Alibaba's World

by Porter Erisman

  Learn from Competitors but Never Copy Them

  I found it interesting that Jack often refused to read books about competitors. But in some ways, it made sense. Cutting and pasting a business model from one market to another is never innovative. One can learn from competitors, but it’s always more important to focus on your customers and build a product and service for them than it is to simply copy your competition. And once you’ve seen exactly how someone else does it, it’s bound to creep into your thinking. As Jack viewed it: “Learn from competitors but never copy them. Copy them and you will die.”

  Don’t Change Rabbits

  Another of Jack’s favorite sayings is, “If you are a wolf chasing rabbits, focus on one rabbit. Change yourself to catch the rabbit, but don’t change rabbits.” Companies quickly lose their way when they lose track of their central mission. Despite changing business models and expanding into entirely new areas, Alibaba never lost its focus on its central mission—to make doing business easy.

  Be as Fast as a Rabbit but Patient as a Turtle

  Entrepreneurs need to work on two different tracks at the same time. On the one hand, they should orient their vision to the long term, like Jack’s 102-year company. But on the other hand, they need to move aggressively and quickly day-to-day. The two tracks help keep the company balanced between long-term vision and short-term action.

  It’s More Important to Be Best than First

  Entrepreneurs often come up with an idea but are scared off when they learn that “somebody is already doing that.” But being first doesn’t always matter as much as people think. Being first to market is not as important as being the best in the market. eBay was first to the market in China, and its managers assumed their first-mover advantage would lead them to victory. But Taobao simply built a better product and prevailed in the long run.

  Free Is, Sometimes, a Business Model

  When Taobao announced it would be free, eBay was quick to publicly deride the move, arguing that “free is not a business model.” But it is sometimes essential to first give your services away for free, especially in the Internet world. This allows businesses to build a critical mass of customers while allowing the management team of the sponsoring company to learn from, and adjust a business model to, the needs of its customers. Think of the great Internet companies of today—almost all started as a free service. Google searches are free. Using Facebook is free. Both companies resisted getting weighed down by gold pieces at the base of the mountain and were rewarded for the decision later, once they reached the peak.

  Buy an Umbrella When It’s Not Raining

  It’s the best time, according to Jack. That was why he decided to raise an additional round of financing from Softbank in 2000, before he needed the money. A couple months after he did so, the market crashed and investment for start-ups dried up. Sometimes it’s important to prepare for a storm before it comes.

  Find Opportunity in Crisis

  One of the clichés that litter the expat speaking circuit is that the Chinese word for crisis combines the two characters that mean danger and opportunity. But Alibaba’s example demonstrates the truth to this concept.

  When SARS hit China in 2003, it threatened the company’s very survival. When an Alibaba colleague was diagnosed with SARS, 500 employees at company headquarters were sent into quarantine and forced to work remotely from home to operate the company.

  But from this danger emerged an opportunity. Alibaba wasn’t the only company that had difficulty doing business face to face during that period. Our customers did too. E-commerce was the only way for commerce to continue. We had long worked hard to highlight e-commerce’s benefits, but the SARS epidemic greatly accelerated the adoption of e-commerce by China’s businesses, and our website traffic reached a new level.

  Time and time again we found opportunity in crisis. Rather than being paralyzed by fear of the situation, remaining calm and looking for the opportunity was key.

  Use Your Competitor’s Strength against It

  When eBay announced it was committing $100 million to the China market to compete with us, some within the company, including me, were fearful. Fortunately Jack faced it with a great deal of calm. Channeling his inner martial artist, he realized that a competitor’s strength could be used against it. By engaging eBay in a public war of words, we ensured that for each dollar eBay spent in the China market, Chinese consumers and businesses were also learning about Taobao, from the buzz generated by our PR campaign.

  Leapfrog

  In the past, people observed that China’s consumers were leapfrogging from devices such as a landline phone straight to a mobile telephone without having to build out the costly infrastructure of landlines.

  Alibaba’s experience has shown that entire economic systems can leapfrog ahead, especially in developing countries. Whereas the US and Western Europe spent the last several hundred years developing a retail infrastructure, China’s commercial infrastructure was able to leapfrog directly online without retailers first building out an extensive offline retail infrastructure.

  In the Spring Prepare for Winter

  Alibaba’s history is one of bursts of euphoria followed by crisis. Whether it was raising $25 million in financing before the Internet bubble burst, doing a billion-dollar deal with Yahoo!, or having its IPO in Hong Kong, each new milestone precipitated a crisis.

  Alibaba’s story arc is not singular—the same thing happened to Google, Facebook, Apple, and Microsoft. David is always a hero until he becomes a Goliath. The time to mentally prepare for the winter is when you are still in the spring.

  Resist the Temptation to Go Public

  An IPO is a milestone but it should never be the main goal. In 1999, on the day Alibaba was founded, Jack told his team, “The goal is to go public by 2002. If we don’t go public by then, then we should forget about it.” At the time three years seemed like a long-term goal. But as we got closer to having an IPO, Jack would always resist, telling the staff, “We could go public now, but we should only go public when we are strong enough, otherwise the company will simply fall apart.” As Jack put it, “An IPO is like going to the gas station to fill up on gas for a long road ahead.”

  Put Yourself in Position for Luck

  From time to time I encountered people who said that Jack’s success was simply due to luck. But more than any of his contemporaries, Jack put himself in the position for luck to find him. Seeing the impact that the Internet could have on China in the long run, Jack decided to dedicate his business career to e-commerce before China was even connected to the Internet. Seeing this trend before others did helped him move his career into position. Despite missing the shot on goal with his first attempt, ChinaPages, he was still standing in front of the goal when the Internet finally took off in China four years later. And when the ball was passed to him the next time, in the form of Alibaba, he kicked it in and scored.

  On Leadership

  Entrepreneurs Don’t Complain About Problems—They Solve Them

  There are two types of people—those who complain about problems and those who solve them. Sure, we all complain from time to time to vent some steam. But in building a team, it’s important to weed out habitual complainers. Habitual complainers fail to realize that they have the power to solve the very problems they are complaining about. At Alibaba, habitual complainers who managed to slip through the interview process didn’t last long. Problem solving is the core of entrepreneurship. Problem solving is what entrepreneurial businesses do.

  Don’t Dwell on Mistakes

  Jack used to joke that if he ever wrote a book about his experience, he would call it Alibaba and the 1,001 Mistakes. From watching Jack in action, I realized that two great traits every entrepreneur should possess are resilience and amnesia. In the face of setbacks Jack was incredibly resilient. And while I sometimes stewed over mist
akes, Jack was so forward looking that he often forgot about the mistakes altogether. Mistakes are a by-product of success, to be learned from but not dwelled upon.

  Embrace—Don’t Run Away from—Tough Decisions

  As a leader, it’s impossible to please everyone. And even the most popular CEOs are not without their controversies. But leaders pioneering a business on a large scale are bound to face tough decisions, and it’s important to face them head on and with conviction. This is something Jack had to learn over time, as he transitioned from being an English teacher to being a CEO. In 2000, as our company grew out of control, Jack was slow to make the layoffs necessary to save the company, choosing baby steps instead. It only worsened the problem and the company nearly went out of business which would have ended the employment of everyone in the company. After postponing the inevitable, we finally made the layoffs, stabilized the company, and grew on to hire many of the laid-off employees back. “I finally learned that sometimes I need to say ‘no,’” Jack told me.

  Have the Team Work for the Goal, Not for the Boss

  Many traditional managers, especially in Asia, have top-down management styles. The boss issues directives and the employees focus their energies on pleasing the boss. And usually the boss is quite happy with that. But in Alibaba’s case Jack set a high goal and then encouraged his team to chase the goal. It helped keep everyone focused while minimizing the political infighting that often comes when employees spend most of their energy trying to please the boss.

  Don’t Disregard the “Tech Dummies”

  Many people find it strange that an English teacher with no technical background could create the world’s largest e-commerce company, especially when so many Internet start-ups are created by engineers. When I left Alibaba in 2008, Jack Ma could use a computer only for email and to use a browser. “Alibaba survived because I know nothing about technology,” Jack would often say.

  Jack’s experience showed that being a self-professed “tech dummy” can be an asset for a manager in a consumer-oriented technology company. Whenever Alibaba’s engineering team would prepare to introduce a new product, Jack would sit down for a sort of “Jack Ma dummy test.” If Jack couldn’t use it, he assumed the customer couldn’t understand it. The approach worked. By keeping our websites simple, we stayed close to our customers, many of whom were using the Internet for the first time.

  Don’t Let It Get Personal

  Meg Whitman made the mistake of letting eBay’s competition with Alibaba get too personal. Once we got under her skin, eBay focused too much on the competition, and she and her team lost sight of the real goal—creating a great website for China’s consumers. Jack made the same mistake in our battle with former Yahoo! China head, Zhou Hongyi, and Yahoo! China’s strategy veered off course.

  On Building a Successful Team

  Assemble a Team, Not a Collection of All-Stars

  In 2000, in preparation for eventually having an IPO, Alibaba.com assembled a dream team of managers with pedigrees from Ivy League schools and leading multinationals and consulting firms. Their resumes would have looked great on a company prospectus, but the individuals didn’t work well together. Their egos got in the way, and soon the company was adrift, headed dangerously close to bankruptcy. When this dream team was laid off, management reverted to the original founders. Although there were no all-stars among this team, they worked well together, achieving more together than someone might have predicted from their individual resumes.

  Gather the Entire Team Once a Year

  Alibaba is somewhat known in China for the massive all-hands meetings it held for its employees at the start of every year. Starting with a small party for the entire staff in 2000, the company continued to bring together all of its employees every year for an annual kick-off event, until it eventually required a stadium to seat the entire staff. As the company grew from 100 employees to 10,000, we gathered together staff from all around the world in Hangzhou for several days of speeches, activities, and team building exercises.

  Bringing the entire team to Hangzhou was an expensive proposition for the company. But aligning everyone to the company’s annual goals proved to be an important key to success for our fast-growing company. Company speeches and videos reminded everyone of where we’d come from in the previous year and set out a vision for where we’d be headed in the year ahead. And team building activities allowed staff members to catch up with old friends while building relationships across the organization.

  Spread the Wealth

  One of the key things that sets Alibaba apart from many of the start-ups I’ve come across is just how broadly Jack Ma shared Alibaba’s ownership with employees through equity and stock options. The natural tendency for investors and company founders is to want to reserve stock incentives for only those in senior management positions. But starting with how he shared the equity broadly with his 17 cofounders, Jack continued to make sure that staff at all levels of the company were granted, or at least were eligible to earn through performance, stock options. In fact, when Alibaba.com went public in 2007, the company had to rent an arena to gather all of the staff holding stock options to walk them through the process for exercising their stock shares.

  I strongly believe that Alibaba’s team was driven by the idealistic goal of creating a platform that created opportunities for small businesses and entrepreneurs. But there can be no doubt that the shared sense of ownership helped unify the team to weather some tough storms together. We always knew that, if we did well for our customers we’d also share in the economic rewards. Having a broad-based sense of shared ownership helped unify the team.

  Integrate Values into the Company’s HR Systems

  It’s one thing to paste company values on a wall. It’s another thing to codify the values into performance reviews. By tying 50 percent of an employee’s bonus and advancement to values and 50 percent to performance, Alibaba was able to preserve its “Hupan culture” as it outgrew its apartment in Hupan Gardens and became a company with more than 25,000 employees.

  Remember: Actions Speak Louder Than Words

  As an MBA working in a Chinese start-up, I had to unlearn a lot of big-company tendencies, which favor analysis over action. At times I was bogged down in analyzing a strategy, and Jack would push me into action, chiding me by saying, “I won’t fault you for making a mistake, but I will fault you for doing nothing.” Getting into the game and trying something is more important than risking analysis paralysis.

  Don’t Judge a Growing Company by a Snapshot—Look at the Overall Trends

  One of the toughest tasks for a manager in a start-up is to integrate new employees coming in from larger, more mature companies. The natural instinct for any new employee who has never worked in a start-up is to notice all the problems at the start-up that didn’t exist at his former employer. One new employee with this attitude can be a challenge, as he often has buyer’s remorse and privately begins to doubt his decision to join the company. But a group of new employees joining at the same time and having the same complaints can create a toxic environment.

  It’s important for new employees to understand that if someone were to take a snapshot from one day in the company, they would find a lot of problems. But if they stack those snapshots together over time and flip through them, they can see a trend of constant improvement.

  Over time Alibaba recognized the importance of providing one to two weeks of orientation for new employees. They watched videos and attended speeches by the company managers that told the history of the company. This helped put an often messy one-day snapshot into its proper context and perspective.

  Allow for Sabbaticals

  A big problem in start-up companies is burnout. Staffers often work long hours and set aside personal interests for several years out of dedication to the cause. But companies should recognize that employees need time to recharge.
And fast-growing companies need employees who have been a part of their early days to recharge and return to the company refreshed. I was fortunate that Jack was flexible and allowed me take a year off to pursue my dream of traveling around the world. When I came back, I was fully recharged and determined to take on the world.

  Be Sure to Hire the Right People at the Right Time

  It’s a cultural dilemma nearly every start-up faces—“When do we bring in the professional managers?” The risk-loving, fast-moving employee working out of an apartment is often a very different type of person than a seasoned manager working in a multinational. Both personalities are necessary in the life of a 102-year company, but when the two personalities collide, the result often is conflict and resentment.

  In 2000 when Alibaba hired a team of senior international experts to manage the company, the resulting organizational disaster created a huge rift in the company. It was like plugging a Rolls Royce jet engine into a small hang glider. At the time we failed to recognize that a start-up needs people to serve as cultural bridges.

  One bridge is a layer of people who can help carry the company from start-up to maturity. These are people who are flexible enough to work in an apartment but skilled enough to manage companies on a larger scale as they grow.

  Alibaba needed an additional bridge, one that would help us “go global” and close the cultural gap between China and the West. In those early days the staff members who had Chinese-language skills and cultural understanding turned out to be a better fit than the staff members who had deep industry experience but little experience in China.