China's 203 unicorns: how many do you know and what opportunities are there for you?
When I first came to China, I was shocked by how little I knew about Chinese tech companies and consumer products. Even as a Chinese (Canadian) working in the US, at a cross-border company, Wish, I paid little attention to the Chinese e-commerce environment, China, and the rest of the world.
In Silicon Valley we are all led to believe that this is the center of innovation, the tech capital of the world. Most of the people I ever interacted with, both coworkers and friends, only talked about the things happening within the 50 mile radius that is the Bay Area. We reaped the discount codes during the wars between Lyft and Uber, debated Snap vs IG Stories, and decided whether to order toilet paper on Amazon Prime Now or Google Shopping Express when we desperately needed it ASAP. We thought that there was no need to look out at where the world could be going because we were right at the forefront, seeing what's next before anyone else does.The brief news coverage on international tech also made us believe that there is little going on outside of our bubble.
When I first arrived in China a bit over a month ago, I googled "Unicorns in China" and came across the first hit, Wikipedia's list of global unicorns. At the time of this search, I could probably count all the public and private Chinese tech companies I knew on my fingers and toes - this proved to be accurate as Wikipedia listed 227 Chinese unicorns, and only 20 of them had links. This means 207 Chinese companies valued at over $1 BILLION USD practically don't exist on the entire Western internet.
How can we learn from the best, connect with the world, and increase global productivity if we don't even know what we don't know?
Knowing that Wikipedia was outdated, I dug deeper.
Public Companies
China is home to two of the world's most valuable public companies by market cap, the US has the other 8. But when it comes to the top 100 public companies, China has a lot more catching up to do.
Note that China alone has 12 public companies in the top 100 while Europe as a whole has only has 23. China is second only to the US and growing faster than the US as a % of market cap change.
Private Companies
Using data from CBInsights, updated January 13, 2019, and Forward前瞻 2018 Chinese Unicorn Research Paper, updated December 31, 2018 (meaning that 2019 tech IPOs are not updated in the data, e.g. Lyft and Zoom are still included), I wanted to see for myself the future state of Chinese tech vs US tech based on the number of unicorns.
There are 27 countries with at least one unicorn, and 6 with over 5, as shown above. The discrepancy between the two different China numbers is mostly due to Forward前瞻 including subsidiaries of public Chinese companies (e.g. Alibaba Cloud) and non-Chinese companies (e.g. Wework China). Since these subsidiaries are separate entities in terms of fundraising and investments, I conducted my analysis on the Chinese market using Forward前瞻 data.
The number of unicorns and valuations of these companies clearly show that China is catching up.
In fact, Beijing now rivals the Bay Area as the tech capital of the world being home to a whopping 87 unicorns against 88 in the Bay Area. The rest of China is also coming in hot before other US cities.
Regardless of thoughts around inflated valuations of private companies, this means that startups in Beijing and San Francisco have the culture and the capital to create the world's most valuable companies.
So what does this mean? What can we expect from China? Are there any opportunities for us?
Here's what I learned as I spent the last month researching and speaking with dozens people working in tech:
1. They move fast
According to The Financial Times, half of the Chinese companies with over $1 Billion in valuation achieved unicorn status in two years or less, compared to the typical nine year period in the United States. Pinduoduo was only three years old when it IPO'd raising $1 Billion at a $33 Billion market valuation in 2018. This achievement has set the bar for the next generation of Chinese tech IPOs.
The speed of growth is also a result of the Chinese 996 work culture, 9am to 9pm, 6 days a week. This was recently cast into the spotlight when Alibaba's Jack Ma endorsed it. Few Western news outlets posted the original words, but the full text in Chinese was actually quite inspiring. One part that struck me was this line, "今天我们要招一些8小时上班，每天坐在一个好的办公室，条件很好，食堂也不错，出去荣誉感也不错，这样的人满大街能找到" which translates to "Today if we wanted to recruit someone who wanted 8 hour days, a nice office, nice benefits, nice cafeteria, an honorable feeling job, these kinds of people are everywhere on the street."
While in the west, we can follow the 80/20 rule, achieving 80% impact by doing 20% of the work. In China, with so many people and companies, being even minusculely better could mean success or failure, so everyone puts in maximum effort. For the average person, if you can't deliver, there is always someone else in line for your job. China is so ridiculously competitive that while in the US there may be 20 companies doing similar things, in China there may be 200 competing. In order to make it, you have to move faster, work harder, and be better at all costs.
The amount of people, companies, and growth also means a surge of information - too much that it creates a culture of super short attention spans. In order to stay ahead of competition and retain user interest, companies must launch features and push marketing campaigns at rapid paces. Where a brand typically has one or two new campaigns per season, the Chinese counterpart would have 6. This means 3-6X the work, but also 3-6X the iteration, fast failing, and learning.
In order to attract and retain users, promotions are run at every opportunity - which is several times a month. This is to take advantage of any opportunity to grab user attention. Each month, a chart like the one below circulates in marketing communities with all the dates and campaign ideas you can run for the month (e.g. 5/1 Labor Day, 5/4 Youth Day)
Opportunities I see in the fast moving Chinese market
The majority of Chinese companies from SMBs to corporations must run online and offline campaigns in order to stay in business. However, both in looking at data and speaking with people, there are very few
I believe that Enterprise SAAS has not been successful in China for two reasons. Firstly, China has an abundance of cheap labor and has always manually done many of the things advanced data software is able to do in the west. Eventually there will be a tipping point where it will be more worthwhile to invest in technology over increasing the labor force, in which case specific SAAS designed specifically for Chinese needs will be in demand. Another reason is data security and trust. Currently, many companies build their own infrastructure and analysis tools because it is not customary to outsource data. There is less trust between people and companies in Chinese culture which makes enterprise sales extremely difficult.
If one can overcome these obstacles, there is definitely a mass market for enterprise SAAS, especially with the mass market of data to be analyzed and the characteristic Chinese way of running operations. Helping people solve problems using data will always be a valuable skillset.
2. They have a huge domestic market
According to the Chinese government, 802 million people are now actively using the internet, and still that's only 57.7 percent of the population. One big advantage that Chinese unicorns have over the US unicorns is their near-exclusive access to a huge and growing domestic market of newly prosperous consumers with improving standards of living. China’s National Bureau of Statistics states that consumer expenditures accounted for 58.8% of overall economic growth in the country in 2017.
There are many apps now designed specifically for China's lower tier cities with the giants being Pinduoduo in e-commerce, 趣头条 for content and news, and Bilibili in entertainment. Companies within China are all sending market researchers in to understand and monetize this growing market.
Another demographic with increasing spending power is China's 95后00后, post 1995 and post 2000 borns. In China, a generation is 5 years instead of the 20 (millennials, boomers, etc) because the market changes so fast. The upbringing and culture each generation grows up with is so vastly different. The demographic of post 95s are now entering the workforce and have much more spending power than their processors, possibly even post 80s and 85s.
This is because they are likely to be the only child of one child policy parents. In the future, they will inherit houses (apartments) of both sets of grandparents and their parents - a home is the source of wealth of a person since it's nearly impossible to afford a house now in tier one cities. They care more about experiences, were educated and grew up in a fast paced, wealthier China. and have expendable income for themselves, and in the future, their two children (as China dropped the one child policy) creating mass markets for this younger generations and maternity and children's products.
Opportunities to target Chinese consumers
As companies begin to build personas and segregate the mass consumer market, new tools will be created to reach these markets that foreign companies can also leverage.
For example, Feelunique, Europe's largest premium beauty e-tailer, learned from the Pinduoduo model of group buying. Feelunique launched a six day sale on WeChat Mini Programs where product prices are reduced based on how many friends the user invites to join.
Launched in January 2017, there are 2.3 million Mini Programs online today with a DAUs (Daily Active Users) of approximately 230 million, (roughly half of Instagram’s DAU in 2019). 18% of Mini Programs have an e-commerce focus but foreign brands have been slow to take advantage of this. The WeChat Mini Program Playbook for E-Commerce and KAWO's Ultimate Guide to WeChat Articles 2018 are good places to start. This is one of many platforms that foreign companies can use to target Chinese consumers.
There are so many opportunities to leverage growing Chinese platforms with billions (yes, WeChat has 1 billion DAU) to grow a business. As domestic brands are engaging customers on every platform, WeChat, Bytedance's family of apps (Douyin, Toutiao), other live-streaming apps, social commerce apps, and in O2O (online to offline) events in order to get products in front of customers, these platforms will grow evermore sophisticated. The sooner foreign companies can utilize the same tools to reach customers, empathize and understand Chinese consumers, the more opportunity there will be in this growing market.
3. They are going global
出海 - or Chu Hai, going overseas is the hottest term in China tech right now that everyone is talking about. In the PWC report on Chinese unicorns where 101 CEOs of unicorn companies were interviewed, 70% already have plans or strategies for overseas expansion, despite the huge potential for China's domestic market.
China's Belt and Road Initiative, which emphasizes 'innovation based open cooperation,' is one factor in encouraging international growth, particularly for unicorns in the technology, media, and TMT industries.
It's not a surprise that Chinese companies will expand overseas. If we look at the most valuable companies in the world, including the top US unicorns, Amazon, Apple, Microsoft, Facebook, Uber, WeWork, Palantir, Airbnb - they are all in multiple markets.
Bytedance, as one of the most valuable Chinese unicorns, is taking the strategy of launching the same product, branded differently for separate markets; TikTok vs 抖音 and Lark vs. 飞书. DJI is by far the most popular and well known drone brand in the United States and few know that it is a unicorn based in Shenzhen. Although I believe the term "Made in China" will have completely different connotations within the next five years (almost all luxury brands use Chinese factories and supply chain), many Western consumers may use products they don't even know are Chinese - and that is the Chinese marketing play.
Opportunities to help China go global
Most of China’s new unicorns are still relatively unknown in other countries. They face numerous challenges, particularly as they grow and their need for talent and other resources scale up.
However, some of the top founders are Sea Turtles (returnees from overseas with a Western education and work experience), which may help Chinese companies fare better in foreign markets than US companies did when entering China. With the US visa and immigration laws getting stricter, the Chinese economy booming, and the standard of living increasing in China, many who went abroad for study or work are choosing to come back. This unique group of sea turtles have linguistic, cultural, and ethnic affinity with China, but have also been educated and adapted in Western culture - they are bilingual and bicultural.
As the world begins to globalize, there will be an increasing need for people who can help bridge linguistic and cultural gaps and help China expand overseas. There will be both local roles to be filled in the target market and project management, decision making, and communication roles to be filled in HQ. There will be even more agencies, consulting firms, and people who will play the middle man helping companies globalize, not only from China outwards, but across all markets. Beyond such roles, as unicorns grow, they create markets for new innovations that will serve their needs.
Furthermore, emerging markets are where the next billion consumers are. As these markets grow, businesses will be drawing inspiration from dominant players who had already underwent rapid growth. Having a global outlook and network will also create opportunities to bring valuable lessons from established markets to emerging ones.
Tomorrow's world will more likely be open than closed. The next billion dollar companies will be global from the start, requiring global minded talent.
This is why I'm taking 2019 to go and learn about the world and the state of different markets. I want to learn how to empathize, build for, and connect with people of different backgrounds.