The three bankers behind Chapayevsky toasted bread snacks, in St. Petersburg, began thinking of manufacturing for the Russian market during the Asian crisis of late 1997.
"We were investing in Russian blue chips, and we realized we didn't know anything about them," said Yuri Khomylov, a Chapayevsky partner. "We wanted something that belonged to us, whose finances we controlled and which no crisis in the future could affect."
From the outset, the approach new manufacturers take to doing business reflects how much they differ from members of the older Soviet-era generation who still run most big businesses and are mostly concerned with how much is produced instead of whether it sells. But younger
entrepreneurs want to manufacture goods that actually make money. And to win a place on the market and in people's minds, they have to know how to sell.
"We decided what we were going to make had to be something edible, domestic, cheap and tasty," recalls Sergei Rudenko, another Chapayevsky partner. "We wanted to make something others hadn't."
Their recipe for success was stunningly simple: make something everyone loves but no one can find. Russians snack on sukharii, similar to Melba toast, the way Americans eat popcorn, but it is not sold in ready-to-eat packages. Russians must instead buy dark rye bread, slice it thinly and dry it on low heat in the oven.
Rudenko made the snacks for years for his family, but the partners had to find a way to mass-produce them. Rudenko and Khomylov, along with Gennadi Becker, the third partner, turned to the St. Petersburg
Bread-Baking Research Institute for advice. Through trial and error, they discovered what flavors might be good to add (dill and garlic, yes; lobster, no) to the bread. They found a local machine-tool builder to
construct production lines, since no machines existed to cut bread into pinkie-size strips.
The project was supposed to be secondary to their main business, investing in Russian stocks and regional debt. But Chapayevsky turned out to be their salvation. The three lost $500,000 in trading, but within
days, they pooled $75,000 to buy the last of the equipment for their snack venture and to rent a room on an army base at the end of a trash-strewn St. Petersburg road.
With no staff at first, they worked 15-hour shifts and drove around town peddling the snacks to any wholesaler and bar that would have them.
"The opinion we ran into at first was, 'Harrumph, I can make that at home,' " Rudenko recalled. "But those who took the snacks and tried them are now our regular clients."
To grow, the small manufacturers will eventually have to create a brand, not just a product, said Benjamin Wilkening, an investment manager with the $300 million Millennium Fund.
"Most are competing solely on price now because that's the short-term strategy for survival," he said. "If they want to be viable in the long term,
they have to have a brand name the consumer recognizes."