Launching an IT company in Ukraine: a step-by-step guide
IT is among the most ambitious business sectors globally. SaaS, AI, e-Wallet, blockchain and smart contracts, as well as financial, industrial, educational, and medical tech, have become the most attractive markets for new businesses.
Ukrainian startups have launched 35 crowdfunding campaigns on Kickstarter and Indiegogo since 2017, with 83% of projects hitting their goals. Overall, Ukrainian startups attracted $2 million over eight months, exceeding their targets fourfold.
What is the future of IT in Ukraine, and how can one set up a successful IT business here? We discussed it with Ekaterina Osadchuk, a co-owner and CEO of INDIGO Tech Recruiters. The agency closes challenging vacancies for organizations in 26 countries. Roughly 99% of professionals it recruits successfully pass the probation period, and 95% of clients keep using its services.
Setting up an IT company: why choose Ukraine?
Those wanting to open an IT company in Ukraine often consider the USA and its Silicon Valley first. However, few realize how tough the competition is and how high the living costs are there. Meanwhile, Ukraine offers an abundance of competent developers, tech and team leads.
Competition in the Ukrainian tech market is not as tough as in the USA, Germany, or Lithuania, which beginner entrepreneurs will enjoy. After all, it's easier to set up an IT business in the market overlooked by global players, which has moderate domestic competition. Besides, Dia.City now provides powerful tools to manage outsourcing and product companies as well as R&D and start-ups in Ukraine, including options, convertible loans, and more.
Setting up an IT company in Ukraine: first steps
Before opening an IT company, consider what problems (pains) you can solve for your target clients. Analyze what your prospective clients are concerned about the most, get some insights.
Crucially, you must be able to tell if the pains are real. For instance, you can ask someone you meet in a supermarket if they wish they could buy groceries at a lower price. The likelihood is high that you will get an affirmative answer. It may seem that you have spotted your client's pain, but this impression is wrong. Ask the same person about the prices for groceries they have just purchased, and more often than not, they would not remember because they rarely think about it. Therefore, you have spotted a ‘phantom pain’. Before you create an IT company, you may be under the impression that consumers need one thing. On closer inspection, however, you may find their needs to be different.
Paul Scheiter founded Hedgehog Leatherworks that produces leather products for wilderness survival enthusiasts. His buyers are fond of extreme sports: they climb mountains, conquer summits, and go on expeditions. Scheiter visited clubs frequented by these people, made acquaintances there, and told them about his brand. The entrepreneur meticulously studied his target audience and managed to find investors. Two years post-launch, Hedgehog Leatherworks became one of the top companies in its niche.
The best thing you can do in the beginning is define your project's mission and fundamental values based on the market demand. Spell out the following:
- Customer geography: where you will work—in the domestic market or globally
- Area of focus: your specialization—fintech, edtech, gaming, gambling, dating, e-commerce, and the like
Decide if you want an outsourcing or product company. The former takes orders from clients and develops online shops, landing pages, apps, and services based on the terms of reference provided. The latter sells finished IT solutions, like CRM systems, smartphone apps, or computer software.
In the case of an outsourcing company, you need to hire several developers to meet deadlines and respond to your client's queries quickly. For a product company, one dev is enough. You can start developing your tech product by yourself and gather a team later to attract investments and run multiple projects.
Paperwork and registration procedure to create an IT company
To launch a business, you first need to decide on the form of incorporation. Depending on your financial needs, you can incorporate as an LLC or as a private enterprise. For the former, you need the following:
- The number of participants or founders
- Shareholder's agreement
- The information on the company development plans and directions included in the agreement
- Explicitly distribute rights and obligations between owners
- Determine how earnings are distributed between co-owners
Calculating the stakes, consider contributions to charter capital, the time invested in the business, and the responsibilities of each founder. Specify scenarios for withdrawal from the company and how earnings and expenses will be redistributed as a result. The more scenarios you have, the fewer conflicts will arise, and the more time you have to develop your business.
Important: Ukrainian legislation stipulates that the company's director must be either a Ukrainian resident or a foreigner with employment authorization. For those relocating their business from abroad, it would be to appoint a Ukrainian resident as a temporary director until the non-resident director gets their employment authorization.
- Choose a registration address. To register a business, you need to rent an office or lease a physical address from a specialized company.
- Pick the taxation system. At first, you may want to go with the simplified taxation system (Group 3 unified taxpayer). It caps your annual earnings before taxes at UAH 7 million ($250,000) and requires you to pay 5% of total revenue to be paid as a tax quarterly.
- Decide on the size of charter capital. There is no minimum size requirement for that.
- Make a power of attorney on behalf of the founder. You can create an IT company remotely. Personal presence in Ukraine is not mandatory for that. To that end, you will need to issue a power of attorney for the person who will handle the business registration on the spot. The agreement needs to be notarized, and paperwork apostilled.
- Open a corporate account in a Ukrainian bank. After all incorporation articles and other documentation is prepared, you can officially incorporate within seven days. Once you have a bank account, your IT business is ready to go. Your next step would be to get authorization to work in Ukraine for your workforce.
Registration of an IT company in Ukraine is seen as complicated that requires specific expertise. In reality, everyone can establish a company. Specialized apps, such as Dia, have immensely simplified the legal procedure. Presently, it takes 1–2 weeks at a minimal expense.
Seed capital: how much money it takes to build an IT company from the ground up
Chris Guillebeau is an American writer, entrepreneur, the founder of The 100 Startup, and the author of the book $100 Startup. Before sitting down to write his bestseller, he surveyed 1,500 microentrepreneurs earning upwards of $50,000 annually. What he found out was that their seeding capital averaged at $610. Moreover, 36% of respondents launched their businesses after investing a mere $100.
For instance, Chris Dunphy and Cherie Ve Ard established Technomadia, a tech consulting agency for medical companies. And soon, their business went international. With a seed capital of $125, they managed to earn $75,000 a year. The money went primarily into website development, purchase of devices, and advertising design and placement. Bill Hewlett and David Packard started with $538 and a garage workshop. Now, Hewlett-Packard rakes in $100 billion annually.
If you are not a daredevil like David Packard or Chris Dunphy, you might want to create multiple scenarios and calculate a financial model for your company. Ekaterina Osadchuk elaborates:
Ekaterina: ‘You are better off having multiple scenarios: optimistic, realistic, and pessimistic. I prefer to hope for an optimistic plan but prepare for the worst, so a pessimistic scenario is equally essential to me.
Estimate what you can earn optimistically, realistically, and pessimistically, and then calculate a financial model. You may want to involve a specialist for that and provide them with as much info as possible, e.g., how you intend to monetize your product and what revenue articles you expect to have.
You also need to account for all expenses and project how long it will take you to generate profit. Your expenses can be as follows:
- Team: salaries, bonuses, offices, devices, and other administrative costs
- Taxes and fees
- Employee development: team building and training
- Marketing and PR
- Sales, etc.
Calculate your margin and the payback period, put a price on your product or service. Are you competitive as compared to other market players? What expenses can you cut in the beginning?’
How to launch a tech company: finding clients and scaling
You can look for first orders on Upwork and in comments under relevant posts on social media. In addition to Upwork, you can leverage word of mouth, networking, intermediary agencies, tender platforms, conferences/exhibitions, and roadshows.
Also, you can find clients on LinkedIn and then contact them on Facebook or messengers. It's inadvisable to write advertising messaging here—stick to the pay it forward style. For that, you need to determine what your potential client needs and approach them with a piece of advice or an offer of assistance. Sell without selling. In the meantime, it is essential to keep track of marketing intelligence articles and interviews with industry leaders to understand challenges and trends in various fields.
No need to copy other companies' unique selling points, websites, etc. Never write how awesome you are. Instead, focus on what you do and why clients choose you. Designing your website's home page, you need to do the following:
- Determine what you offer
- Decide who you offer it to
Clearly indicate it on your website.
Easy: first, do internal research, and then put results on the website.
How to determine if you have entrepreneurial potential
Bringing family into your business, mixing corporate and personal expenses, planning too much and acting too little, trying to run multiple businesses at once, being oblivious of a business plan's value, taking unjustified risks—we asked Ekaterina what makes a strong entrepreneur and what leaders never do.
Importantly, don't be afraid to make mistakes—every fuckup makes you stronger, smarter and more experienced. First, you need to decide if what you do is a hobby or a business. If it's a business, you should immerse yourself in it. Launching your business and keeping your day job because you don't want to lose a good salary or corporate benefits is a losing strategy.
Ekaterina: ‘Above all, entrepreneurs never consider themselves victims of circumstance. They know that all is within their hands.
These are the people that never cease to develop. They never see the world as something static. They always want to change, challenge personal beliefs, think if things can be done differently.
These are the people that easily overcome problems and setbacks. Fuckups never throw them off for long. Rather, they are seen as just experiences. Entrepreneurs have an objective view of themselves, believe in their strengths, and continuously look for improvement points.
More often than not, they value feedback. Entrepreneurs always take note of what needs improvements in their competencies, products, and services.’
Business amid quarantine: keeping your remote team productive
The 2020's quarantine upended our approaches to work, planning, and workplace organizing. As freelance and outsourcing trends have gathered momentum, many employees were transitioned to remote work. Twitter, Facebook, and Google announced they were going remote back when the pandemic had just begun. Jack Dorsey, the CEO of Twitter, said that the company would let its employees work from home even after the pandemic.
Microsoft and Zillow also mulled updating their remote work policies. The companies understood that working from home didn't impact their employees' productivity while reducing office rent costs.
Although a few major employers, like IBM, Hewlett Packard Enterprise, and JPMorgan, planned to return up to 50% of their workforce to the office, approaches to work and office life foundations are changing. The companies hire attendants to limit how many people ride in elevators at once and adjust open-space layouts. Companies have started drawing inspiration from hospitals and airports in their post-quarantine office plans, emphasizing safety, hygiene, and crowd management. For instance, there are offices in China already that have one-way passages and temperature screening at the door.
If you want to switch your company to a work-from-home model or go remote-only from the very start, it is essential to stick to a few rules to keep your employees productive and corporate culture thriving:
1. Work meetings and conference calls. Schedule daily meetings/standups—it helps keep the team focused. Hold separate meetings with department heads.
2. Communication with employees. Working remotely, some people tend to lose focus and burn out. It takes proper communication on the part of the leadership to avoid that. Remind them why they are working for your company, explain why they are essential, and praise them for doing a great job. Keep the words of acknowledgement and motivation personal, focusing on the employees themselves, their responsibilities, and results.
3. Perks and development opportunities. Working in the office, employees usually have benefits, like healthy snacks, workplace massage, and film Fridays. Transitioning your people to remote work, bring as many activities online as possible: hire a corporate fitness coach for group Zoom fitness sessions, hold soft skills webinars or English lessons with native speakers over Skype.
During the quarantine, demand for general development courses has subsided. Emphasize the development of skills that your employees can quickly put to work, like sales, marketing, and digital occupations.
4. Informal meetups. Make sure to hold informal online meet-ups, too. Gather in a group Zoom call on Fridays and discuss how the week went over a glass of wine. Have watercooler conversations online—such interactions often generate exciting ideas.
Finally, review your approach to remote work. If your company rigidly limits the number of days per year spent working from home, it's time to give your employees more freedom in this regard. It's a global trend and a practice that had been widely introduced abroad before it made its way to Ukraine.
Ekaterina: ‘The COVID-19 pandemic changed little in our company. The thing is, we had been working remotely even before the quarantine. Since people have started leaving home, getting new experiences, and doing sports less frequently during the quarantine, we started having more group calls and internal webinars that focused not only on work-related stuff but also on art, travelling, and similar things. We had online fitness sessions with a coach three or four times a week.
Other companies had to rearrange their workflows and learn to manage their corporate culture remotely. INDIGO Tech Recruiters had had all bases covered well before.’
Top personal productivity and collaboration apps
The measure of your productivity is the number of tasks you can complete over the given time and how well a job you do while at it. Multitasking doesn't guarantee productivity or fulfilment of your objectives. Instead of rushing to do something, you sometimes need to think it over and structure the data.
It's hard to distribute your time rationally, especially if you keep track of all tasks and meetings in your head. We have compiled a list of handy time management and productivity—for individuals and teams—and asked Ekaterina which services she used to stay productive and get more things done.
A free and easy-to-use service that enables you to use the Pomodoro technique to organize your work. You break your tasks into 25-minute sprints with 5 minutes of rest in between. After four sprints, you can have an extended break of 10–20 minutes.
Before starting to work, you set for how long you will keep focusing on the task without distracting yourself. While you work, a tree is growing in the app. The tree dies if you stop the timer or get distracted and start scrolling the Instagram feed or texting someone on messengers.
Forest also has stats, where you can check out the duration of your productive work during the day, week, month, and year, as well as see how many trees you grew over that period.
This one is rooted in the GTD (Getting Things Done) approach. Its creators are convinced that once people are free from memorizing tasks, they can focus on getting things done. Nirvana supports projects, areas, and next steps. You can also assign tasks to people and filter them by assignees and deadlines.
This project management app supports assigning people to tasks, deadlines, and prioritization. Also, it lets you track the progress and discuss things on tasks. The projects can be presented in the classic view or as Kanban boards.
Trello is a project managing system that lets you track tasks and their status. The project is structured as a board with vertical lists of cards. Users can set deadlines, discuss projects, upload files, track changes in real-time, and archive cards.
Ekaterina: ‘For me, efficiency is about achieving results with minimal effort. I look for things which I can put less time in. Like, I never do housekeeping or cooking—I know I can delegate these things, which will save me money in the long run. In general, my principal productivity rules are that I can:
- Delegate whatever I can entrust other people with
- Optimize the amount of time and energy I spend on everyday tasks
I have all apps on my phones sorted in folders—this way, I don't need to spend time thinking about where to find any given app. I have also disabled all notifications except for Telegram and the work chat on Zoho Click.
I have a stylist to keep my clothes organized. I just go to the folder with looks on my smartphone, and I already know what clothes I need. This way, I don't have to rack my brain over what to wear every day and waste energy picking the clothes.
I am also an avid Google Calendar user. If something is not on my calendar, it doesn't exist for me. From meetings and events at work to cosmetologist appointments—all this is on my Google Calendar. I have also shared the calendar with my assistant so that she can see my agenda and add new meetings and tasks accordingly.’
Open salary culture: advantages and drawbacks
‘Few of us can stand prosperity. Another man's, I mean’, Mark Twain said. This insight of his is totally applicable to the open salary policy. How do you know if revealing your employees' salaries won't spawn discord in the collective? There are situations where knowing that someone gets paid better or valued more may put people at odds with one another.
In post-Soviet culture, discussing other people's income is frowned upon. And then there are Starbucks and Buffero that stay open about it to keep their employees motivated. It is also discussed on Business.LinkedIn and Change the Work.
In LinkedIn's Global Talent Trends survey of 2019, 27% of recruiters said that their companies practised sharing information about colleagues' salaries, and 22% that they intended to introduce it over the next five years. However, 51% kept earnings data secret and did not intend to make it widely available.
Companies reveal salary information in a variety of ways:
▶️ Full transparency. The information about salaries, bonuses, and premiums for each employee is openly accessible. This is what Buffer does. Since 2013, the company has been making public the information about all payouts to its employees for everyone to see. Curiously, the number of CVs Buffer received doubled just 30 days after the introduction of this practice. Whole Foods, too, keeps the salary data open to its employees.
▶️ Partial transparency. The company publishes average figures or salary ranges for its positions. E.g., Glitch, a US tech company, publishes salary ranges for every position. The data are available to its employees and in the company's job postings.
Major players have also adopted partial or full transparency policies. For one, Starbucks declares equal opportunity for employees and guarantees equal salaries regardless of gender and race.
The company publishes salary ranges and has a calculator for some positions to show the salary depending on the candidate's skills. Employees thus can figure out what to do to advance their careers and get paid more.
Advantages of open salary culture
Few companies aspire to make their compensation data open. However, salary transparency actually helps attract new talent. Besides, this approach:
- Improves the atmosphere within the company. Transparency reduces the number of workplace conflicts. Knowing that a colleague earns more with a similar skillset and responsibilities, people get motivated to work more efficiently.
- Puts you in control of your budget. Employees understand what they can get, and the employer—how much they are willing to pay.
- Shapes fair work conditions. The salaries of people doing the same work won't differ because one has been working for the company longer, is on better terms with the management, or is related to someone. Transparent salaries ensure employee equality.
Ekaterina: ‘It's every company's own decision whether to be transparent about salaries or not. There are three ways in which salaries can be fair: external (I have the same salary as a specialist with similar experience in a similar position in another company); internal (two specialists on the same position within the company having equal salary range); and individual (better-performing specialists get more bonuses than their colleagues).
When you launch a start-up, there will hardly be any system to your salaries. In this case, you shouldn't open your salaries, because it will result in unnecessary questions and conflicts. However, a mature company with an established labour remuneration system should strive toward an open salary culture. Employees prefer to have clear and transparent salaries so that they know the range and factors determining the baseline level, bonuses, and the possibility of a raise’.
Lastly, we would like to tell you a story about opening an IT company. Forget all you knew before launching your business. In 2006, a former American baseball player Curt Schilling decided to launch 38 Studios, an entertainment and IP development company. The athlete boasted a sizeable seed capital, connections, and leadership skills, albeit he had difficulty grasping that sports rules were not applicable in business. It turned out that people could become unavailable for weeks on end and needed days off. In addition, the studio's employees were not as passionate as a sports team.
Once, Schilling heard the team discussing burn rate at one of the meetings. In his mind, it was a baseball term meaning the speed at which a player can throw the ball. In business, however, burn rate means average monthly expenses. Did you work in another field and get used to its rules? Be ready that things work differently in business. Now, go for it!