S2 Episode 10: Chen Ying of Shihuituan: Why Community Group Buy Works in China

In this episode, we have Chen Ying, the founder and CEO of Shihuituan, the leading community commerce company in China. The literal meaning of Shihuituan means plenty of things. It’s also a pun for value for money.

With its network of 80,000 community influencers, the company currently serves 20 million households in 60 cities in China. For November of 2019, it recorded a monthly GMV of 500 million RMB
roughly 71 million dollars). Shihuituan is a GGV portfolio.

Before launching Shihuituan, Ying founded an NGO aimed at helping farmers selling their goods online and another eCommerce company called “The Good Stuff”. Ying worked in Bain Consulting and Bain Capital for 5 years before he got his MBA from Harvard Business School. Being an intellectual cowboy, Ying has always been fascinated by the next frontier, which in his mind is the space, Africa and rural China.

We discussed the ins and outs of how the community group buy model works, including how he found the product-market fit, the role social apps play in the business model, the multi-layer delivery system, and the replicability of this model in other markets.

TRANSCRIPT: 

Hans:

Ying, it’s amazing to see you here. I remember the first time we met at a hotel in Beijing. You were selling goods to farmers. I said that’s the right direction. But it’s a very tough market. So you’re trying to figure out how to figure out a way to monetize it even after you scale it. And then it seems like you have done a couple pivots since and found a very interesting product-market fit, right?

Ying:

Yes,  it’s been an interesting few years, trying to think about the same topic, but work on it with different approaches. I think the primary changes of the last few years in China is that we see the infrastructure for rural agriculture and mobile payment getting ready.

So for things that I cannot do in a few years back is right in time now. We got mobile payment ready, people all in the WeChat groups, talking and doing business there. And now we have logistics, delivery service, everything for lower-tier cities and rural areas. So, everything combined gets us to a good position to serve more people in lower-tier cities well.

Rita:

For people who have never lived in China, can you explain what does Shihuituan do? Why does community group buy make sense as a business model? How is it different from an e-grocers or the conventional retail stores?

Ying:

Sure. Firstly, Shihuituan is also an e-grocer. The primary product we’re selling is fresh produced fruits, vegetables, and other packaged food. The primary difference of our model is that we have community leaders. They are social connectors and the point of sales for us. So, we outsource a lot of things to these people to help us acquire new users, sales and marketing, and last-mile delivery. Because of that, we lowered a lot of cost in a traditional e-grocer business model.

These people are very interesting. Firstly, they are socially very close to the consumers they are serving. Because of that, they have an easy way to get people to trust them, buy product from them, even if they don’t know where these products are coming from. It’s actually very powerful. We know right now, in eCommerce business, you probably need to spend $10-20 or even more to get a paid customer. But in this model, the cost for user acquisition is almost close to zero. So that’s one biggest advantage.

Secondly, because these community leaders live in a community, they’re also geographically very close to the consumers. And because of that, they can take the role of handling last mile packages, and have the people come to their point of sales to pick them up. And by doing that, we also substantially lowered the logistics cost. We know that in the eCommerce business model, user acquisition and logistics are two major cost items. And they’re very hard to cut, right? Because of these two disruptive innovations thanks to the community leaders, we are able to reinvent the whole eCommerce model and make it more friendly to lower tier cities. Because right now, we have a lower cost structure, we can now lower the price and make this service more available to more people. I think that’s the interesting part of this model.

Hans:

Some of the obvious questions for people who are outside of China who have not used the app before would be, how did you recruit these influencers? Community influencers? What’s their motivation for doing this? What’s their take rate? How do they help you with the actual delivery of the goods or other users to pick up? How much did you leverage WeChat for the initial user acquisition and how do we convert such users onto your own app at some point in the future?

Ying:

Let’s take the questions one by one. Firstly, where are these people and who are they? We started primarily with moms in communities. Because those are people care a lot about the quality of the products and spend a lot of time sharing. They also want to make some extra money. Especially for a lot of mothers, they just had babies and have some time. They also want to make some money out of it. We started by hiring mothers to do that. But as we gradually grow this business, we find that actually a stable delivery site is also very important. So we started hiring a lot of the mom and pop shop owners as well. Right now we have about 60% to 70% of our community leaders being the shop owners around our communities, while we still have 30 to 40% community leaders being mothers. So that’s like a combination of how these people look like.

Secondly, we give them like 8 to 10% of commissions on average. Some products can be higher, some are lower. But in general, they earn this commission by helping us acquiring new users, doing sales and marketing in the groups on a daily basis, and also provide the pickup services on every order. So they do all of those things and we’ll give them a 10%, and the reason why you know the 8% to 10% of commission is meaningful enough for them is because we primarily serve communities in lower tier cities. In those areas, if you can earn like a few hundred RMB or 1000RMB or 2000 RMB, that’s meaningful add up to their household income. So they are happy to provide labor, quite heavy logistics work to earn that money and cash. I think that’s the second part. The third is that we do use a lot of WeChat groups to help people organize is because WeChat is where people now clustering in China. So it’s very easy for you to bump into someone tell them about a services and add him into your group. So that’s the primary way to get users.

Rita:

So the definition of lower tier cities in China is actually a pretty broad concept. So in your customer base, can you paint a picture of what type of city, what is the scale of the population. And for each community, how many like say consumers each influencer can actually serve?

Ying:

So first, let me give a landscape of the tiers in China. So we have what we call the first tier cities, which are Beijing, Shanghai, Guangzhou and Shenzhen. And now we have a whole bunch of tier two cities, the primary like the headquarter city for that province. That we have tier three. Tier three are mostly the cities that you hear, you kind of know the name, you don’t know where they are. So that’s the tier three cities are like most of our transactions are coming from. But not only that, we can also do tier four, tier five, tier six. So my definition of tier four is like the satellite cities around tier two and tier three. And tier five are counties. So counties are the satellite city of the tier four city. So every one of the tier four city actually has like 10 to 20 counties around them. And a tier six are the towns. So every county has like 10/15/20 towns around them. And now we have the rural areas. So that’s like the tier one to six. So for this business, we have successfully proved that it can actually serve consumers from tier one to tier six. In some of the areas we can even send like the fresh meat to rural villages, and still making profit margin. So we also see some of our competitors serve tier one city. But strategically, we think this model has more advantages in cities in tier three and below because in those areas you see less competition and people probably don’t get a lot of good products. I was in a rural and lower-tier city for quite a long time. And actually, I know that lower tier cities, they actually have lower quality products offering with higher price because of the logistics inefficiencies. So if you can provide price competitive high quality products in lower tier cities actually have a great edge. The problem is how you can do so. And the core problem to that is actually the cost structure. So right now, we have killing solution to really cut the cost down then we get an edge in the lower tier cities.

Hans:

So in theory, your model could be even better than Pinduoduo’s model. Pinduoduo has been growing very fast.

Ying:

Our internal slogan is that we offer products at a Pinduoduo’s price, they’re like 19.9, we’re like 10 to 20 RMB per order for better quality. And we can do next day delivery. We can do fresh. So that’s like our value proposition, you can see how this model can be a killer solution in lower tier cities.

Hans:

Pinduoduo aggregates demand with discounts. But when it comes to delivery, it’s one by one, you aggregate delivery as well and makes it even more efficient. And then now you can do fresh delivery.

Rita:

So let’s go back to the network of community influencers that you have been built, because obviously that would be the moat for you. They both do last mile delivery as well as user acquisitions. So how do you build a system that incentivizes them to keep growing for you?

Ying:

So we gave ourselves a topic like a research topic is how to really manage a sales organization of a million people. I think that’s the fundamental question when you answer in the end. Because right now we have like a few hundred thousand, like 80,000 of them. But in the end, if you really want to grow this business into like 100 billion RMB business, you need a million of them. So I think the core of that is to think about the parameters of new leaders we actually want. I think there are few, we think about the quality of those community leaders meaning are they really sales professionals? Can they actually generate a lot of sales?

Secondly, we think about their loyalty. And thirdly, we think about the density. So in your sales organization, all those three things are very important. For this model, we think that density is the most important at current stage. The reason is for this sales organization, we actually add location into that. Location is like a unique characteristic for this excellent sales organization. Think about if you have a million delivery sites, that’s also probably one of the biggest logistics networks in China as well. So bringing up density can give you size, can lower your cost, and also keep you in a game and give you an opportunity to actually train and shuffle those community leaders in the future. So at the very beginning in this very competitive market, we want to increase the density of our community leaders. And in the longer term, then we bring in, for example, the training programs, and we also want to group into different categories, different training and different services and try to make them improve their sales capability over time. But in the future, as we grow and as we mature, we need to bring in more techniques from the convenience store, retailing industries, to really look at the same store sales growth of those community leaders. But currently as we are still competing very fiercely, I think density is still the most important parameter we’re looking at.

Hans:

Do you have someone from Alibaba that runs your community influencers program?

Ying:

Yes, we do have Alibaba business development experts that help us with acquiring and training community leaders. But we also feel that BD capability is only one aspect of the whole puzzle. We also need retailing and sales experience in our organization. So we also need someone to take care of not only the sales revenue but also profit margins. We need people to understand that as well. So now our organization also has people from retail industries.

Hans:

From where do you source such people to come in to help you to train that up?

Ying:

Well actually because this very innovative model, you don’t see anyone in a market that actually can do them all. So what we do is that we bring in people with different backgrounds and try to have them collide and work with each other to get the right kind of qualities out. We have retail people, good people from convenience stores. We also have internet people; we have people from like Alibaba and like from other internet companies as well. They all bring in different qualities and put them into the real battlefield to have the right quality is coming out.

Hans:

Right on the side of your own app, how do you get users when influencers to move from WeChat onto your own app? What experience does your app provide for the benefit of those who don’t have access to it that’s offer superior shopping experience. I ask the question because we’re seeing more and more teams in Latin America, Southeast Asia, in India, that copy and learn what has worked well on WeChat onto WhatsApp. But the shopping experience on WhatsApp is limited. So the challenge is I was figuring out how to offer better shopping experience in their own app, while still retain the stickiness and ability to aggregate a lot of users quickly on WhatsApp.

Ying:

Firstly, I think it’s important to think through the role of social apps play in eCommerce, no matter it is WeChat, WhatsApp or Facebook. Social apps are where people get together, they talk, interact and share information here. But it’s not necessarily where transactions take place. It’s a traffic pool, a user reminder place. It reminds people where you can get good products, good promotions etc., but not a purchase destination. I think this clarification is very important, because every one of our community leaders on average only takes care of around 100 customers. So as long as we have good products, good prices, good promotions, straight-forward user experience. Community leaders can literally talk to each one of those customers and guide them to make purchase at our own app or in the programs. So in a sense, without these community influencers, it’s very hard to make these conversion happen. But with the presence of them, it gets much easier, and it’s also a very smooth experience for consumers as well. I think the second interesting thing is that as more and more consumers form a perception that they can get good and valuable food and vegetable needed from Shihuituan, they sometimes directly go to us and buy stuff from us. We have a purchase frequency of 14 times a month for old users, if you have good products, prices and service that beat consumers’ expectations, people can form such a good perception about you over time. We actually now see 30% of transaction traffic not from social groups but directly from consumers’ proactive purchase in our site. So I’ll say that if you have a fleet of community leaders that serve customers well, and if you have good products and service offerings, consumers will love to use your own App as well. So I think that’s actually something we can manage over time.

Hans:

As you grow, what are the top five kind of products that sell well on your platform? For Pinduoduo, do you know a lot of FMCG goods like diapers and so forth sell well. On your platform, What sell well?

Ying:

It’s the fruit, all kinds of fruits and fruits all sell very well here. And secondly are the vegetables. Thirdly is the frozen seafood, like we have the shrimps and all those kind of stuff like imported shrimp, they’re selling really well. And fourthly, is some of the also the FMCG, the tissues and stuff like that. And also have some what do we call the fashionable stuff like the cosmetics, for example, I buy a lot of like green plants, and flowers, those other things selling well as well.

Hans:

So if it is the produce that sells well, is the frequency of transaction per user on a weekly basis, like once a week, kind of frequency or is even higher? When you do delivery, what kind of special refrigeration do you have to be able to provide to keep the goods fresh? And do you work with outside delivery companies? Or do you have built your own fleet?

Ying:

So actually, for the first question, actually it’s more frequent than that. Like old users, after two to four months’ time, can go to like 14 times of purchase on a monthly basis.

Hans:

14 times? Every other day? That’s amazing.

Ying:

One time every two to three days. Because you know our ticket size is very low. Like if we saw vegetables we saw like really for a meal, like 5 RMB for bunch of vegetables, 6 RMB for carrots and things like that. People come here and buy things for one meal or for one dinner and then they can come here to buy for the next dinner. That’s actually very powerful. And that also adds up the frequency. The reason why we can do that is because our logistic cost is really low. It’s like 1 RMB or 1.5 RMB per order per item. So if you think about that, if we can really reduce the warehousing and delivery costs to 1 RMB, now we can afford an average price for 10 RMB. 10% logistic costs is alright within ecommerce business model. So that’s the that’s the first thing. And second thing in order to maintain the cost, we actually think very carefully of where and whether to add cold chains. We’re not a full cold chain logistic model, we try to actually increase the efficiency of the model to reduce the time that a fresh product needs to go through between the warehouse and our consumers. So that we can have the products fresher. So our total solution that on one hand, we have the cold box for vegetables, have the frozen box for the shrimps. Secondly, we really try to reduce the period of time for this thing to turn. So for example, we’re right now trying to achieve our own two on one for the model, which people buy anything before 11pm at night will get a product the second day before noon.

Hans:

That’s amazing.

Ying:

So that’s like 12 hours, 13 hours, right? So you can really do that and then the vegetables actually only go out of the warehouse for like five to seven hours. So if you didn’t really achieve this speed, and then even vegetables and the fresh stuff can be add relatively fresh stage, when it reaches to the point of cells to the community leaders. And for community leaders, most of them have certain storage capabilities. For example, they have a freezer, a refrigerator. If they are a store, they probably have some place to store the cold drinks. So they can also store the products in a relatively good state to wait for their consumers to come to their store. For example, like 4 to 5pm in the afternoon to pick it up. So that’s how we manage to get people relatively fresh products at lower tier cities.

Hans:

So you can do within a 12 hour delivery into tier four tier five cities. And then to make that work, what kind of warehouse network do you need to have in his delivery done by you, yourself, your own fleet or third party?

Ying:

Firstly, address the easy question first. So we have our own IT system. But everything like all the fleet of trucks are actually outsourced so we don’t own any fixed assets. In order to accomplish such a delivery system, we actually have a multi-layer warehousing system, the warehouse where different types of suppliers will ship their products to us. We have the warehouse for the fresh, where we actually package their farm produce into item size, like four carrots in a packet. We also have the frozen storage, we have the standard product storage. So that’s the first tier.

Hans:

Is your own people doing it or you recruit suppliers to do it?

Ying:

Okay, so there are two models. So if the supplier for example, for the standardization of the fresh produce, if the suppliers do that, then they can offer us to a higher price. If they don’t have the capability to do that we can do that for them with a fee. So also for the storage the same, so our model is actually a corporate close to zero inventory model. So if the supplier, if he doesn’t want to ship to us on a daily basis, they can store products temporarily in our warehouse, and we charge them as well. So that’s the warehouse.

Hans:
For warehouse, is that your own fixed asset or you recruit warehouse too?

Ying:

We run the warehouse, but we kind of revamp the warehouse to suit our needs. When I say revamp, I mean that for example is a standard warehouse that we want to add a frozen like warehousing into that. We want to open more doors on the wall. We want to put our own like light fixtures and the assembly lines. So that’s other things we do. We organize in the warehouse we were wanted. And we implement our own systems and IT system and the working process to that. But we don’t own the fixed asset. We don’t own the land of the warehouse.

Hans:

Sure. How long have you usually signed up the lease for these warehouses? Five years? More?

Ying:

Generally, we want to sign up for shorter period of time, because we’re growing too quickly. And we want to change the size and location on the warehouse very frequently. So we usually sign up for like one or two years. If they agree, sometimes they don’t agree, so we need to sign longer time and to worry about that later.

Hans:

Well, how long did it take you to do this? Sounds like only like three years.

Ying:

And this one is only one and a half years and we grow from zero to right now, 500 million sales on a monthly basis.

Hans:

Just under 100 billion-dollar US in sales in one half years.

Ying:

Yes. But it all came from the kind of experience we had over the last seven years because as you know, Hans, what I did before then is all in this area. It is always e-commerce, rural agriculture, social networks all those kinds of stuff. And also, for example the IT system that I built, if you only take one year it is impossible for you to build it but in the previous experiences is actually we can share a lot of experience from the past to help us today.

Hans:

A lot of people want to know, they asked Rita and asked me, like how much sacrifice you have to make until you actually can get to a true product-market fit, and how many pivots you have to take in order to find that part of market fit. Like you said, you had been on a 7-year journey when you and I met was about four years ago. And so you already have been doing this for three years struggling, and then you spent the last three of the last four years to get to some kind of a promise. In the last year and a half really took off, so can go through the seven-year journey, how much sacrifice ever made? And what did you have to do to find them a product market fit?

Ying:

So probably a little bit storytelling right now. So I graduated from Harvard Business School in 2012. When I applied for HBS, like 10 years ago, I wrote in my business school application, my career vision is to help rural villages. So that’s what I wrote. I was just authentic with what I wrote and acted on it. So after graduating from Harvard, I actually started a NGO helping little villages to build a new model of retail channel. So that’s what I did. I get some money from Harvard, I applied for the social venture track. I also get some money from an NGO called Echoing Green in New York. So on average,  I have around 1 or 2 million RMB to help me get started with the NGO. If we look at the model of NGO back then, it is actually very similar to what I’m doing today. It is really bringing the rural mom and pop shop owners as the trust agent to bring the concept of e-commerce to extremely lower tier and the rural areas. I think two primary challenges back then were, firstly is that you don’t got the infrastructure ready, you don’t have the mobile payment. The rural villages, they don’t even have a credit card. They don’t trust any form of prepaid sales model. And we know e-commerce is a prepaid model, right? You don’t get the logistics. Back then seven years ago, very few of the delivery services actually extended to rural areas. We actually need to bring our own warehousing to counties and ship our stuff to the rural villages. So back then it’s very hard, because you don’t have the infrastructure. People don’t do a lot of e-commerce and because of that the density of yourselves of your demand is also very scarce. So the model doesn’t work on a for-profit sense. So that’s why we start with the nonprofit model.

And the second challenge that you don’t get money that easily from nonprofit. I actually did a lot of fundraising trips to New York, DC, San Francisco, Shanghai and you don’t get a lot of understanding from a bunch of foreigners. For people trying to connect the meaning of my work to some big concepts like bring connectivity and stuff like that. So, after one or two years doing that, I found it is really challenging, so I go back to thinking about the venture backed model. So that’s after one or two years, I started going to the capital markets and getting venture money. But I still try to experiment around what I have in rural areas and counties.

So firstly, we started the business primary doing media and marketing in rural towns and counties because back then WeChat has started to pick up in rural towns, counties. So what I did before is back then is really get from a lot of organizers, a lot of WeChat groups and put them into categories and help different types of local service providers with the promotions. So we have groups for mothers so that’s for the mother infant shops. We have like the group for food lovers, that’s for the restaurants. We do a lot of that and thanks to that, that traffic growth we also grow our business from zero to a few hundred counties in China. So that’s my first venture. We got the money from Dianping. We want to compete with Meituan but later on they merged.

The second thing what I did is the good stuff. I think the good stuff is to find a product market fit as well. Because back then we sourced really differentiate good tasty fruits and sell them only to tier one cities like tier one, mothers in tier one cities, who care about your quality, they care about the tastiness of the fruits, because otherwise that the kids don’t bite them. They care for the health news of the product. So we find a product, the product market fit there. And really enabling the groups, WeChat groups, are really to tier one mothers.

And Shihuituan actually is incubated from “the good stuff”. Because after you know a couple years development, we do pretty well in Tier One cities. We think about national, we think about really growing this business to national and if you want to do national, you need to really take care of the price point issue. Because back then during “the good stuff” days, our price points around 100 RMB per order. That’s why we can afford a logistic cost of 10 to 15 RMB. If you want to go national, you need to think about how to cut costs, how to innovate, how to be innovative on that. So that’s where the Shihuituan comes in. So my feeling is that, as entrepreneur, it takes some efforts, but I think it’s okay to find market-product fit in relatively short period of time if you have some experience as an entrepreneur. But it’s hard to think about the timing of infrastructure or think about where the wind really blows. So even the model is similar seven years ago, but at that time, even if it’s a great model, it becomes a poverty alleviation model, because it’s too early. Right now things seem to kick off pretty well.

Hans:

The three aggregation that you’re doing one is on the demand side with the influencers. Second is obviously delivery again with the convenience stores, mom and pops, as your delivery point. The third is supply. This intermediate the existing supply chain and curate the best suppliers, for example, Meicai is the third part and try to bring best food from the farms all the way to the restaurants and do that as efficiently as possible. Usually you see a company doing one of those three aggregation and focus on that and do that very well. Pinduoduo does the demand aggregation coupon purchase. Meicai does the supply, disintermediation and curation. You’re doing all three. So as you build the organization, how do you get people to understand what you’re trying to do? You may, you get it, how to get the next two layers of team members on your team to get it as well?

Ying:

Right. I think firstly, Hans, you are very right. I think the challenge of this model is big. And the reason why we need to pick up this pack challenge is because e-commerce is already a very mature market. And if you only do one aggregation at a time, you probably don’t get a chance to have room in this market in the longer run. So I think the beauty of this model is that at the very beginning, we’re in a platform mentality, we think about outsource. And whenever we outsource a piece of work to someone, that is not an organization that has an incentive to do them well because they want to make some money for themselves, the cost goes down, the efficiency goes up.

So I think that’s something I really think a lot recently, and I think that actually applies to my own organization as well, is because when you hire more and more people, and you want them to do the things you want them to do, it’s getting harder and harder, because everybody has their own perceptions. You only add layers and layers of communication and you make decision making process slow, and they still have their own perceptions about things. So I think probably a more efficient way to tackle this problem is that don’t think about this as a top down communication issue, but think about we create a platform or ecosystem where everybody can actually make money. I’ll make something out of it. But if the system is designed right, then all of the people’s work will actually contribute to the well-being of the whole platform.

So if you think about a few things with it, we asked the community leaders to do the sales and marketing. And they had to do it well because they make every penny of their money from gaining the trust from the consumers. And by gaining the trust, I mean, that they have to provide good service. And they have to tell them very frequently what the consumers want and where we haven’t done well. So we have the kind of pressure and the push from every one of the community leaders that we have to be really consumer centric. The power is not from within. The power is from those community leaders. That’s thing number one. Second thing is the suppliers, we actually adopt a more like a platform model is that the suppliers actually have their own stores, or they have their own rooms in our platform. But they only have limited resources to help them to grow. So suppliers also need to think about if we see longer term benefits within this organization, I really need to give out of my best products best price, because otherwise, if my sales growth is not as high as the platform, then probably I don’t get a room anymore.

So think about this versus, we got a whole bunch of sourcing guys supervising the suppliers in a zero sum game, where we need to supervise the sourcing guys, then it doesn’t work. The bigger you grow, the harder it gets. So on every piece of our value chain, we think about a different way to put it. I’ll give you another very interesting example, is on the after sales service. Well, after sales service is actually critical to this model. We outsource that to our community leaders as well.

Hans:

Right, you have to.

Ying:

We actually give them an autonomy like below certain amount, you can just do it by yourself, we don’t need to approve it. And if we after doing that, we also lower the after sales service costs as well and people’s satisfaction actually goes up. So think again about what you can do to change a certain value chain of the traditional e-commerce to bring more power from the ecosystem and help you to move up the efficiency. So I think that’s very, very, very key topic. We need to think again to for the eCommerce otherwise I don’t think there’s a way for us to come out.

Hans:

Right, just add one more question on the supply side. What do you think is the overlap between your suppliers on your platform with suppliers from Meicai?

Ying:

Firstly, I think Meicai is more still to restaurants. They are to small businesses. But we are directly to consumers.

Hans:

I know the difference. I’m just curious on the suppliers, the actual suppliers. Is the suppliers, the restaurant suppliers to the consumers the same? Therefore, there is quite a bit overlap or different set of suppliers altogether.

Ying:

I think it’s a different set of suppliers because for us, we do bring a different set of standards for the products. And because of the standards, so to put it in a more direct way, our products probably have a higher grade in a fresh produce. So because of that, our suppliers also tend to be different. Many of our suppliers actually also the supplier for the local supermarkets.

Hans:

Okay, doesn’t overlap. And if the supermarkets are not growing as fast and you’re growing faster, then the suppliers are more willing to work with you.

Ying:

We also provide better terms like our campaign is actually very short, would give them like…

Hans:

a supermarket is terrible and you are much better.

Ying:

And we don’t have any fees and other stuff. We are very simple.

Hans:

There is no entrance fee to get into the store for you.

Ying:

No, no.

Hans:

Got it. I mean, you’re riding on a lot of existing infrastructure, but made that much more powerful by having the ecosystem approach. But you need the team members who have built ecosystem elsewhere to leverage that kind of thinking to come here.

Ying:

Right. Well, I think, firstly, it’s a philosophy. It’s something that, I, as the founder and my core team really buy in. And I think that’s the key thing. I don’t rely a lot on the past experience of the people because every experience comes with the specific occasions where this experience can actually work out. I think the most important thing is to have everyone in this organization really understands what we’re doing, why we have a chance, and how we can make this better. And all this is under a philosophy that we really need to build an ecosystem to have everybody contribute to it. So if you understand that you probably can make judgment decision makings much more relevant to this model. So we actually do a lot of internal communications, we have our own culture sessions from time to time to really help people think, at least on a strategic sense, closer to each other so that we can move this organization more efficient and faster.

Hans:

So how many people do you have on your team now? And how many of them were with you from the NGO or good stuff days?

Ying:

We have like 1500 people right now. I think that the core member from the NGO stage will have like five to six people today that’s deals with organization.

Hans:

How about from Good stuff days? 

Ying:

Well, good stuff here because we were splitting off the to two companies, I have to maintain most of the good stuff people still with good stuff. Otherwise the shareholders investors will not be happy with that.

Hans:

Okay, very impressive.

Rita:

So I have a question regarding your motivation or vision for helping Chinese villagers. You wrote that in your Havard application. Can you tell us more about that? Where does that come from?

Ying:

Well, actually, from a vision for myself, I see myself as someone who is very curious about the next frontier. Because I see more challenges there and I see more opportunities there. And I also feel that with my brain, I probably can bring more values to something that is still very nascent. So if you want to know my three steps of my career vision, I can tell you right now. And you probably understand my theme with rural better. My first one is with a rural China, second one probably was Africa, my third one was space.

Ying:

Yeah, space is even poorer than the Africa and rural China. That’s the next frontier. So I see myself as the intellectual cowboy. And I was trained well to really tackle with very complex problems that other people probably don’t want to tackle with. I’m happy and with that I enjoy the process. So I picked a really challenging problem and add my value to that. So I think that’s the thing number one. And secondly, I think I have a heart. I want to really help people. The misconception had before is really make that a one-way thing because NGOs have a lot of givers. But people probably don’t want you to give things to them for free. And that’s not the right way to do anything. So I think one of my mind shift over the last seven years that if you can create something that people want to pay for it, you probably find a common ground between economic values and social values at same time. And then you don’t need to worry about a double bottom lines because you have a single bottom line, which is generating profit and creating values, making investors happy. But you still have a heart and a social mission. You still have making organization of values and that actually make me happy as well. So to scale an organization of value is something that makes me very satisfied and happy. So I think that’s the two things.

Hans:

Very good.

Rita:

That is very powerful. Last question to both Hans and Ying. So apparently we are recording this episode because of the requests we receive every day from Brazilian founders, Indian founders, Indonesia founders. So how replicable do you think is this model to other markets? And what are the conditions people need to watch out for when they build similar startups in other markets? Maybe we can start with Hans?

Hans:

Yeah, I think when my colleague Eric first invest in it, we thought about doing delivery to very urbanized tier one, tier two cities where you have tall buildings. Each building has 50 floors. Each floor has 4 to 6 units, and in a community with you know, 20 to 50 of such towers. So you can have a captive consumer base of 5000 to 10,000 people. And that’s a key ingredient to scalel. I think improve that over the last 18 months, you don’t need that. Now you can scale into tier four or five, six cities with a model that he has come up with. So as a result of that, I think that the model has a lot of potential in Indonesia, Vietnam, India, Mexico, Colombia and Brazil. And so I think it’s going to be quite interesting for people who listen to this episode to think very hard about how to aggregate demand, aggregate supply, aggregate delivery. And so it is not easy to execute because this has a lot of pieces. And you need to have team members who gets how to build the ecosystem, have their values to help them make those kinds of decisions. It’s not as intuitive as it seems. It rests on China having had 10+ years of internet ecosystem building. And I think it requires a founder whose heart is in the right place is not just to create value for himself or herself but figure out a way to help more people. So it is not an easy model to get adapted. But I think with the right kind of founders, who are more missionary, and I think over time, it is possible to have this work in other places I can see for Frubana in Latam, I can see Udaan in India, I can see Telio in Vietnam all try considered different variations of this model over time.

Ying:

Right, right. So I’m currently not surprised that people are keen on this model in less developed areas. Because indeed this is not a new model. If you think about myself, I have a background of nonprofit and social development. And you can actually see similar things 10 and 20 years ago in India, in Africa, we call them branchless banking. What is branchless banking? Essentially, we have a lot of kiosk owners in those last 12 areas, and they serve the clients nearby and give them mobile banking services, give them micro lending service and things like that. And if you think about the core of that, is to bring trust, bring social networks into the formula. So I don’t think there’s something new, it actually has its own tradition over time from micro lending, from the rural finance, from those kind of stuff. And people have done something around that over the last 20 years already. So firstly, I completely agree that there is an opportunity in many less development areas like India, Southeast Asian and Brazil, places like that. And secondly, I think it’s important to think through the key elements of this model. I think there are two, firstly, you got to be able to find a bunch of people that can be community leaders. So as I mentioned earlier, the kiosk owners in those places can be one. And secondly you probably have to have a infrastructure for social networks. I don’t know what that is. But it can be something that people want to cluster in that area. And thirdly, you need to have mobile payment. mobile payment system is not a must. If you think about our early development, people actually paying cash to get products as well. But if you want to scale the business, you need a mobile payment to really manage the data and the transactions. So if you have the three, then probably you get something out of this in a reasonable way. So I do look forward to see entrepreneurs all around world to leverage this model and create some value for our for their consumers.

Hans:

I think after this episode Ying is going to be very popular, a lot of founders going to want to come and ask Rita how to set up the meeting with Ying. And I think I will say this, I think it’s easy for people who don’t know much about China, I think that Chinese company, just copy and clone what has worked in the US hope through an episode like this, that people realize that China has changed dramatically, you now have founders who have great values and want to change the world for better, is leveraging smart tech and mobile tech and ecosystem way of thinking to build that out. A lot of people who listen to our podcast know that many founders work very long hours, people who don’t listen to the podcast think that these companies that have long working hours are exploiting labor for cheap and it’s terrible. How do you think about that issue? And what’s the schedule in your company like?

Ying:

Well, you know, I think if people are kind of motivated by the missions, they treat working hours as time that is bringing value to not only people but also to themselves. But if you think about a work as a means to an end, and of course if you only work one hour a day, you will feel it as a torture. So I think for us, firstly, what we do is a great work that brings value to a lot of people and to ourselves, it is in reaching process. So I think we have a pretty positive working culture here in terms of high hours, I don’t know how to put it. It’s mostly work. I don’t think there’s a balance you can strike if you are an entrepreneur in China. I’m just trying to talk to my wife to convince her that that’s the case. But I don’t think there’s a balance. 

I think the way you think about things will give you, your body will respond to that in a different way as well. So if I enjoy work, I think my body overall reacts better. And secondly, I do carve out a meaningful amount of time for myself to do exercise. The lucky thing that, recently there’s a gym, which is like only 15 meters away from my office, or I’m able to go there on a more frequent basis. I think that’s good for me and good for the office overall as well.

Hans:

Or you can use KEEP, another GGV portfolio app, and you start to exercise.

Ying:

Exactly. Right. I’m also a fan of KEEP. I do a lot of episodes on that as well, training sessions.

Hans:

I want to give a special shout out to Charlwin Mao, founder of Xiaohongshu for connecting us in the first place.

Ying:

Right. Thanks, Charlwin.

Hans:

That’s right. It’s just very interesting and motivating to see a lot of young founders in China with a vision of dream, very smart and went to the best schools and have the best tools and experiences and build something quite special. So thank you.

Ying:

Thank you Hans.

Rita:

Okay, so we’re gonna end this episode with a round of quickfire questions. Just say whatever comes to your mind. First question is what’s your most frequently purchased items online?

Ying:

Recently is green plants for my office and home. I just bought a tiny Christmas tree with lights at night. it is now next to my next desktop right here.

Hans:

Very good. Looks great.

Rita:

Second question. So what keeps you going every day?

Ying:

Well, I mean, I think primarily is the intellectual curiosity and a sense of achievement from tackling really complex problems.

Rita:

Right. You’re an intellectual cowboy. You described yourself as a cowboy. Yes. Last question. So what is the best non-financial investment you’ve made in 2019?

Ying:

I invested a bit of time reading more about a stoic philosophy and resonate with it very well. I find peace and strength from the from the philosophy.

Well I can give a little bit more explanation of that. I think stoic philosophy in my own personal perception about that is three things really make the best out of the things you can control and make peace with the things you cannot control. And have the wisdom to differentiate these two.

Hans:

That is very, very true. When you travel, which countries or cities do you go to outside of China, if any?

Ying:

I really like Japan.

Hans:

I know you would. That was my number one guess.

Ying:

Japan’s really nice. It’s good for relaxation.

Hans:

And for Zen Buddhism, and that kind of stoic way of thinking as well.

Rita:

All right. Thank you so much for being on the show.

Ying:

Thank you. Pleasure.