Picture 4 to 5 young developers crammed together in a messy, cramped student apartment with old discarded styrofoam lunch boxes littered around them. They sit for hours and hours behind their screens typing away, coding, and testing their product. Their hair is messy, their clothes wrinkled, and the smell of cola, coffee and cigarettes hangs in the air.
This archetypal image of an early startup company is almost universal whether it’s in Silicon Valley in the US or in Beijing’s Zhongguancun district. Young entrepreneurs, driven by a dream and a passion to build something monumental remains our image of software startups the whole world over. However, just as most US startups did not emerge from a Harvard dorm room, many Chinese startups also did not come from a group of friends working full-tilt in a cheap apartment somewhere in the city.
The reality is that in both China and the US, startups and founders are as diverse as the ideas they’re building. However, for cultural as well as regulatory reasons, there remain many differences between the startup eco-system in the US and its counterpart in China. Although passion for what they build and dreams remain very similar, entrepreneurs in China and those in the US have adapted to the forces in their environment in many different ways. Although its almost impossible to list all of the various differences, we can still examine some of the most salient points.
Founders: The older generation in China, those over 35, still remember the hard times of the past. They put a premium on stability and saving for the future. Many entrepreneurs in China still need to convince their parents, their spouses and even their friends that doing a startup is not a crazy idea (it probably is, but they still cannot admit it). The pressure to take a job with a large prestigious company, or even the government, remains a big hurdle for startups by young Chinese professionals born as the only child of their aging parents. Americans, in contrast, live with the epic stories of Bill Gates, Steve Jobs and Mark Zuckerberg dropping out of college to chase their dreams and become billionaires of companies that literally changed the world.
When I hired Chinese male developers in Beijing for my company, I was always puzzled by their disinterest in equity shares and their desire for cash as compensation. One of my friends from China explained it to me this way: ” many of your guys want to get married or get girlfriends, in order to do this, they NEED to buy an apartment now so they can get married or to make them more eligible to prospective girlfriends as a stable and responsible spouse. Keep in mind that the gender ratio for young Chinese is heavily skewed towards boys with girls being a smaller and pickier group.”
Ideas: One will discover that many of the successful internet companies in China started as clones of Western products. After several iterations, and adaptation to the local market, many of these Internet companies have diverged immensely from the original model they copied. This same still occurs today as Chinese entrepreneurs look for viable ideas and services in the West and try to adapt them to The China market. Taking an idea that works in the West seems less riskier when one launches it in China, sometimes with the same UI, colors and even code than taking a wholly new idea and trying to discover a workable idea, product and even market. Success in China (for now) is gained through execution, not innovation.
In the West, new companies, new ideas and even new business models are expected of entrepreneurs as they add value to already existing market segments or create a whole new one of their own. Although cloning and copying still exists, entrepreneurs are still expected to innovate in some way, even if small, to gain some credibility from the community. Carbon copies are frowned upon and innovation is the buzzword.
Many Chinese entrepreneurs have working experience or, in the past, went to school abroad. These days, most entrepreneurs now come from local Internet companies never having been overseas. For this reason, many of the Chinese entrepreneurs are a little older and more experienced, coming from large companies prior to doing a startup.
Capital: Raising money to do startups continues to be the largest worry for many entrepreneurs on both sides of the Pacific. One of the most significant differences between East and West is not the entrepreneurs, but the investors themselves. While the West has had many generations of technology entrepreneurs becoming investors, China has perhaps only one generation of successful Internet technology leaders that can act as mentors and investors to these startups. Many of the investors in China come from financial as opposed to technical backgrounds. Those who have been successful entrepreneurs have usually done it through more traditional industries: manufacturing, outsourcing and service industries. Their expectations of returns and risk have been formed from their experience of growing their own companies in an emerging market transition. Only now recently do we see some of the original employees of Sina, Baidu, Tencent and other Chinese internet companies leaving to form their own internet companies with seed and angel investment from their former bosses and colleagues. Before this, many of the technology people were coming out of the early Microsoft, HP and IBM local staff of the pre-Internet information technology multinationals.
Even many institutional funds and VCs focused on funding hotels, automobiles and property companies; these were growing rapidly with less of the risk inherent in the internet business. Many of the Silicon Valley VCs in China operate more like franchises that use the name and brand of their US counterpart, but raise funds locally and manage their portfolios more or less with a very local focus and investment size, usually smaller than their US counterparts. Local investors also have a shorter investment horizon and want to see revenue, profit and an exit earlier than their average US counterparts.
Growth: The last difference that I can mention between the US and Chinese startup eco-system is the growing of the business. In many ways, the online revenue for many internet companies came through the sale of virtual items in games. Only in the last few years have we seen the growth of online advertising and transactional fees being a primary business model for Internet companies. The US has had online revenues available as a revenue source for almost a decade. Many online businesses in China still have a large element of offline and traditional industry partnerships. For Chinese startups to grow, they still need to partner and get approval from traditional channels for customers and fulfillment. The western eco-system for online businesses has in many ways become less dependent on offline channels for traffic and revenue.
The most significant partnership for Chinese startups remains, of course, government approval from the various and multiple regulatory bodies in China that oversee the Internet. Whereas in the US, a startup that makes money, complies with generally accepted laws of traditional industries, and builds a growing userbase is on the road to success, Chinese startups that fail to please or comply with the special laws or approval of the regulatory bodies can see themselves shut down almost overnight. Even successful Chinese startups need to continue to remain vigilant year after year lest their license gets revoked.
The bright side is that China’s startup ecosystem continues to grow and adapt like a startup itself. Although it may appear to or come close to the ecosystem found in the US, it will probably remain a very different environment for at least another generation. Just like any startup, expect to see a few pivots in the eco-system along the way.
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