Dot-Com crisis
Our first crisis: an industry-wide one
From the moment DataArt was founded in 1997 and up until 2001 we worked on everything we could get our hands on, which at that time meant Internet projects. The time was favorable for growth — four years after opening, we had already recruited 120 people. We mostly worked for the same client that accounted for 80% of our turnover. The other customers were startups with a defined burn rate that had not yet brought money to investors.
When the Dot-Com crisis hit the Internet company market in 2000-2001, we lost all our customers at once. Most of them left not only by taking new orders with them, but also leaving old debts unpaid. The largest client withstood the Dot-Com crisis test, and got stronger, but our paths still parted. They offered us the option of cooperation on new terms, but we strongly refused it.
You need to take into account that we were very different ourselves in the late 1990s and early 2000s. It's difficult to imagine how people who are still leaders of DataArt today behaved at that time. It seems now that we were on the wrong side of the moral barricades back in those days. Or more precisely, of that part of the barricades that’s in the field of communications. We were descendants of the Internet conquerors, and we believed that engineering solutions to problems were far more reliable than any social engineering methods. In life, this meant that we always behaved like programmers from hell, we always defended our opinions and never gave up, and we talked to our clients in a very rude fashion. It was often more important to beat our client in an argument than to come up with a constructive plan in the course of negotiations.
I explain this to make it clear: at that time, we simply could not agree to play second fiddle. Did we do the right thing? I can't say for sure. We were lucky in the end, but I strongly doubt that having the knowledge and experience that we have now, we would have rejected the offer as strongly as we did. Most likely, we would have agreed to their offer, and then we would have tried to find new directions for development in our spare time. But that seemed unacceptable at the time.
That was the only time in DataArt's history when we made significant lay-offs. Out of 120 people, only 40 remained, and they agreed to lend the company 20% of their salary until better times (the alternative was to give up our office, but the majority voted to keep the office). Those whom we had to say goodbye to were paid generous severance packages, which in the early 2000s was not quite normal, but that allowed us to maintain our good reputation in the eyes of our colleagues. We categorically did not want to go bankrupt, and we were always ready to pay off our debts and obligations in the case of business liquidation. But our reserves were falling, and new customers were painfully slow to arrive.
We regularly compiled a liquidity report so as not to miss the moment when there would be only enough money left to pay severance payments to everyone and call it a wrap. That is, we regularly received a report that said, for example: "There's still money left for four months." At the most dramatic moment, a year after the peak of the Dot-Com crisis, we had enough funds remaining for about 2.5 months of salaries. DataArt never came closer to the risk of self-dissolution. But at exactly this same moment, our income started being equal to our expenses, and we moved away from the point of death. Soon we became steadily profitable, and a couple of years later our liquidity reporting lost its meaning, and was replaced by standard financial reporting. (By the way, we then paid off our salary debts to everyone, even to those who left without waiting for our profit to recover. There were only a few such colleagues, but it turned out to be unexpectedly good PR in the labor markets).
Details of the crisis
The Dot-Com crisis of 2000-2001 hit the IT sector head on, and it enveloped the entire industry as a whole. This is the main difference between the Dot-Com crisis and all subsequent economic crises, including the current one. When the Dot-Com crisis came, it was very difficult to understand what would happen to information technology in principle. No one could make a convincing argument for any optimistic forecast.
Our weakness
We entered the period of turbulence with a concentrated (not diversified) business portfolio: the share of one key client in our revenue structure was huge, and absolutely all our customers come from a single market segment — Internet companies.
Lessons and conclusions
The most obvious lesson is the need to diversify your portfolio, learn to play on unfamiliar fields, and understand the specifics of business in unknown industries. On a more abstract level, we realized that the crisis situation creates huge opportunities for education, and that it allows us to adjust our internal infrastructure, which is much more difficult to do during a period of rapid growth. We learned that a crisis is not just turbulence that needs to be overcome with minimal loss of life. Rather, this time should be used to prepare for the period of market growth, which inevitably follows the market’s fall. Considering that the most interesting things begin after you pass the market’s lowest point, you need to approach this point with sufficient strength.
The first crisis cured us of many of our faults in a good way. It also showed us that the principles we tried to follow based on our personal beliefs can be a business tool. We learned that good relationships can be valuable for a reason, and that peopleware is just as important as software.
The crisis of business concentration
Our second crisis: a personal one
Using the experience of the Dot-Com crisis, we diversified our portfolio and pushed forward. At the same time, we got a great client — a large hedge fund from New York City — whose share in our income was growing rapidly, reaching 65% of our total revenue at its peak. It's not difficult to guess that after some time, and, of course, for reasons beyond our control, this company made internal reorganization and began to leave our business.
This happened very quickly, and we didn't have time to prepare for serious restructuring. But both the client itself, and our relations with the client, were strong enough that we managed to overcome this crisis without noticeable losses. Our growth didn't even stop in 2005, it just temporarily slowed down.
Details of the crisis
The second crisis wasn't caused by external economic factors. By and large, the problem came down to the fact that we set ourselves up for trouble by servicing one customer, albeit a very large one. However, even at its peak, this company's share in our business was not as high as that of our largest client's had been four years earlier.
Our weakness
We put ourselves in a risky position by not being able to concentrate our efforts at finding new clients.
Lessons and conclusions
Ever since our second DataArt crisis, we have tried to ensure that our revenue from our largest client doesn't exceed 10% of our total revenue. At the same time, we decided at that time to diversify all the most important components of our business, because we didn't want to reach a critical point where a problem could fatally affect the entire company. This has defined our "technological agnosticism": we do everything we can to avoid being dependent on one technology or industry.
In 2006, we focused on development within the framework of industrial practices that allow us to concentrate our marketing efforts. The practices took their current shape later, in 2013, but we started moving in this direction after the second major crisis in our history.
The crisis of 2005 strengthened our faith in the value of human relationships — when you don't let down people down yourself, they will try not to let you down as well. If our relationships with our key client had not been so strong at the time our cooperation was terminated, the breakup could have been much more painful.
Finally, we figured out that it is easier to stay afloat and keep moving when problems arise at the company level rather than when the entire industry begins to collapse.
The global economic crisis
Our third crisis: a global one
The next crisis was associated with the bursting of the US mortgage bubble and the subsequent economic downturn of 2008-2009. Honestly, at first we thought that these economy-wide problems wouldn't affect us. But the scale of the crisis was such that it could not but affect a service company such as ours: a variety of our customers went out of business, while in other projects we saw a decrease in our workload. DataArt lost about 30% of its turnover and was teetering on the edge of unprofitability. That was the first time we decided to attract external investment. We didn't do so to solve any problems on the capital market, but rather just to plug the holes in our cash flow.
We quickly adjusted our plans: we abandoned our previously planned expansion, and even reduced our staff by 12%, laying off those who had a controversial reputation in the company. The market was terribly overheated, and before the crisis we had to recruit staff with very low input criteria. The crisis hit our largest practice — our finance practice — hardest. We invested our resources in infrastructure development, including more than just technology. During this time, we were able to improve almost all the tools and processes that we use inside DataArt, including accounting and project management systems, and budget planning. Many business processes were re-thought, re-configured, and optimized.
Details of the crisis
Unlike the first DataArt crisis, the global economic downturn did not specifically undermine IT as a whole. Despite the fact that the crisis affected us more than we initially expected, we were right that it would end rather quickly. The market came back to life, and there was a long recovery after the crisis.
The company was able to grow for more than five years straight on the foundation laid in 2008-2010, and some of these processes are still in use to the present day. At the same time, the years 2010-2012, i.e. the time immediately after the crisis, became the best in DataArt's history in terms of growth dynamics, profitability, and other statistical indicators.
Our weakness
Up to 2008, we were growing rapidly, and we hired a lot of specialists, including those on the bench. The development of internal infrastructure did not keep pace with the development of the business, and many of our processes were outdated. They not only helped, but sometimes hindered our work as well.
Lessons and conclusions
This crisis strengthened our belief that no downturn is just final — in the modern world, the market recovers from any shocks quite quickly. We were able to use the late 2000s to update our infrastructure, but we also understood that we will need to make these updates more often in the future. Moreover, periods of turbulence, when growth is inevitably slowed down for reasons beyond our control, are best suited for this.
During this 2008 crisis, we noticed for the third time how the company itself responds to a difficult situation. People are energized; they focus on the most problematic areas of their work, and the level of cooperation and overall efficiency increase noticeably. This gives us confidence in our ability to overcome future crises. In addition, after 2008 our colleagues became aware of the importance of their own personal reputation: it's much safer not to fall into the 20% of least popular specialists who do their work poorly, and who think there is enough work to go around to everyone.
Political crisis
Our fourth crisis: a communications crisis
After 2010, when we were all back in the game, and had already started enjoying the fruits of rapid economic growth again, a new crisis broke out. This time it was political, related to the Ukrainian revolution and the subsequent Russian-Ukrainian conflict. Within DataArt, everything remained calm, and people continued to cooperate, but our customers were concerned: our teams were distributed approximately equally between Ukraine and Russia.
We focused on communications and planning, and within a few months we presented our clients with a plan for our entire ecosystem and individual projects. We virtualized our infrastructure, provided all development centers in Ukraine with satellite Internet and backup power supplies, and trained employees responsible for continuous maintenance of work processes in emergency situations. And we told our customers about everything we did, and didn’t lose any of our clients in the end.
However, we became convinced that the geography of our presence needed to be expanded, and we started looking towards Asia and South America. Expansion into Asia was abandoned because of the large time difference and the controversial impact on our image — it is easy to disappear among a lot of huge and inexpensive competitors. As a result, we chose Poland and Argentina — we opened development centers in Buenos Aires and Lublin.
Really, this hasn't made our lives any easier. We made the transition to English as our working language within the company, but this meant that our production was finally moving beyond the Russian-speaking environment for the first time. Continuing our geographical expansion, we've been forced to act within varying cultural, state, legal, and value systems all at once.
Details of the crisis
This crisis, which was unrelated to our own actions, hit DataArt personally as a company that had always been evenly distributed between Ukraine and Russia. We remained manageable and profitable, but we became convinced that even in this case, our accumulated problems require an immediate response, otherwise they may lead to disastrous consequences.
Our weakness
Of course, we had weak geographical distribution. However, the political crisis forced us not only to rethink territorial diversification, but also to delve into the specifics of modern international business. For example, we were only slightly familiar with the legal framework for working in different countries.
As usual, further diversification eased our problems from the point of view of geopolitical risks, yet it created new ones due to increased complexity and increased disintegration.
Lessons and conclusions
We now view ourselves as a decentralized global organization based on partnership principles. The 2014 crisis highlighted DataArt’s most important principles: we are a company made up of people who are responsible for effective cooperation together.
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As you can see, each crisis has been different than the previous ones, and the one we are going through now also looks like it will be a new experience for us. But our accumulated knowledge allows us to look at this new crisis in a calm way. The current crisis does not target either DataArt or the IT sector. Although there are risks for all market segments presently, this is the first time we have found ourselves in a situation where information technology can become the main tool for overcoming the consequences of turbulence.
We have not approached the new crisis in perfect condition: the infrastructure formed as a result of the two earlier crises has already partially deteriorated. You can fix a plane as it's flying, but that's extremely expensive and nerve-racking. A forced decline in growth rates is an ideal situation for updating internal processes and tools.
At the same time, today we are confident in DataArt's ability to survive this crisis with minimal possible losses: we have diversified our business in all respects and have accumulated sufficient resources. Now we need to use them to prepare for growth, which should begin no later than in two years from now. It may also start in just six or eight months, so we'll have to act quickly.
