Finding a Chinese Co-Founder for your startup
Short answer that applies to 60% of readers: Don’t. Instead, register a WFOE and bootstrap it! For the other 30%, continue reading. Or if you’re interested in reading about how I personally got screwed out of 300,000 RMB, continue reading.
When to find a partner
Before diving into the idea of what ‘partners’ are, it’s important to understand what “entrepreneurship” is, and how to succeed in it.
In most cases, the key roles in a successful startup depend on two questions, “What are you selling? Who are your customers?” So here’s some simple breakdowns of the most common startups and what makes them succeed in the ‘early-startup’ phase.
- make stuff
- sell stuff
- provide service
- ensure quality of service provided by staff
- sell service
Thus, when thinking about finding a partner regardless of what country you’re in, you need to first think “Will he/she help me do a significantly better job in one of these categories?” There’s a common concept amongst businesspeople in China, which I personally think is quite wise, (which I will translate poorly for you): If 1+1 = 2, it’s not worth it. If 1+1=3 (or even better, 10), then it can be a fruitful partnership.
So if you are great at ‘making stuff,’ and you can deliver an incredible product, but you have no idea where to start at selling, GET A PARTNER. But make sure your partner is someone who has great relationships with distributors, wholesalers, etc. (Or in the case of service industry, someone who already has an existing network of potential clients). If you feel like sales is “hard,” but you know some Chinese and you think you can talk with customers and setup channels yourself, then do it yourself!
Why does service industry also have “Quality Assurance” as a partner role? Because an awesome english-teacher (for example), might not necessarily be able to manage the quality of teaching of 5-instructors. Scaling with service is much, much harder than scaling with products.
How I got screwed by a partner with ‘great fit’
I’ll start this with a small anecdote about how I got screwed over 300,000 RMB by a dude in Ningbo named Summer. (Yup, still salty about it several years later)
Before I ventured into software development, I had an education consultation company, which I originally bootstrapped myself. Summer knocked on my door one day to talk business. He had just finished going through the college application process with his son, and paid over 200K RMB for an agency to help his son apply.
Once he saw the market potential, he wanted in. We were connected by a previous client of mine. He talked to me about his QQ group which had a following of over 1,000 families getting ready to apply. After we had met a few times, he presented me with a contract. We negotiated some terms and decided to do a trial partnership for two years.
He was basically taking the role of sales, while I would ensure everything gets done well. He did a great job in his role, and I did a great job in mine. We generated about half a million RMB in our first year, and broke a million in our second. Then things pivoted quite quickly.
The end of our 2-year trial was approaching, and as to our initial agreement (receive 1/2 of my part at the start of each application year, and the other 1/2 after every student received at least one offer), I made sure to guarantee the quality of results. However, he kept finding excuses to delay that last payment, when ultimately, he decided to find a random excuse to justify why he shouldn’t pay me the rest. And just like that, he decided not to work together anymore. He didn’t pay me the remaining 300,000+ RMB that he owed me.
So, what lesson can you learn from me getting screwed over? If you’re going to choose a partner, make sure you really know and trust this person. Even if all the theoretical boxes are checked, trust is the most important thing. A business partnership is like marriage. You get the picture.
Finding a partner
That being said, I still do think there are absolutely good times to find a partner. I have a partner right now in my current business, and we ROCK IT together.
So how should you go about finding one? Social relationships are a good route to start because there’s an implicit level of trust that is there from the start. I’m not saying start a business with your cousin (in fact, I recommend to never get family involved). Let me give a few specific examples instead of conceptual stuff.
Example 1: Education industry
Situation: You are an awesome teacher who can speak some ok Chinese. However, you’re having trouble getting your product out to your target market.
Possible partner solutions:
- Someone young who’s just come back from studying abroad or recently graduated college as an English major (they have no work history and might be willing to jump into uncertainty with you!)
- A current marketing manager at an existing agency (especially if your product is B2B and targeting agencies, this person will have much insider knowledge as to pain-points suffered by agencies)
- A parent who’s child can benefit directly from this cooperation (people from any country will jump into fires for their children! So if your product/service is something that can help his/her child overcome huge hurdles, develop self confidence, etc. She will reach out to all her social relationships to help it succeed)
Example 2: Tech Industry
Situation: This one is super tricky. The most important thing in any industry is synergy between partners. But Tech Industry often loses that because often there’s a CEO who only understands marketing and/or pitching, and the CTO only understands tech. Though that combo sometimes works out well, most of the time it’s a recipe for disaster.
I’m more a believer in the idea that all “tech company” founders should be able to holistically carry their own weight. Basecamp is a great example of that. They make an (estimated) over $20Million USD per year with a super lean team. Jason Fried, DHH, and the rest of the founding team at Basecamp balance each other extremely well. Everyone at Basecamp carries weight — including customer service. And I think they put it very well in their e-book Getting Real (page 31):
For the first version of your app, start with only three people. That’s the magic number that will give you enough manpower yet allow you to stay streamlined and agile. Start with a develop- er, a designer, and a sweeper (someone who can roam between both worlds).
Now sure, it’s a challenge to build an app with only a few people. But if you’ve got the right team, it’s worth it. […] If you can’t build your version one with three people, then you either need different people or need to slim down your initial version.
So, now that I got that out of the way…
Possible partner solutions:
- A Chinese passport-holder who you can communicate with and balances out the existing tech team is a great choice for a hire. You can possibly meet one in a MeetUp event or one of Shanghai/Beijing/Shenzhen’s countless startup conferences/events[e.g. SLUSH, TechCrunch, etc.]. For Shanghai in particular, there’s tons of great events organized by Le Wagon and Women Who Code.
- If you have some decent Chinese, then DEFINITELY attend local Chinese-language tech events such as Yunqi 2050! Follow all the big tech startups and see what conferences/events they host/attend. That means explore Baidu, Tencent, Alibaba, Dazhong Dianping, NetEase, Douban, etc. Checkout their event listings, and see if there’s anything going on. Most of the best coders in China don’t attend English-language events!
- Cafés. Independents gravitate to cafés and co-working spaces. If you see someone working hard on something, you can wait until they lose that look of ‘urgency’ on their face. Then just go talk to him/her!
(If you want me to update this article with other situations, leave me a comment!)
Keeping your bases covered
After you’ve found a partner, before you dive into a sink or swim situation, make sure you keep yourself PROTECTED. What that means is never let any one person have too much power. And in most cases, that means money. If you are getting a partner, make sure you either
A. (preferred option) Take advantage of China’s business banking laws. In China, business bank accounts issue TWO USB banking keys. In order for any money to leave the account, a request must be sent by one user, and approved by the second. This makes both people feel secure that they have some control. The account can receive money without complexity, but cannot send money out without the two-step verification.
or B. Split all received income from the start. Then have a separate bank account for “company expenses” that both people re-contribute into. It’s annoying, but worth it.
In no case should you let one person receive the money, ‘take care of the office costs’, then split profits after costs have been deducted. If your partner is someone trustable there won’t be a problem, but the situation itself is problematic because it relies on the assumption that the partner is trustable. A good system doesn’t rely on the individuals within it.
Hope this helps some people with this question!