notes i took a long time ago from some talk he gave

Introduction / Story

• I was trained as a scientist before I decided to do business in 1996
• First part of my learning process – SV – 98 to 99, co-produced TV documentary called Journey to SV.
• Robin and I – Shared value to do something
• Started operation in Beijing, Jan 2000
• Learning as we grow
• None of us had management roles in the past. Hadn’t managed people before. Learning process. We figure out what things work, what things don’t.
• IPO 2005 on NASDAQ. US$40m revenue. Broke records. Single IPO day gain in terms of stock price, 350% gain on the first day. By 2007 Baidu was included as first CHI firm in NASDAQ 100 Index.
• Revenue grew to US$468M. Company has been doing fantastic financially.
• What did we do right? Reflection process.
• Disclaimer: Baidu is a public company, whatever I say is my personal view. Baidu is an Internet tech company based in China. What I share may or may not work elsewhere. But I believe in these fundamentals.

Defining a successful startup

• From financial performance, investment POV. Market valuation.
• Baidu– 2 persons to multi-billion-dollar co. $9.5B market cap. We’re offering our investors huge return. SG govt invested in two separate VC funds which invested in Baidu in the early stages. Offering 100x to 800x return, depending on when they exited.
• How to increase market value, from VC standpoint and startup standpoint? Increase chance?
• There’s no guarantee.
• Long term competitive sustainable advantages. And of course there are outside factors. These are inside things. Things you can control.
• I believe you have to be striving to become the best in a combination of areas. Huge business success. One area of superiority is not enough.
  • Several variables working together consistently over time.
  • Successful companies are rarely the first ones to do what they do. No first mover advantage. They figure out a way to do better. (Amazon, Google, Ebay…)

Equity structure

• How the shares are distributed– founders, investors, stock options. These are more relevant to high-tech companies. Very critical.

Founders and Culture

• Founders are critical. They’re responsible for 3 things:
  • Ultimately responsible for company culture
  • Strategic vision
    • The direction of the company. You can change, but eventually you have to pick the right way. That’s the key. Founders are responsible for that.
  • Building the right founding team – not the smart team.
    • Always a question– Baidu at the time– all the way to IPO and all the way to the current status– I don’t think we are having more talented people than our competitors, than Google in China, than Yahoo. Those bigger companies have better resources, they can hire even more talented people. They can offer better packages. We have many local companies, some the founders are super smart. In terms of IQ, I don’t think we are better. A lot of people are better than us. This is true for many companies which are successful.
      • Why?
        • Startups always have a chance to succeed – because the bigger companies can make mistakes, big mistakes. Yahoo at one time was trying to buy Google. Google offered a price, Yahoo didn’t buy, Yahoo said it was too high. We can do the same thing as Google.
• Independent thinking + open-mindedness is very important.
  • Shared values are very important. Attract people who have agree with the same culture.
  • EQ.
• Candor – learned from Jack Welsh, talking about how he manages GE, in his book Winning. 3 things.
  • Frankness + Constructive confrontation
  • Confront the brutal truth/facts of the situation. We’re facing so much competition. What are the competitors doing better than us? Be very, very frank. At any level of company meetings. Discuss why we did poorly in certain areas compared to our competitors. How can we do better?
  • Best idea wins, doesn’t matter where it comes from. So everyone can make a difference.
  • “Any organization that brings more people and their minds into conversation has an advantage” – Welsh
  • One of the key reasons startups can defeat bigger companies is that they build a mechanism/environment where they can attract the proper talents and build long term sustainable competitive advantages– more minds.
• Execution – mentioned many times in MBA courses and talks. It’s really about people. You want to find the people who can execute and are accountable. Take full responsibilities.
  • When someone is not doing his job, project is not done properly, those people do not blame and do not come up with excuses. It’s my fault. Fire people who give us excuses for not getting things done. Those people are gone, period.
  • Strongly result oriented and never give up mentality.
  • John Doerr – Kleiner Perkins – ideas are important but execution is everything. John started in Bay Area in Intel, then joined Kleiner Perkins. Top tech VC firms in the world, in the US at least.

As a startup you want to do one thing better than anyone else– you want to choose the right thing – the core business.

• In order to do that, you need to identify the drivers for your business. Getting to more details– usually we’re talking about operation drivers like how you’re going to evaluate your market share. What’s your driver for the top line– Your revenue/output? What’s the driver for your bottom line? Constantly evaluate this. Have a high predictability in terms of your future, in terms of your financial performance. As a founder, you should start getting these ideas from the very beginning.
• Throughout the course of this startup– you have to stay focused. Say no to big opportunities. Eg– in Baidu’s case, we were at one time (2002-3), building up market share, have a lot of search traffic. At the time there were different models evolving. You can do SP business, Social Network, other things with all that traffic.
• Our board asked us to try. We actually turned down many businesses. We even shut down one search-related business, which is enterprise search. Baidu is a consumer brand. But once upon of a time, we had a business that provided internal enterprise search. But we shut it down in order to really have the focus. In our mind, Search is so critical to the Internet, that given China’s market growth, if we maintain and grow our search market share, given our keyword based advertising model, it’s growing faster than any potential acquisition or any other business. It turned out to be true.
• James Collins – Good to Great. Focus on what you can potentially do better than any other organization. ONLY path to greatness. Collins was talking about Enterprises evolving. He did some systematic studies. Key conclusion, also applies to startups.

Capital is kind of simple, but critical for startup success.

• In Baidu’s case, we closed our Series B right before the tech bubble burst. That $10M really carried us running through different business models and eventually we found the one that really work.
• My suggestion would be never run out of cash, raise money wisely.
• I believe in conservative spending. No matter how much you raise– in 2000 when we raised $10m– we didn’t want to mention it in public. There are many companies raising $20m, $30m, etc. $10m is really nothing. But eventually we found many of those companies with big fundraising successes just vanished.
• The size of a CEO’s office in a startup is inversely proportional to the success of the startup.
• When we started- me and Robin were in the States for 10 years before moving to China. We were trying to rent all these offices– asked my friends, my father to look for office buildings. We picked one next to a University, we really liked it. The rental is okay, so we move in. Then I realized– the number of the office is 14-14. Inauspicious. The other is 14-17. Then I realized, that’s why those two offices are always empty.
  • As long as you do something fundamentally well, you still get a chance.

Independent growth

• Never count on others for your success. You can and should collaborate, but in the bottom of your heart, you have to tell yourself that you are responsible for the long-term and bigger success of the company. This is so true. I cannot really elaborate.
• Organic growth vs M&A. I personally believe that as a startup, you should go for organic growth. There are M&A opportunities– if you look at Baidu, we have never done any official announcement for any major M&A. It’s not that we’re not looking for opportunities for acquisition… there are many many issues, the integration, the culture, many things. If you go into MBA courses and management books, you’ll find out. I personally believe there are more failures than successes.

Summary – to build a sustainable long term competitive advantage

• Mentality of competency in multiple areas, very important
• effective company culture
• focus and achieve market leadership
• handling financing and money intelligently
• grow independently