SPLASH OF MULTIPLEX: how they run business in a company-pioneer of the cinema theater market in Ukraine. In a family-style

Multiplex Company is one of the pioneers of the cinema market in Ukraine. The first cinema theater of the chain was opened in 2007 in Nikolaev. However, the regional launch in no way delayed the deployment of the network nationwide. Now the company operates 23 cinemas with 129 screens. In 2018, the management in Multiplex was changed. Vitaliy Pisarenko, who had been working for three years as the commercial director of the company, became a new CEO. Leadership Journey talked with Vitaliy and found out how the business model works in a family company now and how it will change in the future.

Leadership Journey (LJ): For how long has the Multiplex Company been on the Ukrainian market?

Vitaliy Pisarenko (V.P.): The Company is already 14 years old, and the first cinema was opened in 2007 in Nikolaev. It took three years to prepare the first project.

At the beginning of my career, I was engaged in strategic consulting for three years; then, together with a partner, we created a network of medical centers based on scattered private clinics

LJ: At what stage did you begin to take an active part in the activities of the company?

V.P.: At the beginning of my career, I was engaged in strategic consulting for three years; then, together with a partner, we created a network of medical centers based on scattered private clinics. I have been for three years in Multiplex operations management: at first, I was the commercial director, and since early December 2018, I am the CEO.

LJ: And how do you feel in a new position?

V.P.: Fine and interesting. Actually, I was performing some of the CEO functions in the previous position; but now I have a team and a full set of tools to move the company in a given direction at an even higher speed and more qualitatively.

LJ: Multiplex is a family-type company. Who else is running the business?

V.P.: My wife and her father. They are members of the new board of directors, which we created last year.

LJ: How do you distribute responsibilities in the family business?

V.P.: Participation in the family business is a personal initiative. In our family business, each family member can demonstrate the interest in the development of the company directly in deeds by taking the responsibility for a specific direction.

LJ: Who sets the direction of the company’s movement?

V.P.: The development of a strategic direction is a collaborative work of all the owners. The employees who are engaged in operational management also contribute. In addition, we recently have created the board of directors, which includes five independent directors and two members of our family. There were two meetings held already. During the second meeting, late November, the board of directors appointed me the CEO.

THE DEVELOPMENT OF A STRATEGIC DIRECTION IS A COLLABORATIVE WORK OF ALL THE OWNERS

LJ: What is the function of the board in your family business?

V.P.: I would highlight several basic functions. First, it is adjusting communications: when business, work, and family relationships are closely intertwined, it is sometimes difficult to separate one from the other. In this sense, the board is one of the mechanisms for maintaining the system in a balanced state. It works as an arbiter who guides the discussion in a constructive way. Second, the board allows getting a view of the business from the outside, assessing current indicators and development prospects in a relevant way, and determining strategic goals.

LJ: How did the decision-making process change with the creation of the board?

V.P.: In order to properly develop a company, you need, on the one hand, a good understanding of its structure, the opportunities and market potential, and on the other hand, you need to have an outside view. When you are too immersed in the life of a company, you lose objectivity. As a CEO, I am very glad that I have a board with whom I can discuss ideas and ways of development and make more balanced decisions. Even the process of preparing materials for the board allows you to look at some of the problems in a new way, to structure them.

LJ: Are you a member of the Association of Owners of Family Companies in Ukraine (FBN Ukraine) of Vladislav Burda?

V.P.: We are members of FBN Ukraine since relatively not long ago. I would say the membership in the Association is one of the main events of 2018 because it was with the participation of Vladislav Burda that the board of directors has appeared in our company.

LJ: Overall, what features of family business would you single out in Ukraine?

V.P.: In my opinion, the main feature is there are no cases when the management of a company is transferred to the heirs. In most Ukrainian family-type businesses, the CEO and, as they call it, the family business leader is the founder of the company. Testing is ahead of these companies because management functions’ transfer is always difficult. But in our case, everything is different: our family business leader has never been in operation management of the company.

The second feature is that people of the same generation, nearly always they are husband and wife, manage the company. This type of company is the most numerous in FBN. Whereas in other countries, a family business includes at least two generations of family members, or even three.

LJ: In your opinion, what does the fear to transfer management functions to heirs in family companies relate to?

V.P.: The reasons are diverse: some people think no one else can manage the business but himself or herself; others fear mistakes made by heirs that could lead to the death of the company. Someone just does not see in his own environment worthy followers of the business.

LJ: What is the Multiplex now?

V.P.: Now, the network has 23 cinemas with 129 cinema halls in total. We own 20 cinema theaters (116 halls) and four cinema theaters (13 halls) are franchised. The largest increase in number was in 2016 when five new cinemas were opened. In 2018, there was a negative dynamic: we had to close the cinema in Rivne (two halls) because the owners had sold the premises of the location. Nevertheless, last year we sold over 10 million tickets, which is an absolute record for our country. For comparison: when I joint the company, we were selling 4 million tickets a year.

LJ: How do you assess the company’s position in the market?

V.P.: For example, in Kyiv, where we have six cinemas, there are no more than three-four competitors. Given that, the coverage varies across cities. There are cities where Multiplex is the only modern cinema. If we take the cinema theaters market as a whole, we are leading by a large margin. Moreover, judging by our plans, this gap will only increase.

THERE ARE CITIES WHERE MULTIPLEX IS THE ONLY MODERN CINEMA

LJ: What would you say about the current state of the Ukrainian cinema market?

V.P.: The domestic cinema theater has a way to grow and develop. Even in Kyiv and other million-plus cities, the number of cinemas per resident is much smaller compared to that in Europe and the USA. However, further growth is constrained by macroeconomic factors. The first is tickets price, which is quite low compared to investments in opening a cinema. Costs to open a cinema hall in Ukraine are comparable to those in other countries because the equipment is the same everywhere.

The second limitation is the lack of locations to open cinemas. The nowadays well-sustained model is a cinema hall in a shopping and entertainment complex. The total number of sites is not enough. New shopping and entertainment centers do not open often and mainly in Kyiv. As many shopping and entertainment centers as in the rest of Ukraine have opened in Kyiv annually. Except for Lviv, which has demonstrated more activities during the last years.

LJ: That is to say, your expansion strategy depends directly on an external factor – the number of shopping and entertainment centers opened?

V.P.: Exactly. After all, the closure of the cinema in Rivne did not happen by to our wishes. This situation in many ways constrains the development of the company.

LJ: And what is the situation in medium-sized cities with a population of 200,000-300,000 people?

V.P.: In such cities, it is almost impossible to find a good location. From time to time there opens a new shopping and entertainment center, which allows setting a cinema, but no systemic trend is observed in this process. Even in Ivano-Frankivsk, which is considered one of the most dynamically developing regional centers of Ukraine, new shopping and entertainment centers are scheduled to open not before 2021. In our reality, this is too far in the future.

LJ: Maybe it makes sense to invest in real estate and create stand-alone cinemas yourselves – say, based on the existing ones.

V.P.: To buy a Soviet-built cinema makes no sense. And it’s not because of the high costs of a complete renovation of the interior and the replacement of equipment with a modern one. The fact is that now it is absolutely unpromising to open a cinema with two or three halls. And it is impossible to have more at such facilities. However, we need cinemas with at least five halls; and ideally – six or seven. Even more in some locations. Therefore, stand-alone cinemas of the Soviet construction are not suitable. However, it is possible that in the coming years we will invest in building our own cinema from scratch.

LJ: Why did you start thinking about this only now?

V.P.: We have been thinking about this for some time, but there were no suitable opportunities. Through all the years of its existence, the company followed the reinvestment model: all profits went to business development. We will continue to adhere to this ideology in the future – at least until we reach the strategic figure of 200 of our own halls.

TO BUY A SOVIET-BUILT CINEMA THEATER MAKES NO SENSE

LJ: Have you attracted credit financing or external investors?

V.P.: Certainly, we did have loans. We do have some now but in very limited volumes. As for external investments, at a certain point, a few years ago, we contacted several investment funds, but eventually, we have managed to cover the costs on our own. Moreover, we could let people into our business from outside only with some specific goals.

LJ: What are your plans for expanding the network in 2019 and in the next two to three years?

V.P.: In 2019, we plan to 40 new cinema halls, and over the next two years, we want to grow to 200 halls of our own. This is our nearest strategic goal.

LJ: Let us talk about people. What is the number of your personnel?

V.P.: We employ 1,100 people in all the divisions in total.

LJ: How do they feel about working in a family company? Do they feel that they are part of this unusual philosophy?

V.P.: I must confess that in terms of internal communications and corporate values, we have room to develop. Developing a company in this direction is one of my main tasks as a CEO. It is because employees must be emotionally engaged in the activities of the company. In our country, the general attitude towards the family business has not been formed yet. In Europe, this is definitely a plus, when employees know that the ultimate responsibility is not with abstract shareholders, but with family members who themselves are the most engaged in the process.

LJ: Most likely, in Ukraine, this also plays a plus when there is a connection to a particular person. When there is respect for a particular person, owner, and not for an abstract shareholder. What kind of a person would you like to be for the employees?

V.P.:  I would like to be a person they could ask for help, a person to solve their problems. After all, people are a key component of any business. For employees to work as efficiently as possible you need to create favorable conditions; people should see the prospects of company’s development and feel themselves a part of it. In this case, there is an interest. A contribution and a high result become possible.

EMPLOYEES SHOULD BE EMOTIONALLY ENGAGED IN THE COMPANY’S ACTIVITIES

LJ: Would you like, perhaps, to implement some foreign personnel management techniques in your company?

V.P.: In my opinion, copying is an absolutely pointless exercise. For example, a football player who plays well in one team will not necessarily shine after switching to another club. The same story here. People in the company may not fit into the HR-methodology, which you planned to implement in your business. I would like Multiplex to become the company people would like to work for. So that when they say, “I work at Multiplex,” the answer would be, “Wow, that’s cool!”

LJ: Now we come to understanding the need to build an employer’s brand. How complicated is this process?

V.P.: Yes, this is a very important component. However, this is a whole set of measures. To build an employer’s brand is not just to draw a rectangle and to write correct slogans in a beautiful font, and not to paste pathetic appeals on the walls. A brand is made up of all the points of contact between the company and its employees. You need to give people the sense of how valuable is the time they spend on the company.

You need to give people the sense of how valuable is the time they spend on the company

LJ: This is an absolutely correct approach. New knowledge is an invaluable help in this. Tell me, what kind of business training did you take?

V.P.: You need to learn continuously. For me, the Harvard Business Review is one of the best sources of new knowledge. This is one of the most effective forms of education. I would not say the same about the numerous business volumes. The information presented in practically any such book can be presented in an article format – concisely and without endlessly repeating the same idea with different words. All this (literature) is a theory, but applied knowledge is best obtained from articles and specific cases.

Besides, I am convinced that learning in many ways involves a communication. Therefore, you need to learn more from the people around you: you can always learn something new, as well as draw conclusions from the mistakes of others, so as not ‘to step on the same rake’ in your business.

LJ: What is the personnel management strategy in the company?

V.P.: As for the HR direction and top management, I would like to see strong reliable people in my team, who are close to me in moral values and go in the same direction. It is like a ship: there is a captain, and there is a helmsman, a machinist, sailors – each has its own function, each team member matters. It is the same in the company: the CEO determines the goal, provides general guidance and gives the command to change the course to reach the goal or not to get into a storm.

LJ: Do you have these people in the company?

V.P.: The team of managers is already mainly formed. I was doing this as the commercial director. I hope I managed to assemble a cohesive, effective team. This is especially important in light of our intention to change the current business model.

LJ: What changes will take place?

V.P.: Now Multiplex is a network of cinemas, but in the future I see it as an entertainment company. Thus, cinemas will become one type of the company’s business units, and not the main element, as it is now. That is, we want to switch to the format of an entertainment center, in which the visitors will receive other types of entertainment content in addition to the cinema.

LJ: Is this a Ukrainian Disneyland?

V.P.: It makes no sense to copy this model. So now, we are looking for various ways to attract an additional flow of visitors. Instead of sitting with a beer on a bench or hanging out on YouTube, people will be able to come to the cinema, which is not quite a cinema but rather a leisure center for singles and families.

LJ: What goals will the transformation of the business model allow you to achieve?

V.P.: In your view, will cinemas still exist or turn into an anachronism in 10 years? I far from believe they will remain in their present form. Therefore, we want to be proactive and turn cinemas into some different places, where people would like to spend their time.

 

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