5 lessons for startups from Alibaba’s World

Porter Erisman’s book Alibaba’s World is a great read for anyone interested in how the Chinese ecommerce giant grew from a startup to a global powerhouse. But, as I mentioned in my review last week, it also contains a lot of valuable lessons that startups today can apply to their own businesses, regardless of where they are. Here are just a few of them:

Don’t be put off by failure

Everybody knows about Alibaba, the successful ecommerce conglomerate that Jack Ma founded. But not as many people know about ChinaPages, an internet startup of Jack Ma’s that utterly failed before he came to the Alibaba idea. And these days not many people remember Alibaba’s completely failed attempts to get into the search market, either.

The point is that great people, and even great companies, fail sometimes. Often, even. Jack Ma has been successful at a lot of things, but he’s also failed a lot – did you know he also failed China’s college entrance exams twice? In your startup journey you’re going to encounter failure. But if you want to succeed in the long run, you have to believe – like Jack Ma did – that your dreams can come true.

Prepare for the winter while it’s still summer

In 2000, Alibaba didn’t need money. It had already raised a funding round, and the internet stock boom was in full swing. But founder Jack Ma decided to raise another round from Softbank anyway, just to be sure his company was protected. Just a few months later, the internet bubble burst and startup funding dried up. Had Jack Ma not raised that round before he needed it, Alibaba might not have survived the lean days following the bubble’s burst.

Of course, that’s not to say startups should just take on any investment that’s offered blindly. But if you want to keep your company safe, prepare for the future with the assumption that markets can and do change. It’s pretty trivial for a decent startup to raise funding in China right now, for example. But a year down the line things could be very different.

Use your competitors’ strength as a weakness

When Alibaba and Taobao first went to “war” with eBay, there was no way the Chinese company could complete dollar-for-dollar in terms of marketing. But by drawing eBay into a PR war of words, Alibaba got itself free marketing using eBay’s resources: every time eBay talked about how it would beat Alibaba and Taobao, Alibaba’s brand recognition grew.

Of course, for this to work, you’ve also got to be sure your product is better than your competitor’s – brand recognition isn’t worth much if your product itself can’t compete. But if, like Alibaba at the time, you’re a small company with a good product but very little brand recognition, there’s no such thing as bad press. If you can get your stronger competitors to talk about you – even if they’re explaining how they’ll beat you – you can leverage their more powerful marketing and PR resources for your own benefit.

Build a team, not a list of impressive resumes

Jack Ma is fond of saying that the folks who build Alibaba aren’t smart. He’s half-joking, of course, but there’s some truth to what he says. Ma himself, after all, was an English teacher with little in his background to suggest he’d make a good tech CEO. Many of his other co-founders came from similar backgrounds. Early on, Ma made the mistake of hiring a bunch of new managers with sparkling CVs and Ivy League pedigrees. These guys looked great on paper, Erisman says, but they didn’t work well together at all. When they were laid off and Alibaba fell back into the hands of its original founding team, things ran more smoothly even though they were much less qualified on paper.

When hiring for a startup, remember that a fit with your company culture is the most important thing you’re looking for. Especially in the early days, culture is hugely important and an otherwise-perfect candidate who doesn’t buy into your culture could end up dragging the entire company off course. Hiring qualified people is important too, of course, but at the end of the day a team of community college grads working together is much more effective than a team of Ivy League alums who can’t agree on how to run the company.

Share the wealth

Like all startups, Alibaba started small. But by the time it was ready to IPO Alibaba.com in 2007, Erisman writes the company had to rent out an arena just so that it could fit all of its employee shareholders into a single room. Jack Ma was generous with the company’s equity because he knew that in the long run, if people had (or could at least work towards) a stake in its success, they would work harder. And with everyone incentivized to work hard, the company because such a success that everyone got rich. Ultimately Ma’s generosity with the company’s equity probably made him more, not less, wealthy.

Hopefully, you’ve hired a team that believes in what your company is doing, but let’s be honest – employees having a financial stake in the company’s success never hurts. And given that working at a startup often requires accepting grueling hours and sometimes lower-than-average pay, giving your team an equity stake in the company’s success can be one way to help retain talent and keep everyone motivated through the lean times.

Text: Tech In Asia by C. Custer 30-05-2015

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