2018 was an exceptionally cold year for China. Guangzhou even experienced zero-degree temperatures despite being one of the southernmost provinces.
However, it wasn’t just the weather that was ‘cold’.
The venture capital industry also experienced ‘coldness’ when the startup ecosystems lay eerily silent for a long while. This was mostly due to the difficulties in fundraising capital for both startups and venture capitals (General Partners – Limited Partners) coupled with the disappearing job opportunities across markets.
Now, we can only wonder if 2019 will heat up, or become even icier than before.
Linear Ventures has come up with the overall Chinese market predictions and business suggestions for 2019. These will serve as guidelines for their own investment strategies so rest assured that it has been thoroughly deliberated.
2019’s economy will only be worse than before
If you are someone who tends to just go with the flow or has yet to find a personal method of investing, chances are that you’d be better off putting your cash in banks rather than investing in assets.
Think of it as the “cash-is-king” era making a comeback.
Some argue that the value of cash will continue to decrease in 2019 due to inflations and interest rates. But, the truth this year is that putting your money in banks will give you higher returns than startup investments.
You could still invest your money in capable agencies or credible funds, but the good ones are in the minority and their eyes will constantly be on bigger clientele. It’s not a reliable option.
The end of B2Cs and the beginning of B2Bs
Pinduoduo’s Initial Public Offering is the last billion-dollar investment for China’s mobile internet industry. Post Pinduoduo, most of the B2C capital has already gone away.
But, this also marks the exact starting point for a host of B2B opportunities.
Previously, efficiency was never really a top concern. The market had been growing so rapidly that you didn’t have to work that hard in order to claim a sustained profit.
But, things are different now.
The market’s growth has stagnated and things will never be as easy because limited resources beget fiercer competition.
You will need to sharpen your competitive edge and efficiency in order to run companies and sustain businesses. This calls for the utilisation of new tools, technologies and services that will help to manage operational costs and lead to better competitiveness.
The B2Bs who can then provide the best of such items will be on an upward trajectory to scale new entrepreneurial heights and meet colossal market demands — spearheading the success of the B2B market.
Mass production will make way for product customisation
The industrial era has been known for its efficient mass production of similar goods — but this is about to end with the rise of the B2B industry.
Over the millennia, consumer trends have evolved from being similar, to being hybrid, to having individualisation — showing how mainstream social trends have become increasingly personal and customised.
In this transitional process, cost has been identified as a key problem.
When we are able to equate the cost of customised production to mass production, personalised products and services will become the norm. And, thanks to the development of smart manufacturing technology, this has already become possible and a whole new world is approaching.
With the enabling of personal customisation, we are starting to see more businesses and services (eg. Costco) categorise their customers into different groups and provide membership services catered to their exact needs.
Slow and steady wins the race
Usually, most investors don’t invest in companies that cannot grow exponentially within its first two years. However, in the B2B sector, this waiting duration can be extended to three to five years.
The old ‘Dotcom Internet era’ has made way for the ‘IoT’ age and likewise, the concept of rapid growth has been replaced by the importance of slow and stable growth.
Back then, it was basically a business about amassing users for a product. People used to value products and tractions as a form of measuring success and the success formula was marketing a simple product to thousands of consumers.
However, in the present IoT era, it’s a business about value-adding on an individualistic clientele level. Commercialised services are more significant than products. It would be impossible to establish a good company reputation if the service was not optimised or delivered properly.
Here’s the thing. If you can establish PoC, increase efficiency, and expand your enterprise’s user base with speed and stability, that’s perfect! But, most of the time — it’ll never be the case.
Also, building up a B2B company is a continuous process of instilling customer values and gaining their trust, both of which take a lot of time. If the repeat purchase rate in the coming year is lower than 80 per cent, it means it’s time to review your service quality.
Don’t try to shoot for the stars in a beta-rocket!
The best strategy for new B2B companies is to focus on two to three small-medium sized projects or clients. Only after acquiring a solid group of 20 or 30 loyal clients, can you then build up your Customer Service Team to expand and secure a decent pool of 200 to 300 recurring clients.
I know that being slow is never really considered an advantage, but in this case, it will ascertain a steady growth and a higher ROI in the long run.
You don’t need to be the best to thrive
With B2Bs, the winner no longer takes all.
This is because it’s very unusual for a monopoly to take place in any B2B sector due to the complex high-tech services and systems. Also, it’s the scale of your enterprise client which will decide the needed marketing strategies to implement — not the ‘winner’ of the number of enterprise clients.
Hardware and software integration
If you take a look across all sectors nowadays — smart manufacturing, health & medicine, smart transportation or smart retail — we can’t rely solely on software.
There are still many important physical infrastructures and equipment that need renovating. Only after finding a breakthrough and improving these components can we then apply new software tools as a vessel to reshape and disrupt the current industries.
But for many, this kind of breakthrough requires years of research and understanding from both the hardware and software industry. As a startup, it is easy to either find a software or hardware engineer but tremendously hard to source for talents who can integrate both software and hardware systems together.
No more all-talk-no-action for AI
The AI industry is doomed to fade away unless it can evolve from a sci-fi buzzword to real product and business. You might no longer see many superstar AI companies raising multiple funds and recruiting for high paying jobs.
That’s because there is still a lot of critical groundwork to be established. Things like where’s the data, how clean and structuralized it is, and when to implement the software have to be considered first.
There are also a bunch of hurdles that follow after procuring such data like which algorithm to use, how to optimise it, and which GPU/TPU to buy?
In most AI companies, the business model either builds up a holistic up-and-down streamed vendor ecosystem or projects to become the second tier service provider for the industry leader.
Fundraising opportunities have been slowing down since the start of 2019, but this doesn’t mean that the demand for AI engineers has been growing. Due to the commercialisation and easy access to data analytics (and algorithms), the market’s interests in getting more AI engineers could go down as well.
That concludes part one of the predictions for China’s 2019 economy. Look out for the next set of predictions which will cover economic misconceptions and some relevant startup advice.
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