The Odds of a Western Startup Succeeding in China (nevermind just a startup!)

In china business by Michael Michelini1 Comment

After just reading Mark Suster’s post “Entrepreneurshit. The Blog Post on What It’s Really Like.”, it inspired me to finish a blog about something that’s really been on my mind the past couple weeks – the added complexity, and the added “odds against you” of a westerner (foreigner) doing a startup in China.

I spent 3 awesome months in Chinaccelerator and have entered the month of November determined to keep this focus and determination on my new venture Weibo Agent. Still discussing with potential investors, still working closely with a core group of first customers on the product, building the team. Doing all the things I’m supposed to do as a startup guy.

Todd Embley the project manager is an awesome dude, and I remember one day venting to him about issues I was having in my startup. Internet, communication, etc. He said something like, this is why you’re doing it, because no one else has been able to do it. If it was easy, everyone would do it.

That stuck to me. I guess that is something that also got me to come back to China in the end of 2010. I’m just too stubborn.

Chinese friends fully support me

Over the years in China, I have made some great friends. And I have kept up with them on social media especially. I think Chinese people really do want to see a foreign guy succeed in China. And man, do they seem to respect me for my efforts.

But I wonder, deep down inside, how much they think a foreigner can do in China.

Western Business Mentors cannot fully advise me

I have awesome connections and build up great friends and a network of mentors. Both inside China and outside.

But there are some phone calls, with my old professors from Stevens tech, or a successful American businessman, and there will be points in the conversation where they just have to default to:

“Sorry Mike, I don’t know how it works there in China, but from my experience in business in America, it works like ______”

And advisors / mentors in China do not really have the ability to help me about international business.

I know, this is the value I am building, and what my purpose in life is about. But man, hearing these day in and day out, of people who are awesome business experts, not able to fully understand my situation.

The risks seem amazing, daunting…

Another annoying talk was about valuation of my startup, and who should invest – Western or Chinese-based investors. Being told I made a huge mistake in a bargaining table….when I can’t go back. But then again, I think I made the right decision, and there just is this huge unknown on all fronts.

I’m told American investors are easier on valuation, but they don’t invest in startups overseas – its too complex. And then there are Chinese investors, who don’t think you will succeed (because you’re a naive foreigner who thinks you have any chance to succeed in China) and maybe they’ll give you a low valuation if you’re lucky.

But the real facts I’m told by those able to tell me

A Chinese investor looks at a white guy in China trying to do business, especially an internet startup, and writes them off. This guy doesn’t know business in China. This guy will fail. Even if he tries day and night, he will fail. “He doesn’t know China”

Talking to other foreigners in China doing business, they also hear the same things. And they are way more experienced than me. They speak fluent mandarin (mine is….well, needs a lot of work), and even they are told that they don’t know China.

I won’t give up their identities, to save them face, but they are just as frustrated.

And this is from Beijing, to Shanghai, Shenzhen, and those hanging out in Hong Kong. I’d say rather extensive perspectives 🙂

Realizing there really aren’t many people doing this…

After spending time in Shanghai in June, and then 3 months in Chinaccelerator, with geeks on a train to Beijing and Shanghai…and being in Shenzhen / south china for so many years, I think its safe for me to say there aren’t many people doing this….Westerners doing startups in China. They come and they go. They dabble, they do a million and one ventures (yes, I’m guilty as charged) and then they get burnt out, and then they leave China.

And there are a couple success cases, the Fritz from Qunar travel, and a co-founding partner from youkou (a youtube of China)

And thinking, how much easier it is for Chinese to do business in America

For a couple years I did pretty intense consulting to help Chinese companies enter the American market. But seriously, it is SOOOO much easier for a Chinese company to enter the American market than for an American startup to enter the Chinese market. Like, no one can even contest me on it.

I have done both, helped Chinese go to USA, and helped consult Americans coming to China. America you can open a company online, bank account online, put some chinglish products on ebay and start making money. In China, ha! The amount of red tape, or “gray” business-lines you have to risk, its insane.

But its not just Western Startups in China, its any startup in China

The idea of a true, grassroots, bootstrapped startup in China is still rare. And the Chinese I have worked with are much more comfortable working in a larger company, for reasons such as:

  • Family pressures to make money
  • Buy house, marriage
  • Save face if they fail
  • The Chinese consumer doesn’t trust a startup, so would prefer to buy from the larger company (even if its a copycat)
  • Chinese staff don’t work for equity – just care about cash.
  • So while I complain here, its also a huge struggle for a Chinese entrepreneur as well.

    Its become my “True north”

    Its taken over my thinking, my life. This is something I have to do, or as I like to say

    “make it just a LITTLE BIT EASIER to do business in China”

    That has become a tagline I’ve enjoyed sharing. Onwards!

    Further readings for Startup in China

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    1. I think the problem is in China you never know how much money someone
      has until you turn them upside down and shake them, Many company’s seem
      to be successful but are backed by money from mysterious sources and
      strange accounting methods with large losses being explained away as two
      sets of books. Company’s never seem to go broke in China only the boss
      is blamed as running off overseas with the cash. The number one rule in
      the west is to make a profit in China the rule carried over from the
      communist era is to employ people at whatever cost. Rule number two is
      face you must win every contract even if you make a loss or do not have a
      clue how to make the product. Rule number three is the best one which
      allows you to change or make any rule you like at any time.

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