idea into an operating business. The document cost several hundred thousand dollars. It embodied a very thorough approach to the analysis, however, since I was potentially going to invest tens of millions in the proposed venture. I asked Stephan to develop a concept and to offer an answer to the question whether it would it be possible to market credit cards, directly, in Russia.
In November, Stephan traveled to San Francisco to present the final version of the study. Along with Alex Koretsky, a Russian American from San Francisco, I came to a classy hotel in downtown San Francisco and listened to what Stefan had to say. Should the venture be undertaken? Stefan’s presentation offered a solid “yes.” What had to be done in order to get things under way, however, was not really discussed.
I already had some sense of the matter though. Not long before, we had met with MasterCard’s Russian head, Andrei Korolyov, and Visa’s top representative, Lou Naumovsky. They told us they were ready to work with a new bank. Korolyov gave us the contact information for MasterCard Advisors, the department responsible for helping banks with technology and with setting up a credit card IT platform.
Everything was coming together. I could see that this business was a real possibility. I took some of the key staff members from my beer business for a week-long trip to Necker Island, which is owned by Richard Branson, founder of the Virgin brand. All of the Tinkoff people who were working in my restaurant chain, temporarily, following the sale of my beer business were there. Unfortunately, I had not been able to sell the chain to the Belgians. In essence, I was paying my staff in order to keep the team together, which I continued to do for a year and a half so as not to lose valuable human resources. Ultimately, however, I could not offer a job in the bank to some of the good folks who had worked in my beer business, although I provided a bridge for some of them to continue working in their respective fields. These included Regional Sales Manager Stanislav Podolsky, Advertising Manager Mikhail Gorbuntsov, Logistics Manager Igor Belov (who was later in charge of the construction of the Graf Orlov complex on Moskovsky Prospect in St. Petersburg), and production worker Andrei Mezgiryov. All of us were on Necker together. The trip served as an additional bonus for excellent work in the beer industry. We spent the whole week having fun and goofing off. On the very last day, however, I asked for a projector, set it up on a table, pointed it at the wall, and started going through the report from Boston Consulting Group, with commentary as needed.
I asked those present if they believed in the idea, and all of them said they did. In the end we all shook hands, there at the table, drank some rum, and decided that my next business would be in credit cards.
When Rustam Tariko flew to San Francisco in his Boeing I gave him a frank account of my decision. I took him to the wonderful Mihael Mina Restaurant in The Westin St. Francis hotel at Union Square.
“Rustam, I’ve decided to start a credit card bank…”
“Are you sure? You’re getting yourself involved in a serious fight. It’s a complicated technology business.”
“Well what else can I do? I fear new developments may destroy the real estate market [which is probably what happened – O.T.]. I have another idea. It would involve building an oil processing plant near the border and exporting gasoline. But we’d need a lot of money and the industry is very politicized. You know I’m not one to get involved with politics. Vodka might be another possibility, but I’m tired of the consumer market after the beer and Daria.”
Rustam paused to reflect before saying,
“When I first started working on the bank I met with Mikhail Freedman [chief at Alpha-Group – O.T.] and he asked me,
‘What do you think you’re doing? This is big business. There’s no place for you here.’
Now my share of the consumer loan market is several times larger than Alpha-Bank’s, and my credit card business is at least ten times larger than theirs.”
“Listen, Rustam, you were just trying to talk me out of it—and then suddenly you’re talking about Freedman. What makes you think I won’t be able to do it?”
“Oleg, it’s your decision. Give it a shot! But you should know that it won’t be easy.”
I think that Rustam just didn’t fully believe I would actually start the project. Maybe he still doesn’t believe in what I’m doing. Nevertheless, I can say that a little while later, in 2009, his bank suffered losses, while my bank’s profit exceeded 18 million dollars.
Funnier still, was a conversation I had with Mikhail Freedman. Alexander Kosyanenko, the General Director of Perekryostok, the grocery store chain, had invited me to his company’s ten-year anniversary. It was there that I bumped into Mr. Freedman. All the managers of Perekryostok sat with us at the table. I shared my idea concerning the credit card bank.
“I’ve been thinking about opening a bank like Capital One in Russia for a long time,” was the reply given by the Chairman of the Board of Directors of Perekryostok, Lev Khasis.
“It’s a fine idea, but it would need some thorough reworking,” added Mikhail Freedman.
“There’s just one thing I’m unsure about. If the bank doesn’t have any branches, how will people pay them off?” I asked.
“What’s the post office for? They can pay at the post office.”
I think that deep down Mikhail Freedman didn’t believe in me either. I had never worked in the financial industry. How was I to compete with Alpha-Bank, which had been established in 1990?
But it wasn’t as though this was the first time my ideas had been met with skepticism. “What are you thinking? You’re too late. The market’s completely saturated with experienced professionals. You’re being ridiculous.” I had heard these words every time I had started a new business. It is what I heard when I was opening Tekhnoshok, Daria, the Tinkoff restaurants and breweries, and when I was starting up Tinkoff Credit Systems too. But conversations like these just left me more excited. I love achieving what others think impossible. At the same time, though, I don’t consider myself more gifted than anyone else.
I’m just like anyone else. If you don’t believe me, listen to the story of my childhood.
This is what a person who has just sold his beer company for 260 million dollars looks like. Here I am in San Francisco in 2005 with the Golden Gate Bridge in the background.