A Harvard B-School alum visited recently and mesmerized me with stories of some of the many businesses he’s started in the last 30-odd years. One is a pizza parlor in Yaroslavl.
Yaroslavl is about four hours north of Moscow — a city of 600,000 people, a rough-and-tumble economy. (Competition isn’t waged with price wars, but wars. One Yaroslavl store was bombed four times in a single year, my friend says; fortunately it was not his store.)
If you go to Yaroslavl, you shouldn’t have trouble finding his pizza place. For one thing, he’s sublet part of it to a Ben & Jerry’s. So just look for a Ben & Jerry’s. (The U.S. government provided some financial encouragement for Ben & Jerry to build an ice cream plant north of St. Petersburg — which is to say, if I remember my geography, — the North Pole. Having more capacity than the local area could consume, it sought outlets in places like Yaroslavl.) Another way to find my friend’s pizza place in Yaroslavl is that it’s the ONLY pizza place in Yaroslavl.
Let me leave you hunting the streets of Yaroslavl looking for Ben & Jerry’s for a minute while I tell you about the plan to buy a dacha. Back in 1994, my friend toyed with buying a dacha. A dacha is like an American “country place,” except, typically, without electricity or plumbing. (Khrushchev’s had both, but I’m talking about the typical dacha.) Ah, but if there are a few square meters to grow vegetables! (And how better to fertilize them than through a lack of plumbing?)
Not that this Harvard MBA needed a place to grow vegetables. Ultimately he got himself an apartment instead. But he liked the idea of owning a dacha, and particularly liked one he found for $1,500. (Remember: this was Russia in 1994. Everything’s more expensive now.) The place needed a LOT of work, so he contacted a local fellow and asked what it would cost to do everything.
The Russian sized up the job, sized up my friend, sized up his own situation, and said, “Not counting materials, I will do the job for a case of vodka.”
This is supposedly a true story. And when you consider that a whole house/shack was being offered for $1,500, perhaps the estimated labor cost was more or less in line.
Anyway, my friend’s next question, naturally enough, was: “How much for the materials?”
The man started pacing the place again, measuring things, adding things up. Finally he returned to my friend. “For another case of vodka,” he said, “I will steal them.”
And that might have been the end of it. We could all have visited my friend in the renovated dacha that $1,500 and two cases of vodka bought. But the deal, even if he would have gone through with it on this basis, fell through. The dacha, it seems, was owned by an elderly woman with mental problems who was in a sanitarium. Her children were hoping to sell it off and raise some cash. It turned out that the woman’s doctor had different ideas. Russian doctors get paid almost nothing. But like many Russians, they find ways to make ends meet. This particular doctor had persuaded the woman to convey the deed to her dacha to him, in return for which he would provide medical care for the rest of her life.
So my friend didn’t get the dacha. Meanwhile, the pizza business has become impossible. In the early days, a few years ago, before the government got its hooks into everything, he was getting huge bags of ruble dividends. (Pizza proved popular in Yaroslavl. Once he managed to locate four metric tons of tomato sauce and had taught a local farmer to make good cheese, it was a piece of cake.) But local taxes have been raised to the point that you can’t make any money without cheating the tax man, which my friend won’t do. He’s selling out to his Russian employees for a pittance. He took those rubles to GUM, which stands for gosudarstveniy universalniy magazin, which means Government Universal Store — the giant department store in Red Square, opposite the Kremlin and catty-corner to St. Basil’s. And where you or I might have gone crazy in GUM buying Russian dolls-with-dolls-within-dolls (matryuzhki), he used his rubles to buy stock in GUM itself. GUM stock back then was 1-1/2 bid, 2-1/2 asked, and you could buy shares right there in the store. My friend bought quite a bit of GUM at 2-1/2. Not long ago, it was $28.
So he got squeezed out of the pizza business before making much dough, but with his pizza-purchased investment in GUM up 11-fold, all was not a total loss.
My friend hasn’t been back to Russia in some time. Instead of a dacha in Yaroslavl, he’s building a 200-year-old house in Vermont. The way you do this, he explains, is by traipsing around New England (and as far as Pennsylvania, to date), hunting for bits and pieces of early American homes. When complete, his new old home will be substantially more comfortable than a Yaroslavl dacha, a great deal more expensive, and a hop and a schuss from Stowe.
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As they say in poker, 'If you've been in the game 30 minutes and you don't know who the patsy is, you're the patsy.'~Warren Buffett
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