Searching for business ideas on Russia's internet

By bne IntelliNews November 14, 2013

Ben Aris in Moscow -

An airport book can change your life. So, it happens, can Yorkshire terriers. At least that was the case with Yuri Cherednichenko, the co-founder of Yorkme Inc and exactly the sort of young entrepreneur the Kremlin is trying to encourage to help remake the top-heavy Russian economy.

Yorkme makes specialist shampoos for Yorkshire terriers. "People love their dogs and are willing to spend a little extra on them. We chose the Yorkshire terrier as it is not a dog - it is a toy. People's relationship to terriers is very different from that with the two most popular dogs: Labradors and Golden Retrievers," says Cherednichenko seated by the window in a downtown Moscow café.

It all started when Cherednichenko was stuck in Abu Dhabi airport on a stopover on his way to Indonesia for a holiday. "I picked up a book by Tim Ferriss called 'The Four-hour Workweek: escape the 9-5, live anywhere, and join the new rich' - a self help-guide to business," says Cherednichenko.

But unlike most readers of waiting-lounge pulp, he took the book's advice to heart: after he got back from his holiday he went into business.

His first venture was also a "how-to" book. Born in the regional city of Petrozavodsk on the border to Finland (that is named after Peter the Great, not petrol), like many young Russians seeking a career he moved to Moscow in his early 20s and tried to get into the prestigious MGIMO (Moscow State University for International Relations), which used to be a breeding ground for the Soviet-era elite.

While he sailed through most of the entrance exams - he already held an undergraduate degree in Physics - he flunked the English test, a prerequisite to enter the institution. After succeeding on his second try, Cherednichenko wrote his own book on how to get through MGIMO's English entrance exam. "We persuaded the guy who ran the bookstore on the campus to take the book. He asked us how much it cost and I told him RUB500. When I came back a few weeks later we found he had sold out, but had assumed I was talking about the wholesale price while he had charged RUB750 for the book. I had no idea what I was doing," says Cherednichenko, who still made about $8,000 on the one and only issue of the book; the university took umbrage and forbade the deal so that scheme died.

Cherednichenko began to look around for another idea. "Ferriss' main point was to find a narrow niche and exploit it," says Cherednichenko

So he came up with the idea of a specialist dog shampoo, and chose Yorkshire terriers after spending an afternoon online and discovering that as a top-three breed there are up to a million Yorkshire terriers in Russia served by approximately 1,300 pet stores in the whole country. "You don't want to waste your time washing your dog. Most dog shampoos are concentrated, which means you have to get the dog wet first," says Cherednichenko. "We designed a ready-made foam that you can rub straight on the dog. Then you rinse the foam off again. The whole process only takes a few minutes."

Developing the foam turned out to be easy, as Cherednichenko turned to an old family friend, Valentina Ivanova, a renowned chemistry Professor who works in a commercial laboratory now developing Russian cosmetics. It also turned out Cherednichenko had some relatives in Moscow who owned a small factory that could manufacture the foam. Yorkme was launched in 2011.

Dog days

As there are still relatively few pet stores in Russia, distribution turned out to be pretty easy too. In the West, the retail sector is so competitive that distributors force margins of only a few percent on any but the biggest producers, but in Russia all anyone cares about is if the product will sell. Cherednichenko went to see the four biggest distributors who could cover all of Moscow and the distribution was expanded to Russia's far-flung regions over the next two years.

In the meantime, the bulk of the sales have moved online, with Yorkme selling directly to customers, many of whom frequent Russian-language Yorkshire terrier chatrooms. "To market the shampoo we produced a free booklet: 'Seven things you need to keep your Yorkshire terrier healthy and happy' that is distributed online and of course contains adverts for Yorkme," says Cherednichenko.

Cherednichenko doesn't expect to get rich off Yorkme, as it is a bit of a one-trick pooch as far as products go. And by his own admission, the owners of other "non-toy" dogs are less likely to pay the RUB500 a pack of Yorkme shampoo costs. The company has also launched a second version of the foam "Bare Beauty" for hairless cats, but that is an even smaller market than for "Yorkies", as Cherednichenko affectionately refers to the dogs. So it was back to Russian search engine Yandex.

He quickly came across the word "psoriasis" - a chronic and incurable skin disease. It is not lethal, but is very unpleasant as it itches. "Psoriasis is the number three skin problem in Russia that affects about 3% of the population," says Cherednichenko.

That's a much bigger market, roughly 14m people, than those with Yorkies. Together with Ivanova, the company developed another cream, this time designed to alleviate the symproms of psoriasis, launching CreamMe in 2012.

There are already several other products on the market, mostly derivatives of axle grease. While they initially alleviate the itchiness by trapping water next to the skin, this leads to bigger problems further down the road, as the skin eventually stops releasing water, which leade to even drier skin. CreamMe moistens the skin and doesn't suffer from this side effect. "At first we oversold it by calling it a 'remission stabilizer', but the client retention rate was less than 5%; people had high expectations and were disappointed," says Cherednichenko. "So we changed tactics. Now we emphasis CreamMe is a cosmetic and not a pharmaceutical. We also explain to the customers that it won't cure them; indeed, we won't sell it to them unless they say the understand this. But the result is now the retention rate is over 75%."

Cherednichenko says the biggest problem with YorkMe is connecting with the customers. However, the advantage of CreamMe is that as "psoriasis" is such a highly rated search term finding potential customers online is easy. "We sell CreamMe entirely online, but you can't sell everything online. In Russia the poor logistics mean your product has to cost at least $40 to make it worthwhile," says Cherednichenko.

The idea seems to be taking off. In August, Cherednichenko was contacted by some entrepreneurs based in Slovakia who are now launching CreamMe in Europe, as psoriasis is a problem across the Continent.

Cherednichenko also has plans to export YorkMe. "We'll see how that goes," says Cherednichenko. "But I don't really want to be known for making cosmetics. What I really want to do is solve problems."

Searching for business ideas on Russia's internet

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