Jack Ma is the co-founder of Alibaba, one of the world’s biggest online Business to Business sites as well as other highly successful Chinese ventures like Alipay, Aliexpress, Tmall and Taobao. Having read Made in America, The Everything Store and Delivering Happiness, this book was a natural choice.
Charisma and Vision
If there is something leaders need it is a strong charisma to convince other people of their vision. If you read Steve’s biography you will know about his unreal ability to convince other people of his ideas. Jack has a similar ability, since the early days and from the confines of his modest apartment, he had confidence in his business to take on the giants of Silicon Valley.
Jack has a unique Chinese combination of blarney and chutzpah. One of his earliest foreign employees3 summed up for me his qualities in two words: “Jack Magic.” In this respect, Jack shares a characteristic with Steve Jobs, whose charisma and means of getting his way were famously described by a member of the original Apple Macintosh design team as a “Reality Distortion Field.”
Zhang Hong, a student at Jack’s English night school which joined Alibaba recalled:
“Nobody else saw the opportunity in this business. . . . We didn’t make much money at first, but [Jack] persevered. . . . I respect him tremendously for he has a great ability to motivate people and he can invest things that seem hopeless with exciting possibility. He can make those around him get excited about life.”
The Iron Triangle
Alibaba’s success is based on what Jack calls the iron triangle. It is the triangle built by the company’s success in e-commerce, logistics, and finance. Alibaba’s e-commerce is based on private couriers which are highly competitive and thus keep the cost down.
Decentralized E-commerce
Unlike Amazon, Alibaba’s consumer websites Taobao and Tmall carry no inventory.8 They serve as platforms for other merchants to sell their wares. Taobao consists of nine million storefronts run by small traders or individuals. Attracted by the site’s huge user base, these “micro merchants” choose to set up their stalls on Taobao in part because it costs them nothing to do so. Alibaba charges them no fees. But Taobao makes money—a lot of it—from selling advertising space, helping promote those merchants who want to stand out from the crowd.
Logistics
Without the low-cost delivery that the courier services provide, Alibaba would not be the giant it is today. To survive in a cutthroat industry, some of the courier firms have adopted clever methods to keep costs at rock bottom. In Shanghai, for instance, couriers shuttle back and forth on the subway, passing packages over the barriers to one another to avoid buying multiple tickets.
But none of these couriers are employed by Alibaba itself. Most of the packages in China are delivered by private couriers. Where for-profit delivery services have yet to be rolled out, mostly in the countryside, China Post handles the rest.
Alibaba also invested in a firm called China Smart Logistics or Cainiao, which is a combination of fifteen logistics partners. Their combined delivering power is more than 30 million packages per day and they employ more than 1.5 million people across six hundred cities.
Finance
Alipay is Alibaba’s payment solution. But it’s much more than a simple payment solution. It handles trust through a service called an escrow. The definition of escrow is: a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled. Trust is highly sensitive in online business.
By far the most popular online payment tool in China, Alipay handles more than three-quarters of a trillion dollars a year in online transactions, three times the volume of PayPal and one-third of the $2.5 trillion global online payments market. In the peak early minutes of Singles’ Day 2015, Alipay handled over eighty-five thousand payments per second.
Helping your people
Jack seems like an unconventional co-founder. From the get, he shared stackes with all of his employees. Jack cares for his people.
Joe’s first task was to document Alibaba’s shareholders: “I called him up and said, ‘Jack, I’m incorporating the company. Who are the shareholders?’ He faxed me a list of the names. My jaw dropped, because every single one of those kids in the apartment was on the list, as a shareholder. So from day one, he gave away quite a lot [of equity].” But as Joe looked through the eighteen names he realized that “everybody was a crucial part of the team, whether an engineer or in customer service.” He laughed as he recalled the nickname Potato for cofounder Lucy Peng, which she used when answering emails sent from Alibaba’s Western customers.
…A more tangible benefit for the couples and other Alibaba employees is the interest-free loan of up to $50,000 offered to finance the down payment on a new apartment, an increasingly valued perk for staff members working in high-cost cities like Hangzhou and Beijing. Thousands of employees have taken advantage of the loans, amounting to several hundred millions dollars today.
Jack’s philosophy came from a bad experience with his first Internet ventures called China Pages. 70% of his company was acquired by another one called Hangzhou Dife Communication.
Years later, after Alibaba had become successful, Jack was free to comment on the experience. China Pages was dwarfed by its new partner, and while Jack was the general manager, the position turned out to be of little value. “When the joint venture was formed, disaster followed. They had five votes on the board, and we had two. Whenever there was a board meeting, whatever ideas I put forward, if one of them voted against it, the rest of them followed suit. During five or six board meetings, none of our ideas were passed.”
Jack also points to China Pages as influencing the way he would structure his subsequent ventures: “From then on, I have held a firm belief: When I start businesses in future, I will never hold the controlling stake of a company, making those controlled by me suffer. I will give plenty of understanding and support to lower levels. I have never once had a controlling stake at Alibaba. I am proud of this. I am the CEO of the company, because I lead it with [my] wisdom, courage, and resourcefulness, not capital.”
The former Alibaba.com CEO added that the 2007 IPO gave him two insights into Jack’s approach. The first was something that Jack had often told him: “Raise money when we don’t need it. When you need it don’t go out to raise money, it’s too late.” The second was that the IPO allowed Alibaba to take care of its employees: “Jack understands people more than any business. He knows business well, but if you ask me the three skills Jack has amongst people, business, or IT? IT is the worst. Business second. First is people.”
Culture
Alibaba encourages a sense of informality at work. Every employee is asked to adopt a nickname. The practice is so widespread that it can invite confusion when they have to search to find out the actual names of their colleagues to communicate to people outside the company. Initially, the nicknames were drawn from characters in the novels of Jin Yong or other stories of martial arts and bygone eras. As Alibaba grew this pool of names was soon exhausted. Using their nicknames, employees post comments about the company’s products or culture on Aliway, the company’s internal bulletin board. They can even initiate polls or invite the support of their colleagues to dispute assessments or management decisions, and address suggestions or complaints directly to Feng Qingyang. That is the name of Jack’s online persona, a swordsman from one of his favorite martial arts novels.
Employees are discouraged from ever complaining—a pet peeve of Jack’s—and encouraged instead to shoulder personal responsibility, carrying out or delegating tasks rather than waiting for orders from on high.
Military terms crop up a lot at Alibaba. Top-performing individuals at Alibaba are known as King of Soldiers (bing wang). Fictional character Xu Sanduo is sometimes used to illustrate management’s message. In the 2007 TV drama Soldier’s Sortie, Xu, a shy village boy, rises despite the odds to become an elite soldier in the People’s Liberation Army.
Teamwork
Instead of results, Alibaba’s culture focuses on the process.
“Teamwork” at Alibaba means regular group games, songs, and outings. These can come as quite a culture shock to employees joining Alibaba from firms based in Silicon Valley. But for those fresh out of college, the system of apprentices and mentors is well received, including the routine of holding regular meetings to “kick off in the morning and share in the evening.” One former employee summed it up: “Lots of companies focus only on results: You have to complete a certain number of orders. Alibaba takes the opposite approach: If you want to complete a certain number of orders this month, what do you need to do every day? By breaking it down into phases, each day could be dedicated to one key step in the process—and eventually you wouldn’t be far off from your goal.” Recognition of high performers in company-wide announcements helps, too, as do the prizes awarded to the “A-teams” (lao A, a military reference), ranging from Louis Vuitton wallets, belts, and limited-edition sneakers to monthly bonuses of tens of thousands of yuan or even a car.
Jack’s Hustle
Jack gave great benefits to his employees but he also demanded a strong work ethic.
Watching from the sidelines, Jack realized he would have to hustle if he was to ever catch the attention of VCs or catch up with the portal pioneers who were speeding off into the distance. For Alibaba to thrive he would have to foster a relentless work ethic, ensuring a clean break from the bureaucratic culture that he and some of his colleagues had just left behind in Beijing. Jack exhorted the group assembled in his apartment to “learn the hard working spirit of Silicon Valley . . . If we go to work at 8 A.M. and get off work at 5 P.M., this is not a high-tech company, and Alibaba will never be successful.”
Don’t plan, embrace spontaneity
When Tex Dean interviewed Jack he was surprised by his enthusiasm and charm. He quoted him in an article saying,
“If you plan, you lose. If you don’t plan, you win.”
After working in Beijing, the land of the five-year plan, I found Jack’s spontaneity refreshing. Foreign professionals2 began to enter Jack’s orbit, giving Alibaba an international flavor within months of its founding. Alibaba also had a strong component of female executives,3 adding to the achievement of women making up one third of its founding team—in contrast to many Silicon Valley–based companies.
Starting a Business requires Wisdom
Jack has always been dismissive of business schools: “It is not necessary to study an MBA. Most MBA graduates are not useful. . . . Unless they come back from their MBA studies and forget what they’ve learned at school, then they will be useful. Because schools teach knowledge, while starting businesses requires wisdom. Wisdom is acquired through experience. Knowledge can be acquired through hard work.”
Good Companies don’t have to worry about the Economy
Much in the spirit of what Warren Buffett and Charlie Munger preach, Jack believes that good companies don’t have to worry about where the current economy is positioned.
For Jack, the bursting of the bubble represented a great opportunity for Alibaba. “I made a call to our Hangzhou team and said, ‘Have you heard the exciting news about the Nasdaq?’ . . . I’d like to have had a bottle of champagne on hand,” adding, “This is healthy for the market, and it’s very healthy for companies like us.”
Competition should bring Joy
If you treat your opponents as enemies, you have already lost at the beginning of the game. If you hang your opponent as a target, and practice throwing darts at him every day, you are only able to fight this one enemy, not others. . . . Competition is the greatest joy. When you compete with others, and find that it brings you more and more agony, there must be something wrong with your competition strategy.”
Jack Ma
Communication is the underpinning of commerce
One of Taobao’s earlier competitors in the online market space was Eachnet. Eachnet started out not charging fees to its sellers but facing the economic crisis of 2001 and the acquisition by eBay, it started charging fees, copying eBay’s model.
Meanwhile, Taobao’s decision to forgo charging fees was not without risk, since it forced it to look to other ways of generating revenues, especially if the site became popular and drove up operating costs. But making the site free for both shoppers and merchants turned out to be the key factor in ensuring Taobao’s triumph over eBay. A research paper that analyzed more than a decade’s worth of transaction data on Taobao concludes that in the early phase of the company’s history, attracting merchants, who in China are especially allergic to paying fees, was more important than attracting shoppers. Taobao’s popularity was fueled by a “virtuous circle”: More merchants and product listings meant more shoppers were attracted to the site, which meant more merchants and products, etc.
In addition to being popular with consumers, offering free services ensured that Taobao was not distracted by a persistent problem that plagued EachNet from the beginning: worrying about how to prevent vendors and consumers from figuring out ways to use the website simply as a place to connect with one another, then conducting their transactions offline or through other means. As Taobao charged no fees, they had no incentive to police this behavior. On the contrary, Taobao actively encouraged communications between the transacting parties by setting up bulletin boards and, beginning in June 2004, launching an embedded, proprietary chat window with the unfortunately in English named AliWangwang.27 Buyers on the site use the service to haggle with sellers, which resonates well with the vibrant marketplace culture in China. Communication is a key underpinning of commerce, but eBay users struggled to communicate with vendors.