Going further is more important than going fast — Larry Li, Amino Capital
In order to better communicate and discuss with fellow entrepreneurs, colleagues and friends interested in investment; I have planned a series of articles where I will share my experiences, stories, investment thoughts, entrepreneurial insights, and even life essays, etc. I will publish these stories from time to time.
If there is any bias in my opinions, please correct me and share your input.
This time, let’s talk about whether companies should go far or go fast?
In 2020, the pace of global economic development had to slow down due to the pandemic. After a large number of bankruptcies, we will continue to see the falling of many unicorns and quasi-unicorns who once had glorious histories and rapid development in 2021 in the post-epidemic era:
Born in Silicon Valley in 2015, Katerra, a technology construction unicorn with a cumulative financing of over $3 billion, collapsed suddenly; Knotel is also bankrupt and liquidated, the company was once valued at over $1 billion in 2019, raised over $400 million in total, and had operations in 10 countries with 250 buildings in 17 cities…
It has been clearly demonstrated that going fast is no longer the criteria for measuring the success of a business. Sometimes going far can be much more important than going fast.
As a child grows up, he/she first learns how to crawl, then walk, and finally run-in stride. The same is true for the development of enterprises. Some companies grow too fast which will lead to negative effects.
Take the restaurant industry as an example. The common model is for customers to pay immediately after each meal, with the addition of certain promotions, making restaurants a very typical industry with sufficiently positive cash flow. The management can use their own funds instead of borrowing to support expansion, which is often the safest and most common way of financing. When the pace of expansion exceeds the limit that is supported by internal financing, it is possible to adopt a high-debt expansion policy to increase leverage. However, when the debt is too high and the scale becomes too large, the company’s original advantages and potential synergies will not only not be able to be brought into play, but it is very likely to bring a series of new financial and legal risks, and eventually fall into a serious business and management crisis.
In December 2013, the high-end restaurant brand South Beauty fell into a debt crisis due to poor management. The founder Zhang Lan went to court with the investment company CVC and had to transfer her 82.7% of South Beauty’s equity to CVC. In fact, it is not surprising how the company got to where it is today…
Early in 2008, South Beauty was very popular with a group of high-end consumers with its elegant dining environment and exquisite meals. In addition, the Beijing Olympic and the Shanghai World Expo appointed South Beauty as the only designated Chinese food providers at the events, helping the brand reach the peak in its growth. With the experience of the brand’s quick success from the inception, management continued to accelerate expansion even though it already had dozens of stores. Soon, the company’s own funds were no longer able to support the huge cash flow expenditures; therefore, South Beauty signed what would become a fatal gambling contract with CVC Ventures. The two parties agreed that CVC Ventures would invest 200 million yuan into South Beauty, under the requirement that South Beauty would go IPO at the end of 2012, otherwise CVC Ventures would withdraw by repurchase. By the end of 2013, with sufficient funds in hand, South Beauty decided to accelerate its expansion plan for the second time. The number of stores increased by nearly seven-fold, with over 80 brick and mortar locations. Due to the huge operating cost with the expansions, the company’s net profit dropped, and cash flow has once again encountered difficulties. At the same time, South Beauty has encountered multiple problems such as industry policy blows, poor food quality, and complaints of poor service. All these problems led to the rejection for the IPO application by the Shenzhen Stock Exchange. The founder, Zhang Lan, lost control of the company, and South Beauty, who used to “go fast”, finally faded out of consumers’ sight.
Such stories not only happen in the restaurant industry. Another well-known sharing economy company OFO also had a similar experience. OFO has experienced 11 rounds of financing, from the angel round to the E++ round, with a total financing of more than 3 billion US dollars. The $3 billion, combined with the financial investment of parent company Mobike, could give almost citizens in every city a free bike. However, most of these bikes do not play their roles in solving the “last mile” problem, instead they lie rusted and dilapidated in the dark corners of each city.
OFO’s unrestrained and rapid expansion is one of the main factors that led to its downfall. In October 2016, after completing a $130 million C round of financing led by Didi, OFO began to recruit a large number of operations and maintenance personnel to settle in third- and fourth-tier cities. They then began a nationwide crazy promotion, car shop and subsidy war, and announced they would expand at the speed of “one city a day”, entering 11 cities in 10 days in high capacity. After the Spring Festival in 2017, OFO increased the coverage to over 100 cities.
The success in one city does not translate to success in all cities; the success in first-tier cities does not translate the success in lower-tier cities. During the expansion process, OFO ignored two big factors including the human nature of users and the cooperation of local governments. In OFO’s pursuit of rapid growth, it failed to give itself time to conduct a detailed assessment of the quality of urban civilization, resulting in a large number of private use of bicycles and bicycle sabotage, which have resulted in great damage to the profit of shared bicycle operations; in terms of government support, it should have been a strong support system for shared bicycle economy. In reality it is not, and there is a precedent for failure 8 years ago. Before the corporatized operation of shared bicycles, the Guangzhou Municipal Government and enterprises cooperated with a business model of providing public services. The government proposed and approved the project and also provided support and subsidies to the winning bidders. Although there were nice goals and good wishes, the plan still failed miserably 8 years later. While omitting the details here, as far as the story itself is concerned, OFO did not pay enough attention to the lessons learned., and the tragedy repeated itself in the end.
Both South Beauty and OFO did go fast, but they did not go far. They created a growth miracle with capital leverage in the short term, but also inflated asset bubbles. When unexpected events occurred, they collapsed. On the other hand, studying the world’s mature first-class enterprises, they all follow the principle of “going far is more important than going fast”, develop steadily and have unique core competitive capability.
Companies competing at the top of the pyramid are often very powerful players. In many cases, the failure of an enterprise is not due to the suppression of known competitors, but due to its own poor management, strategic mistakes, or the development is out of touch with the times and technologies.
Disruptive opponents often come from other industries, and they move from one field to another with unprecedented speed: Nokia and Motorola are no longer the industry hegemons, it is Apple who came from another field; the banking industry is suffering from Alipay and the impact of mobile payment technologies such as WeChat Pay; Kodak’s market has been almost completely eaten up by smartphones. . .
Entrepreneurs need to keep pace with the times all the time. They must be prepared for danger in times of peace, not only focusing on immediate development or achievements but also thinking long-term, keeping in line with the development of the times in this process. As Google CEO Larry Page said, “if you have long term visions, it’s hard to lose everything.” Perhaps this statement confirms that it is more critical for enterprises to go far, and the secret to going far is to look to the future.
“Going far is more important than going fast” is not only applicable to companies in the middle and late stages of development but is also a golden rule in the startup circle. For a startup, no matter how fast you start, only going far will help you from a startup to a unicorn, and then from a unicorn to an industry giant.
People often say if you want to go fast, go alone; if you want to go far, go together. The growth story of a successful startup is often a perfect interpretation of this saying. As an early-stage venture capitalist, we can provide all the fertile soil for a startup who has potential and value to society, including capital and resources.; as a start-up company, you need to embrace capital with courage, and grow with investors. This is not only a win-win situation for both parties but is also a necessity for the long-term survival and development of the company.
AMINO has complete and mature post-investment services to help startups go further. Corresponding to the financial support, content and strategic support, resource docking, network introduction and entrepreneurial counseling. Under the guidance of our value add services, we have accompanied great entrepreneurs along their journey to success and have allowed the seeds of each idea take root and grow to become towering trees.
There have been many different opinions on how to make enterprises go further, and there are many heartfelt wisdoms shared by business giants on the Internet. There are three points that I personally endorsed and will share with you.
One, grasp the trend; two, keep learning; three, perseverance.
Each stage of human society has its own development path. What an enterprise needs to do is to grasp and follow industry trends, so the development of the enterprise enjoys smooth sailing with the natural support of its times. This is also in line with the philosophy of AMINO’s investment: rather than investing in a certain enterprise or technology, we are investing in future trends. Amino is lucky to be early investor of Chime Bank in 2013, now at the top of online bank.
Continuous learning means that companies need to continuously improve their innovation capabilities and use innovation as a core competitiveness. This also agrees with AMINO’s GSD deal flow near the establishment of the Stanford ecosystem.
GSD is Google, Stanford, Data Driven Investments. We have built a strong collaborative relationship with Stanford: the company is located on University Avenue, adjacent to the Stanford campus; in communication and exchanges with Stanford professors, students and alumni, AMINO has access to the latest and wildest ideas, which helps us keep up with the times, the latest developments in disciplines and the trends of the younger generation. Combining all this knowledge allows us to move forward more confidently in our investment directions.
In the process of starting a business, perseverance is especially a valuable quality. Recalling my own “entrepreneurship” story, my original intention to set up AMINO originated from a vision that emerged from a dinner with executives in the tech giants in Silicon Valley in the summer of 2012: to support entrepreneurship especially immigrant founders and innovation in a targeted manner, to help everyone make a breakthrough overseas.
Since 2012, my AMINO partners and I have been in contact with more than 5,000 entrepreneurial teams and 10,000 entrepreneurs and have invested in and supported a large number of high-quality projects, including unicorns in various industries, or companies that have grown over one hundred or hundreds of times. In the past ten years, we have experienced great joys, and inevitably there have been times of disappointment, but AMINO has never stopped moving forward — along the way, we have grown and succeeded together with those amazing entrepreneurs. Throughout the whole process, I fight all the time, all the while enjoying what the work brought me, allowing me to find my true passion. This passion has also given me the courage and confidence to keep going.
If an enterprise wants to become bigger and stronger, it is more important to go far than to go fast. Only by going far can we talk about development; only by going far can we talk about scale; only by going far can we have the chance to be favored by capital; only by going far can we have the possibility of being a successful entrepreneur. Therefore, in the darkest moment during the pandemic, we ask entrepreneurs to persevere, persevere, and persevere. Operating under huge pressure for an extended period of time, one may have to break their arms to survive, please remain positive for a better future.
Spring will always come, keep going forward. You will truly enjoy the spring when it comes.
In the more than 70 years of venture capital history, there are countless bright and shining names of investors and entrepreneurs. As a latecomer, in the process of reviewing history and witnessing the current new history, I often feel the limitations of self-knowledge and ability.
This writing is a summary and reflection of my past experiences– an exploration of the limitations of my understanding, and a re-examination of my own investment philosophy.
With all said, I hope all my friends who read this article can offer your advice and feedback. Please share your life stories and comments. Together, we can learn from one another and become better versions of ourselves.
Special thanks to Amino PR team and summer fellow for their editing job.
