Andrew Yan, managing partner of Softbank Asia Infrastructure Fund (SAIF Partners), said in a conference in Beijing on Monday that 95% of startups existing today will disappear in a few years.
Overseeing USD 4 billion, Yan and his team have invested in many successful companies including Alibaba, 58.com and India’s biggest mobile payment platform PayTm.
Drawing from his long-term observations of the Internet industry, Yan first lashed out at the pompous atmosphere among entrepreneurs in Internet businesses.
“Everybody is using smartphones and selfie sticks, which means everybody is concentrating inwardly and ignoring the existence of other people. This leads to a breakdown of morality,” Yan said.
“Now we call loaning crowdfunding, headsets wearable devices, office leasing incubating and disrupting of businesses venture capital.”
He then criticized Chinese entrepreneurs who fake fundraising numbers. A number of companies, including Ele.me, were reported earlier this year to have boosted their fundraising numbers.
“My colleagues and I saw people who raised 20 million RMB claiming that they had raised 20 million USD,” Yan said. “It’s been a prevailing phenomenon. We have never seen such large scale dishonesty in all our past 20 years of experience as investors.”
Yan also used the word “bullshit” to describe the publicity stunts commonly employed by young entrepreneurs. Millennials as a group, draw a lot of attention from the public for conceited behavior.
“Most people who succeed in starting their own businesses are between 30 and 38. It’s impossible for the millennial generation to start a better business because they know nothing about the industry. The only thing they can do better is mobile gaming because older generations don’t play mobile games. [The idea of the millennial entrepreneur] is total bullshit.”
Yan called on entrepreneurs to “return to rationality and common sense”. He commented that the popular concept “Internet thinking pattern” is, in fact, just common sense.
“James Watt invented the steam engine, an invention of incredible importance to mankind but I’ve never heard of steam engine thinking pattern. Then why, when it comes to the Internet age, do we have this ‘Internet thinking pattern’? There’s no such a thing as Internet thinking pattern, only common sense.”
Yan then listed seven attributes startups must have to secure success.
I. Startups must create business value.
“There’re quite a lot of businesses in our daily life that make profit – restaurants are one such example – that are not a good choice for institutional investors like us, because these businesses barely make any profit after paying tax.”
Yan said either create products and services that don’t exist yet, like Qualcomm with CDMA, or provide products and services at a lower cost, both can be regarded as creating business value.
II. Startups must have clear profit models.
“Enterprises are born for profit. You don’t have to make a lot of money today if you can make more in the future. But you have to know how to make money.”
The issue of overwhelming subsidies has been a problem in China particularly for ride-hailing and food delivery startups. People frequently accuse these startups of “burning through money to accrue market share”.
III. Startups must have core competency.
In Yan’s view, core competency means the ability to set prices.
“If a startup cannot determine the price for its own products and services, then it better quit the business,” Yan said.
IV. Startups must have standardized and transparent administration.
Yan quoted from his experience of investing in companies in the early 2000s. Yan explained he had on occasion invited high profile executives from the U.S. for some very promising projects but 90% of them failed because of autocratic administration.
V. Startups should be careful with cash flow.
Another problem Yan addressed was that more companies are now investing in other businesses such as logistics and currency trading, which run out of cash and destroy companies.
Chinese Internet companies including the big BAT are all bulk investing in other businesses. Baidu’s investors have already expressed their concern over Baidu’s aggressive investment in the O2O business. Yan’s warning echoes their opinions.
VI. Startups should be aware of timing.
“You should be half a step ahead of others but no more.” Companies or products which are too advanced can also fail due to the high costs incurred attempting to educate the market.
An example can be seen in Apple’s Newton which was highly similar to Apple’s iPad today but was launched in 1993. It soon disappeared from the market because, at that time, people were not used to using personal computers yet.
VII. Startups need good leaders.
Yan defined that a good leader should be a smart person with a strong logical mind, and an ability to explain complicated questions with simple language and strong empathy. He emphasized the importance of empathy for being able to think from other people’s perspectives, not only your users but also your competitors – being able to predict their next moves.
He also cited Jack Ma’s example, explaining that a good leader should be like a missionary who firmly believes in the things he’s doing.
“In 2001, Jack Ma was short of cash and Mr. Masayoshi San sent me to talk with him. Jack was so thrilled with the things he was talking about, that I believed unless he truly believed the things he was talking about, he wouldn’t have been able to present them so convincingly.”
(Featured image from Sohu)