Mindset crisis! Create and sell products or die creating them for others, Gevorg Sargsyan, Plexonic CEO

The May 2013 issue of iTechnology.am is dedicated to outsourcing. First, what is outsourcing?  Outsourcing is contracting out of an internal business process to a third-party organization. It is common knowledge that largest developed countries outsource work to Armenia. Most Armenian IT companies are involved in outsourcing and this is the main way companies make money in the Armenian IT industry.
iTechnology.am is here to bring you different views and opinions over outsourcing. We talked to Gevorg Sargsyan, CEO and Founder of Plexonic, and here is the interview with his ideas, suggestions and advice for Armenian IT companies, young professionals and generally for everyone involved in this business. Enjoy!

Technology.am: Mr. Sargsyan, do you think outsourcing is a better way for Armenian IT companies to seek business?

Gevorg Sargsyan: Absolutely no! From point of view of outsourcer - outsourcing is all about cheap workforce, so I think very negatively about it. In my opinion it is a big threat to the development of the IT industry in Armenia.

iTechnology.am: Can you mention specifically where do you see the real danger?

Gevorg Sargsyan: Outsourcing can be a way to get out of a crisis. It can be good for accumulating some resources. But only if those resources are used for building up companies that will be creating and selling products in global markets.

When IT sector was new and just developing in Armenia, it was the right and only solution for us. But after so many years it is not the way to move on and consider as the best choice. Outsourcing is all about creating value and infrastructure for a 3rd party, instead for yourself and for your country. In Armenia outsourcing is accepted as a right and smart way to develop and to grow your businesses, but how far you can grow by choosing that path?

We have plenty of companies that tried that, and neither of them had even a small success on global level. We need more ambitious companies and team that will be keen on delivering great quality products and services to market by themselves.

iTechnology.am: Let’s not take the whole country, but for example, let’s talk about the beginners. Do you think outsourcing is a good way for start-ups and junior developers?

Gevorg Sargsyan: Everyone knows that for junior developers that prefer to work as freelancers, outsourced projects are the most profitable way to go. But being a freelancer they do not work in large teams, in companies and are lacking critical skills and experiences that are very important for building a company by yourself. It is a common knowledge that any programmer can find a job in Armenia. It is not even subject of consideration.  So I would advise all freelancers to think about future and find some great teams to work and grow with.

For startups it can be not a bad idea to start with outsourcing, as many do. But the founders should be smart and careful about all the dangers and traps outsourcing can create. For example, many software development companies in Armenia do not have specific focus on a specific market.

They take over nearly any outsourced project that can bring profit. So their experience and expertise after some is actually broad and mediocre. Simply saying they position themselves just as workforce for hire. That is a terrible idea if you have ambitions for building a successful company.  My advice would be to define the purpose or at least direction of your company during foundation.

Some teams need to learn to say NO to some projects. There can be offers that can be very profitable in short-term, but can distract the team from its main objectives. The keyword here is “niche”.  At least, when looking for outsourcing partner or project, try to find one that compliments your main goal activities. Stay focused!

iTechnology.am: Many developers state that they don’t have marketing, brand building and entrepreneurial skills. So they believe outsourcing is a better way to gain all those skills to start your own company. What is your opinion?

 

Gevorg Sargsyan: In my opinion in Armenia the only reason to choose the outsourcing path is the lack of financing institutions. In foreign markets venture capital and angel investor institutions are thriving and are established for long time. In Armenia those institutions are absent for some understandable and simple reasons. There is ZERO support from the Government as well.
If startup founders hope to get entrepreneurial, marketing and other skills by taking over outsourced projects, I have bad news for them. Companies that outsource projects to you, will not share their business model secrets, tips and tricks with you. They do carefully assess the risk that you would become their competitor by obtaining that business information, and  will try to isolate you to the minimum mechanical coding which is possible. And that’s their right to do so. If that would be you outsourcing a project to a remote team, you would do the same.  So I doubt very much the idea of growing your entrepreneurial skills by engaging in such relationships. Those companies know for sure that those young kids from Armenia can once get into the same market and outperform them big-time, and they will try to prevent that.

iTechnology.am: In our first issue we had an article on how can Armenia and Estonia cooperate in IT. Do you think Armenia needs another “Skype” to become a technological center?

Gevorg Sargsyan: The success of Skype for a country like Estonia is really a huge progress. But I don’t think it is a necessary prerequisite for becoming a developed tech country. We don’t even have small success stories, so it’s useless to sit and dream about another Skype.

Let’s take the example of Israel. It will be great for Armenia just to get to the level of 5% of Israel’s startup ecosystem. Israel’s venture capital industry is bigger than the venture capital industry of all Europe. I think we have a lot of features in common with Israel, including geopolitics.
If we take for example Ukraine and Belarus as examples of post-Soviet countries, we will see that there are lots of companies doing outsourced projects too. But they have number of product creating companies rising from those, and now you can count bunch of globally successful startups from there.

Those are not Skype size giants, but are very successful companies in their industries.

We need to change our mainstream philosophy and support a change in Armenian IT towards product, services creation startup ecosystem.

iTechnology.am: So what is the solution? Say NO to outsourcing and develop your own products and startups?

Gevorg Sargsyan: No, I realize that outsourcing is the only source of cashflow for many Armenian IT companies. I will advise just to realize that outsourcing by itself will not bring you anywhere. Say NO to those offers which will do nothing good for your establishment as a product company in your niche. Be careful while choosing outsourcing partners, choose those who will share their expertise and working skills with you for the sake of the development of your own company. Say NO to those partners who see you just as a cheap workforce.

iTechnology.am: Considering your experience, can you provide some tips concerning marketing strategy and selling skills?

Gevorg Sargsyan: We live in exceptional times, when global markets for IT startups are so open and easy to enter. The software market is now open to everyone who develops a product. Living in such a century is a great advantage for businessmen and entrepreneurs. At the same time there can’t be a common advice as each industry field is specific.

iTechnology.am: Is Armenian IT community a collaborative and a united one?

Gevorg Sargsyan: No, it is not a secret that Armenian IT companies don’t do their bests to collaborate and cooperate for creating an effective business network. We are not a strong community. One of the reasons lies in the simple idea that we see each other as competitors. It is not surprising in a reality in which everybody tries to get a better outsourcing offer from abroad. But if we are more ambitious and we think about global competitiveness, not the local one, we can cooperate and become much stronger and supporting community by helping each other to be more successful globally.

iTechnology.am: Can You mention a sector in the IT industry which is best suited for Armenia?

Gevorg Sargsyan: Currently most engineering resources in Armenia are concentrated in EDA, chip design, design for manufacturing, etc..  Those are very conservative industries.
I think that NOW is the time for different type of companies. It is impossible for a group of engineers to found a startup in EDA field. But it is very possible to do in Mobile Application, Enterprise solutions, Cloud based solutions and other fields. So much can be done and improved here. I see the future of Armenia in creating startup ecosystem exactly targeting these markets.

 

iTechnology.am: What about your company? Does Plexonic do outsourcing?

Gevorg Sargsyan: We financed the company via outsourcing when it was founded, and of course we had many of those problems that I mentioned above. Focusing specifically on casual gaming, after sometime we became significant player in the field, and now we have partnerships, not outsourcing deals. We work and partner only  with very specific companies , building up our portfolio of amazing games in the market.
  

iTechnology.am: Gevorg, Thank You very much for out-of-the-box thinking and sharing your ideas with our readers!

 

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