Half of the Unicorn Companies Will Be Closed in Two Years
With the motto of the Tsinghua University "Self-Discipline and Social Commitment", Xu Jinghong has implemented this spirit in the course of his life.
He was admitted to Tsinghua University at the age of 17. After receiving his master's degree in 1988, Xu started a teaching position and has worked as a teacher at the Tsinghua University for 30 years. From 2012 to 2018, when Xu Jinghong served as the Chairman of the Tsinghua Holdings Co., Ltd., the company's total assets have grown from RMB 58 billion to RMB 430 billion, jumping to the 137th place among top 500 Chinese companies in 2018, with its R & D capacity at the top three.
"My generation of the post-60s are full of dreams and ambitions. We have a fine tradition to do everything with the best effort and stick to the end. So whether to teach or run a business, the result would be not bad. I am very grateful." said Xu in an interview, "But I like better being a teacher."
Over the years, Xu has been dedicated to the innovative and entrepreneurial public welfare and was hired as a consultant and mentor to a number of organizations. The Cradle Programme launched by the Asia America Multi-technology Association which Xu served as President, has supported hundreds of entrepreneurs, including the founders of Meituan, Perfect World, Liepin, Liulishuo, and Pinduoduo. He was also the Vice-Chairman of the Zhongguancun Advisory Committee, the Vice Chairman of the Advisory Committee of Center for China & Globalization, the Chairman of the Brand Union, and the Chairman of the Qingling Project Mentors of the Overseas Chinese Charity Foundation, etc. In 2019, Xu Jinghong also formed Zhongguancun Longmen Investment Co., Ltd. as a partner and served as Chairman.
Gloria Ai: What kind of idea do you believe to achieve such a good result?
Xu Jinghong: It's about grasping the essence of business.
In this era, the most important thing is technology and then business. Technology is growing faster than ever before. Its rise is explosive. A country or an enterprise will not have a good future without great efforts in science and technology.
The second element is business. Technology can take many forms, such as managing a laboratory as a university teacher or doing research and development in an academy of sciences or an institute. But the fact is that technology can make its value, only when it is turned into applied products to meet the market demand through enterprises. To get involved in business is to grasp its essence — to work for the market demand.
The essence of business is in four aspects: qualified products or services, low costs, high efficiency, accurate, fast and extensive dissemination.
What is the role of technology? Technology is used to facilitate four things:
Technology gets into the industry to make better services and products, reduce costs, create higher efficiency, and make dissemination more accurate, faster, and broader. Such are the functions of technology.
Without technology, you may not perform the four aspects well. But if your application of technology is not for the four things, only for the sake of technology itself, you can't produce desirably either.
So it is a question of how we can perfectly combine business and technology. Its core purpose is to create value for the market, for a better society and the happiness of mankind. It is what I persevere in.
Gloria Ai: What do you think are the strengths and weaknesses of the science and technology innovation enterprises in China?
Xu Jinghong: China is now in a particularly critical period, which is a transitional point from the past rapid development to high-quality development.
In the past 40 years, what exactly has promoted China's development? There is no doubt that Reform and Opening-up has unleashed the potential we have accumulated for thousands of years. Chinese people are very creative and have abundant wisdom. As long as there is room for development, we can make it.
For 40 years, China's GDP has increased 271 times from RMB 364.5 billion in 1978 to RMB 99.09 trillion in 2019.
But from another perspective, we are still far behind the developed countries in original technologies, core technologies and key technologies. The autonomous rate of critical technologies and the ownership rate of basic technologies is only one-third, with the other two-thirds still relying on imports. As an example, the import volume of integrated circuits, one of the most important and core components for the future, has reached more than $300 billion in 2018, surpassing that of fossil oil.
We have weaknesses. But the gap in core technology is shrinking in recent years, which is a welcome phenomenon. Part of the core technology has even become our own capacities and strengths.
Gloria Ai: You have been in business for nearly 40 years. In your experience of assisting young founders as an investor, what pronounced shortcomings have you identified in the innovators of China's technology and innovation enterprises?
Xu Jinghong: I hope that entrepreneurs must have a calm mentality, rather than behaving impetuously, change from certain speculation to create real value. I advise not to define an innovator, whose core purpose should be value creation. But we have identified many problems in the process of starting a business, such as following the crowd and doing business for the sake of entrepreneurship. Such businesses may end in bankruptcy, which is actually a good sign for society. Many of us also turned means into ends. Is financing a tool or a goal?
Financing is a means of conducting business, but many entrepreneurs treat it as an end.
Going public is method, but not the purpose. Too many of us take listing as the result, which is a speculative mentality. Why? People may feel that the moment of listing makes one yuan yesterday become 100 yuan.
Huawai is not listed, but it is a success. Since it does not need financing, it's not necessary to be listed. When regarding going public as the purpose, it is profiteering. I really hope this kind of mentality and psychology will become less for investors or entrepreneurs. All things should be done step by step based on solidarity.
We ought to really and truly use our creation, with the value we can provide to society, in exchange for our success.
Gloria Ai: What kind of mentality do you think entrepreneurs should have to run a business?
Xu Jinghong: I would put it in a sentence: Grasp the essence, follow common sense, and focus on key points.
We are in an era of knowledge explosion. Many forums and training sessions may misguide the young people and I'm one of them. Many of us may experience impetuous and speculative moments.
The promising outlook of China depends on our revert to reason, ration, and essence, to create with our wisdom. So the essence of many things, in fact, is quite simple if we calm down and look into it.
Many enterprises facing difficulties have made a similar mistake — going contrary to basic common sense.
Gloria Ai: In the book The Principles of A Company That Will Never Die, we find many ways to kill a company, including capital chain rupture, the internal strife, the misinterpretation of policy, products as the false demand of the market, etc. Even some innovative products are rejected at an early stage. What's your interpretation?
Xu Jinghong: All innovations must be combined with reality. We can't rely on a single innovation to solve all the problems. Innovation sometimes can become a disadvantage too.
A good entrepreneur is encouraged to foresee three steps afar, think deeply about one step, and only take half step to walk fast. I'm not instigating business to go blind innovation. But I do advocate scientists to move ten steps ahead and faster, as it's their mission. Enterprises are amid market competition. If your innovation is greatly ahead of the time, you will be put at a competitive disadvantage. I hope young entrepreneurs take good consideration.
Gloria Ai: Many entrepreneurs regard "living" as one of the most important goals for the survival and development of their enterprises. What do you think?
Xu Jinghong: It is impossible not to die. Closing a company is normal and universal. Never dying is just exceptional.
Like human beings all end up dead, an enterprise should not fear death. The important thing is to constantly create value and keep pace with the times. When demand and markets change, enterprises should keep up with the changes and provide the products and services favored by the public, which makes their businesses survive and always be profitable.
Gloria Ai: When you stepped down as the Chairman of Tsinghua Holding Co., Ltd. in 2018, you treated it as a new beginning, decided to work on innovation and entrepreneurship for the rest of your life. Why did you choose to become an investor to embrace the innovative and entrepreneurial century?
Xu Jinghong: Investment can help entrepreneurs in the most direct way. Of course, the prior feature of the era I mentioned earlier is technology, and the second is what I called the integration and competition of the virtual economy and the real economy.
Nowadays, the relationship between the capital market and the real market is undergoing perpetual changes, with the capital market gaining more weight.
New capital models, such as venture capital, have greatly promoted enterprise innovation. For example, an enterprise in the past, super innovative though, if suffering sustained losses, it will be close to death in three years. Today's Meituan, JingDong and Didi are in full flush, but they are unprofitable and lose a huge amount of money each year, but their value is constantly rising, which is a power endowed by capitals.
What's more, owing to the power of capital, the industrialization, and commercialization of scientific and technological achievements have been accelerated.
It took a long time for the scientific and technological achievements of the past to have real access to the market. I have been working at the Tsinghua University for more than 30 years, and have witnessed our professors doing research and development assiduously. I think if we presume the laboratory investment as one, the pilot test will require 10 times of the investment, the real industrialization will need another 100 times of the capital, while the actual marketing and commercialization may cost 1000 times all together. To realize such a ratio, capitals apparently can speed up and support evolution.
So that's why I become an investor.
Gloria Ai: As the Chairman of Zhongguancun Longmen Investment, how will you support entrepreneurs, and innovators in the present dilemma?
Xu Jinghong: In the future, I may cooperate with various innovative and entrepreneurial institutions in different ways, hoping to empower the cultivation of the young generation by better, more comprehensive and perfect means.
Entrepreneurship and investment both have peaks and valleys, perhaps more opportunities will appear in the wintry time. I had a prediction earlier that in two years, half of today's unicorns would die, and more than half of venture capitalists would disappear. It almost turns out to be true.
In the winter of 2019, both entrepreneurs and investors have gotten more mature and rational.
Conducting business needs to be professional, intelligent, and mature. The capital wintry time is a process to help entrepreneurs and investors gain on maturity. Everything will get better in the future.
Gloria Ai: What do you think innovators will encounter in 2020?
Xu Jinghong: In this era, the luckiest people in China are those starting new businesses and bringing innovations. The fact is there is no place in the world, which supports innovation and entrepreneurship as China does.
Around 2000, I made a speech at a Zhongguancun forum, that China was the most difficult place for entrepreneurs in the world. Why?
Because at that time there was no established service system for entrepreneurship. Every entrepreneur must be an absolutely all-around person, having knowledge of technology, marketing, human resources, public relations, government relations, the conduct of business, and even hidden rules. But in recent years, no government in the world has supported innovation and entrepreneurship with such great investment and strength as in China. Moreover, one of my visions has finally been realized after 2014. The service industry for innovation and entrepreneurship is getting increasingly subdivided and improved, with the emergence of various entrepreneurial service platforms.
Since the introduction of mass entrepreneurship and innovation in 2014, the Chinese government has implemented tax cuts, initiated the STAR Market, and piloted a registration system to encourage the issuance of mass entrepreneurship and innovation financial bonds, free entrepreneurial services, and a series of policies to support innovation and entrepreneurship. Recently, the central budget invested 645 million yuan to support the construction of the mass entrepreneurship and innovation demonstration bases and supporting platforms.
China's innovative entrepreneurs today are in such a favorable environment and condition, with reassuring support available. With much fewer difficulties, everyone should be more confident to do business in a down-to-earth manner.
Gloria Ai: To foresee the future, what will you be doing in the next ten years?
Xu Jinghong: I hope it is the stage for a new generation of the time. I prefer to do less. If people like us is still on the front line, it will be hopeless.
I hope to continue what I' m doing in a decade, transferring my experience and resources to young innovators and entrepreneurs to help those post-90s, post-00s, post-10s to forge better businesses.
I also hope that ten years later, young people are still happy to work with me. I try not to lag behind. I hope that everyone use innovation and entrepreneurship to make a better world.