Episode 1: Robert Hao- Building and Scaling in China
About Robert:
My very first guest on The One Percent Project is my ex-colleague, Robert Hao, Co-Founder & COO, HYPE Asia. HYPE is a venture builder that helps startups demystify, unlock, and succeed in Asia. Presently, Robert is heading the expansion of Goat into China. Goat is the world's largest sneakers marketplace.
In 2012, he helped form the Asia landing team to expand Airbnb into the APAC region. From 2013-2017, Robert relocated to Beijing to start Airbnb China business, where he led Business Operations & Strategy and Host Community Operations and grew the China team to two hundred strong
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In this conversation, he talks about:
The Chinese tech ecosystem evolution and the frameworks to succeed in China.
Airbnb’s growth in China- the initial trends and indicators
The Chinese v/s Western consumers and how their consumption, spending patterns differ.
What fuelled Goat’s decision to enter China?
How TikTok became a global sensation
How a late entrant Chinese tech startup Meituan Dianping emerged as a superapp while competing against the Chinese tech giants: Alibaba, Tencent, Baidu
Chinese technology trends in the next 10 years
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Transcript:
*The transcripts are not 100% accurate.
Rob: My kind of relationship with China started in 2005, 2006. I had a really interesting kind of upbringing because as most Chinese people, they tend to immigrate to America. I actually was born and raised in America, but then immigrated to China, and I went to China in the junior year of my high school. So I actually spent the last two years of high school in China, and that was around 2005, 2006. There actually at the end of my high school years because I got to see it from a different lens. It was a really interesting time period because I got to witness and not just observe, but also participate in the economic growth and the kind of the evolution of the country and the cities and also the people. My fascination with China started not just as like a young person, but also as a budding entrepreneur and immediately after school I was doing a lot of different projects and trying to find ways to leverage my capabilities of bridging the East and the West , so I think it started there.
Pritish: You set up Airbnb, China in 2013. How was that experience, and if you had to do that now, would you do things differently?
Rob: Yeah, I did. I joined Aibbnb really early, I think May 2012 and, I joined their Hong Kong office, at that time, and our mission was to bring Airbnb into Asia. But my primary focus was to bring Airbnb into China. At that time, globally, they probably only had 150, some employees, if I remember correctly. It was a tremendous learning experience. I was with them for over five years no one knew in the first two years from 2012, 2014; no one knew if this was going to actually work. But, I got a lot more confidence that Airbnb will work in China after I spent a full year in China, just talking to hundreds and hundreds of guests as well as hosts it became very apparent very quickly that China was going through this travel revolution. Chinese people were just beginning to explore the world and lead the country in 2012, 13 and 14, and that was our entry. That was our angle. That's how it'd be maybe became super successful, in China.
Pritish: And would you do it differently if you had to launch Airbnb now in 2020?
Rob: I think in, in every business I've launched a; there's a lot of things that we can do differently. There were, I think one thing that we may, might have underestimated from the beginning and I think a lot of foreign companies entering China also do this. They underestimate, they underestimate their competition. They underestimate, how well the local market reacts and, kinda consumes local products from local competition and local companies compared to how local consumers consume, engage with, Western products. Gone are the days of 2007, 2008 when Western companies were viewed on almost on a pedestal in, in mainland China and they can get away with a lot of, things that perhaps were not offering the best value to Chinese consumers . And they can get away with that because Chinese consumers didn't have alternative options. They didn't have alternative, better options for Chinese companies. But, that environment, that landscape has changed fundamentally, Chinese companies are providing the right value, the right services, to teach Chinese and many times much better than foreign companies.
Pritish: So is building a venture now in China for international companies more difficult?
Rob: If we're talking about technology companies, let's say companies that rely on social networks, rely on eCommerce channels for selling a particular product or even a SaaS business. There are some things that [00:04:00] have become easier. Let me talk about those first. Those are infrastructure-related and then the things that have become more difficult is, again, competition. So starting with infrastructure. Gone are the days where Western companies need to speak to half a dozen different law firms and then find creative solutions for setting up a WFOE or setting up a bank account in China. These structures, these corporate structures are, pretty robust now. Chinese, the Chinese government has made it incredibly much more simple for foreign companies to operate. Fund themselves in mainland China. So I think from that perspective, the barrier to entry has come down significant. In terms of actually succeeding in China or even beating Chinese competition, that's different that has become more difficult. I think Chinese consumers have evolved; their consumer behaviour has evolved. Increasingly quickly and their needs, their service, the service requirements for Chinese consumers have increased, their expectations have increased. So that's why it's difficult for foreign companies to move as quickly as local companies to service those needs. I think on that side it's become much more difficult.
Pritish: And now you are the GM for Goat in China. So how has that experience been?
Rob: Wow, we entered the market, middle officially in July of 2019. So Goat is the world's largest marketplace for sneakers. More recently, we actually expanded our collection to a reselling sneakers, apparel and accessories. So we started in Los Angeles, and now we're a global business. China's actually the first international office. It's actually a full office, so we have, engineering product as well as all the front end of business units you may imagine marketing, sales, business development. So yes, I am the general manager for Goat in China. My primary mission was to expand them, from, [00:06:00] North America into China to turn China into a demand marketplace. So, facilitating and helping Chinese consumers to purchase Goat products, easier in a more simplistic way. Before we entered this market, we found that Chinese consumers were already going on Goat to buy shoes and it was because of that impetus and because of that signaling. We felt that there's a lot of, opportunity here. and of course, there's already a lot of Chinese competition in this space as well
Pritish: Coming to the COVID-19 situation you have been there since the very beginning?
Rob: So, on the day of COVID. Being announced, I think it was around July, sorry, January 23rd or 24th, I actually left China on January 18th to go back to San Francisco area and I flew back to, Shanghai on February 15th or 16th. It was during that time period that China really cracked down . They got a late start in Wuhan, which was the epicentre. But then as soon as February turned around, they really, really turned it up a notch and locked down the city. I have a lot of friends in Wuhan who were affected by the lockdown and still are actually unable to return in general.If I had to sum up a few bullet points, I think the whole nation has rallied around, the front line staff and want to, to really support them right mentally, emotionally, and also through donations. The second thing is, is that everybody is very supportive of these extreme measures of controlling the virus spread and I think it's paid dividends because now, we recovered from it very quickly, to the point wherein Shanghai, my entire 50 person team was able to return back to the office nearly at least three weeks ago. The environment in Shanghai, it just so happened Shanghai had it under control really well from the beginning and life has really much back to normal, in Shanghai. So I think the rest of the world may call some of the measures taken here more draconian. but I think I see it as more necessary.
Pritish: And how technology has played a role in this? Because there was a lot of news in international media that different tech firms are really trying new things out?
Rob: I think really a lot of this is manual. A lot of the control truly was manual. The central government you communicates provincial government, the provincial government community, cause it's city government. City government has many, many different arms in which they can use as levers to execute their plans. As an example, every apartment building here has a security guards and those security guards have a direct phone number are, are directly reachable by the city. Police are the district police that are in charge of that thing. So when the Wuhan people are to be released and can travel away on April 8th, when they reached the airport, they must give the phone number of theirs. They must give the address of their home in Shanghai and the Wuhan people the, that the government would actually call the security guards and make sure and give them a heads up that this person is returning and the security guard must call the Wuhan department back once the person arrives. So this is an example of how far reaching, the executional help is Shanghai. Whereas I don't see that happening in, in where I'm from in Bay area, California, because there's simply nobody that can check in on anybody. When you returned back to your neighbourhood or your home.
Pritish: Yup. And do you see China to be a different nation poster COVID-19, pandemic?
Rob: Ironically, if I were to rewind a month ago, I would say yes, because I didn't have a, I did not know how Covid-19 is affecting Western countries, like North America and parts of Europe. But now on that, I, I've seen how it is affecting North American group that I would say relatively, I don't see China being as affected as these other countries. Unemployment numbers here aren't really public knowledge they don't really announce these numbers, but just from personal experience and anecdotal evidence, there's no very little, Businesses have been impacted. I think SMEs have been impacted to a degree, but the government has really stepped up to, to help these people. So you don't really hear about millions and millions of people going unemployed in China, whereas I do in North America.
Pritish: Cool. Now getting back to something much more on a lighter note, and talking about Chinese technology. You have the best of both worlds San Francisco been in China over more than ten years . Has Chinese technology evolved and is it really better than the Western world?
Rob: It's really interesting. I love this question and I can talk a lot about it, and I really want to love to hear your thoughts too. So my brother is, my older brother is also in investments and he works in North America or America, and he works for a large private equity firm and they do a lot of high tech investments, primary primarily into renewable energy. And what I do is I work with startups, helping them go from the Valley most of the time into China. There's stark differences to how we see, investment opportunities and the stark differences to how we see and define the word startups and technology companies. let me give some examples. So, in China in the last 10 years. A lot of the companies that we've seen today grew so significantly scaled so much out of consumer necessity, out of the hierarchy of needs, they needed to access, a variety of consumer goods, everything from toiletries to microwaves to refrigerators. And then later on to shoes and then to things that you may not need, but outside of necessity and Alibaba provided the perfect platform for it. When Alibaba first launch, you got to remember people had a very little lack of trust for one another. So how can I digitally give you money? And then you give me product doesn't work. So they created Alipay in which it's a digital escrow where I give him the money to Alipay the money and Alipay act as an escrow between the two parts. Then you had things like all the social networks WeChat. Where people were being connected to one another for social needs, then you had mobility needs scooters, bicycles then you had car needs for also mobility, just anything related to consumer needs spurred the startup environment, spurred the technology movement in China. But America also went through that journey, but they didn't go through it at the same time. China went through it. They went through a 20 years earlier. In the late nineties and the early two thousands, perhaps even earlier, with PayPal, you remember that was a 1990s company, eBay, a 1990s company, Apple, so when I think about technology companies, West and East now, and when I say West, I'm primarily referring to North America. It's so different because China is still very much building products and values that are value added services for consumers. And those consumers are at the beginning of their consumption needs. Whereas in America, a lot of the consumers, their consumption needs are super mature. So what comes after that? Well, that's where my brother comes in. That's where he starts investing into things like renewable energy, into changing the conductors within batteries from lithium-ion to silicone to investing into autonomous driving so they can reduce human need in trucking and all these amazing, amazing things. So I would say innovation, exists on both sides, but we are still very much in China, at least. We're still very much on the basic needs of consumers. And, and the West has evolved past that.
Pritish: Brilliant. I agree with you the consumer journey of a Chinese customer is so different from the West. You can actually use a product, a Chinese app, almost two-thirds of the way without registration ; you can really experience it, go multiple steps. But if you look at a Western app, you need to sign up the first button you press and put in your email address and so on and so forth. The way you pay for let's say blogs in China, you can pay by words, you can pay by a page. The consumption and monetization patterns are very different.
Rob: Yeah, absolutely.
Pritish: My next question what did TikTok do that SnapChat didn't?
Rob: Sorry to disappoint you. I don't know too much about TikTok, but I'll just share with you what I do know or my first impressions is I was never a user Snapchat, and I'm not a user of TikTok. but I, I do see a lot of the TikTok equivalent in China, which is Douyin, or is the same company, but the China version. I think TikTok was really interesting because they acquired Musical.ly to get started. Musical.ly it was a U.S. based company, but started by Chinese founders. And they made a lot of headway into the teenage, a preteen to teenage, to university, area. And I think they captured that consumer audience, very, very well. I would say that product superiority is a big thing when it comes to streaming when it comes to video recording . And so, it was really amazing to see a Chinese company play in North America and compete with Snap because China was able to adapt and move and launch new products and do maybe many, many, many multiples. Or times the AB tests that, an American company was in their own backyard and then shipped those product changes to, Americans faster than, and a Snap could. So if they could offer a better product experience, a better user experience to this very targeted segment of the U.S. consumer population then I think it would be inevitable for them to win.
Pritish: Another question. in this same space Meituan is a late entrant into the tech space in China. But it has grown into almost an equivalent of a WeChat or the other big players. What kind of white space did they see and how did that success happen? And how can you really, go for an Alibaba or a WeChat or a Tencent?
Rob: So many, many years ago Meituan, acquired a company called Dianping, and today they're called Meituan Dianping. And Dianping was an aggregator for a food reviews. So, different restaurant reviews and whatnot like that. So think about you are Meituan when you acquired Dianping on day one. on that day you realise that, Baidu owned search, you realize that Tencent owned a social communications and big part of payments and Alipay, Alibaba owned e-commerce as well as, payments. So at that point, if you're Meituan you don't wanna do search. You don't want to do a social communications and you definitely don't want to do e-commerce. So how else can you own consumers? because that's the whole point, if you're going to create a super app, you want to be able to create a platform in which you can say, I own Chinese consumers. And in the funny thing is that the consumers that Tencent and Alibaba and Baidu own are the same consumers. They all overlap. That Venn diagram has a massive circle in the middle. So if you are Meituan Dianping what other service can you provide to become the fourth circle and the answer, or at least what they thought the answer was, and it was very successful, was daily services.Beyond shopping needs. Okay. So, everything from, well, you have to eat, so, if you're going on restaurants, then it would be like a Opentable or Openrice of Hong Kong, but just done really, really well and, have, you 90% coverage so that anytime you wanted to, find where to eat, you go Meituan and then once you own that user, that city user, because all the restaurants are in the city anyways, not in the rural, then what do you do? Well, then I start offering them other services such as a car sharing, and now they're a huge aggregator for car share. and then what do you do? Well, they did biking. They have a huge bike thing now ride sharing, because you already on the consumer. and they just started, breaking into payments because since they own the restaurant, they can offer discounts or promotions and just ask their consumers to pay the restaurants through the app. So they started with this concept of I need to own the daily lives of consumers. And then they grew it that's what happened.
Pritish: Brilliant. So that brings us to our last question. What are your views about Chinese tech in the next 10 years? Like how do you see it evolving?
Rob: I think of it in different dimensions. So maybe one dimension is, I do see that investments into entrepreneurs, first time founders, second time founders, leveraging some sort of technology to better the lives of Chinese citizens. That trend is only going to increase. So I'm really happy about that. In fact, if you go to the North West of Beijing , the Silicon Valley of Beijing, you, you go to any apartment building, you'll probably find it. a couple entrepreneurs per per flat. Like if you go on any level, there'd be a couple of entrepreneurs. I think that's really exciting because it provides an alternative to, to regular work, and it also provides job opportunities to Chinese citizens. The next dimension I think is, I don't see that trend of, I see the trend of offering or solving consumer needs to continue. I don't see that not continuing. Right. And it's only gonna evolve cause we've definitely not hit the tipping point. and what that means is that means founders and companies are still fighting for the wallet. They're still fighting for Chinese people's money , their purchasing power, their consumer consumption power. I don't know how long that would go on for. So I don't see any. Like, talking about renewable energy is talking about solar panels, all that stuff. I think that's much later. And then on the back of that second point of consumer, targeting consumers, you're going to have FinTech companies trying to also ride off that wave. So as consumer consumption increases, purchasing should increase. So making it easier, making it safer, making it faster for people to pay. Yeah. ,maybe a third dimension is Western tech companies have becoming increasingly less competitive in mainland China. Even though it's becoming easier for them to set up, it's becoming harder for them to operate and harder for them to win. So. It does make me question, whether or not Western companies, can cut it in, in mainland China. Of course, it depends on how that company defines success. In China, there are many, many successful joint ventures . There are many successful Western companies here in traditional industries like car manufacturing and whatnot luxury, but for specifically for technology companies, it's to be seen.
Pritish: Thank you, Rob. It was great speaking to you and thanks for your time.
Rob: Thank you, Pritish. Pleasure.