By now, you've probably read Mike Moritz' article on the work culture of China's big tech companies, and what that means for Silicon Valley.
Cyriac Roedig (Shopkick's founder) also wrote that Chinese startups just operate on a faster timetable:
"Big startups are built in three to five years versus five to eight in the U.S. Accordingly, entrepreneurs who try to jump on the bandwagon of a successful idea scramble to outcompete each other as fast as they can."
Chinese tech giants get there faster, but only partly because of 9-9-6 as Moritz observed.
It's also due to a handful of other, maybe more important factors:
- a dense, interconnected domestic market they're selling to
- hyper-competition driven by population pressure
- a culture that lives by the 80-20 rule, preferring to throw features against the wall instead of waiting for months to make them perfect
- being regulatory bedfellows with the Chinese government
Let's dig into each of these factors one by one.
Andrew has a great story about this, firsthand:
“My own experience with this came from competing with China's Didi when I first started at Uber.
When I first joined Uber back in 2015, we were right in the middle of the showdown with Didi in Beijing, China. Didi, like most Chinese tech companies, had a company wide philosophy of 9-9-6, which stood for “9 am to 9 pm, 6 days a week.”
This was incredibly intimidating because they had thousands of people following 9-9-6. We had a team of a few hundred folks focused on China (along with other, non-China Uber responsibilities).”
This isn't to say that we all need to be working 9-9-6 in order to build a successful company, but more hours x more talented people does tend to lead to bigger outcomes.
Dense, interconnected markets
There are 850 million people under the age of 40 in China (compared to 160 million under 40 in the US). WeChat has almost 1 billion monthly active users, and a platform ecosystem of over 200K developers.
One of the most interesting things about WeChat's growth is where their user engagement is deepening.
Existing users' new contacts are now skewing towards work-related connections, not just friends and family. People are increasingly relying on mobile to handle one of the most critical things we do in work and person — pay other people.
Mobile payment transaction volume is estimated between $5.5 and $8.5 trillion for 2016, and likely a lot higher for 2017. Over 40% of in-store purchases (in physical stores!) are transacted through mobile payments.
More WeChat users with more friends plus more developers working 9-9-6 to make more apps, means that more and more of daily work and personal life is consolidating onto mobile platforms. This creates a dense and efficient network for launching a feature or an entirely new product.
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Greater population (more players) leads to more intense competition.
A few years before Meituan's 2016 merger with Dianping, there were up to 5,000 “Groupon clones” all scrambling for a piece of the China e-commerce / daily deal market.
China's bikesharing market is another example. Ofo and Mobike launched within a year and a half of each other. Less than a year later, dozens of different colored competitors had jumped in, including Bluegogo, Youbike, Qibei, Yibu, Xiaoming, CCbike, Hellobike, and lots of others.
It's happening in China's coworking market, too. WeWork launched a well funded expansion there in late 2017, but by then Urwork, Newspace, Naked Hub and other Chinese competitors had been going after the Chinese coworking market for a few years.
P2P online lending platforms are yet another example. At its peak, there were over 2,100 companies competing in that space.
People talk about Silicon Valley's winner-take-all environment. This is magnified in China, where success and consolidation scale in proportion to its worker/innovator population, and in tandem with the velocity of iteration. Meituan-Dianping's merger made it the 5th most valuable unicorn in the world, and created a super-app that's much more than the “Groupon of China.”
There are more details around the Darwinian pressure of China's tech innovation, but one thing to remember is that its massive and densely interconnected population also means that sample sizes are bigger, and success is (or has to be) much bigger. A few million MAU is nothing in a total addressable market of a billion.
In her post on mindsets for thinking about innovation and China, Connie Chan shares some perspective on this:
“To put it bluntly, a company that has reached 1 million registered users in China hasn’t really “cracked” China; for instance, if Tencent had a product with just five million monthly active users in China, it might consider shutting the app down!...
In mobile, China Mobile apparently has (as of the end of last year) nearly as many 4G mobile subscribers as the entire U.S. population. Not to mention nearly three times as many total customers as there are people in the U.S.
China is thus an ideal place for startups to find all sorts of insights on user behaviors at scale.”
It's worth noting that China Mobile is just one of three major carriers in China.
China lives by the 80/20 rule
When James Palmer wrote about China's “chabuduo” culture, it was to point out the problems with 'good enough:'
“The prevailing attitude is chabuduo, or ‘close enough’. It’s a phrase you’ll hear with grating regularity, one that speaks to a job 70 per cent done, a plan sketched out but never completed, a gauge unchecked or a socket put in the wrong size.
Chabuduo implies that to put any more time or effort into a piece of work would be the act of a fool.”
But the flip side of “chabuduo” is how it enables people to get things done faster, even if it's (potentially) at the expense of quality.
A nose to the grindstone work ethic, lots of hands, and a culture of throwing it against the wall is what enables Chinese companies to build a train station from scratch in 9 hours, or to copy, build and sell a structurally simple piece of consumer hardware faster than its original creator can launch a Kickstarter campaign, and it applies to more than just simple hardware products or manual labor construction projects.
Across a three year research project, MIT researchers documented China's accelerated innovation, partly attributable to the lower cost and bigger supply of Chinese engineers, but in even larger part due to an “industrialization of innovation” that divides up the discrete steps of the innovation process and throws a team of (inexpensive) talent at each step, kind of like an assembly line.
“When Tencent launched the first version of the QQ reminder application, it was geared toward appointments, birthdays and anniversaries. Users quickly pointed out that the product had a missing feature: reminders for when their favorite sporting events were about to begin. More surprising to Tencent’s developers, however, was the flood of input they got from gaming enthusiasts who wanted reminders about the schedules of computer-game tournaments.
Within weeks, the Tencent team released a new version that incorporated both functions. This rapid cycle of launch-test-improve has now become core to Tencent’s innovation process.”
Chinese companies are doing this in non-Internet sectors, too.
“Mindray Medical International Ltd., a company based in Shenzhen that is China’s largest maker of medical equipment, for example, released the initial version of its BeneHeart R3 electrocardiograph machine into the market following 18 months of product development.
Mindray routinely launches new products every six months, in stark contrast to the typical two-year launch cycles of some of its foreign competitors.”
In the US, regulations and legacy systems that used to serve us so well (ie, the banking system) can end up holding us back when it comes to disruptive innovation, and there's traditionally been a relatively strict divide between government and the private sector.
Google only hired its first lobbyist in 2006, years after it was already public and big enough to be a heavy hitter (Twitter's first lobbyist came in 2012, and Facebook's was some time around 2011). 'Consulting' government so late in the game contributed to a relatively adversarial relationship, which in turn has an impact on the access, and velocity, that companies are able to get.
By contrast, Chinese entrepreneurs were tight with the government from day one, which has led to a more collaborative environment (one that goes both ways though -- the government also forces large Chinese tech companies, like Alibaba and Baidu, to share user data and work on projects in their interest). This means the Chinese government is often actively clearing regulatory obstacles that would slow down innovation because it views tech as a national policy interest.
To understand China's innovation, we have to look at all the factors — socio-cultural, technical, IP, political. It's not about faster copycats, or just about 9-9-6, or a mobile-first ecosystem. China's companies won't be confined to their massive domestic market forever, either. Even if you aren't actively going after the China market, Chinese companies could be coming after yours.
China is and will continue to be exporting a lot more than manufactured goods. As consumers of Chinese-created tech, and as entrepreneurs, investors and market watchers, where that goes will be relevant for all of us.
Further Reading on This Topic
Mindsets for Thinking about Innovation In — and Competition from — China by Connie Chan
How a Chinese Food Unicorn Nails Acquisition, Monetization, and Defensibility by Xianhang Zhang
Fast and furious: Chinese unicorns to overtake American counterparts by Linda Lew
Chabuduo — What Chinese Corner Cutting Reveals about Modernity by James Palmer
Andrew Chen works on growth at Uber, and is a growth advisor to companies including AngelList, Dropbox, Product Hunt, and Tinder.
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Susan Su is head of marketing at Reforge, a company that provides masterclasses in frontier skill sets for mid-career tech professionals.
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