Image credit: @roboppy.
Wen-Szu Lin is International Director of Operations covering North Asia for FOCUS Brands. Prior to that, Wen-Szu was the Master Franchisee for Auntie Anne’s Pretzels in China, where he and his partner raised a Series A fund to test the concept. He is the author of The China Twist: An entrepreneur’s cautious tales of franchising in China.
Want a challenge? Try launching your first business in a foreign country where you aren’t familiar with the language or culture.
Not difficult enough? Launch in a city where you have no connections.
Still too easy? Ok, introduce a product category that is completely new to the consumers. Make sure that you are new to the industry as well. Limit your initial investment to a small amount. Oh yeah, for kicks, let this foreign country be China.
In hindsight, that pretty much summed up the un-intentional beginnings of my first venture.
My business partner and I were the master franchisers of Auntie Anne’s Pretzels in China. Of course, when we started, none of those were issues. Our partners were some of the top people in the food industry. We had the “full support” of plenty of local Chinese contacts and business men. We started with enough funds for proof of concept. And we started with a great brand that had proven itself in Asia. At that point, Auntie Anne’s was already successful in Thailand, Korea, Malaysia, Philippines, and Singapore. The future looked bright.
What we experienced as entrepreneurs in China transcended the brand, the lessons from my Wharton MBA, the takeaways from the dozens of entrepreneurship books that I have read, and the reach of our contacts. Some of my experiences are common for entrepreneurs everywhere, some are shared in emerging markets and some are uniquely China.
1. Operations is massively under-emphasized
Some thugs tried to extort money from us, threatening the physical safety of our employees if we did not comply. Advice from others was always to hire some people to go after the thugs. Simple question. Who do I call to hire this “hitman”?
Starting in Beijing, everyone always recommended, “you guys should open a store in Sanlitun or Wangfujing (some of the top spots in Beijing), and make sure that it is in the busiest parts.” No shit. Great advice. The challenge and key is always the how.
MBA classes often emphasized the “sexy” part of the businesses. How it is going to be financed? What is the entry or turnaround strategy? What is the innovative marketing that changed the course of the business? Operations and implementation is only represented in most classes as a tiny aspect of the overall process; thus creating that impression in the overall value. No wonder the top jobs lusted by MBAs are in private equity, investment banking and strategy consulting. Who wants to worry about the day-to-day grind of operations when they can give random advice from a 5 mile high perspective? Sad to say, I was part of that group who looked at operations as “beneath” me and my precious time.
My perspective is completely reversed now. We need the funding and strategy for any business, but great operations can navigate around certain shortfalls in those areas. Poor operations will sink any business. Operation is hard and it is a daily grind. If you want to build a great business from the ground up, better start loving the operations.
2. How to navigate a corrupt regulatory landscape
Our MBA program discussed the implications of the US Foreign Corrupt Practices Act (FPCA) and how large corporations deal with working in corrupt environments. I recall the classes portraying all cases as black and white, with the main recommendation to stand true and stay above any corruption. Work with the governments and hire well connected locals to navigate these situations.
How does that translate to an entrepreneur getting shaken down by local government employees, all wanting some “favors?” How do you work with the local “government” if you are standing in a long line waiting to chat with the government employees who is sitting behind thick bullet proof windows and will only give you a few seconds before turning you away?
Certain markets are open about corruption, where officials come right out and ask for payment for approvals. These markets are actually easy to navigate as it is simply a matter of costs built into all interactions with officials. For markets like China where only certain officials want something yet do not ask or accept directly, the onus is on the businessman to find common friends or relatives to the official to make the deal happen. Add in a layer of cultural sensitivity where a gift is often seen as show of respect rather than the underlying value itself, each case becomes circumstantial on the situation. It is definitely not black and white and must be treated as individual cases.
3. Market studies are useless without true intimate knowledge of consumer habits
As a former management consultant, I did a full market entry study on Auntie Anne’s chances in China prior to our entering, collecting mountains of data, customer surveys and projections. The result was a comprehensive market entry strategy that answered all the typical questions of how we position ourselves and why, our angle against our competitors, location strategy, pricing, etc.
What I did not do was live in China long enough to truly understand the consumption habits of locals and changing market dynamics. While I did ask many locals questions regarding their eating habits, they answered only the questions that I asked. But I was asking the wrong questions. Having read through China entry strategies from many corporations since, I see the same flaws appear often. One needs to know enough about the culture and market from an inside, on-the-ground perspective to know the essential questions to ask in adapting a foreign concept.
4. How to ethically deal with unethical people
There are cheaters everywhere. How do we deal with these people without compromising morale integrity yet adapting to the local environment.
Case in point. Our procurement manager took bribes and demanded kickbacks from most of our suppliers. If I were in the US, I would have fired that guy as soon as the first supplier called to complain. However, our procurement manager was the smartest person on our staff and could get prices lower than what we could, even with his kickbacks built in. Many of the procurement managers that I met from other firms also took kickbacks. So, if we fired this manager, there is a good chance that we would face the same issue with the next employee. What would you do?
What we ended up doing was turn a blind eye but we checked the prices periodically to ensure that the prices he quotes are the same or lower than what we ourselves could negotiate.
5. Discount what your “network” claim they can do for you
“Yes! I just became Facebook friends with the Chairman of state conglomerate’s son!” Does that mean that this new “friend” is part of your network that will come to your rescue should you ask?
No one gives a crap about your business or your needs unless they can profit from it somehow. We are all just a few connections away from the Hu Jintao and Barak Obama but that doesn’t mean that they would help us when we need it.
People like to talk big about how connected they are, especially when they are drinking. Be careful before counting in these people as part of your “network.”
6. Cash is king. Be wary of deposits
We all heard it before. Cash is king. In the US, I experienced delayed payments and bad debt. However, in China, the magnitude of the delay is multiples of my previous experiences. In long term relationships with suppliers and landlords, this is not as big of an issue as with people I deal with only one time.
From landlords for my apartment to our store fronts, when I give a deposit in China nowadays, I have already discounted ever getting the deposit back on time or at all. Six months or nine months delay is not uncommon from these scenarios, despite what the contract says.
Usually it is at the point where we were about to take legal action before the other party reluctantly gives back the cash. I have been thoroughly impressed with the creativity of people’s excuses when you try to collect debt. So, my lesson here is that I can never depend on cash from others who I do not deal with regularly.
7. HR concepts taught us how to protect our employees and business, but not ourselves
Our employees pushed into our homes in groups and demanded compensation for obscure HR laws that they used to take advantage of the company. We feared for our physical safety and immediately looked to move our families away from harm’s way.
We applied what we learned in business school to protect our employees and business. We did not realize that we put ourselves in jeopardy in the process. One lesson from startups in the US is a family approach where bosses opened up their homes and lives to the employees in company picnics and gathers. Not so in Asia where the income disparity is so large.
We learned to offer as little of our personal background as possible, in case relationships ever sour with the employees. This is for the physical protection of our families.
8. Looks matter
Being of Taiwanese Chinese descent, I experienced reverse discrimination in China. Locals had a different set of expectations for me versus non-Chinese foreigners. The fact that I can speak Chinese did not help as locals expected me to be on the same wavelength in terms of cultural understanding. But I wasn’t. I am American. As a result, I was not given the same leniency as other foreigners when discussing ideas. Local Chinese were quick to dismiss me when I asked clarifying questions yet they would spend ample time with a smile to help a non-Asian foreigner through the same process.
I still do not know what the best way to approach this situation and would love suggestions from readers.
9. Impact of the lifestyle of an entrepreneur
Ever get in the situation where you only ordered a small dish as part of a group dinner but then get stuck dividing the entire bill filled with liquor and wine? Usually, it is the offenders of the group who suggested dividing the bill. That situation did not bug me much when I was working and making salary but it thoroughly pissed me off when I had to watch my spending.
Working as an entrepreneur worried about making ends meet changes a lifestyle, and usually not for the better. For people used to generous travel budgets, the change is a shock. Add to that the stress from an owners perspective, the combination is difficult to endure. Similar to pre-marriage counseling where couples are forced to talk through potential conflicts as a married couple, entrepreneurs should think through the impact on them and loved ones before taking the plunge into this life.
10. Entrepreneurs multitask, but learn to prioritize
As an entrepreneur without huge budgets, my business partner or I had to take on roles where we did not hire dedicated people for, from IT to HR to procurement to marketing to government relations (yes, we need that role in China). What we found out was that there were so many administrative tasks that consumed most of our time that we have little time left for focusing on the business itself.
Small, trivial tasks like setting up printers or buying random supplies could turn into a long ordeal. Instead of spending majority of our time on the business itself initially, we spent most of our time on administrative tasks. Specifically in China, the administrative steps to get proper business licenses and documentation is far more tedious that in the U.S.
We eventually learned how to become more efficient with our time but wasted a lot of time learning. There are items that many new businesses can outsource from the start and a few that must be kept in-house. These are practical issues that many startups experience and entrepreneurship classes could have offered best practices on how to approach these thorny problems.
Buy The China Twist at Amazon.com.