Tag Archives: eCommerce

The JD.com Story by Li Zhigang

  1. The story of Richard Liu and his founding of one of the world’s largest ecommerce sites, JD.com
Key Takeaways
  1. Richard Liu Qiangdong is a “philosopher CEO” and has instilled many of his values and beliefs into the core of JD. He has been extremely transparent and high-integrity in all business dealings from day one, is super ambitious, always operates in good faith, seeks to be a mentor. Low profits with high turnover and focus on scale with a steady and ever-growing stream of customers. JD’s concept has always been simple – provide better services to customers at lower prices and they’ll return. Over the years, one of JD’s biggest contributions has been to build confidence and trust in ecommerce. His tracking of every sale in order to ensure quality and authenticity also means he has been paying his fair share of taxes too, which was quite unusual in China at the time
    1. Easier to know others than to know oneself
    2. Liu was always obsessive about two things – user experience and integrity. The core value of JD is putting the customer first
      1. His fight against corruption and for integrity borders on paranoid
    3. “If the founder of a company is always right and never wrong, then the company is doomed. I am not God. It’s impossible for me to be right all the time  on everything. I have to subject myself to the collective intelligence.”
    4. Ultimate goal for JD is to offer a wider selection than anyone, at cheaper prices, delivering it faster, with transparent pricing and authentic, quality goods (no fakes!). Looking to become Amazon + UPS
    5. Liu worries about smooth running of systems, rigorous organization, great customer service
    6. Liu is energized and focused by the vision he has for JD – bringing transparent prices to every part of China and later, the world. Many people in rural cities currently have no means of knowing they are getting ripped off but JD’s ever-expanding reach and selection will change this. JD has helped move China to high-efficiency retailing and improve information and price transparency. Rural farmers across China have been getting screwed for some time because they had no access to see the price asymmetries and on top of that often got fake or low quality seeds, fertilizer and other goods
    7. Liu has the rare ability to make difficult decisions he believes in even if his investors and employees doubt him – carrying a full catalog of goods, moving into books, building out the logistics system. The logistics system was a $1b in 2007 which, if it hadn’t worked out, would have bankrupted the company but Liu believed it was necessary in order to solve the problem of slow, late, damaged shipment of goods and to win over customers for the long-term
      1. Logistics is the life-blood of retail. This and the most efficient supply chain are JD’s core advantage – nationwide reach and inter city delivery made online to offline (O2O) another growth path for the company. JD’s advantage is in the back end – its organization of the supply of goods, supply chain management, logistics and delivery
    8. Liu decided to cater to his deliverymen by paying higher than average wages and treating them very well. These deliverymen are blue collar workers who are often mistreated but Liu realized they were the largest source of face to face interactions with customers and could make or break the business depending on how they interacted with customers. Liu spends one day per year doing deliveries to get a first hand feel for the process, to get the deliverymen’s feedback and show he’s willing to get his hands dirty
    9. Has the rare ability of being very visionary, stubborn, focused and hard on people but also willing to change his mind if wrong and reward people for their hard work. The fact that he shares wins and responsibility engenders amazing trust and loyalty amongst his employees
    10. Liu sees next steps to be made in Brazil, India and then developed markets. International expansion by 2023
    11. All about the team – the team always comes first. Culture (goal, vision, values), capacity and integrity above all
    12. Only 2 KPIs that really matter  -cost and efficiency – not pursuit of profits but of lower costs and increased operating efficiency
      1. Product (availability/quality), price, service (pre-sale, sale and post-sale)
    13. Team spirit – willing to sacrifice self to adapt to others
    14. Can’t reduce waste by treating employees poorly
    15. True core competitiveness is simultaneous speed and price
    16. Liu believes the next 10 years will be the golden age of retail and consumption in China
    17. Dream to create the national enterprise of China
  2. 3 major decisions in JD’s history so far – transition to ecommerce from a physical store front, deciding to start carrying a full category catalog rather than just 3C, building out its own logistics system
  3. “Liu realized that “all innovation modes of the last ten or 20 years are related to transaction cost reduction and efficiency improvement. Only by lowering transaction costs or by making transactions more efficient can the new mode survive and develop. If the innovation mode fails to do so, then the innovation is meaningless.”
  4. The crux of an efficient retail business comes down to understanding what the consumer needs and reducing inventory costs by making good predictions of future sales.
  5. Focus and desire is to take JD.com out of just China and go global – they are already expanding into Russia and Indonesia
  6. The outbreak of SARS in China forced JD to go from offline to online and the trust and reputation Liu had built up in his business gave customers the confidence to shop from him online without seeing the physical goods before buying
  7. JD is an outcome of Liu’s philosophy: First, business was made up of chains. One could not rely on intuition but had to use sophisticated analyses to make business judgments. Every chain was linked with another. Second, the most basic tenet of doing business was quite simple: create value and gain profits. Profit was the curve, but value was the baseline, and it was constant. JD’s logistics expansion was based on value. Providing shopping platforms, improving logistics to ensure better consumer experiences, reducing costs, and improving turnover rates all created value.”
  8. Early on in JD’s life, there was a big drinking culture which Liu facilitated. It was a typical work hard, play hard mentality. “You had to have guts to drink like a fish with the others even if a glass of beer was enough to knock you out. Second, it was about speaking up.”
  9. Liu didn’t care how things got done. he focused on imparting the details, and genuinely wanted to cultivate saplings into big trees
  10. Richly rewarded those who performed but satisfaction and meaning must come from a deeper motivation
  11. Early on Liu was blown away by multi-generation European businesses and this helped drive home the long-term horizon and mindset he has today. In this quest to be a century old enterprise, one can’t simply look to maximize profits but must provide value by lowering costs and improving efficiencies.
  12. JD’s first outside capital was from Today Capital (Xu Xin). They invested $10m and gave Liu the space to pursue scale over profits
  13. Advertising is simply about earning tomorrow’s money
  14. Looking to solve ecommerce’s 3 problems – price, convenience, guaranteed quality
  15. It is unsustainable to acquire sales – aim to win customer’s over with greater value proposition
  16. Lei Zhang of Hillhouse Capital said he would only invest if the founders maintained control
  17. Liu always believed in operating with the highest transparency so early on, before he ever had to, he hired PwC to conduct an audit on his business
  18. JD’s slogan during the early days was “Fighting! Fighting!”
  19. Don’t skimp on training! 70% of promotions are internal due in large part to great internal training through JD University
  20. Corporate culture is the root of every company – the result of cultivation and not regulation. Endeavor, values, desire, integrity, gratitude and persistence are some cornerstone values of JD
  21. Liu always built his ideas into the system and passed down ideas through it. Less reliance on management and more on aligning incentives
  22. “Three Knives” – cut prices, cut costs, cut ideas that wouldn’t improve customer experience
  23. Likes being in competition and trying to overthrow the leader – “the team would wither without a fight”
  24. Lei Zhang said Liu has the magical ability to absorb knowledge, ideas and talents
  25. In a fast growing company, the ability to learn quickly is far more valuable than experience
  26. Liu decided to go to Columbia business school and step away from the business for a little bit in order to see how his “machine” would work without his complete focus. This gave others the chance to grow, learn and prove themselves and forced Liu to delegate and see if any cracks would appear
    1. Managing JD by relying on the system rather than micromanaging.
    2. “Deal with problems from a systemic, generalized point of view. Don’t tell me about the solution to an individual incident. What I want is the broad, systemic solution.”
  27. Began incorporating collaboration and big picture thinking into people’s bonuses in order to incentivize that kind of behavior and thinking
  28. Learned to wait to express his opinion until all others had spoken. This was difficult for a man who is so ambitious and has so many ideas but he knew that he would smother many great ideas if he didn’t learn to do this
  29. The dangers of large organizations – “What threatens a company’s ability to grow is not necessarily the competition, but the organization itself. Could the factors that contributed to past success be carried forward? Could tens of thousands of people continue to identify with the original organizing principles? If a company failed, it was most often because of internal factors rather than external ones.”
  30. Alibaba’s philosophy is to make business easier whereas JD’s is to make life easier
  31. An organization’s value is reflected in the things it can do that others can’t
  32. 4 pearls of the Internet – search engine, social network, combination of hardware and software, enterprise B2C retail platform which directly connected production and consumption
  33. The essence of a market economy lies not in control but in making the rules (systems thinking!)
  34. Bought Tencent’s ecommerce platform in 2014 for 15% of JD. This gives JD some of the most precious online real estate in the world within Tencent’s WeChat and QQ platforms. “This is a rare win-win in the history of the Internet in China.” – deal facilitated by Lei Zhang of Hillhouse
    1. Massive audience, mobile, targeted ads, new users
  35. 3 priority areas in 2014 – fresh food, cross border ecommerce and O2O
  36. JD Finance launched in 2013 to provide loans to suppliers and later was a platform for crowd-funding
What I got out of it
  1. Richard’s story is inspiring as his honesty and desire to do good for the poor by extending the availability of basic goods to rural areas

Alibaba: The House That Jack Ma Built by Duncan Clark

  1. Duncan Clark describes the history of Jack Ma, his personality, how and why he founded Alibaba (after a couple failed start-up attempts), his vision for the future and more
Key Takeaways
  1. Jack founded Aibaba in Hangzhou in 1999
  2. Alibaba looks to exploit the inefficiencies created by a government who exerts as much control as China does without pissing them off
  3. Alibaba’s strengths lie in ecommerce, logistics and finance
  4. Consumer discretionary spending is only about one third of GDP versus close to two thirds of GDP in the US. Latent spending power and high savings rates and lack of things to spend money on are the main causes for this discrepancy
  5. Alibaba is even China’s largest retailer
  6. Taobao is like a bazaar with 9m merchants and alibaba has no inventory and TMall is like a glitzy shopping mall. Major brands like Amazon Costco apple Zara and Moore are all on T-Mall
  7. About 10% of retail spending in China is done online compared to 7% in the US. China has been able to leap frog the brick-and-mortar retail business model which is much less efficient and expensive than e-commerce
  8. Nature abhors a vacuum and in China the Internet is filling in for eight created by an official state owned enterprises and government regulations
  9. Alibaba accounts for 40% of grocery sales in China and even does next day delivery of refrigerated items. It stands at only 10% in the US
  10. The rate of e-commerce packages is growing like crazy and has years of high-growth ahead with less than one package per customer per month being delivered on average today
  11.  JD.com it’s taking a different approach than Alibaba in that it is investing directly in logistics and becoming acid heavy versus acid light. JD wants to control the process from order to delivery end to end and I think a good analogy is Apple and other closed and companies that want to control quality throughout
  12. Alibaba‘s finance edge comes from Ali pay which is Alibaba is equivalent of PayPal  Ali pay handles more than $750 billion every year. Always pay is no longer own by Alibaba but is controlled by jack and has become the defect of method of transactions for an increasingly digital China. Alibaba can also serve as a savings account and often gives better rates than the banks. Because Alibaba had so much data on its customers it can better underwrite the credit risk of people who invest and pay through their platforms
  13. Jack is it your typical corporate titan and is quite humble and talks his intellect and ability down often. He said that the most influential role model in his life was Forrest Gump
  14. Jack’s presentation and oratorical skills are superb mainly because he focuses on messages he is deeply fluid in and suddenly changes his emphasis or message depending on the crowd and their expectations. Jack is quite funny and empathetic and the nature of his speeches tend to reach a broader audience due to his fluent English and Mandarin
  15. Jack’s mantra his customers first employee second and shareholders third. Another popular “often heard from Jack is 102 years with the point of trying to survive through out three different centuries
  16. Corruption and counterfeit goods are some of Alibaba’s major obstacles but they are taking certain precautions to begin limiting the amount
  17. When Jack was a boy he would relish the opportunity to practice his English often waking up before dawn riding his bike for 40 minutes to the nearest big hotel just to talk to English speaking tourists. Jack for friended on Australian family who he visited one day and on this visit he saw that what he had been taught that China was the richest country on earth was in fact falls and this taught him that he had to think for himself make his own decisions and use his brain to truly determine what was true and what he believed in
  18. Jack twice failed the college entrance exam and eventually on his third time got a good enough score to go to a fourth grade university in his hometown. Today he speaks of these failures as a badge of honor
  19. After university Jack became an English teacher but soon started his first company called hope which helped local companies find foreign customers. Jack has the uncanny ability to sell his vision and get people excited and to buy in completely
  20. Wong Joe were Alibaba is headquartered has been a prime an important trading hub for over 1000 years connecting the northern and southern China
  21. Jack was first exposed to computers and the Internet in the mid 90s when he travel to the US. From this exposure he started china pages which was the Chinese equivalent of yellow pages. China pages failed after a couple years and from the adventure Jack went on to work for the government for sometime before founding Alibaba
  22. Alibaba was chosen as the name of his company because it is a universal name that everyone can pronounce and most people know the story behind Ali Baba and the 40 thieves. This has saved a lot of money on marketing and advertising as the image of open Sesame and everything else that comes with the name is tied in to most people’s memories already
  23. Jack decided to distance himself from other Chinese portals such as Sina so who and that is by focusing on shrimp or small businesses
  24. Alibaba got first major investment from Goldman Sachs – $5m for 50%. A few weeks later soft bank invested $20m for 30%
  25. Jack decided to start hiring people who were a notch below the top of the class because he found they were better at handling adversity than the people at the very top of the class
  26. Today is brutal. Tomorrow is more brutal. But the day after that is beautiful. However, most people die tomorrow night
  27. The bursting of the Internet bubble was actually good for alibaba as this meant their competitors would not be receiving money and they had a lot in the bank from soft bank
  28. Author makes an interesting connection between the 2002 SARS outbreak and a massive ramp up in broadband usage, texting and increased investor appetite in china tech
  29. Taobao was alibaba’s response to eBay and was able to fend off the global powerhouse by better understanding the local market – free registration, busier home pages, free listings, ability to negotiate, online payment with Alipay, complacency and arrogance
  30. If you simply use money to solve problems, there’d be no need for businessmen. Businessmen are able to solve problems with few resources and leverage them to great benefit. eBay simply tried throwing money at china to regain their dominance and at this point Jack knew he had them. They first didn’t treat them like a rival at all and then took them too seriously. They showed their hand and didn’t change strategies at all
  31. There is a lot of controversy over the transfer of and financial to Jack’s personal account where he had total control of the company. Defenders say that without doing this day would never have gained financial approval from the Chinese government but other say this is not the case
  32. Shortly after the IPO Alibaba I got into some controversy what the government over baked goods which still is lingering over the company today
  33. Alibaba is beginning to expand into cloud computing, healthcare, entertainment and other markets where retail is inefficient and ecommerce under-penetrated
What I got out of it
  1. Does an excellent job providing some history of Jack and the company as well as some of the cultural differences between Chinese and American entrepreneurs and their relationship with their respective governments. Jack’s vision, persistence and charm were all really interesting and inspiring to read about