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How Russian and Western societies look upon failures in business

Michael Kalinichenko
Michael Kalinichenko
StarForce CEO
20 Mar 2019

Rudyard Kipling said, ‘East is East, and West is West, and never the twain shall meet’. The commonplace phrase often justifies any difference in mentalities extending it to Russia.

The Russian mentality differs significantly from the Western one, and the difference is specified not only by geography, religion and lifestyle. The Western or Anglo-Saxon mentality is based on a concept of private property, while in Russia the term was officially restored in 1990, after more than 70 years of collectivism.

In Europe and the USA, the concept of private property became an integral part of mentality at least 100 years earlier. Consequently, it led to the experience of capital accumulation, business development and of the attitude of people towards their own enrichment.

A prime example is the attitude to insurance. For a Russian, insurance is primarily a need. When a Russian person goes abroad, they buy an insurance. The reason comes first; the insurance ensues.

For the Anglo-Saxon society, insurance is an indicator of wealth. If a person has money, they buy insurance.

The approach to business is different as well. Western businessmen are used to the stability of the financial system and low credit rates; so risks and payback are calculated at the early stages of business for a long time, for example, for 20 years. Russian entrepreneurs consider more risks and take into account financial instability and high inflation, so that the launched business will have already payed off in 5 years.

Another distinction between Russian and Anglo-Saxon mentality is an attitude towards failures. In the Russian society, the first failure in business is considered as a stigma. The society is set up in such a way that a person may not be successful, if he or she has failed before.

Consequently, any person who tried to do something but failed during the early stages of business, loses the opportunity to become successful in business. People forget that bad experience is the experience that can help to avoid repeating their own mistakes in the future. In the high tech environment, the conditions where business persons start their work change rapidly, and a failure should be perceived as an integral part of business. In the Western society, if a company is ruined, it is not a reason for the public comments. Possible risks are often even included in the investment plan.

The next difference from Western society is that Russia has not yet formed the mechanisms for the accumulation and transfer of experience. Examples of businesses that have been successful from the very beginning, taking into account the peculiarities of Russian legislation, have only just begun to appear. Moreover, the conditions dictated by business laws change too often for the experience of several generations to accumulate.

Another detail is that in Russian business, a person who attempted unsuccessfully to start a business turns out to be much worse from the point of view of investors than a person who did nothing. In the Anglo-Saxon model, the situation is just the opposite. If a person ran a business and did it unsuccessfully, and he/she can explain why his/her previous attempts failed, then he or she looks better in the eyes of society than a person who did nothing. This is the attitude of both the society as a whole and the investors (or partners).

In the Silicon Valley, investors are not afraid of investing money into one or two hundred companies at the same time, where only a few companies can deliver the result. Moreover, investors always take into account the risk of failure in advance.

In Russia, there is a completely different approach to investing. For instance, according to the Accounts Chamber of Russia, the Investment Fund of Russia (‘Rosinfocominvest’) made the only one investment during 10 years of its operation, and the investment turned out to be unsuccessful. According to the authority, ‘Rosinfocominvest’ invested 148 million rubles in the project for investors, RoboETF. After the failure, the fund got many allegations. However, no one blamed them that during 10 years the fund had other expenses, such as wages for the employees, office rent and so on, which in total were probably equal to the only investment of the fund.

It would be great if Russian business could use more of a scientific approach. In science, there is no pressure because of failures, since it is supposed that a negative result is also a result, just as the positive one. For instance, a scientist that has developed ten hypotheses and has come to the conclusion that all of them have been wrong would not be pressured in any way and would remain an esteemed scientist. The Russian scientific society would not be judgmental in such a situation. It is believed that the researcher, by making mistakes, excludes the wrong assumptions. Correspondingly, the scientists have the opportunity to accumulate experience, including negative one.

In the Western society, business failures are accepted as an experience that helps to avoid mistakes in the future. Meanwhile, in the Russian society, a person who made mistakes in running a business is perceived as a loser. Such attitude prevents the Russian business from breaking new ground and making progress.

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