Start-ups in China: Is the Government a Friend or a Foe?

Start-up ventures in industries heavily regulated by the Chinese government—the auto, financial and energy industries, for example—are risky, agreed four panelists at the Stanford Graduate School of Business 2009 Conference on Entrepreneurship.

Marguerite Gong Hancock, associate director of Stanford’s Program on Regions for Innovation and Entrepreneurship, moderated a panel on entrepreneurship in China. As the world’s most populated country, with a vast pool of labor and rising levels of education and disposal income, China is becoming a destination for outsourcing as well as entrepreneurial ventures. Gong, however, asked panelists about the challenges of dealing with the nation’s complex government regulations.

“Try to avoid them,” said David Chao, general partner at DCM, a venture capital firm that specializes in the Asia Pacific region. “Sectors and businesses where you have to interact a lot with the government are not the best ones for entrepreneurs.” Fledgling companies can get stuck in a quagmire of licensing requirements.

“If you can get those licenses, that’s great,” he said, “but for most startups and entrepreneurs, you’re best off avoiding those areas. You’re free to swim, and you don’t have to deal with all the fuss.” Chao cited one counter example, of a pharmaceutical outsourcing company that secured a $5 million grant from the Chinese government. Benefits of working with the Chinese government can include big tax breaks, better locations, and even three to five years of complete tax havens, Chao said.

“But on a net basis, if you’re going to go do something, do a business where you can avoid the government as much as possible. The government has ruined many startup companies for a variety of reasons.”

Kevin Fong, a managing director with GSR Ventures, takes a slightly different approach. “If you can avoid [the government], that’s great, but it’s really hard to avoid them,” he said. The government is particularly active in advertising, Internet and media, the semiconductor and clean tech industries, and in mobile networking. “They are really powerful and it’s hard to maneuver without cooperating with them,” he said.

Fong cited the example of the Chinese equivalent of YouTube, which ran into trouble recently when they posted content the government found offensive. The sites were shut down. “If you want to call that unpredictability, you can,” Fong said. “But I think that was predictable.” In China, the strategy of growing fast and dealing with obstacles as they come doesn’t work well, Fong said. The best things entrepreneurs new to the Chinese business landscape can do is learn how to navigate the system, keep in constant contact with government officials, know the regulations surrounding their industry, and be “on the ground” as much as possible, Fong said.

Dealing with the Chinese government can be especially problematic for business ventures managed by people unfamiliar with Chinese culture and customs. “We have Chinese and Caucasians on our team,” said Frank Wang, founder and vice president of engineering at Azalea Networks, Inc. “They all speak Chinese, but their perspective on life and work is very different…Western people don’t understand how the underbelly of business in China works. It can be lumpy and unpredictable… Sometimes government officials’ interests are not aligned with public interests. They may have personal wants and needs.”

Wang said that he has had both good and bad experiences dealing with the Chinese government. “If we deal with the government, we know things will be slow, but the benefit down the road could be huge,” he said. “The regulatory rules are quite unpredictable, but once you have the right relationship it can be a great advantage. Sometimes you have to do things that grease the wheels.”

Ketaki Gokhale

Stanford University

M.A. Journalism '09

Entrepreneurial leaders share insights on Global Leadership and Talent Equation

Four Silicon Valley-based global executives joined the “Solving the Global Leadership and Talent Equation" Panel Discussion of the Eweek, sharing insights about the crucial elements of recruiting talents and managing across borders in a global environment.
The event, hosted by Stanford Program on Regions of Innovation and Entrepreneurship, took place Monday at Bechtel Conference Center of Encina Hall. The panelists were Eric Benhamou, Chairman and CEO, Benhamou Global Ventures, David Chao, Co-Founder and General Partner of DCM, Michael Zhao, CEO and President, Array Networks. Kyung Yoon, CEO of Talent Age Associates served as the moderator.
The discussion centered on four topics: global recruitment in general; essential traits of global leaders; mistakes and lessons from previous recruitment; challenges of a global career and solutions.

Global Recruitment in General
To address the challenges for global teams, said Eric Benhamou, “you have to be able to create trust, commitment and shared goals even though you may have difficulty in creating shared experiences.”
To find the right person, good interview skills are significant for both interviewers and interviewees, he continued.
His favorite interview technique is to ask interviewees to talk about specific scenarios and their reaction and solutions to them, e.g. “to describe when you were in a truly stressful situation and how you dealt with it”.
“This is very revealing,” said Eric, especially when you are recruiting people in a culture you are not familiar with and you can only rely on your instinct.
Michael Zhao talked about situations he has to face when interviewing people in China.
“In China, people believe if they don’t become a manager before the age of 30, they are a failure,” said Michael.
So every time when there is an opening of management level in the Chinese operation of his company, there will be hundreds of applicants. “But the problem is that most of them don’t realize they don’t have the skills to be a manager,” said Michael. “We have to convince them they are better being an engineer than serving as a manager.”
David Chao quoted Jack Welch that in big companies 2/3 of the people are failure, meaning 1/3 good people is an acceptable ratio. But for start-ups, it is essential to hire the best people in the very beginning, said David.
He also pointed out that the challenges of hiring the best people for start-ups in other countries. “Silicon Valley has this culture of working for start-ups,” he said, “But in other countries talents just want to work for big companies like Samsuny and Lenovo.”
He stressed that the skill he values most in an employee is the process management skill.

Essential Traits of Global Leaders
“In global environment, it is important to emphasize communication skills,” said Eric. “Communication skills refer to not just bridging language difference, but bridging cultural differences. A fast-moving company relies upon rapid and transparent flow of information.”
He thinks that a successful global leader must be able to achieve the transparent flow of information across all the international operations.
Michael also stressed the challenges for global leaders to manage across long distance and different time zones. In this sense, he said, the ability to build trust is highly valued, which means one has to always share information which is supposed to share. “The leaders of our international operations sit thousands of miles away,” he said. “If there is a problem and they don’t speak up, we don’t really know what it is going on.”
David summarized two key traits: passion for hating to lose and flexibility to adapt. He said he appreciated talents who have the ability to always figure out ways to win.
“Also, the market is dynamic. Business models have to change. The leaders need to adjust,” he said

Mistakes and Lessons
Eric cited a mistake he made when choosing the helmsman for a joint venture in China. 3Com, the network equipment company which he invests, built a joint venture in China with Huawei, China’s biggest communication equipment vendor. All the engineers are from Huawei, while the patents are from 3Com.
“This is a very hybrid company,” said Eric. “And we chose a CEO who is on surface a very polished highly global executive, who even speaks a little mandarin.”
But the engineers from Huawei, who are accustomed to the top-down style of Huawei’s founder and CEO, a former general of the Chinese Army, have problem with this CEO’s participative and gentle leadership. His inclusiveness was interpreted as weakness and indecisiveness and gradually the engineers lost respect for the CEO, said Eric. After eight months, Eric replaced this CEO.
Michael gave an example that once he hired a CTO to run his operation in China who is very gifted and a close personal friend to him. “But this just didn’t work out,” he said. “The lesson is a friend is a friend. Don’t overlook their shortcomings.”
David shared his experience when building team for Apple Japan. When he thought about the right person to run Apple in Japan, he thought surely it would be good to get someone who is very experienced in the sector. So he got someone from Toshiba on board. But later it turned out that talents were attracted to work for Apple in Japan because they wanted to run away from Toshiba style, which is very hierarchical.

Challenges of a global career and solutions
“Global leaders usually have to deal with strenuous traveling schedule and continuous hours of work to accommodate the time zones difference,” said the moderator Kyung Yoon. She asked the panelists for advice to strike a balance between career, life and community.
Eric emphasized on the importance of sleep. “When you are sleep-deprived, a lot of bad things happen,” he said.
Michael stressed on efficient planning. “Make sure everything is ready while you are there and you don’t waste time traveling,” he said.
He also said that mental health is just as important as physical health. And his secret to mental health is meditation.
David said that it is impossible to balance everything and people have to recognize that there is some sacrifice that has to be made with an international schedule. He told that with a schedule of traveling internationally for one week out of every five weeks, he wants to continue to do well and spend time with family. “What has been dropped is a lot of friends,” he said. “If I have a normal 9-5 working hours, I will have more time spending on Facebook.”

By Li Lou
Stanford University
M.A. Journalism '09

Social Entrepreneurship

It is better to learn from others in an economic downturn rather than start from scratch as a social entrepreneur. This was the message for graduate students from Sunday's panel discussion at Wallenberg Hall organized by the Center for Social Innovation, which featured three social entrepreneurs.

Jane Leu, Executive Director and Founder of Upwardly Global, which seeks to integrate immigrant professionals optimally in the US workforce, said that this is a time to "go join something and learn." Leu said that a lot of organizations need people who are entrepreneurial.

Morgan Simon, Executive Director and Cofounder of Responsible Endowments Coalition, said that successfully getting FedEx to add sexual orientation to its non-discrimination policy as a 19-year-old was "a pivotal moment for me." The Responsible Endowments Coalition monitors investments made by various universities and colleges.

But she does wish that she had worked under somebody before branching out on her own. "Having an idea and vision is not enough," Simon said. "Managing people is equally important."

She warned against a tendency to focus on the idea, with execution "supposed to happen magically."

Leu said that there is too much supply when it comes to non-profits. She hoped that the economic downturn would lead to a market correction.

Charles Slaughter, Founder and President of LivingGoods, agreed there was inefficiency and said, "There are three organizations I know, within 50 miles, doing the same thing." LivingGoods operates networks that sell essential health prices at affordable prices to the poor.

Raising Funds

In the initial days, Leu said she had sent off a huge bunch of grant proposals, only to get rejects. A journalist friend gave $300 and that, she said, prompted her to "do something and begin talking with immigrants." She wishes now that she had gone to friends and family when she started.

Leu's mantra is, "Don't let funding be the limiting factor."

Leu regards corporations as the "change-makers" and feels that to get further it is necessary to engage with them. She said, "It's easier for me to see my work as a business rather than as an advocacy." According to Lee, 30 per cent of Upwardly Global's funds come from earned income from working with corporate partners.

Slaughter is also keen on models that generate their own revenue, and regards microfinance as a big international success story in the last 20-30 years. He said that the differences in the ways the government, business and social sector operate are increasingly getting blurred, with each borrowing techniques from the other.

Slaughter said that 90 per cent of his organization's funds came from "current or former entrepreneurs." He said they were people "who see the logic of using a business model for social issues." Before moving to social entrepreneurship, Slaughter ran TravelSmith Outfitters, a direct marketer of travel clothing and gear, for 13 years.

Slaughter feels that the method of fundraising should be logically connected to the program. He said, "The most successful organizations were not those with diversified fundraising."

For Simon, the first three years were a struggle, but they did get support from some investment firms. She said support from the various foundations came after that.

Simon said, "It's really been through the relationships that funding has come." She said they still feel connected with the 15 companies who backed them initially.

The social entrepreneurs also said it is worth tapping into venture philanthropy. This comprises of a small group of funders, who will fund at the early stage.

Regina Ridley, Publishing Director of Stanford Social Innovation Review, moderated the discussion.

An exhibition featuring several social entrepreneurship schemes followed the discussion.

Joseph John
Stanford University
M.A. Journalism ‘09

"Bring Your Product to Life" Workshop — 2/21

It's not easy to bring a new product to life. As a college student himself at the time, Frankenstein may have been able to give life to his spare-parts human monster, but did he think about what it would take to successfully commercialize the monster? What to outsource to manufacturers? The personnel needed? How to conduct helpful team-building exercises? Whether his product would be copied and sold by the Chinese (or other groups who aren't too bothered by intellectual property considerations), only under a new logo (Frunkelstain^TM)? No, he did not.

The "Bring Your Product to Life" Workshop aimed to address all the various challenges, stages and issues involved in really bringing a product to life — getting it off the ground, out of the factory and into the world and consumers' lives.

On this cloudy afternoon, a crowd of around 100 people from various departments, universities and professions squeezed themselves into a room meant for probably half that number in Stanford's School of Earth Sciences building.

"How many people are trying to bring a product right now out into the market?" Logitech Director Performance Projects Spencer Johnson asked.

Half of those in the room raised their hands.

This was a crowd eager to absorb the collective wisdom of the eight panelists, which, in addition to Johnson, included Stanford Consulting Associate Professor Dariush Rafinejad, Schox Patent Law Group Founder Jeffrey Schox, VP of Flextronics Dongkai Shangguan, Senior Product Development Executive Malcolm Smith, Product Realization Network Mentor Richard Toepfer, President and CEO of Protopulsion Phillip Trinidad, and Global Sourcing Specialists Partner Ashton Udall.

While the panelists each had valuable insights to contribute, eight speakers took a lot of time to get through, causing the moderator to cut short the Q&A session, to the disappointment of the audience.

Some highlights from each section of the event follow:

Rapid Protyping
"I've seen people who have taken a napkin sketch, modeled it up [on the computer], printed it out on a 3D printer, sanded it, finished it, painted it, and took it to a trade show, and literally have gotten orders from that straight off of a trade show floor," Philip Trinidad said, speaking about the ease and power of "rapid prototyping" in this day and age.

Going / Working Overseas
"There's a lot of websites out there now you can go on and see the factory, send them off an email and set it up," Ashton Udall said. He cautioned against that, saying that the conventional methods — on-site visits and using personal and professional networks — were still important. "The truth is you don't know if that factory is a room the size of this room with three machines and 10 guys and an office you can't stand all the way up in — and I've seen that. In order to connect with factories that are good, if you can find some network to dip into, I think you're going to get a supplier to suit your needs."

Protecting Intellectual Property
Jeffrey Schox advised entrepreneurs to find a good patent attorney, not only with legal and technical knowledge, but a good "business sense".

He also said that respecting the IP of others was important, regardless of whether one believed in it or not.

"We are all invited to the game of patents, patent litigation and patent infringement," he said.

But unlike a round of Monopoly or Bingo, this is not the sort of an invitation you can refuse.

Contract Manufacturing
"So as an entrepreneur, you come up with a new idea, you go and patent your idea, you build your prototype, you turn it on, and it works, 'hallelujah' right?" Dongkai Shangguan said. "Everyone is excited and rejoices, you go have a beer, and next morning you wake up and all of a sudden you realize you have not made any money yet. How do you make the money?"

Shangguan went on to discuss the important questions each entrepreneur needs to ask when it comes to manufacturing: Do it internally or outsource? What parts to outsource? Go local or offshore? Who do you partner with? When in the process do you outsource? And how do you manage and optimize the relationship and process?

Design Process
Malcolm Smith described the need for all the parties involved in the process of designing, manufacturing and managing the design to understand their respective roles and responsibilities. He also said conflict was an inevitable part of the process.

"What's important is how quickly you resolve those conflicts and how quickly you learn from whatever the problem is, correct the situation, and move back into the manufacturing environment," Smith said.

Sustainability
"The sustainable world is not a world of not doing things a certain way, it's the space of innovation that's the space entrepreneurship focuses on," Dariush Rafinejad said. "You can focus on making the world a little better, or you can focus on making the world a lot better."

Managing Teams
"I guess this is the touchy-feely portion of the panel," joked Richard Toepfer, who spoke about team-building. Toepfer explained that the most common mistakes in team management were poor communication, insufficient resources, and unrealistic goals and schedules.

"Setting measures of expectation is extremely important," Toepfer said. "To me the biggest example of a lack of measures is the war we're in. Everybody talks about victory, no one can define what 'victory' means. You have that same problem in companies."

Bringing Your Product to the Market
Spencer Johnson emphasized the need to build on solid processes in getting your product ready for primetime. Efficiency, sustainability and consistency seemed to be the main themes.

"If you have a 95 percent yield, for every 100 babies born in Stanford Hospital, five of them have been dropped, that's not a good thing," Johnson said, and after a brief pause added, "You were supposed to laugh at that."

At which point, the audience did indeed crack up.

Careers in Product Creation and Manufacturing for New Graduates, 2/19

Moderated by John Aney, executive director of the Stanford Product Realization Network, this interactive event featured 9 speakers donating advice on how to get involved in manufacturing-related jobs after graduation.

The Product Realization Network is described on their website as:

• A student-centric organization providing an education that is deeply immersive and hands-on
• An educational initiative promoting current product realization processes and business concepts as a successful pathway to innovation
• Founded in product realization practices that integrate design, manufacturing and business, and informed by mathematics and environmental, physical and social sciences
• Supported by a community fused from academic, professional and industrial groups motivated by the educational enterprise

In spite of the recession, the tone of the evening was optimistic. Aney's opening remarks stressed the many opportunities available to Stanford grads. "Manufacturing in the US is not dead," Aney said. "Manufacturing in California is not dead. Manufacturing in Silicon Valley is not dead. It is changing."

This sentiment was repeated by all of the guests at some point in the evening. Cheryl E. Duke, a test engineer at Raytheon told the 45 attendees that "you are the people that come in and give us bright ideas."

"Never before in our history are we counting on new hires so much for innovation," said John Jacobson, a senior director at Cisco.

Beverly Principal, who works for the career development center on campus, said that there are still 2-300 jobs posted on the website every week. "Employees are hiring," she said. "They may not have hundreds of jobs, but they're filling jobs."

Aside from the general encouragement, the assembled guests, including two engineers from Speck Design, an entrepreneur with Nokia Growth Partners, and employees from Apple, Cisco, Genentech and B.MINIMA, waxed lyrical about their love of engineering and manufacturing.

"There's nothing greater than seeing a product you created actually make someone's life better," said Shigeru Tanaka, who designs and manufacturers medical products for Speck Design.

Questions from those assembled ranged widely, from the practical (Should I join a large company or a small company?) to the whimsical (How can I integrate virtual reality technologies into my designs?). Invariably, two or three of the guests would jump to respond, and the students seemed more than satisfied with the answers.

"I've been telling myself I'd come to a PRN event for a long time," said Ana Peña, a senior in the mechanical engineering program. "I just figured I was going to do it tonight."

"And when you heard there was going to be free dinner?" asked a nearby professor.

"Well then I figured I had to!"

President Hennessy Opens E-week, Stresses Innovation

President Hennessy kicked off E-week with a short, inspirational speech on entrepreneurial leadership followed by an open Q&A session.

"The biggest challenge," Hennessy said, "is how to nurture and grow innovation... It is the challenge that all small companies face, it is the challenge that all universities face, it is the challenge that big companies face," he said.

Hennessy explained the importance of nurturing innovation in the context of the University.

"The heart and soul of this institution is its entrepreneurial way of thinking. We are pioneers," he said.

He referred to great Stanford entrepreneurs Larry Page, Sergey Brin, William Hewlett, David Packard, David Filo and Jerry Yang.

He characterized successful entrepreneurs as optimists about what they are working on.

"That characteristic comes from young people who are willing to go down the path, unaware of the fact that other people might have already gone down that path, and find new opportunities," he said.

For the second half of the hour-long event, Hennessy fielded questions from audience members. Questions ranged from what to look for in a venture capital firm, advice on starting a job vs. starting a company, entrepreneurship in developing countries, how the bailout has affected entrepreneurship, and advice on starting a new university.

"First, find billions of dollars," he said with a laugh, and "draw from the best talent from all over the world."

Julie, a Stanford CS Alumnus and current GSB student asked Hennessy what Stanford is doing to, "create cross department synergies... in order to create long lasting relationships and truly innovate."

The question elicited a "Here here!" cheer from a crown member in agreement.

"In the end what we want to do is to get people to work together," Hennessy said.

He mentioned joint degree programs, joint-teaching opportunities, classes on entrepreneurship, and joint research programs as ways to bridge segregated departments within the University.

Hennessy referred to this same point at the end of his speech.

The solutions to world problems,  "do not require just one innovation, but many along the way... It requires people to cross disciplinary boundaries and it requires the University to encourage that kind of behavior," he said.

Katherine O. Lampe

Stanford University

M.A. Journalism '09

B.A. International Relations '09

Come tomorrow, Feb 18, 2009! Entrepreneurship Week Launch Event with John Hennessy

Be sure to come to the big launch event tomorrow, Feb 18, 2009! Join us for a thought-provoking, inspirational talk about entrepreneurial leadership by Stanford President, John Hennessy. His insights come from leading Stanford University, as well as his prior experiences as a successful entrepreneur and his current role as a board member for several high-technology ventures, including Google, Cisco Systems, and Atheros Communications.

As part of the festivities, we will launch Entrepreneurship Week at Stanford and give out audience prizes. We have some amazing things to give away, so be sure to come. You must be present to win!!

Here are the details:

Date:
Wednesday, February 18

Time:
4:30-6:00 PM

Location:
Kresge Auditorium (Map, Parking Info)

Registration:
None

Cost:
Free