Cecilia Sun of Miss Fresh: The Economics of Online Grocery in China

This episode is the recording of a private webinar we recently organized for GGV portfolio companies working to improve the supply chain of food in different markets. 

Online grocery is one of the most throat-cutting sectors in China. A study shows that with over 4,000 online grocery companies, only 1% is profitable, 4% can break even, and the overwhelming majority is burning money. 

Miss Fresh is among the rare ones that have survived and thrived after waves of competition. Miss Fresh is China’s leading online grocery retailer that offers 1-hour instant delivery services across 16 cities in China, including first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. The company has 1,000 distributed micro warehouses that fulfill up to 2,000 orders per day with over 3,000 SKUs. Its GMV tripled during the height of COVID-19 in China. 

Cecilia is a partner and the COO at Miss Fresh. She joined the firm in 2015. Prior to Miss Fresh, she was a private equity investor at Baring Asia, an investment banker at Deutsche Bank. She holds dual bachelor’s degrees in economics and statistics, a master’s degree in finance from Peking University, and is a member of Forbes 30 under 30 list.

On the show, we covered the impact of COVID-19 had on the eGrocer business, the innovative model Miss Fresh came up with, and how it competes and collaborates with tech giants in the grocery delivery business. 

TRANSCRIPT: 

Hans Tung:
Today on the show, we have Cecilia Sun, partner and COO at Miss Fresh. Miss Fresh is one of China’s leading online grocery retailer, but also offers one-hour instant delivery service across 16 cities in China, including mostly tier-one cities such as Beijing, Shanghai Guangzhou, and Shenzhen. The company has over 1000 distributed micro warehouses that fulfill up to 2000 orders per day per warehouse with over 3000 SKUs. Its GMV tripled during COVID-19 in China in February and March.It claimed that its damage rate is less than 1% with its data-driven supply chain management typically.

Rita Yang:
Cecilia is a partner and COO at Miss Fresh. She joined the firm since 2015. Prior to Miss Fresh, she was a private equity investor at Baring Asia and investor banker at Deutsche Bank. She holds dual bachelor’s degree in economics and statistics, master’s degree in finance from Peking University and a member of Forbes 30 under 30 list. Welcome to the show, Cecilia.

Cecilia Sun:
Thank you very much Hans and Rita.

Hans Tung:
We’re very happy to have you on the show. For those audience who have not lived in China before, can you describe Miss Fresh? And what was the innovation you guys come up with, with the micro warehouse approach?

Cecilia Sun:
Okay, in the short term, Miss Fresh is actually an online grocery retailer which has two key features. One is the 30-minutes home delivery, which we call instant delivery. And secondly, we have a full coverage on categories, ranging from fruit, vegetable to packaged food. And compared to a similar model, which is called Instacart, which is more familiar with westerner, we have a similar user experience. People can actually order from the App, and then we can get all these things delivered to you within around 30 mins to one hour.

And one slight difference that we make is actually we built warehouses to replace our stores to further increases efficiency, and why actually we do this, why we use warehouses to substitute all stores is because retail actually has three waves of trend changes.

First of all, we have this traditional offline stores that was happening around 20 years ago. And then we have stores plus home delivery, which is Instacart has done and JD Daojia (京东到家) have done before. And for this type model, we see some problems from it. Because for the stores in China, especially in a tier-one to tier-three cities, the rent is really high and labor is actually high as well. So stores have very low margins, they merely have 3% net margin, or even 0% net margin. So if you plus home delivery to customer, and this delivery cost is actually ranging from 5% to 10%. And also you have some connecting costs between stores and the delivery, and you have some kind of value loss from this.

So for this kind of model, we don’t see economics works, unless you charge delivery fee from the customers, and then will decrease the user experience from customer as well. So we replace it with warehouse. For warehouse, one warehouse is actually covering a wider range than a store. For the store, it covers around 500 meters to 1 kilometre. And for warehouse, it can cover around 1 kilometer to 3 kilometers. So it can sell more than a store.

And also for the warehouse, the rent is much lower than a store for same places. The store’s rent is actually three times more than a warehouse. And also for the storage capacity, the warehouse can store more SKUs and have more storage. It is roughly two times more than a store. So in total, one warehouse is really 10 times more efficient than the store. So we use the warehouse to replace the store so that we can reduce the operating costs of the supply chain. And then we use this price advantages to compete with the stores. So that is how this model works.

Hans Tung:
So basically in terms of pricing for users, yours is one third cost compared with the price in the store. So you are giving almost like a wholesale price to the user. And in terms of the SKU, you offer more because a micro warehouse is bigger than the store, what is the size of micro warehouse?

Cecilia Sun:
For the micro warehouse, it is around 200 to 400 square meters. So the store capacity is almost 800 to 1000 square meters. So the SKUs and categories.

Hans Tung:
So micro warehouse is actually smaller than the store?

Cecilia Sun:
Well, what I mean is its capacity is actually two times bigger than store. So for 200 square meters warehouse is similar to the capacity of 800 square meters store.

Hans Tung:
Got it. Stores are not as efficient as warehouses. Warehouse is all for storage.Delivery come and go. So, every square foot is highly utilized. So, you can end up carrying more SKUs for lower footprint. where do you have the micro warehouses? Is it spread over the city or more concentrated in a particular area?

Cecilia Sun:
For certain cities, it is spread all over city. Because we do online business from the numerous sites. So, we actually offer the user that you can actually purchase goods anywhere anytime. So it covers the entire city. But for the demand which is more density and then the warehouses will have closer distance between each other, so people can get even faster delivery. For some places which is outside the city and for the region that not many people living there, so have fewer warehouses. So people may have a slower delivery experience.

Hans Tung:
For these micro warehouses, how many delivery people do you need per warehouse? And how many orders can each person deliver per hour?

Cecilia Sun:
Depending on the size of the warehouse as well. For example, for a warehouse that is 200 square meters, we can deliver around three to four orders per square meter. that is efficient for per square meter. And per person, one delivery guy can deliver 60 to 70 orders per day, and that is efficient enough for delivery labor. So this efficiency is actually much higher than a store. So for stores, normally it is 100 RMB per square meter, that is the sales volume of store. So for us, one square meter is three to four orders. And our average order price is also around 100 RMB. So that is the 300 to 400 RMB per square meters, that is the average sales per square meter. And the delivery is 60 to 70 orders per day per person, and compared to Meituan (美团) which is around 30 to 40 orders.

Hans Tung:
For Instacart, if they can do two orders per hour, it’s already very amazing. One could argue that in China, with such high population density, many people live in high-rises and cluster together, so it’s easier to have the chance of delivering three, four orders per hour. Whereas in countries that people live more spread out, that’s more of a challenge. What is your experience as you move from more densely populated cities to lower-tier cities?

Cecilia Sun:
So for this kind of model, what we called distributed warehouses model, shortened to DW model, we think it’s still a model that is adaptable to tier-one to tier-three cities, which is around 30 to 40 high-tier cities in China. For very low tier cities, actually, we don’t think that works either. It really needs the people population density happening. And also people need to have their shopping behavior that is switching from offline to online. And people actually get quite busy in these big cities and their time is very valuable.

So our business model is to help people to save time, not to kill time. So we actually have barriers in this type of model happening. So what we are doing is we actually focus on tier one to tier three cities, but for tier four to tier six cities, which are smaller cities, we’re actually also having some other creative models that is working on. So that are two different kinds of cities, and actually different cities and different culture will have different retail models as well.

Rita Yang: 
So Cecilia, you talked about how you are there to help customers save time rather than kill time. I think that’s a key difference between the consumer group that you chose to serve in the first place, which is millennials in first-tier cities of China. And when you look at the App, you intentionally make it not an option but a default to have the delivery within the next hour? So can you walk us through what was the thinking behind that? Why not make it the Tmall supermarket for JD, which did the next-day delivery as well?

Cecilia Sun:
So why we decided to do this model because that is coming from our idea five years ago. First of all, on a macro basis, and on the competition basis, there are two different dimensions of why we think of this model. On the macro basis, this model is driven for long term changes or for trend. Post 80s and 90s is regarded as a new generation in China, because they have quite a different shopping behavior in the mindset. So, this post-80s generation is becoming the major shoppers of grocery since 2015. Because they are going up to be beyond 30s. This actually drives a fast growing of online penetration of groceries, so the demand is actually growing naturally. So that’s why we decided to do grocery business and to focus on on online penetration of grocery market.

And the second is the new technology. The new technologies, including LBS, mobile internet and also IoT business, make it possible to have this model happen with a lower price and lower cost. And then the new channels is happening, including us and some online new models like Pinduoduo (拼多多) and Kuaishou (快手), and including some offline new models and convenience store. So this are new channels. And the third is that new brands are coming up. So the new brands from upstream is also ready. So the new channels is able to cope with new brands to build our own supply chain barriers. So all these happening and make us to think this market has an opportunity to be all-in.

And then on the competition basis. So no matter who is doing eCommerce, you’re facing a competition from Alibaba, JD and Meituan (美团) naturally, and then we need to create a value proposition which is very unique from them. And for Alibaba and JD, what they are doing is actually inter-city business, which we call non-local business. So they bring some national goods everywhere and then do the non-local business. So, that is what JD and Alibaba are doing. And Meituan (美团)  is doing local business, and they are stronger in local service. They are connecting restaurants and also movies and other services part.

So for us, we think there is empty places which is called local retail, no one is focused on it. So we started our first startup for local retail. The local retail versus local services, the biggest differences is, because local retail have a much lower margin than local services. So, for local services, you can use connecting model, you can connect all offline stores and enable them to be online platform where you can actually have your own value proposition because they have a very high margin. For example, for a restaurant, the gross margin for restaurant is over 70%. So for every order they sell online, the restaurant is able to give 10%-15% commission to Meituan (美团) to make profits from this order.

But for retail, the gross margin is less than 50%. The highest is around 40%, on average is 25% to 30%. So this gross margin is not able to give 10% – 15% commission rate to any platform. So this connecting model, which actually don’t really increase any supply chain efficiency, so it’s only create connecting commission and costs from the online user side.

So in the very beginning, we think this connecting model is not the future because it doesn’t create supply chain value and it only increased the delivery cost to customers. So eventually, it doesn’t work. And also for local retail, people don’t really need much variety. So people don’t really go one retail today, and go to RT-Mart (大润发) for shopping tomorrow, and go to Hema (盒马) another day. Actually, they only need one or two choices. That’s enough. So there is not really information arbitrage opportunities, either. So this is why we think we actually can do self owned offline facility. And also we can do this online. So this can really increase the efficiency of entire supply chain and then using this efficiency that is saved  from the supply chain to serve customers with their online marketing expenses. So that’s how we come up with this idea.

And why we don’t use second day delivery, first of all, because we don’t have the strength to compete with JD and Alibaba who already do this second day delivery efficiently. So, our opportunity is on the local business. So, for the local business, the convenience and the instant delivery is actually a must for customer. So, we think, if we want to compete with offline stores, because that is our competitor, and we need to shift people’s shopping behavior from offline stores to online shopping, so we have to have a more convenient user experience than them, so for the second day delivery is not convenient at all compared to a store shopping. So we have to limit this time of delivery within two hours at least that is a comparing advantage to the offline to online business as a wholesaler. So that is the story for it.

At the very beginning, there’s a very small story that happened to us. In the very beginning, we actually did a lot of consumer surveys, to ask people if you need instant delivery for vegetable and fruits, and a lot of people said no, actually, they think second day delivery is good enough. But when we have decided to do this, and have our first product model on app, and we see the rapid growth. People actually need it, but they don’t really know it before we actually tried it. if we’ve ever tried. So, this is the past story that we have gone through.

Hans Tung:
Look at the distribution of orders, is it mostly throughout the mealtime? Is it more clustering effect or more spread out?

Cecilia Sun:
It is more spread out. Not really have that obvious time. In the morning, it’s normally around 10 to 11am, and in the afternoon, it’s around 5 to 6pm. Before dinnertime or before lunchtime is a little bit more. And other time is a little bit less, but generally it’s more spread out.

Hans Tung:
And what time do you open up the micro warehouse until?

Cecilia Sun:
It also varies, different places may have a different time. So it opens around 7am for earlies place, and some cities will open from 9am. And for the nights, it closed around 9pm and some places extend to 11pm.

Hans Tung:
So roughly about two shifts per day. How long does it take to get up to that kind of volume of 200 orders a day to breakeven after micro warehouse open? How long does it take to get to that volume per day?

Cecilia Sun:
It depends on the if you’re opening a warehouse in the existing city or a new city. For the existing one, because you already have users and people know you, and then we open up a new store, it needs three months. So it’s pretty soon for mature cities. But if we’re opening up in a brand-new city, like we opened in Wuhan last year, it may take as long as six to nine months.

Hans Tung:
And then as you figure out what’s the optimal SKU we should carry per city, does it vary very much? What kind of data analytics did you utilize that help you to determine what’s the optimal mix of SKUs to carry per micro warehouse?

Cecilia Sun:
For the number of SKUs, 70% across China are the same, another 30% varies city by city. So it’s around this ratio. So we have 70% SKUs  purchased from origin, and for another 30% is actually purchased locally in the local market. So this is the SKU’s combination. And for the number of SKUs, that is growing year by year, so in the very beginning, we have around 800 SKUs, and then 2,000, and then 3,000. It grows as we expand the categories. So for example, for fruits, it may need around 100 SKUs. And for vegetables will be a little bit more. We need 150 SKUs. And for meat, it needs around 70 SKUs. So we actually extend our category step by step, from fruits to vegetable to meat to sea food, and then we increase our SKU step by step. So we’re now around 3,000, and we are also still increasing the number of SKUs along with our expansion on categories. So we are now expanding our categories on packaging food. So we may increase SKUs from 3,000 to 3,500. And then maybe later, we will also extend our categories to drinks, and maybe increase SKUs from 3,000 to 4,000. So this is how it goes.

Hans Tung:
The eGrocery phenomenon started in 2013, 2014 and 2015. Many companies got funded, there may be other big players coming in which don’t need VC funding, but they also compete. So the capital raised per player are intense, and sometimes hundreds of millions of dollars. So through all this, you guys survive and thrive, can you walk us through that journey or some highlights and the key things that you guys did well in order to survive, and what are the sort of key differentiation or advantages that you built up over the last five or six years?

Cecilia Sun:
So eGrocery retailer is quite a lot. It’s really more than thousands. We pass through three different times of competition. In 2015, at that time, there’s a new startup which is on this E-grocery, what they are doing is vertical ecommerce platform. So at that time, we see Benlaishenghuo (本来生活), Tiantianguoyuan(天天果园), Yiguo(易果), these are the major players at that time. So what they are doing is second day delivery, but they are more focusing on fresh. So that is the key business model.

And for that business model, this model just doesn’t work well. They’ve done a lot on the supply chain and logistics.  They also builds logistics system, and  they also have corporate with farmland, and they also have done many years of operation on users. But what it went wrong is second day delivery is actually a vertical category for JD and Tmall. So for vertical limited category eCommerce, you really cannot compete with Tmall and JD.

Hans Tung:
Second day delivery and big warehouses is trying to maximize efficiency per warehouse. Now this model is very hard to compete against JD and Tmall of Alibaba because they have so many categories so that they can make the large warehouse much more efficient than a vertical ecommerce player.

Cecilia Sun:
Yeah, exactly. So they cannot really compete with JD and Tmall at that time. And also on the user cost as well, you actually cost a lot to acquire new users, and you only offer very limited category. And then for Tmall and JD, they acquire user for the same price but they can offer a much more variety of goods, so the user cost is actually much higher than JD and Tmall. So for this vertical ecommerce Benlai(本来生活) and Tiantian(天天果园), they really cannot compete with JD and Tmall. So that’s why actually they lose the battle. And that is the first wave.

Cecilia Sun:
And in 2016, we have some other players coming up and the main business model is actually the connecting model, for example JD Daojia(京东到家), Aixianfeng(爱鲜蜂), and DYD (点呀点). What they are doing is actually as Meituan (美团) model. So they creat a platform,and they cope with a lot of stores which do home delivery. So that is what Aixianfeng(爱鲜蜂) and JD Daojia(京东到家),such companies are doing. So that is around 2016 and 2017. And these company are all died as well, because the UE doesn’t work, the economics doesn’t work. So it’s either you sell at higher price to customer, or you need to charge commission from the stores, and there’s no another way. The stores cannot pay the commission, because their margins are really low, and they really cannot afford any commercial marketing which is more than 5%. But the platform needs 10 to 15 to be profitable. So that’s why such model doesn’t survive. So that is the second generation of innovators with which they made a Meituan (美团) model to make a platform to help them online.  

And then we come to the third generation which happened mainly in 2018 and 2019,  So that is JD, which has similar model as Miss Fresh, and Hema(盒马) is also happening in 2018. So for us, we actually do this business as a retailer. We don’t really do platform business. We’re doing the retailer business. We have offline facilities, and we have online connection to customers. But we have a different way of coming up with offline facilities. Hema(盒马) is now focusing on big stores, and all kinds of stores. And for us and JD, we’re doing warehouses. So there’s different offline facilities that are built on. So this is the third generation of competition, and we have this model coming up.

I think it doesn’t really matter what business model you believe in and what business model you’re in, as long as we’re all retailers, because for retailer, we are really low-margin players in any way. So we have net margin over 3%. That is the most to be expected. And for operation efficiency, if you’re not doing well anywhere, you may lose 3%. For example, you have too many inventory and then you lose 3% on the goods loss. And if you don’t manage people well, you have 30% headcount happening and then you lose 3% on the people cost.

You rent a store or a warehouse at 10% higher price because you don’t really bargain well with the landlord. You have 3% loss. So entire operational efficiencies coming from many operation details. I think store model or warehouses model, they both can’t work because they’re just different philosophies and different logic. For warehouses, we have lower rent price, lower labor price, and then we have lower goods price for a customer. For store business, you have a higher employee cost, and a higher people cost. It charges people higher, but also offer better experience. So for people who are richer and actually can pay more,  they can go to stores and have a better experience. And for people who are poor and don’t want to pay too much on this, then they can go to warehouse business. So I think model itself is not really mattered. And operational efficiency actually mattered more so you actually can manage this distributed facilities in a more efficient way that you actually can save cost from it, and then it can make it work.

Hans Tung:

So after billions and billions of VC money, three generations of evolution business models and operations, everyone agreed that the micro warehouse model is the most efficient, easiest way to be profitable on a per unit basis. So JD and Alibaba, they both have a lot of money and a lot of operational experience, what is they decide to do this and put all resources into this model. How do you deal with that?

Cecilia Sun:

That is also what Meituan, JD and Alibaba actually done. So we actually compete with them, but we also coorperate with them. Because offline business is really the dirty work. And giant companies have two choices, they can cope with us, or they can actually adopt that themself. So we actually also corporate with them, our store is also on Meituan App. So they’re actually a platform and we are one of the retailers that they corporate with. That’s a conquest. So that is our Different proposition that

Hans Tung:

Meituan is a platform. It doesn’t want to operate the stores. They’re not e-tailers. Both JD and Hema(盒马)  are e-tailers. So you have to partner with a platform to compete against e-tailers. So you’ll be aligning with Meituan to do that. This is very natural and makes a lot of sense.

 

Cecilia Sun:
And we also corporate with Tencent. So Tencent gave us all the support on the user side, because they are also a big platform.

Hans Tung:
Tencent is the investor in JD as well. Tencent is very loving. It helped  many people. The enemy of my enemy is my friend.  

Cecilia Sun:
Yes, that’s true.

Rita Yang:
Thank you so much Cecilia. I think that’s a fascinating recount of what has happened in China’s E-grocery business. I also have two questions for Hans, as you were sitting in the US and have seen this similar wave that is going on in the US right now, with a company like Instacart, doing really well during COVID-19, as well as GrubMarket and Yamibuy, which are all GGV’s portfolios. What’s your view on the E-grocery business in the US? And what is the overall GGV thesis in this sector in general? we have a selection of portfolios who solve this problem in very different ways.

Hans Tung:

I think US is a competitive market, but I have to say that China is a much more competitive market, and all these companies had nothing to do with Chinese government support, everybody’s fighting on their own with money raised from VCs who are experimenting new models all the time. So the intensity of the competition is fierce. For the most part, we have not invested in this category. That was a small investor and DYD (点呀点) , because I thought it’s worth trying, but quickly realized that this model is very hard to to pull off.

In the US, we have looked at four buckets in food supply to distribution, our thesis is that over time, the production and distribution of the food ideally should be more localized, more self sufficient, we had no idea that COVID-19 would happened. But when you have a pandemic, when you have a more interconnected and interdependent food supply chain, where each region is specialized in one area, when everything breaks down, it creates a problem. So our first investment in the US was in Bowery Farming in New York, because they can do indoor vertical farming, starting with vegetables.  And if the way they’ve done is right, then each of these farms could be replicated throughout the country. If not, in other countries, so that the food production could be localized and self sufficient. The second bucket that we make investments in were food wastage management companies, such as Shelf Engine in Seattle or Odeko in New York City are helping either coffee shops or grocery chains to become more efficient and managing food usage and wastage.

The third bucket where we make investments in is in the food distribution area with GrubMarket in San Francisco, Yamibuy in LA or Boxed in New York made by my partner Jeff Richards, they’re all figuring out how to distribute from the farms to the actual users or from manufacturer brands to the users much more efficiently either to C or to B or some kind of combination. They used to try to do with some kind of wholesale pricing to get cost advantage.

In China, we’re making investments in these high and I was investing in MeituanDianping (美团点评) before I joined GGV, and those are also dealing with supply chain management and food distribution management. In Southeast Asia, we invest in Grab Food, my partner Jixun invested in series B when the company is still a transportation company. And now it has mobile cash wallet, as well as food business. In India, most recently we invested in Khatabook and invested in the most recent round of Udaan, and these are more B2B marketplaces and B2B SaaS. So all these companies mentioned are in a sort of food distribution layer.

The last layer is food prices analytics. As you have data around the world of food production, and crops in weather climate change, you can come up with ways to hedge some of the risk involved with the uncertainties, and test the supply chain risk with indices and other financial instruments. So we think that in food there are multiple areas that one can play, and overtime is geared towards a society where it will become more self efficient in the local area that with worldwide prices information to help them make the most efficient decision locally.

China’s highly urbanized. So, you have community of high-rises, an average community may have 20 to 30 such high-rises, and each tower has between 20 to 40 or 50 floors. Each floor has between four to eight units, depending on the configuration. So you have 10,000 people living in one of such communities. And in that scenario, during COVID-19, these communities are kind of locked down, except one entrance per community. So you can deliver to one place and people in the community will come to that meeting point and pick up. so it is quite efficient because you don’t have to go into all the various tower and go on to various floors via elevators or stairs. Post COVID-19, how do you deal with that and still stay quite efficient and profitable on a per micro warehouse basis?

Cecilia Sun:
During the virus time, it’s true that we cannot enter the community, we have to choose orders in the gate and then customer come over to pick it, and it’s actually increased our efficiency a little bit, around 10% more efficient. But later on, when it opened up as we delivered to the door. It slightly decreased our efficiency, but not that much. From the door to the building may need 10 to 15 more minutes. And for our delivery guys, the biggest impact factor on his efficiency is for one trip, how many orders he can take. So for him to put all orders on the store into the building, it may renews one order only. So during the crisis time, it takes maybe ten orders per trip, and during the non-crisis time, it takes six to eight packages per trip. So per trip orders is similar to per hour orders he can take.

Hans Tung:
So even post COVID-19, it is definitely still high at about five or six packages per trip?

Cecilia Sun:
Yeah, five to six packages per trip is the average number that’s throughout last year.

Hans Tung:
So during COVID-19, it is even high to nine or ten orders?

Cecilia Sun:
Yeah, crisis time is even high. So you’ll see our delivery guy holding too many orders in his box, outside of the box and everywhere on his bike.

Hans Tung:
As you know, food supplies areas and food production areas are spread out but not universally spread out. It got concentrated mostly in the southern region and eastern region. So, as you expand across the country, how do you inset these regions where local food supply may not be as abundant, and you shift from outside. How do you make the cost work in this business model?

Cecilia Sun:
We have some big distribution center that built in some major cities, like Beijing, Shanghai, Guangzhou and Wuhan. So this is actually packaging house. So it contains three functions. One is factory house, and one is distribution center, and the third is the testing center. So from the supply, and we purchase directly from the origin. That’s true that actually in China that different products coming from different provinces, this cross spread out in China. For this products, they coming to Beijing, Shanghai, Guangzhou and Wuhan naturally, so we cope with this farmland, and then the farmland actually ship from their home place to Beijing, Shanghai these co-cities, and then they actually cover the delivery costing from the homeland to our main distribution cities. And this is the delivery.

How we lower the prices of group purchasing that is directly sourcing. Because in China, the sourcing is actually happening many more layers for most retailers. And for us, we don’t have that many layers because we actually can group buy, and we’ll cope with factories and the farmland directly. So actually, we reduce all layers of purchasing that is how we reduce price from the purchase side. So we have a 70% that is coming from this homeland. And why we can do is this also because we have really limited SKUs compared to big supermarkets, we have 1/10 of SKUs they have. So this can help us to have bigger volume per SKU. And then we can have a good bargain price with this origin, and then we can actually directly source from the farm.

Hans Tung:
When we look at one of your competitor like Dingdong (叮咚买菜), they include recipe inside their App as well. So you can order based on food you want to eat or cook and eat for breakfast, for lunch, for afternoon tea, for dinner, and for supper. And within each meal, there are a variety of food. You click on the dishes you want, it tells you what ingredients you should buy that you can buy on App and then tells you how to cook it. I imagine that they can control the number of dishes so that the number of SKUs which is more or less easier to manage. Do you think that makes sense in China? Or is that micromanaging too much that just solving the supply and keep the fewer SKU and get great prices on them is a better model? Between the two, do you see any differences?

Cecilia Sun:
Actually, for Dingdong (叮咚买菜) and Miss Fresh, our model is quite same. There’s no major difference. Our customer group is slightly different. But operation model is similar, for Dingdong (叮咚买菜), their customer base is actually a little bit older than us. So their main customer group is around 40-60 years old. And for us is around 30-50 years old. So this is slightly different on the user group.

But for the other side, actually we are the same. For the menu-based shopping that we actually have it as well, because we have a second tab on App, it also has menus of dishes and then you can click on the menus and then you can know how to cook it and  what to order and buy. So this purchasing is actually similar.

That are two different kinds of shopping behaviors. For some people, they know what they need and then they just go to shelf and order from App. For people that don’t really know what to eat, they can go to the menu side and look at the menu and click on what they want. For the shopping behavior, I think we are the same. For Dingdong (叮咚买菜) and Miss Fresh, we have some difference on the key targeted people.

Hans Tung:
When you once introduced the menu features, did you see any changes in customer order behavior in terms of average order value, in terms of frequency? Do you see any changes at all?

Cecilia Sun:
For customers, order by item is the majority of needs. So we see a customer shopping behavior, 30% is also by searching basis, and 40 to 50% is by screen basis and they just rolling down this list. And less than 10% is actually shopping from this menu basis.

Hans Tung:
In terms of time spent on the app, do you see people spend more time on the App because there’s more things they can browse, and hopefully come more frequently? Does that help in any way?

Cecilia Sun:
Yeah, I think it helps. If you have some contacts on your app, it helps to increase people’s average using time, so that helps. For the retailer, the key features you offer to customer is to help them browse the fruits and buy it more efficiently. And you have your contacts that is inserted in this App, and to help them to have a better experience when browse your App. So it helps.

Hans Tung:
If you look at your MAU and DAU, how frequently do people come back to the App?

Cecilia Sun:
On average is around four times per month. Once a week, that is the average member. And for people in different age, it is quite different. Older people purchase goods more frequently than younger people. So for people who is 50-60 years old, they come maybe one or two days, maybe everyday. And for people that is younger than 30, it’s less than two weeks once.

For younger people, there are two different behaviors. One reason is younger people cook less than older people. secondly, younger people buy more at once, so the ASP is higher for younger people. They may buy over 100-200 RMB once and put it in the refrigerator. That is enough for one week or maybe two weeks. And for older people, they buy more frequently, they cook more frequently. They maybe buy only for one meal and then buy two times a day.

Hans Tung:
Yeah, I can tell my personal experience. My wife and I couldn’t discuss what to eat for each meal. That’s very difficult to plan and purchase for three meals. I think that’s why older people need to purchase more frequently.

Rita Yang:
I actually have a follow-up question on that. I know during COVID-19, that user group that above 40 years old actually grew very significantly for E-grocer Apps. They were at home and they were originally didn’t know how to use it. But their kids also stuck at home. So the kids teach them how to use. I was wondering that China is probably 90% back to normal, at least in Shanghai, what changes you’ve seen on the users who are above 40 years old? Have they gone back to wet market around their neighborhood, or they continued to order from Miss Fresh App?

Cecilia Sun:
COVID-19 really has a long-term impact on people’s shopping behavior. It actually quicken this online penetration trend, maybe two or three years ahead of the original schedule. So one of the biggest impact is to bring older people online. So in the past, they order from wet market and supermarket, and now they have this new experience that is ordering from internet. And because ordering from internet can offer a full variety of food, and it is also more convenient. So when people actually have this better user experience, it’s not that easy to come back to the old way.

So for us, we see these new customers coming from this COVID-19 time for the last three months.The retention rate is similar to the last year, which means that this new group of customer coming up and they actually stayed on the website as before, but of course you have some loss from the new customer as well. And now we also have changed our category combination because of this. Before, our customer is actually younger, which is around 30 to 35. Now we see our customer is actually getting older, the average age is up to 40. So because of this, we actually increase the SKU numbers of vegetables, meat and seafood. And then we actually slightly decrease the SKU numbers for younger people’s need, like snacks and other goods. So this is what COVID-19 has made to us for the last three months, and essentially a long term impact.

Hans Tung:
So as you expand very quickly, how does that impact the traditional Carrefour or Walmart and other Chinese supermarkets? How are they impacted and how are they responding?

Cecilia Sun:
In higher tier cities, supermarkets are also changing their business model. They offer home delivery as well. All of them,Wu Mart (物美) in Beijing, they have Demo online. And Yonghui (永辉) has Yonghui (永辉) online, and RT-Mart (大润发) cooperate with Alibaba together. So for the higher tier cities, they also have a home delivery as well. And another big strategy I think they are doing is that they are moving from high tier cities to lower tier cities.

So for last year’s annual reports from these supermarkets, their growth is coming from a lot of lower tier cities mainly. And their profit is also coming from low tier cities as well. So they have put more focus on the low tier cities. And for high tier cities, they cope with online platforms, or they have their own delivery fleet to do online as well. So these are two different strategies they are using now.

Hans Tung:
It sounds like even Hema (盒马) supermarket store in China is responding to what you guys are doing. The stores cost a lot to build out, it has this amazing user experience inside but also expensive to operate for obvious reasons. Now they came up with the mini version of that to drop out more in neighborhoods. If there is a mini Hema (盒马) around one of your micro warehouses, how will this fact impact your business?

Cecilia Sun:
I don’t see really direct impact between different models because the market is so big. And then we don’t really face the direct competition with each other yet. I think because we’re both getting new customers and we are in a really huge market that we’re competing. For mini Hema (盒马) , I think their model is still using store and store plus online delivery. And same story, a store has higher cost. So, they have to make their price a little bit higher than us. So Hema (盒马) ’s price is actually 20% higher than us on average. So basically this is the price difference between us. mini Hema (盒马) has around the same SKUs as we do.  And user experience is also similar, so we actually have a price advantage than mini Hema (盒马). That also depends on the cost basis for we have different cost structure.

Hans Tung:
This is a great podcast. For me, my biggest takeaway is that as anyone want to do to C business. It’s not about just aggregating demand or promotions and so forth, that is important, but at the same time, you need to figure out a way to build out the logistics delivery distribution system in a very cost efficient manner that will allow the most number of delivery per hour, and then figure out what is the right SKU to cut to be able to provide and distribute to the distribution points needed to be. And whereas a lot of people want to have that amazing in-store experience. The reality is when you have a pandemic like this, the in-store  experience becomes less important, the delivery and effective cost to consumer becomes extremely important.

It is a model that’s worth looking at, and people can do b2b better in the long run, they’ll have a more efficient supply chain or distribution system can end up winning the to C battle when they decide to do so. because they already have built up something that’s much more efficient over a period of time, they’ve had the scale that matters. So in the past, we tend to want to build a to C business immediately. That actually makes more sense to do to B first and then figure out what is the right to C strategy down the road. You think it as a 10-year kind of process. First five years build up strong capability in the to B area, you can always go after the customer later because you have efficiencies already in the system. So that’s a fascinating takeaway. Thank you so much for that.

Cecilia Sun:
Okay, thank you.

Rita Yang:
So you were on the investment side for quite some time. You are an investment banker. What are the adjustment that you have to make since you have been with Miss Fresh from day one? What is the biggest takeaway? And for the entrepreneurs or people who are on the investment side thinking about becoming an entrepreneur, what would be your advice for that?

Hans Tung:
Most people want a white collar, investment banking investor job. Why would you want to give that up to run operation? Fight over your 30 other companies with all raised a lot of money in five and six years?

Cecilia Sun:
Yeah, I think becoming an entrepreneur is quite different from becoming an investor, that’s  really a different kind of life that I’m living. I have made a lot of changes, among all the changes I’ve made, the biggest challenge is to learn to manage a big group people, I think that is the biggest changes. When I was doing investment bank or being a PE investor, you don’t really need to deal with people quite a lot.

You deal with CEO and the chairman only for one company. And in your organization, you deal with associates or analysts.  Maybe only 10 people. So dealing with those people is quite simple. most of them are eligible and easy to deal with. They are self-driven, and you don’t need to push them to do things and they want to learn naturally, and they understand what they are saying.

But for managing corporate and the business, you’re facing very different people. They come from all kinds of backgrounds, and they may not be educated and they may not be that smart. And they may not be that hard working either. There are a large group of them. Our employees are around 1,000 to 2,000 sometimes, and we also have a large group of delivery guys and fleets, which are more than 10,000. So, managing all these kind of people is a challenging task for me. And I have learned quite a lot, how to optimize organization and which is across different kinds of people.

Hans Tung:
Why would you want to do that? I know how hard is to be a founder. It is 90 times harder to get 10,000 people to do what you want them to do. So why do you want to do it?

Cecilia Sun:
First of all, deeply in my heart I think entrepreneurs can really change the world, and can make significant impact on society. Actually, I think entrepreneurship contributes more than investors.

Hans Tung:
I totally agree.

Cecilia Sun:
For me, I think I want to use my limited lifetime to do something that is matters more, and can really change the world. So that’s why I want to do the entrepreneurship. And this is not the first time I do this. When I was in university, I have my first startup, for education, that is the online education platform on which we offer classes and tutorial lessons from Peking University and Tsinghua University to the people who cannot access this kind of lessons like Tieling and Handan, this four or five tier cities.

So that’s the first startup I’ve done before when I was around 18. So that business actually went on quite well, when I was in my school time, so we have really cheap source of students, because they have nothing to do at school. So when you have them to make a video that can teach high school students, they are happy to do that, you just need to pay them like 50 RMB or 100 RMB. Therefore, for students in cities like Tieling and Handan, they really wanted to have better education resources and to get into a better school, especially getting into Peking University and Tsinghua University. So these students are really attractive to them so they are willing to pay to listen to what they say, and to listen to what they are telling them. So this business model naturally comes up, so that is the first startup I’ve done before. and after a few years, I cooperated with other people to do a P2P business in 2010.

But that also when I was in school. After graduation, I still went to investment bank. So I think maybe I need to work first before carrying on my entrepreneur dream. So I work for a few years in banks and PE, and to see how other CEOs manage companies. In the investment banking, I see how this IPO process goes and how other people manage a mature and successful company, and then come to PE and the VC side, to see how people bring a small company to a big one, to meet a lot of CEOs and talk with them about this.

And then after this experience, I think maybe I can try by myself and go back to startup and enterpreneurship again, so I met Zheng Xu, My friend is the angel investor for him, I told him that I think this sector is really sexy. And there is a huge opportunities afterwards. Because for E-grocery, first of all you do grocery as a retailer, and then the upstream for groceries actually is agriculture. In China, agriculture is a fundamental business of the entire country. So there are also a lot of opportunities on the upstream side. So I think it’s really a long term thing I can devote for, from retail to the channel supply chain, and then to the  agriculture. So it makes sense to me. And the team is also quite eligible. And it’s really a strong CEO I have met compared to other CEOs I’ve met before.

So I joined them together as one of partner and then we spent five years together to build up the business. So this is how it comes. I think in the very beginning, I just wanted to do startup, because I want to make some more contribution to the world. And then I tried in the school two times, and then I go to banks and PE to meet more CEOs and to see how they work and then I come up with my own practice and to do this by myself.

Hans Tung:
In this journey, how many times did you have regrets? Like what am I doing here?

Cecilia Sun:
Once I think.

Hans Tung:
Only once?

Cecilia Sun:
For my own philosophy, if I make a choice, I have to make the choice the good one. So I spent time to make a good choice, but afterwards, I have to make it the right choice. So for all the suffering and all the difficulties, I need to face it and come over it. And when the company is growing bigger, it doesn’t mean that you solve all the problems that a bigger company don’t have problems. For example, in the very beginning, I may get really nervous or uneasy to go up and down. So my mood is up and down. But after one year, I don’t have this kind of feeling at all. So your heart is getting stronger.  Your moods don’t really change along wit your business performance. You focus on more fundamental solutions and focused less on the movements of databases. So people are changing.

Hans Tung:
Thank you so much. Cecilia, that was so much fun.

Cecilia Sun:
Thank you, Hans.

Rita Yang:
Thanks for everyone for tuning in. Bye. Have a good day.

GGV Live Special: Mobilizing Distributed Teams in Crisis – featuring HashiCorp and HelloBike

This episode is the last of our 3-part-webinar series on how founders and leaders are dealing with the current global crisis. It was hosted by GGV’s Head of Talent Jennifer Holmstrom and featured Dylan Tey, Senior VP of HelloBike, one of China’s biggest mobility service platforms, which manages a 30,000 flexible ground operators and Jeff Harper, Chief People Officer at HashiCorp, an enterprise software company that has its entire engineer team distributed across the world.

We covered 3 key decisions each company made in the wake of COVID-19, the systems put in place to mobilize a big team in crisis, and the long-term impact this virus have on their industries.

*HelloBike and HashiCorp are both GGV portfolio companies

TRANSCRIPT: 

Jennifer Holmstrom:

Hello, everybody. Thank you so much for joining us. My name is Jennifer Holmstrom and I’m with GGV capital where I lead the talent function from San Francisco, and I am thrilled to be here today with our esteemed guests, Dylan Tey, who is a senior vice president at HelloBike, the leading bike sharing app and company by count of the bikes across the world. Dylan leads finance and legal functions for HelloBike. And he is here to give us perspective from a company that spans 35,000 employees in a distributed fashion. So, he’s grappled with the recent state of affairs with the Coronavirus, and we’ll have an interesting perspective there.

And we also have Jeff Harper here, who is the chief people officer at a company called HashiCorp, which is located in San Francisco but originated with a distributed engineering team all over the world. And HashiCorp is an enterprise software company that started with open source developer tools for enterprise infrastructure, and it also has commercial products now. So HashiCorp has almost 1000 employees and is originated with a completely new distributed technical team.

Dylan Tey:

Nice to see everyone online and hope everyone’s keeping well. My name is Dylan Tey. I’m a Malaysian Chinese. I’ve been in Shanghai for about 16 years. So currently, I work with a company called HelloBike. We are a company very deep rooted in the two-wheeled system mobility market in China. So our company basically has invested more than 10 million bikes, both on normal bike as well as E-bikes that go across 360 cities across China. Currently I am based in Shanghai, and I look after the finance function and the legal function, setting up the whole financial system infrastructure for this company. Prior to this, I was with another company called WeDoctor, which is a mobile healthcare. I was a CFO there. And prior to that I was a partner in PwC in China, focusing on tech.

Jeff Harper:

So I joined HashiCorp at the beginning of 2019. And at that time, the company was about 350. It was started in 2012 by two technologists, basically they had worked at another company and found the challenge of connecting their different infrastructural pieces, whether it’s applications or systems to the cloud. And they specifically had difficulty with the fact that they were using multiple cloud partners, when they reached out to friends and colleagues who worked at other companies, they found that this was an ongoing problem that everyone was having. And essentially, they had to either use the tools that were provided by the cloud partner, which locked them into that cloud partner, or they had to build them by themselves.

And what happened is people were spending significant amounts of time doing any number of different activities and the four core elements that we focus on are provisioning, security, runtime and networking. So when they were looking at how do we spin up and dial back in terms of provisioning, virtual equipment, how do we deal with the secure transmission across these partners and so forth. These are the things that were taking extensive periods of time, every time they needed to do different activities. And so they saw this gap, they started building this as purely open source to create something for that community for the practitioners to help ease the pain. And when they decided to set it up as a company back in 2012, that is all purely around the open source. It wasn’t until around 2014, 2015 where they started looking at the commercialization and support structure, supporting that open source product. Realizing that there was even more that people needed, especially when you get to some of larger companies. And look at things like the Global 2000, they will leverage open source, in fact, surprisingly some of these massive companies still use these open source products to serve their needs.

And other ones will say, we want to be more in the commercial relationships so we can ensure that there’s uptime that their service provides. And these two gentlemen, Mitchell Hashimoto and Armon Dadgar, they’re focused on this and their commitment to this was so strong and so passionate, that led them all the way through to where we are today. And since I joined in 2019, it has grown from around 350 people to almost 1000 today. So we hired more people last fiscal year that we hired in the entire history of the company, and that’s including everybody who left or everybody who was still there. Not just a phenomenal feat for for hiring, but that’s an incredible testament to the culture of the company, and the leaders at all different levels of the organization to help ensure that we’re preserving our culture and being consistent with who we are. Culture is defined by the majority. And as of now the majority has less than a years of experience, so preserving that is incredibly challenging. As for me, I’ve been doing this for about 25 years. I’ve been working in a variety of tech industries. I came over from a SaaS based company that focused on fitness and wellness, I was the senior vice president of people and culture there called Mind Body. Prior to that, I was in digital media. I’ve worked in the biotech industry, also in a couple of video game companies, and even back in the day I was with Capital One.

Jennifer Holmstrom:

Given that China was a little bit ahead of the rest of the world in facing this current crisis that we’re in, would love to hear your perspective just as soon as the you know, the leadership team at hellobike realized how serious the situation was with COVID-19 . What were the first three key decisions that you made as a management team?

Dylan Tey:

I think everyone know this COVID-19 hit China back in late January. I think that was around the time of Chinese New Year. So Chinese New Year is a very big time for us in China,  similar to Christmas or thanksgiving in the States. So at that time, I think we had to make a few quick and important decisions. A little bit of background, Jane is right about describing that we have about 35,000 people that we hire on a distributor basis, but out of 35,000, 5000 are our full-time employees, the other 30,000 are what we called the part-time ground operators, managing our bike fleet. We have invested more than 10 million bikes. That data is spread across 360 cities in China, so we need a lot of flexible workforce to manage those bikes on a daily basis.

So when COVID-19 first happened, I think the first thing we need to decide was we need to really put together some of the revision in our normal standard operating procedures for our ground operators, because these are the operators which are closest to our bike fleet, and they are closest to the services that we provide to our customers. We were focusing on our customers needs at the point of time, people can understand that people are worried about even riding bicycles, because you might get infected and you’re not sure whether you’re safe. So the first thing that we did was we started revising our SOPs regarding how we basically cleaning and sanitizing our bike. And also we have started procuring a huge amount of PPE (personal protective equipment) such as a mask, gloves, sanitizers during those difficult times. At that time, I think just purchasing those things are not enough, we also need to make sure our frontline operators understand the importance of keeping safety first for all users and our customers. So we had to expand our appraisal systems to include performance measures, which includes like a cleanliness sanitization level of our bikes, are making sure that they are aware that this and they’re aware and fully aligned that they need to keep the bikes really clean for users.

Of course in the back, we also need to have improved procedures regarding sanitizing and cleaning our bikes before they leave our parking lots. We need to also have some strict protocol to making sure that on a periodic basis, our operators go onto the street and go to the areas where our active movement of our bikes and sanitizing those bikes with our handlers and cart seats, and we should have a portion of device that they had contact with our users. So we did have to do this before COVID-19 generally, there was about the first thing, the second thing that I think we have to deal with is, as we come back from Chinese New Year, we will face an acute of shortage of our own ground operators, because due to the lockdown in China, not just Hubei province, Wuhan, but actually movements of people across China, we’re quite restricted. And because of Chinese New Year, most of our operators has already gone back to their respective hometowns and their home cities. So they’re not back in where they’re supposed to be working for us. So a lot of them were late returning to their positions, but our business continues, so we had to improvise. So in the middle of February, we started and announced the employee sharing plan across China.

Mentioning we have a shortage of about 8000 operators, within one week, very surprisingly, we had about 5000 resumes, from about people over 28 provinces, a lot of people looking for jobs. There are people who are taxi drivers, there are people who are restaurant workers. Because as restaurants were closed, there were no mobility and taxi fleets are not moving as well. So these people can apply for jobs with us. So we did manage to fulfill quite a number of our needs based on those people coming in, so we had to retrain them, and we need to quickly get up to speed. And so I think that was the second thing we did, to cope with our shortage of ground operators.

So finally, I think on the production line, because from February to April, actually, is typically springtime in China. It’s a very good time for us to put out new bikes on the road. So we were expecting a lot of production for our new fleet around this time of the year, from February to April. But similarly our factories, our suppliers, they’re having staff shortages as well. So a lot of them were facing disrupted supply chains. For us, we also launched what we called Business Partner Assistance Program in February. So basically in that program, we provide them the information system, the supply chain information, including our information system with them and making sure we sync with them what we need and collaborating the entire supply chain, making sure that the least disruption possible. We also provide them with labor related information about which part or which cities are allowed to start work and how it affects them, to help them to move around our supply chain and their processes. So that we can have the whole thing. We also help them with development and retraining of employees. I think we went to the extreme of even sending our own people to the factories. So I think these are three things, for sanitization of our fleet, shortage for our operators and supply chain.

Jennifer Holmstrom:

And then you handle the movement of your labor. So, certain of your employees being stuck in, having an influx of inbound to hire.

Dylan Tey:

So we use a lot of zoom obviously, during those times.

Jennifer Holmstrom:

A lot of virtual conferencing.

Dylan Tey:

A lot. we are spoiled with different tools in China. Other than zoom, we also have DingTalk, Tencent meeting, and other virtual tools to help us. But thankfully, we managed to get it through.

Jennifer Holmstrom:

And Jeff, with us in the US a little bit more recent, relatively recent situation related to COVID-19. What was the HashiCorp response in terms of the first three actions that the leadership team took to address the crisis and how did it affect your workforce? Maybe you can describe the HashiCorp workforce a little bit.

Jeff Harper:

Absolutely. It was interesting for us because we have around 85% to 90% of our workforce is distributed. We have folks in 13 countries and we’ve been that way since the beginning. In fact, even though our headquarters is in San Francisco, our two co-founders who are co-CTOs, one is in the northeast and the other one is down in LA. So they are two co-founders aren’t even at the headquarters, and our entire engineering team, every single one is distributed. Our head of engineering lives in the Bay Area, and she’s in the office, not now, but typically a couple of times a week. So, that has been a mindset since the very beginning.

In fact, it’s very intentional. It’s very designed in that way. And I can share a little bit about that in a minute. But I want to get to your question. So being distributed kind of helped us but it also created a challenge because every year we do an annual event where we bring all of our team members every single one together,for an event that we call HEX, the HashiCorp  Employee Exchange, where we’re all getting together. It’s a three day event. That happened at the end of February. So it was on the 24th through the 28th of February when that was happening. At the time in the US, when we were all leaving to join this event, there were about 35 cases in the US, and no deaths. There were about, I don’t know, 79,000 or 80,000 cases globally and probably about 2500 deaths. But in the US it was minimal impact. By the end of the event, there were still no deaths in the US, but it went from 35 to 63. And that gave us a strong indication that we need to act, and we need to act quickly, even though there was not a lot of movement in the US in terms of people taking action.

On the following Monday, on March 2, we issued out directions to our team members and that was our first action which we suspended all travel. We canceled all events and group meetings. That wasn’t just for travel, but it was any kind of localized off sites or gatherings of our team. And then any in person meetings in the office, we said that if you have customers coming in, please cancel those. We also directed even though our office was still open at the time, we said that if anybody in your family is sick, if you have anybody in your family who’s immunocompromised, or if you or someone in your household is pregnant, basically, don’t come into the office, make sure that you’re taking care of yourself first. So we wanted to do that. That was on the second of March. At that time, I think the global cases grew to around 90,000. In the US, we just hit 100 at that point of time, but over that weekend, it went from went from zero deaths to six deaths in the US. And there were 500 additional deaths globally over that weekend.

That was on March 2, by March 10, things had progressed pretty significantly. And we closed our office. We had everybody start working from home, and we weren’t the first one. So there are many in the Bay Area started doing it at that point of time. The cases were still also fairly limited. We are just doing it in the abundance of caution. And I always say that my first and foremost charge is to ensure the safety and well being of our team members. So we did that on the 10th of March. And our first internal case of the team member happened on March 12. So two days after we shut our office when we found out we had our first case, it was an employee out of the UK, who h was customer facing, who had met with a couple of different companies during that period of time. And we immediately went out and contacted each of the team members who had been working with the person, notified those companies, went through procedures.

By the 18th of March, we put together our task force. And on the 20th, we issued out an internal web source and started to put together a collection of actions to support our team members. And now we have our website up there that provides resources and ideas of ways to support people, as adults, as parents, as managers, and then also in terms of their own self care. We wanted to think of it comprehensively there. But I mean, we were also in a little bit more favorable position in a couple of ways, like Dylan mentioned, HelloBike there is a lot of physical connection points with their consumers, and we don’t have as much of that. I mean, we are cloud based. We do have our sales team, and some of our customer success people who will be out with the customer.

But that is very easy for us to migrate away from that kind of motion. And so our team 85% -90% distributed means that we can more quickly move that way. In fact, our teams heavily operated that way leveraging the Zoom and Slack and other digital media mediums for connecting. That said, we’ve been a big proponent, and we’ve published various things that have said what is happening today is not remote work. And in fact, I’ve attempted to try and shift some of the lexicon to start saying that we are not, we are not remote. We are not remote. First, what we are is we’re strategically distributed because the way that we have our teams distributed, the way that they operate and how we approve things is very structural and intentional.

Jennifer Holmstrom:

We actually have a question from the audience that asked what was the original rationale and strategy for HashiCorp to have a distributed tech team in first place, even pre-pandemic? And what were the benefits then and you’re getting into what life is like now?

Jeff Harper:

I have to say it was one of the things that really fascinated me about HashiCorp, and one of the big reason that I was attracted to the opportunity. I I truly believe that the idea of enabling a remote working medium is going to be key going forward. It’s kind of the future it’s not saying that people will all work in a distributed fashion. It means that needs to be enabled. And from some functions, it actually will be the standard by which they operate. So we started out from an engineering capacity that way, and Mitchell Hashimoto is as some very clear ways in which he articulates it. I think it’s wonderful. He says that we are intentionally and absolutely from an engineering perspective distributed. The reason being is if you are going to have your teams either together or apart, you need to have it be that in total, the moment that we start having our congregations operational groupings of engineering, that’s where centers of decisions start to take place. And even in small groups, if we decided to have a remote team in Seattle, have a dozen engineers sitting together, they will have a collection of conversations that will then not include others outside of that region, decisions will be made. And what happens is, then you get a behavioral pattern by which they start doing it without consulting us and others start to abdicate that responsibility to those groups, by forcing all to be distributed. What we’re also doing is creating a forcing function by which they all connect and collaborate.

Jennifer Holmstrom:

It’s enabling and driving behavior.

Jeff Harper:

Correct. And so we’ve specifically said for engineering in the way that we operate is we do not want them sitting together, by doing so, if you decide to do that you can, but you need to figure out are you going to be doing it with all of a certain type of group. If you’re doing a network operation center, you pull all of that together. If you do software release engineers, do you do all of those together? You can do it with certain groups, but you need to have instead of thinking about it purely from a geographic perspective, think about it from an operational perspective, how do they interact? How do they connect and communicate? Because by your actions of putting them together, you’re going to create behavioral changes.

And not just of them, but of those who are not part of that group, and that’s kind of the impetus and the driver.

The other things we’ve done is we’ve taken colocation out of the equation and said, what it is, it’s the, again, the operational motions that they go through. So, any two engineers on a team can be no more than four timezones apart from one another. With the exception of certain senior engineers, which we still say have to have three hours of overlap work hours with their manager, thereby allowing for, so it’s now about timezone and you can go anywhere, in terms of longitude, you can go anywhere, because the timezones will remain consistent. It’s more about the latitude which is going to create the the issue here.

Jennifer Holmstrom:

That’s interesting, and thank you for that. It’s a fascinating model, and one that appreciate you sharing, because it’s one that now we’re by forcing function many of us are in, whether by design or not, but Hashi certainly has been that way since the beginning.

Jeff Harper:

And to be clear that I spoke purely from an engineering perspective, there are different ways. This is another thing that I would advise, one of the things that we’ve learned is do not think of it unilaterally across your organization, try to think in segments of like, how do your sales teams work in terms of your sales representatives, those account managers, your solution engineers, that will partner with your sales reps and so forth. Customer Service, how does that work? So each of those, if you think of them from an operational cadence perspective, how do they operate, then you’re going to be able to think more about how you might set up that remote working structure.

Jennifer Holmstrom:

Good insight there. And Dylan, you alluded to the nature of the workforce at HelloBike where you have 5000 full-time people and then 30,000 distributed across many cities. How do you manage those 30,000 ground operators in these different cities, and how has this particular system made you more resilient through the Black Swan event that is the Coronavirus?

Dylan Tey:

Obviously, I think we had 30,000 people even before COVID-19 and I think to manage this amount of people and people working on a part-time basis. We had to have a very strong I will say system and software to support our functions and daily operation to make sure that everything is seamless and at least hiccup possible on a daily basis. So China as you know, is a very big country and you’re already saying we have been operating in about 360 cities. So we have internal generator software, we call it the bike operating system, we call it BOS system. So that BOS system is you can think of it as an app, and each and every one of our operator has to have installed it on smartphones. So thanks to smartphones, every one of them are installed on a smartphone and this is how we connect with them.

And on a daily basis, basically, just imagine if you are one operators, every morning you come and report work. If it is on your date of duty, you’ll come and report work on your BOS system. And your bosses basically will tell you what you need to do today, where is the location of the bikes that you need to go and fix, because maybe some customers complained about it, or maybe some of the potential losses of our bikes because we have lost contact of them in the last eight hours or not. And they have to clear this to do list so to speak before the end of the day. So this is how we remind them to let them finish. But a lot of them were seeing practice as to challenge themselves and they actually want to finish more tasks. So if they’re finished their minimal to do list, and they do more they actually get bonuses and more incentives.

And of course, our app is very easy to use. So they basically use that on a day to day work. And before the end of the day, they need to really kind of report back if there’s any issues with the work we assigned to them. Any questions or suggestions. So that’s how we communicate with them.

Jennifer Holmstrom:

We have a question from the audience about training. So how did you train your temp workers that you employed or they may be hourly that you still have but that you hire? During the crisis, how did you train them and train them quickly?

Dylan Tey:

So it was a good place to bring how we manage our team. So our 30,000 people are spread across different cities, even if they’re in the same city, they’re spread into different grid areas. So we basically divide the city that we have into different grids, not necessarily in the same area, but depending on the demographics and the landscape of the city, we divide the cities into different grids. So on every grid, on average, there’s about one to three people manning those grids on the ground, for one grid, to make sure the bikes that we have in this grid area remains in optimal and strategically place, streets or locations. So some of more junior operators, they may just look at a small greet, one grid or two grids, the ones with more experience will look at a couple at one go, and also helping other less experienced operators along the way. So there are obviously ranking, the more experienced people that are incentivized a bit more. And when they become better, they become manager and some of them actually even become a full-time city managers when they become. So we also have a very well-established system to move out part-time to full-time if they’re proved to be competent and suitable for our companies culture and values. So that’s really how we praise our people and keep them, and obviously by doing that, they have apprenticeship type of training as well, of course doing the Apps are very easy to use. We also give them instructions and videos and we also teach them how to do all those things.

Jennifer Holmstrom:

There is a question from the audience around the motivation. It sounds like you’d have a very structured progression system and there’s ladders and progression within the organization. And all that is made possible which I’m sure incentivizes those employees and those workers.

Dylan Tey:

Yes, I think on top of that, maybe just topping it up a little bit. Just to elaborate on the last final point is to put all these things in perspective, I think, honestly, other than the software and the people, we use algorithms to help our work. Because when we first started out a lot of time, we depend on the grid operators or the operators in the respective grids. Based on their experience and their knowledge of this particular grid, where should the bikes be placed at what time. So over time, those were human-based, experiential based decisions that they made, but over time, we realized that the accuracy is about 60% to 70% optimal. We use algorithm to track different information like weather, historical demand, traffic conditions, school holidays, the different factors in play to decide where should the bikes be placed. So we used algorithm, and we do a lot A/B testing on their judgment versus the computers judgment or algorithm judgment, and across time we use machine learning to really formulate better, where we call bike balancing decisions to know how we balance our bikes. We are very thin margin industry. So cost effectiveness is really the key. So we need to know when to move our bikes, where to move our bikes to who will move those bikes, and make sure the bikes don’t get lost on the way.

Jennifer Holmstrom:

Right, not an easy task but with the help of ML and algorithm for improving decision making.

Dylan Tey:

We are still learning every day.

Jennifer Holmstrom:

Yes, that’s great. We have a question from the audience around motivating employees who work from home. Jeff, maybe you can take a shot at this. Since you know Hashi’s been doing this since the inception of the company. What do your practices around motivation look like?

Jeff Harper:

I think a lot of our practices around motivation are really about the idea of inclusivity. And how do we create the sense, many companies I’ve worked for in the past, whether it’s people who are working from home or whether they’re working in a satellite location, there’s always been a sense of an afterthought, were being treated differently. And being that 85% to 90% of our workforces is actually distributed and working from home, that is a heavy majority. And so most of the things that we do, we build with the idea of that population in mind. So our training is designed around the idea of virtual and distributed learning. And then if we apply it in person, then that’s an adaptations. So we try to have that be the first piece.

The second is working at ways in which we connect. There’s all sorts of little practices and tricks and tips, whether you’re using like Slack, DonutChat or other things, teams getting together since most of my team is work out of the San Francisco office, I’d say probably about two thirds of my team works there. Then is now working from home. We’re doing things like a couple of times a week, we are doing a morning coffee check in. It’s not business, it’s not anything, sometimes people will log in and just listen to voices while they’re doing work, so like it kind of breaks the silence for them.

We also have programs like our work from home comfort budget, in addition to equipping them with a fully set up office at home, we also provide them with a fixed dollar amount every month to pay for different things whether they want to just get supplies instead of having to order paper and pencil through corporate or post it, or I need to get a new this, new that. They can get some basic technological equipment from us, and we will always help them with that, but if they want to get like coffee from their local coffee place, it’s whatever we can do to help them feel that they’re also benefiting from this type of experience.

And then more recently with the situation around COVID-19, and we’ve expanded that and started to specifically design ways in which people can use this. We’ve started looking at things and helping them identify if you want to do an Xbox Live subscription, if you want to do your Peloton subscription, any number of ways in which you can leverage this to help enhance your life. I had somebody once tell me early on in my career, it’s don’t focus on the employee, focus on the person. And if you focus on the person and their family and making sure that the holistic person is happy, one person said it to me, you can make their spouse happy that they work there then you truly want and made it more difficult for them to leave because their spouse doesn’t want him to leave. So that’s why I say focus on the person, not the employee.

So those are some kind of like practices. It’s more about a mindset. And then there are various steps that we do. I will say this, one of the things that I’ve found interesting is and I’m kind of one of these people, some people don’t, the work from home is not their practice, it doesn’t work well for them. People will find it difficult to unplug, to separate the work to realize that when they are done, they now have to close and step away. But we’ve also used this opportunity for us to communicate with folks that just because somebody is reaching out just because somebody is responding, that doesn’t mean that’s the time for you to do it. We want to have a, in the US we have flexible time off, but we also have flexible schedules. So if I send an email at 10 o’clock at night, that does not mean that you send an email response to 10:05. That means you send it when you need it. We want people to work according and that’s a hard thing. People will hear it and say, sure, but is that really what you mean? And we’ve made it very explicit we have to say it and then say it and then say it again. So people understand that you really mean it, this is about flexible schedules to ensure that people are working in the cadence that works for them.

Jennifer Holmstrom:

So it’s cultural.

Jeff Harper: Very much

Jennifer Holmstrom:

That’s great. Thank you for that. Dylan, we have a question from the audience for you. About the impact of the of the crisis on a bike, how did you see micro mobility as an industry get affected during the crisis in China, and how is it revived? How does it come back? You’ve spoken to a little bit about how you cope with those changes, but speak a little bit about the initial impact and then how you’ve been doing since?

Dylan Tey:

Sure. Obviously, the initial impact was very sudden and abrupt. I think, thankfully, it happened during the Chinese New Year time. The Chinese New time in China is always the, I would say the quietest season for our entire year of operating our bike fleet. Reason being people you know, I’m not going to work, I’m on holiday mode. And also it is winter in China. But even then, we do have stats for our rides before the Chinese New Year. And compared to after the Chinese year there was a significant, I would say a significant decline. And I think it was a kind of a cliff drop really from the time before, because people are not moving. We serve our users based on rides, I mean, like, on average, we serve like 20 over million rides a day. After Chinese New Year, so it was really a sudden stop. And I think after the event, people started coming back to work, I think starting from 10th of February.

For example, for our company, we started working on 10th of February, obviously over on progressive manner and people coming back at different time, and likewise I think over China that reopening takes time. But we see it, we see the recovery of our rides move in tandem with the reopening of the businesses and the industries. Really in line with that, in fact, we also track our numbers against public transportations, and other transportation means and I think our recovery are so far the best compared to public transportation and others. For one maybe simple reason, people feel safer to be on the two wheeler, compared to be on the public transportation during this COVID-19.

Yes, so we do have some interesting stats. If I remember, I think we do see people riding longer distance, because in the past, I mean, on average day before COVID, our users who use our bike generally go between one to three kilometers. But after the COVID, we actually see a lot of them traveling with more than three kilometers, even stretching up to five. There’s quite a lot of traveling for a normal user. And especially for big cities such as like Guangzhou, Shenzhen, Beijing, Shanghai, we do see a lot of increased traveling longer distance. And we also see, Let’s say in Guangzhou, one of the cities that has seen a very good recovery, I think we see that right after the COVID, the week they start to come back to work, I think we actually we actually came back, that week’s ride was about 60% more than the week prior to this COVID time. So actually, we have a very sharp recovery there. So all in all, I think honestly we are still quite optimistic about the overall recovery in our space, and hopefully this momentum can continue.

Jennifer Holmstrom:

That’s fantastic. And given that, this is our new normal,  good to see some optimism there and the curve. That’s great. And then same question to you, Jeff, just about the economic impact for this. This is a newer scenario in the US, but how is HashiCorp addressing this? What’s the enterprise software landscape look like in the US so far? Are you seeing a big change in demand? Or how is the economic affecting the software industry in the US?

Jeff Harper:

I think it’s mixed for us. It’s sort of depends on a number of different things. For some of the larger companies out there, the impact is minimal. When you look at the technology based companies, they tend to be somewhat unaffected but are also proceeding with caution. When you see companies that rely on larger kind of grouping of people, like if you look at anything from the hospitality to travel industry, those obviously will be affected. But for us, what we’re seeing is there is still a decent amount of interest being expressed in our efforts. And in some ways, it’s increased for some companies because they’re starting to see the necessity to migrate to a heavier reliance on cloud level activity. And how do we operate in that environment as opposed to on-prem and having people locally congregated and so forth? So there’s some of that. So we’re seeing interest. The thing I’m curious about is how does that translate to action or decision or actual kind of contractual engagements. It is going to be that people are curious and interested in feel that they need to move forward because now we’re trying to move more to a virtual interaction. Yet when it comes time to pulling the trigger on the decision, if that may be slower. So, like the sales motion, the expands motions, those things may be a little slower. I’m interested to see how that that flushes out.

We’re not seeing a lot of difference from an engineering and product perspective. The areas that we have always seen some pretty heavy demand around like our terraform product, which is around provisioning, that still has heavy demand, vault, which is around security, that still has heavy demand. So some of that is remaining consistent, but it’s more, I don’t want anyone to say trepidation, but it’s like there’s like slight apprehension of like, do we make the decision, knowing that there’s things, and I think that’s some of the ways in which we’re approaching things from our perspective, we’ve been growing like crazy, we’re continuing to hire, we’re continuing to move forward, but we’re doing it much more almost strategically, we’re focused on things like our sales engine product, those are the areas where we’re going to be investing, we want to make sure that the product is there. Some of our focus is a little bit more internal. And all of this is allowing us to focus a little bit more internal. So I think that there is a slowing of action, but there’s not necessarily a slowing of interest.

Jennifer Holmstrom:

And it’s so interesting for both of you completely different industries, totally different customers, and one consumer, one enterprise, and that crisis is presented actual opportunity for both your businesses. So figuring out how to capitalize on that and figure out a path forward is an interesting challenge.

Jeff Harper:

There was one thing that Dylan talked about that I really liked is the thinking forward, thinking about how things are going to look going forward, none of us really know what that emerging new normal will look like. But right now, if you are in a position as a company to be thinking there, keep focusing on the here now, but also start thinking about that future both from the business operational consumer perspective, but also from your employee perspective, and your growth perspective so that you can make sure because people may have long memories and they will remember how you handled things today in terms of who you are and how they want to be part of that story going forward.

Dylan Tey:

Actually, yeah, I think just adding on to what Jeff has said, I echo to the point because for us,  Hello Global, we also continue to invest in our strategic businesses other than our bike businesses. Since last year, we have been moving into our E-scooter, ecommerce business, as well as the battery swapping business on the use on two wheelers. So those businesses, we are seeing very good recovery and growth perspective as well. So we’re actually putting more of our talents into those new businesses. And quite interestingly, we actually managed to compete around financing recently during the time of COVID, for our battery swapping business.

Jennifer Holmstrom:

Congratulations.

Dylan Tey:

It’s round A, so we’re very excited about that. So I think what Jeff just said really resonates with me, I think that we need to look long term, we need to create custome value, of course, internally we create better for employees.

Jennifer Holmstrom:

Yeah, that’s great. So one of the questions from the audience is what’s next for HelloBike? And in response, you’re raising money, hiring people and moving forward with new product lines?

Dylan Tey:

Obviously, fundraising is going to be tough this year, so I think we’re very happy that we close a round for battery swapping business, but all in all, we still need to be very cautious in terms of spending, in terms of where we put our capital, where’s the best place to deploy our capital. And what is the optimal structure for company like us. We have to constantly invest in renewing and upgrading our fleet, and coming up with new products. This year, we have launched our new product just these two months, we are putting nicer and more user-friendly even the next version of bikes on the road.

So we plan to invest a couple of million of bikes this year. Other than that, I think what’s next for HelloBike, other than two wheelers, we also looking at expanding our footprint into consumer and lifestyle offerings, I think, because we were still on top of 300 million users in China, all them in China. So with this very high frequency of mobility, and our strong presence that we already have in the lower tier cities and 360 cities, how can we meet the diversified needs of our users? So we are also stepping out our recruitment in that front to try to bring in more operational talents, technology talents into our new businesses in the consumer space.

Jennifer Holmstrom:

So we actually have a question about that for both of you around hiring now. How are you approaching the hiring process for all different kind of levels of the hierarchy? Are you doing any of remote completely? I mean, Jeff has no option here, but is it being done Dylan completely remotely?

Dylan Tey:

For us, obviously, we are still hiring, but I think because things have been coming back to life in China already, so some of the recruitment are still happening in person. Obviously we do use a lot of technology like Zoom and DingTalk and others to help us, WeChat in China to help us to get in touch with our candidates. I think we’re hiring for good talents. I think we should always continue to look out for good talents. And in fact, it’s a pretty good time in China to look for good talents because some businesses are suffering. Some startups are facing challenges, and some people are thinking of moving. So we do see some opportunity there.

Jeff Harper:

I would say for us, we’ve always had a significant portion of our hiring process that has been virtual. Now it’s fully virtual, every piece of it. And also our on-boarding, on-boarding is fully virtual. So the entire experience means that somebody goes from the first introduction to the company to being here for a full month and never having met in person, somebody from the company. So we’ve  really heavily landed on that and made sure that part of it is refining our process, making sure that we’re very disciplined in how we’re capturing our data, how we’re sharing information across the teams in terms of calibrating our decisioning process. But as for hiring, we’re very opportunistic right now, focusing on what are those key needs for the organization. We have an enhanced screening process, not on candidates, but for our decisions of the positions that we’re going to be targeting, to make sure that they’re absolutely right long-term, high impact, high value.

And then we’re also looking at how do we look at our out plan? And that means that as we come out the other side, what are the actions we’re taking today that make us in a strategically advantageous position? So Dylan talks about there are companies that are struggling and talents out there? Well, there are also people that I mean, oftentimes, the companies when they’re letting go people, they’re not going to let go of their best people. So how do we make ourselves a very attractive opportunity at the other end of this, it’s like we haven’t had some of those same challenges, but we’ve also made sure that the way that we’re bringing people in, the way that we’re treating our current employees, the way that we’re promoting our employment brand, that at the other end, if they’re seeing struggling in their company with the best talent, they will want to have the conversations with us. So it is thinking both short and long term at the same time.

Jennifer Holmstrom:

Yep. And then we’re getting up near time here. But one last question from the audience just around the way looking forward six months. Not that anybody has a crystal ball, but Dylan, what would you anticipate? What are you looking forwards, given that China’s coming back to work, everything’s kind of returning. What does this look like six months from now?

Dylan Tey:

I think six months from now obviously I think we are at the new normal. I think in China, we already started a new normal I think the we do see recovery of businesses, but we also see potentially some turbulence in other parts of the economy, especially those that will be affected by the export, China is a pretty export-relying economy. And I think there are parts of the economy that will be affected. We also see potentially these companies will take some time to recover. And I think it will have some a bit of effect on the rest of the economy in terms of confidence and in terms of full scale recovery to the pre-crisis level. So I think we are looking at a new normal, but we’re still very optimistic about at least our industry in a tubular mobilities industry in China, as well as those some various new businesses and we have launched last year, and we think when we are in the myth of launching this year, I think we do hope fingers crossed that we do get some momentum there and building up new businesses and serving our customers better.

And on the talent side. We want to continue to hire the best technology and operational talents in the market that will help our businesses, create value for our customers. At the same time, we are also looking at more retraining for our people, increased training for people, because we also have a very young workforce. We’ve got 5000 people in our back, just like HashiCorp, a lot of our people were also recruited over the last two years. So having them to continue to bond better, to work better with one another, to all be able to realize their own potential in our company. That’s something that we are heavily focusing on right now In the talent management.

Jeff Harper:

I think I look at the next six months as it would be great if it is our new normal, I think it has the potential to be an interim normal, that we’re still looking at some of the transitions until there are certain things that can be put in place, you’re going to see different companies operating at different phases of normality. I don’t anticipate that it will be the same as it is today. I think that one of the things that will be advantageous for us is the extent to which we’re having to operate in a virtual capacity means that it will help our efforts to grow in that way. It’s forcing a lot of our customers and our potential customers to use that cadence. And as such, I believe that it has the potential for us to accelerate some of our entrance into some of these companies. I think it also means that we’ll be able to start looking at more of things like the cloud offerings that we have that will create a lower lift for customers.

From an internal perspective, one of the things that I mentioned just now that I really appreciate it is the focus on training of existing employees, goes back to how are we showing, some of that is virtue signaling to our team members, showing them what we value and what our belief structure is in the investment in people is going to be a key thing. So the more that we can show them our commitment, the more that they feel connected and cared for.

Jennifer Holmstrom:

That’s great. We are at time but really appreciate all the sharing both of you have done, incredibly valuable insights. So thank you both and wishing you the very best going forward. Thank you to our audience today. Thank you for dialing in.

Dylan Tey:

Thank you.

Jeff Harper:

Thank you. Have a good day. Take care. Bye

GGV Live Special: How Alibaba Survived SARS and Thrived afterwards – featuring its then-President and COO Savio Kwan



When the SARS pandemic struck in 2003, Savio was working as president and COO of an internet startup named Alibaba. Not only did the startup survive SARS, it launched a new business called Taobao and emerged as one of the most valuable companies in the world. On a special live podcast session, former President and COO of Alibaba (from 2001-2003) Savio Kwan joined GGV Capital Managing Partner Hans Tung to share the key learnings from Alibaba’s SARS experience and answered live questions from founders in GGV’s global network.

Savio Kwan – Former President and COO of Alibaba Savio Kwan is best known for his time as president and COO of Alibaba from 2001 to 2003. He later took on the chief people officer role in 2004. He has more than 30 years’ global management experience, including 17 years at the medical systems division of General Electric, where he was responsible for sales, marketing, operations, business development and establishing joint venture companies in Asia.

TRANSCRIPT:

Hans Tung:

Savio is an old friend of GGV. GGV was very fortunate to be able to become an investor in Alibaba back in 17 years ago in 2003. And that’s when we met Savio, my partner Jixun and Jenny spent quite a time with him since. Savio joined Alibaba from GE. He was running operation GE and back then GE was the cradle for all executives end up becoming who’s who in the Chinese internet space. And Savio was president and CEO for Alibaba. Back then when you only had a B2B listing business from 2001 to 2005. And during that time, Savio helped Alibaba navigate through SARS in 2003, and that’s when Alibaba launched Taobao as well.

A little known fact, when Alibaba was going through that period, the operation back then ends up being less than 5% of the total market cap of Alibaba Group today. But without the foundation that was built between 2001 and 2005. And all the future growth wouldn’t have been possible. So we’re very privileged here today to have a chance to talk to Savio, and ask him questions to see how he turned Alibaba operations around, navigate through SARS and set up the foundation for future growth. So thank you very much Savio for being willing to spend time with us.

Savio Kwan:

Hans, my old friend, thank you. I have to stress that I was only one of contributors to Alibaba’s success. It’s really all the Ali people there who are doing all this, of course, the founder, Jack, and his 18 co-founders, including Joe Tsai and all the other very important people. And together, we made this happen. I was really lucky to have the opportunity to contribute in the early stage of the company’s formation.

Hans Tung:

You were at GE when Alibaba approached you, what made you decide to join Alibaba, especially given the fact that it had maybe less than five months of cash flow left?

Savio Kwan:

At that time, I have no idea how much longer that we have to live. There is a little interlude because I left GE a few years earlier to join another fortune 500 Company, which is a FT 100 company in the UK to be their China manager. I did that for four years, and I was able to help their company invest over 300 million US dollar in China, building up all kinds of joint ventures and top line from nothing to about 300 million US dollar at that time.

But that company also merged with someone they’ve been talking to for the past over five years. And then they toss a coin to say who takes over whom on a day where their relative market cap in the British market decided who is the leader. It ended up the other company taking the lead. So my CEO dispatched me to London quickly to see who’s going to be the new CEO. And before I can walk through the door, he said, Savio, I’m not interested in China. It was like in 1999, so I said, how long do I have? He said you have one year to wrap up our business in China, and headed back to the group. The exit package is not a golden parachute, but maybe a stainless-steel parachute.

But at the same time, as soon as I left, there was a headhunter coming to see me very soon. He said, Savio, I know you’re available, will you be interested in a company called Alibaba? I was like Alibaba, is it a restaurant? They say no, it is a new economy. So I asked the key question, what can somebody like me from an old economy contribute to a new economy like Alibaba? And he gave the key answer. He says Savio, Jack was focusing on talking to new economy people, but he didn’t need any more new economy people because he is probably 10 times ahead those people he’s interviewing, but he really needs old economy guy to help build systems, to help with all kinds of things that actually make the nuts and bolts of the business tick, rather than just spending all the time in making the company into the greatest website. It has to be the greatest company. So I said that is the right answer. So I put my head to the rain. And in the end, very luckily, Jack actually picked me to join.

Hans Tung:

What did you focus on for the first three months and six months at Alibaba? At a high level, how did you decide this is what a company needs and make that work quickly and efficiently?

Savio Kwan:

Hans, going back to your question of $10 million and how many months to live. I had no idea what the company’s inside situation was.So in December 2000, I signed up, and Jack, Joe and John started talking about company’s situation. Jack said, Savio, we have a lot of money. I said how much, and he said 10 million and then he emphasized US dollar. 10 million US dollar in 2000 is a lot of money. And Joe, being the CFO, said but Savio we have a very high burn rate. So I think what the hell is burn rate? Coming from GE, I use all earn rate.

I will always remember that Joe said, Savio, burn rate is an elegant way of saying you’re not making any money. So I say how much? He said almost 2 million a month. I thought it was RMB, so I quickly calculated and thought we’ll have many years to burn. But Joe said out loudly loudly US dollar. So suddenly, it actually became the project number one, and we only have five months to live. So I think that actually is one of the top defining moments of my career and Alibaba.

So four of us huddled together, and thinking about what should we do? I think talking about stopping the burn blindly is not good. You have to have a cohesive strategy that is where Jack is very good at. So in the end, Jack actually came out with the free B2C. So the free B2C is back to China, back to coast and back to central. Because we have to pick where our dream started, and where we’re going to fight the last battle. So China, but where in China? Coast. And how to coordinate everything in China? Our center. At that time, Joe lives in Hong Kong John lives in Silicon Valley, and Jack was living on a plane. So where is central? In the end, we accidentally decided the central, because I live in a 120RMB-per-night hotel in Hang Zhou for several years, to tell people that we don’t have money. So that actually fixed it.

The second important strategic consideration is last man standing, which means do not die and do not give up. You might be wounded, you might have bullets all over your body, but stand up, keep going. And then if you are the last man standing, you actually win,

Hans Tung:

How did you tell the employees that you are letting them go? How do you talk to other country offices that they have to go back to China, and focus on coast and core business?

Savio Kwan:

I knew is going to be really hard, so I asked a favor from Jack. I said, Jack, for the next 30 days, please do not answer any mobile telephone from any of our employees, because everybody’s going to ask you to spare them. So I have cut branch to restructure quickly, and Jack agreed to this, and he actually kept up his promise very well. So I was being the new guy who knows nobody, then Joe and I, we put a plan together and started restructuring. And we started with Hong Kong in January 2001. It was Chinese New Year, and then we actually did it after the CNY reunion dinner.

So we walked in the group, back from the restaurant to our posh office in the middle of town. They huddled around us and said, Savio, what do you think, and I said, we cannot go on doing this anymore. They said, great idea, so do you have a plan? I said, yes, we have a plan. Joe and I, we looked at each other. And I understood and I said, why don’t we start this afternoon. So we let the group back to the office, almost fire everybody with three or four people left. Joe quickly did the pay.

That is the first big restructuring, and then we did Korea. And the next key thing is the US, because we have over 40 engineers there, each of them has more than a six figure annual compensation package. And I remember before going there, my wife packed my suitcase and asked are you going to US to fire people? I said yes. And she said do I need to pack a bulletproof vest for you? I thought she was joking.

But there was actually a financial service company doing restructuring, and a disgruntled guy went back to office to kill HR director, his boss and himself in the end. So those were the kind of things that we actually saw.

Joe and I went there and quickly, and we talked to all 40 of them and make sure all of them knew their contract. We did the right thing, we paid up whatever the contract says, and we made an offer to anybody who wants to take a stock instead of a cash compensation. Only one or two of them did it, and they became really well-off afterwards. So we did this really quickly And then we went back to China and cut all the offices outside the coastal area, Zhejiang, Jiangsu, Guangzhou, Fujian and Shandong, and left only Beijing and Shanghai. So we cut from 360 people to 250 after 30 days, but we’re down to half a million burn a month and left with 9 million after restructuring. The fact we did it quickly within 30 days is key, because if we didn’t do that, it would be another month, that means another burn of couple million.

Hans Tung:

So afterwards, how much runway did you end up having?

Savio Kwan:

18 months.

Hans Tung:

Before the next round of financing, what did you do both on the revenue side and strategy side to make a difference so that you’re able to raise a very sizable round from SoftBank after 18 months?

Savio Kwan:

It is really wonderful, because after we did the restructuring quickly, we were able to report to the board that we stopped the burn and we have 18 months. they immediately asked us, when are you going to make profit? Right after the board meeting, we still do not have a business model. So Joe, Jack and I somehow had the presence of mind to go to a small office. I remembered we’re doing the meeting in our overcoat because we turn all the heating off to save money. We asked a key question, which was should we bribe? It was an amazing question to ask, but we did, and we discussed that question for the whole day. Joe is an MD from Yale University, I did 17 years with GE so I know everything about FCPA(Foreign Corrupt PracticesAct), but Jack is neither ‘E’ nor ‘Commerce’. So Jack asked all the key and very basic questions. What does bribe mean? How much is a bribe? How serious does it get?

So, in the end, he asked the key question, he said, Savio and Joe, if the bribe goes wrong, who goes to jail? Joe and I was so happy and we pointed our fingers at Jack, and said, you go to jail. And I remembered Jack asked me, Savio and Joe, if I went to jail, would you two come to visit me. We said we don’t visit you because we are going to be thrown into jail with you. Then we said, no bribing. But as soon as that happened, we realized many of the business line we are trying wouldn’t work. So eventually we had one last business line that we haven’t tried it out, which is to help SMEs who are trying to export find buyers from overseas, then we suddenly realized it is not the company we’re helping. We should be helping the bosses of the company who owns the company. And when you do that, there’s no bribing either. So once we did that, it actually gave us the business model, which gave us the B2B business. So we started working on it.

The owners of companies don’t put money from the left pocket to the right pocket, so that is actually what sustained us. That business grew up to a billion US dollar. And that is where we have the cash flow to support the Taobao, the Alipay, and so on.

Hans Tung:

Without that initial cash cow, there’s no way SoftBank will give you more money to launch Taobao, because nobody will put money into a business losing money.

Savio Kwan:

Yeah, because they thought we were burning our own money, so they have a lot more confidence in terms of putting money into our mouth. And Taobao took several years and burnt quite a bit of money before it became so dominant.

Hans Tung:

Once you decided your strategy, how did you turn 150 people in Hangzhou into a fighting machine to be able to make your strategy work?

Savio Kwan:

So now we have a business model, which is a sales model. I still remember Joe and I went and shown investors the business model in a chart, as soon as the chart was shown, everybody asked how many salespeople do we have? I said something like 25. They said when do we have 2500? Nobody asks about commission anymore. They just want to scale. So we were knocking doors and helping SME bosses who are not tech savvy to do internet,  and even helping them train their operators once they buy products from us, which is what we call China Supplier. So that actually is the start. We actually made a small cash positive for December in 2001. That is when all investors thought something is happening. We have six more months left in terms of runway, to make sure that we hit the breakeven for the whole year. The investors were quite supportive, and then we actually hit it. We had a total breakeven in 2002. And we have several million dollars worth of surplus cashflow. And 2003 was the time when we really need to scale as SARS happened, we thought we’re going to die again.

Hans Tung:

How did you decide what to do between 2001 and 2003? What people related initiatives did you implement within Alibaba to prepare for something like that?

Savio Kwan:

When we first started in 2001, we talked about one thing that is very close to Jack’s heart, which is company value. I asked Jack a very key question, I said Jack, this company’s value is so good, have you ever written it down? He stopped for about one minute and said you’re right, I’ve never written it down. So I said, can we write it down in this format: vision, mission, and company values. So he said let’s start with mission. Mission is very straightforward: let’s make doing business easy. And then vision, he said, ‘80, 10 and 1’. ‘80’ means make sure we continue to develop for 80 years, ‘10’ is to be the world’s top 10 website, and ‘1’ is the one and only customer would always find us as the partner.

So he got all target customers of what we give them in terms of value proposition, and how long, how high and how big, all that in about seconds. So I asked, what about company value? Company value is the behavior that supports that. Lucy (HR Director) and I started writing everything Jack has ever talked about the company value on the whiteboard, and it took us very long time to write all that down, and we spent seven hours debating which one is which. I asked Jack, do you really mean this, or do you mean something else? And we got it all down to nine company values. We nicknamed this company value, Du Gu Nine Swords.

So that is how we started and we started very early. But the key is not that, the key is after we got this out of Alibaba’s archives and system, and distilled into the nine values, Lucy talked to everybody defining the action and the behavior of these nine values in five levels of performance. So it took about three months, and in the end we decided to have performance evaluation. So 50% of your measurement is on measurement performance, and another 50% is actually on value and your behavior.

So we started in 2001, and we did the first measurement in April. We measured everybody every three months since then. 150 people is easy, but now, Ali has over 100,000 people, so it’s a  lot of work.  lot of work. The other key thing is that we did lots of training and development for everybody. For new employee training, many people said it only needs three or four hours, but ours is two-week offline training for two weeks, to have everybody understand the company value. We also have four-week offline training for direct sales, telephone sales and engineers. And almost 70% of those are to make sure everybody understand what the company’s vision, mission, and company values.

Hans Tung:

How did this help when you dealt with SARS?

Savio Kwan:

Actually, people were able to navigate and made decisions on their own when they are in big argument, because they always pull out the company value. We begin to see people doing that. So throughout 2001 and 2002, we had a lot of learning and made sure everybody have the same understanding. So that took place, gradually, when we had a decision bottleneck, we would pull out the company value, and ask ourselves, are we doing the right thing for the company’s vision, mission and company value?

When SARS happened at the end of 2002, the autumn Guangzhou trade fair happened as well. And the decision was made that we went to the spring trade fair, which is in March. We came back and followed government’s regulations to self-quarantine for two weeks. However, one of our lady was diagnosed as a confirmed case, Hangzhou government was worried and started to consider isolating her. Then people started to talk about whether they should be self-isolated as well. So in April, people started coming to me and saying, Savio, I need 5000 RMB, because I might have to work at home and I need to some equipment.

What happened was many people started coming to me and asking for money. The reason behind is they might have to work from home. So I was signing authorization totaling over 300,000 RMB for about 600 people at the headquarter.And our smart  engineers built a platform where all telephones were input into our fixed lines, and could be picked up anywhere in Hangzhou.It is a virtual platform that people can access and deal with customers in case things happen.And things really happened because government decided to quarantine our young lady at the hospital, and we had six hours to get all employees isolated at home. So the whole company was isolated at home within one day.

But nobody knew this actually happened, any customer called into Alibaba would get their phone call picked up by Ali employees completely voluntarily. Nobody was telling people to do a particular task. Everybody was actually coming to me and just for getting empowerment to work from home. And all I have to do is to say yes and give them money. And what Jack is doing during the two-week isolation, is calling the hospital every day to make sure that they do not isolate our lady together with the other two suspected cases in Hangzhou.

Hans Tung:

Millennials now is very different from the young workforce you managed back in 2003. Have you seen any new techniques that have been done to manage today’s workforce? 

Savio Kwan:

I think the gadgets are much better. Before it was only a mobile phone, now we have video, and we have facial recognition online and everything. So it’s a lot more in depth. Before I did about 200-300 calls per day to encourage everybody, but today I think with the advance of technology, it will be a huge difference. For example, many overseas students are using internet hospital to seek help regarding the coronavirus. Because the doctor is online and they can actually talk to a doctor with a remote video. Many doctors are able to do the diagnose and send medicine. Some of them even are able to organize some operations at hospital. So, that actually triggered the government to actually start paying medical cover for this kind of treatment. That is a complete change. In terms of employees, I think they are three or four generations ahead of what we were in 2003, I think if they want to, they can be even more efficient. That is what I believe.

Hans Tung:

During the SARS period, how did you decide to launch Taobao? What was jack reasoning for having the confidence that it’s the right time to do it despite SARS breaking out? And how did you decide how to work with merchants and other partners during that period?

Savio Kwan:

The timeline is a little bit different. People always thought we started Taobao because of SARS,

but in 2000, after we had breakeven, Jack had a conversation with us saying that now we should go and attack C2C. We should be attacking eBay’s unit. That was pandemonium. All the founders and me, we’re all there banging the table and telling Jack that he is crazy, because we haven’t got things right with B2B yet. And Jack just said B2B is ok, and it will be growing very big, but I want a real internet model, where we do not stop providing services to our target customer regardless of timing of the day. That means non-stop service. And he said B2B, C2C, B2C, there is really no boundary among them. It turns out that he’s completely right.

We were quite resistant, but Jack said now is the time to start something new, and he convinced all of us. And in the end, we actually got a backing from SoftBank. Then we started assembling a team together of 10 people, all of them are young people. And then Jack shipped the team to his old apartment, where he started Alibaba and gave them the apartment as the office. So that was in 2002, and we had an DA to make sure that none of them would leak any information regarding Taobao, because we want to keep it secret in December 2002. But then in 2003, Taobao was relatively small, and I remember the first year’s GMV is like 30 or 40 million.

Hans Tung:

You didn’t take any commission at all, Taobao was ready to burn money for a while and charge zero commission.

Savio Kwan:

Completely free. In fact, Jack was so confident that this is the right model. After a couple of years of doing free, he invited eBay to join us and promote the development of e-commerce in China by offering everything free knowing that eBay cannot do it. eBay even tried to kill Taobao by buying up all the advertising space or the space of direct advertisement but ended up with failure.

Hans Tung:

How did Taobao end up still making money later and what did it do to be able to stop eBay from running over in 2006? 

Savio Kwan:

First of all, we are lucky with timing, because B2B was actually making money from 2002. So it was a cash cow So, and it went up to a billion US dollar with a quarter free cash flow every year. So when you invested money into Taobao, your investors would say this is second curve. You are so confident about that and you’re investing your own money. Therefore, you attracted more money and confidence from the other investors.

Secondly, Taobao has a very local culture. eBay’s unit was local, but after being acquired by eBay for 280 million US dollar, the new management turned a local company into an international company. I remember two key things that actually happened. one thing was they were turning the Each Net platform into a connection with international. They tried to make sure that it actually link with eBay platform to be international. Once they did that, the language on the platform turned from Mandarin to English. So they basically lost 90% of their people. The other thing is that they compared with Alibaba and said they cannot do it free, so suddenly a huge amount sellers came to Taobao.

And Taobao has a very good local culture which is the ‘Dian Xiao Er’ culture, which means waiters who provide service. So everybody has a nickname, which are actually from the martial art novel from Louis Cha. It’s

very popular among Chinese audience, so it actually reduced distance between customers and us. Some of our customers also have nicknames, and there might be some funny stories that happened to be related to the novel. So this actually breaks down barrier and keeps customers really tight, and won them over. So I think that is actually a big difference.

Hans Tung:

It sounds like Taobao monetized through an ad network platform. If you don’t get a better placement, you have to pay and so forth. But that came many years later, after you have a big market share.

Savio Kwan:

Yes, so six or seven years later, when we have a lot of Taobao consumer, so they become business guys when they sell, and when become customers when they buy. And that was the time we decide to do a B2C, which is TMall. So TMall is like you have to actually graduate from an outside bazzar to a proper shopping mall. And that is when people paying  you naturally.

Hans Tung:

It’s interesting that actually it’s very natural for many people in China that you graduate from Taobao to TMall. But for the rest of world, especially in the US, MBAs tend to start with a high brand. they might think if you start low, it’s hard to build up your image to become higher. Alibaba shows the world that it is actually quite different, especially in emerging markets. Can you explain the logic behind it? How did Jack come up with the logic?

Savio Kwan:

This is why Jack is a genius. He is a contrarian. The most valuable thing I learnt from Jack is actually this contrarian thinking. if everyone is going to that direction, don’t follow, because by the time you get there, there will be nothing left for you. So start looking at something that nobody knows. You have to have conviction and courage to follow through, and Jack has. I remember him saying, we are little ants, so there are many of us. Our business would not depend on 10 customers, and any one of them can hold you ransom. And he’s completely right. Therefore, we have like 10 million customers, if you lose one of them, the impact is relatively small.

Hans Tung:

It’s easier to search ten customers and get paid a lot by the opt in, and treat them well, but it’s a lot more work to deal with 1 million customers.

Savio Kwan:

Yeah, but there is the Chinese philosophy behind it, which is called Yin Guo. It means cause and the effect. Jack, and the whole Ali, actually believe if we do something valuable, and create something valuable for a very valuable group of target customers, they will reward you. So that is what happened. You only get your fair share, and we never went for commission of the B2B model. We only touch the lifting feet. The buyer and seller can find it out that is your business. We know the detail but we do not ask for commission from any side. The same with the C2C.For B2C, because you have a good location in the electronic mall, so you have to pay rental. So all these are about cause and effect.

Hans Tung:

You did the reduction to lower the burn rate in 2001 and 2002. By the time SARS came, did you have to do any further reduction?

Savio Kwan:

No, because all employees and team members were focused. I asked them later, why are we doing this so hard even though there is nobody telling you to do so? They just told me, we can be locked up but our customer service cannot stop. That is actually how we define Customer Number One. So that is taking company value home, and the customer is in touch by calling. So as soon as they call, we serve them. And that actually gave us the scaling we were hankering after. We were looking for scaling, and it just have us the kind of scaling we never dreamed of. We’re talking about double digit growth every month.

Hans Tung:

Based on your experience with SARS, what would be the key three lessons that the current startups can use?

Savio Kwan:

The first thing is go back to basic and ask, what is the key value proposition my company offers to our target customers. Many people forget that. the company mission actually stays there. In Alibaba case, it’s let’s make the business easy. In Google’s case, it’s let’s make every search useful. So, every company or the startup founder, has a reason or dream to do something valuable for their target customers. But they may not have written it down, they may not have actually articulated to the team, and most people may not even know that is actually what we’re here for. So the first thing is to ask those questions.

And then you ask what is the alternative given that we are in the lockdown. Every one of them would have a different thing. So like restaurants in Hong Kong all turned to takeaway. The people making the most money in the last three months in Hong Kong are those doing logistics, and they join as part-time. So we have lots of something like that. WeDoctor is also a good example. Suddenly, we are developing and promoting internet hospital, and some local governments actually paid for people who used long-distance diagnoses by internet hospital.

Hans Tung:

By SARS period, all the right cost cutting already took place in 2001 and 2002. In 2003, all employees have empowered and known Alibaba’s values and mission, so they know what to do to make operations still work and make Taobao more successful.

As you look beyond China, in other emerging markets like India, Africa, Latin America, and other places, did you see some similarities of what you saw in China in 2003 happening in other markets?

Savio Kwan:

We have many ways to do business and things are getting much more sophisticated. Many technologies would be new opportunities later on, but the key is still always the same. What are you delivering? To what group of target customers? If you understand that really well, you have to ask the question, what are the behavior that all of us must practice to deliver that. In the heat of surviving, you tend to forget while you are coming up and growing. But you are basically forced to stop. It’s also a good time to ask yourself, what are we doing here? Are we just doing things? Or are we winning? That is a big difference.

The company with strategy knows how to win, but the company without strategy only knows how to do. They looks very busy but do not win, because they do not know what they have to do to win. So this is the time for all founders to review yourselves. The first thing is do not let the business die. Then you have to ask, what values are we giving? And in terms of the current situation, what do we have to do to make sure that we still deliver some of those values? That’s the key.

Hans Tung:

A lot of people forget that there were many clumps of PayPal in China, but PayPal has linked to credit cards, and there were not many credit cards in China. So Chinese people can only work this out in the form of Alipay, which is almost like an escrow account. If the buyer and seller don’t know each other,  how to make sure they get what they want? So, well, the money is already out in Alipay, once that money is there, I will send goods to you. If you don’t complain, money gets released to me. All these innovations are possible because you understand your customer so well.

Savio Kwan:

Absolutely right. If we try to link everybody to the international platform like eBay, thinking that they are giving value to their Chinese customer. In fact, it just turned them away, because nobody understand English. So, it very important to ask this question very deeply. But in a case of this pandemic, you also need to make sure you try to find a way to deliver all those values without dying.

Then the next thing is if we see our vulnerable parts, what else can we do to make sure that we don’t fall into the same trap again after the pandemic with the new normal. Some of my investor friends said this is great opportunity for bottom fishing. But I think it’s a different bottom fishing, because previously you assume everything would go back to normal and go back up. But I think this time is different. It’s not going to be the same. You have to be really careful that it is going to be a new normal.

Hans Tung:

I agree with you. Even the first wave is settled and people start moving again, there’s always a risk that the second breakout would happen without enough testing and tracing. So we could be working from home for a long time. Therefore, all the service we provide has to be geared towards a population, the consumer base and partners who are going to be in that mode for a while, and how do you find new way out in that situation?

Savio Kwan:

Absolutely right. So I think that is quite important too.

Hans Tung:

If you look at the P&L, this is the right time to figure out what are the new business you can provide as founder to consumer in this new situation? And then how do you figure out what are the major contracts that you need to renegotiate with your landlords or suppliers to bring the cost down? And you shouldn’t try to expand geographically too much. At this point, you need to figure out how to get unit economics really working.

Rita Yang:

How were you able to do cutting without demoralizing the team back in 2001 and 2002? How do you communicate it with the rest of team?

Savio Kwan:

The key is don’t start cutting without a strategy. Basically Jack’s strategy is the three P to C, back to China, back to coasts and back to central. The second strategy is last man standing. The third one is speed, speed is of the essence. Once we said that, it’s very clear for everybody that we want to preserve our opportunity in China. The second thing is that we are very candid with everybody, and we do not hide anything. Just like what Joe and I did in Silicon Valley and other places, everything was open and clear.

The restructuring is for the people who are left behind. Do not do the restructuring focusing on people that are going to leave. You have to help them, and you have to give them everything you can afford, whatever the contract said and don’t argue and try to lower your costs. And then everybody is gone without too many issues, but don’t do it five times, do it at once.

Hans Tung:

Did anybody move from other offices to Hang Zhou?

Savio Kwan:

Absolutely, almost everybody in Shanghai office came back to Hangzhou, and Shanghai office is down to about four or five people. And we rented the nice office out and make a profit.

Hans Tung:

But people who move to Hang Zhou have done extremely well.

Savio Kwan:

Absolutely.

Everybody suddenly realized they have a role, and the role is more clear. Someone once asked what about engineers in the US, I used to rely on them. We said sorry, you are the engineer now, and we rely on you. So that actually made a big difference. Many people came out without realizing what they can do. But if you challenge them, then they can do.

Hans Tung:

I remember introducing over 10 people to join Xiaomi in 2011 and 2012, but none of them was willing to do it, except the youngest one who just finished college. And she ended up doing the best of anyone and since then, career wise. So believe in the mission, believe in that you have a chance to be part of a rocket ship, and be willing to sacrifice in order to gain more for your career and for the company. Those people end up going much further in the life. If you calculate and try to optimize today what you’re getting out of it, in the long run, that doesn’t work as well.

Savio Kwan:

Absolutely. You can count a penny, you lose a pound. Sometimes you lose a million pounds.

Rita Yang:

There are a lot of questions regarding the length of runway people should have in a climate like this. And also when the runway was short, how did you evaluate the priority of profitability versus raising more money in current times?

Hans Tung:

I think raising money at current times is obviously very hard, unless you have investors that you have talked to already and kept your relationship, and you are growing during this time. So people feel that you’re going to be part of the new normal, otherwise they’re not going to invest. So whatever runway you need to have is to prove that you can thrive in the new normal. And that’s also what we constantly tell our portfolios, 12 to 18 months minimum, two to three years will be ideal.

How do we do that? Beyond cost cutting, what you have to do is really figuring out what are the creative new services you can provide in the new normal by understanding customer extremely well. Even for travel companies, we keep on telling many travel companies to think about long term stay. Although short term stays will be very hard for a while, can you have a good enough sanitation standard to have consumer’s confidence that they should stay with you for the long term or some kind of stable staycation. People don’t want to travel far and they stuck at home for weeks at a time. Do they want to go to a place to hang out for a few days? So if staycation is done right, it will have value, but you have to be medically strong, so people feel that they can go there to enjoy and be healthy.

So even for the worst-hit categories, you can figure out ways to make it work. So Alibaba’s experience from 2003, even though it’s a different country, a different time, even a different generation of employees, but actually principles really apply.

Rita Yang:

Imagine now we’re in the postvirus new normal, what would it be for you personally?

Savio Kwan:

Like I mentioned before, the internet hospital,

remote diagnosis and treatment are all possible now. But to do this in a massive scale, there are a lot of opportunities such as IoT and biotech. So we have to recognize that there will be a new normal, and there will be many new opportunities. So that is exciting, and it’s going to be inspiring for many future startups and founders to export as well.

Hans Tung:

As you know, we spend a lot of time with our existing portfolios. There are weekly calls and webinars sharing. We hold weekly session with CMOs, CFOs and so on, to help portfolios figure out how to deal with the press, workforce and other things. So this is new normal and we get people to share ideas. So we’re not alone, and we should not be alone in this situation. We all need to work with each other and help each other get through this together. And it’s not through a lecture but through sharing and exchanging ideas, to see what works and what doesn’t.

GGV’s role in all these, no matter it’s in China, US, Southeast Asia, India, or Latin America, is to facilitate discussions like this. And the more we can learn from one another, the better we will be. Like Chris Cuomo said, he suffered from the virus, but what he learned from overcoming it is that he has to fight through this. He has to be active, and he has to do exercise. The same thing with how we’re doing as well. It’s very easy to work in isolation and feel like you’re disconnected. But through webinars like this, we actively engage one another, ask questions, no matter how silly you may be, just ask, and we’ll figure out a way to answer them. And that’s how we bring more hope to this community, to give better chance of beating the loss and beating the virus.

Savio Kwan:

I’m very encouraged by this sharing, because sharing means that you’re going to be open, honest and going back to the basic human nature. What are we doing here? The who am I question. I think only through this kind of sharing that we break a few barriers, we can all become better together.

Rita Yang:

Thank you so much.

Hans Tung:

Thank you. I know many countries are closing borders right now, and everybody is isolated, but through this, that’s how we’re going to get stronger and get through it.

Savio Kwan:

Yes, absolutely right.

Thank you.

GGV Live Special: Coronavirus-Proof Your Cash Flow w/ Jixun Foo @GGV and Brian Gu @XPENG

With the escalated spread of the coronavirus, GGV Capital is running a 3-session-webinar series with founders around the world to help them navigate the radical uncertainty ahead. Today’s episode is the recording of the first webinar on managing cash flow at this special time, joined by Dr. Brian Gu, President and Vice Chairman from XPeng, and GGV’s managing partner Jixun Foo. 

We covered everything from best practices of cash flow management during an external crisis, tips on alternative funding, to macroeconomic shifts startups must pay attention to in the post-virus world. 

Jixun Foo is a Managing Partner at GGV Capital and joined the firm in 2006. He is consistently recognized among the top VCs in China and counts 13 of his investments as mega-unicorns or unicorns, including Baidu, Boss Zhipin, Didi, Grab, Hello, Manbang, Meicai, Qunar/Ctrip, Tujia, Mogu, UCWeb, Youku Tudou, and Xpeng Motors.

Brian Gu is the vice chairman and president of XPENG Motors, also known as Xiaopeng Motors, a Chinese electric vehicle company, and a GGV portfolio company. At XPENG, Brian leads the company’s global strategy, finance, fundraising, investments, and international partnerships. Prior to joining XPENG Motors in March 2018, Brian was the Chairman of Asia Pacific Investment Banking at J.P. Morgan. He holds an MBA from Yale University, a Ph.D. in Biochemistry from the University of Washington Medical School and a bachelor’s degree in Chemistry from the University of Oregon. 

TRANSCRIPT (edited) 

Rita Yang:

From where you stand, is this a onemonth problem, oneyear problem or a threeyear problem?

Brian Gu:

It depends on what you’re focusing on.

On the operational side in China, we expect operation back to normal capacity very soon, probably within three months. We actually started returning to the office setting as early as February 10. On February 24, 90% of our employees have returned to the offices. And we start to see our factory and supply chain reopened in various parts of China.

But on the funding and capital market side, you will probably see the ramifications of this virus’s impact slightly longer. obviously by now, in the middle of a very large shock, all the governments around the world are racing to provide rescue packages. But I think the volatility and turmoil will impact the capital markets for at least six months to a year. In that sense, I think this virus’s impact will probably be multiple years of impact.

Jixun Foo:

Having been in China and out of China for a while, I did see the whole virus situation, it reached a peak in China in the latter part of February. Right now, I think China is in a recovery phase. From all the various data points we get from our portfolio company, a range of portfolio companies including bike-sharing or HR services, we are seeing recovery, anything between 40%, 50% to 60%, 70%.

In the next two to three months, we’ll continue to see recovery across offline services including retail restaurants, etc. I think the rest of the world is still grappling with the issue. The supply chain is a problem. We will have to see how the number of new viral cases peak out, hopefully in the next two to three weeks, if not, three to four weeks before we see a stabilizing point, where the market will know what to expect. How long this is going to take, there’s all speculation. I think nobody really knows. We are hopeful that this whole thing could peak out in the next three or four weeks, and if so, you will take another couple of months from there to see a recovery.

Rita Yang

What’s your advice for companies to manage their corporate bank account given that the funding and the economic impact could be longer?

Brian Gu:

As a company, when you faced with a situation like this, you really have to dig deep and fully understand your financial situation. You need to know exactly what your cash outflow is going to be in the near term and also a medium-term, you need to know exactly where your source of financing or funding will be coming from or how long your existing cash pile will last for your business.

First of all, it is to understand your situation. Some early-stage companies actually don’t really have a very clear picture, and that’s very scary. So I think the first thing is to do the homework and get your team really understand that under the stress test. What can you actually survive on, and how long can you last.

Secondly, you have to look at funding sources more broadly. Obviously, traditionally you will have shareholder equity investment or bank financing, but in this situation, you have to assume all of these traditional venues will probably be very difficult to tap in the near term. Banks are very scared to lend anymore, they may actually want to get their money back. It’s very difficult to raise equity without the travel in the industry, without the ability to do due diligence. It’s very difficult to get people to commit in a nervous market. So you have to look at alternative sources.

For example, in China, one of the ways is looking at government support and funding, I think there’s a lot of subsidies and government loan available to certain private businesses, you need to understand whether those are applicable to you.

You also need to also talk to your partners, including suppliers and counterparties who are interested in potential transactions you signed or about to sign, and really to see whether a way to reduce the cash burden in a situation like this. So, there are a lot of things you have to be actively working on, to figure out where you can get the support in the near to medium term of this turmoil.

Another thing is that this is actually also an opportunity to review your business operations, to reduce unnecessary costs. What I mean is prioritizing certain costs, for example, unnecessary travels, or some unnecessary transactions you may want to put it off. So if you just go through that and really understand what you can reduce, and also have a crisis plan or plan B, or something you can go back to, if you really need to cut down operating costs, where you want to focus on the cuts, where you can actually delay certain payments. This is actually going to be a critical time to have that information in hand.

Rita Yang:

What are some best practices you have observed as an investor among founders in terms of cash flow management?

Jixun Foo:

When this crisis hit first in China, we spent about two weeks working with CEOs of our portfolio companies. We first take a look at where they are in terms of cash flow, financing, and the balance sheet. And literally looking at cash in and cash out. If you look at the portfolio we have right now in China, and we look at how these portfolios are doing in terms of dollar-weighted in terms of the runway. And by that I mean, we need more conservative assumptions in cash in and cash out, because revenue is going to come down dramatically, in some cases it could be zero. In other cases, even though you may have revenue like advertising revenue, but the collection is difficult. You got to assume a worse number. Whereas your burn rate, if you don’t do anything, will continue to maintain or go up.

One thing that we spend time with our portfolio company is to do scenario planning. Nobody knows how long this thing is going to last at that time in China. So, we actually did a one-month scenario, two-month scenario, and potentially a five- to the six-month scenario. Based on those scenarios, you have to have different scenario plans for your cuts and your optimization.

Regardless, I think we have to do some level of cost optimization, operation optimization, and that could mean cutting some unnecessary costs and unnecessary head counts. It’s actually a good time to rationalize your operation, what is essential and what’s not. And based on that you can really optimize your costs to an optimum level. And you have to be mindful of what you’re cutting as well. You don’t cut your core asset or core competence. So you have to focus on what’s near term and what’s long term.

This is a good time to hire some possible talent and the right talent in the market. So, rationalization and optimization are not just about cutting, it’s about trying to make sense of what you have and try to make sense of what’s important and what’s not.

Fundraising, obviously, we have to assume that it’s going to be difficult. Don’t assume that money is going to come in easily. We did help some of our portfolios to access bank financing, but even then, I must say that bank financing takes time. You will have to take time to work through some of the bureaucracy in the banks as well. So, be self-dependent, rather than trying to dependent on possible outside help.

Rita Yang:

What are some of the principles that you think people can learn if looking at the current cost items on their balance sheet, where should they start?

Brian Gu:

I will definitely review the immediate transactions the company is about to do or has planned to do. A lot of the transactions, under the current environment, probably does not make sense to pull the trigger immediately. I think you start with large items, either major CAPEX plan or major transactions, or a certain business initiative or marketing campaigns that you originally were planning.

You should really look at these large cash items and try to figure out whether it is required and priority to do at the moment. You can always go back and renegotiate some of those deals. For example, we are looking at a potential acquisition in China. We have negotiated purchase price, but we are in renegotiating our payment terms, in terms of schedule and also the mixture of cash and equity as a sort of consideration. So all of that at this junction, you should be able to have the power to go back and try to push as hard as you can.

Then you need to look at your business operations and go back to your business plan for this year. Given the environment and consumption and market growth, you may want to readjust your business plan.

And the third thing I think is making the company leaner in terms of operation and efficiency. A lot of things nowadays are more efficient because we no longer traveling to meet in person. We use a lot of online means to do our businesses, even employing online methods to sell cars in China. We try to explore things to be more efficient. And that also helps in the long run, cutting down some of the cost of operations.

The last thing is to have a Plan B. If you’re really forced to reduce your footprint, reduce your cash burn, what are the necessary pains that you have to take the deeper cuts, which area of business is less essential, whether it’s in R&D, marketing or supporting functions. We need to draw that plan up in case you need it.

Jixun Foo:

If I look at the portfolio just mentioned, in terms of impact, today on a dollar-weighted basis, about 20% of the portfolio actually has a positive impact. These are online education, online content, online subscription services, including online fitness, such as our portfolio company Keep. There are a lot more people who are actually doing training, fitness, exercise at home. The rationalization is actually to be more aggressive, providing the right set of content and service, and not necessarily worrying too much about revenue per se, but driving the early adoption in your service, because there is what we call time sandbox where there is a period of time users are actually stuck at home, and they have hours on the internet to spend.

Based on this different level of impact, you have to rationalize what you do. It really depends on your cash runway situation. For example, we just had a board meeting this afternoon with a portfolio company that is a restaurant’s eCommerce business.  That business itself is affected. So, they are focusing more on the key cities they have, focusing on their logistics and distribution. Reach within 10 central warehouses that they have, versus trying to expand into more cities. So the rationalization here is really focused. Focus on your core competence, focus on the cities, the business that will help you drive higher leverage, better efficiency in the near term.

And worry less about grabbing the market share because the market share is not going too far away, given everything that’s happening in the market. So focus on productivity, efficiency, and where you can optimize the most.

Rita Yang:

For companies who have less than six months runway in their bank account, how should they communicate with their existing investor on that? How do they think about fundraising for the next six months?

Jixun Foo:

Only by being honest and upfront, you can have some constructive conversation around what you can do about it. I think at the end of the day, don’t look out for help, look in for help. That’s the first order.

And to be fair, I think investors are looking at you, whether is existing or new, they are looking at you as to how do you handle a crisis like this, how do you deal with the challenges like this.

If you’re always looking out, that’s less likely that external help is going to come. You have to be able to help yourself first. And I have an example here which is some companies doing ad-driven online services. As far as the online services are concerned, It’s actually growing 10%- 20% week on week, because people are spending more time at home, and is consuming more of their content. But ad spending is not going up, in fact, your ad dollars are not collectible. So that’s the challenge they have, they have more servers to spend on, but they have less cash inflow from advertisers. And what they need to do is to rationalize the cost and what the CEO did was he did a pickup. He first rationalized his team by a pay cut across the team as a temporary measure across his team to allow him to have that runway beyond six months period. And that is essential, first of all, you have to survive. Because if you survive and your business is true of value, things will come around for you. If you don’t, then you are dead in a matter of months.

Brian Gu:

This is very good advice. First of all, being truthful and honest is absolutely critical with your investors. Your investors actually have interests to help you. If you don’t articulate the problem, I don’t think they will be able to know how to help you. But definitely, you have to really think about your own solutions, or what your business plan is before you run to your shareholders with the problem. They will rely on you, being the business operator to really focus on problem-solving and come up with a solution that’s practical. I think they will definitely do their best and pull resources for you if they can help you.

But if you don’t have a game plan, it’s very hard to see a shareholder make miracles happen. Good communication is paramount, but also you should know this is something you need to come up with a solution. You can ask for their feedback or assistance, but you need to have a game plan first.

Rita Yang:

What are some alternative funding sources that people can look into right now? And what are some dos and don’ts in those among those options?

Brian Gu:

It depends on how stressed the business is. Obviously, you can look at various levels of financing channels.

First of all, you should look at normal channels, any of the channels that are still able to support you, for example, we have a bank line soon that we can drawdown. But you have to make sure whether that is still the case under these circumstances. In China, the government will make sure that the bank doesn’t pull the lines arbitrarily. There are other funding channels that are probably non-traditional, in China, these days you can go to the government, and they can provide certain assistance. They can actually reduce your tax burden and social welfare payment burdens. You should do that as soon as you can because that is available to all the enterprises in the region.

The third thing, as Jixun mentioned, on the cost side, for example, the largest cost for a lot of private companies are human costs. Actually, a lot of companies today are asking employees to see whether they accept reduced pay or no-bonus. In our case, we actually kept the bonuses but we asked the senior members of our team to take shares instead of cash. So I think that will reduce the cash outlay in the most near term.

You may actually even ask your partners, like your suppliers or your collaborators, or sometimes take merchandise or shares as a way to pay for some cash costs. For example, I know some of the players in the auto industry, they actually give the most automobiles as payment to their advertising agencies, etc. in order to stem the cash outlays. So you should try very hard to negotiate and to do.

Above that, venture debt or other form of short term financing, if it’s available and we are really stressed, you should take whatever form of financing you can, but just keep in mind, a lot of those carrying very exploding cost escalations, and also some of those may actually have implications for company control. So once you take on that, you have to have a really accurate understanding of what you’re walking into. And I will try to avoid some of these instruments unless it’s absolutely necessary.

Jixun Foo:

The internal part that you can do is to manage your finances better. There is external financing that you could access, whether it is bank financing, venture debt or even equity financing. But to be fair, in times like this, these financing comes at a price and a heavy cost. Look at everything happening to the capital markets, the liquidity is really bad. We are talking about a global financial situation here where there’s a huge opportunity cost for capital. So these capitals will come at a price, and sometimes this price may be much heavier than you would think. It is not just in terms of your valuation, you could weigh in on your ability to manage and control the company. So it’s actually far more efficient and far more cost-effective to actually just focus internally first before you go out. Once you strengthen yourself that you can speak with a position of strength to outside investors, you demonstrate strength to a potential investor. And on that basis, you probably can negotiate better on external financing.

Rita Yang:

For companies who have seen a lot of growth in online services, is it better for them to offer free services for goodwill or actually generate revenue?

Jixun Foo:

I think with the online phenomenon that people used to be four or five hours a day in terms of time span, now maybe, eight to ten hours a day could be double. So you do have this timeshare, people are willing to try new things or new online services, content, etc. This is a good time for user acquisition and capturing some early adoption for your services. I’m not sure is this the best way to monetize at the moment, because in times like this you don’t want to create too much friction to your adoption.

So I would encourage all sorts of ways to encourage online conversion to become your user versus your customer at a moment. Look at what Amazon is doing with the free books, and what zoom is doing with all free video calls that you can do for schools, etc.. It’s a gesture of goodwill, but they are also taking the opportunity to educate the market.

Brian Gu:

You have to really understand what’s the lifecycle of the company at the moment before you decide which aggressive or more practical path to take. For companies that are well-capitalized, I think this is a great time to grow and take shares from others. For example, Netease is launching free online education. It’s a great time to give good experience to your users and grab a market share. But I can also understand those don’t have the capital, you may want to tone down that acquisition. But in general, I would not focus on making money in this environment. This is for survival. Building a great story and broadcast your messages is more important. Even for XPENG,  in the month of February where businesses shut down and there’s not much we can do, we still tried to figure out ways where to touch the users.

It’s not just to make money but make them feel good, for example, we sent out masks to our drivers throughout China. we spent quite a bit of money to procure a supply of medical masks and we sent free ones to our users and received very good user feedback. I think this is a good way to strengthen your relationship with customers. In terms of online marketing and sales, this is also an interesting period that we can actually experiment practices that have not been widely used before, for example, in the auto industry people haven’t been sending cars online as much because it’s a big-ticket purchase, and people like to touch and feel the vehicles, but now people are stranded at home, they have to live and think about ways to broadcast the merchandise to them, so we offer, for example, online direct broadcasting showrooms. We actually partner with Douyin (Tik Tok), the ByteDance in China, to demonstrate our car on the platform. It was actually very successful. I think they actually are using our collaboration model as a way to go to other auto companies to replicate the same format. I think we’ve seen something new in this fire situation, the behavior of consumers and merchandising are rapidly changing. Maybe an optimum time to push on formats that are not been seen before now become normal going forward.

Jixun Foo:

I remembered having the XPENG board meeting a couple of weeks ago when Brian and Xiaopeng himself tell us about the stories. It’s amazing. People are literally willing to make those commitments online through this virtual showroom. So it’s a sign of behavioral shift with this sort of transformation forced by the market because people are forced to do things that they otherwise would have chosen to do it in the physical format and in the offline approach. So it’s amazing how behavior is shifting with this virus impact. So what we want to think about with this is really looking at the future, because the future is going to look different. Just as when SARS hit in 2003, and when the financial crisis hit in 2008, 2009. Things change, behavioral change. We are looking at a behavioral shift in consumption, and this is not just applicable to consumers, it’s also applicable to businesses today. A lot of us are forced to work online, we work through various collaborative platform, like zoom, DingTalk, Lark, etc. So, entrepreneurs should think about what is this new world gonna look like, where they are pushing these, and How’s behavior shifts. As we played out, I think it has a lasting impact, the number of online hours might not be going to be 10 hours like now, it will go back down, but some of the behavioral shift is going to be quite prominent.

Rita Yang:

What would be some industries that you think would have a big opportunity with the shifting behaviors of people and companies?

Jixun Foo:

I think the whole area of robotics and automation is huge. People will be looking at more services where you have more in need of robots to handle things, especially with the delivery of 5G. By robots. it’s not just a machine working in your factory. It also means cars and drones. These are machines that will gradually become more well-accepted with a 5G network, people are working through the system to accept those new phenomena. The other thing is the whole enterprise behavior shift online. A lot of our work, like how we do a long-distance training, how do we do a long-distance interview or webinar like this, will become more and more normal. Whereas in the past, people still prefer in-person sessions. I think you will see a complimentary of online and offline going forward in a lot of business behaviors too. So I think there’ll be more products and services to preserve the enterprise and the business market.

Brian Gu:

What we witnessed is that the virus situation caused the increasing interest in private ownership of cars, which is interesting, because obviously in our business, the sector is divided into two main demands, one is the private ownership, the other one has shared mobility and the fleet. And now we actually start to see a pickup in the private ownership, buying in China at least. I don’t know how long this will continue but at least I think that’s a very interesting trend that we picked up. But also, just to follow up on what Jixun mentioned, the cloud will become a very important tool, in this overall trend to move work and life online. The cloud-based services or hosting services, even infrastructure services will benefit from this megatrend. So these areas will be very exciting to watch.

Rita Yang:

On the flip side of that, what would be some industries that currently we might not be able to tell but in the medium or long term, they might be negatively impacted by?

 Jixun Foo:

Not off the top of my head, but I think the way offline services are, whether it’s in the form of retail, restaurants, even offline education center, and tuition center. What’s more immediate to me, will be offline training, because now online training is becoming increasingly a norm. China had actually stopped school since the Chinese New Year. In early March, 200 million kids actually go to school online. So that is a fundamental shift. And now the students and parents are getting used to the idea that online education is okay, My kids are in Shanghai highschool. My daughter is attending online classes from 8:30 am to 4 pm every day with a lunch break in between. She carries his computer around walking from the study room to her bedroom. So it’s very efficient, there’s not a lot of traveling involved. So I think the immediate hit to me is where online replacement is so obvious. I don’t think offline tuition centers will go away, but they will be more severely impacted. Even to virtual showrooms, there’s less need for the physical showroom. Not that there won’t be any physical showroom, but the number of physical showrooms may be less because you can achieve just as much. Or maybe with a smaller size with a physical showroom by complemented with virtual showrooms online. So all these things are shifting. I mentioned about restaurants, the restaurant formats could change, but I think people still want to go out or have parties. So I don’t think that will go away anytime soon but the format of it could change.

Brian Gu:

You have to look at whether this is a long-term or short-term impact on businesses. Some people just temporarily stop eating, entertaining or gathering, and in a way that they’ll come back after the virus. It’s a question mark. But interestingly, I feel like the commercial real estate business will probably be impacted quite a bit. Because obviously it’s a long-term behavior that’s changing, and people probably use less of the entertainment space indoors, people are probably less likely to have a lot of retail space, because they’re in a fast-changing. I have a lot of friends who are in Hong Kong running the commercial real estate, I think they are facing a perennial business model change. And that will translate into mobility changes, for example, the physical transportation change, because you don’t necessarily have to be in the center of the city for the private real estate. So the mobility business will be impacted as well. In the long run, I think we will see the decentralization of communities and businesses, because there’s no need for people to gather for the traffic.

Rita Yang:

From the perspective of the supply chain, we’re seeing the situation that many countries are cutting off their connection with the rest of the world, have XPENG being impacted at all and where do you see the global supply chain going in the next five months?

Brian Gu:

I think the supply chain is under a tremendous amount of stress at this junction, especially if you have suppliers around the world in different geographies. Now, the logistical nightmare of moving things around is just impossible. Fortunately for us, nearly entire our supply chain is China-based. We have suppliers mostly close to our whole manufacturing base. We do have tier-one suppliers scattered in China. we actually have a couple of them nearby Wuhan, which has certain delays of ramping up their production. But in any business, the supply chain has to be really redundancy focused, because you cannot just rely on one player for supplying all important parts, so we always have backup suppliers. There are merchandisers or suppliers that may get their parts from tier two or tier three players, so we are very careful, making sure that their inventory and supply chain is intact. It is a huge amount of tasks to make that run very well. In the next month or two, I think there’s still plenty of inventory supply in China despite this global disruption. But if the situation on the global supply chain shock continues for many more months, I think we will start to see a major slowdown in industrial activities.

Rita Yang:

Would this summer be a good time to do fundraising? And if so, what would be the growth rate you would look for in the balance sheet? What would you say to people who are thinking about raising?

Jixun Foo:

Honestly, I don’t have a crystal ball about the good time, I do not know how the market is going to evolve in the next six months. I’m hoping that the virus could peak in a lot of major countries like the US and Europe, in the next couple of weeks, and hopefully, we get to a recovery mode from there.

And that alleviates a lot of the financing pressure because a lot of businesses locked down for the moment, so once we got to a recovery mode, we have a better chance of assessing the global financing situation. So I don’t really know when is a good time. But I will say that a lot of good companies continue to get financing. Our portfolio company, a Chinese company, actually close around the financing of 150 million just about two weeks ago, despite the adverse condition in the market.

So the investors with capital are out there. The opportunity cost is there, so investors are highly selective in their choices. It will take time to process. So, anytime is good. But, as highlighted before, the crisis actually brings out the strength, I mean, it brings out the best entrepreneurs.

If you look at Alibaba, Tencent, Baidu, they went through that. it brings out a stronger entrepreneur because you show that you can navigate very difficult times. When everything is good, It’s very hard to tell who’s good and who’s not, all is about spending the money. Now is how well you can spend the money, how well you can rationalize the use of capital. So that’s the real test, and I think investors will be asking those questions and try to seek your thought process, and your ability to navigate this crisis. So capital is available, we are closing deals. The question is just how do you deal with things at this moment. To me profitability is less important, it’s more about how you manage your finances, your cash flow. It doesn’t mean that you’re profitable. If companies are profitable but with bad cash flow, that’s just as bad.

Rita Yang:

What are some of the things that you’ve learned from previous economic downturns that you have experienced that can be applicable or helpful for people now?

Brian Gu:

In a crisis like this, the founder and the senior executive have to exhibit clear leadership qualities. One is that you need to provide the entire company a sense that you’re on top of things. You’re ready to jump in with those actions, you know pain points of the business, you communicate that carefully, clearly, and transparently. I think the worst thing is people not knowing what’s going on and worried about it without communication. The lack of transparency will also make your partners worried about you. The worst thing happened is the lack of trust and confidence in the company.

As a CEO or an executive in the company at this critical junction, you need to be more prominent, more visible with leadership qualities, and provide confidence and transparency to stakeholders including employees and partners.

Another thing I learned is the word called the fortress balance sheet, clearly think about building up your war chest, building up your survival pile is critical. That means reducing the burn, finding different ways to increase the cash inflow, whether it’s funding or payment scheme changes, etc. Having more cash at hand to weather the storm. I think leadership quality and fortress balance sheets are probably the most important focus during the crisis period as a senior leader here.

Jixun Foo:

The idea of transparency is absolutely important to the stakeholders. In times like this, you should really try to understand and rationalize your plan early enough. Don’t wait. Don’t be afraid. This is the time to make some of these tough decisions early, and not drag it out and just let time get wasted. You have to be prepared. Draw up your scenarios and make plans with your scenarios, communicate these with your key stakeholders, including investors and your key management team. You have to come to a consensus on what’s the plan and execute it. There’s no replacement for transparency and communication. Demonstrating that leadership, I think by leadership, a lot of which is making those tough decisions early and not wait. The other thing is that, in times of crisis, there is always an opportunity. You have to look beyond the fear. While we act in such a way of caution and deal with the very worst situation, but you also try to look beyond that crisis and see what’s the opportunity ahead for this company. And that’s the part that sometimes people miss when they dig too far in.

So look beyond and try to understand what opportunity represents ahead. This new world that we are in, once this virus is free, and with all these shifts in the behavior, what does it mean for you.

Rita Yang:

Thank you so much, Brian and Jixun for sharing with us your wisdom.

Jixun Foo:

Thank you.

Brian Gu:

It was a pleasure.

S2 Episode 15: GGV Fellows: Doing Startups in China as Young Global Talent

For all of our listeners whose life has been disrupted by the coronavirus, we want to let you know that we stand in solidarity with you. We will get through this together. If you are a startup founder, we put together some operational tactics so you can take care of your team and adapt to change and cause the least disruption in the long run.

Today’s episode was recorded during the GGV Fellows program in Beijing. It is a week-long intensive learning experience for aspiring entrepreneurs who want to get into China’s startup ecosystem. This year’s 35 fellows came from top institutions around the world. With an amazingly diverse set of backgrounds, we got everything ranging from PH.D. in machine learning to a real estate startup founder who’s also a pilot.

For this episode, we sat down with 4 GGV fellows on their life stories, takeaways from the GGV Fellows programs, and their experiences of doing startups in China.

Wenyou Tan
head of Corporate Finance @ OVO, a Fintech Unicorn in Indonesia

Raven Gao 
founder of a social app for gamers
Get in contact with Raven for his startup at kuma.nijigen.recruit@gmail.com

Sophie Luo
a Wharton MBA who built a Sales Tech company in China

Yuchen Jiang
Ex-software engineer at Facebook
 

TRANSCRIPT

 
Rita:

Sea turtle is the Chinese term to describe people who have returned to China after having studied abroad. This group was once synonymous with China’s elite who played pioneering roles in modernizing the Chinese economy and leading entrepreneur endeavors. Prominent sea turtle funded many well-known Chinese technology companies, including Sohu, Baidu and Sina. In recent years with the growing number of sea turtles returning to China, some say that sea turtle founders have lost their appeal to investor, and no longer have an absolute advantage over locally educated peers. Today, we have a few sea turtles who are either in the middle of doing startups in China or thinking about it, they are all GGV Fellows for this year. Let’s start with a quick round of self introduction, and please tell us why you applied for the GGV Fellows Program.

Wenyou:

Hi, my name is  Wenyou Tan, so I am based in Jakarta. I’m currently working in a M&A with one of Indonesia’s fastest growing unicorns. It’s a FinTech unicorn, and what we focus a lot on is doing payments. So my initial background was really from a venture capital background. I’ve been doing investments for a number of years, my first job out of college is in VC. I’ve looked at many deals and invested in many of them. And the reason why I wanted to eventually move into running a company was because rather than taking a bet on other people, why don’t I take a bet on myself. So with that, I joined one of my portfolio companies which was acquired by OVO, and I’m now in a capacity running deals for the company, acquiring deals. So the purpose of joining the GGV Fellows Program was really that, what I’ve observed as a trend, it’s that there are many Chinese investors and unicorns interested in the Southeast Asia region. So I, myself, personally have hosted a number of delegations coming to Indonesia wanting to find out more. And the purpose of coming for the program is really to understand about the thinking behind a Chinese investor, what they are looking for Indonesia so that as I embark on the fundraise for my own company, I could know what are the pain points, how to address the points, whether if there are any models that the Chinese are familiar with, and then I can repackage my company as something that they’re familiar with in China, and hopefully can fundraise from them. So this is the origin impetus of joining the program.

Rita:

Where are you from?

Wenyou:

I’m from Singapore.

Rita:

Okay, thank you.

Raven:

Hi, I’m Raven. I’m based in Beijing. And I went back to China last year, and I’m working on a social app for gamers. And last year, I was working on a different project, which was a online education startup, and it was incubated in one of the top early stage institutions in China. I applied to GGV Fellows because I want to know more peers who are doing interesting stuff here in China, and I also want to recruit some talents for my current startup.

Rita:

Thank you.

Yuchen:

Hi, my name is Yuchen. I studied computer science and stats in UC Berkeley for three years. And after that, I joined Facebook. In Facebook, I was doing the user growth for emerging markets, for example, Southeast Asia and Africa. And right now, it was almost two years and recently I have left Facebook, and I’ve been trying to explore some more opportunities. And so I’m here. I want to learn from the GGV Fellows Program to bridge the gap between my understanding to the Chinese market and the existing Chinese market.

Sophie:

Hi, my name is Sophie, and I am currently not in China. I’m doing my MBA program at Wharton. But previously in 2016, I came back to China from the Bay Area to do my own startup. It was a SaaS startup about sales tech. We had our first run of funding, but eventually decided to close it. So after that I returned to the Bay Area and worked as a first PM for a startup. It was a Chinese startup. It was headquartered in Hangzhou, where the Alibaba headquarter is. As a head of research lab in the Bay Area’s I joined them as their first product manager on augmented reality glasses project. And after that, I decided to to quit from that company and do my MBA program. After the graduation, I plan to come back to China. So that’s why I applied for the GGV Fellows, as Rita mentioned, to get plugged into the China on startup ecosystem, and to get to know more like-minded fellows, and also find ideas and  people and resources to prepare for my startup.

Rita:

Thank you, Sophie. So Raven, you and I, we were talking about the change as the oversee returnees in terms of fundraising. Can you talk a little bit more about that?

Raven:

Well, what I witnessed over the last few years, I think before 2018, from 2015 to 2017, it’s actually a pretty popular idea to invest in the overseas returnees, because it’s very early stage. I meanfrom early 2010 or something. Some early stage institutions actually yielded a great multiple by just investing in those who returned from elite institutions. But after that, many institutions followed that trend and just invested in elite graduates from Ivy League and Stanford and MIT. The results were not as expected, so I think as a result, they started to get very cautious about elite returnees from elite institutions, and the shift actually happened in 2018, when people were no longer talking about consumption upgrade, but how to get into this low-end market, which is a popular term in China right now. And as you know, they’ll say overseas returnees don’t really know much about the low-end market. I would admit I already know much about Beijing. I’m from Beijing.I don’t even know about the third or fourth tier cities in China, even though I’m a Chinese native. So I think that’s pretty embarrassing for this group. And yeah, but I think that’s what’s happening right now.

Rita:

Sophie, I also want to get your opinion on that because you found it your first company in China back in 2016.

Sophie:

Yeah, I actually have a different experience. Because I was in a B2B or SaaS space. I feel like the investors have always been very cautious about sea turtles funding SaaS or doing B2B businesses. And I actually complained about this in my MBA application essay, but now I totally understand their mindset, why they are very cautious. They have concerns. I think as a young founder who doesn’t know the Chinese market very well, maybe because most of us went abroad to study at a very young age. So I think there are two questions you really need to be prepared to answer. The first is about domain knowledge, at a very basic level you need to prove that you know enough about this industry to find the user pain point, and create a good solution to your clients. But it will be better if you can prove that you know about this industry than any other people in this world, you know better about this industry than your investors and anybody else. And the second is about resources. You need to prove to your investors that you have the connections and resources to navigate through the very complicated B2B business.

Rita:

Yeah, that’s pretty tough for an overseas students who probably have spent five or 10 years already abroad to have that kind of resources. So when you were pitching to investors, what were some of your, you know, highlights that can impress them or compensate for the fact that you have gone out of China for a couple of years?

Sophie:

I would say first, you need to do very deep and comprehensive research about the industry you are going into. Second, I actually use my family background because I have a family business that’s actually in the industry I want to create a solution for. And third, show the numbers if you have a very healthy and steady revenue growth, and you have clients willing to pay and grow with you. I think that’s good science to the investors.

Rita:

So Wenyou, you’re not the only Singaporean in this program. You’re one of the two?

Wenyou:

I think three.

Rita:

One of the three. And you’re pretty established from what I heard as a founder in the Southeast Asia’s ecosystem. So when you come to China and you have interacted with a lot of Chinese founders for the past three days, what are your observations so far? And what are some of the surprises that you have   experienced?

Wenyou:

Yeah, I, myself, I’m an overseas Chinese, I’ve always been a very huge admirer of the Chinese culture. I think the way how the Chinese work is amazing. 996, 007 is a mantra that I try to stick to personally as much as possible. And it has helped me in my career in many, many ways. In terms of what I have seen in China, especially when I speak to this group of founders, I do sense gradual shifting and maturity of the mindset of entrepreneurs. I remember that when I first came back to China, I think 10 years ago, I was on an exchange program. I was doing one year of study in Fudan University. And I was also interacting with founders then. So I remembered the point time I was talking to founders, I think a lot of founders, their main focus is really on product superiority, and on product market fit, but based on what I’ve heard over the last few days, you have seen entrepreneurs focusing a lot more on management culture. Like for example, you talk about OneMore’s  CEO, he was talking about, you know how to let old employees go, how to manage employees, because to be frank, some people are just geared to do the zero to one market. Some people can scale it from one to N. So I guess that at different stages of the company, you need to have people that’s better suited skill wise to handle the expense of the company. So it’s very refreshing to my perspective to see the shift from 2008 to 2019, about what entrepreneurs value nowadays, and I think it’s absolutely right that the company places a huge importance, emphasis on management culture from the beginning of the company.

Rita:

So as you’re building your own company now, what are some practical tips you have for maybe inspiring founders who are thinking about building a culture within the startup?

Wenyou:

Just some background. When I first joined my startup company, I was the CFO then I moved to the CEO and eventually I ended up doing human resources, the reason why this was the case was because in Indonesia, there are a lot of people who are being highly sought-after, the competition for talent is fierce. So building up the culture, a strong culture ensures that your retention rate remains high. At the same time you’re able to attract people. So at least from my perspective, in terms of building up a strong culture, it starts off sounds very cliche, yes, but it sounds like it starts off from the founders. Amongst the founding group of people to be frank for us, there are no titles in between the titles are there, especially when you go out to fundraise. That’s the only important thing for me, for example, I have a team of 200 people in the past, and what we focus a lot on, it’s really doing one to ones. So I do a lot one to ones to my skip level examples of things I did was that, even if my employees my team wants to go for an MBA, I mean, the general consensus is that I will say no, you’re a senior in the company, and I want you to stay. But to be friendly, all the recommendation letters are help their family. So it’s like, for every employee, you treat him like a family member. Even for myself when I stay in Jakarta, I and my finance director, we share the same room, even till now. So I think this builds up the bonding. So from my perspective, it’s really reducing the power distance, trying to make people feel that you care. And let the feeling permeate through the entire organization. And it all starts off from the top.

Rita:

So we just mentioned what Wenyou learned from the past three days from the founders we interacted with. So what about you guys? What have you learned for the past three days, what impresses you the most?

Raven:

For me, I think it was the visit to ByteDance and the talk with ByteDance Vice Present, Mr. Xie Xin. So I was really surprised to find that our companies actually using the same metric as ByteDance, and it’s like exactly the same, we have the same philosophy. We both use OKR, and we hire the same talents, although it’s pretty hard to hire those highly qualified talents in the early stage. And I even heard Mr. Xie saying that it was really hard for ByteDance in early early days to hire those talents because none of them had ever heard of the name ByteDance. And this is what we experienced right now. So it was actually pretty encouraging for me to hear those words from a very established company, saying that it’s okay to go the hard way in early stage because it will yield a better return in the future.

 

Rita:

So as you’re hiring right now, can you tell us what kind of talent you’re looking for? And why is it so hard for you?

Raven:

Yeah, sure. So, first of all, we have a company culture called DPS. So DPS is actually a terminology in gaming, which means damage per second. It is used to describe damage you do to certain enemies in game. It’s also used to describe how useful you are as a team member, but in our culture, it stands for a different meaning. So D means drive, P means passion, and S means smart, so we want to hire those who have drive to achieve what they’re passionate about, and they do it smartly. So this is our company culture and also we want to look for those who fit into our culture. And because we are a social App for gamers, we strictly recruit those who are interested in gaming and probably also anime. So just let me make a promotional ad here, so we are hiring if you are interested in joining a very interesting and early stage startup with high potential to grow into a unicorn. Please feel free to contact me and especially if you are interested in games like Final Fantasy, Death Stranding, Monster Hunter and so on, and if you are interested in Ninja like anime, manga, and if you consider yourself as a weeb, please definitely contact me. Thank you.

Rita:

What should people search if they want to get in touch with you?

Raven:

Oh, yeah, that’s a good question because we haven’t disclosed our project yet. I would actually prefer to get contacted by email.

Rita:

Okay, we’ll have your email and in the show notes. So Yuchen, I want to come back to you. So what have you learned in the past three days?

Yuchen:

I think one observation I find from most of the founders or the VPs of these startups, is like most of them already have years of experience in a big tech company in China. So during this process, they can get to know the people, they are co-workers, can trust. And these people might be their co-founding teams after the current job. And another way I think is that they have the opportunity to observe the Chinese market to learn how Chinese business do, to find some other pain points in Chinese market. So I think to found a startup is a process of piling up or stacking all of the resources, people, money and cooperation. So I feel like if you’re in the industry for multiple years, it helps you to accumulate a lot of power to prepare for future.

Rita:

Some more experience. So would you say that when you come back to China, you would choose to work for a big internet company first before you start your own?

Yuchen:

I think it depends because to accumulate like the people, you can also choose to work in a US company, you can get to know people here and you come back to China together to found a business. And in terms of the observation on the market, I think GGV Fellows Program is a big opportunity to bridge the gap. And in addition to that, I think there are still some ways to observe the market, even if you’re in the US, like by partnering with more people, more great founders in China, to listen to the podcast, and to watch some more videos. And I also think it depends on which industry you want to work, because sometimes you can borrow your domain knowledge or expertise from a US company to migrate and apply it to a Chinese company. I think it also works.

Sophie:

Yeah, I totally agree with Yuchen that maybe it depends on which industry you are going into. To my observation, the founders of B2B or an industrial internet company are more experienced, they tend to be maybe older. And I think that responds my previous observation too. And I think another observation is that Chinese companies are going global. We heard from multiple founders that they didn’t define their companies as a Chinese company. They define on the first day that their company are a global company. They just happen to be based in China now but they have a global mindset on. I think this is really advantage for people who have the background like us, to help new Chinese startups go global and be positioned as a global company from day one.

Rita:

I think it’s a pretty common choice among sea turtles. So you basically have three options. You stay in the US and you work for a big American company. You work for a Chinese company who has global offices, and you help them expand. And also you can go straight to startups to your own startups, like what Raven did. Raven, So I’m sure at some point of your life, you faced with those three options. Why did you choose what you choose?

Raven:

Yeah, actually, it was a pretty easy choice for me, but I did experience some of the other options before that. I actually interned in a big investment banking division for a summer and it really didn’t feel well. I expected to do something more exciting, but it ended up being experienced like I literally doing Excel spreadsheets every day. So it was really discouraging for me to work for big corporations. And so basically, I didn’t consider banking and consulting as my career after that. And it was also in the early days when I took a gap year and I co-founded a company with other two guys as the CFO because I used to study finance as my major. And the company actually went well and we got some seed funding from a corporate investor, not really an institutional investor, but yeah, a corporate investor. And we did well as a beginning but then the company fell apart because the other two founders went into trouble with each other and they started making progress for the company. So it was at that moment that I realized I don’t really want my fate to be under control of others. I want to have control over what I can do and what I want to do, and that was the moment that I made my mind that I want to start my own startup, right upon graduation and not work for others, because I think I’ve accumulated some great experience by working in an investment bank and working with others to start a startup, so yes, that’s my thought.

Rita:

Thank you, Raven. What about your one? Wenyou, you’re still working for OVO right now? So can you tell us the experience of working for a unicorn in Indonesia? What is that like?

Wenyou:

It’s a very interesting experience. So when I first joined the company, so maybe I can just give you a lifecycle of events that happen, OVO reached out to Taralite, which is my previous company acquired. So my first role is really to negotiate a term sheet with the exercise that we went through yesterday with a unicorn. After doing that, we got acquired, I was doing post merger integration. So I was in human resources. Then after that my next job was to set up our insurance and investments units, essentially what OVO wants to do then was really to replicate whatever ant financial is doing in Indonesia.

 

So we wanted to set up a Yu’eBao (余额宝) out of Indonesia, we wanted to set up something like ZhongAn in Indonesia. So basically what we have done, I’ve done then was that I set up a partnership with Prudential, which is one of the biggest insurance there. So I was a business owner there. After that I move on to corporate finance, which was where I was before. So within corporate finance, I think so far, can’t review the numbers, but we have invested and acquired a number of deals, essentially for OVO, what we want to do is that we would like to become Indonesia’s largest non-banking financial institution. So in essence, we are trying to get as many licenses as possible. So I think throughout my entire one, two years in OVO, I’ve tried many roles. I think the one thing that is interesting about joining a startup like OVO, to be frank even though OVO is a unicorn, we have only been in existence for slightly over two years. The good thing is that as the company grows, there’s a lot of different opportunities for you to take. So I think over this short number of years, I’ve done many different things. I’ve expanded my networks, which is what I wanted to do in Indonesia. And now basically, I’m just doing acquisitions. I’m just doing fundraising for OVO. So that’s what I currently do now. But for me, in summary, nothing short of exciting, a lot of opportunities, and I look forward to co-creating more opportunities with OVO and hopefully to work with some of our Chinese partners here, friends.

Rita:

Thank you. The emerging market has been a big topic for the past few days as Chinese founders and investors go global, and Southeast Asia being one of the top choices, what would be your one piece of advice for founders who are thinking about expanding into that market?

Wenyou:

Thanks, Rita. It will be difficult for me to talk about Southeast Asia in general, because Southeast Asia itself is so diverse. So let me focus on my experience in Indonesia. In my humble view, if I can single out the most important thing that I see of successful companies in Indonesia, that would be the team and the team dynamics. For most Chinese founders coming into Southeast Asia, it is of utmost importance to identify a strong local co-founder. While I’ve seen some companies, some Chinese founders manage their Indonesian companies remotely from China, I have not heard of many successful cases. In fact, I hear of more failures than successes. So in this case, why is getting a strong local co-founder very important. I think it’s important because it can help the Chinese founder navigate in Indonesia, especially so if you are in highly regulated markets, like FinTech, where you need to work very closely with the local authorities the government.And in my opinion, a strong local co founder should also be one who is also locally educated. Somebody who has done his basic degree in any of the top Indonesian universities. I think this is important because a strong local co-founder has to be able to remain connected to the ground. In other words, Jiediqi (接地气 grounded in Chinese) .For founders who have spent too much time abroad, the worry often is whether if they are still attuned to the ground. One example that I can bring up, it’s my all time partner, Abraham Viktor, who founded Taralite, and later Hangry. He graduated from Indonesia’s top university, University of Indonesia, and this grants him very strong local networks, as well as a keen understanding of the local environment. His ground experience was extremely crucial, especially when we need to hire people in Indonesia, and work closely with the Indonesian government. However, the main challenge is this, as a Chinese operating in the mainland, how then are you able to get access to talent? In my view, one of this way is to move to Indonesia, like what I’ve done, and organically build up your networks from the beginning.

However, for most Chinese, I think it may be difficult to go to Indonesia, and spend several years then in a totally foreign environment. And so, the other alternative that I think that I’d like to suggest, is for Chinese founders to focus on Indonesian students who are currently studying in China. Of late I’ve seen huge influxes of Indonesians venturing off to China for overseas education, or even to take a year’s classes of Mandarin. Some of these Indonesians may also be very involved in social clubs in China, so it may be easier to reach out to them while they’re studying abroad in China. The other place would also be in Singapore. Since many years ago, the Singapore government has been providing a lot of scholarships to top Indonesian students to work and study in Singapore. After these students graduate, most of them are later required to work in Singapore. An example of a company that I have observed is Shopee, which I work closely with previously. SEA formerly called Garena, was founded first in Singapore, and hired several Indonesian scholars in Singapore. Eventually, when Sea chose to set up Shopee in Indonesia, they reach out to this group of high flying students and encourage them to return back to Indonesia to help shop set up their ground Indonesian operations. Also, of late I’ve also seen many Indonesian scholars eventually returning to Indonesia to start up their own companies, for example GGV has been, based on my understanding, has recently invested in Ruangguru, who was founded by Belva, who is a recipient of such a scholarship. My old partner in Taralite, Robin, is also one such scholar. So in my mind, in summary, finding a strong local co-founder is the most important, especially if you want to go into a totally new environment like Indonesia.

Rita:

Thank you. Raven, and have you considered building a global customer base for your startup?

Raven:

Yeah, but I think in the short run, we will truly focus on the local market, because only after you get big enough in the local market, could you consider to expand towards this market? It’s just like what ByteDance did, they initially focus their business on the domestic market and then when they are really big and then went abroad to open branches in Southeast Asia and North America, and actually did pretty well. But in the long run, we would consider to expand to global market, but we would probably first focus on East Asia market because we can relate to the other East Asia countries like Japan and Korea culturally. And they also have a pretty big culture of gaming in Japan and Korea, and I personally speak Japanese at the native level. So I think that will probably help a bit. In the long run, we would also consider Southeast Asia and North America.

Rita:

Thank you. One of the themes that I have been reflecting over the past few days is the idea of running your, how do you describe this, it’s like, if you have a product, you make it in China and you prototype and iterate because of the speed of the market and the size of the market, and the data available in the market. I want to get your views on that as well because you are trying to build SaaS product in CRM. And when you do that in China, do you actually see accelerating pace in iterating on the version of the product? Is that something that you have experienced?

Sophie:

Yeah, definitely. So we actually started in the Bay Area because our founders were in the Bay Area, but the pace was very slow because we were working essentially part-time because we had our full time job. And the customer growth was also very slow. Because it’s  essentially that we’re not providing a product that’s 10X better than our competitors. That’s why we decided to move back to China to gain more access to capital, to resources and to a bigger market. Soit’s much faster since we moved back to to China, but because we were building a product on data, so we were on incorporating data analysis and data analytics into the traditional CRM which we call an intelligence CRM product. The access to data was very limited in China, we couldn’t get like public data on the sales leads, on personal information, emails of the companies we were targeting.

Rita:

You mean in China?

Sophie:

In China. It’s not as available because we were doing B2B, Chinese companies are not as digitized compared here to the US companies. So a lot of their data, their contact data, their company data, company information were not online. We couldn’t find the abundance of data and to build our analytics tool on that data in China. And that’s why we went into a very heavy product to collect the data on our platform to allow our users to generate the data, the interaction data between them and their clients. So that’s why we started we actually started as a sales tool, but went into CRM. So I think the development and the iteration pace in China is definitely faster, but maybe depending on the nature of your business, you need to think twice about moving back to China, and also having global operations, I have teams in multiple continents and brings huge issues. First is time difference, I had to like stay up to 3am every day to be able to communicate with our, with our team in the Bay Area. And second, having face to face conversation is actually very, very meaningful. It’s it’s very important. Sometimes we we talked on zoom for hours, but if we meet face to face, it can be solved in five minutes.

Rita:

Why did you decide to close your business down and went back to B school in in the US?

Sophie:

I actually couldn’t convince myself that I’ve added two questions I mentioned in in the beginning, one expertise, domain expertise, two enough resources and connections. And so first I don’t think I really know about industry and not think that I can really acquire that deep knowledge about industry compared to people who worked like 10 years or 20 years in that industry.

Rita:

What about your family though? Because you have a family business in the industry, wouldn’t your parents, for example, have that same industry expertise that you want?

Sophie:

So we were targeting, yes some of my family businesses  is in manufacturing, we’re targeting manufacturing companies trying to sell their products abroad, and we’re building a sales tool for them to better, finds their potential clients and reach out to their potential clients. So it’s actually not, the domain expertise is not in manufacturing which maybe my parents have expertise in, but in B2B sales. Yeah, and especially on overseas B2B sales, you need to be able to deal with customers. You need to be able to like find the overseas buyers. That’s a very, very complicated process.

Rita:

So if you were to do that again, what would you do differently?

Sophie:

I would say first get access to more talents. I think I always think that people is the most important thing, and maybe spend a few years actually running a business that the type of business I am targeting at, so in that way I can know the business inside out and again, I can find the pain points and find what they really need.

Rita:

Okay, so, last question. We have a lot of listeners who are currently studying in the US and are thinking about, you know, what should be my next step. Maybe I can ask you guys when you at some point of your life, you have to make that decision, you know, joining a big corporate or coming back to China without having any offer, just trying to figure it out. What are some of the things or resources that have helped you when you make that decision that you can share it with our audiences?

Raven:

One thing to consider is what money means to you. So the answer for me is that I don’t really care if I have an annual salary of like 200 K, or like 2K, because it doesn’t really make a difference for my life. Because I mean, my life quality won’t really change much, even if I only make 2k per annum. So I made the decision to start my own startup simply because a small lump sum of money can no longer change my life. And that’s why I went for the big bet, I think for me, only if I can make my company to go public, could that change my life trajectory. So that’s why I’m only going for the big market. I only want to make a company that can at least get listed and grow to a unicorn. So this was not a hard decision for me. So if you have the same background and you have the same value about money, I think you should definitely go pursue entrepreneurship. Because working in banking or consulting, it’s really pointless for people like, us. Yeah, that’s my advice, and also to be a mythbuster here, because most of your listeners would likely come from elite institution, I just want to elaborate on one point that I never heard others talking about. Most of the time, investors and college professors in entrepreneurship would tell you that you should work with someone you have known for a long time, especially his college classmates and people like that, I don’t recommend you doing so, especially for an elite sea turtles who are from like Ivy League, Stanford, and MIT, because you would likely get into troubles with a trouser once you start a startup, because people from those backgrounds usually have a very high ego. And they have, they have critical thinking. And this is critical for a startup because you can’t really make decisions fast enough, you’d get into trouble, you’d get into debate, and the debate will get heated and then the startup would fall apart. So my experience is that you should actually find someone with local expertise and enough working experience to start a startup. So an ideal co- founder would be someone who come from a good background in a local domestic Chinese university and worked in the internet industry for at least I think, three years, so that he can compensate for your lack of experience and lack of local expertise. And I’m actually working with such a co-founder and we are having a good time. So yes, that’s my second point yeah, just my two senses.

Rita:

Thank you. Yuchen?

Yuchen:

Yeah, I think it depends on who you want to be and which lifestyles you like. So for example, if you want a relaxed life live, if you want to enjoy like beautiful sky in the US, if you don’t want to work too much, then I think the best choice is to join a US complete. But I think if you think you have more resources, you know more people, money, you have more operations in the US. And if you think the product faces better in the US, then maybe you can find the stuff in the US. But if you feel like in China will have more potential on consumers, if you feel like your product might fit better in China, then you can go back to China and to found a startup in China. So I think it’s a trade-off.

Wenyou:

From my perspective, my view has always been that you have to determine your positioning. In early 2010, I was in China operating. And I thought that it wasn’t easy, primarily because I don’t have the local contacts, coming from overseas. And an extra reason why I eventually went off to do my MBA. And I was very clear to my MBA that I wanted to still go back into the investment scene. So straight after my MBA, I joined an investment firm SBI, which was formerly called SoftBank investments. At the point time, the clear thing I wanted to do was that I wanted to be in a place where I can add value to Southeast Asian companies, but not exactly sure when. So the major part of my thinking process would be three things. The first thing is, if I go and operate a new market, where they if I can learn the language easily, that’s very important. The second thing is I have networks that can help me breach over to a new market. Because we’re operating in Vietnam likely in your school, you’d like to be able to know some Vietnamese friends, we can help you introduce you to people locally. And the third thing is whether if the skill set that I am training for would be useful in overseas market. So when I look at all these three factors, I thought that Indonesian language, it’s something that I’ve been exposed to since young, suddenly I can pick up quite easily. The second thing is that, for fundraising itself, it is a skill set that is heavily required, because in Indonesia, the capital markets is not as developed as compared to the US and China. And coming from the background, I can help my co-founders to build up their business. And the third thing in terms of the networks, a number of my classmates are now operating in Indonesia. I’ll say around close to 10% of my class are now in Indonesia, right now. So it’s easy for me to operate, build partnerships. The next reason as these are the three main reasons as to why I decided to make the move back to Indonesia. In summary, I think it depends on your own global positioning. I think coming from a perspective as to whether you’re a Haigui (Sea Turtles), or whether you’re Huaqiao (Overseas Chinese), I think the same whether you can really acclimate, and sometimes being away for far too long. The it might be too difficult for you to catch up, then in that case, you need to think about your positioning, I guess, maybe from a Haigui’s perspective, it could be helping Chinese companies to go to the US or maybe it could be coming to Southeast Asia and looking out for a new market or this 10 countries. So depending on your own personal skillsets also.

Rita:

Thank you.

Sophie:

So for me personally, going back to China has always been the ultimate goal, the matter is when. So I feel that the learning curve in the US is not as steep of as what I could get in China. I think it’s a time to come back. And because of that, I chose to join a US branch of a Chinese startup after my startup fails, instead of joining a typical US company because I didn’t want to get too detached from the China startup ecosystem. And in that way, I could know what’s happening on the Chinese market, I could get more connections in China. And I think events like this actually helped me make me more determined to come back to China. And I would tell a story. So when when we went buy coffee in Guomao, a couple of days ago, that used, how you say that you pay with your your face scan, facial recognition, through alipay. And all of us, like five of us, are all coming back from Silicon Valley. And we were joking about this. We are a group of people coming from Silicon Valley, who has never seen technologies? So I think the pace of innovation and the size of market is definitely on unprecedented in China right now. So I think the events like GGV Fellows introduced me to ecosystem and showed us the the how well the Chinese startups are doing and made me more determined to come back.

Rita:

Okay, thank you, everyone for joining us for this episode. I wish you best of luck.

S2 Episode 14: Amit and RK of Yulu: Transforming Urban India with Micro-mobility

Today on the show, we have Amit Gupta and RK Misra, co-founders of Yulu. Yulu is India’s ride-sharing startup launched in December 2017. It provides a network of over 10,000 shared vehicles, including bicycles and lightweight electric scooters, in Bengaluru, Pune, Mumbai, and Bhubaneswar. Yulu’s vision is to reduce traffic congestion by providing a scalable, affordable, efficient, and clean solution for the short-distance commute. 

In this episode, we covered why Amit and RK decided to start Yulu after having some successful exits, how shared mobility works in urban India and working with the government to draft India’s first micro-mobility policy. 

Before Yulu, Amit co-founded India’s profitable unicorn InMobi – an online mobile marketing and advertising platform. During his 12 years there, he grew the company’s business into other markets like China, US, and Western Europe. Amit has a bachelor’s degree in engineering from India’s top university India Institute of Technology, Kanpur. 

TRANSCRIPT: 

Rita:

Today on the show we have Amit Gupta, co-founder and CEO of Yulu. Yulu is India’s ridesharing startup launched in December 2017. It provides a network of over 10,000 shared vehicles including bicycles and lightweight electric scooters in Bengaluru, Poom, Mumbai and New Delhi. Yulu’s vision is to reduce traffic congestion by providing a scalable, affordable, efficient and clean solution for short distance commute.

Hans:

Before Yulu, Amit co-founded India’s profitable unicorn InMobi, an online mobile marketing and advertising platform. During his 12 years there, he grew the company’s business into other markets like China, US and Western Europe. Amit has a bachelor’s degree in engineering from India’s top university IIT in Kanpur. Welcome to the show.

Amit:

Thank you very much for having me here. Welcome to Bangalore once again.

Hans:

Thank you. It’s good to be here. As always, well, first part of InMobi, from my good friend from Business School, Jessie Yang, who ran China for you. And when she joined an Indian company, I was very impressed. In your sense, you guys have done well. Can you just chat more about InMobi and how did you decide to expand into international markets so quickly?

Amit:

So first of all, Jessie Yang has been one of the amazing person for InMobi, professionally, personally for me, whenever I need help, I was just being her and Jesse, this is where we need help. And I would give almost all credit to Jesse Yang for our success in China. Now coming to InMobi, we started off almost 12 years ago, back in 2007. Where there was no concept of mobile internet, there was no smartphone, the company was doing something on SMS. We had a view that the way dekstop had Google advertising, etc. Same way, something will happen on mobile.

And because there was no mobile internet, we thought that okay, it has to be an SMS thing. And that model did not work well. So after maybe 12 months, from starting, we pivoted to a small screener, the blue WML -based mobile internet site and trying to monetize that. And at the same time, big movement from Apple and Android from Google happen. And we know that mobile internet became the technology of the decade, creating trillions of dollars. So interesting part is at least co-founding team of InMobi, we were able to see that there’s a big wave coming right. And we had this belief that advertising will be a big component. And I hope you know that now mobile advertising is taken over the PC desktop based advertising already. It’s bigger than TV. So somewhere the belief of that this is going to be big. And we stuck to that actually helped us a lot.

So I played several roles within the company started from publisher side acquisition. So we were like two sided marketplace demand and supply. So I let the publisher part, who will give us a space to show the advertisement. And post that after three years company thought that this should be one accountable person for revenue, because demand and supply needs to work together. So I took a role of CIO, company’s CIO and the company’s revenue order. And fifth or sixth year in the journey, you know, we started looking at how Google and Facebook are basically becoming bigger and bigger. And if you understand what’s happening over there, the reason was they have access to more deeper data about the consumer and they have access to more share of time from the users perspective. And we started thinking about it, you know, can we make a new Google or new Facebook? The answer was absolutely no. So who else in the ecosystem you can go? And the obvious answer was the OEMs as well as the teleco, who has access to the data, as well as the screen time. With that narrative, I actually do things which was first of all, I started a new BU where we went after systematically to OEMs as well as telecos. And I also relocated to US, where we were having issues with respect to leadership team over there. So we found out that a team while the market was large, but our team was not excited about InMobi, and they thought that they are they’re not being cared, you know, because we live in India.

So we decided among the co-founding team that, you know, one of us should move there. And I decided to basically said, okay, well, I’ll do this honor. It was an interesting journey, doing a cultural transformation, where I had to let go a lot of people, hired a recruiter to rebuild a team and just for information. When I moved there, there were like, 50 member team in North America. Yeah. I had to rebuild team. Today, We are close to 400 members team in US. Across three or four offices, certainly New York, San Francisco, we’re set up in now inside media in Kansas City, and in LA. So we ended up acquiring two more companies, one from Sprint, and one other company, which was the supply side platform based out of LA. So this whole cultural transformation led us to do a bigger bet in the North America.

At the same time, my other hat going after OEM and the Telco actually led two new business entities for InMobi now. So the glance product, the new entity I was talking about, this is a lockscreen content, only one in the world, which is existing right now, because Google made that impossible for everyone to run a lockscreen content company. But why we survived because it was not just about that, okay, you create some content on lockscreen. That’s easier to understand. But the strategy of that you have to become friends with powerful people in the ecosystem. And that happen to be Xiaomi, that happened to be Samsung. They basically came on our side and our pitch was very simple that you have been creating this hardware or getting no valuation, no goodness. we can help you. And they basically understood this whole notion, we quickly went to South Korea, met with the president of Samsung at that point of time DJ Koh. And they saw the vision very clearly. They said, this Okay, this is making sense, we support you.

Same thing happened with Xiaomi, where we went basically to Beijing. We spoke about our vision, and they said, okay, this is making sense. And good part was that Xiaomi at least back part of time was familiar with the idea of showing content on the lockscreen. Although they were able to do that in China, but for India, they did not have any partner. So they also accepted JIO came, a bunch of companies came. So this whole effort of me not doing anything for InMobi from a core business perspective, but focusing on a new business initiative, actually led result to glance, which actually has raised for, you know, a very significant amount of moneyrecently, from Peter Thiel’s fund in the US.

And then the second thing I did was respect to Telco, there we ended up acquiring the company with sprint called inside media. And that has been now you know, converted into a new entity called Cofactor early days for us, but we are able to monetize Telco data in the context of advertising and a bunch of business models around that. So I feel good that I was able to contribute to InMobi’s new value creation exercises, also did the cultural transformation, which is helpful for their core business of advertising. And then, you know, the whole thought, you know, becoming 40 I thought that when I was 30, wherever 20 years old, getting into college, I thought that I should be an entrepreneur at the age of 30. I ticked that box. I was 30, and I thought I should be retiring at the age of 40. And I was about to turn 40 I realized that it’s not something which I can do, I will enjoy, what is somewhere the joy of or the fun of giving back to the society that came into my mind that, you know, that’s probably the happiness reason.

And I started thinking about what problem I can pick. And there was kind of several problems in India, as you know, everything is broken, everything is an opportunity. But what made traffic and pollution, the number one choice for me, because it is impacting me as an individual. So in the spirit of your class, grief, financial status, color religion, you have to deal with these two problems. And I thought that let me pick that because it’s very complicated problem. And soon after that thought was clear in my mind, I actually approached my longtime friend, RK Misra, who I’ve known for almost 15 years. He’s my brother, a college senior, another respected person in the country, and then anything related to infrastructure, mobility, he’s kind of Guru. So I went to him when I was starting InMobi also, so it’s a long journey.

Hans:

Did he enjoy InMobi?

Amit:

He was actually transitioning out and he wanted to serve the country. And I let him talk about his own journey. So he actually came to public life, work with our Prime Minister Modi BJP for five years, an amazing journey,you know, I think let him do the honor. But interestingly, he was my first port of call when it came to urban mobility infrastructure. I went to him you know, having this feeling, you retired when you were 40. I also had this feeling but you never retired actually, you were working on this site. I am also having this feeling what should I do? And then he said, you know, why don’t you do that? He asked me some interesting questions. Are you financially stable? I said, yeah, he gave me some money. So I started.

Okay, to do this, this is a difficult problem. And we realized that this is not an easy one and then he said okay, I will help you. So, next week, he took me to the head of Metro network. After two days later, he took me to the city head of municipal cooperation. And I was very clear that his is the big boss. And he also started enjoying that maybe you know, this is looking good. And he actually, I remembered he made an interesting statement that you know, he was having the booze with his own class of people like who are old 50 years, he lives in a very nice community, has got a lot of friends like him. And he was like I’m gonna live for another 20,30 years and have a lot of time and energy, I should utilize it properly.

So then he and I spoke, he should get deeper, I said “deeper, sir, means co-founding, we become partner in crime”. So he came on board, and I will still calling my other two co-founders, one is my college batchmates, he was living in the US, he moved to India. And another one, the 4% is my childhood friend. He was living in Amsterdam. I pulled him in. So four of us, September 2017, came under the same roof, started building Yulu. And we thought that problem is very difficult. But we think we believed that it can be solved. And I’ll share more details as you get on. So but January 2018, we were live with our first product and that the onward and today we have made a lot of interesting developments, have got lots of ups and downs, everything was hunky dory. But the good part, we stayed on goals, we knew this problem is real. So someone has to figure out a solution, and we had some interesting approach in solving for that.

Rita:

As Amit has hinted, also joining us today is the co-founder Yulu. RK MIsra. RK is a serial entrepreneur, also a public figure known for his expertise in the nation’s urban planning policy. 

He is an undergraduate from IIT with master’s degree from Tokyo University, also an alum of Harvard Kennedy School of Government. Welcome to the show, RK. Now tell us your side of the story.

RK:

So I think Amit actually described what the problem our country’s facing. And I had the opportunity, I could retire early at 40. I had a couple of successful businesses, and I decided to do something to contribute to the country. By education, I’m a urban planner and transport expert. I did my masters. So I’m senior from IIT Kanpur, and masters from Tokyo University, where I did a master in urban planning and transport and the first smart city which was developed in Tokyo. I was involved in that, including their driverless train system and all that. So I had a deep desire to do something meaningful for India as well. So I went to Tokyo University and my lab was the one who got conceived that.

Hans:

So when I first saw that, I thought that’s what China looks like, this is good model for almost all emerging more.

RK:

Absolutely, absolutely. So that was fantastic. So then I was kind of roped in by the top office in the country to help them. So I designed the Smart City Mission for this country. So now we have hundred Smart Cities being developed. So I was the key architect for that. And that became a policy. And, of course, our cities, actually, India is a country which is very high on talent but very poor infrastructure. Now, data infrastructure can match and country can go forward. Only if the infrastructure keeps pace or goes head of talent? China did. I mean, you build infrastructure, as they say, build the road, they will come. India somehow missed that boat. And I was able to convince our top leadership that this is needed, and they could have bought the narrative that the government can only do the policy, government can do the major interest such a relevant.

So, I don’t know if you came to in that 15 years ago, you could not go from say, Bangalore to Chennai or Delhi to Mumbai, it take two days. Today you can go very fast. So, our intercity connectivity has become very good between bigger cities. Now our trains have become better. Airports are lousy. Our airports are not world class. Now, what is not done is intracity connectivity, because cities have grown like crazy. I came back to India in 95, Bangalore was just 4 million. Now it is 13 to 14 million million, from 4 million to 13 million in 20 years is crazy growth like every other city, because jobs are in cities, And people come from all over places, infrastructure is not, so I think the idea is really something which time has come. It’s not an easy problem to solve. Now, that’s why not everybody can do it.

So when Amit came, I love his passion and his pedigree of, I know he’s very hardworking. I remember when we discuss about him joining InMobi, and we saw the journey of InMobi, and I also been an entrepreneur, I understand what it takes to be an entrepreneur. And these guys did something which was very difficult to do. especially from a country like India. We just said we are not a market. So from the day one they created something which was highly global. So they had the experience and this business the market is in India, but you have to have global experience, because some technology will come from outside, some product may come from outside. And this problem are very close to my heart. And I’ve been entrepreneur twice over, so when he came and asked for it, I said, Well, I think looks like a big enough problem solve and if we solve it, would have done a good job. That’s what my reason to be part of the team.

Hans:

Got it. And can you take a few sentences to describe Yulu and how it is different from several other micro mobility companies that are also exist in India today?

Amit:

Sure. So from a problem statement perspective, we are going after short distance mobility and enough more data and research report says that the short distance mobility, which is typically five to seven kilometer, they account for two thirds of the trips in any big city, and they are the one who will congest your downtowns, they will be the one where people moving around, and if you can solve that problem, this will in general decongest your city. So, that was a formula and if you look at India, we have very limited road space. And you have seen that what happens here. Answer was not to create roads after roads because population will keep on adding, the answer was to do something dramatically different and that physics says that you move people from this big cars, they can be their own cars or they can be 1% of the back in a shared hitting taxis etc, for example, right?

So we said that if you are alone going four to three kilometer distance, you don’t need to be in a car. You can do that with smaller eco-friendly vehicles. So that was a template and luckily, it became a global phenomena. I will not take the credit for the Yulu team, Mobike, OfO. They started the wave, I think micro mobility and a concept perspective where someone can build a large business on technology and make it really work. I think the inspiration did come from China. Having said that, we also started seeing the issues with OfO and Mobike. We also saw the same narrative going to US where earlier thinking was that OfO and Mobile themselves will basically take up the market, but that was not the case.

Why? Because mobility is a very local phenomenon. Not only that, you cannot take one country stamp late to other country, reason being the cultural context is different, infrastructure is different, and a set of relationships you need to know. We understood that abstraction very well. We said, okay, this looks like you know, a good problem to have. Good part is we have some things to play with. We don’t have to start from scratch. At the same time, we were wise enough to not copy paste. So we will never ever say that we are going for mobike of India, never, we are Yulu of India, very clearly. And with that thesis, we started things from first principle. And our idea was that rather than we solving for all of the use cases and the spectrum, can we look at our two-kilometer distance in the context of some city like Bangalore, we were based here.

And we were able to fast track some other things because of that focused approach. You’re not trying to boil the ocean for the country, not for 10 kilometer distance,  two kilometer distance with Bangalore cities could better went to China, as always have been going there for like every quarter from last five years. And were able to get the IoT device which we did not have to worry about, thanks to Ofo and Mobike, they were like 10 companies were trying to sell us the lock and then we got IoT here, but the same time the bicycle we design in India, we realized that if we bring it here, people will not like it. So we took the pain of designing them here getting them made in India, the supply chain is easy. So the big thing we did, which probably other companies did not do, we were much more first principle based. And we were able to narrow our focus to a very, you know, focused area, with okay, this is what we are solving, and then take business from that Lego block to another with a much more extended approach in terms of the service. So when we basically saw the use cases of bicycles, people were using it for two kilometer they were using in certain clusters.

And if we had to increase the use case, the motorized vehicle was a way to go. We looked at some of the petrol makers, which some of our other friends were happily working on. And we also saw what Lime and Bird doing in the context of the US, and when we abstracted this whole point, we realized that this is not going to work in India. For example, the scooters which Lime and Bird using, two issues, India culturally people don’t know how to ride a scooter standing. The second problem is the scooters are breaking in two months, company will be bankrupt next week. We cannot build a business model because our app was available.

When we look at the petrol, two things came, there’s a software aspect that as a company also worrying about the environment. But that was not the only reason when should take a decision or not take a decision. There was a professional in our head that okay, even if you do petrol, can we make a business model work? And after doing some of back the envelope numbers, because we had experience of running cycle business for almost six to nine months, we were very clear that we will not do patrol because the unit economics will never make sense. And as a result, you know, we will clear off that we are not having a formal, I don’t care whether someone is doing better or not, Yulu is not doing it. And that’s where we started working on our own EV template.

And after some iteration, what we basically got, again, the inspiration comes from China, where I go, I will see millions of people riding those lightweight, low speed two-wheelers, electronic two-wheelers. And everyone is so cool with that. And I come to India, I said, wait a minute, I don’t see this product here. What is wrong? This is something which is an information asymmetry with someone has not tried. That’s why they’re not doing it. Or there’s something more to that. And what we did, we basically brought some vehicles from China, gave it to people. Hey, what do you think about it? And people like, wow, this is so small, but so powerful. This is so convenient. We got probably our answer right that if you have to get a business a product, which needs to be done in a shared mobility, the necessary EV will be maintenance, rebalancing. They need to be practical.

And if you get hundred 50 kilogram bulky scooter, even if it is EV, it’s not going to cut it. So we basically got this product we call Yulu Miracle, which is a 45 kilogram product build for one person runs on a lithium battery swappable so that the scooter is not being lifted, the battery is moving. And we brought it to India. And we took some calculated risks that what if people still say the larger piece you know, personal people say oh, this is a toy. But no, people absolutely loved it. If you go to Instagram, if you go to Twitter, if you go to any public forum, search Yulu Miracle, you will see the love that people have about the product.

And why it was very natural thing for me to accept that because of my, China being my third home, from last five years, I’ve been seeing so many people loving that product. Why the hell even not like that product in India? There’s no reason for me. But for others, they probably were still struggling that oh, there’s no EV, or there is no battery charging network. How will I do it? And we were like, don’t worry, in China, it has been working. we will figure it out. And that’s what we did. We got the product. You know, there were design inputs, clearly made for India market. So we worked on a product which was being used in China market and shared mobility for last two and a half years. So we did not take an absolute risk. You said okay, we’ll take some risk. Certainly the platform was using shared mobility. Yes, in China, but can we transform to India and still get a good life? And luckily, we had this wisdom of what all things will go wrong in India. So knocked off some of the parts, made certain changes and brought to India, and it was a unique, successful hit.

We don’t manufacture them. Right now we design them, by the way, we had a design input in that, we got them made by a company called Ailing, which is China’s second largest electric scooter maker, very professional hands. And then we bring them to India, where we assemble them with the help of a local partner.And the idea is that with, you know, this approach is working for us for short to matter. In mid to long term, we’ll try to indigenized whatever we can from a supply chain perspective. Yeah, so this is basically our plan for electric mobility. And why we are different, unlike other friends, we were not worried about next month or next quarter. We’re looking things from long term perspective. We were spending our bandwidth of our time and our resources on things which are futurity. All of us know that petrol is not a future. We know that EV is a future, look at what new government or Modi is doing. So EV, not only is future ready, also, there’s an opportunity, you know, from a P&L perspective, we are generating a very healthy unit economics. And I’ll show you, you know, offline, I cannot share the details with you, but our numbers on unit economics are better than our global peers. So Lime and Bird, Chinese company, you’d be surprised to see what we have done with our business here.

Hans:

At an intellectual level, you mentioned that India has lower ARPU. And then you have quite lower cost base with very good product you seems. Even with the local supply, a local sourcing can you get a cost way down, though have a superior product and last longer?

Amit:

Yeah. So that’s a belief, even current product, it is designed for more than three years of life. And we have OEM warranties to back this up. And we’ll actually show you when we get chance. And the old products, how it has been used and how it is looking even right now. So we have a belief that this product what we are using will have more than three years, at least in the base case model. Now, yes you’re right our ARPU is low. We like make like 60-70 cents on a trip, unlike US where you make $2, but our opex are one tenth of US number, so when you do the maths, our unit economics looks amazingly well. And unlike we using basically those kick scooter with the life is only three months, we have a product which is 36 months. So the amortized cost per month actually comes into the economics and make the overall math very very exciting.  

Hans:

With both services, do you have the ownership?  

Amit:

So, right now, it is actually at least owned by us. And the reason why it was owned by us because we were figuring things out. There was no one who will give you or buy anything on their books, but now we are very strong in economics in place. In fact, we have closed a deal with a very large group to give us the same bikes close to 50,000 of them on lease. So we are actually have sorted that way. So this is looking good.

Hans:  

You just mentioned a bunch of our portfolio companies. My partner Jixun led our investment in Hello in China, bigger than OfO and Mobike. He also led our investment in Grab in Southeast Asia. And I invested in Lime in the US, as well as Grow in Latin America. So it’s been very interesting to see micro mobility revolution happening in all regions.

Amit:

So just for your additional information, our template is very similar to Hellobike and Lime where we have not called ourself as a secular scooter company, we basically are a multi asset. So from our product positioning perspective, we are a platform where we can basically have different types of SKUs. Having said that will not try to make 50, we will kill herself in maintaining them, we try to keep three or four different SKUs, so that we are a problem first company where we think there’s a need of a bicycle maybe for one kilometer distance in a campus, take it no problem, or a kick scooter where my corporate campuses are seeing that I am using golf carts. Can you give me something which is fancier than cycle? No problem, this bird type of kick scooter, I’ll give it to you. Because in the campus you have a good road, no problem. But on the road, we have this product like miracle where it is our hero product, very simple to use does not require any helmet, license, no traffic cop. I don’t know if I’ve been hearing some horror stories in India, where people have been fined for $2,000. Our product will never have any traffic fine. Zero. So this is how we basically have built things very differently from others.

Hans:

Next time coming to China, you should check out our portfolio company NIU, they have the best lifestyle brand.

Amit:

I’m a big fan, by the way, the CEO visited us last month. So I don’t know, if you remember from very early on is like, Okay, look at this, this is a coolest product. And I took a lot of pictures at NIU showroom, trying to use their product, it’s like, brilliant, brilliant. Yes. very interesting company.

Amit:

So you invested in them as well?

Hans:

My partner, Jenny, led series A and on the board and helped it go public.

Amit:

Very good. So it’s actually pretty interesting company and they export their products to so many countries. And probably they will do, they should do something in India. That’s what I hope.

Rita:

So this particular challenge you guys wanted to solve is actually inherently a universal urban problems. And with your background in the government, I believe you work quite closely with the government, correct?

RK: I think you’re right. As I said, solving a problem of infrastructure, we’re connecting to big cities is one problem. Because that problem is easily solved. we acquire the land, build the role, you’re done. But cities are very, very complex, alive entities, correct? Here, everything is done and built. You can’t ask people oh, suddenly, I’m going to build those a building, correct? Expansion of roads is not possible. So city is more of a management challenge or infrastructure challenge. You can build a very good road, but it still can’t move. Because the road is too narrow. As buildings have already been built, so then you cannot destroy those buildings, especially in a country like ours where everybody can go to pour their, you know, I’m not saying anything else.

Urban challenge is not a money or infrastructure challenge. It’s a management challenge, managing the expectations of the people and the aspiration of the people. And I think that was something which is very, very interesting for me to work with. So, my contribution to urban revival in India had been and I have told my political leadership in the country that if India has to become a 5 trillion economy as Mr. Modi is telling, you have to focus on cities, you win elections from villages, but you make money from cities, cities are economic growth engines of this country.

And that message has gone really well. So, India is building now Metro in 20 cities and planning to build in 50 cities, India will have around 50,000 kilometers Metro by 2030. Now, what happens unlike Tokyo or Shanghai for example, but Metro can reach within one kilometer half a kilometer of your house, India will take 50 years reached there, but what happens in between? So, New Delhi has 250 kilometers metro, 250 stations but still you need two or three or four kilometers. So, when New Delhi Metro had met me, in fact not only Delhi Metro head, all India Metro head, the Government of India Secretary, he told me our K, and I told him daily every splinter is impossible to live, pollution is so crazy. Why are we not doing something about it? He said we have to look at the metro, so, nothing is happening as it because nobody can reach Metro, Metro is at least two to four kilometer away, and everybody in cities income is not a problem. I can afford a bike, I can afford a car.

So if you don’t bring public transport to me, I will not take public transport. So the first and last mile connectivity becomes the key issue. So then he said can you do something? I said yes, we can do. So I told him come to Bangalore, in Bangalore, we have done. So he came to Bangalore. He also had to Bangalore Metro, and he came and he saw Bangalore where every metro station we have our Yulu miracle, he said are you gonna do it in Delhi? I said yes. And that’s why we launch you know. So here what is happening is other micro mobility players they were not reached. They were not because they are doing the plain vanilla, buy some scooters and rent them. We are solving problems. And we are solving problems in the context of our country’s growth. We are solving problem in the context of urban renewal. And the government has understood that cities are economic growth engines, if the cities don’t fire, country won’t go.

So, look at Mumbai is building 12 metro lines simultaneously. Bangalore is building hundred-kilometer Metro as we talked by 2020, they’ll be 200-kilometer Metro here, Delhi is looking at additional 250 kilometer Metro, 26 are building. So, if all these metros come on, you don’t have a first and last mile connectivity, I think you will have no benefit. Metro will lose money, But most of the Metros are being built by the loan, how the Metro pay the loan. So I told him, you have to bring from the government of balance sheet of the Government of India. So I think that message is gone very well. So being with the government, I have realized one thing. They understand the problem, they need help to find solution. And the help cannot come just by policy. The policy needs execute, who will execute? And the very few people who understand the global context, and the people like us who have been globally traveled and businesses abroad, we understand what’s happening. How to solve it? And we still have this streak in us that we want to solve for my country. So this is I think what well understood we are not crazy capitalist. We are compassionate capitalists. So we want to make money by doing good. And you still can make money, lot of money by doing good.

Hans:

That’s kind of Jack Ma’s philosophy.

RK:

I think I agree with that. I mean, you’re solving a problem in the process of making money but be mindful of.

Hans:

Grow the pie for everybody else. And that’s kind of GGV’s approach as well. We’ve been fortunate to be investor in Alibaba since 2003, and when we invest, we always look for hey, can we fund companies that doing country building? If country gets bigger, everybody gets bigger.

RK:

I mean, we are here in 2019 when China was 2005, and you grew like crazy. I don’t think that we can grow at that speed.

Hans:

But doesn’t need to. But you can still have a lot of room for growth.

 

RK:

Exactly, but you’re like $10,000 per capita. We are $3,000 per capita. But if we reach $6000

Hans:

Yeah. As you know, in 2005, China was $3000 per capita, that’s when I moved to China, so I remember.

RK:

I know that, you move from Silicon Valley to Shanghai office, now if 2005, China was there $3000, by the way, India’s purchasing power PPP is very high. We don’t have to be $50,000 per capita economy to be able to buy what Americans can buy. At $8000, $10,000, we will be much richer than any other countries in the world. So hence, India doesn’t need 20 years to do that, I think we have 10 years. And hopefully, we’ll reach there.

Hans:

Make a lot of sense. And part of reason why bike sharing can work in China is because the subway system is so pervasive. And you need every time you go between two stations or from home station to work, having a bike sharing makes a huge difference. Like you said, bring public transportation to the users. On that note, I know this that India was working with Japan on high speed rail over three years ago. Haven’t seen much yet.

RK:

I love to talk about because I’ve been part of that.

Hans:

Would India decide to work with China in the future and be able to build that out or is something that’s more local here that’s preventing high speed rail?

RK:

So that’s a very interesting question. So high speed rail again, as I said, will connect two big cities, is right now being done within Mumbai and Ahmedabad, Mumbai and Delhi, Mumbai and Chennai is being done by one of the Chinese companies. So when there is a first time, first there was ideological debate. If we can’t feed our people, do I need bullet train? That debate doesn’t happen in a country where you don’t have democracy? Unfortunately, India, that’s a very big debate. Do any bullet train? We still have bullet cars. So we took three years to get over bullet cars and bullet trains.

Now, once we did that, then it’s a matter of after your land, correct? And sorry, doesn’t matter how much money you gave? And you can do nothing about it. Of course, it’ll be a two year process of court. Now, we have done that. So now actually, almost nine months ago, all the land acquisition was clear. So now you’ll see Metro running before this term. I mean, the bullet train running back before the term of the Prime Minister expires in 2024. Actually the bullet train, because I have huge connect with Japan, and I am working at the government level also. To get a lot of people, Japan is a very cheap money you know, there is plenty of money don’t know what to do with it. India has plenty of money has plenty to do with it. So we are looking at the cheap finance, infrastructure is a lot of finance. So I think you’ll see that. But those kind of mega projects are difficult, but look at Metro, Metro is going very fast. So that’s difference, and Metro is going mostly underground. If you don’t give the land I’ll go underground,  land belongs to me, which is the government. So I think from that point of view, yes, I’m sure you will ride Metro but not at the speed as in China because I don’t think India can afford.

Hans:

Sure, it is expensive.

RK:

It is expensive first, and then our airlines are very efficient. Our airline fares are almost now as compared to our military fares. Now if the bullet train, of course only thing you don’t have to go an hour early and wait at the airport. So I think bullet train will compete with airlines and it’ll be economy to decide, economics of the bullet train, not the politics of it.

Hans:

But as you know, there are 37 million people that takes up the High Speed Rail bullet train into Tokyo every day. It means that most people don’t have to live in Tokyo, and still work in Tokyo, which obviously lessen the burden of managing a city like Tokyo size.

RK:

I live in Tokyo for eight or 10 years. And let me assure you, any country or any city in the world, if they have learned for transportation, they should learn from Tokyo, Japan. And here the first line was not between Delhi and Mumbai. But between Delhi and Ahmedabad. There are these diamond traders, who travel like hundreds of them every day from Ahmedabad to Mumbai, so the idea it cannot be politically expedient to build a bullet train, it should be economically viable. And that’s how they read so they’re looking at economically viable corridors. So like Bangalore and Chennai is one, now Mumbai, Delhi, the halfway they have done, Ahmedabad, the next train. So I think we are being very prudent about it because you can’t build something is a loan, the 30 year 1% loan, but it’s a money, somebody is putting the money to pay back, how do they pay back? So I think India is being sensible about it, and once we see the first bullet and many people asked for it.

Hans:

China already had rail when China decided to do high speed rail another debate, why do we need to pay a lot more for that, but now you can live in Shanghai working Hangzhou and vice versa, and it changed people’s lives, changed the concept of space. Now you don’t have to live in the big city, you can live further away and still go back home while working in the big city, and that makes a realization happened on much more level playing field rather than just too many super big cities.

RK:

Actually there’s a better land utilization in urban planning. Either you can fill sit people in hundred storey buildings, and are you spread them hundred kilometer and make them come in two kilometers. That’s how we decide. So you look Yokohama, Chiba and also cities nearby. Even people from Nagoyaka come right? You know, so this is something great about Tokyo. Well, I hope I wish in my lifetime, but I’m sure it will develop differently.

Hans:

When I saw Tokyo subway map and high speed rail system in 2007. Shanghai had two lines and Beijing had one line, but you look at that map, subway map was the only way you know, top 100 cities in China can develop, you will be using this model. This is the most efficient way to manage cities. Move people and goods around.

Amit:

I think I also from a quality of life perspective. Otherwise, your life is very miserable if you live in the city. That’s why you can travel 50 minutes more, but you have a same life.

RK:

And despite having almost 40 million in credit, Tokyo area is still one of the most pleasant city. Fantastic network.

Hans:

So it’s just fascinating if you’re willing to be more global minded and see models around the world, you just know that that’s how things needs to be.

RK:

By the way just to let you know, I have proposed Tokyo government to put Yulu for the Olympics next year. Foreigners will go crazy for paying for those taxies and there’re not enough taxies, it’s too expensive. And they cannot read and write Japanese so they will not know how to go around. But you know map, I said I don’t care Yamaha, I don’t care. But had this and their head oh this is too fantastic. Or they’re struggling with this. I still have some great friends within the government there. And they said this is a fantastic idea, but you know, we are very slow people. I said Olympic can speed things up.

Hans:

Yeah, that was just amazing thing for Beijing in 2008, obviously.

Rita:

So when you’re solving this big problem in India, what are the most challenging part of it?

Amit:

So when we started in Jan 2018, this whole thing was absolutely absent. We did not have infrastructure for parking, forget for writing, there was no infrastructure for charging. There was no policy framework in place. There was no product, which you can say that this is for shared mobility. And last but not least, you will never see anyone using these kinds of vehicle for commute. And as I said, that problem was so big that you waiting for a taxi for half an hour, this guy canceling, and you spending one hour on the road for two kilometer and paying five x bump. We understood that if we get something reasonable, we will basically just get enough and more people for our size and scale.

So the first problem which we had to solve was the infrastructure for parking itself. And this is an unique thing we did within our country’s context. So unlike China, where the cities are reasonably modelled, the city created those spaces for parking of the bicycle next to every landmark. In our case, it was not there. So what we did, we went to the real estate developers, the corporates, and our pitch to them was that hey, your guys, they basically are spending two hours on the road. It’s not productive. You agree? Absolutely agree. Do you think you should do something about it? Absolutely. Yes, I feel pain. What can you do? You know, we are like we have a solution. Okay. What can you do? Give us this visitor car park area.

So they basically gave us his spaces in their tech parks, their commercial buildings to make what we call Yulu Zone. These Yulu Zones become the parking and the operational hubs for our service. Same companies sent an email, put up posters to their employees saying that, hey, you need not to bring your car. You can use Yulu. They downloaded our app. And they started using it. Same guys will go to their apartment. They will send a request that can we have Yulu? And then that’s how we seeded the creation of the infrastructure for parking. And as RK was mentioning the city, the government there are a lot of priorities. They started seeing that what is this blue collar thing? They started reading about us in the blog, in coverage media. And he being friendly, they called hey RK you know, how can we help? I said, okay, very easy. You help us by giving us spaces next to Metro Station, bus station, you help us with police. And also you make these dedicated corridors, the way you see in Europe, in China. And the good part was we basically we were able to create this infrastructure, which was non-existing in a matter of six to seven months, and this we believe and we call by the way is a 3C approach citizens, corporates and cities to create infrastructure which was missing in our country.

And trust me No one will give you even a one square inch space in our country. But because the problem was so big, because our intention that we were building it was so unique and novel. Everyone said, okay you take it. You won’t believe in Bangalore, we have 1000 such stations, only in five neighborhoods. By the way, we are not the city level. We are only a neighborhood level. And I’ll talk about that in a moment. These 1000, only three or four places we are paying parking fees, everything else is free. And you may ask you must be crazy guy to do that. But if I tell you the narrative, okay is your guy. He works for you, will you take money from him, extra money for pocket. No, I will not do that, or this is your problem. I’m solving it. You don’t take money from me. Suddenly, the problem became the solution where we said, okay, each one of us basically come together and build this ecosystem together. And the good thing we did from a corporate perspective, we have basically MLU. But from a city perspective, we got a policy made. So we basically co-drafted our country’s first micro mobility policy. Our business never needed any legal clearance. But we saw what happened in Paris, in Singapore, in San Francisco. They did not have any policy. But the city said you know what, you have been pain in my neck. Tomorrow, I have a policy and take the shirt off.

Overnight, scooter companies were asked to vacate the city. We basically understood that, if you’re talking about mobility is an integral part of the city, you better be friends with them. We led this whole co-creation of policy document, which was future ready. Earlier, they were thinking of going a European way of tendering. And when you have tender, there just way too many things happen in our country. It’s not fair, it’s not transparent, ugly money happens. We basically made things open, and to give it to all the friends, that point of time OfO, Mobike, Zoomcar, And Yulu, we basically were able to make the city officials believe that the open system of permit is better than a tender system. So, City of Pune got the first you know, first draft, they accepted that, same policy be transferred to Bangladesh. And then now this policy is become a gold standard for over almost 25 cities in our country,from a policy perspective, so we solve for infrastructure with the 3C approach. We solve for the policy by bringing people together and then post that because we will able to choose those areas where people were having pain.

So we were able to get even the required usage on the network, other than they waiting because we got a top of the shelf placement on those real estate buildings, where someone who used to use Uber or Ola, and wasting their life, they saw, okay, let me try Yulu, what’s how? They already have the app, and if they don’t have, they can download the app in one minute. And we started seeing usage building up. So all of those issues, basically converted into some solution, because we were so adamant that okay, this problem needs to be head on solved. And I would say that the unique approach of 3C probably is a process innovation. No company in the world has cracked something of this nature. And we are very proud, and why it happened because we went ahead with an open approach that okay, let’s fix this city with that intent.

Hans:

What is the most common form of mobile payment for users to use?

Amit:

So when we started Hans, Paytm used to rule the world, because everyone who has a mobile phone and has done even a single transaction, most likely it will be on Paytm. But you know that from last four years, so our country has caught up this UPI. So today, majority of our payments are happening through UPI. And we have integrated not only Paytm, who we can get Paytm wallet money, as well as UPI, but phone pay, Google pay, they basically are also being integrated and they dive much more UPI transition to us. And there are people who are kind of white collar people who would have a credit card, debit card, but that is 20%. But most of the payment is UPI.

Hans:

Very similar with China.

Amit:

And one more thing, which we actually did, we started the business like OfO and Mobike, where customers can pick up and drop it anywhere. So for first six months, we actually had a bit of time, there was a uniqueness in our service. Everyone was like, wow, you can drop it anywhere. How will you figure it out or you have a GPS here? But operationally, it was nightmare for us. We had like 2000 bikes spread over this mega city, and they will go into every nook and corner. My team would play treasure hunt on their phone, trying to locate my missing cycle. Oh where are you baby? Where are you baby and baby will be sitting in some, you know, some basement parking, and they spend like two hours in figuring it out.

Our theft and vandalism rate was very, very high. So 90% of assets we have lost, we lost it for six months because of that model. And then we started seeing what is happening in Singapore in all of these cities, where citizens are not happy, like what is this is like my, my parking, oh, this is a pedestrian area, you cannot do that. So then we move to a virtual dockless model, which is now popular in Singapore, where you can leave it anywhere, they have designated those areas. And that’s where our Yulu Zone strategy actually worked really well. We created those hubs. And we said to the people oh you want to use it, you’re to pick it from one of the station and drop it to one of the places in the network. And good part is, because of the pull from the market, a lot of citizens have been offering their spaces, their apartment complex, their buildings, they’re saying that within our app, we have a basically a provision, you can request for a Yulu Zone.

So now we have cracked the problem of infrastructure at scale. And this is not just one city, the same model we have been able to replicate across different cities. One more interesting thing we did, we do not see our business model in the city mode anymore. For us, our Lego block is a cluster, which is typically 20 square kilometer area, one neighborhood typically, and we basically create bunch of Yulu zones and typically 200 to 300 Yulu zones in a small neighborhood. So that the accessibility for you is never more than 150 meters. And you basically want to use Yulu service most likely in front of your building, they will be Yulu service, you take it up, and you go to destination, leave it, move on. And because we are only concentrated in that area, I don’t have to worry about the area without permission. So from a cost perspective, you know, from an opex perspective, from a manageability of the business, and not annoying our customers and other reasons, this whole discipline way of running business has actually worked very well for us. And this reflects in our opex, this reflection of the theft and vandalism rate and overall upkeep of the vehicles.

Hans:

And what’s your sort of loss rate and recovery rate for vehicles?

Amit:

So you will be really surprised, and I’ll tell you the number of vehicles we have lost so that you have an absolute sense as well. So from a bicycle perspective, we have right now 8000 bicycles and we have lost approximately 400 of them, and 90% of them we lost during the first six months, and then we pivoted to this Yulu Zone on to Yulu Zone, the loss rate came down dramatically low. Now, electric mobility, we are only six months old and we will not sure whether this will occur. We have been very lucky that so far we have lost only three vehicles. Only three, so we are in decimal digit number, and the reason why the number is so low, because we have done some interesting innovation here as well. First innovation is that these Yulu zones are created in commercial establishment, and in India, every commercial establishment has a security guard. 24 to 7, we don’t pay them. They watch it.

Same thing happened with residential buildings as well. Every residential building of this sort has a security guard, 24 to 7. Public places like Metro, they have some security system. A good 90% of our Yulu zones, wherever bikes will be at stations, they have some indirect supervision of asset. So that’s not the story. The story is actually something deeper.

We actually understood India psyche. And the Indian psyche is that if you do a good consequence management, then people actually understand your policy really well. So in our context, we actually ended up creating bike marchals, their bouncers, ex-defense people, or police people, we get to know so this for your understanding, we cannot stop people stealing our product. But our recovery rate is 99%. Because they don’t know they got this cute little thing. It has got something and we showing up and they’re like, Oh, yeah, who are you? And then we take care of these guys really well. And we make sure that you get a message for yourself, for your friends, for your locality.

And in certain tough cases, we get police help, who will give them hospitality for a week in a sense. And then post that entire neighborhood will be sorted. So we basically have found out that fine we are doing good for the society, but the antisocial people, we are tough, like we are really, really tough. And that is actually what has given us this goodness. And then we have built a human network of informants, who are those people on mom and pop store. They basically infom my on ground team, they’re friends with them. So the way our business runs, the cluster thing I was talking about, we hire a person from that area. He knows the local people, he knows the area. And then if something wrong is happening, he will have by nature of his relationship, that okay, this guy was messing around. And then we send our bike marshals to just tell him that don’t do that. This is again, an India centric process innovation. We were like good company but for bad people, we are equally notorious, and we’ll make sure that you get the message, because of that our loss rate, why it is in decimal places, probably the best in the world.

Rita:

What would be one piece of advice you would like to share with second time entrepreneurs, especially for those who already have some success under their belt?

Amit:

So by the way, I am very passionate about that. Outside of Yulu, I advise a lot of entrepreneurs actually both RK and I, we get a lot of young entrepreneurs who will come to us for strategy for some time, softer aspect, etc. So it’s very close to our heart. Now, my advice at least you know, the way we have evolved, both of us have evolved. There seems to be this craziness. And you know, first of all, 10 years ago, being an entrepreneur was not easy, because we never had a seed investor, we did not have anything. But now there’s a time when people thought that being an entrepreneur is a cool thing. They will find the better house by being an entrepreneur, look sexy, right?

And that’s not the case. You know, first thing, which it is, I do know, I asked him that, hey, do you really want to do that? You have a cool life. You get money in the bank every month. Why you want to get into this mess, you know, you will not have anything, no life, like no personal life. So the real passion it has to become genuinely, you cannot do for the oh, I am an entrepreneur because looks like cool. I’m a co-founder and whatever. And this is not something which people understand, unfortunately.

So my advice to any young entrepreneur, or wannabe entrepreneur, twofold. First of all, are you really passionate about that? Do you see the reason which is related to your personal life, or someone who’s your loved one. You lost someone for example, your friend, your best friend to cancer, and doing something on like to fight that. I know that you’re here for long term. You will fight your life with that problem right?

Second thing which sometime I feel not cool with, they go after some trivial things. And that’s something pains me, especially the serial entrepreneur who have gone to the journey. My wish is that they should pick up something which is meaningful, or you’re made money, buddy you know what repetition? Why do you do that? Some other stupid, I’m not trying to by the way, frame anything. Money’s a money. But you know what? You have been a mature entrepreneur, you have seen the journey. Please put yourself on some big problem for your foot. Maybe for your country for your city. And if you do that, then at least your life will be fulfilled. You will have someone like say doing the high school and doing the high school again. That’s not cool. No, let’s do you know the next level’s thing. You beat yourself in the game again, by doing something really meaningful, so budding on entrepreneur, please understand what you’re getting into. It has to be a reason. Serial entrepreneur, my wish is that they should do something meaningful. So that’s my, by the way, two things. And at least I am happy that it is we are walking the talk, we’re not doing…

RK:

More or less we believe in the same principles. That’s why we are together. But I think to serial entrepreneurs, my thing would be that you got to do good. You can do good by being an entrepreneur. And if you have had your feel of entrepreneur, you don’t have ways to keep yourself busy, rather than going to Bahamas or playing golf. Go and set this society as an NGO, or just because you’ve got free time and plenty of money in the bank. There’s no reason to do another startup. So do something good. Make good use of your time, talent and money, but it has to be meaningful.

Rita:

Okay. So we’re going into the last round of quickfire question for both of you. Just say what first come to your mind. How do you go to work?

Amit:

Yulu.

RK:

I  25 kilometers away. So I use my car.

Rita:

Among the cities, both of you have lived, which one is the one you go back most often and why?

Amit:

It is actually Bangalore for me, out of my 19 years of professional experience, I have worked here for 14 years.

RK:

For me, of course, Bangalore, I’ve lived here longest, but I go to Tokyo most often.

Amit:

And by the way, if I can add, I love San Francisco, and I love Beijing. And I’m not just saying it, but I truly love the country. Like every time I go to China, I actually feel inspired that look, this is how country can change or people of country can change.

RK:

I remember when I was in Tokyo in 90s. And I always saw all the I was into a company, which was into this business of construction and in urban planning and all that. So all the cranes and the big cranes of Japan are all in Shanghai and Beijing. And that’s what I told them. I said, listen, these guys, this company is going to take over, take over the big time. No Japanese believed me. But I said, I’m always good or bad for you. But it’s certainly coming.

Rita:

Last question, what’s something you read recently you would recommend?

Amit:

So plenty of books I’ve been reading. The most recent book I’ve read is about building the team. And not that I am new to that. But the narrative has changed. When I build a team for a movie, there was a different time. But now you are so much of pampered with a lot of startups. And you still have to find the person who is crazy about your vision, how to filter of those guys. So that’s a latest book I’ve read.

RK:

I read something called Purpose of Life by Kahlil Gibran. So I’m kind of trying to make meaning of what I’m doing.

Hans:

Excellent. Thank you so much. It was so much fun.

Amit:

I appreciate your time and really enjoyed this interaction. Thank you for this opportunity.

RK:

I love the concept. Yeah.

Hans:

Thank you.

Rita:

Thank you.

S2 Episode 13: Eric Yuan of Zoom: How WebEx’s Unhappy Customers Inspired Zoom (rerun)

Today’s episode originally aired in July 2018. The guest is Eric Yuan, the founder and CEO of Zoom, known for its easy-to-use and reliable video conferencing product. Zoom became a listed company in April 2019 and soon became one of the largest public SaaS companies in the world.

The recent outbreak of the coronavirus has made remote working part of many people’s new realities. It also puts remote working tools like Zoom under a stress test with the surging needs, which Zoom did incredibly well. It always works. GGV has been a happy customer of Zoom for a really long time and we hope this conversation can give you a hint on how it became successful in the first place.

Zoom is used by a third of Fortune 500 companies and 90% of the top 200 universities in the US. Eric was recently named the Top CEO on Glassdoor, with an approval rating of 99%, and was the first person of color to win the award. Eric grew up and went to college in China, arrived in Silicon Valley in 1997 and joined WebEx when it was still a small company. In 2007 WebEx was acquired by Cisco and Eric became Cisco’s Corporate VP of engineering in charge of collaboration software. Eric spent 14 years in total at WebEx and grew its engineering team from 10 to 800, and increased its revenue from zero to over $800 million. Eric holds 11 patents, plus 20 pending patents in the pipeline.

In this episode, Eric shared his story of being rejected a US visa for 8 times while in China, getting its first paid customer, balancing the needs of SMB and enterprise, and what makes Zoom different from its competitors.

TRANSCRIPT: 

HANS TUNG: On the show today, we have Eric Yuan, the founder and CEO of Zoom, the leading videoconference solution for enterprise. Zoom is used by one-third of Fortune 500 companies and 90 percent of the top 200 universities in the U.S.. It is based in San Jose.

Eric grew up and went to college in China, but arrived in Silicon Valley in 1997 and joined WebEx when it was still a very small company. In 2007, WebEx was acquired by Cisco, and then Eric became Cisco’s corporate VP of engineering. He was in charge of collaboration software.

Eric spent 14 years in total at WebEx and grew his engineering team from only 10 to over 800 and increased his revenue from zero to over $800 million. Eric holds 11 patents, plus 20 pending patents in the pipeline.

ZARA ZHANG: We at GGV are also happy Zoom customers. There’s hardly a day when we are not using Zoom for some sort of investment meeting, because we’re such a global team and we invest in global entrepreneurs, so we literally cannot do our job without Zoom, so thanks Eric.

ERIC YUAN: Thank you for having me.

ZARA ZHANG: So you were recently named the top CEO on Glassdoor, with an approval rating of 99 percent. The average approval rate on Glassdoor is 69 percent. You were also the first person of color to lead that list.

I wonder, how do you think you did that, and how did you feel when this was announced? What tips do you have for other CEOs?

ERIC YUAN: I would say first of all, that’s not my award, actually. That is our team’s achievement, because it truly represents the culture that our team has built. A culture of reflecting our core principles of happiness and caring.

So essentially for me as a CEO, my number one priority is to make sure I have a good culture, really focus on employee happiness and really care about our employees. Ultimately, if our employees, if we are happy, our customers will be happy.

I think that if you want to say what kind of tips, I would say just one thing. On day one, focus on the culture and make sure that your employees are very happy. I think that’s pretty much what we are doing here.

HANS TUNG: A lot of people are trying to do that, but may not be as successful as you have been or your team have been in doing it. What are some concrete things you have done that you think is different or unique, that other companies could learn from?

ERIC YUAN: I think on day one, I think just for myself for the labs at Cisco, when I showed up in my small office back then, I already understood the importance of culture and values. That is why we already define it even on day one. I mean just to myself, our company culture is delivering happiness and our company’s value is care. It’s very easy, very catchy.

Care means you care about a community, you care about a customer, you care about a product, you care about teammates as well as care about yourself. So we have a very well-defined culture and values. So on day one, already have that.

And also, some other things along the way when we further grew the business, we really focused on hiring those employees who can fit very well into our culture. Normally we don’t only look at those employees with great experience, great education and background; we really focus on self-motivation and a self-learning mentality.

I think that’s really important. Quite often you want to hire maybe a head of a department, you want to hire some VP level from other companies, that is not our style. We want to hire those people who can grow themselves along with our company’s growth.

I think those two things are really helping us. And for sure, there are a lot of other things. Work hard, open communication, keep everything transparent, always share with the team.

Ultimately, number one, go here as a team. I mean, our executive team needs to build a trust between our employees and our executive team. If trust exists, I think everything else is sort of easier.

HANS TUNG: I see. So it sounds like when you first started, you had a group of cofounders?

ERIC YUAN: No just myself, I am a sole founder.

HANS TUNG: Then your initial team, were they all young people? Were they people who were ex-colleagues who shared your same cultural values, to start this with you?

ERIC YUAN: I would say that more of the young graduates. After I left Cisco, and one-and-a-half months later, all the engineers, they all worked with me for many years before.

HANS TUNG: Right, that is what I meant by cofounders.

ERIC YUAN: You are right. Founding engineer team.

HANS TUNG: Founding team is a better term.

ZARA ZHANG: Forty engineers from Cisco followed you.

ERIC YUAN: That’s right, yeah.

ZARA ZHANG: So you decided to come to the U.S. in the mid-1990s because of the Internet, which you knew was the future but hasn’t really taken off in China. Why were you so sure that you had to leave China and come to America to capture that wave?

ERIC YUAN: Actually, the first time I saw, I listened to Bill Gates’ speech in 1994, in Japan actually. I was traveling to Japan. The company I worked for, they sent me to Japan for four months. I lived there and it happened to be that Bill Gates also was there to give a speech.

HANS TUNG: It was around the information highway?

ERIC YUAN: Yes exactly, 1994 I think. And at that time, I really was, how do you say —

HANS TUNG: Inspired.

ERIC YUAN: I was inspired by this speech.

HANS TUNG: I remember that.

ERIC YUAN: And put it on the Netscape browser and said wow. Just with an app, an application browser, I can do so many things.

HANS TUNG: Yeah, a very different world.

ERIC YUAN: A very different world, that is so right. I imagined so many things could happen; especially I think wow, you can buy a book online. I have some background.

HANS TUNG: Yeah, Amazon started in 1994.

ERIC YUAN: Exactly. But how to do that? I have no idea how to charge the customers, how to deliver. There were a lot of questions. Back then in China in 1994, 1995 if you talk about the Internet, most people were “What are you talking about?” You show them your email address, they don’t understand that either.

However, Yahoo, Netscape, is so powerful and so popular here. Back then, I thought about coming here to take a look and then go back.

However, for whatever reason I did not get a visa in 1995 and I got rejected. However, back then, sort of looking back is to practice my perseverance, I think okay. If I did not get a visa, I will try again, try again.

HANS TUNG: How many times were you denied?

ERIC YUAN: I tried eight times.

HANS TUNG: Eight times.

ERIC YUAN: Failed, and the last attempt I was successful, but it took me more than one-and-a-half years. It is already 1997. When I came here and I realized, wow, this is the first wave of the Internet revolution. I don’t think I want to miss that. So that’s why I settled down here and I joined WebEx to start writing code. Because when I came here, I could not do anything else. WebEx was small, and I even did not speak the language, what should I do? I went back to writing code for several years.

ZARA ZHANG: I think a lot of people back then in China heard about the Internet revolution, but not everyone has to pack up and leave and join it. So it takes a lot of grit to do that.

ERIC YUAN: Actually, even if I came here, to be honest, at that time I thought about just to come here —

HANS TUNG: For a few years and then go back.

ERIC YUAN: For a few years and then go back. That is exactly my thought. However, when you start building up something from very small and a lot of emotional connection with the product, with WebEx, it was a great team, and along the way sort of the thought to go back is faded away, I think.

HANS TUNG: And I mean, there are many engineers from China that came here and have done pretty well in the Silicon Valley, but many of them don’t have the management experience or develop their leadership style. How did you do that while working as an engineer or engineering head at WebEx?

ERIC YUAN: I think one thing I like in Silicon Valley is the pretty open culture here and a lot of very successful people, they would like to help you. So in my career, I have so many mentors. Even many, many years ago I really wanted to learn. That’s why I also promoted self-learning here at Zoom as well, because I wanted to learn. Also that is why I have so many mentors. When I learn from each of them, I think they give me a lot of advice. What’s your career aspiration? What you should do next. I think I learned a lot from those very successful other entrepreneurs or leaders.

That’s why not only do I focus on the coding to become an engineer, but also I tried to practice some management skills. That’s why when I joined WebEx, I was one of the first of several founding engineers but I got promoted to engineer manager, senior engineer manager, director, senior director, all the way up to VP. After I joined Cisco, I also got promoted to corporate VP as well.

I think the number one reason was just self-motivation. I knew actually I wanted to do something, and that’s pretty much. The self-motivation I would say probably does play a big role here.

ZARA ZHANG: We sometimes hear of the term “bamboo ceiling” here in Silicon Valley, where it is hard for engineers from mainland China to move up the ranks at the tech companies, especially because of culture and language barriers. How did you overcome those?

ERIC YUAN: I do think the language barrier is a factor, seriously. I was born in Shandong province in China, and when I came here I even did not speak the language. I have a very heavy accent, as you know, right? So even if I speak in Mandarin I also have an accent. But actually, I really do not think that’s a reason.

The reason, a little bit the culture, you have got to learn a little bit. I will give one example. Quite often for many Chinese engineers, given their background and education, quite often you have a new project. They do not share with others, communicate with others.

They are driven by the mission, I just have this idea. I just started, I even did not finish. Why should I let my manager and let other people know that? This is sort of their understanding.

But here it is very different. You have got to make sure we have open, transparent communication. Even before you finish, you have got to communicate. I think you need to learn that. Those skills you can learn. But quite often they say. “Oh, there is a language barrier” so mainly I would say this is a bad excuse. I think you really need to think about why, figure out a root cause. I think Silicon Valley is a pretty open culture. If you work hard, you achieve a lot of things and then you communicate with others, you will be promoted.

HANS TUNG: Some people ask why, for example, the Indian engineers have risen faster in Silicon Valley, and many of the tech CEOs in Silicon Valley today are of India decent. They also speak with a heavy accent. But how come there are not as many Chinese engineers who have risen to that level the way you have?

ERIC YUAN: I think a commonality between Chinese-background engineers and engineers from India, they all work hard and also they all are very smart.

HANS TUNG: Yes.

ERIC YUAN: The biggest difference is those engineers from India, they have good communication skills. They keep everything transparent. Before I do anything, I have a great say like a PowerPoint to share with you, why I wanted to do that. And you know, it is very open communication skills, and I think that plays a very big role.

ZARA ZHANG: So the idea for Zoom first came to you when you were a freshman in college in China, right? Could you tell us that story?

ERIC YUAN: Yeah, that is a long story, but anyways. I was a freshman, my girlfriend was a sophomore. That was 1987, I think. She lives in another city. I was born in Mount Tai in the Shangdong Province. Between the city where she lived and the city where I lived was very far away. Every time I wanted to visit her, it would take more than 10 hours.

HANS TUNG: More than 10 hours?

ERIC YUAN: More than 10 hours.

HANS TUNG: One is the eastern side, one is the western side of Shangdong.

ERIC YUAN: No direct train either. I forgot, so probably at that time, you took the train and then probably in the middle of the night, you needed to change to another train. It was a very long journey. And also, I can only see her maybe twice a year, on the winter break or summer vacation.

Someday, I remember that actually. Someday if I can have a smart device and with just one click I can talk with you, can see you, that was my daydream, right? And every day I thought about that. But when I started Zoom, I started to connect the dots. It’s like wow, I thought about that before but the technology was not ready, but the idea was there.

HANS TUNG: Makes sense.

ZARA ZHANG: So you were on the founding team of Cisco WebEx, and you were there for 14 years. What made you realize that it was the right time to leave and start your own company?

ERIC YUAN: Actually, I thought about leaving WebEx, or Cisco WebEx, several times, because I would say Silicon Valley is a startup valley, and you better join a startup company or do something. So many great leaders really inspired me.

However, every time when I thought about leaving WebEx, there were a lot of emotional connections because you have to grow that piece. You work together with so many other teammates, it is really hard to leave. Quite often I am just, “okay, let’s stay for another year, another two years.”

And only until 2010, and back then I thought about leaving, however, I was still not fully ready. But one thing I realized back then, every day, every morning when I woke up, I was not happy, because when I visited a WebEx customer, every time I personally felt very embarrassed, because I did not see a single happy WebEx customer.

HANS TUNG: Why is that?

ERIC YUAN: Because when we built WebEx, we only focused on one use case. That use case was to have you share the PowerPoint or share the desktop, but it can’t be you and I in an audio conference. But 13 or 14 years later, there are some brand-new problems. Like every business, they have got to use multiple solutions. They want to enable conference room. They want to have video conferencing and have one unified solution. They wanted to have a cloud-based conference room solution. You wanted to make sure no matter where that team is coming from, we also can guarantee good voice over IP quality and video quality. WebEx was not designed for that.

HANS TUNG: For Internet?

ERIC YUAN: Yeah, exactly. This is a collaboration architecture. You’ve got to rewrite that. At Cisco, Cisco wasn’t ready to change its collaboration strategy. I had no choice but to leave to fix all those WebEx problems. That is when finally, I decided I’m going to leave. I cannot suffer from that anymore. So that’s the number one reason.

HANS TUNG: And when the 40 engineers followed you, how does Cisco react?

ERIC YUAN: First of all, I managed more than 800 people, so those 40 people is just a very small fraction, not any impact whatsoever. However, Cisco probably also saw, I have no choice, meaning I have no way to build a better solution.

HANS TUNG: It’s already Cisco.

ERIC YUAN: Yeah, exactly. So even if he’s a leader here, I think this market is not, they do not think there is a future. Otherwise, they all probably would have allowed me —

HANS TUNG: Allowed you to do what you wanted to do.

ERIC YUAN: Exactly. For the first several years, nobody paid attention to what we were doing.

ZARA ZHANG: So when you started Zoom, the videoconferencing market was already pretty crowded. There were a lot of other solutions like Skype, Google Hangouts, WebEx, FaceTime, et cetera. What made you think that you could still carve out a market? I think you’ve said before that the biggest differentiation for Zoom from the other solutions is that it just works, which I agree. So why does it work?

ERIC YUAN: You’re right. We’ve got to look at it from a customer, from an end user perspective, because I talk with many customers. Literally, I did not see a single happy customer who would tell me, “Hey, we really enjoying your solution.” So meaning all the solutions back then, I would say were terrible, no matter which solution. Because most of them were built for other purposes. None of them were built to embrace cloud-based video collaboration. So that’s where I saw the opportunity.

Our philosophy was that if we can build something to let a customer enjoy using that, I would say there’s a chance. That’s the reason. Because quite often, if you think the market is too crowded, if you don’t really understand the customer experience, you think that game is over, you don’t jump on that, I will say you are going to miss a big opportunity.

HANS TUNG: I just find it so easy to use, that you don’t have to download the software and remember a login and you just click the link and it just works. That makes it so much easier on multiple levels, to start using your product.

ERIC YUAN: Usability is really important. I think I’ve got to make it easier, and also the quality is very important.

HANS TUNG: Yes, of course.

ERIC YUAN: You are essentially right. It has got to work.

ZARA ZHANG: It works even when the service is not great with the Internet.

ERIC YUAN: You are right, that is why we have a very big team, focusing on optimizing our technology in a very low and unreliable network.

ZARA ZHANG: And it works in China.

ERIC YUAN: Yes, it has got to work.

HANS TUNG: We also notice that FaceTime audio works quite well, but obviously FaceTime video does not. How do you balance making sure that both audio and video can work well?

ERIC YUAN: So first of all, between video and audio, audio is still more important than video. Even if I can see you, but if your audio is choppy, nobody is going to use that. So essentially, we prioritize audio traffic over video traffic. Even in a very, very unreliable, very low bandwidth environment, and we focus on the audio.

Essentially we have an average, even at a data loss rate of like a 45 or 55 percent, we still can recover, we still can make sure your audio stream works. So a lot of what I would say is the very hard work is there.

ZARA ZHANG: Who were your first few customers, and how do you go about onboarding them?

ERIC YUAN: Oh, we were very lucky. Our first paid customer was Stanford, the Continuing Studies Group. Our solution was not ready yet and at that time I remember, that was November or December 2012. They were looking for a solution for their online learning, online teaching platform and were still in the alpha phase, and they tested all the solutions, and they still found Zoom quality was better. And before our solution was fully ready, they already became our paid customer and really boosted our confidence. That was our first customer.

ZARA ZHANG: I remember you also did a program at Stanford?

ERIC YUAN: Yeah, that is more like, I would like to take a break because I worked very hard in 2006 for my EMBA program and lived at Stanford, the campus for the whole summer. Yeah, just a break. I did learn a lot of things.

HANS TUNG: 2012 was an important year, because that was when the MOOCs the massive online education programs are starting to get rolled out, so it seems like you captured the right segment, a new segment.

ERIC YUAN: You’re very right. Actually back then, we were lucky to get the first several customers, all of them were from the education sector, some colleges. For now, if you look at the top 200 nationwide universities, 94 percent or maybe 96 percent now already became our customer. There is another benefit by focusing on higher ed, guess what? Four years later they all join our workforce, and it had a huge influence.

HANS TUNG: That was a very strategic move, yeah.

ERIC YUAN: It was a very strategic move.

ZARA ZHANG: Why did you decide to focus on the enterprise market instead of consumers?

ERIC YUAN: The consumer market, that has very definitely been small. Quite often, you have to have a free product, your monetization strategy is probably based on ads. Real-time communication and collaboration is really hard, so for you and I have very important business meetings, I do not think it makes sense to put ads.

However, there is a real demand from knowledge workers from those business customers that are looking for new solutions. That’s why I think from a business model perspective, I think the business sector is much better.

HANS TUNG: Will you ever have a consumer version, so the younger version of you can talk to his girlfriend?

ERIC YUAN: Seriously I think yeah, we are thinking about that now. Because when I was young, I suffered from that. I do not want anyone else to suffer from that anymore. Yes, in the future we might. But for now, that’s not our top priority. We have so many SMB customers, big enterprise customers, huge market opportunity ahead of us, so we better focus on the business customers first.

HANS TUNG: Right. How do you balance the needs of SMBs versus the bigger enterprise? Because big enterprise, as you know, always ask for more security, more customization, and so forth. So how do you balance that?

ERIC YUAN: That’s a good question, because we know down the road we needed a balance between SMB and enterprise. That is why on day one, we undertook a different strategy. So meaning if first of all, SMB customers on day one, we did add a lot of enterprise features already.

I would say for now, there’s no need to balance because the solution is all ready. All the security features, all the enterprise elements, all of those features are already added in. Otherwise, after you got the SMB customers, you sort of transition from SMB folks into enterprise, you need to do it —

HANS TUNG: It was hard?

ERIC YUAN: Very hard, but we knew that. That’s why I say, you know –.

HANS TUNG: From day one you were gearing towards the more enterprise solution.

ERIC YUAN: Exactly, very true, yes.

ZARA ZHANG: From where you sit, how do you see the future of work will evolve? Do you think teams will become more and more distributed, and do you think people who are actually using videoconferencing will increasingly replace in-person interactions?

ERIC YUAN: Absolutely. If you look at the trend, so first of all I think almost every company, they have more and more workers working remotely, you essentially become a virtual workplace. This is the number one thing.

If you have a virtual team, you still need to collaborate to get the work done, so you have got to have good communication tools. When it comes to communication tools, I would say only four. One is email, another one is chat, a third one is a voice call, the fourth one is video.

The email and the chat, I would say email, I do not think I use that. It is not for real time. Chat is okay for the very short conversation. It is very hard to imagine like five people to talk about something for one hour via chat, it would not work. And then voice is real time, however with voice the problem is the participants are always multitasking, and it also doesn’t work. The communication tool is really important.

Another thing, another change is if you look at today’s workforce in the United States, over one-third of our workforce are millennials. They’ve grown up along with video, along with their phone. if you give a phone number that lets them dial into an audio conference, they do not like that. Nobody wants to use that. They all turn on the video. Video communication, I think it’s going to become more mainstream.

Another trend is, looking at today’s workplace, they will have more and more conf rooms, less offices. If you visit Facebook, a great company, even the CEO Mark Zuckerberg, he does not have an office. It is very open space, and you need more and more the conf rooms.

That’s why, when you have more and more conf rooms, you’ve got to have a solution. You got to have a cloud-enabled video collaboration solution. That’s why I think video is going to play a very role to enable the modern workplace.

HANS TUNG: In addition to video, as you know, messaging has also become quite popular in the workplace with Slack in the U.S. or with DingTalk from Alibaba in China or WeChat, you see more people using that. How do you see your solution work with the various messaging platforms over time?

ERIC YUAN: Yes, the messaging platform is also very important. I would call that async collaboration, and quite often the customer already probably sees Slack or maybe Microsoft Teams with interoperability is very well. However, those are more like for the group conversations, meaning you don’t need a real-time response.

You still need to have video collaboration, because you want to call a meeting, you want to make a decision and especially if you want to talk with customers and partners or demonstrate your software, you still need to have video collaboration tools like Zoom.

Obviously, the combination between those two tools can really make a huge difference for the modern workplace.

ZARA ZHANG: So how often do you go to China these days? And do you pay attention to the tech developments there?

ERIC YUAN: First of all, I only travel, I mean the business travel, I only travel at most twice a year, and I did that for four years already. If I travel very often, so that means our product doesn’t work. And yeah, I did not travel back to China for three years now. By August it will be three years.

I wanted to travel there, but however —

HANS TUNG: A lot has changed in the last three years.

ERIC YUAN: Yeah, because there are so many customers here and we visit, talking to the customers, a lot of projects here. However, we are using video conferencing in Zoom and I did not see a huge problem because every day we open up our video call and I still can talk with them.

HANS TUNG: What’s the rough percentage of revenues for you outside of the US?

ERIC YUAN: North America, probably around 90 percent. The rest of the 10 percent, most are from —

HANS TUNG: Europe?

ERIC YUAN: Yeah, from the UK and Australia.

HANS TUNG: UK and Australia, English-speaking countries.

ERIC YUAN: Engish-speaking countries, but this year we are going to double down on —

HANS TUNG: French or German?

ERIC YUAN: Yes, France, Germany and Japan as well.

HANS TUNG: Japanese makes sense.

ERIC YUAN: Yeah, those three markets are growing very well, and we see that there is huge growth.

HANS TUNG: Any growth coming from Southeast Asia much? Are they developing markets?

ERIC YUAN: No market at all, because Southeast Asia, I would say it is still like a consumer-driven economy and B2B, I do not think they are taking off yet, but we will. We just do not know when, so that is why we focus on North America and the English-speaking countries, and Europe and the Japanese market.

HANS TUNG: How about India, especially with all the cross-border?

ERIC YUAN: India, we have many, many users from India because we have so many customers here, almost every company, they have a product office or a something.

HANS TUNG: In India or Philippines.

ERIC YUAN: Yeah, exactly. We have so many users from India.

HANS TUNG: Got it, makes sense.

ZARA ZHANG: Your LinkedIn profile says delivering happiness to our users. Your happiness is my happiness. I think not all CEOs see delivering happiness as their mission, and a lot of people would associate Zoom with efficiency or convenience, not necessarily happiness. What made you realize that happiness is the key to your company’s success?

ERIC YUAN: That is a great question. It just sort of boils down to my personal story, because when I started the company, I was already 41 years old, not very young anymore, already very late.

But however, also I learned a hard lesson, because I really wanted to understand, what’s the purpose of life? When I was young, whenever I had that question, I just don’t have an answer. Seriously, I do not quite understand. But along the way, I really understand that the purpose of life is to pursue happiness. It is about happiness. That’s really the very important thing.

I also learned how to pursue happiness, especially how to pursue a sustainable happiness. I learned in the former is, you’ve got to make others happy. If you make others happy, your happiness will be sustainable. So for me to build the company, also to apply that philosophy to the company world, the business world, if we can make a customer happy, our company will be happy. That happiness is also sustainable. That’s why this is our company philosophy. We do all we can, always communicating with our employees, do all we can to make sure our customers are happy, and then we’ll be fine.

ZARA ZHANG: So we are going to move on to the last part of the interview which is a set of standard questions, rapid fire. The first one is who is the entrepreneur you admire the most and why?

ERIC YUAN: Entrepreneurs or leaders? So it is different. I think entrepreneur, I would say I really admire Mark Zuckerberg, and given he is very young and built a great business in Facebook and huge influence. Very positive, good influence to the world; and look at what he achieved, what he did.

HANS TUNG: And what more could be coming.

ERIC YUAN: Yeah, I think I really admire him.

HANS TUNG: How about leader?

ERIC YUAN: Leader I think, I really admire and I learn a lot from his leadership advice is the former CEO of Wal-Mart, H. Lee Scott Jr. I think his wisdom and advice truly shaped what I think about leadership, a lot of things.

I could give one example, like “whatever you said the first time will be misunderstood or ignored”. You know, a lot of things like that.

HANS TUNG: Words of wisdom.

ERIC YUAN: Ability to give constructive, honest feedback is a rare talent. So many leadership wisdom, I think that really shaped my leadership style. I think I really admire him.

ZARA ZHANG: What is something you read recently that touched you a lot or you recommend?

ERIC YUAN: I do like reading a book. We also have a book club here, by the way. Any employees, whenever they buy a book for myself or for their family member we always reimburse, because when you promote self-learning you’ve got to promote that as well. The book I’m reading recently and I have several books I read at the same time. One book, it took me for a while, I am still not finished.

Almost done, almost done, is Principles from Bridgewater Associates, the number one global asset management company. A wonderful leader, great entrepreneur. That book is also, but it took me a while. Almost done. The last several pages.

ZARA ZHANG: I think China is obsessed with that book now.

ERIC YUAN: It is a wonderful book. I highly recommend that.

HANS TUNG: What do you do for fun?

ERIC YUAN: I just enjoy spending all the time with the kids, and sometimes watching my son playing basketball, send my daughter to dance school. Every time when I spend time with the kids, I just enjoy it.

HANS TUNG: In the Valley, obviously work-life balance is very, very important but in China increasingly you see a lot of work-life integration. People try to simplify their whole life to fit into their work. Can someone truly be happy working like that, in your opinion?

ERIC YUAN: First of all, don’t think about or don’t try to pursue a formula to balance work life. As long as you go in that direction, you never can have an answer. Just think about, because if you have a passion, take Zoom for example. Every day, I just want to come to the office. I just wanted to work on something, because I think this is my life. I never think about, that is work. I enjoy doing that. If you always think of the balance between work and life, that means you still did not figure out a passion yet.

Answer to that question first. If you find the answer, I think that you never will go back to ask how to balance between work and life.

HANS TUNG: So it sounds like you like a work-life integration as well.

ERIC YUAN: Yes, as a true integration.

ZARA ZHANG: Thank you so much for your time.

ERIC YUAN: My pleasure. Thank you for having me.

HANS TUNG: Thank you, it was fun.

ERIC YUAN: I appreciate it.

S2 Episode 12:Vamsi Krishna of Vedantu: Scaling Personalized Live Tutoring in India

This episode is co-hosted by GGV’s investment colleague Madhu Yalarmathi

In this episode, we have Vamsi Krishna, CEO & Co-Founder of Vedantu. Vedantu is India’s leading online tutoring company that enables students to learn LIVE with some of India’s best-curated teachers. The name Vedantu is formed by two Sanskrit words Veda (Knowledge) + Tantu (Network), signifying a ‘Knowledge Network’ where any student can tap into and learn from a teacher, anytime-anywhere. Vedantu is a GGV portfolio. 

In our conversations, Vamsi shared his experience in moving into online after building a successful offline tutoring center, getting his early users and his definition of an “EdTech” company. Before starting Vedantu, he has been a teacher for 13 years and founded a test prep company Lakshya, which was sold to a listed education company in 2012. You can watch Vamsi’s TedTalk in which he made the argument against the standard curriculum. 

TRANSCRIPT: 

Hans: Today on the show we have Vamsi Krishna. Vamsi is the CEO & Co-Founder of Vedantu. Vedantu is India’s leading online tutoring company which enables students to learn LIVE with some of India’s best-curated teachers. It has some 500+ teachers who have taught more than 1 Million hours to 40,000+ students spread across 1000+ cities from 30+ countries around the world.

Madhu: Vedantu is founded by a team who have been teachers themselves with over 13 years of teaching experience and has taught over 10,000 students. The name Vedantu is formed by two Sanskrit words Veda (Knowledge) + Tantu (Network), signifying a ‘Knowledge Network’ where any student can tap into and learn from a teacher, anytime and anywhere. Before starting Vedantu, Vamsi has been a teacher for 13 years and founded a test prep company Lakshya, which was sold to a listed education company in 2012. Vamsi graduated from the Indian Institute of Technology in Bombay with a bachelor’s degree in Technology and Engineer. Welcome to the show. Vamsi.

Hans: Welcome to the show.

Vamsi: Thanks Hans, and thanks for the invitation for having me over.

Hans: So I’ll start first and ask the obvious question. You were trained as an engineer, how decide want to be a teacher?

Vamsi: Vamsi: That’s like, so we’re all trained to be engineers, but as in India, very few percentage of us actually go on and follow that profession. But anyways, that’s that’s a great question. So this was more serendipity is what I would say. Me and my founders, the fortunate part was,we knew each other even before college, few of us were childhood friends. So the idea was that we wanted to do something together. But this was 2005, 2006 in India, startups were not as glamorized as they were today. So the idea quickly got shattered, we joined some few jobs, and into the jobs, we decided to work on few ideas. And two of my friends were placed in a very small, remote tier three town, it was actually a very small town in northern India, Punjab. We ended up actually going there many times. And we were thinking of what to do, what idea to pursue. And this town had a big plant, chemical engineering plant where these guys were placed in and the kids of the factory workers out there, and few of the kids around, they needed some mentoring and coaching. So informally, we just started mentoring and teaching them and that experience was extremely satisfying. We saw there was a lot of issue around the awareness of the students itself. So we made them aware we took some sessions in the local schools. And, frankly speaking, that’s how the journey in mentoring and teaching really began, because that experience was simply very, very satisfying. So I would say that was the literal start of our entry into the the field of teaching.

Madhu: After operating the company for eight years, you gave a famous TED Talk, in which you argued that standard curriculums and standard delivery mechanisms won’t work. Share with us more on that argument.

Vamsi: Sure, Madhu. so quickly on a journey of Lakshya itself. We started that as a brick and mortar teaching setup. It was just us founders who started teaching and slowly eventually we had some of the like-minded individuals joining us. For first three years, it was just in one location where we taught and this was a tier four location in rural India, Punjab, and the very first year of 36 odd students who we taught first cohort, the, to our big surprise, 11 students out of 36 got into the top five IITs, in which actually the selection rates are less than 1% out of million plus students to give the exam. And this was from a very small, remote place in India, where there was no precedents of even once get selected. That actually, that that experience really influenced a lot and it shapes us what even today we do. The big insight there was, unfortunately, and I can speak this about India and many other parts of the world as well, that teachers become teachers more by chance than by choice. And unfortunately, in society, the best of the society do not come back into teaching.

And the big realization for us was that when people like us, you know, who are from good colleges and what you know, the better of the society can come back into teaching And, you know, if can give awareness and mentoring and with passion, notice the students. That data is very high. And that was a big inspiration. And to your question, and we did that for over seven, eight years, the results speak for itself, our average selection in this in the overall eight years was 17.8%, while all other selection totally was less than 1%. And so that was a big inspiration. And what we really realized was that the quality of teaching, one is really not there for the mark. And a lot of it has to do with, you know, the whole glamorization of the teaching itself, you know, in a third world country like India, and many other parts of the world as well.

And if you don’t have the best of the society coming back as teachers, it creates a lot of problems. Now, coming back to that TED talk the thing which the government schools is to standardize the curriculum in order to hide the quality of the teaching part itself. But that just doesn’t solve the problem. What we realized was that if you can actually have great teachers, teachers who are inspired, then you really need not go out there and standardize everything you can actually give them freedom, right? If the teacher is there, who is very passionate and who is inspired, the fact that that teacher is able to inspire and generate that interest in a child that itself starts the process of teaching and learning, right, and then the kid itself is so inspired, that learning becomes a consequence. And that was a very big insight. And that’s something we’re driven by even today, we give a lot of focus in generating that interest, creating that interest in a child. And what we have seen consistently is once that gets generated, learning just becomes a consequence.

Hans: For those of most of us who invest in U.S. and China is not as hard to believe that looking at the fast internet user growth, that investing in online education company makes sense. And China had two New Oriental and TAL, both started offline and moved online and did extremely well. When you were doing your second startup, back in early 2012. Internet users in India were growing but not as fast as was happening around the world. And that was way before JIO and 4G came out in India with the cheap data pack. So how did you gain confidence that in India, the right way to build your second startup and education should be online?

Vamsi: Oh, that’s a great question Hans. And that was a question we’ve been confronted and asked numerous amount of times when we were starting the second venture Vedantu.

I will tell you the background to this, I think the biggest contribution to that goes to Lakshya, the first offline venture we were doing. And we did that for eight, nine years. And what we realized there was that what gave us success was the whole orchestration of multiple attributes, like for example, teachers, great teachers, then training them on, you know, on good content, orchestrating that according to the level of the child, and then segmenting the children according to their own grasping levels in cohorts and batches, giving them content after the class, testing them, motivating them where they were trying. So all these things, you know, all of these things, which we call as service layer, is extremely critical and important to bring for learning superior learning outcomes, or results. So when we were actually thinking of Vedantu, the online venture, the whole thought process was that you know what, we got amazing success in terms of learning outcomes at Lakshya, how do we create an online version out of this?

At that time, this is 2013/2014 times in India I’m talking about. So at that time, as you said Hans, 4G was not there, in India, internet, no connections or access is patchy. So it was very tough to, you know, think about, you know, this whole construct of LIVE tutoring. And add on to that fact, there were a bunch of other companies who were doing asynchronous, you know, models, which is recorded video models. So at that time, it was obviously extremely tough for us to think about LIVE, but I think what convinced us was, at the end of the day, in the long term, what will give you success is the success of the child. And we were extremely convinced teachers and ourselves, having taught for, you know, so many years and having seen the success at Lakshya, that you have to have a full stack service model, in order to not just replace an offline experience, but actually bring about a learning outcomes, and the closest one we could think of, which could actually achieve that was a full stack solution, which is a LIVE tutoring model. So I think keeping the student at the center, and keeping the child’s learning outcomes and experience at the center, you know, really inspired us to go about doing that.

Now comes to execution part and which was extremely tough, I would say, because at that time, you know, 4G was not there. Nobody knew about LIVE tutoring. So the, the initial days were extremely tough. So the least, what we did was, we started with a one to one model in LIVE tutoring itself. So the one teacher teaching one student, and why we chose that because, you know, it was easier to execute. Right? And I know and definitely less complex as the group model, which we currently do. And we did that for almost one and a half years, right, for almost 2014 or 2015. Entirely we did that, and the idea was, first of all to see whether this works in a country like India, will a teacher be able to teach, the student will able to study? Will actually come back? Right? Because one year at least what it takes, you know, because in India and that’s one you know one thing I would like to tell the audience here that in India we follow an academy year cycle, like a, look unlike, unlike a semester cycles in other parts of the world. So one year was important for us to validate with the child comes back, he likes the teacher, and that once we started seeing that happening is when we shifted to the group model.

Madhu: I wish this existed when I was preparing for IIT. I went to the offline experience, which which was phenomenal just because of the teacher that I have, and not many people do get access to those teachers. So for our audience, help us explain how did you take the best parts of the offline experience and how did you layer online to bring the Vedantu experience?

Vamsi: Oh, yeah, so I think there were a lot of parts which are common, a lot of parts which needed to be rethought and reinvented from this medium perspective. So the good part was the teachers itself. So I think that thing as founders ourselves,  having been teachers and having trained and deployed more than like 500 teachers in our, the offline experience, that was pretty, you know, I would say natural and easy here in Vedantu.

We went through an almost a similar process in identifying teachers who are more, we use that word teachers by choice, then by chance. And that’s very important, because when a teacher is therefore by choice, you really see that passionate energy, you know, flowing in. So that was the easy part. And that’s, I would say, it’s pretty common. We had to improvise multiple model for online media, like for example, as teachers who were 15 years 20 years experience in offline, not all of them were comfortable teaching online, so there were definitely a few things which had to change with respect to our recruitment process itself, but that’s on the teachers, but the bigger challenge was on the interaction with itself, because in a good best offline experience, a good teacher interacts with the students on a real time basis. And in online the biggest issue, you know the perception issue when the parents and the student says, like, how can you interact, right, and that was a big challenge to solve. Otherwise, there is no difference between a LIVE class and a recorded video lecture. So this is where we invested a lot of, you know, content and pedagogy and technology product. And this is where we continue to invest even today. So, just to help you visualize, if you think of a LIVE interactive class, happening over a group of let’s say, 50 or hundred students, spread across, every few minutes, there will be some other interaction in the form of the teacher asking the children on a feedback and the child immediately showing some feedback by actually clicking on the content, or the teacher taking some form of a quiz, and where the children are able to attempt that quiz, or do some interactive exercises, and ask their doubts, and so on and so forth. So, in fact, the entire pedagogy is designed in such a way that every few minutes, there is some interaction, right? And that that is one big element, which makes a LIVE class so much more engaging, and so much more, you know, interactive, and if not better, it closest to the best of the offline experience.

Hans: So during the due diligence process, we play with your app and attend classes and see that they’re like you said there’s a lot of like quite a bit of interaction between the teacher and the students. It says it is one to many model, it is online. Can you sort of walk through what are the scalability aspect of the business model to make it easier for new students to get acclimated to this learning environment. And for the teachers to be able to share best practices and improve very quickly.

Vamsi: So first of all, there’s a lot of orchestration as we call it, which happens between the teacher content, right? So the advantage we have in online is every lecture is recorded. And we can actually go back and look at how it has happened and the data which we’re able to generate on top of that all it helps us in improvising.

So, first and foremost, how we designed this entire experience is break the class into parts, and ensure that every few minutes there is some interaction happening. This interaction is not just for the sake of interaction, but actually we are capturing data from these interactions and using that data to profile the students into clusters so that we are able to personalize the experience for the students both inside, and more importantly, after the class. So we follow what we typically call here as a two-teacher model, in which we have a main teacher, we call them as master teachers at Vedantu. The main teacher, who is the main lecturer who takes the class, and he supported by the secondary teachers, or you call him TS, right? who is also present inside the class. So think of like for every, say, approximately 50 students, there will be a secondary teacher. And let’s say if the entire classes of 200 students, there will be four secondary teachers and the one main teacher taking the class. So the main teacher’s role is to take an extremely engaging class. It’s full of energy, it’s very high quality content, interactive content, which is used, and there are a lot of interactions in terms of what we call as hotspots. I’ll talk about that later. And also quizzes and a lot of interactive content right? It’s very tough for me to, you know, help visualize, but you know, as you said, You already saw that, it’s, you need to really experience that. So, you know, for early grade students, they can actually do exercises like drag and drop, or fill in the blanks and bunch of stuff, right? Now, what we’re doing at the background is a capturing all this data, we know exactly how much time did the student take to attempt the question? Was that right? Was that wrong? You know, we do almost 76 parameters we capture. Now what we do is we have this data, so it helps us in three things. One, it helps us personalize content and interventions for the child. So now for example, let’s say there is a student who we see has done the first part of the lecture amazing. But the second part he had, he didn’t attempted or he attempted  fewer rounds. So the secondary teacher has this information. And the post class content for the child will be customized according to these data points. So he will probably have more questions on the second part, right? stuff like that. Other case example is let’s say he was not attentive during the second part, he was not looking at the screen itself. So the secondary teacher would probably call him up and would give him content specific to that and say that you know what, I could see that you will probably not you know that into or present, you can probably, you know, use this and bring up to the speed, and so on and so forth. Right. So that’s the second part. Because we have data of the engagement of the entire class on this content. It also helps us improve our content itself, and the teacher training. So for example. Let’s say at the third part of the lecture, we saw a lot of doubts coming up. Now we certainly know the content team knows that you know what this part has many doubts coming up. So probably there is some problem with the pedagogy itself. So we then improve on the pedagogy, or helps us on teacher training. Let’s say there are two teachers taking the same class and one teacher has a very high engagement score, the second teacher has relatively lower, so we can go out and train that second teacher on that. So in a sense, Hans, if you look at this, we certainly have made a product out of the, you know, our lesson itself. And we can actually do those AB experiments, improvised content, teacher training, and that helps us iterate so much faster than comparable offline, in our center. Right. And this is a huge advantage, which I believe online companies have.

Madhu: As someone said, you’re creating more of a painkiller, rather than a vitamin. By that in Indian cities. either you have to travel to three hours every day to go to these tuition center hubs. Or if you’re a middle class family from tier two or tier three cities, you move to your city and your family, middle class family has to sacrifice earnings or time rent to move there, right? So you fundamentally giving the best of the offline world to the online world, whereas the rest of the industry is more focused on adding supplemental education. This is a hardsell to users. It makes a lot of logical sense, but to have a leap of faith and move towards a fully online instituition to prepare for their most important moment in their life, an educational life. It’s hard so how did you get your early users and how are you going about it now?

Vamsi: It’s a very hard sell. I think the big inspiration was our first experience with Lakshya when people like us ourselves, none of us were from that city of, you know, northern India, Punjab. I was from Bangalore and my other friends are also from another top five, six cities. The fact that we could go there and we could teach there. And that actually helped get us this massive data in terms of selection rate was a big inspiration for us to see that you know that if people like us, we just like us can actually go into this tier three, tier four locations, there is a huge data.

Unfortunately, if you are in a big city, you might be lucky to get a good teacher. But if you are in a tier two, tier three city, even if you are willing to pay, the willingness to pay is very high for education in India, by the way, but even if you are willing to pay, you won’t get an access to a good teacher. And that was the fundamental problem we’re trying to solve through online at Vedantu. Now to your question, when we actually started Vedantu, we wanted to be the primary, we wanted to replicate and better the best of the offline experience. So all of our positioning was, if you are coming to Vedantu, you need not go to any offline center. So in a sense, we wanted to replace the offline centers. So we were not at all positioned in a supplementary thing. So yeah, it’s a very big sale because for parents they had studied in offline. So that’s the default which comes to their mind. And for us to be able to convince them to think about online as a serious medium was a tough task. Compared to the fact that in India, parents really think of online equaling games, and that obviously didn’t help us at all. So how we went about solving their problem was really vent and first started giving a lot of exposure to our online classes itself. Because no matter how much I say, it’s best for the parents and the students to actually come and attend. And that’s when we are they are able to appreciate and value the great teacher and you know, the whole interaction but which happens. So our strategy was twofold one was to give an exposure to as many parents and students as possible to our classes. So we designed what we call as modular, you know, courses and lectures. So these were think of them as 45 minutes to probably, you know, few hours worth of classes, free classes, which would help explain a very small topic to the child, but the topic is complicated in itself. And then we gave them a lot of, you know, free trials of these things. And that really helped us scale that because that actually gave them a glimpse of what’s possible online, the great teacher, and how also, you know, comfort with the medium, and then we used to convert them into paid subscribers. Now to a question of how do we recruit our first set of users in 2014 and 2015. It was, it was very tough. Nobody knew about this term called LIVE classes or LIVE tutoring. Vedantu was the first company to start LIVE tutoring in India. So literally we had to invent that category in that term as going forward. So what we did was just went about a few schools, and started doing few seminars or webinars, and they had some small exam or test coming up. So we launched a few courses around that. That’s one. Second, we also since we started with one on one, we attacked the tutor listing websites in India, which gave home tutoring. And home tutoring tis also a big market in India. So we attack that and we sort of like call us to literally call them and say that, you know what, you’re looking for a home tutor? Why don’t you just try Vedantu, if you’re not getting access to a home tutor. so that was literally those few initial hacks through which we, you know, got our first set of users.

Hans: As you have star teachers that emerged from different topics, like model mentioned, how do you keep them and incentivize them to stay on your platform?

Vamsi: Oh, that’s a good one Hans. What we learned from Lakshya, the offline experiences that it’s going to star teacher away is not the best way. Right? And we were cognizant of the challenges of that model. Because that is pretty common to offline as well as online. Right. So, so right from day one here at Vedantu, although we do have star teachers, right, and when I say star teachers, essentially like the teachers who are more, you know, popular and so on and so forth. But the thesis the philosophy has been to have reliance on system and process more than just the star teachers. Now, I’ll explain this in little bit detail. If tomorrow a parent or a student is coming to Vedantu just for a star teacher, then in my opinion, we have failed as a system. Because if it’s just if it’s just a teacher for which a parent or student is coming, then I think what we want to stands for, which is the full stack service solution, right? It’s not adding enough value to the parent. So that’s how I put pressure back on the team, that if the teacher, we change, or let’s say we don’t give a so called popular teacher, and because of that, if a parent and student is not joining or dropping off, then it means we need to further work on our, you know, service layer.

So in the long run, what I really want Vedantu to stand for is the full stack service solution in which teacher is just one part of it, rather than just talking about star teachers, and we do a lot of things around that. So for example, the first in the form is our as I said, our teacher training process itself. So we have identified various attributes and parameters, which actually make a high engaged class, and, you know, a popular teacher popular, and we have identified those and incorporated that into our teacher training program. So now we are confident that even if you are able to get a four to five year, and we have multiple parameters in which we check, you know, what we want, what contributes to a great charismatic teacher online, and we get them in, and we put them through a training process of two to three months. And, and we are almost I would say 90% certain that this teacher, if he takes a class will get a rating about, you know, the 95 percentile. So, this is the direction in which we are going at, so that the reliance on the system is more than just honor teacher. And that’s that’s the long term vision.

Madhu: And that explains why your score, your NPS Net Promoter Score is higher than that of a specific teacher in a class. One of the key questions EdTech companies are struggling is an education company or the tech company? Or can we do both. And eventually, they end up being one or the other. You’ve been able to take despite coming from a teaching style, you’ve been able to launch WAVE technology and a lot of other technical enhancements to the product. What do you look for your tech team? And how are you thinking about building that team?

Vamsi: Sure. You know, what, this is a singular, you know, question, you know, I get asked when probably I go to a few conferences and stuff like that in education technology, I think it’s a very important one to, you know, ponder on. Many technology companies commit this, you know, basic mistake that they think of technology first than education. And I think, you know, at least that’s my personal opinion, and I strongly believe around, you know, this factor that EdTech, you know, its first Ed and then Tech, right, so that sequence is there for, you know, a very specific reason. So how we think about this model, and it’s a very important one. So the framework I, we use at Vedantu, is you need to keep the students interested the center, it’s very easy for, you know, technocrats like us to get fascinated with the possibilities around technology. And we’re all and how walking we can apply it, and so on and so forth. And it’s easy to get carried away. What keeps us grounded is to have extreme strong metrics and parameters around students. And in that too, specifically, we look at two parameters, one is called student learning experience, and second is students learning outcome. So if you have learning experience and learning outcome at the center and the core, and then design, you know, educational pedagogy around it, and then think of how can technology help us help you in scaling it and making it better? That’s the framework views. So it’s very important to have education at the core, right and then think about technology and how can technology be able to help you, let’s say make the learning experience better, or personalize stuff for the child. So that is learning outcomes improve, how can it make you, you know, get access to great teachers, or help you scale faster, efficient, better, so on and so forth. That’s how technology pace the road. But you can’t flip this around, you can think about, oh, I have a great piece of technology here. Now let me apply this to education. That’s, that’s, that’s where, you know, you know, even we have committed a few mistakes, right? And we learn from that. So that’s on that, how do you think about education and technology, right and sequence to start. To your question on our, you know, our own roadmap and how we are built around it. So first and foremost, we were very, very fast in iterating what really works for the student and that’s the first few years of Vedantu from 2014 to almost 2016. We developed less, we actually use the third party. And we iterated and we learned what is the best for the student. And that’s when we started developing our own platforms, our own tools, with a singular objective of capturing more data. Because the more data we have on the child, we will be able to do better that much better for him. So, we have our own LIVE teaching learning platform, we call it WAVE that stands for whiteboard audio video environment. In fact, work has been going on on that for years now. And very proud to say that few of the stuff we have done is cutting edge. And we had applied for almost 20 odd claims, and we’ve been granted US patents on that as well. Right. So, so yeah, very proud of the team. We’re going to be working on some cutting edge stuff there. And that’s, so we have huge lot of you know, tech product team, which works on that, and there are other models as well.

Hans: It’s very impressive that you guys have both innovated very quickly, as well as look at other models around the world that’s interesting, and then figure out how they should be adapted for the business that you’re in as well. What are some other companies and business models that you have seen that’s interesting, that’s worth sharing with our audience.

Vamsi: So I’ve traveled to Southeast Asia quite a lot. And what I believe is in Southeast Asia because the educational culture, the context, very similar to India, I see a lot of companies especially in China, Beijing, one of the largest education companies in the world TAL is also investors in Vedantu, so it’s also great exposure.

For me personally and my team, whenever we visit their centers, we get to see you know, the few of the things which actually are working very well there. We get obviously inspired and we see that how can we actually adopt it to Indian use case and context. So, I think somewhere on the last year, one of the things which was very fascinating for us was that we used to think that batch size of hundred is very large. And, you know, that’s, that’s like, that’s, that’s insane. And that’s awesome. And we were very happy about pulling that out. And then we visited TAL. And there we saw some classes happening. And we asked the teacher that that okay, how many students are there in this class? And he said, 2500 and we were like “What”, then we again asked that, you know, one class we thought he just answered like, you know, in a week probably that’s what happening and we asked like no in just one class of students are there, he said, yeah. 2500. So that that was like a real eye opener. right for us. And, you know, it’s sometimes Like, you know, you are close to few things and when you actually see that some of that happening that really opens up to the possibility. And that Hans, I think is a big very big unlock because normally normally in a you know, people say that most of the companies the gross margins you know start with is the gross margins you you dive it is like a typical thing they say, but I think, you know, here with respect to probably, you know, us LIVE teaching, I think that completely got sidelined when we saw this, because the margins you can have when you are teaching hundred students versus thousand students, this is completely different. And that was a very big exposure, I would say not just for us for the entire team, which made us believe that thinking of hundred is just our constraint, we should actually push, and now very proud to say that Vedantu, just one year, we also have, in our free classes, at least, almost 2000 students attending one single LIVE class. We have done that. And in paid students, we probably have gone up to even 600 students as we speak. So yeah, I think they were definitely a few exposures which have a profound impact on you. This was one of that.

Madhu: And from an impact standpoint of view it’s phenomenal. Because when I was doing my coaching classes, the maximum that a teacher who’s really good at that topic can have is 100 people. And they’re enterprising and hardworking teachers do three or four classes and say the same thing, but that still caps at 400 people, having the best teacher for that best topic, they being able to teach 2000 people irrespective of your learning, irrespective of your willingness to pay or ability to pay or your location, being able to access that wealth of knowledge is truly impactful.

Vamsi: And to add to that point Madhu, for a country like India, it’s even more impactful because the pain propensity obviously here is much lesser as compared to China. Here, when we are able to scale the students in one class from, let’s say, hundred to let’s even say 500, the price reduction per student per, you know, per class or per hour, which we’re able to do, and because of that disrupting the price points of the existing offline players, right, and employing that price point to tier three, tier four locations really unlocks massive potential, because now, at half the price that the student sitting in a tier three, tier four location has access to probably the best, you know, teacher he can ever think of, you know, getting an interaction with right. So that’s, that’s a massive unlock, especially for a country like India. And that really gets us excited.

Hans: Yeah. Right. And you mentioned you mentioned earlier in the online model you have before for group lessons, you have one secondary teacher for every 50 students. What tweaks do you have to make, you know, to scale your online session to 2000 per class.

Vamsi: So there are a lot of parts to it. Right? So first and foremost is the, the teacher itself, right? So the teacher training needs to incorporate that change when you are teaching 50, so let’s say you’re teaching, let’s say, 500. Yeah, so when you’re teaching 50, you can still probably, you know, afford to do some interactions, right? And take names and 50 it’s not a big group, like in a normal offline class, also, you take 50, not a big deal. But when you’re taking 500 now, suddenly, you need to be much more organized and orchestrated. Right. And there we use, not just teacher training, but also technology. For example, in primary school students now which names so the teacher take, so the class fields by now, everyone is being addressed to and motivated. So the algorithm itself, you know, sort of like tries to identify that and being the teacher and so on and so forth. A lot of small to big things which we do to, you know, to train the teacher, that’s fun. The second part is the interface itself. Now, as Madhu was mentioning earlier, in an offline class, if you are in a classroom of more than hundred, you literally feel it. Because you are sitting there you see all these students you feel a little stuffy, the teacher is that much more distant, the biggest advantage of an online LIVE classes, you don’t feel that, you don’t know that, that you are sitting in a classroom of 50 or 500. And that’s where a lot of interface design comes into play. Wherein, because for you, it’s just the teacher in front of you. But you know, there’s a lot of other product interventions we do, so that the child feels that he’s part of a group, but he he doesn’t know that that group is a 500 or 50. Right. So there’s, you know, those that product interventions, which we do, which makes him part of a group thing, but you know, not that he’s part of a very big group. Yeah, the third and the most important and that this is very specific to India and that comes down to somewhere adaptations are you were mentioning from Southeast Asia to India we had to do is the doubts. So what we observed in, let’s say, at least in China is students are very disciplined. And they don’t interrupt a teacher a lot while the session is happening, right?

Hans: Right. Not so much elsewhere.

Vamsi: Oh, I mean, not at all in India, I mean, you should see, in our sessions, the students are left right and center asking anything and everything right. So, this required a lot of product interventions, right, and also an orchestration. So here, what we did was for a group of 50 to 100 students, we have the secondary teacher. So the doubts of the students first goes to the secondary teacher, and he or she solves it, and the best ones, they get bubbled up to the main teacher, and the main teacher then reserves time for doubts after like every 15/20 minutes, and then he would address the best doubts. So in that way, we actually distribute our, cut the class into these sections and these roles. And that’s how we are able to, you know, organize a fine students class, right? So these are some of the, there are a lot of things, right. But yeah, these are some of the top of the level things, which we use. And last, but most importantly interactions. So if you are constantly interacting with the main teacher, every few minutes, you are not much more engaged, and you feel not much more energized and not participating in the class. So the whole pedagogy itself had to change when we move from one to one to let’s say, a smaller group to a bigger group, right. So the content had to go through a lot of changes with respect to interactions, the quizzes, and so on and so forth. So yeah, this was one of the things we had to you know, change in order to adapt ourselves from a you know, one to one to a larger group.

Madhu: Our podcast is listened to by tens of thousands of people, across U.S., China, and across the world, how can some of them come and join the mission of Vedantu?

Vamsi: So education is not just a high impact. But according to us a big level of. Me personally, healing from a middle-class background, we have seen the power of education in our life and how it has helped us achieve what we are able to achieve. So I think especially in a country like India, which is very aspirational, education, as seen as the only way in which people from tier three, tier four locations can actually be able to change their lifestyle and achieve, you know, greatness. That’s mission of Vedantu, our fundamental singular belief is can we provide a 10x better version than the best of the offline experience at quarter of a cost? And that’s how we are able to reach to, you know, if not billions, the millions of the students, there are 260 million students in India, right. And that’s, that’s what we want to, you know, change. So if people out there who are really, you know, motivated in creating solutions, which impacts this many millions, I think, Vedantu is like the perfect platform where you can really be able to see that impact happening. With respect to the platform itself. I think we have just got started in India, all of us combined are probably less than 1% of the market penetration, right. It’s a huge market now offline. And we are just getting got started. As we speak, we are looking for enough people to help us build the next level teaching learning platform. We are actually looking to ramp up our AI talent as well. So yes, any, you know, people who are really mission driven and are motivated to contribute, would love to have you guys coming and seeing what we are doing and yeah, I would love to take that up.

Hans: As you know, very happy to become a new investor in Vedantu. And we love the fact that you’re building something that’s country-building and making impact in society. And pushing that idea further, given the talent of the Indian teachers, and it’s quite obvious being on a platform, they’re very engaging, and very good at their work. It’s not given their English fluency. It’s not hard to imagine that given the large talent pool of Indian teachers here, that the business could exponentially expand beyond India at some point in the future, that share a bit about that and how you think about that, and even when there’s something that would be appropriate for Vedantu to embark on.

Vamsi: Sure Hans. So you said it right. So the big advantage with the Indian teachers and Indian workforce in general is when is the language comfort around English and also the Indian teachers are really good. In fact, as we speak at Vedantu, we have around 7% to 8% of our paid students coming in from outside India as we speak, and this is without even us doing anything outside India remotely. And why that happens is primarily Indian expats, but they want their kids to study from an Indian teacher. So the quality as well as the price point both have a significant role and impact in that. So going forward, we always imagine Vedantu as a category agnostic and a geography agnostic platform. I mean, nothing prevents this from adding more categories and more geographies. And we see that happening in future and to Madhu’s point, I think there are two ways in which we know we are looking at it. One is obviously the talent line or recite or invest or even in China, where we are very, very inspired to, you know, to see some of the pioneering work happening in AI and other fields and we’d love to partner with other local groups or the people experts there to build out our next set of innovations in these fields. That’s one. And second is, you know, from the supply itself. We see the Indian teachers, and very soon, more so from a developing nations perspective, where there is a lot of need for getting access to high quality teachers at a low price, we see that Indian teachers can play that role. And in future, we look forward to taking a few of these new geographies and where there is a standardized curriculum and seeing that can Indian teachers post getting trained, can they deliver for these local requirements? Yeah, that would be very interesting to see how that spans out. Right? There are a few exams which are pretty much international in nature, like SAT. I know, that’s pretty obvious for us to do. But we are also interested in taking up some local curriculum and see how it goes so yeah, exciting to see how that pans out.

Hans: As a global fund with presence in San Francisco, New York, Beijing, Shanghai and Singapore, we’re love to help.

Vamsi: I’m in really impressed with the kind of exposure GGV has with the best practices and the best teams in all these geographies. I personally, along with my team, are really, you know, waiting to get started and learn from your exposures and experiences. And also probably, you know, interlaced with these amazing entrepreneurs in other parts of the country in your portfolio and share knowledge.

Hans: Thank you.

Vamsi: Thanks a lot Hans.

Madhu: Have a bunch of quickfire questions. Who or what is your best teacher and why?

Vamsi: I think in the fifth grade, there was a social studies teacher and I still remember her as a best teacher because that was one subject which I just literally hated. And I used to almost like barely pass and this teacher came out and I just, obviously the next year that I top that exam. This is a profound influence which a teacher has. And I’m a big believer of that. So yeah, that was the first remembrance I have of an inspiring teacher.

Madhu: If you could spend a day in someone else’s shoes, whose would they be and why?

Vamsi: One day I would probably would love to spend in education ministry’s shoes. Right. in India, because I think there’s a lot of change which can be done from a government side. Right. And I would, I would really be excited to, you know, be there and bring forth some of the changes, which I believe is very much critical for Indian education system.

Madhu: What’s something you read recently you recommend to our viewers?

Vamsi: I mean, the most recent book I’m reading is that everything store that amazing story, I think, that because it’s the latest, very recent one I’m reading, so it’s fresh in my mind. Right. And there are few other reading list recommendations I will give Madhu. But in that one thing, which actually really stuck to me, which I was reading through last week was, despite the, you know, the ups and the downs. the singular focus around, impact never went away. Right. And I think that’s, that’s very important. Any business will obviously go through its own ups and downs, and so on and so forth. But, but the singular belief that we can, I mean, at least in Amazon’s case, they can create everything store that was at the center, that was something which was really transformation. And the second thing is the customer obsession, tailoring everything around a customer and not, you know, freaking out about the competition or probably what others are doing, but actually just having the best interest of the customer in mind can really help you navigate very, very tough corners and situations and I think there is a very, very powerful message I could take out of that. So that’s one. Apart from that one of my top reading book recommendations is in the Hard Things About The Hard Things. I really love that. And zero to one. That’s, that’s pretty standard. But apart from that, the, you know, I’ve also recently started doing some, you know, introspection on this thing. So I think there is a few books on mindfulness also. Right. I, you know, I really think entrepreneurs should also, you know, read a few of that.

Madhu: Who’s, beside Bezos, I guess, who is the entrepreneur you admire the most and why?

Vamsi: Apart from Bezos. I think Elon Musk is someone I do admire. And Steve Jobs as well. Right. Elon Musk for just, you know, dreaming big. I think, you know, I think dream is what it’s starts everything starts with, I think I just admire him for the diversity of the dream, right. And Steve Jobs was simply, you know, reinventing, not just one, but you know, multiple categories. And it requires, you know, innate understanding of the customer at the center to be able to transform not just one industry, but for multiple industries as well. So those are the few from outside India, but inside India, I really admire, you know, the Infosys founders, and then Narayana Murthy for actually creating some of the best like the big entrepreneurs like I obviously admire the recent ones like Flipkart and all, but I think Infosys was one of the first companies which actually made us believe that big companies are possible out of India. And I think these examples are very important for local entrepreneurs, to have that belief that you know, we can create some outstanding companies from India and Syria. That That’s very important for the ecosystem.

Hans: Yeah, just to add that, I think, you know, our first few investments in India, we’ve been very impressed with the quality of the founders and the management team. And in addition as well as the investor syndicate, you know, thanks to you and your team for working at about something amazing the last four or five years.

Vamsi: Yeah, but we do look to learn, you know, the best practices and the stuff from you guys as well. And that that’s really the it’s really important that even though if we can gather what you have learned, as the best practices and experiences from other entrepreneurs happening in other parts of the world that will really help us.

Hans: Sure, we’ll be happy to share. And besides Madhu and myself in San Francisco Bay Area, you also have, as you know, you met Jixun and Jenny and Erica, in Beijing and Shanghai and we connect to you to Dimi in Southeast Asia and Robin in New York. And also amazing talent team in both in China in the US, that can help you as well. Again, you have a very good investor base too. Anand from Accel India, Siddharth from Omidyar, Scott from Tiger Global. You have TAL from China and also Westbridge in India. Kudos to you for building all that together. Not easy.

Madhu: Thank you, Vamsi for joining us. It’s been a pleasure talking to you.

Vamsi: Thank you Madhu. Thank you Hans.

Hans: Thank you. Thank you Vamsi.

S2 Episode 11: Rajesh Yabaji of BlackBuck: Building a Startup is a Marathon of Sprints

This episode is co-hosted by GGV’s investment team colleague Madhu Yalamarthi.

On this episode we have Rajesh Yabaji, co-founder and CEO at BlackBuck. BlackBuck is India’s largest truckinglogistics company, often referred to as “Uber for Trucks”.

In the episode, we covered creating a full-stack logistics marketplace in India, the conviction and rigor it takes to create a new category, building an agile company culture, and the choice of living in the same building with his co-founder.

Prior to starting BlackBuck, Rajesh worked in the Indian multinational conglomerate ITC Limited for four years as a manager in supply chain and category management. He holds a bachelor’s degree from the Indian Institute of Technology (IIT) in Kharagpur.

TRANSCRIPT: 

Hans:

First of all, please tell us a bit more about BlackBuck or actually should I say BlackBuck 2.0. If I’m a fleet operator and FMCG company in India, what can I do through BlackBuck?

Rajesh:

Yeah. So, trucking is one of the largest unorganized segments in India. And every stakeholder who deals in this industry has a large number of pain points. And what we are doing is making things simple for people and making things efficient. So, we as a country have very high cost of logistics. We spent about 14 % in logistics as part of the economy. And, you know, and at the same despite spending a lot clients which are basically customers like large multinationals who are want a truck, the fulfillment rates are lower, the costs usually are higher. On the fleet operator side, it’s not only that he has to deal with millions of intermediaries to get to a transaction, the utilization levels in terms of in 30 days in a month, typically he’s on the jobs for like 15 to 17 days, right? So what BlackBuck has essentially been able to create is a tech stack, which basically enables these guys do most of these most of this work in a simple way as possible, in the most efficient way as possible. So if you were a large company wanting to get trucks, when you come to BlackBuck, you would typically find a truck between 95 to 99% kind of an accuracy, kind of fulfillment rates. If you are a fleet operator in the country, if you turn to BlackBuck and work with BlackbBuck, within three months of partnering with the company, broadly you will be making 20 to 30% more utilization for your trucks. So this is what we do. Our goal is very clear. How do we support the country expand? How do we really get into the fundamental building blocks of logistics, of trucking, debottlenecking them, and ensure that you know, whenever these have to scale in the most seamless way from an availability construct from a cost construct, you know, we are able to do that. That’s, that’s broadly you know, what BlackBuck does.

Madhu:

So, rewinding the reel a few years ago, how did you first come up with the idea of BlackBuck? It’s heard that you got it while working at ITC. Can you share with us how did that happen?

Rajesh:

You know, for a lot of entrepreneurs, it’s like serendipity. It’s basically a cool story behind how accidentally they got to the idea, right? But for me, it was a very, you know, a long journey right from the mid stage later, as far as my former years at college. I’ve been into operations then got into doing projects in logistics, joined ITC, did the entire you know supply chain logistics work for like four years, helped ITC reduce its costs by 20%. One of the areas where we did really well but in a very small fraction was basically trucking. We used to transport in like close to about 300 lanes, and we basically picked up lane by lane, and essentially what we were doing, like if you look at that very abstract level, we were enabling the fleet operators we’re working on those lanes, get more tips, have assurance of return loads, and generate economic surplus which we were able to keep some, we were able to share some with the fleet owners, right. So this was a strategy like, you know, lane by lane, and one of the first lanes we did which had which gives us a highest one of confidence was a movement we were doing from Mysore, Mysore in India which is close to Bangalore, we were shipping tobaccos from Mysore to Chennai port for exports, and tobacco is a very you know as a commodity which we typically deal with very sensitively which means we need to have full grade transportation right. So, we used to like bring empty container from Chennai port into Mysore and then ship it back right which means you know, any fundamentalistic you know, view towards it would say that half of it is waste, right. So, that was like the one of the first drifts and what we did is that, we stood at toll gates from like Chennai to Bangalore through all these tours across the country, mapped every truck, which is coming inside carrying cargo, we noted down the shipper name, who’s the shipper, who’s bringing cargo inside. We knew definitely that the guy is bringing in cargo inside sending this container empty back right, shortlisted 20 companies from that shortlisted of companies, based the shipping line we are using. So we were using MAERSK  70% using MSC 25% and balance smaller shipping lines. So the ones who are using MAERSK more and then in that the DNA fitment right. So we froze down onto Bennett Coleman India the time you know Times newspaper The Times group company, and we matched this. Earlier we were going to have large freight forwarder, who used to go to a small broker, small broker used to go to supply broker, transport brokers or supply broker, supply broker used to go to a truck owner, right. We directly went to the truck owners who had trailers brought in about 45 truck owners who had trailers, right, give them synchronization of this load, help them plan these goods, right. And like, you know, a very rule of thumb you would think that okay, when you cut this waste by half your transportation costs probably would have been like 30-40% lower right, but not, our transportation costs went down by like 60% because we not only reduce the dead miles, we remove the intermediaries, we plan the synchronization, made the trucks to more number of trips per month, right. So the first project, so of course, this was I think the maximum saving we ever got in a project right and minimum was, you know, in the lower bounds like between 8% and 12% points, right. So this was a range 12 to 60 is where we got the savings right. Out of 400 lanes, we were able to only do it in like 25 to 30 lanes because of densities, because of locational constraints. Right? And it was very clear that in even in these lanes, the coverage was like 50%,60% because all of this matching has to happen right, with Bennett Coleman also the matching was only 70%. But we were able to do it successfully right. So, the entire thought process was that when you extract this out, you were disintermediating, you are generating more kilometers, you are improving fleet operators earnings and you are keeping surplus, right. So we wanted to do this at India level, right. That’s what led to, you know, led to the creation of BlackBuck and I was, you know, very fortunate to my work experience at ITC that it led me into this thought process number one. Number two is that ITC work experience also gave me my co-founders. So Madhu’s classmate was a junior of mine as well from college. And he was my intern, right so 2011 right. He was in third year he had to do a summer internship. So he worked in my team and we offered him full-time employment in 2014. And so he joined my team in 2014 when I wanted to start this in like 2015, I pulled in Chanakya right these are you know, one of the co-founders of the company, the other co-founder was a consultant to me. So I was at ITC from 2010 to 2015. he consulted me for like the first three years we did like a lot of projects together. He was the managing partner of a consulting firm called Miebach Consulting, it’s a German consulting firm, and yeah, so we three hit off together well and April 2015 BlackBuck started.

Hans:

Excellent.

Madhu:

I was the third wheel for Chanakya and his wife for four years.

Hans:

So as we’re talking was complicated problem with the matching shippers and  fleet operators, how did you decide how to prioritize what you need to do and to get started? And did you spend time looking at any models elsewhere for inspiration help to figure it out?

Rajesh:

So basically, today, I mean, when we started off in April 2015, there was no company, which was disrupting intercity tech, intercity transportation. We were the first ones. Now if you see the companies which are, you know, in this space of the similar business model like ours are like Convoy in the US, Uber freight and us. There is one large company in China called Man Bang, they are more subscription based models. They’re more classified, they help in matching, but they do not do the resistivity

Hans:

GGV portfolio as well.

Rajesh:

Yeah, exactly. so at that point in time, I think there was like, essentially, the inspiration that, you know, at ITC at a smaller scale we were able to do, and that was actually the first problem because the first 10 VCs we met in India only asked us that, you know, which is the US company, which is a Chinese company has been able to do this.  So we really did not have any example. And, you know, mostly the expression was that such a big market and globally facing it’s a 4 trillion market, 100 billion in India. How come nobody has solved this and you want to do it in India, right. So that was the question. But that’s where, you know, I think my first investor Anand Daniel, he had a thesis from last two years, like he was searching for a company from 2013 to 2015 to do something in trucking? Right? And that’s how he, I mean, I met him on April 4 or April 5, and he did the deal on April 7. Yeah. Right. So the rest everybody I met before, but none of them really understood what I’m doing. They thought that, you know, this is a clumsy, you know, space. And probably it’s all built out there DHS of the world who have built it out, right, there’s no need for you to sort of go in, right. That’s what people felt right. So there was no inspiration from a business model or an entrepreneur, you know, you know, to whom we could look up to at that point in time. But I was a shipper, right. I was basically buying freight. I was like shipping goods. So, yeah, the mindset of yeah, this is what I thought, by the way that I understood the pain points, right. the mindset of The businesses that I’m not sure I know everything what exists in this market I’ve also been able to prove sustainability across like 25 data points are able to reduce costs I can I can build this right. But when we came and started building you know, this business and the platform right first one and a half years was actually about you know, being more centric to demand. Demand is the one who has so many problems they’re not getting trucks they’re getting taxed at higher prices, how can really optimize right, this was one very obvious, until we really realized that Indian ecosystem the supply is fully broken right? Supply comes from like tire three towns in the country. Yeah, these guys do not have access to technology. These you know, India do not have companies like fleet corvex, which have like completely automated the payment system on fuel. We don’t have electronic tolling in the country, we do not have like any of the services which are around trucking and not baked out right. So fundamentally, you know, the problem statement which we define any started was that there is a problem for shippers, they’re not finding trucks, the costs are higher, one and a half year, we realized that if it did not invest, solve the supply side problems, right? Bring them online, help them make more money, right? This is not going to really get solved. Right. So the first one and half year for us was really targeting and tracking demand, really understanding and structuring the value proposition for them. The last two years right, last one of us had been all about really thinking through how to correct supply. Where do these small suppliers live? Right. They’re living in this tire three towns. We don’t even know these names. Right. So today as BlackbBuck like we are super proud, you know, of course, so proud of achievements that shippers in the country are able to ship seamlessly, enjoy low cost by working with us, right, like she would have reduced the cost by like 10 to 15% over the last four years. Yeah. Because of you know, the efficiency that you have delivered. And the fulfillment rates, you know, are in between 90 and 95%. Right. And 95 – 100%. And when we when you look at the look at the trucker side right which that we have super proud of, we look at the trucker side, we today have our penetration close to what 8,000 villages right, we man these villages, right the other villages, where one guy has four village coverage five village coverage, right go in educate these guys on what the trucking app is all about, educate these guys on, you know, what is these entire services all about? How does it make their life simpler? How will they make more money through this? Right? That’s been the story the last two years right where the economy on the shipper side is actually quite visible. Yeah. The economy the truckers are uprooting and bringing it online and trying to fuse this out. Right. And and a lot of tailwinds in the Indian economy are helping us do this. I don’t know if you are aware in India went into the electronic tolling in 2017 just right, we today own 15% market share of electronic tolling in the country and our market share is probably scaling five times the market share of the country, which means India’s market share is only 12 to 15% points of that 15% point we do we just started one year later Yeah. And for us that category is like growing at a user growth of like about 35 to 40% month on month and we are trying to from that angle right. So this is like one of the services service lines which we have, which not only like has a very strong economics which is offered itself but also is basically enabling us to go from 20% market share of supply in India to 70% market share of supply in India, which means every truck owner would get digital would come on the application, it would get trained how to use an app. Right. So that’s like that’s the India story. From December 1st, all Indian toll gates go mandatory on told on electronic tolling, right. So it’s a land grab opportunity, right? It’s basically once in a lifetime opportunity, which we are essentially trying to address. So yeah, so the entire like, you know, inspiration, like for us was very internal, right, which we, which we want to really build out, right. We really wanted to solve this problem for like, you know, the thought process you started was that the least I would be when if I start BlackBuck would be the supply chain manager for probably 200 companies in India. Right. That was the thought process right. And from there to the demand problem that you started solving? Sure. Then we moved to supply right supply is like probably probably we are able to get our hands on too. In two years. you’ve invested a lot of time and effort. And now again, it is slipping into being more demand tracking from right But like it sort of keeps changing and keeps evolving for and keeps us going.

Madhu:

So you’ve written the sort of blueprint charted a new path for category creation. And in India, we’re seeing marketplaces moving from information matching to manage marketplaces to now either supply creation or demand enhancing through other ones. How do you see as these models become bigger, how do you see them scaling in India to marketplaces 4.0 or them going global?

Rajesh:

So, so basically, I think like India, I have I have not come across like any entrepreneur building marketplace businesses, not have initially having to think that supplies solid, and like falling after like a year or two coming into the business that oh my God, I don’t have supply, right. I think most of us have shared these stories, right. So I think Indian businesses face with Indian demography context, which are about trust, which are about full accountability, which are about you know, what the unit economics which is involved in that particular transaction? And what is it? What is the experience that you’re giving me? Right? So I think, in that in that kind of framework, freight sort of sits in where a fleet owner, like doesn’t trust anyone, he’s like, he just trust some people of his villages, somebody who knows from a long period of time, might be okay to lose money, but he would only would want to work with them, right. So, that kind of population would deal with you know, and we are in a b2b context, where clients again need huge amount of trust, right. Companies are evolving between these models, but I think for freight in India, because we are aware of lot of companies in India, which does, which did classified, but those things did not scale in India, because of trust, you know, levels. And, and we, from day one started off as a full stack marketplace, you know, taking the accountability of the transaction. taking accountability of the experience of the transaction, right, making, you know, making, you know, material displacement for both the shipper both the trucker adding value, you know, step by step and scaling that marketplace, right. So that’s been our story, and as you’ve also seen in the recent past, like multiple marketplaces from India have gone global. Right. And, you know, a part of it is also is also because of some of these markets where companies in India went in first, right? Second is it the problems were such that if you solve that in India, you could solve it anywhere because you become so, you know, your DNA becomes stronger than anywhere else. It’s more immune. Right. That’s like second part. And the third part is that I think we also need to move out with certain cliched concepts like let’s say, if somebody asked me typically that, hey, Rajesh, you you guys BlackBuck has done so well in India, what would be the next market you would go to right? Mostly 95% of the people expect that my answer would be Southeast Asia, right. Because, because India seen these waves where, you know, either the demography and the government regulations have acted more as a anchor or a cover towards launching new markets, what that is leading to launching new markets. Second aspect would be, you know, I dealt with these consumers here. Now the consumers psyche of Southeast Asia is probably similar. Now my used case sort of appears right, but for our business right trucking. What is important is landmass, how big is the landmass? What is important for us is that how where are the demand centers? Where are the supply centers? What is important for us is that supply –  how fragmented is it? demand – how fragmented it is? Right? What is important is that if a trucker reaches a particular point, right from this point, what is the liability that he’s going to get his load back to his mother, you know, home point is really we really we actually struggling? Is there a symmetry in that market? What is important for us is that in really putting tech to this problem, what economic leavers would you move that he was generating economic surplus right, these are important. Consumer psyche of a b2b in a b2b business, a fleet operator wants to make more money or customer wants to make more money right. So for us sizing, we do it in this way, and hence we get very different results, right. So I think we have aspirations because I think we today as you as I was telling you guys the story, I think there are only three companies in the full stack matching space globally. And I think you know, our scale in between these is quite comparable and most of the times we have taken data points quite leading compared to the other two companies. So, I think we do have aspirations to look at, you know, globally what we could do.

Madhu:

Questions for Hans, you’ve been bullish on Indian companies going global, not just enterprise SaaS, but also on consumer and b2b2C. But can you explain more to our audience and where that thesis comes from?

Hans:

Sure. It doesn’t take a rocket science to see that one. India has more stem graduates than anyone else in the world with the exception of China. But the English language capabilities are much stronger. So the chance of that talent to be able to produce on a work, worldwide basis, much higher big, more impact. Secondly, you look at the number of executives who have done well in the US, whereas Google or Microsoft or Citibank, or even in academia like Harvard University, you see the impact that that’s being made. And, again, doesn’t take a rocket scientist to see that given time, the talent from India can do more in the mobile internet era, as well. And then a lot of founders in India right now is first time founder, someone’s second time founder, again, doesn’t take a rocket scientist to see that over a next five years, six years, seven years, more and more Indian founders will be more experienced and be able to leverage the talents that’s available overseas. So, since China went through so much, in the last 20 years with urbanization, India can pick up and learn from that as quickly as possible. India is also go through got a lot of issues, so you can solve problems for India. You can solve problems for a lot of other places. less less competitive and less complicated. That’s the experience we thought with China. But China is not as many teams like Bytedance and Xiaomi can go global. But India is different. So once you learn those lessons, you can go global. So you’re exactly epitome of our hypothesis from a year ago.

Madhu:

I’ve already seen this being based out of both Bangalore and Bay Area, I can see the trends of my colleagues and friends in Bay Area, not just Indians, but even American colleagues like American classmates going and working for Indian companies trying to expand and vice versa. This question is for Rajesh, since you founded BlackBuck, there have been several waves in India. And so from that stage of, you know, entering a category such as trucking, there was not a quote unquote, hot sector then to creating that whole category now and riding on two different cycles of an ecosystem. What are some of the noticeable changes you’ve seen?

Rajesh:

There are like two times during the entire funding, my company had these two large macro events: demonetization and GST, where the entire business was shaken, but for the better, yeah. So, demonetization was exactly when we actually as a company, realized even more deeply the need for a services infrastructure around trucking to enable these guys, right. So, I think, after the demonetization, I think people, this industry which works on 90% plus cash. I think after that people really appreciate it because trucks were stranded for like days on Indian Roads for cash, cash was not there, right. And most of the notes which are used in the trucking segment are 500 rupee notes and 1000 rupee notes and, like, everything was out, right. So I think, you know, after, you know, after demonetization, I would say the cash used in this segment would have probably come down to 90% of the level to probably 80%. But it’s of course back right. And that’s point number one, point number two is that if you if you look at the entire input on infrastructure creation by the government in the past, like you know, you know five to eight years has been very high, the road speeds have definitely improved, which which dramatically will improve the macro index index of, you know, the the macro freight index, right. So the so the road speeds have improved with two reasons. One is better quality roads itself, I think we’ve built large number of kilometers of roads in the last five to eight years. Now, point number one, point number two is that after GST, most of the border check posts right. So in India to before GST, it was more difficult to cross the border between Karnataka and Maharashtra, than Germany and Poland. Right. I mean, like Germany, Poland could do easy business, but two states couldn’t do easy business. Right. So, I mean, we as entrepreneurs used to always, like, you know, feel super, like bad about this idea. So I think a lot of that has got rationalized. Right. But I think there’s still a lot of room for improvement because it’s not fully seamless. It’s not like you need not stop there is still manual checking, which happens, which is not needed. Right, I think. But that still happens. So there’s still scope for improvement, right. The next thing which we have seen is that, you know, because the trucking is, like, major part of the economy, government has been looking at this particular areas continuously, right. So electronic tolling is going mandatory on first of December right? now, that like not only creates a wave of digitization from a fleet owners, it just it just lifts up the efficiency because at every tollgate if you calculate right when I was telling you that our truck works for only 15 to 17 days in a month, I actually did not knock off the truck waiting time at tollgate. And the check There is still additional time it is still in this 15 to 17 days right. So, everything starts becoming more and more efficient right. So, I think, you know, you know consumption took a shock in both these areas, but after that soon recovered very fast right. And for logistics, I think things have got much more streamlined things have got much more useful, like we have a very standard available number, earlier we used to have pretty we have one one compliance for lievable number earlier we used to have for all the 26 states independent compliances. So, we had created a technology product if a truck is starting at Bangalore and going to Delhi and it is going to touch four states automatically. We used to lock you know, ways to get the credit crawlers which used to log into these government websites because the government says what our API’s we still log into these government websites fill all these details from our servers automatically, create this compliance documents right. So a driver used to like when he is going to start used to have these all compliant documents for four states, right, that is all used to manage right and, and that product matured and GST happened That product went out of order. We don’t need that product anymore. Right. So I think trucking as a segment has been, you know, a very a very decent beneficiary to these large economic changes. And I think a lot more could be done right I’ll throw some points right. let’s say a truck from Poland can go to Germany and can do three shipments within Germany and then it has to come out because it’s a production law which the government’s have created for themselves right. In India, a truck from Hyderabad which is registered registration of Andhra Pradesh, right Alyssa Telangana will come to Karnataka get unloaded in Bangalore, it cannot if it is finding the next load in Mysore. It cannot take a load from Bangalore to Mysore, it has to go empty. This is state protection laws, it doesn’t make sense. We still have that law. Right. So, given we are we are long distance transportation, it still doesn’t like affect us. So you know, highly but it still affects the country. Right? In deadmines. It still affects our country in increased transportation costs, right. So I think we to leapfrog and all of this right, second part, right, all of us know that large capacity vehicles is more efficient than small capacity vehicles. India had small capacity vehicles only because of infrastructure, but infrastructure has improved. Now it is paving the way to large capacity vehicles. Now, I’ll give you one economic incentive. Right. So when you pay for permit, and you look at a permit cost per damage level, right, it’s costly for a large capacity vehicle, which means is dissuading you to buy a large capacity, which has to be the reverse, right? Because you need more cost efficient transport modes to be enabled in the country. Right. So I think some of these policies, people like us probably have much more like narrow I do, working with the government, like, you know, you know, giving them all this information every three months, or like we have, we have about 350,000 trucks on our platform we have we actually actively track like almost a large portion of them. So we know all the hot pockets in the country. We know where trucks are spending the largest amount of time, we correlate that with, you know, breakages of bridges or breakages of compliance checkpoint. Right, all of these, you provide all this information to them, you know, the ministry, but they work on it on a priority basis as well. I think there is a very close coordination between, you know, between the the authorities and us in terms of what can be priority, what we could work together, how will we do all of this? I think we are offer a very, you know, very, very strong underlying, I would say, measures, I think we are going to reap benefits in the next, you know, probably coming years, two to five years is where I think we can probably see the sector becoming much, much more seamless and impactful. Yeah.

Madhu:

Switching back on the startups ecosystem, the much earlier stages of your journey. What is some of the advice that you would give to entrepreneurs who are building category creating products, both in fundraising, mentors and talent?

Rajesh:

I think I would say, you know, personally, I think I was inspired by I think it’s a good story for me because I was inspired by, you know, Flipkart funding, when they founded when they created it. I saw all of this happening in front of me, right? As a middle class boy, I think I would never have a kind of courage to throw in my decently paying job and trade off with a risky career. And, you know, I saw, you know, I started reading about Sachin and Binny every night and that was my inspiration. And it’s so it’s so, you know, I’m so lucky that, you know, Binny has been on our board for the last like, you know, two and a half years. He’s supporting the company continuously, right. And yeah, so, you know, the people I got inspired from, got them to partner in my journey, and are there with me, you know, as I keep building it larger, right. I think that is like, I think good part about for entrepreneurs starting today because they have examples. It’s not a completely unknown territory. It is, you know, probably something for everybody. It’s not only for people with a very high aptitude right at the highest capability, right. I think that’s how the ecosystem is transforming, right? My advice for, you know, category creators is to, is to remember that when you are creating categories, people don’t understand you. Right? You come out you would say a story. People will 90% of times they won’t get you. Right. So I think that was happening to me right for you and when it started, even today, when I look at different spaces when I am like you know, looking at different values, different areas where we are to create value, I think more often than not, you are not understood, right. I think my advice would be to if you have found out, narrowed down onto an opportunity, which you think is large with you thing is going to add phenomenal value and impact to the Indian economy to the country to users, right. Stick to it, right, believe, not just giving your opinions right. But at the same time. I mean, you have to you have to know how well you’re making decisions. You have mentors around you whom you’re bouncing off things with.

Hans:

You should make the right decisions.

Rajesh:

Yeah, right. I think, you know, being being foolish, like painfully headstrong and foolish is your friend. That’s like unhygenic. Yeah, but really believing in yourself that doing your math properly knowing your numbers properly, doing your unit economics properly, right from day one, that you’re creating something, right? Yeah. Is it value to anyone? Will anyone pay for it? or Why do you exist? Are you going to like unlock something which will, you know, make you a business model or not? I think that’s something which is really important. Yeah. So I would say that category creators have to believe in themselves have to believe in their inner voice right? And go according to that.

Hans:

and fundamentally, if you’re helping with country building, in a long run you you will win in our people will change your mind to know that you’re doing the right thing. Yes. Yeah, that’s that’s definitely key lesson we learned from being in China.

Madhu:

Hans, what advice do you have for category creators as it as far as it comes for funding and for growth?

Hans:

I agree with Rajesh’s point that sometimes investors tend to want to mitigate risk and look at successful models elsewhere, and encourage their founders to adopt or copy that model. But each country is different despite their similarities. So you have to figure out a way to do the analysis and make sure that you are adding value to country building. If you are doing that. I think that the opportunity will be so massive that the smart investors will come around sooner or later. You were featuring HBS key study? Yeah. How did that come about? And what were what were your own lessons after you’re going to experience?

Rajesh:

Yeah. So I was basically trying to look at how to build a board. I was making, I was meeting people from the industry. I was meeting established entrepreneurs. I was meeting academia. So that’s where I got introduced to Professor Shikhar Ghosh. And it was basically a session to know each other. And, and I mean, the org structure in my organization changes every six months. Right? I mean, people ask me that, like, you know, and and the there is a case being written on dynamic city in an organization. Yeah. Right. So the meeting with Shikhar went reall well. One our meeting we just like kept on over lunch is expanded to like two to three hours meeting. Yeah. And he was very curious on, you know, how did we like, outpace and out scale, like, you know, within like, you know, six, nine months of funding and also the initial part of scaling, right. And also, when he looked at how the competition of funding team was, how did these guys split equity? How did these guys really build the initial leadership team? Right? He was very curious because all these decisions were very unorthodox. It was very unconventional. He did not have any, any in our meetings. He was always confused. Why did I make that decision? But it was like, None of this makes sense.

Hans:

Right. To him.

Rajesh:

Yeah, it did. Right. So he said he wants to deep dive right. So he flew in, he spent, you know, couple of days with us. He, you know, spoke to a lot of my leadership team members. Yeah. Right. And they were a company, when you build a company, you go through a series of journeys, right. So there was there were ultimately definitely very high moments, you know, in the first year, but also low moments, because, like, you know, we were able to break even with a Series B, yeah, after Series B. Investors, you know, we got, and we got a lot of investors and everybody was like saying that, hey, at this point in time, there’re like, two large companies, one of them gross margin is negative 70, one of those gross margin negative 40. You guys have gross margin 15. And you guys have raised enough money. Now you need to scale right? So I was like, Okay. And then I started scaling, right? And I didn’t cross minus 10. And I thought minus 10 is a very respectable number. Right? And, but 2015 was an environment like this very beyond, you know, you know, a good entrepreneur, if you throw the stone a million dollar come back. Right was like that. 2015, 2016 was a freeze. Right? Right. Everybody started asking the business, you know, the bottom line is if it’s a business, it should make money. where is money in your business. This is the first question. My money was right, but now I was told to scale.  And it ended hit me in like march april 2016. That you know, business is business, right? The entire of the company, which was in September October, like very clear of unit economics, doing a transaction if it is 15% doing a transaction, which is double digit margin, keeping costs low, like we still have, like, you know, in the entire company, only product guys and engineering guys have Mac books that do from 2017. The rest of us have Dell laptop. That’s the kind of business in logistics, you can’t be. I can’t have a culture like Google right, I mean, we have to fight for pennies, right. So so so that was a culture which we built. Then from this culture, we evolved into the culture of expansive growth, right. And everybody thought, you know what happened, right? Why is why is this guy talking like this, but everybody acclimatized by like, November. They’re all he means scale right there, nothing else. So the entire DNA changed. And then I had to, again, take my DNA and fix it back. Right. Right. And it was like so all right, I told him I went through all of this and for Shikhar this was very, like, unusual, like something as a, of course. I mean, like, it’s a case, you know, but by the concept of a case study, you’re like a specimen was so, so that was that’s what that’s what happened to us. And we like came back from a very, you know, very bad situation where, you know, we didn’t have payrolling right. And from that situation, we bounced back Yeah, right. So, the case talks about the and this puts the entire entrepreneurial bonds in stress, this puts co-founders ship, you know, how co-founders gave each other you know, under through various like, you know, areas, what are the reactions, how do how do I evolve, right? So, the entire case study will actually on studying our behavior. As a company, how did we evolve? How did the DNA evolve? What did we do? How did we take decisions? And it comes to that point that, hey, this is situation? What should Rajesh be doing? Right? And so, you know, I had really nice time because I think Shikhar has a detailed study of what worked and what didn’t work. And he has this study where on a cube of three, right, so let’s say a software company has a multiplication, multiplication of three, right, which the company company has three people, nine people, 27 people, 81 people, you know, in 243 people. The entire you know, what methodology you need to manage an organization changes. And his thoughts going through that, going through these six, six to seven shifts within nine months. Yeah. So he didn’t know how we manage. Within nine months, you went through all of this, it was really close to find it people by mid 2016. And like you did all of this, how did you guys do it? So it was that case. So I was able to learn from him like every concept, what really has worked and what I did, right and and I even taught the class last year. I’m teaching the class this year. So it was it is good and and the kind of perspectives the students came up with which was more very rational perspectives, all the decisions with which we took where they were completely against it. Like this is not the way you should have done right but the only outcome was that there’s nothing right there’s nothing wrong but it’s what is needed to build a mission to build a story to build what something wants to. So yeah,

Hans:

very good.

Madhu:

So on the rational decisions, you once said it was engineering over joining the army is the most crucial decision you’ve ever made in your life. Can you tell us more about that?

Rajesh:

It was not rational. It was basically I wanted to join forces, my father did not want. So it was basically you know, a simple Indian family. Having a discussion with a 15 year old is having a discussion with you know, a father Yeah, and the father has essentially given his entire life to educate the kids. We have four kids in the family. Yeah. And it was essentially and my father served in the army. So I wanted to be a fighter pilot. So my entire thing about you know, the adrenaline and flying and you know, all of this is more my personal want but what surrounded this want was that because my father in army was a noncommissioned officer, as a soldier, and they used to be like his bosses, who were very young were like, 17 year old kid was gonna be you. Yeah, exactly. And these kids in front of my father, my father used to they just stand up straight and then solute right? What these guys man, right, I mean, my father is 40 and these kids are 17 this coming on my father just standing up and saluting, and I’ve lived through my life seeing that right and, you know, this huge amount of respect in those positions. Right, right. So do you and when father always, you know, obviously, you know, really respected those, you know, officers, etc. And nowadays I always knew that my father respected them. Right. But I think my father knew more about me as well. Right that I think he can, he did not do that he definitely could get into that, because I cleared everything. I had to just go for the interviews to get through. But yeah, I think it was more a family choice. So it was not rational. It was a family thought process. And as I told you, right, I think, you know, there’s nothing right. There’s nothing wrong, it’s a decision, and you need to get into that and make it work. Right. So yeah, and then engineering, I didn’t know anything. So it was more like okay, so you want to you should be an engineer. So which is the topmost school, okay, it is. Okay. So who gives the preparation for that? Okay, these are the preparations so okay. You just go study. It was like that. Yeah. Yeah.

Hans:

I was told you’re also an athlete. How has sports affect your views of entrepreneurship?

Rajesh:

I think, so, in college. I was a sprinter. And after college I was marathoner.

Hans:

That’s are much more relevant. being a marathon runner is more relevant for startups.

Rajesh:

but But in today’s day the startups it’s actually a marathon of sprints. Right so basically the sprints, but keep hydrating sprinting, keep hydrating, right? So it’s basically like a marathon, you just carry a bottle and keep hydrating. Right? I mean, you just virtually don’t even stop, you keep drinking and you keep moving forward. Right. So I think sport has taught me a lot. I think some people you know, a little also say that Rajesh you do not win every time. Right? So I think the winning attitude keeps in very strongly. Yeah, right. I think you know, I’ve been battling basketball and during my sprints and pole vault, like very serious, very serious injuries. But I think you know, in the match in the games, you know, that you know, you can contribute in a particular level to your team so you will do it right. So it taught me very strong winning attitude. Yeah, very strong about that if you’re not practiced, you will do shit in the games. Right. So, so it has taught me that without preparation, you’re nothing. Yeah. Right. It has given me the the tenacity to go at a journey at a mission. Because, you know, as various teams, we were nothing, but when we, you know, exited when we were in college, we were a good team, right? Which means that, you know, how much you want it, you know, essentially get there. Right. And, yeah, and it, I think, perseverance, right, I think I mean, we I used to, like I typically used to practice every day for like, six to eight hours, I’d starting off to cough like 5pm Eastern, like 11,12pm on the court, to keep doing all the stuff and after that, we still do dramatics after that we used to do like different societies, you know, different cultural activities. That was how the entire, you know, college experience was it was more for me. 80% not work and 20% not studying. Yeah. 20% was more studying and courses that was how my college experience was.

Madhu:

Now the round of quickfire questions, what’s your source of inspiration recently and why?

Rajesh:

Building India. I can see that I can be the material contributor towards the logistics economy of India.

Madhu:

What’s the most frequent advice you give to other aspiring entrepreneurs?

Rajesh:

I told you before, repeating again, believe in yourself, believe in your inner voice and be hungry. be hungry, keep going at it, you will succeed.

Madhu:

What’s a habit of you that has changed your life?

Rajesh:

Coming out of duality, for a very personal thing, I should not drink till 2016 I started drinking because I was also in in I was at the alternative it used to help me be out of it as well. Right and I should not like the taste right. You know, believe in duality of life. I think so far, probably. starting up has made me realize that duality isn’t right. Yeah, there’s nothing in life which is good or bad. I think what is apt, what is truth,is very, like non obvious and like very simple, generally.

Madhu:

What do you do for fun besides marathons?

Rajesh:

you took over marathons? Really? Playing with my son, he’s two and a half now. So he brings a smile on my face and irrespective what I’m going through on that day, so he walks to me, he walks with me to my office at least five times a month. I spend at least half my Sundays with him. And yeah, he’s, I think he’s, he’s super exciting. And like, with him, I think I’m able to forgo duality very easily because I think he doesn’t proceed any he doesn’t, he does not have any framework to make decisions. Right. So I can actually see him being very neutral and direct right on something. I think that is good in life. Yes. Because I think visions Yeah. So I love spending time with him. My wife is very jealous of that.

Madhu:

For our listeners, if you’re wondering walking to the office, the office is right next to their house, the co founders lived together under in the same building. I’m curious and what does 996 mean to you?

Rajesh:

I think 996 to me is actually, I didn’t I didn’t really get the philosophy of 996 till I visited China two years back. Right. I met a lot of entrepreneurs. Yeah. read a lot of books. Yeah. Right. And, I mean, very candid, I knew that Chinese people are doing well. I didn’t know that they were like, multiple notches apart above right. So 996 to me is basically you know, a definition of the framework of how to go at tough problems. And, and countries like ours, like in India, still we have 30% people, you know, in poverty which we need to lift, I think 996 is still understating lifestyle maybe I think we need to go much harder. Right? So yeah, so I have two hours more than average Bangalorians, my office and home and, and like me and Chanakya can like continue our chats over dinner after dinner. We just stay in different floors. Sure. Right above.

Hans:

Sure, make sense, maximize efficiency.

Rajesh:

Yeah. So So even if you don’t assuming 996 for us, it’s easy to do 12126.  We don’t spend those extra two hours we will spend double six. Yeah, so yeah, so I think I think Chinese culture is also now changing from nine nine to more, I think, you know, eight eleven six?

Hans:

We will see. The millennials. They grew up in a different China, so may not have the same hunger or drive that India is going through right now. So we will see.

Rajesh:

Yeah, we are.

Hans & Madhu:

Yeah. Okay. Thank you so much. Thank you.

Rajesh:

Yeah, thank thanks so much for having me.

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.