There was no 'a-ha' moment behind establishing Ciklum in 2001, an offshoring IT company headquartered in Kiev, Ukraine, employing 2500 people. There were also no big ideas or plans to revolutionise the IT world. Instead, there was Torben Majgaard, at the time a moderately successful serial entrepreneur from Denmark nearing his 30th birthday and trying to figure out how to marry his fondness for eastern Europe, entrepreneurship and money. 

“I read an article in a business magazine that said that many new millionaires come from software development. And so I thought to myself, I too can become a millionaire thanks to software development,” says Mr Majgaard.


Million-dollar plan

That was easier said than done, as Mr Majgaard had no programming skills and no savings. But given that he had operated in eastern Europe since the mid-1990s, he knew exactly where to find people with the skills he needed, at wages much lower than in western Europe. “My idea was to put them all under one roof, let them work and I would just serve them coffee,” says Mr Majgaard.

Mr Majgaard would also court Danish companies to outsource some of their operations to a Kiev-based company led by a fellow countryman. “They had someone who spoke their native language, assuring them that everything would be ok. That was very advantageous at the beginning,” says Mr Majgaard. So much so that the company grew from four employees to 50 a couple of months after Ciklum started operating.

And then, in August 2002, three of Ciklum's biggest customers went bust, hit by the impact of the dot-com bubble. Mr Majgaard had to lay off 30 of his employees. “Here I was, living on $300 a month, sharing an apartment with another Dane and sometimes working as a taxi driver to supplement my income,” says Mr Majgaard. “Then again, you can have fun in Ukraine, even if you do not have much money.”

Home comforts

Yet, he was still some way away from the initial plan of making millions out of software programming. But as the software and IT sector rebounded, so did Ciklum's revenue stream. Over time, the company grew exponentially, not only in terms of staff numbers, but also the locations where Ciklum is present. Apart from Kiev, the company employs programmers in five other cities across Ukraine, as well as in Belarus and Pakistan. It is also present in Denmark, Germany, Israel, Sweden, Switzerland and the UK, and is currently in the process of opening its New York-based operation.

But despite the expansion, when it comes to growing its employee base, eastern Europe in general and Ukraine in particular, remains Ciklum's top priority. “I came to eastern Europe thinking that there was a lot of good business to be made here. That is still the case,” says Mr Majgaard.

However, business in eastern Europe is not without its challenges. Ukraine ranks 137th out of 185th economies researched by the World Bank for the latest version of its Doing Business report, with areas such as the tax regime and dealing with construction permits identified by the World Bank as being among the worst in the world. Mr Majgaard admits that “Ukrainian law is often defaulted, not entirely thought through and open for interpretation, and there are problems with corruption”.

Working with the system

At the same time, it seems as though Mr Majgaard has learnt how to navigate through that environment. “I do not think Ukraine is going to change [any time soon]. But essentially, what we do require is offices and access to the internet. We do not operate a restaurant that needs permits, nor we are a farm that needs to acquire land,” says Mr Majgaard.

Yet, many foreign investors are put off by the operating environment in Ukraine, which they perceive as mired in red tape and corruption. As fDi Markets data shows, crossborder investments to Ukraine, after rebounding in 2010, are in decline. In 2012 the country received 48% fewer projects than two years earlier.

Paradoxically, Mr Majgaard’s business benefits from that. “There are hundreds of graduates of universities and I expect more and more of them to choose IT-related studies. At the same time, there are not that many job openings for them and the IT start-up culture is not great here either. That is where my company – which offers $2500 a month take-home pay – can tap that talent pool,” says Mr Majgaard.

And Ciklum's founder plans to continue tapping that pool. Especially as the company's role has evolved from simply providing certain IT services for their clients based in western Europe and the US, to creating 'virtual IT offices', working for their overseas clients. Mr Majgaard says: “We take care of all the logistics and all communication, but essentially overseas clients have their software development teams within Ciklum, working for them, around the clock.” Mr Majgaard expects that demand for this new type of nearshoring is going to increase exponentially in the near future. And so he is planning to increase the employment in Ciklum, tripling the current size of the company in the next five years.

Unconventional approach

It might seem a bold undertaking, but Mr Majgaard's track record so far proves that he can spot opportunities in places dismissed by others, just as he did at the beginning of his career in eastern Europe selling refurbished computers in the mid-1990s. “Once in the centre of Kiev I walked past this shop selling glassware. I could tell it was struggling, otherwise why would it display empty boxes in the shopping window? I told the staff that if they let me sell computers out of their shop, I would give them $5 for each computer sold. We sold 84 computers out of that shop in our first week,” says Mr Majgaard.

Quite an unusual sales strategy, but Mr Majgaard proves that when it comes to markets such as Ukraine, ‘guerrilla investing’ may go much further than applying lessons from Western business schools.