According to Todd Embley, the Program Director of Chinaccelerator, the failure rate for startups in China is 95% – a daunting number that’s even higher than the estimated failure rate for startups in general.
“People don’t even know how to start in Asia,” said Mr. Embley in a talk at Asia Beat, an annual startup competition for entrepreneurs and investors in Asia.
“They’re especially afraid of China, because so many companies have failed to come into China, none bigger than Google of course,” he said. “There is a fear of coming to China which puts [Chinaccelerator] in a very good position to be that soft landing, and to help them understand the local ecosystem.”
A growing number of organizations are springing up in China, aimed at offering that same soft landing for foreigners who want to start, scale, or boost their ventures in China. HAX, a hardware-focused accelerator in Shenzhen, draws entrepreneurs from all over the world to the heart of China’s hardware startup scene. There’s also HaxAsia, a hardware accelerator based in Beijing, as well as Microsoft Ventures Beijing, which launched in 2012. Countries have also set up their own resources to help their entrepreneurs survive in China’s tough market. For example, La French Tech, a global network of investors, entrepreneurs, and other players in France’s startup ecosystem, launched in Shanghai earlier this year.
However, expat entrepreneurs in China still suffer from challenges such as a language barrier, cultural differences, and what Mr. Embley calls the wrong “gut instinct”, in terms of intuiting typical consumer behavior in China. At AsiaBeat, we were lucky enough to catch Mr. Embley’s talk and sit down with him to chat about Chinaccelerator and the startup environment for foreigners in China.
1. How has China’s startup landscape changed over the seven-plus years that you’ve been here?
The sheer amount of attention being given to this area of innovation is immense. It’s incredible. I always have this image of the startup ecosystem in Silicon Vally [as] driving forward with the government as the piano tied to their ass. But in China, it’s kind of the reverse. The government is extremely forward thinking, knows what needs to happen, and is willing to move mountains to make it happen. They’re flooding the market with capital and driving media. They’re driving co-working spaces, accelerators, incubators, and IT parks.[They’re] really making a lot of noise around, ‘We need entrepreneurs , we need our young people creating innovation, this is where we go from manufacturing to leaders in innovation and tech where we need to be.’ So it’s been amazing to watch.
2. Is China’s startup ecosystem more receptive to foreign startups nowadays?
It is because there is more information. Five years ago, when we got into this, it was really hard because there was a lack of information. Even if you wanted to contact people, there wasn’t even a Yellow Pages,and you couldn’t find things on the internet. It was just really hard to find information, everything was really tightly kept.
Now enough startups have failed, enough people have come over, [and] enough attention has been brought to the ecosystem. That has all helped uncover some of the secrets to being successful in China. There’s money flowing back and forth in and out of China, overseas returns are coming over – it’s much much easier now. And it’s just getting better and better.
3. How has the Chinese government’s support affected the startup ecosystem? As an accelerator, have you seen any effects from government policies?
There’s both positive and negative effects of this in the [near] future. In our opinion, entrepreneurs need to make mistakes in order to learn. Now, if they’re over funded, their runway is a lot longer. They’ve got too much money. You’ve got to have your back against the wall, ship your product to the market, and constantly iterate on that product in order to make it better and find that perfect market fit.
If you have too much money, you kind of stayed buried in your office, building feature on feature on feature, and you’re not needing to drive revenue because you’ve got lots of money. Investors have less risk in investing, so they’re a little more free with their money – it’s not like a true market-economy is happening.
On the upside though, I think it’s great. I can’t read the China government’s mind but one of the sticking points is getting Chinese parents to let their children be entrepreneurs. When you can make good money, and you can show your parents a lot of evidence in the news and media of very successful people who have started companies à la Jack Ma or Lei Jun, you can say, “Listen I’m going to go work for a startup,” and your parents aren’t going to freak out.
4. Can you elaborate on how Chinaccelerator was created to essentially mine data about China’s startup scene?[The founders of Chinaccelerator] wanted to invest in China, [which is] a very dangerous place for foreigners especially, knowing how companies like Google have failed. So, they thought, “How can we intelligently invest? If we don’t have data, how can we make smart investments in a culture that we don’t really know? ”
That was where the idea of the accelerator came along. Let’s bring in some startups at very early stage, and then work with them for three months. That will give us our data, that will give us the knowledge of who they are, how they operate, what they’re doing, and whether we think they’ll be successful or not.
There’s just not a lot of data on early stage startups right now. Data comes from historical evidence of things that have happened. For new startups, we don’t really have a lot of historical data. Then of course we’re in a country like China where we’re ‘foreigners’ and we don’t have that gut instinct of what we’re deal with. We wanted to be early stage investors in technology in China – this was really the best way for us to do it.
5. An example of a foreign company that has adapted well to China’s market (from Mr. Embley’s talk):
My favorite is probably LinkedIn, because LinkedIn follows what we say is the ‘SEAL Team 6 approach’. The SEAL Team 6 is this: You have to get an amazing, elite team together. You give them all the training they need to be successful. You give them all the resources they need to be successful. Then you let them go in their environment and do what they need to do without remote controlling them from Silicon Valley, which is what kills most startups coming over here – most companies coming over here.
You need to be so fast, you need to work so hard in China if you want to be successful. And trying to remote control – that’s too slow. Having a decision maker not based in China who is not Chinese is a terrible idea. So LinkedIn created a completely autonomous product…here in China. LinkedIn.cn is an entirely brand new product that was built from the code up in China, hosted in China, built by Chinese for Chinese. Yes, it looks and acts and integrates seamlessly with LinkedIn.com but it is a completely independent product here. I think it’s done very well.