You’re Not in Kansas Anymore
What expat entrepreneurs need to know about China before making the leap to launch in the Middle Kingdom
Chinese users are totally different from Western users. Shocking, I know. Mind = blown. The problem is that this is so obvious that most startups with foreign founders tend to gloss over this fact too quickly and don’t take into consideration just how different the users, and thusly the market, can actually be. So no matter how badass you think you are, how driven you are to succeed, you better reign in the optimism and do your homework because China will hand you your ass faster than you can Snapchat a picture of it as a momento of that time you had the world by the balls.
Expat founders tend to start out thinking that they’d take the model of something that’s worked in the US, bring it to the China market, and watch the RMB roll in by the truckload. 1.4 billion people and no obvious competitor? Time to get a yacht. With a helipad.
Ok I’ll dispense with the sarcasm but heed our warning seriously – Chinese users have completely different habits, and the landscape is like nothing you’re used to. Some Internet users have never used email before because they rely so heavily on QQ Messenger. Most Internet users don’t use Google because it’s poisoned in China (as is any foreign-hosted website, app or service, but Google takes the brunt of it) to force the market onto local options such as Baidu. If you’re trying to find information or data about a certain marketplace, chances are, it doesn’t exist, and you will need to try to triangulate the data yourself. If you’re a tech startup targeting businesses, don’t assume that there is a process or a budget for purchasing or using outside software. In fact, don’t assume that there is any infrastructure in place at all.
There are so many nuances of the market that expat entrepreneurs are constantly running the risk of taking something simple for granted. An American friend of ours attempting an edtech startup spent hundreds of thousands of RMB plowing through the creation of the perfect product before realizing that in China, unlike in the US, university clubs don’t have email groups. Boom, there went his major sales channel. He didn’t see that coming at all, and you know what they say about assumptions right? Yeehaw, it’s the year of the donkey every year in China startup land.
Competition is ridiculous
Forget that for every new solution that gains traction thousands of competitors can pop up aggressively overnight; in China they won’t stop there – not only is your technology and team at risk, your company name might be as well. Maybe even your CTO. The competitive culture in China is no joke, so if you want to survive you better be prepared to be as ruthless as they are. It’s not uncommon to poach employees regularly, or to buy thousands of negative reviews for a competitor on Taobao (for less than 100 kuai). China is very much like the wild wild west with a minimum of regulations and even less enforcement (unless you have the right ‘friends’ of course).
This dog eat dog world also involves the big guys too, the ones with sharper teeth and bigger appetites. If you build an internet startup and start to gain some traction, at some point you’re going to get a ‘visit’ from a ‘representative’ (possibly named Guido, possibly wearing a track suit, probably sporting a 10lb gold chain around his neck) who will in no uncertain terms advise you to sell your company to them for 1/4 of its value or they will copy and crush you with an inferior product because, well, they can. This, unfortunately, is a very real problem that exemplary execution cannot overcome. Why? Because they own the customer acquisition channels and given that customers in China are on the relatively naive side, they tend to adopt whatever is put in front of them by ‘trusted’ providers more often than not (go ahead and search “If I build something good” -Google suggests, “If I build something good, Tencent will copy me.”) Startups require hustling to be competitive, we all know that, but in China this takes on a whole new meaning. It’s about being the fastest and most efficient to the market and having some protection when you get there. And the ONLY way to get there is by having two more things: local expertise, and relationships with the right players in the market.
Relationships are everything
Everyone knows that even though China’s way of doing business is becoming more “Westernized”, it’s still important to build up guanxi in your business relationships. This goes far beyond superficial notions of avoiding offending people by keeping one’s business cards out of one’s back pockets or sitting only on the left side of your superior. Neglecting to deeply understand the cultural concepts and implications will result in failure. Chinese investors rarely trust anyone outside their immediate circle—and there are plenty of companies in that circle to satisfy their investment needs. Businesses will not proceed in a transaction with a supplier of whom they haven’t carefully researched their personalities. You will be well advised to start building up your network as soon as you land, but avoid talking turkey right off the hop.
If you’re meeting with investors everyone in the room knows why they’re there; there’s no need to go there until you’re asked. Let them get to know you over multiple meetings, lunches and dinners. They fully get the game, and when they are ready they will ask you about your company and start to get down to business, but not before they’re ready. Likewise you need to get to know as much about them as possible so that you can be sure these are the people that you want to work with for the foreseeable future.
Despite the doom and gloom above, there is enormous potential upside to entering the China startup scene, and we know the world’s entrepreneurs think so too. Here at Chinaccelerator we receive well over 100 applications to each of our programs from startups based outside China.
If you plan to make the leap to China, there are a few things that you can do to position yourself, your team and your product to withstand the cultural avalanche you’ll face when you get here: First you’ll need local expertise, a guide if you will. The most effective way to do this is to hire a great biz dev or marketing talent that has cross-border experience and understanding but who is a local at heart. Follow their lead and listen to their advice. The second is to read everything you can get your hands relating to the mistakes of those that came before you and failed (Groupon & Best Buy are good examples) and those that have succeeded (Ikea and Apple). The third is to leave your ego at customs, be humble, and be willing to do things differently. Don’t try to force the proverbial round peg into the square hole; be committed to providing A solution, not THE solution or (the more common mistake of ego-driven founders) YOUR solution.
If you’re overriding passion and if your drive comes from solving the problem no matter what, then you’ll listen to and adapt more quickly to every market you enter and you may succeed. Even in China.