The hero of the new interview on the Forbes Runetology blog is Max Kraynov, CEO of Aviasales. Started as a blog, the service has turned into a noticeable business in ten years, and in 2014 it received $10 million from the iTech Capital fund. At the end of 2016, the project's founder Konstantin Kalinov stepped down from operational management, and in the spring of 2017, the Company eliminated some of its directions and its management sent its efforts into the Russian market.
At the same time, according to Kraynov, Aviasales remains stable and promises to become more profitable. The head of the Russian airline ticket search engine also told why Aviasales was not given investments in 2015–2016 either at home or abroad, whether the conflict between the Company's founder and its shareholders is ongoing, and how the management of a Russian Internet business works when its headquarters are in Thailand and the CEO is in Australia.
GUEST PROFILE
Max Kraynov was born in 1980.
He graduated from Samara State University (now Samara University) in 2001 with a degree in Applied Mathematics.
In 2012, he received an MBA in General Management from Chifley School (Melbourne).
From 1997 to 1999, he worked in government agencies (morgue, Central Internal Affairs Directorate of the Samara Region).
From 1999 to 2001, he was a programmer in one of the first Russian Forex startups, Alphanet.
In 2002, he moved to New York and worked as a programmer in the financial sector (AIG, S&P, Citigroup).
At the same time, he was developing his own startup in the mobile content sector – Unwiredtec.
In 2006, he sold Unwiredtec to the Australian company Mobile Messenger, where he worked until 2009, and moved to Sydney.
In 2010, he was responsible for the product line related to the monetization of mobile data at the Australian operator Optus.
Since 2011 Kraynov is the CEO of Aviasales,
and he lives and works in Sydney.
— How do you manage to run a company with headquarters in another country, moreover – in another hemisphere?
— I would be lying if I said it was easy. It was easy six years ago when I joined the company. By the way, I am an employee #9.
At the moment, I have given a lot of my old responsibilities over to people who cope with them much better than me. I determine the Company's development vector and help with the resource allocation. In all other respects, I have stepped aside and don't interfere with my colleagues' work.
— Are you glad with what's happening at Aviasales now?
— Yes, I do. Despite a certain amount of publicity (here: unwanted public interest due to the speech of Aviasales founder Konstantin Kalinov. – Forbes) in March [2017].
— Are you in a phase transition situation?
— Exactly. For the last two years, we have been developing our foreign project called Jetradar Asia, where we have managed to achieve good results in terms of the product. But in order to finalize the platform and conquer the market, we would have needed a huge amount of money – about $30 million for a year and a half. No one gave it to us.
— Why was it necessary to finalize the platform for Jetradar? Is it not a copy of Aviasales?
— Not exactly, that's the problem. In Asia, metasearch for airline tickets in its pure form cannot exist. Our competitors have a lot of traffic from expats and people from the UK and the USA who know their brands. And they continue to use services under these brands while abroad.
Another thing is local users: most players do not have them. The exception is perhaps Traveloka, an Indonesian company with huge investments.
We realized that it was important to provide not only the ability to search, but also the ability to issue an air ticket. In Thailand, for example, a credit card is often not enough to buy a ticket: barely 40% of residents who can pay online have one. But bank-to-bank transfers are common. Or one can wander to a 7-Eleven store which are on every corner, pay with cash, and get a confirmation number. Alternatively, one can use some kind of e-wallet. It’s difficult to ensure a seamless purchase process. Metasearch itself – and we remained a metasearch everywhere except Asia – did not solve the problem: there were no agencies capable of making the user not feel like an idiot. And this is a very important aspect for us. At the same time, our conversion rate – the conversion from transition to sale – was the highest in Asia.
— Do you confirm this was a failure?
— Yes, this is a failure. It has two reasons. Firstly, we underestimated the share of low-cost airlines, and it turned out to be more than 70%. You spend money to attract clients, but you get nothing from such low-cost carriers. And you hope that in a year and a half or three years he/she will come to you directly to buy a ticket from a normal regular carrier. You can be so naive, but only when you have loads of money.
Secondly, something happened in the market. In November 2016, the Chinese Ctrip bought our competitor Skyscanner (details of the deal are here. – Forbes), and in January 2017, The Priceline Group which owns another of our competitors, Kayak, announced its desire to acquire Momondo Group, another of our competitors, for $550 million (more details about the event are here. – Forbes). We realized what would happen next: Russia is a fat market [for them].
There are two ways out. Either attract money to stay in Asia, or stop messing around and throw all resources into maintaining and strengthening positions in our main market – Russia and the CIS. In the end, 80% of Aviasales traffic is Russian. We chose the second option.
— Was it the investors who made the decision?
— The board of directors. It includes two representatives of investors, Konstantin Kalinov and five more operational employees, including me.
— We'll focus on this a little later. Now – about you. You were known on the Internet as a blogger. But over time, you began to post much less frequently.
— There are a lot of questions that I cannot ask publicly. And some that I cannot make public the answers to. Sometimes, based on the posts, their sequence, it becomes clear what was happening in the Company. The fact that I now make posts once a month is more to do with self-censorship.
— Nowadays, many companies, on the contrary, openly share information about themselves: about money, conversions, client base.
— Of course not. We also tell what we can. Sometimes we even boast. In the spirit of filling a hundred Boeing 737s of the latest modification with passengers every day, [helping to sell] five million tickets a year.
I mean structuring deals or Company plans. In general, I really like doing uninteresting things – I try to understand what others avoid. And such uninteresting things have the greatest predictive power. When you start doing them and talk about them, people immediately understand what you are trying to achieve.
— In the flash mob #меняневзяли (#menyanevzyali), you wrote that you didn’t got a job in the FSB. What’s the story?
— I worked in the information department of the Central Internal Affairs Directorate of the Samara Region. In February 1999, the Central Internal Affairs Directorate building burned down, and several of my friends died there. I left work early that day. It made an indelible impression on me, a nineteen-year-old person. I couldn’t work there anymore. Where could I go? There were one or two programming firms in the city. I thought, why not join the security forces. I turned to my old co-workers, who had left for Department “K” for a similar reason. They said that there was no place for me, but I could become their full-time witness. I refused.
— How did you move to the USA and what did you do there before starting your own business?
— In 2002, I moved to New York. Almost immediately after graduating. At first, I lived in a three-by-three room with a built-in closet, a double bed, and a cardboard box with a computer on it. If I had a dog, it would be wagging its tail up and down there, not left and right. A Russian body shop snagged me and decided to sell me to Lehman Brothers – it didn’t work out. I was unemployed for a while, then they sold me to AIG.
— Why “sold”? As if you were a thing.
— When you want to move from Samara to New York, you are a thing. They give you a work visa, pay you $55,000 a year, and sell you for $100,000. Marketplace.
I didn’t really have anything to do with this. And I came up with the idea of writing a small library in Java to create or convert ringtones for mobile phones. It should be noted that in Europe and Russia, people were already getting the hang of it. And in the States, nothing was heard in this relation. I made the first version, and people suddenly started buying it. I got the first money. The next year, I hired my first employee, Sergei Khenkin who now works at Google. By the end of 2005, there were about ten of us. We had done another thing that no one had done before – a platform for automatic conversion of mobile content. We had about a hundred clients all over the world. And one of them, Mobile Messenger from Australia, wanted to buy us.
— Paid a lot?
— About $1 million.
— And pulled you out of the US to Australia?
— Yes. I was very lucky to get into Mobile Messenger: until a certain point, it was a wonderful company. I got surrounded by people whom you could just listen to. Listen and record what they said in your subconscious. When I was developing Aviasales, I did it according to the Mobile Messenger model.
— How did you meet Aviasales founder Konstantin Kalinov?
— I was writing about business and financial modeling in my blog. I had been following Aviasales since 2009, I guess. Konstantin came to me: the project had just fired. There were strange people with unclear goals hanging around it, including those who just wanted to rob it. They offered him ridiculous money for half of the company, convincing him of the need for such investments. Then we built a small model of how the business would grow. And it showed: dude, in two years your business will be going the way that you won’t need any barnacles at all. But for now you’ll have to be patient for a while.
Aviasales’ business was growing, at the end of 2010 they moved to Thailand, and I was stunned by how easy it was to make such an important decision. Then we collaborated again at the consulting level. I was still working at the mobile operator, but I wanted to jump ship. I tried Google. Google considered me to be not good enough for them. But Konstantin thought I was good enough. We shook hands. I wanted to come to the Company as the COO, but he suggested: “I have a better idea. Let me only deal with the product, and you with everything uninteresting. As a CEO.” – “Okay.”
— Did you initially agree that you would work remotely?
— Yes. When the company is small, it is easy.
— What did you do at Aviasales at the start, and how did your priorities change?
— At first, my main task was to direct the managers so that they knew what to do. Gradually, we established the technical direction, then marketing came under control, and we did business development for a long time. You take one area at the management level and develop it.
When the Company grew up to fifty people, it became clear that it was no longer possible to communicate with each person individually. Subordination was needed, among other things. And this puzzle started to come together. Now we have 128 people – and everything is organized completely differently than at the beginning. The managers are autonomous. For example, Anton Baytsur is the head of the product direction, but de facto he is the operating director, and a lot is tied to him. We have relatively independent marketing. Business development and work with suppliers are organized completely autonomously.
— How busy are you now?
— Heavily. Mainly by relieving people who are stuck. Sometimes you have to draw up a contract at any cost and need a bunch of documents. Bam – and three hours have flown by. But delegating the task would mean dragging it out. And I have to do it myself.
A huge amount of work is to figure out who to add what resources to in terms of prioritization. I officially handed over the finances three years ago, but I still closely monitor the expenses: I absolutely need to know how much cash the Company has, where and when certain expenses are planned. For example, we spend hundreds of thousands of dollars a month on marketing. It’s not that control is carried out manually, but close to that. A lot of time is spent analyzing the current situation: is everything okay, what “red flags” and “yellow flags” are there.
— It means that you continue to deal with, as you put it, uninteresting tasks. And interesting ones don’t appear? For example, in the development strategy.
— This is a common process. At Aviasales, we hold personal operational meetings with management every three months. Plus, we have a very active board of directors. We meet at least once a month. Such meetings require colossal preparatory work, analysis, and communication with competitors. I do this, too.
— Who determines the Company's strategy – you or the board of directors?
— The board of directors. Each member of the board of directors has the right to make a proposal. Naturally, many of them come from me. For example, “Let's close everything
non-core.” And regarding advertising, for example, to put forward initiatives.
— Aviasales looks like a unique formation from a variety of points of view. For example, it is associated with bright, provocative marketing. Where does it come from?
— Exclusively from Konstantin Kalinov. By the way, for a long time we did not understand each other for this very reason. To pull this off, you need a bright temperament, which I do not have.
It is clear why it is provocative. Marketing must evoke emotions, otherwise it is not marketing, but a waste of time, which is what Konstantin has always stood for. If your message does not make a person shudder, you are in the wrong place: sack!
— Is the Aviasales team also a reflection of Konstantin Kalinov's personality?
— The team is a little more reserved. After all, employees have behavioral boundaries, unlike the founder, for whom boundaries do not exist and, probably, should not exist. Our people are, of course, crazy. I say this with great love. Others do not take root in our marketing. Moreover, to manage marketing at Aviasales, you need to be a calm, sane and structured person, but in no case you should extinguish the madness of subordinates. Pavel Rasputin, fortunately, is exactly such a person.
— From the outside, your team looks like a pirate ship crew.
— A very accurate analogy.
— What people do you prefer to take on board? Being a professional, even in order to move to Thailand, you need to be inclined to adventurism.
— Yes, in many ways these are adventurers. But in no case they are climatic migrants. We immediately cut off such kind of people. Our type of people is not those who are used to working in the office from eight to five, then buy a package of chips, a can of beer and watch TV shows. Our type is like this: “Let's start out to Malaysia on the weekend.” – “OK.” Although this is a thousand or one and a half thousand kilometers one way. This is madness in a positive sense.
Sometimes it happens so that a person is all good, but something is wrong. It’s on a gut level. For myself, I formulate this as follows: “A person will take care of himself/herself more than of his/her work.” We hired such people twice or three times. But none of them are working with us now.
— Let's get back to the topical issue. Why didn’t they give you new investments and how they explained that they would not give?
— Imagine that a representative of a well-known company comes to you and says: “We have a cash cow called Russia, which now sponsors other directions. We need $30–35 million to develop another business in another region. We spend money there and so far we are in the red. But we are sure that in two or three years we will tear everyone around.” No matter how you sugarcoat it, such is the dry residue. Yes, we have traction there (development dynamics, “coupling” with the industry. – Forbes), we have growth there. But we’ll get money no earlier than in two to three years. In 2015–2016, everyone expected the dollar to be up to two hundred rubles, and here a company pops up from the Travel Segment which, as many thought, would be smashed into pieces, and asks tons of money, and not even to survive in the region. People did not really believe in this. Although we personally did.
— Did you address only Russian investors?
— Large foreign ones too. But that’s a different story. Everyone knows that in Asia there is Ctrip, and they are afraid of it. Traveloka too, which at that time had about $100 million venture money. We asked less, and people had the question: “Guys, are you smarter than them or what?”
— Have you closed the story with fundraising?
— Yes. It was my evil decision. I said: “Guys, I won’t sit on two chairs. I have cognitive dissonance.”
— Was the dismissal of part of the team a necessity? Was it impossible to refocus it on tasks regarding the Russian market?
— We have enough people in the Russian direction.
— Wouldn't additional staff boost your position here?
— No. Of course, we were looking for opportunities [to solve the issue with minimal distress]. The study of the scenario of what will happen, and the analysis of “who should be sent where” took us a month. Informally, the decision was made about February 15, formally on March 2, and it was published on March 27. All this time, we frantically tried to find work to all our employees. By the way, two or three people said: “Guys, it’s cool, we would have stayed, but we want something else except Phuket.” This is an honest answer, we understand and respect this position. For us, the main thing is that people understand that they were treated humanly, despite the fact that we had to close some units. It’s not that these people are bad. We just had no work in their profile.
— Have you noticeably reduced the costs?
— Of course. We released a lot of money. We do not hide – and our competitors know – that we are preparing for the competition and are not going to give anyone the Russian market. We want to develop it. We can and we know how to do this. We focus on becoming the entry point in Travel for more users.
When the entire company focuses on the same customer, in our case, the Russian one, the result is much better. You have a better product, fewer errors, and a better search process. But when you have one foot here and the other in Asia, even if you are doing something good and important there, the key consumer falls out of focus. I spent about fifty percent of my time helping the guys with Asia.
— As of the end of 2016, there was a conflict that Konstantin Kalinov articulated. Was it his conflict with shareholders, with investors?
— With investors, not with shareholders.
— What role does he play in the Company now?
— He is an active member of the board of directors. Two or three times a week he participates in our management chat making suggestions and comments. He has a very good view of things that we are used to ignoring. Now he acts, perhaps, a little more like an outsider. This is great: we are too deeply immersed in what we do. And it is easier for him to see many of the screw-ups. I think we have found a balance for Konstantin's presence [in the management of Aviasales]. Konstantin was right. Indeed, he is very tired, and it would be unfair to torment him.
— He confirms his fundamental readiness to part with his share of the company – if there were a buyer. Do you expect such a parting?
— I don't expect it. When a company is growing, what's the point of selling it? And I completely agree with the fact that you always have to be ready to sell the company – and I said it many years ago.
Part of my job is to ensure that the Company does not have any screw-ups that would have to be frantically eliminated. The Company is a very stable structure at any time. It is not a colossus on clay feet, but a solid house on stilts. It has always been so, and it is still so.
— In an interview to Oleg Tinkov, Konstantin said that Aviasales is worth $250 million (Forbes, based on the Company data and expert opinions, estimated Aviasales at $99 million – Forbes). How much do you value the company at?
— I would refrain from expressing my opinion. For a strategist, it could be worth $250 million. Different circumstances mean different amounts. There is no unified principle for pricing transactions. The price always reflects the interests of the buying party.
— How do you see the Company's shareholding future? Is iTech Capital planning to leave Aviasales?
— I can't speak for iTech: they have their own people who make decisions. I can say that we consciously head for profitable growth. A little more profitable than before. This will allow us to exist as a company, figuratively speaking, indefinitely with the expansion of our strategic capabilities. There are companies that I respect very much, and I would not mind working with them at the shareholder level. But at the moment, Aviasales has no such need. This will not be “Please take us, we are so unhappy,” but a conversation on equal terms. And there are not so many companies with which you can have a conversation on equal terms.
One of my discoveries in 2016: “Max, leave the shareholders alone. Let them sort out their own affairs. Don't interfere with your advice.” It's hard to let them go, but I live by this principle now. There is a company that must grow. There is a responsibility to employees. There is a responsibility to shareholders. There is a responsibility to customers: our product must always improve.
— Are you a shareholder too?
— Of course. But I don't play my game in this direction. I'm more interested in increasing the value of my share through what I can control, and working for the Company's growth.
— Is there anything radically new planned that could greatly affect the pace of Aviasales' development?
— Russian regions are a very important part of our marketing strategy for 2017. Of course, there are friendly countries: Ukraine, Belarus, Kazakhstan. But the greatest potential is in digging deeper in Russia. Plus, we haven't done a lot of things in mobile yet. We are already on about every fifth iPhone in Russia. But we can get to every third one. In Android, there is an uncharted territory. In addition, we will integrate hotels and airline tickets into one application, into a common user interface. This is a big job.
