How to reinvent franchising with tech and transparency

He just read online about these small-scale and relatively cheap unmanned aerial vehicles and got curious.

As a school kid, Ponfilyonok took an interest in physics but learned in college that he wasn't gifted enough in the field to make a significant impact. So he decided to become an entrepreneur and make that impact by managing other gifted physicists.

By 2013, Oleg had the experience of managing a small company that provided equipment for public events. But he knew that he could do more—he could launch his own startup, for example.

Why not use quadcopters to make fast deliveries? The idea wasn't new, but nobody had implemented it yet. So he put a landing page online proposing deliveries by drones in Moscow for goods weighing less than 5 kilograms. Though it was just a single page, a few popular online mass media wrote about it and he got a few hundred pre-orders.

Now he had to find out how to actually make the deliveries.

Daring, vision, and pure luck

First of all, to make deliveries by copter, Oleg needed copters. And even the least expensive ones cost $10,000. And he would have to buy a few if he wanted to make it in the delivery business. Oleg didn't have that much money. But one day, he got an e-mail from a guy who proposed making a small investment in exchange for a small share in the business.

The guy's name was Vassili Philippov. He was one of the founders of SPB Software, one of the leading companies that developed solutions for mobile platforms. The company was sold to Yandex, a powerful Google rival in Russia. Philippov had some spare cash. Ponfilyonok agreed to his proposal and got around $100,000 as a loan.

Thus a combination of daring, vision, and pure luck turned him into the happy owner of a venture company that could change the way goods are delivered. The startup could make him a millionaire—or bankrupt.

Feeling inspired, Ponfilyonok hired some physicists, as he had always dreamed in college, ordered a few drones from China, and started building his business.

The first bits of profit came not from deliveries, but from selling copters to the government. The authorities wanted to use drones to track people who got lost in the woods. Unfortunately for the country (and fortunately for Ponfilyonok), there were no copters on the domestic market that could meet the customer's needs. So Copter Express imported all the parts, designed and built the machine.

The same sorts of private contracts followed. Oleg launched an online store where he started to sell multicopters to regular customers—the idea wasn't really innovative, but it helped generate cash flow. The real challenge was to build a drone that could make deliveries.

It had to be powerful enough to lift up to 5 kilograms. It had to be equipped with a mechanism that could release the load on a rope. And it had to be reliable, since it was supposed to fly in the city. The team smashed many robots along the way, but after a year of crashes and failures, they finally had a prototype that was able to do a delivery.

Now, the question was how to find anybody crazy enough to agree to test a delivery drone in real business.

Joining forces

Copter Express wasn't the only investment made by Vassili Philippov. He backed up another venture—the Dodo Pizza chain, which wasn't just another fast food company, but an enterprise that was breaking new ground in the business by integrating cutting-edge IT solutions and drastically increasing efficiency.

At Dodo Pizza, every order got to the kitchens through iPads. Every cash register was connected to the cloud, and management could track the sales in real time. The customers could check the status of their pizzas online—by actually seeing them being made through live webcams.

Dodo's founder Fedor Ovchinnikov was a visionary and a geek. If there was a person in Russia who could believe in the power of copters, that was him. And he was deep into the delivery business, since only about half of his revenues came from restaurants.

So Philippov introduced the copter guy to the pizza guy and asked them to consider joining forces.

Ovchinnikov recognized the risk for his company. If a flying gadget crashed on someone's head and hurt somebody, it could be the end of his business. It would be much safer just to pass on that opportunity, since Dodo Pizza was growing rapidly anyway.

On the other hand, Ponfilyonok assured the Dodo Pizza founder that Copter Express could provide security and reduce the risks so that these drone deliveries wouldn’t be any more dangerous than regular car deliveries. And Fedor’s business experience taught him that an entrepreneur should take risks and constantly challenge himself if he wants to succeed and make an impact.

Fedor googled the topic and learned that Domino's Pizza already experimented with drone deliveries and posted a short video featuring one of its first attempts. But it looked like a performance made mainly for advertising. He found no evidence that real customers placed orders and had their pizza delivered by a drone.

Now Ovchinnikov was hooked. Entrepreneurs are driven by challenges, and he recognized one that fit his agenda. Was it possible to make these drone deliveries a real thing? Fedor had an ambition to build a global company, and an innovation of that kind could definitely make his company stand out.

The technology was there, provided by the Copter Express team. He just had to find a way to apply it.

The real thing

Soon he figured out that there was no way to apply it.

Drones did pretty well flying above the forests looking for missing people. There was no electronic interference to interrupt the radio signal. If the machine crashed, you would just lose it, but nobody would get hurt.

In a city, the risks grew exponentially. Chances of losing the connection with a copter were pretty high. Only a drone weighing more than 10 kilograms could carry a big pizza box, and if that thing failed and landed on a person, well, he or she wouldn't be too happy.

Drones just weren't sophisticated and reliable enough to fly above the city in any direction. The team would have to map the routes beforehand carefully to minimize the risks of breaking people's necks. These restrictions made deliveries to regular Dodo customers basically impossible.

As a matter of fact, they weren't even ready to manage several routes—in the beginning, dealing with just one location felt pretty challenging. So they had to find a reason to deliver at least a few pizzas just to one spot. Fedor was mulling it over for a few days.

What if Dodo Pizza set up its only drone route to the city park? Fresh air gives people an appetite, but the park wasn't really teeming with cafes and restaurants. Attractions weren't in abundance either. By delivering pizza to the park via flying machines, the company could kill two birds with one stone—feed the people strolling around and give them something to look at.

Therefore, drones could satisfy the demand and promote Dodo Pizza at the same time. A promoter would offer pizza to people—and he would be the one to retrieve a pizza from the copter in an enclosed area and then hand it to the customer. The solution was close to perfect from every point of view—technically and commercially.

All they had to do was just make sure the pizza wouldn't get stuck inside the copter’s cargo hold or fall on the promoter. But it looked like perfection wasn't the main problem, since the first drone they tried to launch in Syktyvkar just refused to get up in the air—at all.

Up in the air

Everyone was puzzled. The engineers tested the machine in Moscow, and it was working perfectly. Yet in Syktyvkar, it didn't move.

After a while, they realized that the problem was caused by the latest software update. It had added not only stability improvements but also some new restrictions that banned flights in areas that were too close to airports.

The airport in Syktyvkar is located pretty close to the city center. So the software refused to let the drone start. The engineers couldn’t find a way to downgrade the firmware, and the Copter Express team had to return to Moscow and find another controller for it. As with smartphones, drone software updates can cause a user just as much trouble as they bring improvements to the device’s performance.

While they were tinkering with the software on the main machine, they mapped their intended route using a small, light copter that couldn’t do any harm if it fell. Since a big drone could do harm, they wanted the route to go mostly above the roofs and deserted areas. Wires, antennas, poles, and other obstacles needed to be examined and avoided, as well as any objects that could interfere with radio signals.

After the route was finally programmed, they made a few tests with the real delivery machine, mostly at night. When the policeman showed up at their garage and advised them to stop doing whatever they were doing, the team was almost ready to go.

They knew that the whole project was in a gray area of the law. Technically, any flights were banned in the country without permission from the authorities. But that rule had to do with real airplanes; nobody thought about applying the same line of thinking to, say, a helicopter toy or a kite.

If they had asked the officials for a permit for the event they were preparing, they never would have gotten it. The local authorities were guided by the simple logic that if it’s not allowed, then it’s prohibited. On the contrary, Fedor Ovchinnikov believed that everything that wasn't prohibited, was allowed.

So he ventured to act as probably any innovator in his situation would—he decided just to force the world to embrace the future. And after that he would have to face the consequences.

The brand new world

The world embraced the future on June 21, 2014. Dodo Pizza got six orders from real customers and successfully delivered them. No copter crashed. No pizza got stuck. Everything went as planned.

Fedor was going to make a movie and put it on YouTube someday, so the whole event was filmed. But the entrepreneur changed his mind that evening when he logged into his Facebook page and saw that, surprisingly, many eyewitnesses were posting and sharing their photos and videos of the Dodo copter's delivery.

Being a popular business blogger himself, Ovchinnikov knew how viral news spread. He had raised funding on his blog, so he recognized the power of the media. Making the world’s  first commercial pizza delivery by drones was one thing. Making the whole world recognize the achievement was a different story.

He understood that the team should act fast. The media beast had to be fed when it was hungry—as soon as possible—if they wanted their story to grow as big as a brachiosaurus.

So Ovchinnikov called the film crew and convinced them to do the impossible and finish the movie by the next morning. And the next morning the video was on YouTube. In addition, Fedor made a post on his blog explaining the details of the project. Now the media had something to chew on.

By Monday, almost every national media outlet was covering the event. By Tuesday, 24 countries learned the name of a relatively small pizza chain from a northwestern Russian city where the temperatures can fall below zero even in June. The Washington Post, Reuters, Business Insider, FOX News, Le Monde, Al Arabiya, and other news sites re-posted the news. The media trend went global.

Launching the experiment, nobody expected media coverage of that scale. And the hype was reinforced a week later when officials said that these deliveries were against the law and Dodo Pizza would be punished.

Crime and punishment

They were punished. Got two fines—one for violating the air space, another for arranging cargo transportation without a license. The latter the team successfully appealed in court. The former they paid.

It wasn't a big deal. Just 50000 rubles (around $1500). But officials warned Dodo Pizza that if they risked repeating the experiment again, the next punishment would be much more severe. And that was a big deal, since the city government had many ways of making life difficult for any company, let alone a startup. The message the authorities sent was straightforward: we won't tolerate these things flying around.

Maybe someday drones would deliver pizzas, newspapers, or even TV sets right to people's homes. But why should the great drone's revolution have to start in their city—and on their watch?

So the Dodo Pizza copters were grounded. Before that, the team managed to make a demo of their technology for a Japanese TV channel, and a reporter came to Syktyvkar, went live on TV, and got a pizza from the drone while sitting at a table with a glass and a bottle of wine.

When the spring 2015 issue of Wired Magazine suggested that its readers visit Syktyvkar and order a pizza delivered by drones, the publication was behind the times. There were no flying pizzas in the city anymore.

Cities built for copters

It's easy to misinterpret this story, as it resembles a classic plot about lazy, cowardly bureaucrats who hamper progress. However, it's a little bit more complicated.

More than a year went by, and Oleg Ponfilyonok managed to build a profitable business selling drones to general customers and state-related organizations that use them mostly for cartography. He is a member of a group of experts who lobby for the laws that will establish rules for drones. The Copter Express founder wants the rules to be more flexible.

But even he believes that his idea of using copters in the delivery business was a little bit premature, like Apple’s attempt to make the Newton handheld device in the 90s.

The technology might be ready for cartography, but not for logistics. "Drones crash. They make noise. Their software isn't reliable yet. If you want to make the deliveries safe, it will cost you too much," Oleg Ponfilyonok says. "They need their own roads to fly safely—cities have to be planned for copters beforehand."

And he thinks that they will be—since a road for drones is much cheaper to build than one for cars. Because, well, it isn't actually a road.

Oleg Ponifelenok even believes that if you aren't that old—and if you go to the gym, eat healthy food, and don't drink or smoke too much—you'll probably see these drone-friendly cities for yourself.