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Kai-fu Lee :

Old KPI Models Stifle Innovation


Old KPI Models Stifle Innovation

Source:Kuo-Tai Liu

Venture capitalist Kai-fu Lee believes the new wave of startups by young entrepreneurs will disrupt established business models, and he argues in this interview that the power of youth should be feared and respected.



Old KPI Models Stifle Innovation

By Sherry Lee, Jimmy Hsiung
From CommonWealth Magazine (vol. 567 )

He is fully versed in the paths of innovation taken by U.S.-based corporations, and having witnessed how China's entrepreneurs have hungrily gone from being followers to leaders. Now based in Taiwan, he has staked everything on proclaiming the arrival of an era where "disruption is king."

He is Kai-fu Lee, CEO of Innovation Works and the ethnic-Chinese world's venture capital guru.

China's rise is a riddle to many. Over the past decade, Western observers have been unable to see China clearly through the fog. Kai-fu Lee, on the other hand, is one of only a handful of experts that understands the United States while being a keen, sober observer of China.

Born in Taiwan, Lee moved at the age of 11 to attend school in the United States. Since then, he has lived in the U.S. for 26 years and China for 16 years, holding key positions at American information technology giants Apple, Google and Microsoft prior to founding the angel investment company Innovation Works in 2009 in China to help young Chinese entrepreneurs.

Lee has witnessed the relentlessness of Chinese enterprises over his past several years in China, enough to categorically state that "the era of foreign enterprises in China is now over!"

He has seen a collection of creative young entrepreneurs who dive into projects with everything they've got. In the past six years, Innovation Works has invested in 160 teams, with some 20 of them receiving at least US$100 million each.

Numerous entrepreneurial teams across the Strait see him as a guru, and legions more follow his posts on Sina Weibo (China's microblogging Twitter equivalent). With over 50 million followers, he is more popular than such Taiwanese celebrities as TV host Kevin Tsai and May Day lead singer Ashin, earning him the nickname "Weibo's top dog."

But raving fans and impressive achievements have not gone to Lee's head.

When people refer to him as an entrepreneurial guru, he responds in self-deprecating fashion: "Real superstar entrepreneurs don't come looking for me. Why is that? It's simple. Superstar entrepreneurs are like wolves. What use do the aspiring Ma Yuns and Lei Juns have for a mentor? You're just a guy that's punched the clock at Microsoft and Google. Who are you to fancy yourself a guru?"

Respect, Fear the Power of Youth

Despite his experience, Lee does not give off the jaded attitude of someone who has been around the block a few times. Now 54, he is not afraid to correct himself, and he is always ready to try new things. He once wrote a software program to help him filter through a day's worth of Sina Weibo posts, treating the young person's world of Weibo as a game by sending out 30 posts a day. Knowing it was a bit juvenile of him, he got past his reservations out of curiosity to find out how many followers he could win over.

He is even on top of the Baozou comics that have become popular in China lately, as well as the mobile social hook-up app Momo that is popular with the new generation.

Lee believes that the new wave of startup companies formed by young people over the next five years carrying the concept of "sharing economy" will overwhelm and disrupt many established business models.

Whether in China, the U.S., or Taiwan, a sizable group of youthful entrepreneurs is on the move. And Lee would like to remind everyone, "We must both respect and fear the power of youth."

The following are excerpts of our interview with Lee:

CommonWealth: What makes you such a strong believer in entrepreneurship?

Kai-fu Lee: It's because I find myself in a time of disruption and change. And the changes to come will be even bigger.

In this day and age, if a smart person wants to use his time, energy, and the capital someone else invests in him – without waste or betraying one's conscience – to make some things that can benefit society happen, then I can only think of two things to do: the first is entrepreneurship, and the second is aiding entrepreneurship.

Throughout history, the cost of starting a business has never been as low as it is now with as many opportunities. So people with strong leadership ability, a sense of vision and perspective, and the capacity for changing the world should be starting businesses.

Meanwhile, others should follow the entrepreneurs in our industries, whether through investment or venture capital, to help give those people the best chance at succeeding.

Q: Based on your observations, which fields or trends should entrepreneurs be focusing on in the future?

A: First, everything, all industries, and all fields are facing disruption. At this time we would be best served not to approach the future in terms of old achievements. In other words, the iPhone is not an iPod stuck together with a Nokia handset, but a whole new sort of product.

Sharing Economy and Big Data

We are clearly moving into the age of driverless cars, and transitioning toward a sharing economy where it is no longer necessary to own one's own car. Instead, we should get on board with the Uber concept, where we utilize things on demand.

That will eliminate the issue of recharging (electric) cars that is being discussed so much right now, and cause major disruption to the existing automobile industry.

The next issue is "big data." In the future your handset, computer and the Cloud will know better than yourself what you want to have to eat, what you like to wear, or who you should date. This trend has little to do with hardware, so it represents a big blow to most Taiwanese industries.

If you look at the true entrepreneurs creating incredible Internet of Things companies, including several successful U.S.-based startups, as well as Chinese figures like Ma Yun and Lei Jun, they are not Taiwanese, nor are they hardware people.

I want to stress in particular that young people will own the future. Young people have long left us in the dust in the utilization of digital tools. They embraced things like Facebook and YouTube first, before introducing them to their parents. The more trendy parents caught on, and have since been gradually brought into the fold.

Q: As disruptors rise one after the other, what opportunities lie ahead for established industries like the automobile industry?

A: That's tough. We'll just have to wait for them to go out of business. They're bound to fail.

Q: Why is that?

A: It is rare in history that companies saddled with baggage have been able to come up with something new.

Q: Wouldn't Apple count as one of these?

A: Yes, it would. Apple almost qualifies as a totally new company, reborn from out of the rubble of its past iteration. And it's starting to slow down a bit now.

The best example would be Kodak, which actually invented the digital camera. But the promotion of this new thing impacted its entrenched conventional film business, so it took its time. But when you slow down you let others get ahead of you and seize the initiative.

So when even the technology leader is unable to win, I'd be willing to bet that those companies carrying baggage will not make it through this challenge.

Innovation Impossible with Old KPI

They're trying, but if you're only thinking in terms of how to turn petroleum into batteries the breadth of your thinking is limited. They're still not considering how to separate ownership and usage rights, because the KPI (Key Performance Index) they're looking at every year is how many cars they are selling. But that's not how it will be further down the road in the future. Maybe we can be perfectly happy with just one-fifth or one-tenth of the cars we have now.

So in the end it will come down to companies like Google and Tesla, because they don't come with baggage. You could stick the smartest people at Google and Tesla into Mercedes-Benz, Toyota, and General Motors and they would still be hamstrung in that environment, because their KPI is fundamentally wrong. And they need to jettison their baggage.

For Tesla each car they sell is one more car sold, whilst for GM with every new sharing economy they sell five fewer cars. So now what? (awkward chuckle). This is a question of the fundamental incompatibility of people's thinking and baggage. Every industry is the same – they all have to face it.

Q: Is there a next big thing in entrepreneurship?

A: It's hard to say exactly, but I think there are big opportunities in the realm of the sharing economy.

Actually Uber and Meituan (China's Groupon equivalent) are just getting started, but the writing is on the wall, and intermediaries and middle men are going to lose out, big time. You add no value and you still take a big cut from the middle – these types are going to end up as history.

The digital economy will go expressly after those least deserving of profiting; that crowd is going to get hit hard. And the sharing economy will replace them in a rapid fashion. I think there is lots and lots of room in this area for new ventures.

Q: What would you say is the biggest difference between China and Taiwan's entrepreneurs?

A: A sense of perspective and place. There are understandable, unavoidable factors, such as too small a market, to explain why no Taiwanese entrepreneur has started something like Alibaba. However, from a personal perspective, Ma Yun did something that earned my respect, and I'm sure he did something not just me, but a lot of outstanding American CEOs, would not have done. Here, I'm referring to his split with (leading Chinese search engine) Baidu.

What happened was, Baidu was already a large company, and Alibaba subsidiary Taobao was just one e-commerce outfit among many. The huge question of how to make money put Ma Yun under a lot of stress, yet he made the deliberate decision not to accept traffic flow from Baidu. That meant that if you searched for items like "iPhone" or "pencils" in Baidu, Taobao would not be mentioned in the results.

At the time we assumed it was because Baidu had made a site that was somewhat similar to Taobao, and that Ma Yun had taken it personally. So most observers felt it was an unwise, even laughable, decision on Ma Yun's part.

But looking back now, that decision helped redefine searches for all of China's Internet users. If you're in the U.S. and you want to make a search, you use Google. But in China, everyone says if you want to search for merchandise you go to Taobao, and for everything else you use Baidu.

To me, this is something Amazon or eBay would never say to Google, and Ma Yun had the guts to say it to Baidu. That sense of perspective and place is like saying, 'Damn the torpedoes, this is how I'm going to do it. I'm betting big. And if I die doing it, so be it.'

This is illustrative of the wolf-like nature of China's entrepreneurs. Their wolfish nature is innate, and they need no guru to guide them, because they won't listen to your advice, anyway. They learn quickly, though, and move faster than anyone else.

Q: (PayPal founder) Peter Thiel's recent visit to Taiwan offered a lot of ideas and suggestions for local entrepreneurs. Any thoughts?

A: I read his book, Zero to One. It's really good. But one issue I have with it is that he doesn't really believe in lean startups.

Of course, Thiel is an incredible person, and his entrepreneurial record speaks for itself. However, his is scattered thinking, the outcome of growing up in an America that emphasizes independence, pursuing passions, and changing the world. For him to come to a Chinese society and tell them this is the way to do things, whilst it might inspire a handful of geniuses, it is not universally applicable.

"Lean Startups" Model

Lean startups are about starting from a small idea and giving it a try, without knowing if it will succeed or not, and rolling along slowly with it until you end up with a successful new enterprise like the PayPal platform.

The vast majority of Chinese entrepreneurs, as well as numerous American ones, have followed the lean startup model. If Taiwan produces 10 great entrepreneurs in the future, I'm sure nine of them will follow this model.

That's because our brains have been placed inside the box through education since childhood, and you cannot expect to liberate someone that has been confined for their entire life.

But his (Thiel's) book is really excellent, and it gave me a lot to think about. The one thing I have to add would be that, in an Oriental cultural environment perhaps there are other ways.

Translated from the Chinese by David Toman