After three weeks in China, it's clear Beijing is Silicon Valley's only true competitor.
After selling my startup, Shopkick, to SK Planet in 2014, and handing over my CEO role a year later, I packed up my 1- and 3-year-old sons and my wife Angel, and flew to Beijing, Shenzhen and Hong Kong for three weeks, hoping to better understand the Chinese startup world and its entrepreneurs and VCs.
I hadn’t been to China in several years, but had almost moved there 12 years ago, so I was very curious what I would find. I met with two dozen startups, from very late-stage — including valuations of $20 billion — to pre-seed stages. I also met with a dozen VCs, two dozen startup entrepreneurs and successful angel investors.
I started at 30,000 feet with late-stage startups and investors, including a long breakfast meeting with the founder Xing Wang of Meituan — a highly valued Chinese startup at about $20 billion. Then I went to Series B and A, and met with startups like VIPkid and 700bike and VCs like Matrix and BlueRun.
Then I went to the seed stage, and met a PhD in aerodynamics who is developing a new electric car engine with high-energy density. He demonstrated it to me from the trunk of his car in a subterranean parking structure in Beijing. I visited the hardware incubator HAX in Shenzhen, and met the ZhenFund on the VC side.
Inspired, I decided I needed to go even earlier stage — to the root of it all — so I went to see the idea and even pre-idea stage at Garage Café, and at the top-rated Tsinghua University’s x-lab and SEM entrepreneurship program, where Peter Thiel happened to be giving a lecture on "Zero to One" right when I arrived.
As my trip to China drew to a close, I started to reflect on what we in Silicon Valley can learn from China. Here is what I found.
- Beijing will be the only true competitor to Silicon Valley in the next 10 years.
Beijing is not just a nice startup playground which might become truly interesting in a few years. This is the big leagues now. Startups can achieve massive scale quickly, because the domestic market is 1.3 billion people, which is four times the U.S. or European population.
An increasing share of these 1.3 billion people is actually targetable. In the U.S., 190 million people carry a smartphone; in China, it is more than 530 million today, and it will be 700 million or more in three years.
Beijing is not a startup playground. This is the big leagues now.
But a large market alone does not mean that a place will become a startup hub. It is the combination of market size and the extreme consumer-adoption speed of new services, combined with the entrepreneurial spirit and hunger for scale of Chinese entrepreneurs.
Beijing is the main hub where it happens. Here, entrepreneurs, engineering talent from the two top Chinese universities — Tsinghua and Peking — and VC money come together. Seeing the scale, speed, aspirations, money supply and talent here, I walked away thinking this will be the only true competitor to Silicon Valley in the next 10 years.
Yes, there are other hubs, such as Berlin, but the scale is different. (India is the only other possible contender here.) And it's good for Silicon Valley to have a true competitor, because it sparks impulses on how to evolve to the next level.
Let’s look at speed, cloning versus innovation and the entrepreneurial spirit of Beijing versus Silicon Valley.
- We pride ourselves on being fast in Silicon Valley. Chinese startups are faster.
In Beijing, tales abound about the sometimes crass competition between startups, and the often not ethically acceptable methods used to win.
The extreme competition only secondarily stems from the entrepreneurs; the main driver is the consumer adoption rates. New mobile apps often take off at mass scale even faster than in the U.S., and become a phenomenon overnight. The improvement from new services is large for most consumers, as the majority only went online recently with the arrival of smartphones.
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.
Work-life balance is non-existent in Chinese startups.
Meetings are anytime — really. My meeting in Beijing with Hugo Barra, who runs all international expansion for Xiaomi — the cool smartphone maker and highest-valued startup in China, at around $45 billion or so — was scheduled for 11 pm, but got delayed because of other meetings, so it started at midnight. (Hugo had a flight to catch at 6:30 am after that.)
In China, there is a company work culture at startups that's called 9/9/6. It means that regular work hours for most employees are from 9 am to 9 pm, six days a week. If you thought Silicon Valley has intense work hours, think again.
For founders and top executives, it's often 9/11/6.5. That's probably not very efficient and useful (who's good as a leader when they're always tired and don't know their kids?) but totally common.
Teams get locked up in hotels for weeks before a product launch, where they only work, sleep and work out, to drive 100 percent focus without distractions and make the launch date. And while I don't think long hours are any measure of productivity, I was amazed by the enormous hunger and drive.
- The argument that Chinese entrepreneurs are mainly cloning Western startups is outdated.
Yes, they clone where they can. But cloning is starting to reach its max — there are just not enough successful ideas to clone. In addition, clones often fail in the local market due to different consumer behaviour and needs.
In China, cloning is just the starting point, not the end point.
Take Meituan. I had a two-hour Saturday breakfast with one of China's best entrepreneurs, Xing Wang. He founded his startup, Meituan, in 2010, and within six years built it into one of the largest commerce companies in China. Meituan is currently valued at about $20 billion, which, at the time, made it the highest-valued startup in China besides Xiaomi (the mobile phone maker).
Meituan is the largest mobile group buying company, largest online ticket sales company and largest food-delivery company in China.
Xing was up against hundreds of other startups in China trying to be Groupon here when Groupon's star was rising in the U.S. He outcompeted all of them by not even trying to outspend them in marketing, but instead by quickly transforming Meituan into a company very different from Groupon. Today it is focused on bringing customers back to retailers, rather than acquiring them only once with a margin-cutting deal that can't be offered continuously.
Meituan is making shopping smarter for consumers and sustainable for local retailers. Now Xing has 200 million monthly active customers. Oh, and he has a baby son.
- A wave of innovation is coming from China.
Chinese entrepreneurs are totally pragmatic. They just want to find the fastest way to win. As cloning reaches its max, the next fastest way to win is innovation.
Take consumer drones. That’s basically hardware meeting software meeting design. Sounds like a typical Silicon Valley play to win, right? Well, DJI dominates the consumer drone market from China (Shenzhen) with 70 percent (!) global market share. DJI is a harbinger of many more cases like these to come. We just don’t see them yet.
Chinese entrepreneurs just want to find the fastest way to win.
Innovation takes longer than cloning. For example, in Beijing I met with a young PhD in aerodynamics, who in the past three years has led a mini team of six in stealth mode with next to no funding, to design a 60kW electric engine for cars and robots that weighs 13 kg (29 pounds). Typical electric engines of that power weigh 58 kg (128 pounds) or more. He unveiled his invention to me in an underground parking structure out of the trunk of his car.
In Shenzhen, the electronics manufacturing capital of China, on the Chinese side of the border to Hong Kong, I visited Benjamin Joffe's HAX, a hardware startup accelerator. Right after the border control in Shenzhen (sort of "from China to China"), you enter a different world, where parts suppliers deliver in less than a day and electronics factories are ready to produce your new gadget.
At HAX, I tested the $9 computer and the water-and-sand-pressure jet that cuts metal precisely at a fraction of current machines' cost. (Yes, you read correctly: For $9, you can add a Linux computer with Wi-Fi and Bluetooth to any device.)
I thought I was done when one of the startups offered me some dried flour worms, telling me they are "like crisps, only healthier," and made in their new electronic insect farming machine. They told me that insects are the new trend — we just have to overcome our mental blocks.
- What Chinese startups lack.
The recent generation of Chinese entrepreneurs is driven too much by money and financial success ("get rich fast"). Such a motivation is not sustainable when things are not working out for long periods of time, which happens especially in innovation-based startups.
But this attitude seems to be shifting as the next generation of entrepreneurs comes along — they have already grown up in a more middle-class environment, and getting rich fast may not be their main motivator.
Beyond the "money mindset," what Chinese startups lack the most is knowledge on how to run high-quality product development in parallel with rapid distribution growth — in other words, how to get both done at the same time.
Deep technology is evolving — there is some interesting AI work under way in Beijing, for example — but Silicon Valley’s edge is still hard-core tech and the fusion of consumer ideas, technology and product design.
Another shortcoming of Chinese startups is expertise on how to enter markets outside China quickly and efficiently. Beyond cultural and language barriers, the fact that the Chinese market is so big means that Chinese startups can easily fall into the trap of never even getting to the international expansion, because others will have already quickly copied them. It's the exact problem that U.S. startups have long faced from Chinese startups.
Finally, Chinese startups lack clean air.
- We are too well-fed in Silicon Valley. We are perked out.
Overall, I have been very impressed with the Chinese entrepreneurs, their spirit, their speed, their dedication, their friendliness.
The massive scale they can accomplish here helps turn the aspirations into reality. We will soon see a wave of innovation coming from China. The argument that China is mainly about cloning is outdated.
In Beijing, entrepreneurship feels like a raw, and sometimes more authentic, form of Silicon Valley.
I loved the lack of pretence of Chinese entrepreneurs, their authentic entrepreneurialism. Silicon Valley can sometimes be too well-fed — from startup offices to chubbiness. Strip all that away. Get to the core of it, the true entrepreneurial endeavour, the obsession with the product and the company, come hell or high water.
And, yes, China has massive issues, from freedom of speech (The Great Firewall) to competition that can get out of hand in terms of business practices. But that doesn't change the fact that there is much to learn from here.
Do I love Silicon Valley and my home country Germany? Oh, yes. And because of that, it's so important to look outside and bring fresh thoughts and input home. After all, entrepreneurship combined with science is the engine of all our futures — whether you live in the U.S., Europe, China, or anywhere else.
In Beijing, entrepreneurship feels like a raw — and sometimes more authentic — form of Silicon Valley. We can learn a lot from China. (Or perhaps "relearn" might be the more appropriate term.)
Let’s keep the inner Silicon Valley spirit alive, and be focused on creating awesome things out of almost nothing. That’s entrepreneurship. Let’s beware of getting perked out and distracted by stuff that doesn’t matter.
by Cyriac Roeding May 13, 2016, 9:15a
Cyriac Roeding is a German-born entrepreneur and angel investor mainly active in Silicon Valley. A former EVP of CBS, where he started the mobile division, he then became an entrepreneur in residence at Kleiner Perkins Caufield & Byers. He was most recently the CEO of Shopkick, a mobile shopping business he founded. Follow him on Twitter at @cyriac1.