Startup Lessons Learned Scaling a Brand and Community in China
China is notoriously one of the hardest business environments for foreign companies to operate in. It is often said business is stacked against outsiders. And it is.
Yet, as a market, China holds huge potential for many growing international companies. You can’t exactly ignore one of the largest customer bases. It is a a customer segment that is growing and spending.
For many businesses, China growth is a key assumption in their overall growth plans. Inevitably for many multinational businesses, the Chinese can’t be ignored forever.
In Mainland China, we’ve been working to develop our programs over the last year. Originally under UP Global and now as Techstars, we have been navigating Chinese culture and startup situation to grow our community programs, like Startup Weekend and Startup Next. Hard fought victories come with lots of entrepreneurial lessons learned.
In this four part series, our main focus as been about how to control your brand and operations in China. If you can’t control it, you can’t grow it. And, in China, control is not easily won.
In this fourth part, we will look at partnerships. Control allows you to grow, and one of the most common methods for developing your business in China is partnerships.
Partnerships are a key driver of most successful, foreign companies in China. There are a lot of good examples of this. Companies like Coursera and Uber have used partnerships to help get their businesses started and leveraged their partners’ existing distribution networks to scale and grow.
In my view, it’s very, very difficult for foreign brands to survive and thrive in China without good partners.
Do We Really Need a Local Partner?
For foreign businesses, it’s nearly impossible to go it alone in China. Few foreign businesses have succeeded without leveraging local partners.
While partnerships are a potential keystone for a China business strategy, they also come with risks. Get in bed with the wrong partner, and you’ll end up married to your enemy.
Find the right partners, and you might unlock a wealth of local benefits for your foreign brand.
For some companies, a local partner are how you protect your brand. They often provide the only reliable distribution channel for your product or service in the Chinese market. For some companies, legally you cannot even exist do business in China without a local partner. This is especially true in the internet and education space.
For better or worse, your business in China depends on local partners.
Look for Partnerships When You are Ready and at an Advantage
In Mainland China, Startup Weekend started out with a lot of challenges. We lacked control over finance, control over our information distribution and control over our marketing. We didn’t even control our local volunteers.
We knew we needed partners. We had brand equity abroad, but in China, no one knew us. Without a strong brand, gaining trust was difficult. We had little to leverage and a lot to learn.
Only after we had gained reasonable control could we think about partnerships. In fact, without control it’s doubtful we would have found partners.
It’s a tough situation to operate in. But not that different than most companies starting out in China. We are all at a disadvantage in China.
Since our initial operations were so weak and out of control in China, it was hard negotiating with partners. We couldn’t promise much.
At first, we could only leverage our existing, international partners to help us in China. The US Consulate was a good example. Their social media and regular presence brought us some recognition. Google was a less beneficial partner due to their weaker brand and reputation in China.
There were a lot of smaller, local Chinese companies who wanted to be our partner. They offered promises to grow our brand and program in China. But at a cost. There was also the sense they were using us to get something for themselves. We avoided lower quality, higher risk, unknown partners.
So, instead of attempting to find big national sponsors, we first focused on two things. First, we’d build out our local events, programs and communities. In the process, second, we’d develop relationships with local partnerships. Ideally these local partners would be a stepping stone towards bigger conversations.
Through local events and event-level sponsors, we could gain some traction. We could test out assumptions on what worked. We could better manage people, marketing and our identity too. We’d get data and experience. Low risk, high learning.
For us, our partnership strategy focused on building a relationship via smaller, local events. We rarely asked for much financially. We looked for getting partnership buy-ins on other aspects. They came as mentors, promoted us in their media or provided small prizes. Finally once we were ready we could discuss bigger cooperation agreements.
With partnerships in China, be careful of when and how you negotiate with partners. Perceptions matter.
If a potential partner sees you as a weak and needing, then you are unlikely to get a good deal with a reliable partner. You need to know where you stand and try to bring something strong to the negotiating table. Build up small successes, and once you are at a small advantage, seek partners.
For your Chinese partners, your lack of experience is a liability for them too. They expect you to be able to deliver even if it is only in your well-defined sphere. Any level of success in China will make it easier to find the right partners.
Be Selective About Your Partners and Select High Quality Partners
The question is not whether you need a partner in China but what kind of partner.
When you are seeking partnerships, you have to be patient. Ideally take steps to test out the partnership in some way first. Build a working relationship before ensnaring your company to one partner over others.
Most Chinese partners are seeking an exclusive relationship with you in China. Our experience is that partnership talks in China revolve more around control and exclusivity than cost and money. Be prepared to wait on any exclusive agreements.
In our case, we ensured a level of independence and strength, before pursing partnerships. We also tested out partners on a smaller event level first. Once we had gained some experience, we talk to partners from a more advantageous position.
Ultimately the key thing is quality. In our case, we have a strong, international brand. So, we wanted to be associated with the high quality partners.
For us, it matters more that we had the right kind of partners than the sheer amount they would pay us. In some cases, we turned down offers for larger amounts since the sponsor didn’t have the right history or brand fit for us.
In terms of who we work with for sponsors, we are an innovation- and tech-focused company. We leverage our network and community. As such, we work with brands and partners with similar focus and drive.
When you consider Chinese partnerships, you need to stick to brands that fit with you. Do your homework and ask outsiders about this potential partner. You need to know as much as possible about them.
Set Partnership Boundaries
In China, you’ll never completely control your partners. This post would be a fabrication if we talked about controlling your Chinese partners. It’s nearly impossible to do.
Instead, you have to continually iterate on the boundaries and nature of the partnership. Who does what? Which partner handles which aspects?
It’s important to set and follow your partnership guidelines.
We’ve seen many cooperations run into trouble when the local partner goes beyond the agreed terms. It’s inevitable that this will happen.
While it is impossible to ever full control your partner, boundaries must be set. When you see something that breaks with your agreed terms, you need to be proactive and inform that partner.
Often times as Westerners, we shy away from confrontation. We assume it was a one-time mistake. In China, you have to have to be confrontational at times to make it clear what is right and what is not. A one-time mistake might be them testing your tolerance.
For us, we are happy to have found some good first partners. In general, the relationships have been good. The strength of these partnerships lies in the shared mission to help young people start their own businesses and educate innovation. If you aren’t aligned on something, it’s hard to work together.
We’ve focused on only working with partners with the same reputation and standards as we do. This is hard when the general business environment is so wild in China.
While we recognize the need for more strong partnerships, we are very cautious about who we work with. Due diligence in China likely needs to go to a whole deeper and requires more patience. Don’t get in bed with someone you aren’t 200% sure of. If it doesn’t quite feel right, then it’s best to wait.
Ultimately partnerships are one of the few ways to be successful as a foreign business in China. You have to be selective about who you work with.
Focus on quality, trust and brand alignment over some dollar amount. Since choosing the right partners might be the birth or death of your enterprise in China, make it the one decision you get right.
Conclusion: International Growth Requires Some Level of Control
International growth is not easy for any brand or company. Frankly, it’s scary and uncomfortable going abroad. Sometimes you expand in one metric that might look strong, but that process may have come with a certain loss of control, understanding or a partnership that brought other baggage.
In globalizing, you have accepted a local culture or practice but then wonder how truly related it is to the original. Did you adapt in a way that break with your tradition?
In understanding and growing our operations in China, it’s often been the following formula: get control and find the right partnerships.
Specifically, controlling how our information get distributed, how are finances are controlled and how our marketing and brand gets showcased have been beneficial to our sustainability.
Having control meant we could have the right partners.
Startup Weekend is a huge international brand, event and community. It’s gone well beyond ownership by any one individual or group. While Techstars has ownership over the brand and we run a multinational management system, its collective ownership and sharing has largely made it such a ubiquitous thing. People do it together.
On the partnership side, we focused on getting high quality sponsors involved in a small way, i.e. as an event sponsor or event mentor or judge before looking to capitalize on bigger cooperations. This has been a good formula for us.
It makes sense for foreign business in China to build small successes and develop initial working relationships with partners. Before getting into complicated contracts, find a way to do something smaller together.
For China, be patient and keep control as you grow and scale. Once you lose control you’ll end up like a lot foreign business failures in China: out but not sure why. You leave without really understanding why or what happened. You failed but you don’t understand where you went wrong.
For businesses looking at China as their next growth market, I can only repeat our central theme: be aggressively controlling. This means controlling all the hairy details of your operations. Once you have that control, seek partnerships. Aim to cooperate with value aligned, high quality partners.
For China, you have to survive before you thrive. Hope these guides have helped.