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startup creation process in China

Podcast transcript #71: Encourage and facilitate startup creation process in China by creating a community of entrepreneurs and mentors

Get an insight into the startup creation process in China and discover how mentors and former entrepreneurs can help them to establish, grow, and thrive in the Chinese market and beyond.

Full transcript below:

Matthieu David: Hi everyone. I am Matthieu David, the founder of Daxue Consulting Group, a market research company in China, and this podcast, China Paradigm. And today, I am with a founder of a company, which is a platform to match entrepreneurs or people who want to be entrepreneurs but have not started yet, as far as I understand, and mentors.

You have been doing this for five years after a carrier of being an Entrepreneur in Residence in some companies and an entrepreneur with your own businesses between Silicon Valley and China. And you have these two backgrounds of Chinese understanding and also innovation from the US that you have been actually exploring and touching. You have also been involved in retail in your past experience. You have seen those changes in retail with the Internet and technology. And I believe there is some link with what you do now to actually help entrepreneurs build their current businesses. So, I am seeing you have a pool of mentors on your program on the website. And you have a very, very well-organized program.

Within 16 weeks, you are helping or supporting those who want to be or beginning to be entrepreneurs to become real entrepreneurs and that goes through meetings the funders, assessing the core values and ideas, and getting the idea research and vision clear. And also, of course, this includes the business model, brand identity, and name that you work on with the entrepreneur. Thanks for being with us. And my first question as always is what’s the size of the business currently? How many entrepreneurs do you have? How many mentors do you have? How many case studies have you worked on over the last five years?

B: Okay, great. Thank you, Matthieu, for having me. First of all, thanks for taking the time today. It’s a pleasure to be with you. And I’d like to share some of the things that I learned in China. Our company is the accumulation of, as you mentioned, my life experiences. And it started because I personally don’t think I’m a great founder or entrepreneur. So, over the last almost 20 years, I asked many, many people for advice. And all these people eventually became my good friends and mentors. So, in the end, I started getting a hang of things. And I figured, “Hey, why don’t we just create a platform for people who are also struggling when they’re first starting?” So, it’s really a natural evolution to my progress in my career. And as you mentioned, the company has been around for five years. We pivoted several times in the first three years. It was actually very challenging for us to find the right business model. But luckily, our mentors stuck with us over time and we eventually grew the numbers. And finally, in early 2018, we launched our first cohort of founders.

Matthieu David: 2018?

B: 2018. Yeah.

Matthieu David: So, it took you like three or four years.

B: Yeah.

Matthieu David: Wow.

B: So, I mean I’m not sure if we have enough time, but I can go over what happened in those three years. It might take three minutes. So, you might not believe this, but I went through a spiritual awakening of sorts. I did not believe in these things in the past because I’m a very logical person. But some things that I just can’t explain with logic happened in my life. And our vision popped in my mind through the accumulation of my experiences. And when I thought about this idea, I knew right away that I was not qualified to create a platform to bring mentors and founders who are just starting together because I’m not sure if you know this but in Shanghai at the time, there were no other companies doing what we’re doing. And even today, I would say there are about two other companies doing something similar, but not exactly what we’re doing. And over the five years, I’ve seen several companies start and closeout. And it’s not because these people who started the business—my type of business—did not have resources.

They had a lot of resources. But after about nine to 12 months, they thought that this is just not a profitable business to help people just starting off. They tend to have a lot more questions. And they tend to have a lot less money than, say, startups in later rounds. And that’s the problem. That’s why although ideas have been around since we’ve been around, but yet how come there are no ideation stage platforms? They are almost none in the world. Traditionally, if you want to start a business, you either have to have some friends where they know people. So, you sort of keep it between family and friends. And I believe that this is a tragedy because only 1% of the innovations—meaningful innovations—that can help our world can come to life. Now imagine if we had a platform where we do this systematically.

It’s organized and mentors know to come here. If you’re just starting up, then you will come here. If we have one of these in every city, perhaps we could bring 99% of the innovations to life and we can change our world forever.  We never have to worry about not having enough. We’ll create a world of abundance. So, five years ago, I had this awakening. And I came up with the idea of thid business. And in the beginning, intuitively, I knew that we had to bring this to the education system. So, I asked all my friends in the education system who have done education for a long time. And their advice was this; they said, “Albert, you’ve never actually done this project yet. So, no country will allow you to mess with their education system with a model that’s not proven by the market”.

So, I said, “Well, okay, so how am I going to prove that if we practice the three core values of compassion, collaboration, and innovation, they can open our minds and we could change the world together?”. And so, I said, “Okay, that’s realistic. I can understand that”. So, I went to Silicon Valley and I found a company that at the time was already in over 100 cities. They’re quite close to us. I would say they’re right downstream from us.

Matthieu David: What’s the name?

B: I’m about to say something not good about them. So, can I not say the name?

Matthieu David: That’s fine. They’re still working, right? 

B: Yeah, they’re still working. They are doing very well in their category. And at that time, I saw this opportunity to approach them because they were not doing well in Shanghai. They’ve actually backed out of Shanghai and they have yet to come back. I hope they come back one day. 

Matthieu David: Could you tell us a little bit about what they do? Is it like Startup Green or EO?

B: They are actually very similar to us except that they may take people at a little bit later stage. And the reason why we didn’t work with them is that our model is collaborative whereas theirs is competitive. It means that for us, there’s a bar to come in. But once somebody comes into our program, we treat them like family. The only way they can leave is if they just quit. They don’t want to be a founder anymore, in which case, we call them ‘paused’. They go back and they do some more work, whatever, and they can come back and be the family again. Their model is very like ours, except that it’s much easier to get in. And every few weeks, they cut people out. So, at the end of the, let’s say, 14 weeks for them, there’s only a handful of the people that joined before. So, their model is competitive. And I feel that if we want to create something magical and change our paradigm from 1% innovations being realized to 99%, we have to be collaborative, especially at the beginning of the phase or the startup.

Matthieu David: What’s the pricing of the 16 weeks?

B: We actually do this almost like half charity, because the team that we have is an all-star team. And if we transfer the full cost or market cost to our students, it will be about ¥250,000. But we say we invested in 90% of that for them. 

Matthieu David: How much did you say in general? 

B: ¥250,000. 

Matthieu David: Sorry. I didn’t get it. 

B: A quarter-million RMB.

Matthieu David: A quarter of a million. Okay. Okay. ¥250,000. Sorry. Okay. Got it. So, ¥250,000 which is about $30,000. So, you were just saying the price of the 16-week program in value and not the price. So, it’s the value of it. It will be ¥250,000 which is about $30,000. But how much do you actually price? 

B: No, actually, I mean that’s the cost, Matthieu. I would say the value of it is priceless because we take four months to filter through hundreds and hundreds of applications to finally arrive at these 20 people. 

Matthieu David: Okay. So, people who want to join will have to pay ¥250,000. 

B: No, that’s our operating costs. So, we take 90% of that and we invest it into them. So, they only have to pay 1/10th. So, they only have to pay ¥25,000. Okay. Got it. Got it. I’d like people to understand better how it works actually. So, it’s just 16 weeks. It’s a 16-week program. You’re matching with a mentor after checking the core values. But the ultimate game for you, because you said you invest in them, is to take equity in what they’re going to build. And you have a system of different people involved in the business where each of them takes 3%. I read on the website that the mentor would get 3% and your company would get 3% as well.

B: Matthieu, I think because we don’t have a lot of time this time, we may not be able to fully explain everything because we may have to talk about the background of our brand first, how I came through, and how I survived for five years whereas somebody else stopped after nine to twelve months. 

Matthieu David: Sure. Okay.

B: I think that might be a more interesting story. 

Matthieu David: Yeah, sure. Sure. It’s interesting. One thing that I want people to understand is really what is in the program, what you do, how it works for you, and what you gain because the challenge of explaining your business is that we are seeing a lot of platforms actually offering mentors. You have Chinaccelerator. You have Startup Green. You have so many accelerators, incubators, startup networks and so on where you have those entrepreneurs and mentors and so on. So, I’d like to understand what the difference is and what’s inside your program. But first, please tell us about this. 

B: Okay, so you have an idea but you are in this space where almost nobody is touching it. Because as you know, it’s a no-fly zone for investors. And most times, when people start their businesses, their friends discourage them like, “No, don’t do it. Your job is great”, blah, blah, blah. This and that—’it’s too risky’. So, this is a no-fly zone for almost everyone. So, this is untouched. Strictly speaking, I would there are actually only two companies that are doing what we are doing. The third one is charity. 

Matthieu David:  Okay. 

B: And then a level up is the incubator. It’s the incubator. This is right after you get seed capital. And normally, in China, you probably get around the angel round right here. And then you have China accelerator and other accelerators here that are wrapping you up for Series A.

Matthieu David: So, it’s very early in the value chain. 

B: We’re at the very beginning. So basically, we even encourage people to come to us even before they quit their job, or even before they make that first big capital out there. Yeah, we ask them to come that early to us. 

Matthieu David: Let’s go back into the story. You wanted to continue on the fact that you went to the US. You went to Silicon Valley. You met with the company which was actually an example for you. But in terms of mindset, you decided basically that you will change that. You will be collaborative and compassionate instead of being competitive. And you will differentiate from them.

B: Yeah. So, it was my hope to leverage the brand in China. And we could work together. Our mentor pool and their brand internationally would be a perfect fit. And then we could solve their problem in China. And then I could show my education friends that we have a strong partner. And then we would get into education faster and faster. That didn’t work out because they wanted to keep their model competitive. And we wanted to create a collaborative model. So, the difference between ideation to incubation is the difference between cooperation and competition. Eventually, it switches over. Its sort of like the beginning of the company is very chaotic. It’s very creative and chaotic.

But then once you find something that works and people are buying, it starts to become systematic. So, chaos becomes organized. So, it’s the same thing between after seed-stage and before the seed stage. Before the seed stage, it’s like quantum physics. It’s very chaotic, but afterward, it’s like Newtonian physics. It’s very linear and predictable. So, in order for a platform to exist at the ideation stage, it has to be collaborative. It can’t be competitive. People have to be helping each other out. So that was the main thing why we couldn’t work together. Next, I said, “Okay, well, I still need a strong partner”. I talked to one of my friends who created a unicorn company. And after about another six, seven months discussion, he finally said, “Hey, Albert, why don’t you just bring what you want to do inside our company. And we’ll have a corporate incubator. And we’ll just bring to life the ideas inside our company”.

That was flattering, but it went against my core value of innovation, which I believe is grounded in diversity. Diversity of culture. Diversity of gender. Diversity of background. Diversity of industry. So, if I put it into their company, it would have been automatically into a vertical and we couldn’t bring this to the world. So, in the end, in 2018, I said, “Well, hey, why don’t we just do this ourselves?” And luckily, a little time before that, one of my friends who used to be the ex-chairman of SoftBank China became one of our backers. And so, because of his vote of confidence in us, we’re able to keep going. We were able to keep going. And he’s an amazing guy, just like all our other mentors. Early on, you asked about how I’m able to convince mentors to join.

Matthieu David: Yeah, that was a question I had before we started because people listening to us may not have heard the question. How do you convince those mentors to join you? I see people who are busy and successful. They have other things to do in their life than mentoring. So how do you convince them to be a mentor? And I believe many people may ask them to mentors as well. 

B: Most of our mentors mentor exclusively and a lot of times without contract. So why is that? It’s because one of our core values is compassion. And I’ve interviewed almost 400 mentors now over the last five years. So, every few days, I’ll have to talk to somebody. It’s quite strenuous, but it was very worthwhile because we have almost 50 mentors now that believe that maybe if we do come together, maybe we can make 99% of the innovations come to life. Also, our mentors arrived in a sense not just financially, but they’ve arrived in their hearts. It’s sort of like in spirit because they’re full of gratitude. They remember, “Hey when I was starting off, I remember that people also helped me. But I can’t help those people right now because they’re probably doing better than before. So, what would I do? Let me pass somebody forward”. 

Matthieu David: Okay.

B: So, we’re quite lucky to have our mentors because they’re full of compassion. They’re willing to help people at the early stage. As you said, they already have full schedules. You will only take a few hours of a month to teach a class or to do office hours only if you believe in it. Only if you believe in it. 

Matthieu David: How do you advertise on the program, because my feeling is that this space is very crowded in terms of, basically, platforms or services for entrepreneurs. Again, I’m not going to name them, but you have accelerators and incubators. And people may not know, actually, that’s the second step. They may not know that they need an ideation process or program. They may not understand they need it. So how do you advertise on it? How do you communicate on it? I tried to google a little bit about your business. I found that you are active in the talks. You are active in partnering as well with different players in the field of entrepreneurship. Could you tell us more about how you advertise in your service? 

B: Well, Matthieu, that’s a really good question. And for us, it’s a continual learning process. I wish there was some channel where all the people with ideas are just there. But the reality is that even on, say, like a startup channel, there are some of them who are just thinking about it. Some of them are preparing for it. Some have started. Some of them are advanced. Some of them are repeat entrepreneurs. So even channels that are supposed to have a lot of startup people in our particular segment are very rare because the time you’re in preparation versus the time that you’re running a business, that preparation usually is a smaller amount of time.

So, to catch them right there is a challenge. So, we do go to different panels. And that’s more about exchanging of time and resources because different channels and different communities have helped us and we’re just giving time back to them. I think that is healthy, but I’ll tell you it doesn’t really convert anything for us. For us, it doesn’t really help much. It really doesn’t help much. For us, we have to do offline events. Well, I’m not going to tell you all the channels that we advertise on but they are local events platforms. And I think we found a few that are quite good. But please excuse me because it took us a lot of time to find those. And right now, we’re not ready to share all that yet.

Matthieu David: Okay.

B: If you’re in Shanghai and you’re active, you’ll see our advertisements and invitations on certain social media or digital media.

Matthieu David: Are the entrepreneurs you help mostly Chinese or foreign? What kind of background do they have? What did they study? At what stage in their career are they?  Could you share their age range? Which typical people would be interested in your program?

B: Okay. I mentioned diversity before. So, we had the first cohort in English. They were five people, but they’re from five different countries. 

Matthieu David: Okay. 

B: They all live in Shanghai. Up to date, we’ve had three full cohorts. We are starting our fourth later this month. After three full cohorts, they hail from eight different countries. 

Matthieu David: Alright. 

B: So, we have a couple of expats. A lot of them are Chinese returnees. And a few of them are really amazing locals that somehow learn English without leaving the country. Yeah. So, for us, it’s about 90-something percent bilingual—at least, between Chinese and English. Yeah, so it’s very diverse. Age category? Yes. So far, 22 to 57. However, most of them are 25 to 45.

Matthieu David: Okay. 

B: You asked about sectors. We are sector-agnostic. Because we’re not linked to a fund, we don’t have to only look at, say, companies that venture capital would look at. So, we’re very diversified.

Matthieu David: What kind of misconceptions or mistakes do you see in people who are actually reaching out to you? What kind of, again, mistakes or misconceptions have you been able to correct within the program? Is it mainly on the business model? Is it mainly about the idea or an existing market? Maybe the market is not existing. Have you found some patterns in what people have to work on especially on the typical mistakes and misconceptions? 

B: Okay. Excellent question, Matthieu. This is a basic value proposition. After doing over 10 ideations to first cash flow projects in 10 Industries, that’s my personal experience. But over those years, that’s why I was able to interview over 400 mentors who are also founders. And just in the last two years, over 1000 new founders have come to our events. So, I’m drawing from a pool set of over 1500 people who are founders. And what I found out is that there are only three types of problems that founders will encounter, putting luck aside. One: are you doing what you love or are you just in it for the money? I think that’s the most important because I see it too many times where people do it for the money. And they’re almost running out of cash or it’s just too tough. They got too many NOs from customers and they quit.

But if you’re doing something you love, you’re much more likely to move forward. So that’s the first one. The second problem I see is a lack of community. Now, the problem I see a lot of times is there’s a lot of talented people and the have friends from awesome schools or awesome companies doing very well in big businesses, etc. And then they listen to them for advice, but it’s not enough to just come from a great school or a branded company. You actually have to have gone through the gauntlet from zero to one in order to even think about giving some practical advice to someone who’s just starting.

So, number two is do you have an optimized community of fellow founders or CEOs that are about your level and also some that are in entry-level? They’ve done it several, several times. That’s the second biggest challenge I see. It’s a lack of the right community. And number three: do you have a system? Because it’s a war of staying power. If you use too much money and too much time before you make something that the market really wants, then it’s game over for you. So, do you have a system to innovate that could save you time, money, your mental energy? Because entrepreneurship and being an innovator is half art and half science. The scientific part is the part that we teach. The art part is up to each individual.

Where does science come from? The science comes from the fact that if you put together and overlap every single startup company at the beginning stages and you take away the industry uniqueness, the time uniqueness, and the team uniqueness and you are just left with the nuts and bolts of the startups, there is overlapping for every single startup in the world ever. This is the part that can be taught. Everything else with industry, time, environment, etc. are things that your art has to put together. So, we teach you the science so you can open up your mind space for art. Does that answer your question?

Matthieu David: Yeah. So, like you’re saying, the misconceptions or problems you are seeing from people who want to be entrepreneurs are, first, they rely on the opinion of people in big companies who have never been entrepreneurs so they don’t really know what it is to start a business. Secondly, they may do it more for the money and less for the idea of the passion they may have in the product. And then actually, they may lose the momentum because it’s hard. It can be hard to actually make it profitable. And third, it’s to have a system. So, I believe the system is what you’re also working on with the business model and the ability to make it more scientific, as you were saying, and more reliable as a system. Okay. Got it. 

B: And once we have this system, we can let go of old misconceptions. For example, a lot of investors tell you about the three F’s. Friends. Family. Fools. That’s common advice given to people just starting off. If you’re going to find investment, look for friends, family, and fools. That’s a horrible attitude. And that hurts your chances. Why? Because first of all, I would not put the word ‘fool’ in the same sentence as friends and family. First of all. And number two, if someone is gracious enough to invest in you at the very beginning, then they’re not a fool. They’re your angel. And you should be grateful for that.

So, we like to practice the AAA—ancestry, allies, and angels—because it turns your perspective around. And actually, later-stage investors shouldn’t be saying the three F’s because they should be thanking the third F which, in our terms, is the angel. Why? Because they wouldn’t even be able to see that project if there was no angel to invest in the beginning. It’s so important. So, the entire industry has all these misconceptions that actually are very hurtful for entrepreneurship. That’s why only 1% of the innovations come to life versus it could be 99%. If we open up our hearts, we’re grateful. You approach investors with a grateful attitude. You cherish your time especially if they’re going to think about investing in you. Quite frankly, the idea stage or when you’re trying something out is definitely the most dangerous time to invest.

Matthieu David: Thank you very much for being with us.

B: Okay. Thank you, Matthieu. 

Matthieu David: Thanks. Have a good day. Bye-bye, everyone.

China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.

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