She's naive. There's no way that I'd consider doing a software startup in China, and I live here. There's just no good way to make money at it.
First, it's damnably hard to get people to pay you for anything software based. With the rampant piracy, nobody has ever needed to pay a dime for anything. Convincing people to BUY software is virtually impossible. Even if you could convince people to pay, the payment systems are byzantine at best. Forget credit cards, you'd better be prepared to go collect cash from people at home or work.
Advertising-based models MIGHT work, but the competition's going to be tough. You'll be competing with corporations like Google, Microsoft, YouKu, and others that have billions to burn while they build marketshare. However you might succeed. Games like WOW can also make money.
Regardless, if you start making any money, it will probably be taken from you. The government already has its fingers in your pie, because you must get licensed from the government to run a website. That means dealing with government officials who will demand kickbacks, or might just up and seize your business. The same goes for any partners that you have, who will inevitably try to squeeze you out and take over any profit-making venture. The odds of you having your business simply taken from you are very very high.
Naturally, you have absolutely no legal protection for anything. Zero. If anything, the courts are your enemy, because they side with whoever has the most influence and that's not you. Your employees embezzle from you? Your competitor (or a partner) steals all of your equipment? Government officials demand "protection" money? Too bad! Better luck next time. You can also forget about patent, trademark or copyright protection, but that goes without saying.
I'm not even going to cover things like hiring engineers or building hardware here, which have their own special headaches.
It's not impossible to make money here, but 99% of the time the risk/reward ratio isn't worth it. Personally, I'm basing my company in California and targeting the American market. We might eventually come to Hong Kong or Taiwan, but I've written off the mainland as a lost cause.
One more thing. If you're doing any kind of social or media business, and you've never had to deal with government censorship before, you're in for a new special kind of hell.
I watched Google build up all sorts of Government relationships, spend ungodly amounts of money, make soul-tainting concessions, and then have it all blow up when somebody posted banned videos on YouTube. The whole site was instantly blocked, and it's still down after several months. You can be shut down at any time, for no apparent reason, and there's no recourse.
This is because you do not know how to navigate properly in business in other countries. Have you ever done business in Tanzania or Senegal or Kazhakstan or Peru? You'll have the same problems, sometimes a lot worse.
If you cannot navigate the business processes in china, then you are not cut out for it.
The basic issue is this - if you are starting a business in China, you start with a core team of chinese people whom you trust, who are efficient and who know the city. Then you hire properly - your administrative staff make or break your business in china.
If you march in with a white face and expectations, you'll get what's coming to you - nothing. In china, you need to do things the right way. And to do things the right way, you need to know what the right way is. And you don't.
If I do base my business here, what's the upside? As a tech startup, I can make far more money in the developed world for a lot less hassle. Doing business from the Valley also doesn't require compromising my personal morality or professional ethics, and I won't be constantly looking over my shoulder just because I'm white.
I know what the "right way" is. That's why I don't want to play.
What you said is exactly what Sarah's argument is. For the constraints and the whole chaos situation in China, it is definitely not gonna be Silicon Valley anyway. However, it is more likely to come up with new business models (like the virtual goods and virtual currencies) because of all the constraints you talk about.
I think a lot of those things can be turned to your advantage. If Chinese laws favor weaker IP protection, start a company that does legal arbitrage between the US and China (e.g. Megavideo - which is based in Hong Kong). Weak rule of law and lots of bureaucrats? Spend time building relations and you'll probably pay fewer legal fees than you would in the US. Do you risk having your stuff stolen by employees? Yes, but talent is generally less expensive. I think the challenges are different, but there are probably advantages in China as well.
When I talk about theft, it's bigger than the occasional missing laptop. It's more like coming into your office at night to find a bunch of guys armed with tire irons loading your whole office into a truck.
Or perhaps you'll just come to work one day and find yourself locked out and the business "under new management". That's more common.
I strongly recommend aspiring China entrepreneurs read "Mr. China" by Tim Clissold. It's about one of the first major investment funds in China, and the problems they encountered. It's pretty mind blowing, and not atypical.
I've personally had these types of problems while living in China - I'm sure, as a foreigner, I just scream "sucker" - but in my mind a lot of these problems become less severe if you've developed good relationships with local residents.
Are you in Beijing? If so, I'd love to meet up some time and hear specifics about these experiences.
> Regardless, if you start making any money, it will probably be taken from you. [...] you have absolutely no legal protection for anything. Zero. If anything, the courts are your enemy, because they side with whoever has the most influence and that's not you. Your employees embezzle from you? Your competitor (or a partner) steals all of your equipment? Government officials demand "protection" money? Too bad!
If this is all true (and I'm not saying it isn't), how come China has had 10% growth rates for the last quarter century?
The growth is mostly because they're selling a lot of exports. They've been building up domestic consumption, but it's still pretty weak. Almost all the growth is from foreign money flowing in one way or another, and once money is in China, it tends to stay under Chinese control.
Regardless of how the general economy does, the question is: who benefits? The answer is usually government officials, or people that have relationships with them. There's a general assumption here that anyone with money must be corrupt. While that's not exclusively true, it's certainly true enough to discourage entrepreneurship.
China has a "second-mover" advantage in that they can copy the most successful models and technologies in the West (including Taiwan and Japan) and leapfrog ahead. But China's development isn't that sudden-- they've embraced more-or-less capitalism for a good 20 years. It was already insane when I was living there a decade ago. It is an enormous and potentially great country of ambitious, hard working people who respect business and learning. The challenge is ensuring we make room for them in the global community, and that their political systems evolve with their economic progress.
Well actually the growth rate has been phenomenal when one considers the starting point. I first visited Xiamen in 1982 when it was designated a special economic zone and the changes since have been phenomenal. The rate at which workers moved from farming to industry dwarfs the comparable rate here in the US.
Your adjectives of ambitious and hard working are spot on. Having 1.2 billion people has always been both China's greatest strength and it's greatest weakness. They have been poor for so long that their thirst is now unquenchable.
China's growth is going to force serious changes in the US if we are to remain a competitive world player. Consider how many chinese schools teach english and how many american schools chinese.
However I would argue that in software, americans have an inventiveness, I call it yankee ingenuity (mickey mouse) that is unique and is part of our culture. This is something that takes years to develop.
So perhaps there's an edge we can keep but the key will be to engage and play. The chinese love doing business with americans because we are a good people. They have different notions of IP but we need to recognize that much of those are historical artifacts of western law, or as kids sharing music would say: "unsustainable business models"
"Ici repose un géant endormi, laissez le dormir, car quand il s'éveillera, il étonnera le monde" -- Napolean
"And while China gets a rap for ripping off U.S. Web start-ups now, I think we’re going to start seeing U.S. start-ups copying a lot of elements of Chinese entrepreneurs’ business plans...[lists some business models]"
Yeah. The rap is pretty well deserved, regardless of what happens in the future.
I have a friend who's at a venture-backed startup here in Beijing (not software). At a local startup meet-and-greet, he started talking to the founder of a local web startup. The business model?
I see nothing wrong with that. It's a winning strategy until these services are mature and commoditized in China. At that point, you'll perhaps see market pressures drive innovation. If FriendFeed doesn't want to support the Chinese language, or doesn't support it well enough, there's a great opportunity. Maybe they'll get bought out by FriendFeed at some point!
China is not the next silicon valley because silicon valley is an artificial self indulgent child that sees itself as the cleverest kid on the block.
China is the guy living on the farm and working harder, doing more and just being cleverer than the other one. When they meet at the global championship, silicon valley will realise that it has long been fat, lazy and worst of all...slow.
It's not on yet. China is a closed eco-system, it has not really entered the playing field on the same level as the other countries.
You need to have been there to understand - china is very inwardly focused. When it decides to focus outwards, that's when the championship will start.
Things like building influence in Africa, setting up medical programs, developing hinterlands of their country - china is doing all this silently. America is out there and roaring and thumping its chest, but china is silently expanding. The global championship is on for the Americans - they are strutting about and flexing their muscles and lifting all the weight they can lift.
But there are other players that have not come in yet. They are waiting and training.
First, it's damnably hard to get people to pay you for anything software based. With the rampant piracy, nobody has ever needed to pay a dime for anything. Convincing people to BUY software is virtually impossible. Even if you could convince people to pay, the payment systems are byzantine at best. Forget credit cards, you'd better be prepared to go collect cash from people at home or work.
Advertising-based models MIGHT work, but the competition's going to be tough. You'll be competing with corporations like Google, Microsoft, YouKu, and others that have billions to burn while they build marketshare. However you might succeed. Games like WOW can also make money.
Regardless, if you start making any money, it will probably be taken from you. The government already has its fingers in your pie, because you must get licensed from the government to run a website. That means dealing with government officials who will demand kickbacks, or might just up and seize your business. The same goes for any partners that you have, who will inevitably try to squeeze you out and take over any profit-making venture. The odds of you having your business simply taken from you are very very high.
Naturally, you have absolutely no legal protection for anything. Zero. If anything, the courts are your enemy, because they side with whoever has the most influence and that's not you. Your employees embezzle from you? Your competitor (or a partner) steals all of your equipment? Government officials demand "protection" money? Too bad! Better luck next time. You can also forget about patent, trademark or copyright protection, but that goes without saying.
I'm not even going to cover things like hiring engineers or building hardware here, which have their own special headaches.
It's not impossible to make money here, but 99% of the time the risk/reward ratio isn't worth it. Personally, I'm basing my company in California and targeting the American market. We might eventually come to Hong Kong or Taiwan, but I've written off the mainland as a lost cause.