savio kwan alibaba sars

An Hour With: Alibaba’s Ex-President and COO Savio Kwan

Savio Kwan is known to most as the former President and COO of Alibaba, steering the company through tumultuous times like the 2003 SARS pandemic and setting its course for future growth. There’s a certain sense of deja-vu as COVID-19 wreaks havoc on the global economy, 17 years after SARS put Alibaba in dire straits.

This is part of our webinar series intended to help leaders navigate this global crisis.

Originally from Hong Kong, Savio began his career as a systems engineer before getting his MBA at London Business School. After that, he spent close to twenty years working at General Electric (GE) before being brought in as President of Alibaba in December of 2000. Shortly after Savio came on board, the nascent business was burning through cash at an unsustainable rate. After a slight upturn, the company was subsequently hit by SARS.

We had the pleasure of Savio’s company for a video conference call as he shared first-hand experiences of joining the company and consequently navigating Alibaba through those challenging times.

When Jack Ma first approached you, you had just left GE. What made you decide to join Alibaba?

I was approached by a headhunter to join Alibaba. Being skeptical, I asked the headhunter, “What can somebody like me, from the old economy, contribute to the new economy like Alibaba?” To the headhunter, apparently I had asked the right question. Jack needed an ‘old economy’ guy to help build the nuts and bolts of the business. He didn’t need people to help him build a good website - he needed help building a great company. Upon hearing that, I decided to throw my hat in the ring for the role.

Soon after you joined Alibaba, it hit a wall where the company only had about five months of cash flow left. Tell us how did you and your team put together a strategy to overcome this crisis.

This is actually one of the defining moments of my career. The company had about 10 million USD, but the burn rate was 2 million USD per month. We quickly huddled together and came up with a cohesive strategy - we called it 3 ‘B2C’. This stood for 3 things: Back to China, Back to Coast and Back to Central. Essentially, we had to pick where we were going to fight our last battle for survival.

Very quickly, we closed down all overseas offices and scaled down to around 150 personnel. It was important to do all this within 30 days because if we didn’t do that, it would mean another month, another burn rate of a few million dollars.

The second important consideration I had can be translated to the phrase ‘last man standing’. Do not die, do not give up.

We all know that letting people go is a difficult choice - how were you able to cut the staff without demoralizing the team?

Firstly, we were very clear from the start that we wanted to preserve our opportunities in China. So if you’re not within that China sphere, then you are vulnerable.

Secondly, we were very candid with everybody. We did not hide anything. I remember telling our engineers in Silicon Valley that we could not support the operations anymore. And then you have to honor their contracts, give the people you laid off what’s due to them, don’t try to argue. This way, you get through it without much issues.

Do this exercise just once, don’t do it multiple times, as it will surely demoralize your team.

With operations scaled down, how did you and your team come up with a new business model for Alibaba?

Many of the business lines we were trying then did not work, simply because we were resistant to paying bribes. We had a business line that helped people build infrastructure for big websites (similar to Alibaba), which we didn’t want to continue because it meant paying 1 to 2 million RMB in bribes.

We were down to our last few ideas. One of them was helping SMEs in China, who are trying to export, find overseas buyers. We realized then, we were helping the bosses of the companies. And in this space, there were no bribes expected or given. This gave us our business model.

So that’s - the first real business that was sustainable. Helping Chinese suppliers to find US or European buyers - there’s no way bribing can happen here.

Yes. So this is where we got the cash flow to support Taobao, Alipay, and so on.

It can be easy to come up with a brilliant strategy like what you mentioned above, but much harder to implement it. How did you manage to do it?

We actually knocked on doors and offered our help to our customers - bosses and owners of SMEs. Many of them then were not tech-savvy, they did not know how to use the Internet. We had to train them, and even help train operators, so that once they got connected with a China supplier, they had an operator to help run the website.

We managed to break even in 2002 with several million dollars worth of surplus cash flow.

In between 2001 to 2003, what kind of people-related initiatives did you implement that in hindsight, prepared Alibaba for SARS?

For me, it started with something close to Jack’s heart. And those are Alibaba’s company values. This was an exercise unto itself - we spent seven hours debating and refining what Jack saw as Alibaba’s company values. We finally got it down to nine company values. Putting this into action, we decided that we were going to do performance evaluations.

In Alibaba, you could be in sales, or an engineer, or in HR. So 50% of your measurement is on performance, but the other 50% will be measured on your behaviour, vis-a-vis our company values.

The other key thing we did was a lot of training and development for everybody. Most people think that new employee training should be for three to four hours. Our training for new employees happens offline for two to four weeks. We make sure everybody understands the company’s values, vision, mission and expected behaviour.

In times of crises, like SARS, our employees were actually empowered to navigate and make decisions on their own. When faced with difficult decisions, they pull out our company values and measure what they plan to do against that.

Tell us what happened when SARS hit, and the steps that were taken to manage the business.

One of our employees who came back from the Canton trade fair exhibition at the end of 2002 ended up getting diagnosed with SARS. She had to get isolated, as did the rest of her team.

Very soon, the whole company was made to work from home, isolated from their work premises. What happened next was completely voluntary. People were coming to me asking for a budget for equipment to work from home - telephones, broadband, laptops, mobile phones. Basically they were telling me, I need you to empower me to perform.

Our engineers also built a platform where all telephone input into our fixed lines could be picked up anywhere. It was a virtual platform where our staff could get access to and start dealing with their customers. Any customer that called into Alibaba would get their phone call picked up. So we ensured that even in a crisis, we took care of our customers.

Taobao launched in 2003 and has gone on to become a multi-billion dollar business. What was Jack’s reasoning or confidence that that was the right time to do it?

Just after we broke even in 2002, Jack told us that we should attack the C2C business. We thought he was crazy then, because we didn’t feel like we got B2B right yet. But he had a vision for an Internet model where we do not stop providing services, creating services to our target customer, regardless of the timing of the day. He saw no boundaries between B2B, C2C and B2C.

Of course, it turns out that he’s completely right.

The second thing that helped us was the formation and belief in Taobao’s hyperlocal culture. This is especially poignant against eBay trying to dominate the market in 2004. eBay signed advertising rights with major portals with the intention of blocking Taobao-linked advertisements. They spent a lot of money building its China operation (named eBay EachNet) without realizing that the language on the platform is in English. So they lost 90% of the people.

Taobao has a very good culture, which is the ‘Dian Xiao Er’ culture, or translated to the ‘Inn-Keeper’s Mate’ culture. The inn-keeper is the boss. But the inn-keeper’s mate is the guy who provides the service. So everybody has a nickname. And this actually reduces the distance between the customer and us, it breaks down the barriers. This is why users preferred us to eBay EachNet, because we understood them.

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

The first thing is to go back to basics and ask what is the key value proposition. In Alibaba, it’s to make doing business easy, in Google’s case, let’s make every search useful. Every company or startup founder has a dream to do something valuable for their target customer. Articulate and communicate that to the team. Give your team a reason for their work.

In the heat of surviving this pandemic, you should stop and ask, what are we doing here? Are we just doing things, or are we winning? A company with strategy knows how to win. The company without a strategy only knows how to look very busy, because they do not know what they have to do to win.

So first thing, do not die - be the ‘last man standing’. Deliver value to your target customers, and figure out a strategy to win.

What are some valuable lessons you learnt from Jack?

He is very contrarian. In all the time I’ve been in Alibaba and in my dealings with Jack, the most valuable is his contrarian thinking. He used to say to me, Savio, if everybody is going in 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. It’s common sense, but you have to have the conviction and courage to follow through.

I also remember him telling me that we are the little ants. In a sense that there are many of us. Our business should not depend on just 10 customers because any of them can hold you ransom and it’ll have devastating impact. Therefore, we go after the mass market. 10 million customers. If you lose one of them, the impact is relatively small.

It’s a lot more work dealing with 10 million customers!

Yes, but there is a Chinese philosophy behind it called 因果 - cause and effect. Jack believes that if you’re creating something valuable for an equally valuable group of target customers, they will ultimately reward you.

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