China Paradigm Transcript #110: How an entrepreneur modified his product to create a successful platform enabling Western brands to optimize e-commerce performance in China
Find here China Paradigm episode 110. Josh Gardner is an entrepreneur with a background in Academic anthropology, logistics, and e-commerce. Since 2014 he has been running Kung Fu Data in China, which helps international brands to optimize e-commerce performance in China. Although business is going well now, things didn’t start way and Josh not making any money with his business before listening to feedback from clients, and pivoting his business more towards what clients wanted.
Full transcript below:
MATTHIEU DAVID: Hello everyone. I am Matthieu David, the founder of Daxue Consulting and its podcast, China Paradigm. Joining me today is Josh Gardner. You are the CEO and co-founder, I think you have two additional founders in your company, of Kung Fu Data. So, what are you doing with Kung Fu Data? You are an activation partner for China’s big e-commerce platforms. So, you help foreign brands get on the platforms and optimize eCommerce performance in China, whether it is e-commerce advisory, activation, optimization or brand control, and brand control is such a big concept. You are the first one I see that is so much on brand control. We will see that later on in the talk and to finalize the introduction is that you say you want the foreign to enter and succeed in China by leveraging data and which looks a bit old-fashioned; relationships. We will go back on this relationship in China even in e-commerce which is as modern tech as e-commerce. You moved to China 25 years ago.
Pre-Taobao, pre-iPhone, Taobao was started in 2003, iPhone in 2008. SO, you came into China when it was not that connected with the Internet. So, you saw all the development in China and at the beginning what you were doing, you were working on minorities in Yunnan. So, you have a very deep understanding of China. You studied it, you actually started to be interested in China very early in life by studying anthropology and Chinese studies at Boston University. You started Kung Fu Data in 2014, you have served more than 100 brands, you have generated more than 700 million RMB and you have offices now in Beijing, Shanghai and Hong Kong, where you are now, San Francisco, New York City and Rome. Very unique to have Rome, too. You have clients such as LVMH, GAP, but also Roche, President. So, it is luxury food and beverages, beers as well, a very wide range of clients.
I’d like to read what you wrote on your LinkedIn and sorry it’s a bit of a long intro, but I think it’s very interesting, to show how mission driven you are. So, you write on your LinkedIn, “I am on a mission to help brands thrive in China’s online market places. 24 years ago, I moved to China to study Mandarin and to do field work on minorities in Yunnan. I lived among people who had never seen a foreign face and as an outsider – and you underline this word, I feel – I had a lot to learn. The first thing I learned was that China is really big and that new England, where I grew up, is very small. The second thing I learned is that while doing anything in China seems tempting, it is much easier when you have the right connections.” There we are again, connections. “Relationships define success in almost every aspect of Chinese life, but certain relationships cannot be superficial.” That’s also a very interesting thing. There are so many foreigners having a campaign with Chinese people. I feel it is superficial or you tell me if you feel the same. You have to bring genuine value. “The third thing I learned…” I’m quoting you. I am reading your LinkedIn, “Was that China is an inside game. You either know how to play it or you don’t and if you don’t understand the playing field you may be frustrated, disappointed and often humiliated. So, take the time and get the facts.” Maybe the reason why you insist on data. “No one wants to admit that they’re an outsider. So, they pretend, they allow Chinese consumers into one basket, they pass judgement after reading some reports on going out or going to a conference, they hire folks who are either unqualified or don’t have their best interests at heart and they hand over control to local partners who can’t stand up to simple questions like, are their clients happy with the results.” It’s soon finished, but it is interesting. “It is easy to blame China, but harder to accept the truth. Most Western brands cannot ignore China e-commerce who have no idea how to run it properly. China is 20-25% of the world’s population and now, it’s a market of let’s say two-thirds of China is able to buy online and reach like 400 million.” So, it’s one of the biggest markets in the world. You cannot escape it. “Even with all the more sensible things, my wife of 19 years wishes I would do for a living what excites me most is launching an ecommerce business in China successfully. I’m here to help some brands take control of their destiny, to bring transparency and accountability.” Like EO; Accountability and transparency, by the way. We will mention EO at the end of the interview, certainly. “I offer a sounding board built on real data and relationships and experience operating brands on Tmall and JD. It’s time to put the voice of reason into the China plan. Anyone willing to listen?” Here is his intro. Thanks for being with us. What is the situation now with the company? We are in a very, very special time now. It’s still Coronavirus all over the world except China.
I’d like to start with the situation of the company. So, I didn’t mention the size of your company, but for my understanding you are about 50 people now; more than 50 people.
Could you share a bit about the effect of coronavirus on the company and the general situation of the company now?
JOSH GARDNER: Okay so, we are obviously dealing with the crisis, right, but right now we have about a dozen stores. So, brand stores between two platforms. We usually do around… so, I have two divisions, right. One side does what we call take-backs and turn-arounds for brands as well as sort of just data to understand, you know, what the size of the prize might be and sort of help them on the way in to make sure they get set up right., and then later help them optimize ecommerce performance in China. So, we are not a market research company. It is a very targeted business model where we look strictly at the business case for commercial launch in the online market places. It is very specific data and it’s a very specific case work. So, the benefit of going through that process is of course much lower failure rates, much higher success rates and realistic expectations, which no one likes to hear. On the other side of the business we do a lot of activation and operations. So, that’s why we have a dozen stores and you know, it varies from year to year, but you know, in general, the business has grown a lot and you know, we have I think it’s total of 12 brands right now. So, it’s actually 15 stores. Excuse me because I am not involved in a lot of the JD stores. So yeah it is about 15 stores, 12 brands and you know, our GMV is pretty decent now. It used to be small, but we have scaled up quite a bit. Last year we doubled. This year I was expecting to either double or triple, unfortunately that is not going to happen. However, what I think you wanted me to address a bit about COVID, how it has impacted us. I think initially we were like everyone else in China; just scared to death. I knew that we had positioned our business in a way that it’s sort of recession-proof at that standpoint because I do see a long term and very powerful trend and it’s not even a trend. It’s just a new behaviour of humans, like, consumers moving towards a digital format to buy and sell the things they want and need to get rid of. So, I saw in China that wave happened in such a huge way and I don’t think it is going away. I think it will just increase and accelerate. So, going into COVID we knew we were going to suffer, but we just figured we would have to just get through it. So, I will do pre and post. So, my team is spread out in many offices, which you mentioned. The overseas offices; one is my sort of data advisory group that’s based in the States with the analytics people. The other locations are more like business de3velopmetn, so we have a few reps there and I have a lot of… as you can see, I have a lot of Italian clients and some channel partners there. So, we actually have a rep in Italy that works for us. So, that was the Rome office. Then, New York we have one and then in the States we have 11 people or something like or is it 7 people? Yeah, 7 people and the rest of what we call the international team is split between Shanghai, I’m in Hong Kong and then the States and Europe. So, we have our international team and then we have our local team. So, the operations team. The operations team is seated in Beijing where my two partners are and my client services and brand management team are based in Shanghai. So, that’s in downtown Shanghai and then I commute. So, I used to be in that office and I then moved to Hong Kong a few years ago and I am basically on planes 35, 40 times a year, so I fly a lot, normally. So, COVID, let’s get to it. Everyone asks me this question and so I will be very straight. The first 6 weeks it started, so from the end of January through sort of the end of February it was terrible. So, it was really, really bad. All the stores had a huge impact. We had a lot of clients in categories that were deeply affected sort of attached to travel or travel retail or something like this. So, those kinds of products took a big hit in that month, but since March totally a different story. So, March was huge. We were up over last year 80% in gross merchandise volume, seriously. Last month was maybe slightly less, but it was still like 60-70% growth and May is actually huge. I think it’s going to be over 100. So, on a quarterly basis, I am over last year, even taking a hit in January and February. Even with that hit, we are up. If you look at 5 months, we are up very significantly and while it’s not perfect, meaning across the board you don’t see consistency in the sense that my clients are still suffering if they are in those categories, but like let’s say you took out the 3 or 4 stores that are… let’s say 30% of my portfolio is deeply affected by COVID, they are still growing again. They are back and heading back up, right and they have recovered and the rest of the stores are up, huge. To me that is exceptional. That alone should tell anyone who’s listening that Chinese consumption at least in online market places is actually strong and I think it is going to grow this year. I don’t think it is going to be done over last year. I am just not seeing it yet and there was an assumption that and I read it in the media every day, the western media that there will be a huge blow-back on China, which would crush consumption. I have to say, I think because the online market places are filled with, you know, I think there’s 850 million or 750 million people just registered in Taobao, right? A huge percentage of them are tier one clients, meaning like tier one and tier two sort of consumers. The issue with tier 3 and 4, which are deeply affected by COVID because they are the manufacturing base, but tier 1 and tier 2 consumers, even just millennials, right; there are 400 million of them. These are positive signs for my business because to target this group of consumers you really need to optimize ecommerce performance in China. 400 million is bigger than the population of the U.S. They have more money than the average American. Like they have tons of cash and they’re fine and their parents fund it. You see it every day in Shanghai. A lot of them are spoilt, but most of them are just supported, right and they have a safety net. Most of them did not lose their jobs because as an employer in China, you can’t just let people go. You are going to get severely punished and so we are actually forced to keep them, but I think what’s interesting is we weren’t allowed to lay anyone off, we weren’t really allowed to do anything as an employer in a tier 1 city and I think because most people like me, were in that situation across the eastern sea board, I think everyone’s got their money, right? All of them have their jobs and they all have their money and as soon as confidence was restored in March, that they weren’t going to lose their jobs, everyone went shopping again. They’re frustrated and they want to shop more, they want to go out. So, if you go out on the streets of Shanghai now, I know because I am in touch with everyone like every day with my team and my friends. I mean, because there’s few restaurants there’s bookings for 5-hour waits. There are lines everyone to just go out to eat and you know that and I think that is the story that’s happening is that online consumption is growing very strong as well as even the places that are opening offline are starting to see traction. People are ready to get back to life and we see it with consumers in weird categories like motorcycle accessories. We built the number one brand in that category on Tmall and JD, actually and they are doing super well and they sell full-price retail, super expensive like safety uniforms and stuff. Their category is up 100% over the last 3 months. The Chinese government just put out legislation, you have to wear a helmet even if you are on a scooter. I mean, you can’t imagine and people aren’t even leaving their homes yet. Some are back to work, but this is proof that Chinese people really are ready to go back to work and back to their normal lives and we’re seeing it in the online numbers. Like, I am seeing it. I do have stores that are not performing well because they are in deeply affected categories, but if you look at it as a portfolio of 15, right, only 4 are suffering. The other ones are doing exceptionally well. I think the main thing that people to know is that the impact outside of China, how it hurts China is that the brands, like my clients are suffering so they don’t have budgets. They can’t support a more aggressive growth. Their supply chain disruptions, but it’s really not coming from the China side, which I find very weird. Make sense?
What about in a qualitative approach; are there approaches, practices, way of shopping that you see changing or it is too early to say?
JOSH GARDNER: Oh, that’s a really big question. I dare not answer it with so much confidence, but one trend I have seen and it’s because I am experienced it. The power of livestreaming for me. Generating sales through livestreaming events in China is an area where we are seeing massive growth.
MATTHIEU DAVID: That is something was actually thinking of talking about later on, but you did the livestreaming of Li Jia Qi.
JOSH GARDNER: True, we just did one on May 17th. If you are a brand looking into generating sales through livestreaming events in China, KOLs can be the perfect partners. We partnered with Li Jia Qi for two events and in the second one, we doubled the sales of the first one, in half the time. We sold out 3,000,000 RMB worth of products in two minutes. What is interesting about it is not the volume or speed. What’s most interesting is that even though we just did this like 6 weeks ago with him, we ran it again and his audience is even more willing to buy the same brand the second time. Previously I thought that these guys could only do it one time and then they have to move to the next brand. The conversion rate more than doubled on the second one and even the viewers conversion rate and everything was up. So, the sales we sold out in 2 minutes at double the size and I was really unbelievably impressed with that and we are also doing a lot of other kinds of livestreaming with tier 2’s and tier 3 KOL’s. We are doing it internally and what we are seeing is that and this is just the anthropologist in me: I think livestreaming is becoming sort of a substitute for physical contact and socializing the way we used to and it is becoming something people are now relying on because they’re not able to see. Sao, it is like in a way it’s not replacing human touch, in that sense, but it is definitely making it feel less distant to shop. So, you have socially distanced yourself from friends and family, and colleagues, but when you shop now, you actually want more human contact than a stale product page. You know to give you an idea on conversion rates, it’s 14%, nearly. Very high.
How do you calculate the conversion rate for livestreaming sales events? Is it the number of viewers, the number of engagements with the KOL or how do you calculate the 14%?
JOSH GARDNER: Yeah, it’s… we just look at the amount of people. There are a lot of people views. I don’t count views because that’s impression, right? So, there is the impressions and there’s people that engage the product link. So, from the time that someone is engaging the product link, that’s when we start to calculate. So, if you’ve clicked on the link and you go to the product page, that’s what we are talking about. That’s the equivalent of, for example you go into Taobao and type in whatever; bottles and the minute you click, that is when we start to calculate conversion rate. So, it is the same as we would on any paid media or performance marketing tool. What’s interesting is that the conversion rate in livestream is going up, not down and that’s not just with Lee Ja Chee. I see it with my office staff who are doing this., with the tier 2’s and tier 3’s. Over time the trust builds and consumers seem to have more and more confidence I that method of buying, purchasing; they seem to have preference. At least for the entertainment value alone and sort of the human contact and the interactive and it seems to be working every well. I have to tell you the conversion rates are much higher doing that now than some other things we are doing, not that they have bad conversion rates. Like, the highest conversion rate is a brand traffic or a brand equity. You are going to get like 20:1, 30:1 kind of returns. I wouldn’t say you are seeing that here because of the cost of the KOL. It is more like 5:1, but it is still very reasonable and from my standpoint, it is one of the best tools to both activate the brand and make sales to cover the cost of the activation at the same time.
You think where you have the highest conversion rate and that’s still the case now, even post-COVID is when people look for the brand you say 5:1 or 20:1?
JOSH GARDNER: So, when you launch a store on Tmall, right, Tmall is a brand control platform Its purpose was to separate the Taobao re-sellers from claiming to be Nike, Adidas and other brands from the actual authorised either licensee for China, re-seller for China or the brand itself. So, its purpose was to eliminate fraud, right because there was like a massive… so in 2006 Taobao was so successful within you know, within 2 years everybody was claiming to be every brand and so Tmall was under pressure because of the counterfeit misrepresentation and things like this to pre-authorise commerce., So it actually a brand control terminal. So, when you register a Tmall store, you must have very clear rights to the trademark that you own. That is your brands’ property. Now, when I register a trademark on like a famous brand, for example my store then gets the rights to the traffic on anything related to that trademark. So, every time someone types in, for example, whatever; Apple or whatever; iPhone. The brands’ flagship should appear above everything else. If you are looking at a mobile screen the first third of every mobile screen is either Taobao, which is your brands’ banner in the general search in Taobao or diamond display. It is your brand’s banner and it controls a third of the screen real estate. It has massive convertibility. It is the highest quality traffic and so you pay the least amount because you are the only one with the rights to it, so you are not on a bidding war for your own traffic. So, yes what I told is true. On the low end, the rate of return is about 15:1. On the high end I have clients between 35 and 40:1. SO, obviously the first thing you want to buy is as much brand traffic as you can get. That’s what it is all about, right? If you have enough traction and you can control the rounding of that demand inside the commercial marketplace, then you have a lot of pulling power, much higher ROY and you have enough sort of like, think your SKU’s will be supercharged. They’d be like hero products that allow you to get all the generic traffic and sort of compete head-on with competitor’s ion everything from events to performance media to all the different aspects. Livestream is a totally different issue. It is completely different. It doesn’t matter if you rank or don’t rank. What is different there is that you get audited by the live streamer themselves or their agency. So, you have to go through a vetting process, which isn’t much different than the kind of vetting you would if you were thinking about taking on a new product to buy, a new brand. So, they put people through a screening process that is pretty intense and your brands’ performance has to be at least for tier 1 KOL’s, has to be at a certain level to justify them taking you in. Make sense?
We mentioned generating sales through livestreaming events in China being a trend, do you see other elements of the market changing post COVID or do you foresee some more general trends?
JOSH GARDNER: So, I think there’s been some temporary patterns, like people buying more things like hand sanitiser and home supplies and things like that, but I am not seeing that as… I don’t think that’s long term. What I think is more long term is the need for engagement in general. So, the most engaging shopping channels I am seeing become more powerful than the old ones. So, they’re sort of defining what we do. So, for example, Taobao used to be a destination. So, you used to go there to search and do things. Chinese don’t even search for things. They search for brands now. There is no search for things. So, the actual consumer journey is happening outside of the platform and so the traction builds or that original point of interest is happening outside these commercial marketplaces for the most part and so they have realised this. For example, Taobao itself is starved for traffic. It is kind of tapped out. So, what’s happened now is you have to have integrated marketing to pull and amplify during any sort of sale period or event and they will require you now to integrate your marketing outside their ecosystem, inside their ecosystem to get qualified to be in those events and there is a reason for it. It is because the path to purchase isn’t there. It’s not a self-contained ecosystem anymore. So, they did a deal with Doyen and integrated with them immediately seeing that as a flanking strategy and also the future of sort of entertainment. It used to be TenCent because TenCent was getting some traction and they just blocked completely straight out, right? So, Alibaba and the other ecosystems are trying to absorb or integrate the demand generation platforms, the place where community is being built, the places where decisions are being made and word of mouth is happening into their ecosystem. So, it has become a giant web of influence and consumers need to hear signals from all over the place. If they come into Taobao there has to be a certain amount of views, a certain amount of volume, a certain amount of, you know, people saying things or a certain amount of content to even think about buying something. It is pretty elaborate. So, the path can happen over a long period of time and it doesn’t happen inside. By the time they go to a Taobao or JD, they are searching for a brand or a specific product that has a brand name. So, you are looking at when I say brand control, you are looking at optimising that path so that it all lands in your store or your authorised stores and it doesn’t end up in the hands of the grey market, unless that’s what you want.
MATTHIEU DAVID: What you are saying is that currently the way you attract traffic by different means of doing WeChat, social media and all the new sources of traffic can be amplified and that Alibaba who used to work in an ecosystem that is pretty closed, has to open up to those other sources. It is now assessed; it is accepted and brands have to do it.
JOSH GARDNER: They are either integrating it, they own it themselves or they invest in it. So, all that influence and activity of consumers; the user generated content is directly embedded into every SKU, right? You see your read listings in Taobao. They did a deal with Doyen and integrated it with their Taobao affiliate programme so that they are going to pull all the traffic from Doyen straight into Taobao and Tmall. They created livestream and pioneered it. So, they own an 80% share of the market. So, all the truly high engagement sort of shopping channels, they either own, invested in or integrated. Other than TenCent itself, right; a few of theirs, but I think Alibaba’s got a pretty commanding share. So, if you just look at consumer behaviour, they have either tried to change it, influence it or make sure that the fish can only swim back into their pond. So, if you think of Taobao as a massive ocean, they are making all the rivers go straight to their ocean, right? They want it all spilling into them and that’s why Taobao is a big mess, right? It’s got everything. It is like the Disney Land of e-commerce. It’s ridiculous. So, it’s pretty much every single possible kind of social interaction that’s happening in there with one exception, WeChat. There’s TenCent’s waybill that they own. They’re like at war. There’s like a wall where everyone’s trying to cross it and now you know, TenCent’s blocking people really well from moving from WeChat into Taobao because a lot of the Taobao traffic is coming from private pools and private communities inside WeChat getting promotional links and then people are going into Taobao and making a purchase and TenCent is trying to block that from happening because they control social interaction. It’s our main communication tool. So, I think consumer behaviour after COVID is very different now. So, it was happening before, but now it’s like almost deeply entrenched.
MATTHIEU DAVID: Amplified, yeah. I’d like to go back to the beginning, actually of Kung Fu Data.
How did you learn about e-commerce? How did you start and how did you build a team with your two partners?
I think we don’t realise how much – I mean, we realise with what you said; how much there is of learning to put up a shop, to understand how to do traffic and not to waste your money in traffic. It is very easy to waste a lot of money.
JOSH GARDNER: Yeah, it’s a very good question. It’s weird, I am a very consistent person. So, I walk my talk. So, I say, for example you mentioned my LinkedIn profile; all the things that I mentioned there is exactly how I started this business. So, I will go back in time. After I was a student, I couldn’t get a job. So, I was an anthropology student, then I became a researcher in China and did a big paper on, you know, published paper and you know what, in 1997 when I graduated school, no one wanted to hire an anthropologist. The funny thing is fast forward to now, 2020 industrial anthropologists get jobs instantly. Every corporation wants them. They didn’t want me back then so I had to get a job. So, I ended up in Beijing and I worked as the manager of a logistics company. So, we were doing import, export and at the time we were bringing in infrastructure so my clients were Seamans, Nokia, you know, big companies in Europe bringing in 3G infrastructure. The internet cables and the stuff you mentioned. The stuff that wasn’t there, right and during that tie two gentleman worked for me and one was there when I came. He was my assistant manager and the other one we hired and it was his friend. These are my two partners in KFD as a group. I keep my relationships in China over extremely long periods of time and actually, I think relationships in China can be either one of two things: purely transactional and superficial, where you are just going to do business right now and then go or it can be something that builds up over time and gives you an extended network of influence and really access to stuff. So, I went long on my relationships in China. I accumulate and I never dump friends. So, in around 2012 they actually came to the States to visit me and I was running… I had started a brand which we sold via e-commerce. It was an online distribution brand. It was in the B2B space and we started it…
MATTHIEU DAVID: Sorry. You were in which way? You were selling in which way; from China to the west?
JOSH GARDNER: Before I began to help brands with launching an ecommerce business in China or had helped one single company optimize ecommerce performance in China I actually owned my own e-commerce distribution business in the U.S and I bought half of my inventory in China. So, I left logistics and went into sourcing and B2B exchange. I had a bunch of start-ups that didn’t do well and then I ended up launching in a stupid category, but anyway, I launched in a category where we could win and we did. During the .com meltdown, you may have been too young then, but there was what we call The Big Drop in 2001, the crash in 9/11 and everyone let go of their .com domain name all at once and I bought an entire category and had over 400 .com’s in a stupid category. It is stupid, but what happened was, this was pre-AdWords. So, you couldn’t do performance marketing like by clicks. You could only own either direct routed traffic or SEO. Well, I happened to have the best property portfolio in space. So, we got all the traffic and all the leads and then I failed as a trading company doing that out of China, but then I moved into distribution because most of the leads were sort of small mid-sized businesses or smaller brands and they needed product and they just wanted to buy in small quantities and that’s how I got into e-commerce distribution in 2004. By 2006 the company was a success and it kept growing and growing. Back then there was endless credit lines and things like this. So anyway, the company did okay. We got killed during the crash in ’08, ’09 because the housing market had a deep impact on the kind of product I sold. So, we were on the back end of packaging, but the people that filled and sold to home owners, they were crushed. So, it was a tough few years. We didn’t really go down in sales, but the banks called out all the notes of my business and it wasn’t fun, but then in 2011/12 I was kind of had it and I wanted to exit that business, but I didn’t tell anyone. My two friends; those guys were in Beijing and then they flew to the States for a holiday and I took them all over New England and we had a really good time and they were like, “Hey, you know, you need to come back to China.” I’m like, “Maybe.” It was like, “No, no. You’ve got to come now. You’ve got to do e-commerce with us.” I’m like, “What do you mean e-commerce?” So, one of my partners; his best friend from childhood like a faxiao (发小). You know what that is? Like a very special childhood friend, started one of and they’re still one of the largest TP’s in China. They are huge. They run VF brands; they are massive. They started in ’06 right when Taobao started. There wasn’t even Tmall at that time and they’re a beast and he agreed to teach my partners the business, you know, it was very strange. You are actually creating a new competitor, but he didn’t see it that way. He was a cool guy. I flew over to China in 2012 just to have a look-see and I went to his office, I sat down and saw what was happening and I said, “Oh, this is unbelievable.” At the time I was in the States going, “launching an ecommerce business in China? What are you talking about? I have an e-commerce business here.” These guys were like, “No, no you have got to come now. Now is the time” and of course, I arrived late in 2013 and I went up to Beijing and saw what they were doing and said, “Alright, I’m in” and started the company in 2014. So, we were late to the game, but that’s one of the stories. So, it’s really from the standpoint of learning, I think and adaptability is a better word; I think in China you need relationships with enough people to give you that information, that inside information and have enough sort of credentials or Cloud width, a certain group of people to make something successful in China and that is true even if you are a brand coming in now. Nothing has changed. To me, nothing has changed. One of my really good friends – I can’t tell you who it is – in the last 3 months has made more money than they ever have, right? They shifted during COVID and took advantage of it and I have another friend that is similar. You build up sort of a, you know, it builds up over time. You retch it up; all these network effects with relationships in China and I think it’s having a good personal network in those relationships and being open-minded and humble that you don’t know anything and things are going to change radically. It enables you to be successful in the market in long term. That was a long answer to your question, but…
MATTHIEU DAVID: Thank you very much. Very interesting answer and story and it reminds me a story that actually started from his one team to another, but with the same core team. I actually am supporting what you are saying, build relationships, keep your relationships with your team, with people you worked with because you may start a new business with them and I think that’s true for businesses. That is the same from a French bank, which established an office in Beijing and they say when they started, they had connections with lower level officials and those lower level officials went up and then they were able to have a higher discussion with them. So, I feel a pattern here.
Business relationships in China are important, right?
JOSH GARDNER: Absolutely. I think that is the pattern. I think you have to go along. If you’re going to approach and this is probably true anywhere in the world, but my biggest and only specialisation is in China, where relationships, no matter if it’s technology craft or; it really doesn’t matter what you’re doing. They make the biggest difference of all things, like key relationships with clients, with platforms, you know, it’s… in China you have to almost rig the game in your favour and create sort of an online unfair advantage and a defendable position and you can try to do, like you would in the west with legal things and IP and stuff, but it’s super hard to defend without the relationships in China and that’s where they come in. It is having access to resources, having access to privileges and being able to sort of accelerate and grow and get support from a community around you gives you a huge advantage over anyone else. So yeah, you need all the other things; great product, great idea, bla, bla, bla, but in the end I think the single biggest driver of success in China is execution around relationships and inside knowledge and timing. So, having the right timing combined with the right relationships, it yields so much more in China than anywhere else I’ve ever seen.
MATTHIEU DAVID: What I understand as well is hat building relationships is actually profitable and open. It is possible to build open relationships. It is not to be seen as actually something very closed. When we use the word, it is something that is closed, you cannot enter ad it is difficult to build, but actually from my understanding what you are actually saying is it’s about building relationships, not only owning it. You can build it and create it.
JOSH GARDNER: Absolutely, I mean I, you know, just in the last 7 years in Shanghai and here, I have built unbelievable amounts of relationships, whole new networks. You know, I wasn’t trained to optimize ecommerce performance in China. I just understood what e-commerce was because I ran a business in the States and we had a lot of clients and we had a lot of volume. So, I understood what it takes to do it, but here it’s completely different. Completely different. It’s much harder, to be honest. It is super hard to do anything here. Yeah, I can think of one of maybe 5 foreign-led operators in the market left and, you know, navigating the relationships between the platforms and the clients and the agencies and even the booking agents often has more of an impact on sales and results than anything else. You can have the most beautiful art design products. Actually, it doesn’t even matter. It’s irrelevant. The outcome of a big event or the outcome of a campaign or any given years of revenue has so much more to do with the sort of combination of the skill of operation with the navigation of key relationships. If you can do both of those things really well, I think you could do well and I know people that actually don’t have a lot of relationships in China. The difference is they got in early and they built a big team around them that does have those relationships. So, let’s say that you’re not a relationships person you need to have someone on your key team that does that for you and you need to get in at a time where you can get the traction, take a leadership position and have sort of an army around you. It can be a saes team; a big business space, which to me is a relationships team in China and the bigger it is, the more likely you are going to win because no one’s ever going to go that deep into hiring, right that big of a sales team, but it’s actually a huge competitor advantage and one of my clients, that is how they activated their brand in China. That’s now a 350 million RMB brand and it’s an American product and they started from grass roots; we are going through dealer networks, we’re going to build distributors, we’re going to have a sales team that finds re-sellers, give them all the marketing materials they need, support an inventory and credit terms and let them grow the business. Just in the last 6 years I have watched them grow 5x. Like, this year it’ll be a billion RMB and on line’s going to be double than last year. So, 60, 360, 370 or something like that and it’s all because of that infrastructure, but it is old tech. It is people. It’s the right people, the right butts in the right seats. The right people doing the right things right, right? I think in China that matters more to me than other markets. I haven’t seen a software solution, an automation game that works in China that consumers are too smart, you know, people are too educated. They’re very slick and the ecosystem itself doesn’t allow that to work long term. You can be copied, replicated, you know out matched, outsized, crowded out over business almost instantly. So, when I think of, you know, success in China I always think right away, “Do we have an unfair advantage? What is it?” Then, let’s say we do. Let’s say we think we have one. Can I defend it? Because you know, a lot of brands will have that. They’ll get to scale and then they get crushed by the locals or another competitor coming in because they didn’t have a defendable position. They had a great idea, brand or product and they came into the market and built something, but they couldn’t take it to that next level because they didn’t know how to defend the space around them. You have to have both; advantages that are not easy to replicate around that big barrier to entry in China, the willingness to go super long in China, which gives you a huge advantage. You don’t care what happens in the quarter, right? That is very powerful, especially with Chinese. They respond well to it. They know that you’re there long and that they can’t play games, right? So that’s where I say stay away from traditional culture and focus more on the long game and that is something, I see the foreigners do. We’re in an organisation together. The ones that do really well do that well. The long game. They are not really like a short-term success. It is always a long term. It looks like it’s short term, but it’s really not. Some of the same people we’ve talked about earlier, you know, they’ll start a business from scratch. 8-9 weeks ago, and do tremendous volume, but they are not starting from zero. That’s what people don’t realise. They have a huge base of relationships behind them that creates the opportunity to be in on those deals, to be in on that moment when it’s the right time to launch in that space. I see that more than anything else, dictating success.
MATTHIEU DAVID: Yeah, you mentioned how you learned about e-commerce.
How did you convince your first clients to trust you with launching an ecommerce business in China on Tmall and to manage their online presence, their brands?
You said that 2013/2014 foreign brands were taken to Chinese Internet, but it was already… everyone knew it would be a big thing. So, giving you the presence and the responsibility of managing the assets; the marketing assets on Tmall and the Internet, generally speaking. It’s a big thing. How did you come in with them?
JOSH GARDNER: That’s a great question. So, I’m going to keep repeating myself. So, first of all, you know, we didn’t’ start as a TP. So, I started Kung Fu Data to just do data and subscriptions. That was the original model and, of course, I didn’t know, being ignorant, right; I hadn’t been back living in China for a decade. Chinese people don’t subscribe to things. They are not ready for the subscription model with the monthly charge on the credit card. It’s just not there and so, my original model broke. It just didn’t; work. It was like 2014. I tried it for like 6 or 7 months and we were dying. We only had like one person subscribes. It was terrible and it was a foreigner outside of China. So, I couldn’t get anyone to buy the data because they thought it should be free or they just didn’t see any value in it and I was like, “What do you mean you don’t see any value in this data?” It’s unbelievable. I spent time building the platform, bla, bla, bla. Then like yeah, but we can’t use it. We don’t know what to do with it and so, it started this way. We had a broken model and we had to either pivot or die. So, I made an executive decision to move away from data. Instead, teach clients how to use it. We moved into sort of consulting, which ended it within like 3 months because you do the consulting and then they’re like, “Yeah, but you know, you guys are really smart and you know what you are doing and it seems like this stuff is going to work. Why don’t you do it for us?’ So, trust was built over a period of time. Again, it’s not an overnight thing. It took a while to convince the first person; almost a year. People don’t have patience. It’s not an instant success, so it took time to build up that credentials to the reputation, to get them to trust us, but then once we did our first launch and it was successful, that’ when it became easier because someone is now saying, “Hey, these guys do great work” and then you get a lot more. You can build from there. Another thing is just having the right relationships in Shanghai. Being with the right people and finding ways to be really valuable to people who already have those clients. So, we built our entire business through channel partners; all of it.
And channel partners and communities that we are very active in. What I like most about China, one of the things I like most about it, especially Shanghai is the openness of the people in that city. Openness to change, openness to ideas, openness to innovation, openness to any kind of learning and improvement and almost no one will turn away an appointment with you if you sound interesting and have something to share. So, what I did was, I looked around, found out who had all the relationships with the people that I would want to work with and I went and tried to make myself as valuable as I possibly can to those people and then they made those introductions, which built our book of business, and then now it has gone way beyond that. We are on the other side of that. We are one of those people that has all the info and relationships and, you know, I have a lot of young people coming to me all the time asking introductions and help. So, I am actually that person and because it was miserable for me, I helped almost all of them, if I can. I think people are very generous in Shanghai with introductions, but they have to feel that the person they meet is of the utmost quality and integrity or they just don’t help them. I’m not big on commercial or transactional. So, I will avoid them or ignore them or block them from getting involved in my ecosystem, deliberately. So, that is something that most people will never tell you outright, but it is definitely something I see at least in Asia specific among locals. You have to preserve the integrity of your community and you lose face if you introduce people that are not really useful, valuable or honest. They’ll take someone honest and genuine over someone selling something unrealistic, right or being transactional. So, if someone is being transactional with me, they’ll get nowhere. That is how I know. Immediately when I play the whole. “You know, I’m not sure.” I see how they respond and the ones who get my help understand what they need to do to build the trust with me and they take a lot of time to do it. Then I help them and I think most of the people do that for others in Shanghai. That is the Greece in every engine in China, that is the gas in your car, it is your ability to navigate a web of influence in relationships. It’s everywhere around us, it is on the apps on your phone, it is in your car, it’s with your friend on the weekend, it’s going to clubs and bars. It’s everywhere. There is no way around it.
MATTHIEU DAVID: You said it took you one year to close your first client to have a full management of e-commerce for them.
How did you survive for one year without clients? You learned more about how to optimize ecommerce performance in China, you practiced, you were…? It sounds very scary; one year. It’s very uncertain, right?
JOSH GARDNER: So, you know, another thing is, I’m old. I’m not starting from zero. This isn’t my first rodeo. This is not my first shop on stage. I have done this. This is number 6. So, after having three fail and three succeed, I understand one thing: there is going to be a huge gap between your expectations of what’s going to happen and what you need and what actually happens. So, you have to have a plan to get through that first few years of business. In China apparently, I underestimated that. So, in the U.S you only need like 18 months or 2-2 and a half years. Oh my god, in my space it took over 5 years to make money. It’s that competitive.
You started in 2014, so you are saying that it was tough for 4 or 5 years?
JOSH GARDNER: I think most categories in China are like that with a few exceptions. I think there’s a huge wall of competition and it’s a massive like, think of it as like a big trough, right and you have got to be willing to go through it long enough so that you can get to the other side where all the winners sit and it’s super hard in China. It is super hard and so my partners and I of course, suffered miserably, but we managed to get by. We didn’t not have revenue. I should tell you that. Once we got through that, we had seed capital; our own money and we invested it into the business. Like I said, my wife would have much rather have me learned on someone else’s dime and had a secure job in the last 6 years, but instead I did this. She’s not too happy about it, but the way I pay for it is, through my old lessons in other businesses, you never put all your eggs in one basket. I think that’s… a lot of people say, “Sink all your ships.” If you really want to succeed in business. That’s great when you’re 25. When you’ve got two school-aged kids. I’ve got a 14-year-old and a 10-year-old. I’ve got a wife; I’ve got a family. You can’t do it that way. So, number on: I have a very supportive wife and she’s an anchor, right? She works. I kept several businesses that I still own even today. One of them has kind of gone away in the last 7 years because it was something I didn’t actually build. I just let it die out, but the other two are enough. They have been enough until now, to cover all of the expenses of running a start-up, but then if you don’t have that, then you either fail or you raise money or you find a way to be supported. Lifestyle cost in Hong Kong and Shanghai is insane with a family. It takes a village. That is what I tell everyone. So, I have got multiple teams in different businesses. My core business is KFD and e-commerce and I spend a lot of my time there, but I also still maintain other revenue streams and I have to because otherwise there is no other way to get through that time of the business. I just wish it was more or less time than it took, right? It took 5 years. That’s a really long time. I’ve never had a business take that long to turn the corner and get to scale, but if you read the books on this; maybe I was just kidding myself. When you have 40 staff you are losing money. It is really when you get to like 100 that you scale or 70 or there’s an influxion point in a business. You make money with less than 20 staff and over 80, you know, that middle ground is like the desert. It’s like hell. So, we have been kind of sitting in there for many years because of the ups and downs of the business. If we can survive COVID, we’re fine and we are doing okay. So, that’s a good thing.
MATTHIEU DAVID: So, we talked about COVID, we talked about the size. I’d like to talk about the services you provide to brands. In your presentation you specifically mentioned, so you are providing support on opening Tmall and managing Tmall, but also basically selling for brands on the Chinese Interne.t You mentioned in your presentation, “We have used 40+ proven methods to activate and optimise brands on Tmall and JD.” 40+ proven methods. I am not asking you to list all of the methods because it will take a while, but what do you mean by those methods? It’s something that I’ve never seen before, to talk about 40+ proven methods.
JOSH GARDNER: We started in performance marketing; data driven performance marketing direct response. So, when you have a team doing AB testing and by the way, this isn’t rocket science. It’s just hard work, right? If you look at most TP teams, they’re like college graduates that get some basic training, so they won’t know a massive amount about how to optimize ecommerce performance in China. They really don’t have a lot of skill in marketing or otherwise. My team as an example, an average operator is with me almost 5 years. So, these are very senior store managers. They’ve done, you know, one of the girls on my team, for example, she’s been with me for 6 years. She’s managed everything from selling butter. I mean, she has been in 20 categories. She is so good at what she does. Some of the methods that she has developed on the fly. She has done, on average let’s say hundreds of AB tests a month for 5 years. If you are doing a scientific experiment and I used to have someone on my team; he left us to start his own business; another Kung Fu graduate. A super smart guy who developed a lot of our tech or proprietary methods. I’ll give an example of one he discovered. So, we figured out that there’s a weird thing about the shopping carts in a Tmall store, as an example. That shopping cart doesn’t put your products on shelf all the time. Follow me here. If you open an Amazon store or your own e-commerce store, the minute you load inventory and go live with the product listing, it is on-shelf all the time. There’s never a time of the day that someone would not see the products. That’s not true in Tmall. You have to manually decide your listing times. So, what happens is most operators, as an example, use the default settings and leave their stuff being shown mostly during certain times of the day. So, we do the opposite. They’re there with all the fish and we are not there. Another thing we discovered to optimize ecommerce performance in China, that works unbelievably well in certain categories where people don’t do optimisation. So, let’s say you have a permanent SKU like an iPhone and you can’t really use that to great effect6; that timing listing or on-shelving – we call it on-shelfing – but as a method, but with clients or categories with a lot of SKUs, most competitors automate their listings in some way through a system. We don’. We do the opposite. So, we get all the top positions. We get all the traffic free, right? That is one example. Another great one is rank pumping and there’s many ways to do this, but one of the ones we’ve figured out was the algorithm is not about price, volume or anything that people expect. It’s about speed. So, you’ve heard me. It is a traction algorithm. It is based on the speed at which you convert an impression toa dollar for jack. It is that simple. It’s about speed and it indexes speed of that growth; the growth indexed against your social score and reputation. Soft metrics. What that means is, lower term rates are a simple one, right? Your products aren’t returned and there’s no complaints, but the algorithm looks at a lot of those formulas and what it is, is looking for hotness. How hot are you? Are you the hot one in the category? Are you the hottest and so that’s why there is always room for newcomers in every category on Tmall. All you need is for your brand to have faster traction than the other brand and you can blow the competition out of the top spots. We discovered that and then we have special ways of not tricking, but convincing an algorithm that our products sell faster and without giving details because it is competitive advantage. It works every time and it’s something like that. So, we have 50/100 of these methods now, but I have to say while they are important when you are doing performance marketing and optimisation, they’ve become less important in recent years because the most powerful way to convert is happening earlier in the journey outside of Alibaba. What is inside is a reflection of what you’ve done well outside. So, for people that are super good at let’s say brand positioning and incubation, which is something we are doing now for brands. That is the holy grail and when it works, you have new tools now that skip all that hard work with optimisation so you can go straight to live stream. You can build up enough traction on a brand or a product to drive live stream as your core optimisation method and by the way, it works super well and it’s less stressful. We don’t have to do a ton of AB testing and all the performance marketing methods actually support that and amplify the result of it. So, you can skip things is what I’m saying. It about your ability to resonate with a tribe and get them to be super active and send int eh right signals and then capture the signals and throw them throughout your store. It sets the whole game, right? Get them interested. Get them to buy. Route it through certain SKU’s in your store, make those SKU’s super charged so that they have all the power to sit at the top of the queue. Remember, it’s all a game, right? It’s all screen real estate. It is 50 square centimetres doing over a trillion bucks for Tmall, right? So, you’ve got to own it. The only way to do that now is to do it outside of Tmall. You have to leave the platform, figure out how to control that growth trajectory because once the traffic comes in and it comes in, in a strong wave absolutely no competitor can stop you because I just explained the algorithm itself is a growth oriented speed-driven, reputation-driven algorithm. Very different from Amazon’s or Google’s, which is about relevancy or it doesn’t index anyone that way. It is performance and speed.
MATTHIEU DAVID: It’s very interesting and that’s a very original presentation from TP agency. I have never heard about it. First, the game starts before people enter Taobao, Tmall and so on. Actually, that’s eye opening because that is what we see. To put words on what we see is very interesting. The second aspect is your insistence on performance marketing instead of saying you need to pay to get traffic, you need to have banners, you need to pay for KOL’s. You have to, certainly, but the performance marketing you are talking about understanding the algorithm and understanding the small details will make a big difference in profitability of your store. It is so much more interesting and giving a perspective which is way different to what we usually hear.
JOSH GARDNER: Yeah, I mean I think that’s probably because you haven’t talked to the right TP’s. There’s a few I am not going to mention because they are competitors, but I have a lot of respect for them. There are a few pretty big operators that have been there from the beginning that use the same kinds of methods that we do to optimize ecommerce performance in China, they have their own twist on it, but their stores are like ours. They perform, on average, better than the other stores in the category and we can see it in their data. They each use different methods. One of them has mastered a different way of similar optimisation. So instead f doing the rank pumping the way we do it, they do an insane amount of events. They overwhelm any category they go into with event marketing and by the way, that’s like the most stressful kind of marketing, but boy is it a competitive advantage that to my knowledge only Alibaba has the tools to allow you to do anywhere in the world. It is super integrated. It’s actually an advantage, but unfortunately, I don’t have the team to do it. They have like 100 people just doing that. That’s a brilliant competitive advantage, just as an example. So, while we do have our own methods, there are other players in the space that we have deep respect for. My newest thing is I am very, very focused on relationships around booking different layers of KOL’s for alive stream, which is my newest thing. We are also spending a lot of time on incubation, which is eventually is and I had to bring in an outside team and bring them in-house because my team didn’t have the skill. It’s a whole different world. It’s like taking what a marketing agency or branding agency or activation agency will do for you over 5 years and doing it for 4 months. It’s that intense in terms of content and activation and the reason they do that is to create an organic trajectory for the brand and create that wave of influence, community and content that just blows everyone out. It’s the same as that operator I told you that does the events and they seemed to do it very well. I mean they’ve activated let’s say 12 brands in the last year from zero. Never even heard of; like all of them are doing millions a month and the nett result you know you have done right is in month 4-6, one of those months you have launched your Tmall store because your brand in all the other platforms ahs qualified you to enter, which means you have traction and you are able to book a top tier KOL like VIA and they have done it twice in a row. We are now experimenting with 2 brands in our portfolio on it; three brands. I think it’s going to work. From what I can see it is a pretty substantial competitor advantage. So, you are going from the technical sort of operational expertise within the platform, being important, but not necessary. There are so many ways to do it now. I think what I’ve seen is, you know, the emergent of groups of people that are building their own communities, that are very powerful to box everyone out. So, instead of being like an individual store; like we run individual brand stores or brands commerce in multiple platforms. That can be a disadvantage. What if you are on the field of battle and its just you and someone else on your team, right? It’s just two of you and then on the other side of the field there’s like 15 of them and then up in the hills there’s a plank with 20 more. I mean, you’re dead. You’re going to get crushed and the original ones have realised this advantage and their business model was disrupted by Tmall Global and cross-border illegalisation and so they have had to go into one of two things: they started buying brands and owning rights to China, which created most of the incubators and then the other ones have become network marketers and they are good at it; Cascade Marketing. They have created digital downlines that is like a giant spiderweb. It is like an ant colony, right? Like a termite colony. There are like 50 000 people in the line all through WeChat and so if they take your product into their sort of downline, you are going to lose zillions. They can activate a brand overnight, literally. It’s unbelievable. I think there is so much creativity and so much potential for everyone, even now. Post-COVID, pre-COVID it doesn’t matter. China changes so fast I don’t think there is any bad time to enter. I think it is really all about whether your brand is ready and that readiness is across the board. Resources, people, unfair advantage, built-in, you’ve got your IP under control, you’ve got… Tmall wants you, as an example. You’ve got something super desirable and you have the attributes they are looking for as a brand and as a product. You need all of these things, combined to be successful and I think it’s very hard for people to do that because it’s more than they have to do in any other market, much more, but it is what’s necessary here, in my view or in my experience.
MATTHIEU DAVID: What you just said during this interview, reminds me of Peter Drucker saying, “Entrepreneurship is neither an art, neither a science. It’s a practice.” I would say it’s e-commerce on Tmall, e-commerce in China is not a science, it is not an art. It is a practice by knowing that the default mode, you don’t sell all the time. You may have another mode. I would say there is a difference between what you say and other TP’s say is that they are not as transparent as you, they are not as explanatory as you are. They don’t explain so much detail. I believe that that is good for you because you build much more trust when you are sharp, precise and have more detail in your explanations. I’d like to move onto the list of last questions for the interview. It has already been one hour and it could last another hour, I believe, but it will be too long for other people. The last questions are short questions with short answers; very specific. It is about books and sources you use. What books have inspired you most and as an EO member, I am pretty sure you have plenty of them in mind.
What inspired you most for your entrepreneur journey and will have the same question about China; if you have sources that could be movies, books about China?
JOSH GARDNER: That’s interesting. I have been in EO for 14 years so I have read too many books and off the top of my head I am trying to think – well, I think the two most useful; like practical for anyone going into business for themselves and they want to be honest about what they’re going to build. So, if you’re going to build an earth-shattering global world-shifting start-up tech company, these are not for you. You need to read Zero to One. That would be my recommendation. You read Zero to One and you follow people, like the original team from PayPal, right? The PayPal mafia. You read what they read, you follow Reid Hoffman and you follow those people because I think if you’re trying to create something that has exponential scale; like blitz scale from Zero to hundred and you’re going to get 100 million in funding and stuff, you need different mentors. So, I think Zero to One. I think The Hard Thing About Hard Things is an amazing book if you are going that route. If you are going that route, I think you know, just those two books are the best books. There are tons, but I got the mots out of those. As an entrepreneur; so, someone who has built many different businesses, some of them not so sexy. I think Scaling Up is the Bible of that; off getting Zero to One and really, that book is about getting from 1-10 in 10-100. It is really not about your start-up phase. It is about when you get to a million in sales, which is about 4%of businesses in the world, how do you get to ten million? That is only 0.4, right? So, only 10% of the 4% ever gets there. It is like it’s a very small percentage and Scaling Up is for that. It’s about building growth and becoming a growth organisation and doing it over a very long period of time and building a very sustainable and successful presence in the market for yourself. So, I think Scaling Up is one and I think getting training from someone like Jack Daley or his; like who know how to build high performance sales team as a distinct competitor advantage and scaling enterprise is probably one of the bet things you can do. I have had friends, including myself. When I was exposed to those two things, two of my businesses took off. Outside of that, so building like a very traditional business I think you need those two things. You need to know how to recruit, manage and build a high-performance sale team; like a sales machine. You also need to understand how to build a scaling up enterprise. Like, get from 1 to 10. Other than those two, I think if you make a product and you are dealing with retail or consumers, you’re doing a direct consumer business model, I think you need different mentors, honestly. So, I would highly recommend you follow and read Seth Godin. I think, for example his book, ‘This is Marketing’, I just finished it, is some of the best experience sharing and advisory I have seen on developing real marketing skills and actually building something that lasts. I think he’s exceptional in his perception. He’s a good writer as well. I am trying to think…
About China, would you have any books, movies or sources you’d like to share about China or to learn about China, to learn about business in China or how to stay up to date about China?
JOSH GARDNER: I think to understand where they came from, any Zhang Yimou movie is fantastic. So, Raise the Red lantern, To Live; unbelievably riveting about the cultural revolution. I think Beijing Bicycle is a great movie about the 80’s and 90’s in Beijing and what that life was like. In recent history I am trying to think if there’s anyone that’s been super influential on the China side and I would say no. I haven’t really read anything that I would recommend as a book as something that I would trust. Part of it is, when someone is writing a book on China it expires in 2 weeks. So, anything you have said is probably going to be irrelevant in 2 weeks. You have to give them some credit. It is harder. It is better to follow people who are actually actively doing things in China, not just watching China. So, there is two kinds of intellectuals that follow China and write about China, there are watchers and there are doers. I think the stuff coming from the latter is way more valuable for you as an entrepreneur. The stuff coming from the foreigner is great if you go to university and you are a student and you want to learn about cultural history or things that might change in geo political infrastructure of the world and all that stuff, but the most interesting stuff as an entrepreneur is to follow and read people who are really actively doing it now in real time.
Where do you find where they publish or where do you find sources?
JOSH GARDNER: I think one of the biggest of course, is – go back to relationships- you have to be invited into your industry or specific groups on WeChat. The number one thing for anyone who is serious about China, move to Shanghai. Don’t kid yourself. You can’t really do it from afar. You are not going to be treated with the same respect as someone who lives and works there and has friends and connections and is doing it and therefore you won’t be invited into the private groups and in the private groups is where all the really active people are in your space and they share all the reports you want and the stuff that people pay for and it is just unbelievable how much access to privileged information you get just by being in Shanghai and showing up. Woody Allen said it best, right, “The path of success is just showing up.” It is, right? You know that. If you are a foreign in Beijing or Shanghai you could never build Daxue Consulting into anything substantial. What if you were running that from, you know, Brazil? How are you going to do anything there? You just can’t. I mean you cannot be detached from the ecosystem. So, I think to live and work there and it is very easy to find people. It is almost no need to recommend. In my community around digital, I am in like 16 shots, right and not to mention the EO groups. It is all over the place, but it took years. You build a reputation, you do stuff for people and then they invite you into the private groups, where you have access to information. Another great thing is to follow people on LinkedIn, honesty. Follow them and also look up who has the best reputations; like the different sort of communication channels and publication channels that tend to get the best quality speakers or intellectuals or participants and contributors. I think they are very obvious. You can easily see someone who’s doing a flash and trash, “Hey. I am just trying to get attention” or, “I’m a pitch man,” You can sort them out in three seconds or if it someone who is genuine or who is someone respected by others in the space. To me, it is very obvious so I don’t think it is very hard to find. I think you go into LinkedIn. It is the easiest place to find them. WeChat, if you’re on the inside, is the best place to find them and joining a community like EO is an awesome place to find them, especially if you are looking for non-repeating peers. That’s not the only organisation you want to join, but it is great. It is a great network and it’s great support and outside of that, there are several podcast channels or in my space and people that are very active in publishing and I think some f the stuff they put out is excellent. They are pretty good charades and I think you just need good judgement. It’s the best way to stay current. Reading the path doesn’t help you.
MATTHIEU DAVID: Last question is about a success or failure in China you have witnessed which you did not expect. I am asking this question because that is a way to see changing patterns, changing trends is to see a success that we were not expecting and that is happening or a failure; something that failed that was unexpected, but still happening. Mobike and the bike sharing, all have in some way not expected who shows a bigger pattern. Similarly, a successful mobile payment which was unexpected for me because 10 years ago people were still paying in cash on delivery when delivering on e-commerce. Now, people are even paying for their coffee with a QR code.
What would you say about a success? Something that happened in society or in business or a failure which was very surprising to you over the last, maybe 4 or 5 years?
JOSH GARDNER: Oh, that’s a really good question. So, funny you mentioned bike sharing failing. I thought that was absolutely going to be a long-term trend. The fact they they’re suffering is still shocking to me. I mean, I think the market was oversold and oversupplied, but I loved it. I mean, when I am in Shanghai, I don’t even take these unless I have to. I prefer it. So, one of the surprises; if that’s true that they are failing I am shocked. That’s actually a shock to my system because that wasn’t true 4 months ago when I was last there.
MATTHIEU DAVID: I was more talking about the industry itself. Yeah, true. Car Share was a better example of a failure, which has not been foreseen, like 5 or 6 years ago.
Any business failures in China that surprised you?
JOSH GARDNER: Yeah, so let’s see 5 years ago, hat did we not have that has failed now, after it succeeded? Off the top of my head, I must say I can’t… I’m having a hard time. I see and the reason is, we analyse entry packages for people on a daily basis. I am looking at whether I want to take something into China and to me it is like a light switch; either your category is on or it’s off. I will give you an example: something that has completely surprised me is the amount; the sheer quantity of motorcycle racing people in China, People that are serious about motorbike racing and motorbike culture is shockingly large. So, we run a brand – I didn’t even think it was going to work – they charged like 10 000, 50 000, 25 000 for a piece of clothing; like a uniform or a helmet or whatever. The average price is like 10 or 20. We sell full price retail, we have never discounted, we cannot have enough stock, it has been over a year, the sales are up 500% over last year, this quarter, the category just doubled in the last 60 days because of the new helmet law. I have got 27 000, honestly, rich dudes who own Ducati’s who like race Ducati’s in a private WeChat group that are our customers and all we have to do is drop a message that a new item is coming in and it sells out before it hits the store. So, if you’re looking at a shock, I am blown away that there is actually a tribe of people driving motorcycles in a place that is all electric scooter, that is big enough to support and I am going to tell you this – it is a multi-hundred-million RMB business offline and it’s going to be… it is big online, too. I am in a state of shock and I am seeing this, this sort of like under… I always underestimate how big the fanbase is in China for something. So, as an example, there’s a brand we wat to take because globally they are number one in horseback riding equipment and supplies. I have been trying to convince them to do China because they will be the market leader. There is no local substitute for that and they have an awesome chance that with convincing them, you know, they’re based in America. They bought the UK brand and brought it to the States. They are a big company and they don’t even think about this category, but man, the size of the community of people with money that have either bought horses or taught their kids how to ride horses in China is way bigger than you think. Really? It’s China. I think like when something becomes a cultural phenomenon there, I mean the size and scale is huge. There are two examples of surprisingly large sub-categories that you don’t think about. These are not millennials. You don’t even think about it, right? So, that is one surprise and then one failure – I am trying to think of something that’s gone out of fashion. Oh, I hate to say this, but I think WeChat as a social platform and not as a communication tool has surprisingly failed. I will tell you a shock to me is that WeChat did not become commerce. They were the most set up to do it. I am actually… if you want to look at the biggest shock to me, is that WeChat itself has not taken over more of social commerce. It is actually a very small percentage and I am surprised. I am shocked that they have lost ground to other platforms. I am shocked because I live on WeChat. My team lives on it.
MATTHIEU DAVID: What are you more shocked by because, for instance the search on WeChat is not very powerful, the fact that you cannot really… going viral on WeChat is very hard because when you like you don’t share the same time, like Facebook is doing, for instance. The algorithm to target people using WeChat – tell me if I am wrong – but I feel it’s not very powerful and not very elaborate. What aspects make you more surprised?
JOSH GARDNER: I think with WeChat my biggest surprise is that they control the community traffic. So, it’s pretty much all the discussions about, “Hey what do you recommend?” I am going to shop for this cup, what kind of cup should I get? “I saw this store last weekend. It’s super-hot. Have you gone?” All of that word of mouth is literally happening, even promotions for Taobao and Tmall. Like, we manage a private group of consumers for an entire tribe. One of my customer service managers private WeChat, he manages that group of 30,000 people, right and I don’t understand why the commerce doesn’t just move there because it makes no sense, but it doesn’t. People literally will still go to Taobao, search for the brand or product, shop the price, buy from there instead of like, why not just buy directly from us? You are sitting in our community chat and it’s so much easier to not move platforms and yet, they are willing to multi-task. They’ll discover it and get recommended or communicate about it in WeChat and yet they will still transact in the other places. Your question was about as a merchant; the tools. I don’t really care about the tools because the tools are irrelevant and I have a community of 30 000 I can take payment into my personal account. There is no restriction. Why is the commerce still happening somewhere else? It should just happen right there. You have 500 people in your chat group, you send it off and they buy, but they actually don’t. They go to the other channels. That is a very surprising failure for me.
MATTHIEU DAVID: Very, very interesting aspect. Its’ the first time someone mentioned WeChat as a failure on something. WeChat is always presented as a success in everything. Thank you so much for your time. It is already an hour and a half. I think if we haven’t recorded a longer podcast, so far. Thank you very much for your time. I learned a lot. Very specific and new perspectives on e-commerce. I am sure people listening also learned new perspectives in a way you talk about it. It brings really a new understanding of e-commerce in China. Thank you so much for taking the time from Hong Kong.
JOSH GARDNER: You’re welcome. Thank you Matthieu. It was a pleasure meeting you. I’m sure I’ll see you soon.
MATTHIEU DAVID: Yes, for sure. Thanks everyone for listening.
JOSH GARDNER: Take care. Thank you, guys. Bye-bye.