My first enterprise in China back in 2009 was a social community website for fashion-oriented, affluent Chinese. Together with three partners, one of which was a Chinese, we had developed the concept and launched a first version of the website.
These were the days of Kaixin and Renren but we felt we had a chance to start something unique and new in a clearly defined niche. China seemed the ideal place for this adventure: the Chinese middle class was emerging (these were the days when the Sanlitun Village was just becoming the new Mecca for this crowd), programmers were cheap, and venture capital firms were eager to invest in promising start-ups. In short, it was the new Eldorado for internet entrepreneurs – or so it seemed.
One and a half years later, we closed shop. The Chinese competition had proved to be formidable on their home turf. In spite of the fact that we had been onto a nice concept for a social community (think Pinterest for China), we had failed to attract critical user numbers. And a second round of investment we badly needed to boost our growth never materialized.
After three years of bootstrapping and an angel investment, we simply ran out of the means to sustain ourselves and to constantly add new features to the site (a necessity to remain competitive). We had spent three wonderful years pursuing our dream but now it was clearly time to wake up and move on.
This is, of course, easier said than done. Besides the psychological challenge of having to overcome “defeat,” my three partners and I were facing very real issues: how are you going to pay your rent? What about these open student loans that need to still be paid? What about China – is it still the right place to be?
Luckily, I had placed my bets on the right people: with one exception, our core team remained intact and we decided that we wanted to continue working together. I can’t stress enough how important it is to find the right people (and retain them) when starting your own business. After the quality of your actual business idea, it is easily the single most important factor as regards success and failure. Moreover, I was blessed with a great network of likeminded entrepreneurs and had two business coaches who helped me tremendously.
Then there was the question what kind of new business to start. After our grandiose idea had failed, we all were in the mood for something more ordinary but stable. So we decided to make use of the resources and connections we still had and to open a web agency in Beijing and Hamburg, Germany. To be sure, this was a different business altogether: first of all we needed to find clients.
Fortunately, there was (and still is) a considerable demand for quality web design and development in China. And as more and more Western companies realized that they needed to establish a web presence in China, there was also a growing demand for our services in Europe. More recently, there has been a surge in requests for mobile applications, SEO and social media marketing. To be sure, demand in China (from both Chinese and Western clients) is not the real problem.
But that doesn’t mean it is easy to run a profitable service business here in China. First of all, you have to ask yourself what core services you can provide and what kind of market you are actually operating in. For instance, it makes a big difference if you are offering web development services or if you specialize in digital strategy.
My recommendation would be to always focus on niche markets that require creativity, a keen sense of taste, and a theoretical foundation. You do not want to compete against an army of cheap labor. Second, you should always try and sell your working methods as much as your actual service. It is very challenging to be a service provider for Chinese clients, unless you find a way to guide your client through the process. You need to find a way to show your Chinese client the added value of approaching a project with a professional, Western methodology and workflow.
At the end of the day, no matter what creative service you are providing, you will need quite a bit of stamina to make it here in China. After four pretty intense years, we are finally able to choose the jobs we want to take on and to decide when to say no.
Today, we run a boutique web agency that does not only provide us with a stable income, but allows us to pursue other business ventures as well. We have managed to carve out a niche but only after we learned some important lessons the hard way. The good thing in China is this: there are plenty of entrepreneurs and professionals who are willing to share their China experiences and to help aspiring entrepreneurs. Do get in touch with these people. It may help you avoid some of the China traps and is certainly time worth spent.
Dr Johannes Kadura is the managing director of digital agency AKRYL, which maintains offices in Beijing and Hamburg. He is also a business coach at The China Expert.