Nortal chief's new world order

Nortal chief's new world order

Self-made Estonian entrepreneur Priit Alamäe - creator of one of the Baltic’s biggest software empires - takes time out from the perennial push for global growth to enjoy lunch with BQ’s Colin Donald

In his rise to becoming a world-leading administrative software developer, Priit Alamäe prides himself in never having to address anyoneas boss: “Apart from my wife
of course”.

Few business leaders can boast of never having taken paid employment, even briefly, at the start their careers. The Nortal chairman’s entrepreneurial essence runs pure as the priciest vodka.

This spirit has been rampant over a decade in which the Estonian’s a43m-turnover software development company Webmedia, specialist in customised systems for government and healthcare providers, has become one of Europe’s fastest growing IT businesses. In October the firm announced a major contract with one of a string of big international wins, most significantly the a7.3m acquisition in May 2011 of Finland’s CCC Corporation, which led to the rebranding as Nortal. Barring global economic turbulence, the firm expects to grow by 50% over the next two years.

BQ invited the 35-year-old founder and chairman to lunch, to discover Nortal’s “secret sauce”, and how he intends to build on Nortal’s stellar success in Europe, the Middle East and Africa.

This is a story that deserves to be told over a sumptuous meal. Estonia is recognised as a pioneer of e-government systems, and Nortal has built between a third and a half of Estonia’s software infrastructure. “If you follow the deductive method of our friends
Mr Holmes and Dr Watson, that makes us world leaders”.

But the Nortal story turned out to be just the hors d’oeuvres. The main course was its founder’s impassioned advocacy of a lean and globally-ambitious Estonian IT sector, one that thinks in terms of “consolidating the balance sheets of others, not being consolidated ourselves”.

The venue for lunch was the Tchaikovsky, a Russian restaurant, in the Telegraaf Hotel, on a cobbled street at the heart of Tallinn’s UNESCO-protected old town. The dining room is a stagey evocation of imperial Russia, dominated by a brooding portrait of the Swan Lake composer.

The Tchaikovsky has long reigned as one of Tallinn’s finest dining spots, the head chef Vladislav Djatsuk offering up variations on old-time Russian staples - pelmeni [dumplings], trout with yogurt, roe and bisque, beef tartare, borscht with pirozhiki. These dishes are sprinkled artfully over a menu that contains a larger number of more familiar, Frenchified dishes, posing less of a challenge to unadventurous western business visitors.

Humorous and open but brisk, Alamäe is no smalltalker. I start by asking him about the milestone Finnish acquisition, made all the sweeter after Webmedia’s failed foray into that country a few years previously. He describes as a psychological breakthrough for an Estonian - “a bit like challenging your big brother”- in that it reversed the time-honoured flow of capital from the Nordics to the Baltics.

The merger has gone “surprisingly smoothly” he says. “One of my friends said very nicely that business is all about being in the right place at the right time, but you have to put in s***loads of work to get to the right place at the right time.”

A stronghold in Scandinavia has put Nortal, which employs 600 people worldwide, on a solid platform from which to leverage internationally its know-how in public systems software. Much of which is oriented at healthcare, both in hospital-level administration and in highly sensitive health records and patient administration procedures.

“A lot will depend on what the world economy is going to do but provided the global outlook remains the same or more positive, we are expecting within the next two to three years, at least 50% total growth.”

“Let’s see if we can do it. We have lots of strategies we can put on paper, but let’s see
if they work out.”

The company’s strategies have progressed fairly steadily since its first big contract wins in 2001. Since then they have been “trying to be present in the areas which are critical for the functioning of government such as taxation, public finances, back-end systems. We have been working on public financial management, budget automation, revenue collection, things like that.”

As we dip fancy bread sticks in an exceptionally tasty savoury tomato paste, Alamäe surveys the Tchaikovsky’s dining room and reflects on its role in Estonia’s three-act economic drama. Although only a third full on a Monday lunchtime, he remembers the heady pre-crash days when you had to fight to get a table. And it’s not because the food has gone downhill.

“Before 2008, the whole of our society went mad. This restaurant is not the cheapest in town, but it was always full. A lot of the patrons were construction workers, who were making so much money, as people were throwing up buildings everywhere.

“What happened here in Estonia was the same as what happened in Spain and in Ireland, if you take any economy that is too much focused on capital investment, it’s just not sustainable. Look at China. The capital investment ratio to the whole economy is far too high.”

Alamäe is proud of the speed at which the Baltic States recovered from the crash of 2008-9, although he is only half-joking when he says he wishes that the recession in Estonia had continued longer, forcing more “complacent” companies to do as Nortal did and retool for international competition.

He takes a grim satisfaction in his country’s status as “world champions of budget cutting”, both in the public and private sectors, contrasting it to southern European crash victims like Greece and Spain: “What part of ‘there’s no more money’ do they not understand?” he snorts.

“Imagine 25% budget cuts in Britain. It would be like ‘Oh my God, they’re taking away
our welfare!’

“I think Estonia is the only country in the world where, if you ask people on the street what the national priorities are, they will say that the budget has to be balanced! We
have a saying here that debt is someone else’s money.”

Priit Alamäe’s career started while an 18 year-old student at the University of Tartu, when he launched a political and social research company.

Entrepreneurialism was ingrained - his father, an engineer, was one of the first Estonians to register a business (electrical repair and parts) after the Soviet-era restrictions were
relaxed in 1991.

Nortal’s predecessor Webmedia was his second business started “just as the dot com boom was crashing in 2000”. The difficult birth, he now believes, was an advantage, though it didn’t seem like that at the time.

“If you start a business at the height of the boom, you get to take things very much for granted, and usually it will not pan out once the boom comes to an end.”
In Webmedia’s case, not only were the economic circumstances hostile to growth,
so was the infant company’s product.

“We started out as e-commerce and e-marketing killer website engineers, but the market realised that that was not where the money was, at least in the short term. So in the modern parlance we had to instantly “pivot” into classical software engineering, going from the fancy webshop portals, to the down-and-dirty back end systems that actually drive our economy”.

“One thing we realised is that people don’t actually care what is behind the facade. If you have a smartphone you don’t really care how the processor is working, and how the memory and the OS work, you don’t care. You care about the usability experience.
“Most software engineers were run by people from a hard Soviet-era computer science background, you know the kind who tend to avoid eye-contact?
“We had to differentiate ourselves.

Although we’re not so audacious as to compare ourselves with Apple, in our small scale, we were doing the same kind of thing: putting designers and business people at the forefront of decision-making and working out ways to tell customers about things they didn’t previously know they wanted”.

The arrival of the starters gives Alamäe the chance to draw breath. They include the trademark red Russian soup and Priit knows a good borscht when he tastes one. “We grew up with this soup” he jokes, avoiding further comment on Estonia’s grim decades under Russian rule. “The secret is to fry the vegetables before you boil them so that they don’t get too soft, and use beef stock rather than lamb stock.” This leads him to muse on other “legendary” Russian dishes on the Tchaikovsky’s menu, including steak tartare.
“The Cossacks used to tenderise the meat before slicing by riding with it under their saddles. Must have tasted great.”

Russia’s chief interest to him nowadays is not its cuisine but its potential as a market for Nortal’s Moscow-based subsidiary. Given the heightened  political tension of the Putin era,  how sanguine is he about growth prospects in that country?
“If anyone could predict what was going to happen in Russia in the next five years, that person would be very, very rich. But ultimately Russia needs the rest of the world, as much
as the rest of the world needs Russia.

“We have also been working in the development sector in Russia and as in any country you have the good and the bad and ugly, same would go for Estonia, Russia, Nigeria, and the UK. I don’t think there is any country in the  world that is corruption-free,
it just comes in different sizes. In the UK and the US its legalised and called lobbying.”

In fact Nortal’s software systems are attractive to governments in developing economies, including Oman, Qatar, and Botswana, precisely because of what they can do to prevent corruption. In Nigeria for example, the company has been working on a US$30m World Bank-financed pilot to build a core financial management system for the world’s seventh most populous nation. Nigeria’s entire federal budget preparation and treasury management, are now managed through Nortal software. Recent reports claim the project has already saved the Nigerian government US$160 million by centralising payments and eliminating fraud.

Students of Estonia’s success often point out how its tiny domestic market forces its well-networked ‘mafia’ of entrepreneurs to think and act globally from the outset. As the main course arrives – roasted Estonian beef fillet with asparagus, potatoes and juniper sauce for him, roasted duck with citrus, alpha [homemade Russian noodles] and malt sauce for me – Alamäe warms to the theme that Estonia needs to think more ambitiously.

“Whatever we do as a tiny country – and the same goes for the other Baltic States – we need to ensure that we have headquarters.

“What we have been trying to preach is we don’t have to produce everything, but we do need to make sure we are leveraging the full potential of our work forces.”

“Our traditional idea of exports is making things here and sending them out by plane and train. But you need to have companies that are consolidating the balance sheet of others, and not being consolidated ourselves. That is where the wealth and the growth
are coming from, the leverage of capital.

“It’s not happening fast enough, definitely not.”

As we savour the Tchaikovsky chef’s handiwork, Alamäe, who speaks Russian and Swedish as well as elegant English (“we don’t delude ourselves that anyone else is going to learn Estonian”) ranges compellingly over a global conversational landscape. Topics include the importance of “playing in your own league” and avoiding giant Asian markets, admiration for Oman and the potential of the Gulf states, the impact of US shale gas, the excessive complexities of East Asian time-zones, Latvia’s accession to the Eurozone, how the Baltics disproved the Keynesian theories of US economist Prof Paul Krugman (he’s not a fan). He also quotes approvingly Mrs Thatcher’s view of socialism “pretty soon you run out of other peoples’ money.”

Like the late British prime minister, his attitude to business and politics might be described as ‘robust’.  He expands on an arresting theory that the Estonian recovery from the 2008 crash happened too quickly, and that a longer period of austerity would have enabled
more reform.

“When you have a disease, you can delay the medication to bring rejuvenation, but our government administered shock therapy for the whole country. It really forced companies to change their modus operandi. A lot of the country turned to exports, while local consumption died down. People who had had a nice cosy life living off local markets had to look for alternatives, but the recovery was too quick, a bit more pain would have brought about more thorough reform as when we recovered, the reform stopped.

“What I am worried about in Estonia is that we get too comfortable and think that we have already done it. Complacency is the death of any successful system.”

Does he think the explosion of Estonian IT is becoming a bubble? “Of course it’s a bubble, and it has been inflating for some time. Why do I think it will not burst? Because the sector is highly diversified. It’s a collection of globally oriented start-ups, which have a totally different cycle than companies which are working for the Estonian market, and even here there is strong diversification between public and private sector.”

I want to press him more on this, and much else besides, but lunch is abruptly over as Priit has another meeting.

He sweeps out of the restaurant leaving BQ to drink a restorative coffee, settle the bill, and digest this privileged close-quarters display of energy and intuitive, keep-it-simple, commercial sense.

Estonia has only a 1.3 million population, but can a country that contains a network of entrepreneurs with ambition of this kind be meaningfully described as small?

Eat like a oligarch

On Vene Street, a short walk from City Square In the heart of Tallinn’s 13th Century Old Town, the Tchaikovsky is part of the 86-room Hotel Telegraaf, an impressive classical block, built in 1878 to house an HQ and exchange station for Estonia’s first telegraph company. As well as the restaurant, and lobby cocktail bar, the hotel’s summer terrace is a well-known oasis and business rendez-vous.

Voted the third-best fine dining venue in Main Mealrecent survey, the Tchaikovsky presents high quality and good value. With starters costing around a9, main courses averaging a18, coffee at a2.90, mineral water at a hefty a4.50 for 33l bottle, our lunch bill came to a respectable a78.20, including VAT, but not including service. Although we steered clear of the Tchaikovsky’s wine list, it is recognised as one of the best in Tallinn, for “old world” wines at least (Australia, NZ, Chile and the US have only a token presence). Prices for the extensive French, Italian and Spanish selection ranging from the a30-50 mark, to eye-popping amounts for the finest vintages, for example a 1996 Château Latour, Premier Grand Cru, Pauillac at a1450 a bottle.

Vene 9, 10123 Tallinn, Estonia +372 6000 600