Swimming with Asian Sharks - Business Secrets from the Pacific Rim

From Rice Box to Groupon

That evening, Mr. History introduced me to Mr. Marketing. Mr. Marketing is a marketing professor and director of marketing at Nottingham University, a Taiwanese man who is well connected in the Asian business world. Over dinner, Mr. Marketing told me about the start-up he was developing in Shanghai with Mr. Rice.  The company was building a Taobao clone geared towards snacks.  Taobao is an eBay equivalent in China with over 7 billion RMB a day in transactions.  The reason they picked snacks was because they had a friend inside Taobao who told them that snack foods was the fastest growing and most profitable division.  The company had been running about a year when it had to close down.  They had a burn rate of six hundred thousand RMB a month. I said, “Wow! That’s insane!” and his response was, "Yeah, that’s what happens when we have lots of people and lots of servers and lots of advertising.”

Most of their costs, believe it or not, went to advertising rather than anything else. It was then he told me that their next idea or attack would be to build an advertising company because there's significant wealth among companies trying to push their product. This was the first time I’d heard this. The second time I heard it was a year later, in March 2013, from a different source.

Mr. Marketing told me about his friend, the founder of the company, Mr. Rice.  Mr. Rice was born to be an entrepreneur. While he was going to school in the U.K., he noticed that his fellow Chinese students were not getting any good Chinese food.  He set out to create a Chinese meal delivery service.  This business not only helped him make ends meet, it also helped him launch his other business. Mr. Rice’s next business was a Groupon-like web service that he sold for over 4 million pounds.  With the money in hand, he packed up his things and flew to Shanghai to start the Taobao clone.

What led to the downfall of the company was the marketing cost. The cost per acquisition was approximately 9 RMB, about 1.50 CAD, for someone to visit the site, and on average this person would only spend 8 RMB.  This prompted Mr. Rice to close shop after about a year and move whatever he had left to Ningbo. Another issue was that it was always too distracting in Shanghai; there were simply too many people wanting to take Mr Rice out for drinks and all these other things, so he didn’t have time to sit and focus and build the things he wanted to build.

The lessons to be learnt from Mr. Rice’s story are the following:  Grow organically.  Paying customers to come is good, but having them come from free sources such as word of mouth is better.  This kind of marketing takes time and focus.  The next lesson to learn is that when you are successful, the world wants your attention, which makes it hard to do what you want to do.  Keep a low profile if you want to keep achieving at your maximum pace.