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Only when Understanding Li Dan, Can One be able to Do Business with the Post-95s Generation

Editor’s Note

Recently, the news of Li Dan’s marriage, a man crowned the “sexiest man from the post-90s” in China, made him, once more, one of the hottest trending topic. In this article, we will try to look at him from an investment perspective. From his sensationalist yet somehow reasonable remarks, we will try to explore and better understand the values and the psychology of the post-95s consumer group. From this, we hope to better fathom consumers behaviour, as well as gain insights on emerging brands and possible future business models. Without further ado, we hereby exclusively present Source Code Research Report Issue No. 15.

Viewpoints

  • Rational consumption and attractive economical models are not antinomical, and an era of de-monopolization and post KOL is coming.
  • The rise of Xiaohongshu, second-hand trading platforms, shared economic leasing models, installment payments, and internet celebrities’ restaurants, reflect the new consumption model of the post-95s generation.

Who is Li Dan?

Even if you do not know who Li Dan is, you must have heard his famous saying, “the world of Man is not worth it.” The man who just “lies on his back and makes money,” coined the “sexiest” man of the post-90s generation, has 6.7 million fans on Weibo. He is not particularly good-looking, but has a beautiful girlfriend.

He is not hot-headed, but has this foresight of “seeing through without damaging” intelligence and savviness. He is very talented, and his appearance on the Chinese version of “Roast” generated 1.8 billion views.

Despite the fact that he scolded more than half the stars from the entertainment industry, everyone still love him. Parallel to his media activity, he is also one of the founders of the “Fun Factory,” that has a valuation exceeding RMB 1 billion.

So why is he so popular? In my opinion, it is because Li Dan’s sense of humor is on par with the younger generation’s values.

I remember when, during the last few years, the post-90s generation was the hot topic of the investment and VC circle. But not long after that, the post-95s generation stepped on stage and quickly became the general consumption’s main driving force.

Now, for new consumer brands and channels, not understanding the post-95s generation will result in the impossibility of grasping their needs and aspirations. With the continuous rise of China’s per capita GDP, the consumption model of Chinese people has shifted from “mass consumption” to “quality consumption.” The essence of quality consumption is based on emotional demands and values.

In this Source Code Research Report, we attempt to explore and discover the values and consumption models of the post-95s through the “Li Dan phenomenon.”

What are the characteristics of post-95s consumers?

With the first batch of the post-95s population graduating, they are slowly becoming the main force of consumption in the country. In them, I see a very different consumption outlook than the one from the post-80s generation.

If we had to choose a word to describe the consumption model or values of the post-95s, I think it would be “realism.”

They are extremely down to earth, and do not display their sentiments. They are more self-centered and are more willing to please themselves. “Never hide your desires.”

Li Dan said, “I just want to live in shallowness” and “my original intention is to make money.” You will find that this is not a pretentious statement, they are in fact, very grounded. From this “chill, carelessness” attitude towards older values to this “get lucky” belief, they may appear seemingly “lazy and bereaved.” Sometimes we cannot help but ask ourselves, is this China’s “Beat Generation”?

The answer is yes, if you consider them through the scope of mainstream values, they are indeed “lost.” Just listen to a few “U can U BiBi” or “ROAST” episodes if you need convincing. Then, it is easy to see that many of the core values of the post-80s generation are crumbling in front of the post-90/95s one.

At the same time, being born in the Internet era, this make them able to support a new consumer market. Their consumption decision is spread in every communication node of the Internet. Their consumption ideas and habits support many new business models.

Old consumer brands will find that, if they keep basing themselves on the previous system, it will become increasingly difficult to attract younger consumers. For new brands, knowing and understanding their new consumers, will make for a new golden age.

Below we discuss three key post-95s consumer values and philosophy:

Refuse to be perfect and phony, be real and approachable.

Twenty years ago, the “Queen of Marketing” was a prideful goddess, who was perfect, impeccable and unattainable. On billboards, she kept telling you with a certain arrogance: “you deserve it.”

Twenty years later, the “Marketing Queen” is the girl next door, so vivid, it looks like she is ready to jump out of your mobile screen. She uses her mobile phone to shoot non-professional videos. While she is removing her makeup, she tells you why this makeup remover is good, and why you should buy it. She may also squeeze a zit to sell you an acne product.

Real, grounded and in the instant, is the ideal image of the post-95s generation.  

Has the female star changed? I don’t think so. They just changed their act.

In fact, this new generation of consumers has changed the rules. Our research shows that post-95s individuals follow, on average, over 10 fashion or beauty bloggers.

As a result, social media and e-Commerce platforms like Xiaohongshu have replaced traditional TV advertising, and become the new mainstream channel for brands to reach consumers. Online celebrity marketing, live selling, are also nibbling at a portion of the channel’s market share.

Strong consumption desire and a diversified consumption demand.

Not long ago, Zhang Yuqi said on Xiaohongshu, “diamonds under one carat are not valuable.” This comment went viral immediately.

Somehow, you could say that the post-95s generation lives in a Buddhist kind of way, because when it comes to consumption, they are more honest with their desires than the post-80s generation. These young people advocate a more frugal healthy lifestyle while satisfying their own consumption desires in various manners. When they have the time, they will take afternoon tea with their friends. After working overtime, they will reward themselves with a cup of milk tea, or they will go to an Internet-famed restaurant for a weekend treat. They travel at least twice a year, and rather adopt a pet than raise a child. All of them admit having one or two expensive hobbies.

What shall we do? The growing consumer demand and a limited income factor lead to the polarization of young consumer groups in their consumption habits. On the one hand, for some high demand daily goods, they opt for a “consumption degradation” approach, budgeting carefully, and paying attention to the “cost to use” ratio. In that case, they are not willing to pay for premium brands easily.

On the other hand, in some low-demand but personalized products, they enter a “consumption upgrading” phase. For example, if they want coffee, they will go to a “boutique” café. Truth be told, the recently popular bulldog shaped cake was not even tasty.

I call this polarization “the friends circle phenomenon.” All consumer behaviors that are not fit for instant social media display are downgraded. Those include, for example, daily beauty care.

On the contrary, cool, trendy, good-looking activities that may gain you more exposure on social media are highly sought after.

Therefore, it is not hard to understand why Internet-famed restaurants spend more money and time on decoration and dish presentation, than on actual food taste itself.

In a nutshell, the so-called “beauty economy” and the phenomenon of various Internet celebrities booming, reflect not the material needs at the bottom of the Maslow pyramid, but the spiritual needs at the top of it.

Yet, behind it, there is a sad reality. The strong need for attention cannot hide the fact that the post-95s individuals struggle with loneliness.

Self-esteem and self-mockery

“Self-awakening” and “self-gratification” have become the labels of the post-90/95s. This reflects on their consumption choice, which can be summarized as de- monopolization.

Popular brands are not as valued as they used to be. The post-95s need brands that are individualistic, interesting, and innovative. They will not blindly follow a brand, but will focus on a popular product instead.

Not only do they think through a more liberal access to information and branching out their decision-making paths, this group is characterized by information fragmentation and multiple choices possibilities.

They are no longer loyal to a brand, they pay more attention to products. “KOL recommendations” became an important factor in a purchase decision, and social media became their new main channel of information.

The emergence of new channels and the diminishing ability for brands to retain loyal customers, have laid a foundation for new companies to build upon.

On the one side, we can observe how, many new domestic brands that understand and communicate better with younger consumers are now flourishing. That is the positive side. At the same time, a group of consumers characterized by novelty fascination and a lack of loyalty, is worrying, when thinking about those new companies’ growth potential.

Today’s businesses should not only get behind the psychology of their clients, but also understand the operational methods of major social media channels. No matter if it is a Xiaohongshu recommendation, a Tiktok marketing campaign, or a live sale, controlling the key nodes of information dissemination is essential, and the same goes for spotting who will become the next Internet sensation.

It is worth noting that “fun” seems to be one of the fundamental character traits in order to attract young people. Major brands have stepped down from their altar and started interacting with consumers in a more equal way. New brands have become “naughty.”

The women fashion brand “Simple Pieces” printed “why so serious” slogans on their T-shirts and bodysuits, and they became a hit rapidly. Their woolen hats featuring an emoji rolling its eyes are also very popular amongst the post-95s and their daily mourning.

III. Commercial insights based on the post-95s consumer

As an investment institution, what business opportunities has Source Code Capital seen through the behavioral changes induced by the post-95s consumer groups?

 De-channelization: Facing consumers directly in D2C model

The channels through which brands reach consumers have changed. Post-95s consumers’ information acquisition tools are no longer offline stores and brand advertising campaigns, but social media platforms.

According to a survey, they use the WeChat public account, Weibo, friend’s circles, micro-blog, etc., as their main information channel to enquire about a popular celebrity. At the same time, we found out that they design their home and choose their fashion using QQ space, AB station and INS, etc. Post-95’s usage and time spent on social media is far more important than the precedent generation, which also reflects in their lack of real-life social interactions.

In the past, brands were responsible for market positioning and setting the tone, while sales were made through distributors. This way is outdated. In this new era, brands know how to connect with consumers, they understand the psychology behind the demands of younger generations, and value social media platforms. Therefore, the D2C (direct to consumer) model is our preferred channel when it comes to brands sales.

The Eye-Catcher: How to attract consumers in the post-KOL era         

Like we have mentioned previously, social media platforms have become the new major channels for consumer goods communication and positioning. The post-95s generation of consumers need to show off their “social status” and “style.” This show is conducted through this new “social media premium” frenzy that we pointed out earlier.

Therefore, when brands need to position and market themselves, they need to identify any new potential KOL group. Even when designing and manufacturing products, the future communication inherent to these goods must be anticipated. Is this design attractive enough? What would make strong marketing points?

This phenomenon is not limited to local brands, but also affects many others like luxury or sports brands. We did note that, in the recent years, luxury brands (such as Balenciaga, LV, and Supreme) have switched their focus to offer more and more eye-catching designs, aimed at seducing the younger categories of the population.

Adidas, the sports brand, has for example multiplied its collaborations with artists. Collaborating with the infamous rapper Kanye West, they created the Yeezy, which became a sensation in the younger generation. The limited version of the shoes triggered a buying frenzy, where Adidas sold tens of thousands of pairs, making this collaboration a huge success.

The rational consumption phenomenon: How the importance of cost effectiveness leads to the creation of China’s Brandless     

The other side of this “consumption show” is the rise of what we can call the “rational consumption” phenomenon. In the United States, there is an e-Commerce platform called Brandless, which is the American equivalent of Buy Together. Everything on the platform costs $3, but the quality offered is on par with what one would expect from MUJI products. It uses a very smart model where advertising and marketing expenses are reduced to a minimum, allowing them to, therefore, lower the product purchase prices for consumers.

On Brandless, you will only find one type of toothbrush and one type of toothpaste. This is very cost-effective.

Traditional FMCG products spend more than 50% of their cost on marketing expenses. If we take the case of cosmetics, the R&D development investment only accounts for less than 5% of the total product cost. The rest goes to marketing and positioning.

For the first time, this year, HFP (home facial Pro) entered the top 10 of the skin care products industry. Their company model is built on cost effectiveness and good ingredients. Nowadays, young consumers will not easily pay a premium for a brand product. Their consumption model is more and more rational, and this is especially true when it comes down to daily usage products. They pay more attention to cost effectiveness and performance.

The brands need to understand their user’s psychology, and provide strict quality and price controls. Those who can achieve effectiveness at lower prices will be the ones that can gain the attention of the post-95s consumers.

Carpe Diem: Second-hand transactions, rental market and installment payments

The post-95s consumers have diverse aspirations and needs, they are not willing to save money to buy a house. Their motto, should there be one, could be carpe diem. Using this “I want it now” state of mind, some new business models have emerged.

This is easily observed through the prevalence of the second-hand and leasing market. Young people want new things. They prefer the experience of consumption over long-term ownership.

So, when they cannot afford luxury goods, they will look to buy them in the second-hand market or even rent them. Here, we are not only talking about bags, this includes most of products from clothing to digital goods. Young people preferences lean towards second-hand items or leasing. They don’t value long-term ownership, owning it once is enough.

Another interesting phenomenon is the popularity of installment payments in the post-95s generation. They do not only buy expensive goods but consume low-cost products using installments.

According to data, 24.4% of the post-95s generation have used installment payments to purchase goods under RMB 500. This is also a very current practice for goods under RMB 5,000.

Therefore, one can easily deduce that if a platform or a brand can offer installment payments for its products, they might be able to boost their mix of young consumers.

Conclusion 

To sum up, Li Dan is just a window from where to observe and understand the younger consumer group. Gaining insights on the values and the psychology of this group, we can assess that new demands have emerged. This has in turn, inspired changes in channels and methods, leading to the emergence of new brands and growth opportunities for existing ones.

Source Code Capital has always been interested and enthusiastic for this trillion-dollar consumer market. We kept a curious and an open-minded attitude towards this increasingly strong post-95s consumer groups, striving to learn and identify the new opportunities that have emerged with them.

We encourage and welcome any experts, researchers and entrepreneurs with mindful insights to contact us and share what they think about this post-95s phenomenon.

 

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The “To B” Great Adventure

Author: Zhai Wenting, Blue Hole Business

A stranger wrote a private message to Cao Yi on Weibo. He introduced himself as doing a fabric wholesale business in Guangzhou and wanted funding.

At that time, back in 2014, Cao Yi had just left Sequoia China, and practically just set-up Source Code Capital. He decided to go for a trip. He flew to Guangzhou with Source Code colleagues and stood at the wholesale retail district entrance next to the Sun Yat-sen University. The scene in front of him was fascinating.

More than a dozen buildings have risen from the ground, each building floor had one owner, and each floor was divided into dozens of hundreds of stalls leased to merchants. A single ten-square-meter stall was rented for RMB 2 or 3 million a year. The owner’s annual income was over a billion RMB. This was the offline trading market where money never sleeps.

Yet Cao Yi knew that this model would eventually shrink or even disappear. Who could take over and transform it into something more valuable? The answer had to be going online. To paraphrase using today’s buzzword, this is the “industrial Internet.”

Having arrived at the “headquarters” of the fabric trading market, might as well get in touch with all the players (in addition to meeting with the original inbound). Another B2B fabric company caught the attention of Source Code Capital’s Zhang Xingchen. This company’s core founding members included veterans from Alibaba, Meituan, VIPShop, who own 25% of shares for a few million dollars. This is Baibu, Source Code Capital’s first Industrial Internet investment. Fast forward to August 2019, Baibu just completed its C1 round of investment, raising USD $30 million. Its valuation had long since doubled.

From then on, Source Code Capital began to systematically sort out its industrial Internet investment layout. Cao Yi proposed an investment roadmap called the “Three Fundamental Drivers” (a 3×9 investment matrix). It englobed all possible online industries like media, entertainment, communication, retail and travel. It was established on the premises that “Internet+,” “AI+,” and “Global+,” will inevitably drive and transform the services-based B2B industry.

They were one of the first explorers to penetrate the industrial Internet jungle. At that time, many To B projects did not catch the attention of Chinese venture capitalists, therefore there was little competition among investors. It was a pioneering state.

Today, Source Code Capital’s industrial Internet portfolio includes companies such as Yijiupi, Edianzu, Yimidida, Xiao Yao Yao, Baibu, Ruigu Shop, ZSKX, ZS Fucai, YQNLink, Chuxin, and each has become a leader in their respective industry.

After a huge influx of money into To B industries, hidden challengers appeared. This is the landscape of the 2018 venture capital circles. Tencent transformed permanently the perception of the industrial Internet and as the Chinese say, “added oil to the fire.” The number of investors checking out 2B projects increased significantly, and letters of intent became more and more assertive. From then on, the valuation of those popular 2B companies increased continuously.

If you go through the brief history of the industrial Internet, most To B pioneers have become big winners. They have done so in a period of time as short as three to five years, and at most within a decade. But, prior to that, they were all anonymous to outsiders.

Like the Internet giants that we are familiar with, they used to be rule breakers, value creators, and precursors of a new order. This is the other little-known side of the Internet revolution.

If we are to understand To B from the perspective of the Internet user’s consumer needs, there are several considerations to examine in a more detailed way:

The infrastructure of the Internet, such as the server, the cloud terminal, as well as the online management of internal administration. IaaS is considered to be the best business solution, but it is only used by Alibaba, Tencent and other giants. Start-ups should stop thinking about it. There are, nonetheless, huge opportunities for innovation and entrepreneurship if we look in the direction of SaaS. In addition to that, the expanding demand for corporate office space, software, and hardware solutions, created a lot of opportunities for numerous new companies. In the last few years, the increased demand for shared office space and computer rentals are the best testimony to that assertion.

The circulation link (i.e., the distribution) is the online collection of different flows of information and business processes. Before leaving the production or warehouse site to go to the stores, a product goes through a few intermediate layers where the access to information start to be difficult. For example, prices as well as other important data become opaque. The use of Internet directly kills intermediate layers, from batches to stores, and even from manufacturers to small shops. This part of the process can be transformed, and there are many opportunities for entrepreneurship in it.

But where is the next giant, parallel to the Consumption Internet, most likely to appear? Source Code Capital’s Wang Xingshi has the following answer: in trading.

Offline circulation will eventually come online

Almost all major companies in the consumption Internet space are also “trading platforms.” Alibaba, JD.com, Didi, and Meituan are no exceptions. Source Code Capital, following the principle of its investment roadmap, makes the assumption that the industrial Internet should also be looking towards an online trading platform.

Alibaba and JD.com, two of China’s biggest e-Commerce giants, and other vertical e-Commerce companies, only represent 20% of the retail market, as 80% of the transactions are still done offline.

Take liquor consumption for example. In a market of nearly a trillion RMB, the online retail sales only account for tens of billions, which is, in that case, almost negligible. It means that, still, the majority of the liquor is sold through millions of offline stores.

These small stores have not been destroyed by e-Commerce. They have, of course, their own unique value and right to survival. Their service radius is generally small, the number of customers are stable, and they have a strong relationship with them, which is difficult to replace.

Before investing in Xiao Yao Yao, Wang Xingshi went to see its stores in Hubei. After visiting, he knew that the Chinese local pharmacies would be difficult to replace. Those were typical shops, privately own, there was no real estate agent nearby, indicating that the rental turnover rate in the area was low. The road was under construction, but business was not affected by it at all.

Local channels are not easily replaced by Internet, but they can be improved by it. They need the Internet to fill in the gap of information asymmetry. Then they can find better, cheaper sources of supplies, provide more services, and therefore increase their income.

The upstream brands are also happy with this new-found success as they can get more precise data sales and user portraits – all of which they had been looking to get for some time.

This is the natural ground where B2B and the Internet meet. The newly found possible opportunities will not disappoint the adventurous investor. The B2B platform also extends upstream to allow for reverse product customization, and even original brand development. It also makes possible the emergence of a financed supply chain. Meanwhile, looking downstream we can reach the C-end users and dock with traffic platform. The premium is considerable.

Ma Hua Teng had asked a question previously on Zhihu. What will change when industrial Internet and consumer Internet open up and connect? As the connector between both B- and C- end customers, Yimididi can answer this question through its actual business.

“Based on those two sides (B and C), logistics companies can realize more complete data collection and application. Therefore, they can build more accurate user and industry portraits. This will ensure more detailed and timely data support for both upstream and downstream users, thus, entering a larger cycle and achieving closure,” says the Yimidida Founder, Yang Xingyun.

On the account of online relationships between factories and consumers, Cao Yi calculated, more than 10 industries have the potential to create a RMB 500 billion marketplace just from the circulation or distribution processes.

Please note that this figure is only the value generated by a single vertical industry, such as consumer goods and pharmaceuticals. With players scattered around the country, there are tens of thousands, or even hundreds of thousands possible companies that could participate in the split. If this intensive process reaches completion, the top two companies could make hundreds of billions. Scaling is not a problem in that scenario.

If the scale is not convincing enough, then let us look at profit. The lowest one will be around two or three percent profit margin, the highest one four or five percent. On a RMB 100 billion scale market, that would still yield RMB 2 to 3 billion in profit, and this is net profit.

The business channel for online is like taking someone’s pulse. We can feel all the data and systems it can reach, and see money flow from the heart to the capillaries.

After investing in Baibu, Source Code Capital began to systematically sort out B2B transaction models for different industries. The idea for investing in To C is the same, look for prototype offline, and then bring it online. This included checking for potential stocks in pharmaceuticals, fabrics, industrial products, auto parts, and agricultural products industries. Source Code Capital invested into such businesses in FMCG, pharmaceuticals, fabrics, and industrials, with portfolio companies like Xiao Yao Yao, Baibu, Ruigu as examples. In Infrastructure and logistics, Yimidida and Yunquna are other investment examples.

However, let’s not think that holding this map is a magic solution. Investing in B2B is, to a certain degree, like walking into a no-man’s land, and there is always the probability of encountering a blind spot.

Cao Yi analyzed the reasons for this. First, most of the models have not been verified, and they need to be tested over and over again. It is also most likely that they will take another path of development. Different industries have different models. The source of the company may switch between self-operated (proprietary) and platform modes, but also experiment in the production and the To C space. Industry and Internet experts are two very different kinds of people, and when working together, it is inevitable that there will be conflicts. It takes time to learn how to work together. Cao Yi said, “it is necessary to recognize the differences between industries, find commonalities, and understand individualities.”

However, once the industry leader is within your grasp, unlike in To C, where there is a risk to be replaced, the To B model is difficult to subvert in a short period of time.

Edianzu: Only veterans can do it

No one denies that the To B market is a gold mine, but only a few have the maps and tools to find its wealth. But in To C, where one needs to rely solely on capital and speed to succeed, To B winners also need to be the first to get there, they need to be pioneers.

Ji Pengcheng founded Edianzu back in 2015, it is a B2B company that provides a flexible rental of offices computers and software services. As of today, Bytedance, Leading Ideal (aka CHJ Automotive) and other companies are using Edianzu’s products. If you are to rent a few of their materials units, use them as long as you want, there is no return time limit.

Edianzu went through six rounds of financing in three years. Back in October 2018, the company received in a D round, a USD $60 million investment, led jointly by angel investor Source Code Capital and a sovereign wealth fund.

Strictly speaking, Ji Pengcheng has been working in this industry for the last 15 years. During his post graduate study at Tsinghua University in 2003, he was already engaged in the second-hand computer business, buying and selling old computers. At the time of his graduation, he was already the largest second-hand e-Commerce computer retailer in China.

The To B market is relatively fragmented and they are the leader in this industry. “My life was particularly comfortable,” revealed Ji Pengcheng. “I only needed to spend two to three hours at the company every day, our customer base is stable, we have no competition, and the annual profit is up by 20-30% yearly. The only problem is that the ceiling is too low and therefore, it is difficult for the company to grow bigger and scale.”

The advantage is that second-hand sales and leasing are only separated by a glass wall, a natural step is all it takes to transition the business. Edianzu’s transformation into a computer-leasing operation is logical. The previous cumulation of knowledge allows the company to already possess many core skills: from trade-in to distribution, maintenance, software services, to final product processing. The entire industry chain is covered and self-sustainable.

By the way, they also are the only company that can offer credit to enterprises. The data gathered on the platform allows them to create their own risk control capabilities.

Such companies do not need to burn money to achieve growth. Their demands for capital vary. Edianzu has now a micro-profit status, and the money it has raised in prior rounds is basically used as margin protection for bank loans.

Wang Xingshi said that the main reason as to why Source Code Capital invested in the company was the huge potential of its entire IT services platform.

However, some investors regard Edianzu as a banking company. Ji Pengcheng smiled and responded, “Many people think that we are in the same industry, selling computers, maintenance, software service providers, even financing. In essence, you can even say that our business model is the same as Mobike’s, but no one will think that riding a bicycle is looking for finance, right?”

They have hardly encountered high-intensity confrontation, while their biggest competitor was a company purchasing models for office computers. That kind of thinking is always your worst enemy.

Edianzu is a sample of the To B services possibilities. While most of the industrial internet companies were founded back in 2014, their respective founders have already been in their field of expertise for many years. They understand the regulation, they know the jargon, and complex operations only take them seconds to figure out. Indeed, some problems have solutions, others have not, it is all clear from the get go.

They all share traits, like mastering core knowledge, and having a deep understanding of the online world. These entrepreneurs also have other common qualities, they can withstand loneliness, they do not evade problems, and they have the ability to solve them.

Ji Pengcheng showed no sign of anxiety, as if everything was well under his control. “You can look at all the core capabilities of the To B model in the current market, we have them all.”

Che300: small cuts, big business

There are still some things in the To B market that look insignificant, but some of them conceal great opportunities. The average investor cannot see this hidden potential, and even if they do, it usually requires setting up a very complex technology.

For example, the second-hand automobiles e-Commerce business is very popular at the moment, but where do reference transaction prices come from?

Few people have heard of Che300, it has never attracted media exposure. However, this Nanjing-based company plays a key role in determining the transaction prices for second-hand cars. Whether you are an online e-Commerce platform, a small offline To B car dealer, or an individual, as long as you are buying and selling used cars, you cannot do so without the data services provided by Che300.

When being interviewed, Xu Wei, founder of Che300, explained why he chose to become an entrepreneur. He said, “I like cars, I know cars, and I know how to perform data analysis. This business seems to be tailor-made for me.”

Xu was previously responsible for data analysis and mining in a U.S.-owned software company. He starting to grasp the ins and outs of the second-hand car market when he was living in the United States. At the end of 2013, when Xu Wei locked in the field on doing a car-related business, he found out that price standardization for used cars was missing. Back in the United States, there is a company called KBB that provides this kind of benchmarking, but it is mainly designed for C-end users. Back home, in China, he thought this has to be a To B business opportunity.

With a clear vision, he envisaged, that in order to create value in the second-hand car trading business, the key factor was price standardization. Team members did not agree with him. Their argument was even discouraging, saying “there are too many different buyer and seller profiles in this business, prices cannot be standardized accurately.”

But Xu Wei rejected their conclusion. If the actual value of the car was RMB 50,000, then a RMB 40,000 or RMB 60,000 assessed value would not make sense, because the disparity would be too great. But what if you could give a RMB 48,000 or a RMB 52,000 estimation? The margin of error would have been reduced enough to become acceptable.

In fact, whether it is Guazi, a private car owner or a professional car dealer, they all have their own pricing system, as well as selling preferences. Being at 100% in accordance with a third-party price is not realistic. As long as they can finalize a deal using price references from Che300, it does not matter if they then want to tweak the prices to reflect their own individual price setting methods. This is the best evidence of Che300’s influence.

Xu Wei spent three years refining the accuracy of the data. Without any foundation or resources, they started collecting all kinds of data from open channels, and from new cars to used cars. They filtered and cleaned up false information, and then forecasted the actual transaction price from the listing price with a substantial 80% accuracy.

When investigating other companies of the same type, Source Code Capital found out that most second-hand car e-Commerce platforms were using the data provided by Che300. After being introduced to Xu Wei by an entrepreneur, Cao Yi scheduled a two-hour meeting with him. They talked well into the afternoon, and an investment plan was quickly concluded.

When Source Code Capital invested in Che300, its valuation was at RMB 100 million. Today, it is valued at RMB 1.3 billion.

Wang Xingshi said that one of the characteristics of data service providers is that, the more people use them, the more accurate they become. “Those are businesses that make friends in time.” Sourcing, processing and generating data is not easily done. “This is the essence of their competitiveness, it is their core strength.”

The early promotion of Che300 services was extremely difficult. Car dealers thought they had enough experience, and no one wanted to give it a try. “If I had made a single mistake, I would have lost money.” Xu Wei went personally to the trading markets, distributing leaflets, but a slow start made him anxious.

After the boom of the second-hand car e-Commerce platforms such as Guazi or Renren cars, companies recruited a lot of new appraisers and testers. They were mostly young people with little to no experience, but they were good at using the Internet. Coupled with the high circulation rate and the presence online, Che300’s services started to spread quickly. In 2015, the daily activity and user numbers on the Che300 website began to explode.

Che300 already has a 70% or 80% penetration rate on the second-hand car market, and 56,000 car dealers across the country are using their products. Since then, they also dabbled into second-hand car financing, doing risk-controlled standardized products. Today, over 500 leasing companies compose their base of users.

But the company, with only a team of around 200 people, is already more than profitable.

Yijiupi: Setting the situation

In an earlier interview, Dai Wenjian, the founder of Huochebang, said: “Do you know what VCs value in me? My strength.”

With a single APP, truck drivers can pick up orders online. It is considered to be a cargo version of Didi. This APP encountered a strong resistance at first, because it was encroaching on the interests of the local supply network. Some people went as far as blocking store doors or smashing everything in them. Trucks were facing difficulties all along the way, every time they were to enter a city, like a broken windshield, or even a fight with local “gangs,” were unfortunately, quite common.

When the company entered into China’s Northwest market, the team comprised of just over 300 people, and they were able to open a network in seven provinces within a month’s time. This was done at the cost of several damaged cars. Dai Wenjian personally supervised the operations. “Nothing is achieved without strength.”

This is just a glimpse into the industrial Internet development process. Internet breaks down barriers that traditional actors are determined to defend vigorously.

Yijiupi also had similar experiences. As its name suggests, the company is in the liquor wholesale business. It uses Internet to reduce distribution layers and optimizes supply channels, therefore becoming the direct link – linking the top and the bottom of the liquor chain, from the primary agent (wholesaler) all the way to the end-user (the shop).

Although the interests of the primary agents were not impacted, those of the liquor circulation were modified, and its benefits redistributed. The traditional sales system had been challenged. Different actors rallied, and confrontation soon followed.

Founder Wang Chaocheng had been in consultancy in the liquor industry, built offline channels, and even worked in B2C e-Commerce. He had a very rich resume and was not one to accept defeat. He knew very well the psychology of the liquor business.

From a short-term perspective, the distribution system has been solidified, and every actor was profiting from it. Then suddenly, someone appeared to do something different. As in every family, when one member gets hurt, the others stand up for him.

However, in the long-run, original dealers are scattered all around the place. The individual volume dealt with is minimal, and with overall disorder reigning, none of them have any bargaining power. If an actor eventually becomes big enough, then his parole carries more weight, which also does not facilitate long-term strategic considerations.

Liquor groups started spreading malicious reports on how Yijiupi was organizing low-price dumping. This triggered the administration, which then led to several inspections on quality, and both industrial and commercial door-to-door inspection of warehouses. Some delivery trucks were even intercepted. In Hefei, 17 commercial agents received the following warning: if anyone dared to supply goods to Yijiupi, they would be severely punished.

Alibaba and JD.com have long been used to that kind of practices. Back in 2012, Moutai issued a statement saying that it would never supply TMall or JD.com. During the last two years, Ma Yun and Liu Qiangdong went personally to Moutai several times, in order to improve on their relationship with the group.

E-Commerce and industrial Internet are both regarded as rule-breakers, but truth to be told, the latter possess greater influence and larger interests. To this theory, Wang Chaocheng does not fully adhere. “Is it a real trouble maker, or is it misunderstood? The key to this difference is whether or not you are creating value.”

From a status of pariah to this newly found popularity, things have changed. Now some liquor brands directly supply to his company.

Yijiupi has reshuffled the cards when it comes to the distribution of interests (benefits). The Internet made the purchasing price for small stores relatively transparent. Now, newcomers cannot be prejudiced by information asymmetry, and they can expect an increase in their income. This is the value of the information leveling brought by the Internet.

A deeper impact made by Yijiupi is to be seen on the construction of the industrial infrastructure. It consolidated similar items, shortened the circulation circuit, reduced the number of cargo operations, and improved the overall industrial efficiency. In addition to liquor, they have also now extended their reach throughout the FMCG industry.

The third value brought by industrial Internet is capital. This is the natural advantage of a trading platform, which can be easily integrated into a finance supply chain.

After Source Code Capital’s investment, under the leadership of Cao Yi, Yijiupi was the approval of Meituan for a strategic investment, and is even regarded as part of Meituan’s strategic ecosystem today.

Yijiupi also helped small stores improve on their ERP system, opened stores on Meituan, and even developed small programs. The consumer Internet became invisibly connected to the industrial Internet. Such an accomplishment could only have been done by a startup that truly understands the in’s and out’s of the industry.

Like other industrial Internet segments, the distribution links of liquor and FMCG industries put a deeper emphasis on the connection between the upstream and downstream actors. This decision has the following consequence. The division lines run deeper and their relationships with customers are stronger than others. If you wanted to change it, it would be very difficult.

Wang Chaocheng smiled mysteriously and added, “The industrial internet will see the rise of more heroes.”

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Samuel Huang Gives Motivational Speech at his alma mater Zhejiang University: A Dialogue with Future Entrepreneurs

Source Code Capital Partner, Huang Yungang (Samuel), returned to his alma mater, Zhejiang University, and shared his 10 years of investment experience with junior schoolmates.

The theme of his speech was “A Dialogue with Future Entrepreneurs.” Zhejiang University is known for its strong entrepreneurial and innovative spirit. Huang Yungang is also known as “the investor who has invested the most from Zhejiang University entrepreneurs” and “the investor who knows entrepreneurs the best.”

Samuel said that choices matter, whether with regards to employment or entrepreneurship. You can either choose to set up a small business, or you can establish a start-up and try to make it grow in the future.

Success requires regular practice: stay aware, think deep, and control your emotions. Never stop being curious, and always look for the best answer.

Mr. Samuel Yungang Huang joined Source Code Capital in 2017. With over a decade of experience, Mr. Huang is a veteran in venture capital and investing. He has deep expertise in corporate strategy, organization structure and design, talent recruitment, market planning, and corporate finance. Having witnessed the evolution and impact that the Internet and new technologies have had on multiple industries, commerce and platform companies, he also has a deep understanding of economic and innovation cycles. In 2018, he was chosen as “2018 China’s 100 Best Investors Voted by Entrepreneurs” and “2018 China’s Top10 Online Education Investors” by 36Kr Media. Mr. Huang previously served as Managing Director for Matrix Partners China. ​

Mr. Huang graduated from Zhejiang University with a Bachelor’s in Business Management, and is one of the first recipients of Zhejiang University’s Master’s Degree in Entrepreneurial Management.

Quotes：

  • My wish is that, when an entrepreneur finds himself in a difficult situation, his reflex will not be to call his wife or partner, but to call me.
  • The title “the investor who knows entrepreneurs the best” was given to me by others, and it is a goal I keep pursuing ardently.
  • No matter what time it is, receiving a phone call where I can help resolve problems and fight together with my entrepreneurs, that is one of my favorite situations to be in.
  • What is deep thinking? Staying curious, keep wondering, and relentlessly search for the right answer.
  • Excellent CEOs share several common characteristics: long-term thinking, truth-seeking, openness, and a focus on execution.

The following is the full transcript of Samuel Huang Yungang’s speech:

First, “Seeking the Truth”

Good evening, everyone. When I entered Yongqian Building tonight, I remember what happened to me over 10 years ago. I came in here with a resume and I listened to a campus lecture given by an alumni. Then, in 2009, I began my journey in the Internet and Investment industry. It has been almost 10 years now. At that time, people were still using NokiaE63 and N95.

I graduated and started my investment career soon after. At that time, when entrepreneurs asked me when I graduated, I was too embarrassed to answer, being so young, and afraid of what people might think. Today, many entrepreneurs ask me that question, and somehow, I am still embarrassed because now, I am afraid to be too old. Today’s Internet entrepreneurs were born in the 1990’s or even after 1995, and we are seeing more and more even younger ones.

Why did I choose the “Dialogue with future entrepreneurs” topic today? Imagine that, in the next five or ten years, you are likely to embark on the path of entrepreneurship, or join a start-up company. Five years or ten years from now, say we “travel” back to this specific moment, how would you decide, plan, and recognize entrepreneurship? I think I can provide you with some insights and knowledge, and hopefully serve as an inspiration to you.

Back when I was a student, no VC would come to the campus to give us lectures, because venture investing was still a very niche industry.

The rise of the Internet industry over the past decade has greatly helped the development of the VC industry. The first VC fund in China came about 20 years ago. Then back in 2005 to 2008, a large number of VC-backed companies were established and thrived over the past decade. VC is now one of the pillars of the Chinese entrepreneurial market.

Do you know the approximate market value of Sina, Sohu and NetEase back in 2004 and 2005? Looking at BAT, Meituan-Dianping, Bytedance today, we can say that the Internet has not only dramatically changed the market value, but, it has also profoundly changed the lives of people, and produced far-reaching influence and value.

Source Code Capital is also an early-stage investor in Bytedance and Meituan-Dianping. The valuation and the development speed of these two companies is beyond imagination, even in Silicon Valley. The entire Chinese New Economy, the information technology industry, and the investment industry all are extremely prosperous. You may not have experienced the Second World War, but it doesn’t mean that you cannot study it, in order to better understand what happened. The same applies to the changes in the Chinese Internet industry landscape. You may not have witnessed it, but you can still find out more about it in order to better understand it.

Second, How do we Find and Invest in the Next “Kuaidi Taxi”

The motto of Zhejiang University is “seeking truth.” When I was studying, I did not really understand what seeking truth really meant.

I graduated from the Management School back in 2008. After my graduation, I started my career in investment. I slowly started to understand what “truth seeking” meant. When I was doing value investment in particular, I found excellent entrepreneurs, and I found how important the spirit of “seeking truth” and “thinking” are.

You will find that good entrepreneurs have the ability to “seek the truth and be pragmatic.” They are able to penetrate through to the essence of things, to better comprehend the underlying logic of the business.

Since 2013 after I invested in a taxi platform (Kuaidi Taxi), I have also considered and evaluated a lot of industries or companies transformed by the Internet.

Have you ever thought about this: in fact, the evolution of portal websites, mobile games, e-Commerce, taxi software, food delivery platforms, finance and payments, and paid subscription, all have their own timelines.

At first, it started with portal websites, then the games and the e-Commerce boom followed. Taxi software appeared in 2013, and became popular in 2014. The food delivery platform and large-scale O2O development started back in 2014 and 2015, and then Internet finance came about in 2014, 2015 and 2016.

Its evolution is generally from simple to complex. From a very simple industry to a complex industry, from high frequency to low frequency, from simple decision-making to complex decision-making. For example, if you look at a single piece of information, it is easy and you don’t need to make too many changes. However, if you want to get involved in the food delivery business, you actually need to fully understand the catering business and how it affects the whole industrial chain.

It is absolutely mandatory to study intensively every industry’s development patterns.

There are many skilled analysts in the public market, such as in the energy or the automobile industry. However, when it comes to the Internet, it becomes very difficult to find proficient industry analysts. Why? Because it is still developing and changing too quickly. In that particular industry, changes are substantial every three months.

Therefore, we need to experience its products as a user. Experience the service process, find out the underlying logic, and understand its business model. In the absence of precedents, deep thinking, analytic and research abilities are extremely valuable.

After graduation, I moved to Beijing, and stayed there for a short time. After that, I went back to Shanghai. At the time, I was often taking the high-speed trains, from Shanghai to Hangzhou, to check on projects and meet with entrepreneurs. Sometimes we would meet on campus, other times to Zijin port or Yuquan.

At that time, I made many investments. There were also many alumni of Zhejiang University in the founding team of Kuaidi. I suppose you can say that I was the investor who took the high-speed train the most. I am probably also “the investor who has backed the largest number of Zhejiang University entrepreneurs.”

To have “empathy” with entrepreneurs means that you have to know, from your heart, that entrepreneurship is strenuous. We might not have experienced it, but there are ups and downs in entrepreneurship. There are peaks and troughs, and it is easy to feel you are at the “top of the world” when you are at the peak. If my work goes well, I would feel quite good about myself. When I start to feel too good and too sure of things, then it’s very easy to make mistakes. As an investor, my job is to remind the entrepreneur when he is cruising too lightly. Don’t be too self-confident, or too satisfied, because there is still a long way to go.

When an entrepreneur finds himself in a difficult situation, or is at a certain low point, I hope that his reflex is not to call his wife or partner, but to call me.

This afternoon, before I got here, I met with an entrepreneur. He started his enterprise over a year ago and spared no effort. He found out that in his industry it is very difficult to start a business with strong rivals. He found out that it might even be too hard to carry on.

He can’t say that to his partners or co-founders. He is the CEO and therefore cannot say that the project is probably not feasible, because the team might be disheartened. In front of his partners and employees, he needs to act as if the company is doing well, while thinking about ways to solve the problems. He chose to tell me. I listened to him and helped him. The title “the investor who knows entrepreneurs the best” was given to me by others, and it is a goal I have and continue to pursue ardently.

No matter what time it is, receiving a phone call where I can help resolve problems and fight together with my entrepreneurs, that is a state in which I enjoy being in.

Third, Doing a Small Business or a Start-up

Whether you are joining an existing company as an employee, or starting a new business after your graduation, the choice will matter. What kind of market you are going to choose also affects how much opportunity you will have.

This is a picture that I often refer to as the “Three Fundamental Drivers” investment map, summed up by Cao Yi, the Founding Partner of Source Code Capital.

We can see from vertical axis in this investment map, how media and entertainment, communication, retail, transportation, catering, and various other industries, have changed. For example, today there are a variety of new companies in the education industry, and new supplies have emerged. The fundamental drivers of “Internet+,” “AI+,” and “Global+,” have profoundly transformed these industries and created new products and services. Every grid is a market.

Areas highlighted in red, such as portals, search engines, social media, and e-Commerce, are already saturated. The giants are already in place, and they keep growing. In that case, is there any room for new enterprises? Maybe, but chances are low and the path to succeed will be incredibly difficult.

Overall, we believe that inside our investment framework, information technology will bring about change for various industries. The changes brought about may come now, or later, and the rate of change may be faster or slower. Individual companies created within different grids will also see larger ones, and smaller ones.

The deli shop downstairs is also a business. But whether it is the market you should invest in or not, that is a decision you should think carefully about.

In February 2015, Kuaidi and Didi Taxi announced their merger. On one hand, I was a little frustrated, even a bit sad, but on the other hand, the merger decreased cash burn from both sides, and allowed the newly merged company to be even more dedicated to providing users with better services. I was happy about that.

Later on after the merger, I had a chat with the COO, and what he said made a long-lasting impression on me. He said that in fact, by only using 200% of the effort made by the others, we got a 2,000% return. Why? Not because we were good, but because the road we chose was the fastest.

How do you make choices?

Source Code Capital’s motto is “creating enduring real value.” This is the way the Source Code team does things and is our investment creed. What we want, is to invest in companies with real significance and help them create real and lasting value.

In order to make the best choice in terms of choosing industries, and the best choice in term of investments, I can share with you three pieces of advice:

First, create real value. When many CEOs start a business, they choose industries that may not in reality see a lot of demand, they just fantasized it.

Understanding whether the demand is real or not is actually very difficult. Many times, people feel or think that there is a demand. However, in reality, the demand is very localized, completely heterogeneous, and does not represent the needs of the general public. For example, before Tik Tok was created, if you had asked someone whether or not they would be interested in a product like this one, many users would have said no. Right around when taxi software emerged as a product, I recall that when I went to do research, I asked someone if he would use software to call a car if he was provided with one. He said, “no, why should one use a software to call a car?” The demand may be high, it may not yet have been developed, and might not even be required. The real demand is what matters the most, as well as who will be able to create real value out of it.

Second, lasting value. In addition to being genuine, value needs to be lasting. Does the demand really exist? Does it have potential for long-term existence? Is the company model sustainable and has its “cost structure” been established?

For users who are users only because of cash subsidies, their needs may well be non-existent. For example, taxis. Some people usually do not take taxis, but because the subsidy price was set to RMB 13, they started using cabs. Will the company continue to promote such subsidies? Obviously, this demand from subsidies is not real as it is not sustainable. How can you spend money to create and meet illusory needs? A lot of sponsored interactions are not right. Whether the company’s business model can be sustained for a prolonged period of time and continue to provide high-quality services, while maintaining lasting value and sustainability, is very important.

Third, create enduring, real, grand value.

Many problems that enterprises solve are small issues. VCs should pay attention to solving big problems and make great changes. To create change from the fundamentals, to link basic principles together to impact a big market, that is to create real, lasting, and grand value. As for investment and entrepreneurship, it is the best to choose an industry that meets those three characteristics. By doing so, the company will be able to continuously provide high-quality and real services.

The size of the market can also be underestimated. While some entrepreneurs sometimes underestimate their own market, sometimes, some overestimate it.

In my early days as an investor, I strongly believed in the judgment of entrepreneurs. When an entrepreneur came around and talked about the market, I believed that because he worked so long in that industry, he must have done a lot of research, and I always listened to him. Later, I found out that more than often, this was not the case. For example, the taxi market. At the time, everyone thought it was a $1 billion business. Later, it turned out to be a $10 billion or even a $100 billion market. But at the time, no one knew for sure which one it was going to be. Transiting between underestimation and overestimation is inevitable, just as in the taxi market, which then extended into a much larger on-demand chauffeur and ride-hailing market, and continued to get bigger.

Some entrepreneurs also talk about a small business as if it is a big one. For example, when O2O was popular, he used to say that he was providing online car washing for a trillion-dollar-worth automobile aftermarket. I asked him whether his business included car repairing. If not, how could you say that it is a trillion-dollar market? The car washing market may be only worth tens of billions. The automobile aftermarket is indeed huge and in trillions, but he was only a small part of it.

For entrepreneurs, not every company should choose to grow bigger. Some industries cannot create big companies, and some models just do not scale. In that sense, Jack Ma did say that sometimes it is ok to be small and efficient

The key is to look at both the market and the industry, and to introspect oneself. Desperately financing a business that will never grow, feeling increasingly anxious, is actually worse than running a small and efficient business. Size is not a matter of right or wrong, it is a choice that should be made after calm and rational thinking.

We have to distinguish whether the market is big or small.

What kind of business can grow bigger?

Several considerations: the network effects, the scale effects, and the brand effects.

The more employees a company has, the stronger its network will be. That is the case for social media, e-commerce, logistics networks, generally typical Internet companies. The stronger a company is, the greater its network effect, the more advantages it can have.

Some things can be scaled, and some things can be kept small, and does not have to become too big. There will still be a need for a deli. As long as it is unique, there will be a demand for it.

If you start a business in the next five or ten years, or start a job in a company, you must first think whether the company meets this standard. In order to know what kind of businesses are going to grow and identify future booming industries, we need to think about the points I just shared.

Fourth, Success Requires Studious Practice

Every failed entrepreneur failed in his own way, and every successful entrepreneur succeeded in his own way.

I think that excellent CEOs share several common characteristics: long-term thinking, truth-seeking, openness, and a strong focus on execution.

Seeking truth and opening up, some people cannot take advice. If you say why they are not good, they will immediately begin to resist and be on the defense, instead of seriously thinking about whether or not the questions raised by others are valuable or meaningful.

Come a certain stage, many people become conceited, and become arrogant after overcoming small difficulties. In truth, their success is largely due to the industry, their team, and luck. Many get rather proud without even understanding how they became successful. After arrogance, vanity follows. After this happens, the team and other people will not dare to critic this person negatively, and instead will start flattering him. The less an entrepreneur can see a problem, the higher the possibility of a crisis.

Long-term thinking is the same. Now why talk about delayed gratification and achieving more goals? Because some people become easily short-sighted at a certain stage, and will start to harm the long-term goals of the company by focusing too much on medium-term and short-term goals.

The method to set long-term goals is long-term thinking. If you just graduated, your goal is to buy a house near Beijing’s Fifth Ring Road, or to buy a house in West Lake District in Hangzhou, but it is possible that your life route is completely different.

Long-term thinking allows for more open and flexible adjustments. There should be no boundaries to enhance awareness, or to strive for better execution. This is what we believe the best entrepreneurs possess.

When thinking the right way, we have the opportunity to make better judgments.

First, always be curious, but curiosity itself is not enough. Keep wondering, and relentlessly look for the right answer.

How to achieve this step by step? It is quite simple. The key is in small questions. For example, when I was driving from Hangzhou to Shanghai today, I was wondering, why is the highway and the high-speed rail so close to each other? Why not build them far away from each other? Why are there so many billboards next to the highway? Are those billboards valuable? Sometimes there are a lot of advertisements on the billboards, and sometimes less. What are these ads for? Alcohol, health products, textile… I was curious. Which industries need to advertise more, which do not advertise enough, and shall they do it here? I will just keep pondering on some things. Some people need two hours, others only need five minutes to understand the in’s and out’s of a problem. It takes some three to five days, others, three or five months to think clearly. Some questions are complex, and answers might remain elusive for three or five years. I have a process in which unclear things or unanswered are printed somewhere in my mind, and I think about them from time to time. If I still have no idea, I will put it aside and continue to focus on my work.

Every time I ingest information and process my thoughts, it is a reward and an opportunity to grow. I create those opportunities. You will encounter many opportunities to better yourself in your daily life and your work routine, you don’t need others to create those scenarios for you.

Second, don’t simply jump to conclusions, think more.

For example, when we were thinking about investing in taxis, many investors and entrepreneurs did not follow us because they had doubts. For example, using a software will never be as good as hailing a cab from the sidewalk. The online cab may be 5 kilometers away or half an hour away, but stopping one on the roadside may only take 15 minutes. The more cabs, the better the density is, but doesn’t it also take 30 minutes? This was a very easy problem to solve, though many people did not think of it. Many people thought that drivers would not be using taxi software. Why? Because network data prices were too high. What is the problem with the mobile network data? If you use this software and make RMB 2,000, paying RMB 200 for the network is still worthwhile.

When I interviewed a driver, I asked him whether he would use a taxi software. The driver said no because of the cost of the mobile network data. Then he was asked whether he would use it if promotions were available, he said yes. The next question was whether or not he would use the software if the software was not free. “Not free? No, I won’t use it even with promotions then, why would I pay a fee!” The driver really answered like that. I told him, if I created the opportunity for you to take a passenger to Xiaoshan Airport, and charge you RMB 10, would you take it? He thought about it and said yes, RMB 10 would work. It is fascinating how you ask questions. A ride from here to Xiaoshan Airport is over RMB 100, so he would definitely accept paying the RMB 10 fee. To conclude on this matter, it is very important to use a deeper level of thinking, to keep pondering over things in order to solve doubts.

Third, it is easy to point out problems, but it is difficult to solve problems, especially in investing.

It is easy to veto a project, because there are too many problems affiliated to it: start-up teams, business models, market choices, competition, financing…

But it is hard to be sure of what you are going to do when you say it is going to happen. It is the same loneliness that entrepreneurs feel when they are moving forward on their own.

When investing, emotions may also influence your decision-making, just in private capital. Your emotions will greatly affect your decision-making.

Focus on long-term strategies and perform short-term actions well. The Art of War has a chapter dedicated on how to fight: “What the ancients called a clever fighter is one who not only wins, but excels in winning with ease. Hence his victories bring him neither reputation for wisdom, nor credit for courage. He wins his battles by making no mistakes.” The people who know how to fight are usually not recorded in history. Because they fight too well, and win overwhelming victories, and therefore the battles are not exciting. Investing is the same thing. If you work in a down-to-earth manner, and advance steadily, the success comes at a certain stage. Cao Cao commented in The Art of War that, “a good warrior does not have illustrious prizes.” It is the same with our work. It is a good tactic to concentrate our power on destroying the enemy, but we should not take uncalculated risks.

Investments must make rewards, but at the same time, it must be relatively “pure.” We should not focus only on money. We should not ask entrepreneurs how this business model is going to make money, not on the first day. Many traditional investors ask how the business makes money. The Internet is usually a “free + value-added” model. It does not make money at the beginning. As long as it creates value for users, it becomes profitable. This has been proven by many companies. For example, Tencent, or taxis, did not make money when they first launched, but made big money later down the line. The core thing is to create value, and its business model evolution will be natural.

Kung fu goes beyond poetry, materialism is also idealism.