Interviewed by Hans Tung.
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.
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 post–virus 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.
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