Trends
Alibaba and the Chinese dream
With the Alibaba IPO, there has been an explosion of interest in the company.
Speculation has reached fever pitch in the media – ‘There will be a battle of dominance between Amazon and Alibaba for the global e-commerce market’; ‘With $160 Bn in valuation at IPO, Alibaba may, at some point, challenge Apple as the most valuable company in the world’; ‘Alibaba is just another Chinese copycat – when it meets ‘real’ competition as it expands globally, it will fail’.
There is a desire to understand more about Alibaba and its business model.
Is it really bigger than Amazon and eBay put together on GMV (Gross merchandise value) ?
How is it so profitable when Amazon makes so little money ?
How did Taobao become the second largest ‘retailer’ in the world so quickly, just in China ?
When will Taobao overtake Walmart globally on GMV ?
Is Taobao like eBay or Amazon, is Alipay anything like Paypal, What is Taobao and Tmall ?
Is Alibaba a China focused operation, or does it have its sights wider ?
Why is Alibaba making investments/ acquisitions/partnerships in the video space (Youku/Tudou) and in social (Sina Weibo) ?
Whats behind the spate of global acquisitions ?
Why has Jack Ma stepped down as CEO ?
Why is he investing in logistics chains and brick and mortar businesses in China ?
In this post, I am not going to address any of these questions. Enough has been written about these issues and I attach some links at the bottom of this post for those who are interested to read more.
I will focus instead on the core philosophy behind Alibaba and what has most fascinated me about Alibaba – its power and mission to harness the Chinese dream, and thereby change the world.
One of my core learnings in 6+years working in China is that, if you want to have sustainable success, it is critical to build true partnerships and structure your business for success. This means that you create a way for your partners to make money, but you tie in a mechanism so that as they make money, you make money as well. Once you have done this, to scale your business, all you need to do is find more partners, and focus all your efforts into helping them make money, secure in the knowledge that you end up driving your own business as well !
This is the core of Alibaba’s philosophy and the key driver of its success.
Jack Ma built “a company that can serve millions of small businesses”. Alibaba’s mission is “to make it easy to do business anywhere“. Jack Ma says “At Alibaba, we fight for the little guy – our role is simple – through our ecosystem we help merchants and businesses find each other to conduct business – on their terms. We help merchants to grow, create jobs and open new markets in ways that were never before possible“.
Alibaba/Taobao has lived this philosophy for 15 years. To illustrate how successful they have been, consider that there are now more stores on Taobao (6 Million) than in the real world in all China (4 Million)!!
When comparing Alibaba with Amazon or any other western commerce business the core difference is the philosophy.
Alibaba ‘serves’ ‘small businesses and entrepreneurs’, it does not ‘sell to consumers’.
Alibaba ‘provides an ecosystem’, it does not see itself as a retailer.
Alibaba ‘fights for the little guy’, it is not a mechanism for big companies to sell to small consumers.
Alibaba is not about the short term. Jack Ma said “We want to be a company that last 102 years. We have 87 years to go“. With this scale of vision and the mindset to emancipate millions, Alibaba has the potential to change the world, not just more than any retailer, but perhaps more than any other company.
This difference in philosophy explains why Alibaba’s revenue model is so unique and why their business model is more virtuous. It explains their focus on enabling payment solutions and faster logistics. At heart Alibaba is a company that serves and hence, their focus is on things that can improve their service KPIs.
It explains why they have every chance of becoming the dominant retail platform in the world of tomorrow – their competitors can compete with other companies, but how can anyone compete with the focused, harnessed, entrepreneurial drive of an entire nation of 1.3 billion people ?
While Amazon and other companies have now got a significant proportion of their business going through a ‘marketplace’, unlike Alibaba, their aim is to benefit the end consumer through lower prices, and if their suppliers get squeezed, so be it.
For those who doubt Alibaba’s ability to win outside China, they should consider that Alibaba is likely to apply the same enabling philosophy wherever they go. Jack Ma says “We have become a household name in China and soon we will be ready for the world to know us.”
In India – a country with 4 Million retailers, Alibaba’s system be an inclusive way to connect them to the global marketplace, without the loss of jobs that organised retail could create.
Alibaba has the potential to create an Indian dream, an African dream, A European dream – where ordinary people could be given a platform to become entrepreneurs, and drag Alibaba along with them on the road to riches. The desire to be rich and successful is universal, and Alibaba’s philosophy can find traction everywhere.
In 1992, Deng Xiaoping encapsulated the Chinese dream when he said “to be rich is glorious“. The Chinese are a people with tremendous work ethic and a huge entrepreneurial drive. China, since it started opening up in 1979, created an environment which allowed this ‘Chinese dream’ to take root. While the 1900’s were driven by the American dream, there is every likelihood that the 2000’s will be driven by the power of the Chinese dream.
Alibaba is at the fulcrum of the Chinese dream. What’s more, Alibaba could be poised to ignite the Indian dream, the ASEAN dream and the African dream as well. In so doing, Alibaba could become a force for good – for positive change and the economic democratisation of the world order.
Jack Ma said “today is difficult, tomorrow is even more difficult, but the day after tomorrow is beautiful“. His dream for the day after tomorrow could just end up changing the world as we know it.
Jack Ma explains his philosophy in this video which was uploaded to youku.com
For more on Alibaba, click the links below :
https://www.linkedin.com/pulse/article/20140908065624-13518874-who-s-on-warpath-to-overtake-apple-as-the-world-s-most-valuable-company?trk=prof-post
https://www.linkedin.com/pulse/article/20140610130310-8549453-alibaba-rise-crocodile-in-the-yangtze?trkInfo=VSRPsearchId%3A91382241410365998607%2CVSRPtargetId%3A5882109807384629248%2CVSRPcmpt%3Aprimary&trk=vsrp_influencer_content_res_name
https://www.linkedin.com/pulse/article/20140509180346-8183750-alibaba-a-fruity-perspective?trkInfo=VSRPsearchId%3A91382241410365955747%2CVSRPtargetId%3A5870593710290399232%2CVSRPcmpt%3Aprimary&trk=vsrp_influencer_content_res_name
https://www.linkedin.com/pulse/article/20140909000839-115522836-the-alluring-tale-of-alibaba?trkInfo=VSRPsearchId%3A91382241410365955747%2CVSRPtargetId%3A5914880539386458112%2CVSRPcmpt%3Aprimary&trk=vsrp_influencer_content_res_name
https://www.linkedin.com/pulse/article/20140808235938-174887856-alibaba-is-here-to-change-logistics?trkInfo=VSRPsearchId%3A91382241410365998607%2CVSRPtargetId%3A5903660507373518848%2CVSRPcmpt%3Aprimary&trk=vsrp_influencer_content_res_name
https://www.linkedin.com/pulse/article/20140611105836-107304053-lessons-learnt-from-alibaba-and-jack-ma?trkInfo=VSRPsearchId%3A91382241410366018255%2CVSRPtargetId%3A5882438004588429312%2CVSRPcmpt%3Aprimary&trk=vsrp_influencer_content_res_name
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ACCELERATE OR DIE
In a previous post, I had shown that business (and bacteria) grow in a S-shaped curve
https://adityasehgal.com/2014/07/13/business-and-bacteria-how-things-grow/
https://www.linkedin.com/today/post/article/20140713150608-9138224-business-and-bacteria-how-things-grow?trk=mp-reader-card
Both, old businesses, (eg. the PC business) and new business (eg. Apple) follow the same shape of the curve. In the chart below, the cumulative penetration of Apple devices, (driven by the iPhone) has almost caught up to cumulative Windows devices by 2013. Both grew on the S-curve. Clearly, the iPhone has done very well since launch !
Now, in the next chart comparing the iPhone vs Android and you can see that Android significantly outpaced the iPhone, while also growing on a S-curve. Why does the iPhone look so slow here ? Android is growing on a quarterly pace on the S curve, while Apple was growing on an annual pace. Clearly, Android did even better than the iPhone !
We all know the Android charge that unseated Apple’s dominance of smartphones was led by Samsung – but Samsung did not post the most stellar results recently (http://www.cnet.com/news/samsung-warns-2h14-will-be-tough-as-it-reports-weak-q2-results/).
They referenced new competition – from Chinese players like Xiaomi.
The next chart shows the user growth of the Xiaomi mobile OS (MIUI) – It is also exploding along a S-Curve, but this time the acceleration is driven monthly.
In a few short years we have gone from a market growing along the S-curve in decades (PCs) to annually (iPhone) to quarterly (Samsung/Android) to monthly (Xiaomi).
While the smartphone example is drastic, I believe the same trend is also impacting other industries.
In competitive markets, the rate of change itself may be growing along a S-curve.
The small piranha is now eating the shark which is in turn eating the whale. As the piranha grows it becomes the shark and the shark becomes the whale.
The predators are growing into their prey – companies that are growing fast today lose their way tomorrow and are eaten by smaller, nimbler competitors.
This is the essence of the Innovators Dilemma as laid out by HBS professor Clayton M Christensen.
But, why does this happen ? Surely large companies can see the small predator coming ? Surely they have more resources ? More people who are more experienced ? Wal-Mart saw Amazon coming from the day Amazon launched. Post office employees were probably using e-mail at home as soon as it was available – why then is the dominant e-mail provider not a national post office ? and why is the No 1 e-retailer in the world today not Wal-Mart ?
One answer is that businesses work at an internal speed, a cadence which is built up by systems and processes which grow as structures, from past success.
Speed of growth along the S curve is driven by accessibility of product/service (driving availability) and virality of message (driving awareness). The internet and other disruptive technology accelerates both awareness and availability.
In the smartphone example the faster fish (monthly acceleration/cadence) are eating the fast fish (quarterly cadence) which in turn are chewing up the slow fish (annual cadence) and these in turn have already gobbled up the slowest fish (feature phones which moved at a glacial cadence in relative terms).
Large businesses work at annual speed with a 12 monthly cyclical cadence.
In large businesses, there are many managers. Managers like to react in ‘planning cycles’. There are as many opinions as there are managers, and all these opinions are validated with data.
It takes time to generate & analyse data – and even more time to decide what to do, between the many stakeholders.
There are systems to improve ‘chances of success’ through research and following manuals. Most large organisations have BBF programs (bigger, better, fewer). Anything that doesn’t follow the process or is not approved by ‘the system’ is sent back. Without the right data, senior management is ‘unable to reliably decide’ whether the initiative is good or not. Gut feel is not good enough. After all – it is not validated !
Everything important is approved by an ‘Executive committee’ which meets at best monthly and has an agenda backlog of 3 months.
Employees with entrepreneurial instincts are crushed under the weight of management and process. Many vote with their feet – to go and create the new companies that attack and eat up their former employers.
Managers have an inflated view of their invulnerability and the superiority of their ‘team’ and ‘process’.
While the competitor is small, and is refining their product and service, there is contempt for the newcomer. There are a million good reasons why they will fail. Managers are smug in their superiority.
Often, the small player has a slightly different product/service. They establish a small new consumer preferred niche/segment that they are able to grow at turbo speed by making inroads into the dominant market segment.
The large company realises too late that they need to compete in the new segment of the market. There is still supreme confidence that their brand will become market leader in the new segment as soon as it is introduced – after all, don’t they have the brand with the best equity ? Unfortunately, by the time they get their act together they are the underdog in the segment – their ‘process’ slows them down further and they are always reacting to a fast improving competitor. They can’t understand how the competition is moving so fast.
On top, their new service is now competing with their old service and cannibalising it – often they make less money on the new service at the start so their financials are under pressure. The vast majority of employees are still in the ‘old’ part of the business – there is tremendous internal resistance to putting so much resource into the new business and ‘starving’ the old business. A fog of indecision and despair descends. At this point the entrepreneurial members of the team get sick of pushing water uphill and leave. The bureaucrats thrive.
The gap with the competitor widens. Management now starts missing targets and there is growing internal pressure. Eventually the company loses market leadership. It is now the beaten leader and a drastic turnaround plan is instituted to cut costs, reduce layers and make it competitive again. Many employees lose their jobs and a once-proud business stands humbled. Shareholders punish the company’s leadership.
The victor in the struggle keeps growing till the point where it too falls victim to a smaller, nimbler, less bureaucratic competitor, operating at a faster cadence.
How can the large fish avoid being nibbled away alive by the smaller fish ? There are many books on the subject and a comprehensive answer is way beyond the scope of this post. Some points to consider, however, are :
1. Understand that different things in the company should work to different cadences. Run processes in parallel rather than sequentially and focus resource on cutting cycle times of long lead time items. Ask the team for ‘impossible’ deadlines. Even where long term R&D/regulatory barriers cause unavoidable long lead times, initiatives can be started in parallel and phased to mature quickly one after the other. An example of this is how China has built its railways and cities – to the outside world it looks like a new city or high speed line appears every 6 months, but internally this is the result of many years of large, long lead time projects running in parallel, maturing quickly – one after the other. In summary – put lots of projects into the innovation funnel so you can have lots of speed later. The opposite of BBF.
2. When competing with a small fish (but one which has sharp teeth), drive the response at a completely different cadence – make sure the team understands that the ‘regular process’, ‘validation’ can be junked. Lead the response top down – with the project driven as the single focus of a senior director. Ensure the whole organisation understands the urgency of the problem. Expect – not twice the regular speed, but 10 times the regular speed and tell the team they can break any rule if they get the speed. Find entrepreneurs to lead the team, and then make sure you clear the decks and don’t slow them down. Change the metrics to daily, weekly, monthly from quarter, annual, 3 yearly. Incentivise as aggressively as you expect results.
3. At the first sign of success, pour in disproportionate resource to scale up. Plan to drive the new business to be the dominant proportion of the business even faster than the competitor. Don’t be afraid to cannibalise yourself with a slightly inferior product or financials – your competitor will cannibalise you if you don’t cannibalise yourself. As the business grows, aggressively cannibalise the ‘old world’ part of the organisation for talent and retrain them on the job as the business grows.
4. Don’t wait for perfection – Launch if you are 80% of perfect (except where human lives/health are at stake). Improve as you go. Roll out frequent, incremental product improvements every few days/weeks. every few months (or longer depending on the product life cycle and cycle time to gain critical mass in awareness/availability) consider launching variants or improvements of the product.
Don’t fall into the trap of thinking that the business is invulnerable – that the chances of success of a disruptive new player are small. Don’t think – ‘It wont happen to me’.
Remember the lesson of the sperm – the chances of a sperm fertilising an egg is about 600 Mn to 1.
But thats not the important point.
The world has about 7 Bn people today – clearly, 1 sperm has made it past odds of 1:600 Mn at least 7 Bn times !
Even with very low odds, given enough time, and enough tries – someone will disrupt your business – when that happens, you must accelerate or die.
For a very interesting opinion on the chances of you existing, go to :http://members.shaw.ca/tfrisen/chances_of_you_existing.htm
References :
http://technode.com/2014/06/20/xiaomi-software-integrated-whole-lot-third-party-services-users-engaged-ecosystem/
http://tabtimes.com/feature/ittech-os-ipad-ios/2014/01/15/why-apple-ios-device-sales-are-set-catch-windows-2014
http://www.nateriggs.com/smartphone-adoption-iphone-android-app/
http://www.asymco.com/category/industry/
http://books.google.com.hk/books/about/The_Innovator_s_Dilemma.html?id=SIexi_qgq2gC
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Failing to succeed
Behind every success is failure.
If the success is big, expect to find either a big failure behind it, or multiple small failures.
Progress comes from overcoming inertia. Inertia and habits drive people to do things the same way over and over.
Not trying new things in good times leads to short term avoidance of failure, but leads to catastrophic long term failure.
When times are bad people are at their most creative and inventive. The natural response to pain is to act to remove it. Tough times force people to re-evaluate their habits and look for better ways to solve their problems. These solutions become new habits which drive future success till they become obsolete in turn.
If failure is big, it could result in significant value destruction for an organisation.
On the other hand, if an organisation is not failing enough, it is not learning enough and is ripe for being disrupted.
How then, can an organisation address this paradox between failure and success ?
The trick is to build a culture of ‘failing small, often’ to reduce the chances of ‘failing big’.
The impact of reacting to multiple ‘small failures’ on an organisational scale can drive the organisation in serendipitous directions and enable success that may not have been ‘planned for’.
This ‘fail small, fail often’ culture need to be driven top down and designed into an organisation’s DNA.
5 areas to think about to drive this cultural shift :
1. Change from a directive organisation towards a directional organisation
Decide the company purpose, goals and accepted behaviours high up in the organisation and push decision rights down.
If the organisation’s goals and philosophies are clearly expressed, every employee can judge whether their decisions will take the company where it wants to go, in the right way. This enables them to make small decisions. This culture, when spread across an organisation, can result in an adaptive organisation and faster decision making. Many small risks are taken and many small learnings can be shared or scaled up. In the opposite model where decision rights are concentrated, the risks get aggregated at each level and by the time a decision is taken the cost of failure becomes higher.
2. Cut the bureaucracy
There are no alignment meetings with just 1 person in a role. With 5 people there are 20 points of alignment, with 25 people there are 600. Alignment and meetings increase faster than headcount.
When an organisation becomes large and allocates decision rights to senior levels, few people can say ‘yes’, and many can say ‘no’.
New and disruptive ideas get killed before they a decision making level.
To manage bureaucracy and encourage small experiments, organisations should either cut layers or delegate decision making rights downwards.
3. Encourage small innovation
Encourage everyone to innovate. Celebrate small success. (http://en.wikipedia.org/wiki/Kaizen)
Focus the team on consumers and on looking outwards to seemingly unrelated areas for new ideas. Cut the tendency to focus on navel gazing and competition watching.
4. Start pretoyping (http://www.pretotyping.org )
Pretotyping is a concept developed by Alberto Savoia (http://www.albertosavoia.com) It enables teams to ‘fake it before they make it’. This limits the cost of failure and dramatically increases the number of ‘experiments’ that an organisation can conduct in a given amount of time/money. Organisations can choose to scale up only initiatives that are proven to work. The pretotyping mentality can be applied across the organisation.
5. Design the organisation for collaboration, plan for serendipity.
http://www.thefutureorganization.com/design-collaboration-plan-serendipity/ Engineer ‘informal’ and ‘unrelated’ interaction.
Failure is as big a driver of personal success as business success.
For an interesting perspective on failure as a driver of personal success see Scott Adam’s interview herehttp://online.wsj.com/news/articles/SB10001424052702304626104579121813075903866
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Colliding trends create mountains of opportunity
There are three ways that mountains grow
1. Through an igneous, explosive process, which is sudden and short lived
2. Through a sedimentary process which is slow and takes long to achieve progress
3. The truly giant mountains are created by a clash of tectonic plates in addition to the above.
We spend a lot of time looking at trends to understand how these impact our lives and businesses. To my mind, a better way of looking for opportunities coming out of trends is to search for discontinuities and consumer needs at the confluence of two or more trends.
Like the grinding together of tectonic plates cause monster mountains to rise, it is the clash of two (or more) trends that unlocks monster potential.
Look at two titanic trends – the ageing population and the progression of technology. The interaction between these is already creating multiple new opportunities and business models.
As society ages, more people come into early middle age. With this comes increased health and fitness consciousness, and a new opportunity, one example of which is the new wearables industry that addresses this demographic.
Wearables like the Jawbone®, Nike® band and the Fitbit® have multiple sensors and link to apps running on smartphones. They measure and record activity, exercise, sleep (quantity and quality), calories, nutrition and interface with devices like the withings scale to automatically overlay weight, body mass index, body composition data, blood pressure and mood. This links to back end data systems and social networks which can help us feel better and share this well being or compete with friends.
From personal experience I can say that these can change deep set habits relating to exercise, sleep and eating and are already having significant disruptive downstream influence on other businesses. [Imagine what Pepsi® would pay to know precisely when and where women, ages 25-35, had the lowest energy levels and highest sugar cravings? – source : http://jawbonestrategy.wordpress.com/valuation/]
For societies like Japan, the ‘silver generation’ is driving a super-fast growth pocket in a slow growth economy. Older people have significantly higher disposable incomes than the average – fuelled by years of saving and smaller live-in families/fewer responsibilities.
Today Japan has a median age of 46 years compared to 36 in China and 27 in India. What is happening in Japan today will happen in China in the next decade and in India the decade after. Given that it takes us 5-10 years to build capabilities to ride the wave of a new business model, companies in China should already be addressing these discontinuities to ensure continuing growth for 2020 and beyond.
Let’s add a third trend into the mix – smaller, nuclear families with ageing parents living far away.
What would be the needs of these people which could be addressed through technology ? How could this impact their health and mental peace and that of their loved ones ?
There are multiple, massive opportunities for new business models that exist in just this one crack between three trends. A few examples :
1. Companionship : apps and services that allow like minded elders to self organise and congregate. This could range from dating apps for elder singles to real (and virtual) chess and bridge clubs to online spiritual services.
2. Family : each grandparent could have a ‘one button’ video link to their grandchildren and children – the grandchildren could grow up listening to their grandparents stories and imbibe their values. The grandparents could be part of the grandchildren’s lives – even from afar.
3. Security : One touch SOS services for emergencies – be it medical or financial or emotional : someone to help at the end of a button.
4. Health : Wearables for the elderly. These will monitor key parameters like sleep, respiration, pulse, temperature, blood pressure, movement, perhaps blood sugar levels. These can prompt for medication, and can keep concerned family members aware of their loved one’s. Where needed they will be able to call local medical aid automatically. They will maintain a full medical record for the doctor – medicine will be more preventative. In time, this device could also dispense medication.
5. Entertainment : Bots to aggregate relevant content. Since many elder people may not be very tech savvy, there will be much more work done on the interfaces for these bots and services to make them as close to automatic as possible
6. Accessibility : all of the above devices and services will be designed with accessibility at the core. Font sizes will be large and easily scalable, software will auto update with very little fuss, sound will be appropriate for those who have lost some hearing, typing will be forgiving of butterfingers, configuration will be simple, there will be less options, with bigger, bolder buttons.
Multiple trend thinking should be adopted to create bigger, more innovative and own able ideas. Strategists, marketers, designers and innovators should practise thinking about the opportunities at the cusp of multiple trends, rather than along a unidimensional trend.
Aditya Sehgal's Blog 