Startup China

Beijing will be the only true competitor to Silicon Valley in the next 10 years.

Beijing is not just a nice startup playground which might become truly interesting in a few years. This is the big leagues now. Startups can achieve massive scale quickly, because the domestic market is 1.3 billion people, which is four times the U.S. or European population.

An increasing share of these 1.3 billion people is actually targetable. In the U.S., 190 million people carry a smartphone; in China, it is more than 530 million today, and it will be 700 million or more in three years.

But a large market alone does not mean that a place will become a startup hub. It is the combination of market size and the extreme consumer-adoption speed of new services, combined with the entrepreneurial spirit and hunger for scale of Chinese entrepreneurs.

Beijing is the main hub where it happens. Here, entrepreneurs, engineering talent from the two top Chinese universities — Tsinghua and Peking — and VC money come together. Seeing the scale, speed, aspirations, money supply and talent here, I walked away thinking this will be the only true competitor to Silicon Valley in the next 10 years.

Yes, there are other hubs, such as Berlin, but the scale is different. (India is the only other possible contender here.) And it’s good for Silicon Valley to have a true competitor, because it sparks impulses on how to evolve to the next level.

Silicon Valley prided itdelf on being fast in Silicon Valley. Chinese startups are faster.

In Beijing, tales abound about the sometimes crass competition between startups, and the often not ethically acceptable methods used to win.

The extreme competition only secondarily stems from the entrepreneurs; the main driver is the consumer adoption rates. New mobile apps often take off at mass scale even faster than in the U.S., and become a phenomenon overnight. The improvement from new services is large for most consumers, as the majority only went online recently with the arrival of smartphones.

Big startups are built in three to five years versus five to eight in the U.S. Accordingly, entrepreneurs who try to jump on the bandwagon of a successful idea scramble to outcompete each other as fast as they can.

Work-life balance is nonexistent in Chinese startups.images

In China, there is a company work culture at startups that’s called 9/9/6. It means that regular work hours for most employees are from 9 am to 9 pm, six days a week. If you thought Silicon Valley has intense work hours, think again.

For founders and top executives, it’s often 9/11/6.5. That’s probably not very efficient and useful (who’s good as a leader when they’re always tired and don’t know their kids?) but totally common.

Teams get locked up in hotels for weeks before a product launch, where they only work, sleep and work out, to drive 100 percent focus without distractions and make the launch date. And while I don’t think long hours are any measure of productivity, I was amazed by the enormous hunger and drive.

The argument that Chinese entrepreneurs are mainly cloning Western startups is outdated

Yes, they clone where they can. But cloning is starting to reach its max — there are just not enough successful ideas to clone. In addition, clones often fail in the local market due to different consumer behavior and needs.

In China, cloning is just the starting point, not the end point.

Take Meituan. Founded by Xing Wang, , in 2010, and within six years built it into one of the largest commerce companies in China. Meituan is currently valued at about $20 billion, which, at the time, made it the highest-valued startup in China besides Xiaomi (the mobile phone maker).

Meituan is the largest mobile group buying company, largest online ticket sales company and largest food-delivery company in China.

Xing was up against hundreds of other startups in China trying to be Groupon here when Groupon’s star was rising in the U.S. He outcompeted all of them by not even trying to outspend them in marketing, but instead by quickly transforming Meituan into a company very different from Groupon. Today it is focused on bringing customers back to retailers, rather than acquiring them only once with a margin-cutting deal that can’t be offered continuously.

Meituan is making shopping smarter for consumers and sustainable for local retailers. Now Xing has 200 million monthly active customers. Oh, and he has a baby son.

A wave of innovation is coming from China

Chinese entrepreneurs are totally pragmatic. They just want to find the fastest way to win. As cloning reaches its max, the next fastest way to win is innovation.

Take consumer drones. That’s basically hardware meeting software meeting design. Sounds like a typical Silicon Valley play to win, right? Well, DJI dominates the consumer drone market from China (Shenzhen) with 70 percent (!) global market share. DJI is a harbinger of many more cases like these to come. We just don’t see them yet.

Chinese entrepreneurs just want to find the fastestway to win.

Innovation takes longer than cloning. For example, in Beijing I met with a young PhD in aerodynamics, who in the past three years has led a mini team of six in stealth mode with next to no funding, to design a 60kW electric engine for cars and robots that weighs 13 kg (29 pounds). Typical electric engines of that power weigh 58 kg (128 pounds) or more. He unveiled his invention to me in an underground parking structure out of the trunk of his car.

In Shenzhen, the electronics manufacturing capital of China, on the Chinese side of the border to Hong Kong, I visited Benjamin Joffe‘s HAX, a hardware startup accelerator. Right after the border control in Shenzhen (sort of “from China to China”), you enter a different world, where parts suppliers deliver in less than a day and electronics factories are ready to produce your new gadget.

At HAX, I tested the $9 computer and the water-and-sand-pressure jet that cuts metal precisely at a fraction of current machines’ cost. (Yes, you read correctly: For $9, you can add a Linux computer with Wi-Fi and Bluetooth to any device.)

I thought I was done when one of the startups offered me some dried flour worms, telling me they are “like crisps, only healthier,” and made in their new electronic insect farming machine. They told me that insects are the new trend — we just have to overcome our mental blocks.

Closed for You, Open For Us

First a bit of context in what the VC’s in Beijing are investing in. China has essentially closed its internal search, media and social network software market to foreign companies who wouldn’t play with the government rules on the Great Firewall. (China blocks “objectionable” website content and monitors everyone’s Internet access.)

Google retreated to Hong Kong and Baidu took its place.

Facebook was too frightening to Chinese censors, so Renren is the leading social media player.

Email? Working professionals/white collar use emails, but most users grew up instant messaging on TenCent’s QQ and most are moving to Weixin/WeChat.

Twitter? No, it’s Sina Weibo, and if you want games with your chat – TenCent.

Amazon and Ebay? Nope in China it’s Alibaba’s Taobao or 360buy.com. 

If you’re outside of China, you never hear about these companies or interact with them because they’re geared to serve only Chinese users.

This closed but very large market means that greater than 90% of Chinese software startups focus exclusively on the Chinese market. The <10% that decide to go global early do so by starting outside of China. Another 10% may try to go global when they’re larger and have the resources for two languages, cultures and regulations.

This has resulted in a completely different consumer software ecosystem than found elsewhere in the world. Given the closed market to U.S. Internet companies, VC’s in China have guided startups to execute the “copy to China” model. Thinking, if it worked in the U.S., copying a known model is less risky than trying something new and untested. The problem is that this space is getting really crowded – from the bottom up as everyone tries the 200th clone – and from the top down, as the major incumbents try to fill every possible market niche.

Silicon Valley has long been the world’s tech capital: It birthed social networking and iPhones and spread those tech products across the globe. The rap on China has been that it always followed in the Valley’s footsteps as government censorship abetted the rise of local versions of Google, YouTube and Twitter.

But China’s tech industry — particularly its mobile businesses — has in some ways pulled ahead of the United States. Some Western tech companies, even the behemoths, are turning to Chinese firms for ideas.

The shift suggests that China could have a greater say in the global tech industry’s direction. Already in China, more people use their mobile devices to pay their bills, order services, watch videos and find dates than anywhere else in the world. Mobile payments in the country last year surpassed those in the United States. By some estimates, loans from a new breed of informal online banks called peer-to-peer lenders did too.

China’s largest internet companies are the only ones in the world that rival America’s in scale. The purchase this week of Uber China by Didi Chuxing after a protracted competition shows that at least domestically, Chinese players can take on the most sophisticated and largest start-ups coming out of America.

Startup China!!