For three years in a row, Ciklum has been featured on The Global Outsourcing 100 List of the best external service providers by the International Association of Outsourcing Professionals. The IT company says that 25 of its customers have reached Initial Public Offering (IPO) stage with the help of its knowledge about new technologies that include blockchain, big data management, and Agile and Scrum processes. Its founder, Torben Majgaard, explains how a small hardware import firm grew into a multinational business that advises Fortune 500 companies, and what it takes to succeed in Ukraine
You came to Ukraine almost 20 years ago to set up a business, and today you run one of the biggest IT companies in the country. How did it happen?
I started out selling computer hardware, a physical product that I had to take across borders. There was a customs regulation saying that computers were a luxury product, and thus taxed at €200 plus VAT. Yet I was pricing my computers for resale at $100. We were having lots of trouble with customs and other issues, and at one point I got fed up. Yet I wanted to stay in Ukraine because I loved the country and its people. I noticed that software was becoming a growing business globally, so I went into that field. The first years were difficult because of the dotcom crash and 9/11. Plus, when a company grows from a few programmers to a staff of nearly 4,000 and a presence in 14 countries, like we have done, it poses new challenges. Developing the organization and securing finance were among my biggest issues. Right now, our biggest problem is finding talent. It’s getting better, but it’s been a challenging journey.
How would you describe what Ciklum does?
We are among the world’s top 100 outsourcing companies, although I don’t like the word outsourcing because we have evolved from foot soldiers who took orders from German or English companies to partnering with our customers on a much higher level. We are now technology partners, not an outsourcing company. We are specialists in blockchain, big data, Agile and Scrum methodologies, and other new technologies that many customers want to adopt but know little about. Ciklum is the first company in Europe with ScrumMaster certification. A good many European and American companies want to be agile, but don’t know how. Ciklum can send people across the world to teach Swiss, Danish or American companies how to deal with all these technologies. We can teach our customers things they did not know, and we have the size and the competence to actually help companies grow. We have an online management system and we can train your staff to use it. As one client recently put it: “send a group of your guys to train our guys because we want to go up to your level, we don’t want you to come down to ours.”
You mentioned that finding talent was your biggest problem. Why is that?
If Ukraine invested in training more people, we would immediately hire more people ourselves. Ukrainians are highly qualified and highly educated. But Ukraine is failing to take full advantage of the opportunity to use its human resources.
Ciklum’s clients include U.S. banks and Fortune 500 companies. What are the advantages of selecting you as a partner?
We are agile, flexible, and we can get things done that their own internal departments cannot. We also have the ability to adapt and adopt new technologies quite fast, and implement them and work with them, much faster than old-fashioned companies.
What makes Ciklum a good bet for investors?
We have been growing consistently every year for 16 years, and not just in revenue but also in profits and in maturity. We are also strong on compliance issues: we have a really good CFO so our financial and legal affairs are perfectly in order. That makes us more attractive and it increases the value of the company. We are smarter, bigger, we earn more, we are more transparent, and when we add all of that together, it means we are a safe bet for investors.
What are your plans for the future?
Westward and upward. We want a bigger physical presence in the West – New York, California, the UK. We are looking at acquisitions, and we like to recruit locally. We also want to be higher on the customer’s organization chart, so instead of being viewed as programmers, we want to be at the advisory level, at the strategy-building level.
How competitive are you in the IT industry?
Customers don’t come to us because we are cheaper, but because we can do things that others cannot. We even have people working for Google. We are also competing on the retention rate: we only lose 7 percent of people a year, so we have a competitive advantage. The larger companies with 100 programmers can expect to lose five people a month, and in California the average is eight a month. Every time a person leaves, you lose knowledge about your product and it costs money to train a new employee. The fact that we are able to retain people better is a strong competitive edge.
To what extent has Ciklum blazed a trail for Ukraine to become an IT outsourcing hub?
Our software testing team is 200 people strong, and every year we are nominated for the “Oscars” of this industry in eight or nine categories, up against global companies with thousands of employees. That is one way in which we are leading the way. And we participate in numerous conferences and events, delivering talks about Ukraine and the IT industry. We are also co-founders of a small PR company that takes stories, writes them in English and distributes them to media outlets across Europe and the U.S. The fact that we have offices in many cities also helps underscore our presence. We write white papers explaining different technologies and publish them online. And we participate in our fair share of competitions, bringing home medals. So we are making a name for ourselves out there, and in the future, we will do even more.
As a Danish entrepreneur in Ukraine, what do you see as the main pitfalls and opportunities for foreign investors in the country?
Financing is an issue for some people. Not so much in IT, but if you are building factories, financing costs can be very high because this is still regarded as a risky country. And if you import products you run a risk because of the currency exchange. It all depends very much on what business you are in. The legal system here is still has its issues, but there are growing global requirements for compliance. In the IT industry, we are more protected. Yet I think that the potential of Ukraine is worth the risk. Coming from, say, Germany to Ukraine is a big adjustment, and some foreigners underestimate what it takes in terms of red tape, training and so on to get things up and running here. But once it is working, and it will, then you can do very good business here.
What does Ukraine need to do to improve its outside image?
End the war in Donbass. There is still a perception that Ukraine is a dangerous country because of that conflict, and that has been exacerbated by unprofessional media reporting. Customers are worried, and as long as people have that perception, they will be reluctant to invest here. People here have kind of given up on Crimea, they feel that it’s a lost cause, they say ‘let it be’ and they are focusing on doing business instead. So it’s not really an issue for Ukrainians, they know it’s not going to escalate. But foreigners are much more worried about it.