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Novelle in the former Soviet Union

After the breakup of the former Soviet Union in the early 1990s, the 17 NIS’s ( the Newly Independent States ) found themselves in widely different stages of economic, social, and governmental development. Some were showing the ability to move toward capitalism and democracy without any external assistance, and it was quickly evident that for others this process would take decades. However, the U.S. government adopted a policy of attempting to assist these new states in this process, if they were interested in receiving the assistance.

Belarus, a country of approximately 10,000,000 people with important borders on Russia, Poland, and Ukraine, did not appear that it would be a major problem in the beginning. It has a highly educated population, and had long been the center of a number of the important Soviet industrial projects. However, within too brief a period of time, a freely elected President quickly dissolved the legislature, eliminated the judiciary, and established something resembling the last Stalinist dictatorship left in Europe.

However, the U.S. has maintained a low level presence in the country, and has continued to try and assist budding projects of entrepreneurialism ands democracy whenever they may appear. The U.S. Agency for International Development identified one of these opportunities, and working through CNFA, recently asked Novelle principal Henry Winogrond to come to Belarus and assist a rapidly growing small business.

Lesnoy Tsar, Ltd., a small food processing company, had very interesting origins. It was founded by a young couple from the capital, Minsk, and the mother of the husband had been a very famous Soviet food scientist. She was a specialist in food drying, and had written several text books, one of which was translated into English and published in the U.S. Her son, working from the innovative procedures that his mother had developed, began a business based upon the drying of various herbs grown locally in Belarus. His wife is a very innovative developer of recipes, and they began to make some dried soup products. After a couple of years of experimentation, they developed the basis of their commercial success, which was a dried potato mixture. The product consisted of 93% dried potato flakes, and the other 7% represented the various local herbs that Lesnoy Tsar dried at their factory, and then mixed with the potato flakes to form the seven basic recipes that were sold commercially. ( It is interesting to note that commercial food production in Belarus is so unreliable that all of the potato ingredients had to be purchased from Poland. ) The dried ingredients were placed in a cup similar to a small yogurt cup, sealed hermetically, and then sold to a consumer who would just add boiling water to have flavored mashed potatoes.

The commercial development was also interesting, as they were able to take advantage of the explosive growth of the Moscow supermarket business. Minsk is 8 hours by train from Moscow, and all of their product was sold to Russia. They were able to produce one of these cups for the equivalent of $0.09, and sold them for $0.15 FOB factory. The cups sold in Moscow for $0.30, and they began to experience very rapid growth.

One of the realities of the collapse of the Soviet Union is that these countries were left with no functioning legal system, no history of public or double entry accounting, and no sense of business management. Mr. Winogrond was asked to develop all of the operating and administrative systems for Lesnoy Tsar during his work with them. Fortunately, their Chief Accountant had a rudimentary knowledge of English, and was very eager to learn. After visiting the production site a few hours north of Minsk, Mr. Winogrond began to work with the Accountant and the owners, and using a combination of Intuit’s Quick Books and Excel spreadsheets, over the course of the next few weeks the following systems were installed:

Monthly Operating Report
Annual Budget
Cash Flow Analysis
Double Entry Accounting System
Use of Quick Books
Inventory Cost Accounting
Break Even Analysis
Daily Operating Reports
Product Coding
Use of Bar Coding
Quality Control System
Sales Strategy
Directors’/Founders’ Compensation
New Plant Analysis
Product Formulation Control

Lesnoy Tsar continues to be very profitable, and has continued to grow rapidly, paralleling the extraordinary growth of the Russian supermarket business.

Read more about Henry Winogrond