“China Tech Companies Copy Because They are Scared” Says Qihoo Founder Zhou Hongyi

Speaking at CHINICT, the Founder and CEO of Qihoo 360, Zhou Hongyi, used his years of experience fighting as an entrepreneur in China to divulge some unique advice and insight. Qihoo 360 is most famous for being China’s most free downloaded anti-virus software and listed on the NYSE in March 2011.

To me, Zhou’s most interesting insight was why China has a tendency to copy successful businesses from America. Many believe that Chinese start-ups and big companies clone high growth start-ups because they lack creativity and even ethics. However Zhou’s take is that they copy because they are scared. They are scared of failing in a highly competitive market, so copying gives them some comfort that a proven business model has a greater chance of succeeding.

Another unique perspective of why Chinese tech companies’ clone is because regulations in China allow it. Zhou said in the U.S. when Microsoft bundled the browser Internet Explorer to kill Netscape, the U.S. government harshly criticized Microsoft for trying to monopolize the market, hence giving them a bad public impression. However in China, there are no real regulations against monopolies, therefore nothing is really stopping big tech companies like Baidu, Tencent, Sohu etc. dominating the market by crushing smaller start-ups by taking their product and idea. To emphasize his point, Zhou pointed out that since the rise of the giant tech players like Baidu, Alibaba and Tencent in the 90’s; there has been no other big tech company created since them. Using their deep pockets of cash and large team to readily deploy, big companies muscle and ultimately oust their little, younger start-up competitors.  Such a bleak and difficult environment lead Zhou to warn that “China is not a happy land for young entrepreneurs.” The only advice he could give to start-ups was to run faster and do something very different from big companies.

Now that China’s economy is on the rise, many foreigners are coming here for the ‘gold’ rush and also tackle a start-up. When asked what the market is like for foreign entrepreneurs, Zhou was even more jaded, warning that the Chinese internet market is not a “welcoming place for foreigners” because there are too much ‘dirty’ things happening here. Examples of dirty tricks include lying, cheating, defaming, and corruption. Such a wild and culturally different environment is especially difficult for foreigners to navigate and overcome. In a previous post, I also outlined some difficulties for doing a start-up in China for foreigners.

To give some advice to budding entrepreneurs in China, Zhou recommended four things. Firstly, to stop reading too many books and going to too many conferences that talk about loose concepts like Online to Offline; just start executing and learn. Secondly and most importantly; focus on a product that people will love and don’t worry so much about how to make money. Thirdly; build a solid team that can execute well. Finally to find real investors and mentors who have good entrepreneurial experience, since there are many ‘fake’ angels and VC’s claiming to be of great value. On this point, Zhou pointed out that through his journey as an entrepreneur who has experienced success and failure; he is now investing in entrepreneurs and providing other resources and mentorship.

Zhou also highlighted the importance of being able to reflect, review and learn from mistakes. When Zhou was starting Qihoo, Robin Li was starting Baidu. Zhou believes that he lost the opportunity to make China’s largest search engine because focused on competitors and not on user experience. Arguably Qihoo may have had the right team and technology, but it was the lack of focus on product that led to them losing the search race.