5 Things You Need To Know To Successfully Do Business In China, With David Friedman Co-Founder of Ayla Networks

“I want to make it easier for humans to care for other humans, and to care for themselves through technology. I can see the technology and costs coming together very quickly to provide a much higher level of care for those who need it. People should be able to lead healthier lives by having a much better understanding of their evolving health trends. Chronically ill or aging — the majority of the cost in our healthcare system — should be able receive care faster and remote from hospitals to lead a better life. This all comes with important privacy issues that need to be addressed, and everyone has to make their own choices regarding care, but I think the benefits are too massive to ignore.”

I had the pleasure to interview David Friedman. David is Ayla Networks’ executive chairman and chief strategy officer, a role in which he focuses on fundraising, corporate evangelism and charting the company’s business and product strategy. When the company was founded in 2010, he and his co-founders saw the coming evolution of a world of connected devices and set out to create an end-to-end platform that would enable manufacturers and service providers to reap the business benefits of the Internet of Things. Friedman had been Ayla’s CEO until this year.

Thank you so much for joining us! What is your “backstory”?

I am not exactly your typical founder of a tech company. I graduated from Colgate University in New York with a major in history. I never locked myself in a room to write code, but I spent an awful lot of time reading and learning and thinking about market trends and what they mean for the future. I’ve been in the Bay Area for the past 21 years and had the unique opportunity to work with some of the world’s best engineering minds who see challenges from different perspectives and then figure out paths to create and deliver value. This experience allowed me to acquire a blend of business and technical skills that eventually gave me the confidence to take the entrepreneurial path.

Before starting Ayla, I was an exec at ZeroG Wireless, a chip company that was building low-powered Wi-Fi connectivity for the Internet of Things. It was a great chip and a great team — it is where I met Phillip Chang, a co-founder of Ayla. Unfortunately, ZeroG’s chip just wasn’t what the market really needed at the time, and we were putting a lot of investment in the wrong place. In the end, the company sold to a partner rather than continue to invest on its own but we learned valuable lessons on the importance of good product and market timing.

This was in 2010, and the timing for the Internet of Things was only getting better. Phillip and I realized that rather than focus on a chip, the real value and differentiation would be in software and applications working in harmony with the hardware. There were literally trillions of dollars worth of physical products made each year by companies that needed amazing software that would allow them to connect and manage these devices, and then build applications to leverage the data. Phillip also figured that if we could make this work, there would be a great opportunity to move into China early, where most of the world’s manufacturing is centered.

We started Ayla with this goal in mind, and we are now in rocket ship mode!

Side story: we spent a while trying to figure a name for our company. “Ayla” is the second letters of our children’s first names: Samantha, Ryan, Alex, and Sarah. The first letters spelled “SARS,” so that acronym didn’t seem so hot.

We know that it is not always easy for a foreigner to do business in China. Can you share an interesting story about a challenge that you faced, and how you overcame it?

Honestly, like most foreigners, my biggest challenge in China is that I don’t speak the language. I travel there so frequently that I wanted to try and learn, but every time I opened up one of the language PC apps, I fell asleep (maybe because I am always in some other time zone). About 18 months ago, I went with my daughter to a store to buy flash cards to help her study Spanish, and I thought that maybe it would work for me and learning Chinese.

I quickly realized that writing Chinese characters by hand is REALLY slow and difficult on a written flash card, but I discovered an app online that allows me to create my own flash cards…and ever since then I have spent nearly ½ hour each day creating and studying my flash cards. I am very far from fluent, but it has been fun learning, and of course it is easier to get around and understand culture when you make an effort to learn the language. I’ve even recorded a video that demonstrates how to use Chinese voice commands to control an air conditioner — and it works!

Are you working on any new or exciting projects now?

Ayla has created a position as a leader to help companies with digital transformation to drive better business outcomes. Our primary objective at the first stage of the company has been to be the world’s best solution to digitize and virtually manage any physical asset. We have done a great job with that over the years and most of our growth has been as a result of that success. The next stage is focused on building out our Artificial Intelligence/Machine Learning capabilities, and that is where the real fun begins. For the first time, our customers are seeing data from their products or assets in a way they’ve never seen before, and now they can leverage that data to change how they do business. One of our customers is a large retail chain and they are able to manage their physical assets in such a way that they reduce support and maintenance costs by nearly one third, saving tens of millions of dollars through truck roll reduction and increased uptime in the store.

What advice would you give to other business owners who do business in China, to help their employees to thrive?

Understand the culture, check your arrogance at the door, and listen. There is amazing energy in China, and lots of creativity when harnessed correctly. The worst thing to do is to take what works in another region and then leverage the same formula in China. It is much better to work together with a local team to adapt your company’s current practices so they fit better with employees, customers and partners in China.

At Ayla we have the added benefit of having one of our founders based out of China, so it helps a lot with alignment and trust. I’ve supported that by traveling back and forth between China and Silicon Valley quite a bit. What has really worked has been having Ayla employees from China and our headquarters in the US spend extended periods of time in the other region. It creates a much closer bond, making everyone feel part of the same mission, team and family.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

This one is easy. My co-founder Phillip has been a long-time friend and colleague, and Ayla is definitely the result of hundreds of hours learning to work together and trust each other before it was even founded, then 100x that ever since. Start-ups sound like lots of fun, but they are really a matter of massive persistence and continual problem solving. It is stressful, awesomely exciting, and draining… and that could be in a single day. It wasn’t long after meeting Phillip that we both realized that we would do much more than what we were doing at ZeroG. Ayla is a great testament to the mutual trust and strong working relationship of the founders.

What do you think are the new untapped markets in China that may become the next “big thing”?

It is hard to answer this without some market bias, but I believe that easily the #1 opportunity in China is the efficiency that will be created by digitizing its physical assets and applying Artificial Intelligence and Machine Learning applications to unlock business value. Growth in China remains strong, and yet salaries are growing very quickly, and so it has increasingly become important for factories to meet production goals via automation. As that happens, there is a corresponding need to easily manage and monitor those assets without having to send technicians, and to also leverage the data to perform predictive and preventative maintenance. The savings will not only be in the lower cost to maintain the equipment and the savings related to sending technicians, but also reducing downtime in the factory. Those combined will result in hundreds of billions of dollars of savings –- and maintaining global leadership in manufacturing.

Looking ahead past the cost savings phase, there’s an even greater long-term opportunity to drive higher revenue and expand into new markets with new generation of competitive products and services.

We keep hearing about the “Trade War”. What are your thoughts about it? Given the unknowns, how do you plan to pivot?

We have spent several years building a business and relationships in China. We have very large partners in China, including a very important Joint Venture partner in Sunsea Telecom. I think if the trade war had erupted before these relationships were set, it would have made it more difficult for us to establish ourselves in China. We also don’t have a supply chain the same way most companies do, so the trade war doesn’t directly impact our business as a software company. The biggest impact we see is actually to our customers and how they have to rapidly try and respond with their own supply chain planning. There are very large companies in the US that have to plan for holiday shipping, and the new tariffs clearly have an impact on their planning, mostly resulting in a higher cost to produce their products.

What are your “5 Things You Need To Know To Successfully Do Business In China.” (Please share a story or example for each.)

Don’t be arrogant. Fortunately, we started in China during our Series A, so very early on in our existence. We didn’t have the “Ayla way.” We were just trying to figure out what works. We also had a founder with deep experience working in China. We saw lots of foreign companies stumble in China because we felt they didn’t listen to the local Chinese and figure out how to achieve their goals in a way that would also work in China.

Learn the culture. I guess this is similar to the first concept, but I think it is even harder. The way employees and executives in the US interact is different from that in China. For example, it is less acceptable to challenge authority in China, and so the culture between regions needs to consider that.

Work at China speed. Everyone in China knows what this is. It comes from the hunger and hard work of really listening to the customer and fighting to succeed in an incredibly large and competitive market. At Ayla we have worked very hard to combine the amazing invention and ingenuity from the Bay Area with the grinding work ethic and persistence in China. At the same time, the China market changes at amazing speed, and companies need to have the right people, mentality, and business model that can adapt at that speed. Most Chinese companies are used to this pace, most foreign companies are not.

Trust is everything. Even if you have the right product at the right time, don’t go into China unless you have someone there who you can absolutely trust. The market is just too different and fast to try without that. The IP laws are getting much better, but it is still important to protect your IP considering legal, process and personnel decisions. You hear stories about companies that start their business with big fanfare, only to have the concept fizzle… and learn that a new start-up composed of many of the ex-employees and executives has been started.

Get to know the people. One of my favorite parts of going to China has been getting to know the Ayla employees in China and to meet their families. The same is true for our partners there. China is so relationship-focused, and the relationships formed there extend way beyond business.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?.

Be a good human and surround yourself with good humans.

It is a great way to think about building a company, and equally important as a lesson for my kids. I work with Phillip absolutely because he is a great human. We built Ayla with a no a**hole policy early on. At the same time, it is just as important to be empathetic and treat people with respect. It is such a simple and powerful way to go through life.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be?

I want to make it easier for humans to care for other humans, and to care for themselves through technology. I can see the technology and costs coming together very quickly to provide a much higher level of care for those who need it. People should be able to lead healthier lives by having a much better understanding of their evolving health trends. Chronically ill or aging — the majority of the cost in our healthcare system — should be able receive care faster and remote from hospitals to lead a better life. This all comes with important privacy issues that need to be addressed, and everyone has to make their own choices regarding care, but I think the benefits are too massive to ignore.

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