How does Alibaba do innovation ?

Why is it so difficult for big companies to innovate? Is it because big ships are difficult to turn around? The co-founder and chairman of Vision Knight Capital, Wei Zhe thinks that, it might be because big companies didn't find the right way. Appointing a project team or pouring in lots of money may not be the good solution. To improve innovation efficiency, the most important thing is to restore the entrepreneurial environment of ‘getting something for nothing’.

‘Big company gesture’: the failure of Ali Software

Alibaba is not a God-like company. It has made a lot of mistakes.

Back to 2007, Ali wanted to become a company called Ali Software. At that time, the dream looked very promising: a world-class enterprise software for one yuan per day. That is to say, let small and medium enterprises to use enterprise software for one yuan a day .

At that time, Ali already has hundreds of thousands of paid small and medium enterprises customers, and a very good technical team. We feel that this is just a matter of time.

Ali Software invested 200 million yuan for two years. But it never came into existence.

So, all of us had to sit down for a post-game analysis: why did we fail?

1. Innovation is not achieved by appointment

At that time, the person in lead did not volunteer, but was appointed. The CEOs said something like: “Mr. Wang, I think you are good. Go get the innovative project done.” Forced by the boss, Mr. Wang said yes. In fact, he felt that this project was unpromising, and he had no confidence in it. However, he never said anything about it.

Please ask yourself: was there anyone who appointed you when you decided to do business? No. Innovation and entrepreneurship must be self-driven, one must believe that they is promising.

2.Innovation is not built with money

We criticized Ali Software for being over generous. Two million investment all of a sudden is simply too much. If you invest more money in the project, more stupid people will become.

With a lot of money , you are pursuing the rate of return on investment, the rate of input-output. And this is under the premise that the company got together a responsible team and paid for it.

But without money, you would not be thinking about the rate of input-output. What you might be thinking is: “I want output without input.” The entrepreneurial period is the period when you have no money, when you want to get something for nothing, and when you are the smartest.

The success of Alimama: reduce the entrepreneurial environment

Later, Alibaba started a project called Alimama.

Ma Yun (Jack Ma's name in Mandarin) has a lot of thoughts about weird names. He felt that ‘baba’ (the pronounciation of ‘father’ in mandarin) would be very lonely without a ‘mama’, so he registered the domain name in an early stage. You can also know from the name of this project about how important it is. This project is the other half of ‘Alibaba’.

Today, nearly 70% of Taobao's incomes are related to Alimama. It is in fact an advertising system, that is to say, the alliance of Alizhitong, Ali diamond booth, and, Ali Taobao is based on Alimama.

This project would have cost a lot of money. At that time, Taobao did not know how to make money yet. They felt that advertisement seemed to be reliable. But, back then Alibaba did not have a team, internet advertising genes and technology. How can did they make it happen? At first they wanted to buy another company. The bid was 400 million US dollars.

Ali did not have this amount of money, so the target company was bought by others. Later, Ali financed 1.7 billion dollars, went to the buyer of the target company and suggested: “since you just bought it for 6 months, would you sell it for 1 billion now?” But the buyer heard that Ali got 1.7 billion, so they replied that they would sell it for 1.5 billion.

This was unacceptable. For 1.7 billion dollars, they had to run a road show all over the world. They could not afford it.

There is no retreat in entrepreneurship. They couldn't afford it, so they decided to do it by themselves.

Would you like to guess about how much Ma Yun was willing to spend on this project?

Why would I bring about these two prerequisites aforementioned?

Recall that, Ali was willing to buy that company for 1 billion. Now we know that the project of Alimama is a big success. How big is it? About 70% of Taobao’s incomes are related to it.

So, how much were they willing to spend on this project? Ma Yun stretched out two fingers. One of our colleagues stood out: “200 million dollars, right?” Ma said, “No, it’s too much” “So, 200 million yuan?” Ma said, “No.” “What about 20 million yuan?” Ma said, “2 million yuan.”

Ma Yun is terrible with mathematics. Sometimes poor math is very difficult to deal with, his algorithm is not the same as yours. Ma said that, his calculation was something like this:

“In 1999, a dozen of people scraped together 500 thousand yuan to establish Alibaba. In 2008 the listed part of Alibaba is worth two or three billion dollars. Even if we take full consideration of China's inflation rate, I think that 2 million yuan in 2008 is still more than 500 thousand in 1999. If 500 thousand is enough, then 2 million should be enough, too.”

Who can do this?

Who can complete an innovation project with 2 million yuan? We asked for applications in a certain range: the company will invest 2 million. You can also participate in investment, accounting for 20% to 30% of the total, which means 400 thousands or 600 thousands. If you are an employee of the group, your original position, wage, and equity share shall be removed.

If you can do a good job, the company will make additional investment with venture capitals, and finally merge them back to Taobao.

All things were included in this two million. Even if you were using the company's office, lawyers, or computers, you still had to pay for them. The salaries of the staff were also included.

How to spend two million

Office: The first thing they've done was to find Ma and say to him, this is too harsh. We are going to the place where you started - the lakeside garden. So the rent costs were saved.

Human resource: Executives decided not to take wages, so the cost of human resource were also saved.

Servers: Why would it take 200 million yuan in the first place? Because it has to. Our calculation suggests that this project needs a lot of traffic, including the whole traffic of Ali and a lot of external traffic. No matter how, it would take at least 5 thousand servers. At that time a server would cost at least 20,000 yuan. The investment for servers would cost 100 million. With two million yuan, you can not even afford to rent them. So, the team went everywhere in the company to find completely depreciated, scrapped servers. They found 2700 units. Engineers are very creative, they managed to make the 2700 old servers work like 5000 new servers through different architectures.

External traffic: How about the other half of the original investment? Alimama needs external traffic as much as it needs internal traffic from Taobao. But at that time, the external traffic was monopolized by Baidu or Baidu's alliance circle. The division system of incomes seemed to be 6:4, Baidu takes the 60%. We declared a policy of 95: 5, we take 5%, you can take 95% on the condition that there will be no prepayment. Many websites didn't dare to challenge the Baidu alliance, so all of a sudden the Taobao alliance played a subversive role. In the end, the project succeeded.

Summary: If big companies want to innovate, they must return to entrepreneurial environment.

The whole process is like this: we went back to the environment in which Ma started his business, with merely two million yuan and thinking about how to ‘get something with nothing.’

Let them rely on their own

At that time I also thought that, these people were mainly engineers, that they knew nothing about how to set up a company or how to do businesses or taxes. Perhaps we can ask the company's legal department to help them. Ma said: “No. If you do so, it will make our engineers become captive animals. But the business needs wild animals.”

Who said that engineers should not learn how to do registrations? Who said that engineers should not learn how to do taxes, or engage in social relations? They must do, this is their viability. We can not give all of these things to an outsource. They must become wild animals, not captive animals. We all know that captive animals such as pigs or sheep are kept to be slaughtered. Wild animals, however, slaughter. A wild tiger can eat someone alive.

Internal venture investment

I used to ask Ma, what if 2 million is not enough? He said, if we lost 200 million we would not dare to try it again, but with 2 million, if we try it 100 times, there will always be a success. So, Ali always has a creative part, which is called the creative environment. In this way they can improve the efficiency of innovation and enhance the success rate of innovative projects.

On the other hand, there is another benefit in doing so.

There will always be a lot of cynical remarks or rumors as long as there is a company or organization. The best solution is, let the company go back to a fair, just environment free of rumors.

For example, if the company really cost 200 million dollars to make things happen, there would have been rumors like, that person is good with Ma Yun, so Ma gave him 200 million. In fact, I can do it for 100 million. If I failed on this, the sarcastic remarks would be more ugly: because of his good relationship with Ma, 200 million dollars was surprisingly not enough.

But how did it happen really? They have to sell their own shares, throw away their titles or positions. Did someone mention a good relation with Ma? Where were you when we were calling for applications?

Author: Wei Zhe

Original article

#Alibaba #Taobao #Baidu