In China, traditionally it is only after the Lunar New Year celebrations conclude that the new year truly begins its opening act. The Year of the Jia Chen Dragon, like a year of changing armors, heralds a renewal of all things, signifying a time of new opportunities and beginnings. Although the Western world has the concept of twelve astrological signs, in Chinese culture, we not only have divination methods such as the I Ching, Bagua, and Qimen Dunjia, but also the lesser-known doctrine of San Yuan Jiu Yun (Three Cycles and Nine Periods).
San Yuan Jiu Yun is an ancient Chinese system for dividing macrocosmic time and space, based on the trajectories of the eight planets in the solar system. Amongst these planets, Saturn and Jupiter are particularly notable due to their size, and they meet every 20 years. Every 60 years, Saturn, Jupiter, and Mercury converge, and every 180 years, all eight major planets gather on the same side of the Sun, forming a rare celestial situation—the alignment of eight planets. The ancients, based on celestial movements, devised the temporal division system of San Yuan Jiu Yun, with one Yuan spanning 180 years, further divided into upper, middle, and lower phases, each lasting 60 years, and furthermore, divided into periods of 20 years each.
In the historical Chinese almanacs, the records of San Yuan Jiu Yun have been widely used in the practice of Feng Shui. We have already bid farewell to the period of Eight Yun Gen Yun, which represented the boom of real estate and infrastructure construction. In other words, “Gen” symbolizes the mountain, and it is this symbol that defined the prospering scene of the real estate-related industries for the past 20 years. In 2023, the Eighth Yun concludes, and the Ninth Yun will unfold a new chapter in 2024, which will continue until 2043, commonly referred to as the “Nine Purple Li Fire” period.
To leave behind the past 20 years means we have completed the journey from joining the World Trade Organization: relying on OEM and ODM models for light industrial manufacturing exports, as well as stimulating economic growth through fixed-asset investment and land finance. In this “changing armor” year, heading into a new era may come with uncertainty and an adaptation period, but whether we are ready or not, the past 20 years have had their share of glory and struggles, as well as losses and sorrow. The minor flows of life ultimately feed into the great rivers of the times.
“The River Flows to the East” is not just a TV series, but one that a particular author is especially fond of. Its narrative starts from 1994 and spans thirty years to the present. The growth and changes of the post-70s generation are the true depiction of this drama: from youthful innocence to the middle age of life. Looking back over these thirty years, they are precisely the three decades of China’s rapid economic growth, during which many people have achieved different forms of success. Some entered public service through education, others gained wealth through hard work, and some led rural enterprises to rise from poverty and fulfill their dreams of luxury cars.
However, in this fast-paced era, not everyone gets to taste success. Taking the example of the original story of Pengyang Pesticide Factory from “The River Flows to the East,” facing closure due to a ban, the state-owned enterprise’s employees resigned to layoffs; Leiting Group confronted a financial crisis due to foreign trade impacts; Lei Dongbao helped the entire village out of poverty, yet faced betrayal in the end, resulting in serious illness. In this era that’s both brightly lit and full of thorns, everyone has a unique story, but ultimately, they are all witnesses of the times.
During China’s peak economic growth, the national GDP growth rate was only about 10%. However, for entrepreneurs and investors, such growth was still not satisfactory. Therefore, for both entrepreneurs and investors, focusing on macroeconomics is not the key to profit. Instead, structural changes and untapped potential in niche markets are the “jobs” we should focus on. Within these opportunities, as venture capital (VC) participants, we are more inclined to focus on those opportunities with potential for capitalization.
Considering the unique features of A-share IPO companies in the secondary market, we usually look for opportunities in the following situations:
- The strongest in capitalization: Companies that have achieved some scale in “bottleneck” technology areas might not be profitable, but they have great capitalization opportunities.
- Important areas where China is catching up with foreign leaders: This includes areas like low Earth orbit satellite internet and generative artificial intelligence.
- Acceptable capitalization potential, but discounted: Technologies that do not involve “bottleneck” techniques but rely on low-cost advantages for domestic substitution, such as corporate service information technology, databases, operating systems, etc.
- Technology products for the consumer C-end: Products aimed only at the domestic market may not have strong capitalization genes, while those aimed at the global market could retain half of the capitalization potential.
Beyond the aforementioned areas, most niche market segments are more like traditional business and don’t have much connection to capitalization. For companies that can be listed on overseas markets like the Hong Kong stock market or U.S. stock market, the potential for capitalization is a different matter.
In our country, government guidance and support policies often play a role akin to “assigned essay topics.” Expanding market size is just one of the policy goals. The direction and pace of numerous industries’ development, whether supported or suppressed, are to some extent determined by preemptive semi-planned policies. In China’s unique market environment, this constitutes the “momentum” of policy. Going with this “momentum” means understanding and grasping what forces lead this momentum and how they plan. Only by doing so can we ride the momentum effectively.
In the consumer market, trends are typically determined by consumer preferences; in industrial, B-end, or industrial markets, trends are often government-planned. Therefore, instead of focusing too much on the macroeconomy, it’s better to closely monitor the “momentum” in these micro-niche areas. In any era, some people make money and others lose all their assets.
So, the key question is, how should we run our businesses and lives in 2024. Relying solely on past operational methods is clearly insufficient. In the primary market, compared to previous peaks, the amount of available funds may have shrunk to 10% to 20%. The phenomenon of startups relying on investment for growth has become increasingly rare, making finding investors a one in a hundred, even one in a thousand challenge. For the majority of commercial projects, they are actually “pure business” rather than “capitalizable business.” In short, a business model that exists purely for profit should naturally distribute its profits at the end of the year; this is expected. If the shares themselves do not produce dividends, then apart from symbolizing company ownership, they have no other economic value.
The “momentum” mentioned earlier refers to those business opportunities that are likely to be capitalized. However, they only make up a small part of all business entities. Notably, the venture capital (VC) industry in China has only a 20-year history since its development. Especially since China officially joined the World Trade Organization (WTO) in December 2001, and particularly after Ctrip went public in the United States in December 2003, the investment fever of American VCs in the Chinese market began to spread.
Since 2005, Silicon Valley’s venture capital giants have been competing to set up branches in China, marking their official entry into the Chinese market. This trend has brought about a surge of internet business models, stimulating the rapid growth of the Chinese IT engineer community. The innovation from these engineers has provided strong technical support for China’s new generation of enterprise IT products, both hardware and software.
However, up to this day, the strategy of initially capturing market share and traffic through capital injection, followed by seeking profits, faces severe challenges in the industrial chain investment field. Due to the difficulty in achieving a monopoly status in the industrial chain startups and the lack of super-scale profits, they cannot easily gain pricing power like the internet traffic economy model. Enterprises in the industrial chain highly depend on upstream and downstream cooperation, and their connection with end consumers is not solid.
In this process, some strategies that were once considered standard operations, such as surviving through investment and leveraged expansion, are no longer viable. In fact, by 2024, these practices have been clearly defined as high-risk “fancy maneuvers”. Despite facing difficulties, two companies achieved rapid development in 2023, with their annual revenues both exceeding the 50 million mark, and the annual revenue of Yu Xiaoeven reached 60 million yuan. Looking forward to 2024, both are expected to achieve higher revenue targets, with a projected goal of hitting 80 million yuan.
The success of these two companies can be attributed to a common billing model, which achieved a long-term payment mechanism for Software as a Service (SaaS). Unlike the “three Nos” limitation encountered by Chinese-style SaaS startups—no privatization, no customization, no buyout—these two companies adopted a more flexible approach. They are willing to provide private cloud, hybrid cloud solutions under certain conditions, accept a certain degree of product customization, and although they have set a high buyout price, they do not reject the buyout model.
Yu Xiaoe innovatively integrates software and hardware services, charging customers based on the number of access devices such as door locks and electric meters in their apartments, which has increased the willingness to buy from small and medium-sized customers. On the other hand, Cloudsimple has increased customer stickiness through a flexible product mix and product strength. In China’s vast market, this type of payment model that does not rely on project-based budgets has won survival space for businesses.
As times have changed, these two companies have persevered on the “five-year cold bench”, innovating and sinicizing the American SaaS model successfully. After several years post-pandemic and base building in 2023, their revenues have reached or exceeded the 50 million mark. The increase in cash flow has made the leaders of these companies look rosy and healthier than before. Importantly, they did not push their valuations to unsustainable levels during the previous few years’ financing boom.
Achieving two modest goals of income growth each year has become increasingly feasible in the current market environment. The competition for management software is particularly fierce in the Chinese market, yet those application-based management software companies that can consistently achieve a revenue of two hundred million per year are undoubtedly the top 1% leaders of the market. After four years of the pandemic test, those enterprises that have continued to progress without backsliding have naturally become outstanding businesses in the industry.
The rise of Chinese SMEs is inseparable from the historical process of this land turning into a global factory 30 years ago. The world’s demand for light manufacturing flocked to Chinese factories spread across the length and breadth of the country. However, entering 2024, the simple factory production models are no longer sustainable; going global has become an essential path for enterprises manufacturing end-user devices and consumer-facing (to C) products. This is not about passively waiting for a new round of orders, but about taking one’s own products and brands to directly enter the overseas markets and face the global consumers. Going global is not only a major strategic opportunity in 2024 but also the most critical incremental opportunity for end-product enterprises over the next 20 years.
The sudden outbreak of the pandemic has impacted all industries, making uncertainty a major challenge for businesses to solve. “Facing uncertainty and finding certainty within” has become an important direction for Chinese businesses to find a way out in adversity. In the post-pandemic era, industries are actively exploring overseas markets, and the strategy of going global is seen as a new certain opportunity.
China’s consumer market faces issues of income disparities caused by a polarizing demographic structure, as well as the general decline in consumption willingness due to the pandemic’s impact on income expectations. Despite China’s large population base, the number of people with real spending power is much less than imagined. Differences in consumption habits also affect the market; for example, foreign consumers might replace their bath towels multiple times a year, while many Chinese households might only do so every few years. Nevertheless, this does not prevent people from celebrating by opening a bottle of high-end baijiu during festivals, where suddenly, the value of a bottle of liquor might far exceed that of several bath towels.
Another characteristic of domestic industries is the obvious bandwagon effect. Since China joined the WTO, capacity building has been designed to meet global demand. The past OEM model has shaped the prosperous outlook of China’s foreign trade to some extent. However, due to its low market entry barriers, insufficient market understanding, weak risk resistance, and relatively slim profit margins, the disadvantages of this model have become increasingly apparent.
Up to now, Chinese enterprises are gradually perfecting their internal capabilities for transformation and upgrading, shifting from product export to brand globalization. The transition from product export to brand globalization showcases a completely different logic and strategy. The key transformation lies in the fact that brand globalization means engaging in direct dialogue with overseas consumers with an independent and complete image; the implicit challenge is that all efforts must start from scratch.
Global brand globalization currently mainly follows two paths. The first is to be global from birth—companies that have focused on overseas markets since their founding, such as Anker Innovations, Transsion, and SHEIN clothing. The second is globalization from the inside out—this is the main way Chinese brands go international. It includes internet giants like Alibaba, Tencent, ByteDance, DiDi, Meituan, and iQIYI, as well as consumer electronics brands like Xiaomi and DJI, home appliance manufacturers like Haier, TCL, and Hisense, clothing brands like Li-Ning and ANTA, and food industries like Qiaqia, Liangpin Shop, and Yuanqi Forest.
China’s e-commerce, mobile gaming, and social entertainment applications, especially in the fields of live streaming and short videos, are ahead of the international market by 1-2 years in terms of development pace. This is thanks to the dividend brought by China’s large programmer community. After intense competition and market reshuffling, the internet industry has become the main battleground where domestic companies exhibit their talents in the process of international brand globalization.
China’s 3C industry, electric vehicles, applications, games, and e-commerce are vigorously expanding in overseas markets. For Chinese companies that cannot wait for OEM or ODM orders from overseas enterprises, the best strategy is to go directly overseas and sell their products to the world. The certainty of development opportunities in the technology field, along with the competition in the global market, provides Chinese entrepreneurs and business owners two distinct paths: one is a technological proposition challenge, the other is the freedom of market competition.
In this post-industrial era, entrepreneurs should focus on their businesses, markets, and customer needs, rather than overly concerning themselves with macro-environmental factors. Whether a company can succeed is not solely determined by GDP growth rates. Amid ongoing internal structural adjustments, more focus should be placed on fostering and enhancing the company’s internal capabilities.
In the ever-changing world of business, the role and importance of company founders are particularly crucial. The challenges and difficulties on the entrepreneurial journey are endless, but it is these challenges that shape entrepreneurs. As the Confucian scholar Wang Yangming once said: “Whatever grinds you, must also ferry you across.” Founders need to continuously transform themselves and forge their spirit.
For instance, this Spring Festival, I drove from Shanghai to Sanya, stopping by Jinggangshan along the way. The cold climate and geographical conditions of Jinggangshan were a challenge for the past National Army, which precisely explains why Jinggangshan could become the cradle of the revolution. This trip made me deeply understand that a company’s survival and thriving is not by chance but the result of deliberate considerations, choosing based on strengths, weaknesses, and limitations.
Just like Jinggangshan in those days, it was not determined by any leader’s personal will but decided according to the directive of the Hunan Provincial Committee. The two letters brought by Du Xiu implied the order to move south, but Mao Zedong insisted on staying in Jinggangshan. This persistence and judgment precisely reflect the firmness and wisdom required by an entrepreneur in strategic decision-making.
In the early history of the Red Fourth Army, Chen Yi was chosen as the secretary of the former committee, commanding the troops together with Zhu De. Mao Zedong acted as the party representative, commanding other troops separately. However, as Mao anticipated, the military situation was not favorable. The 29th Regiment was nearly wiped out, and the 28th Regiment suffered significant losses, greatly reducing the strength of the Red Fourth Army. Unable to hold out in Jinggangshan any longer, the Red Fourth Army moved to Jiangxi four months later.
In June 1929, as Mao Zedong, Zhu De, Chen Yi, and other leaders prepared for the Seventh Congress of the Red Fourth Army, Mao Zedong proposed the concept of absolute leadership over the army. He advocated that the party should have supreme command of the army, which also had the responsibility of building base areas. In other words, Mao insisted on comprehensive party control—everything should be politically oriented.
However, military leaders such as Zhu De held different views. They believed that although the Red Army was unquestionably led by the party, its main duty was still combat and opposed overemphasis on vague political tasks. They also opposed Mao’s excessive control over the army, believing that soldiers should also have a say. Faced with these differences, the unwavering Mao repeatedly emphasized his own correctness and maintained his stance.
Before long, Mao, dissatisfied with his role as secretary of the Red Fourth Army’s pre-Committee, resigned, showing a resolute and obstinate side before the Long March.
On the long road of the Long March, after the defeat at the Battle of the Xiang River, the Red Army’s forces plunged from 86,000 to 30,000, facing an existential crisis. Mao desperately sought a way to survive. Zhang Wentian and Wang Jiaxiang began to notice Mao’s talents and gradually recognized him.
Mao proposed the method of uniting the majority, realizing that relying solely on individual wisdom would not achieve great things, so he worked to unite those around him to collectively accept his opinions. In Tongdao County, as the Red Army was about to convene an important meeting, faced with strategic differences, Mao suggested advancing west into the less-defended Guizhou and sought the views of other leaders. Eventually, Zhang Wentian, Wang Jiaxiang, Zhu De, and Zhou Enlai all agreed, and even Bo Gu had no choice but to consent to the westward advance.
History’s great river always leaves behind extraordinary moments, and one such turning point occurred during those distant red years. After multiple crises, Bo Gu and Li De were once tempted to resume their cooperation with He Long. However, this time they met a more composed and calm Mao Zedong. At this critical juncture, he was no longer the revolutionary who reacted with fury and resignation, but rather, with a temperate tone, he proposed to the Central Party Committee to reconvene a meeting to deliberate national affairs.
The subsequent history witnessed the famous Zunyi Meeting on January 15, 1935. This meeting brought together all the revolutionary participants who would be named in future textbooks. At the meeting, Mao delivered a lengthy and fervent speech. He criticized Bo Gu and Li De’s command errors, discussed the reasons for the series of military setbacks since the Fifth Encirclement Campaign, and expanded his arguments to the macro strategy of the Chinese Revolution, even profoundly anticipating future paths.
The brilliance of his speech won over every comrade present, leading them to agree with Mao’s views and plans for the future. During his speech, Mao emphasized that the contributions of every comrade, whether they had studied in the Soviet Union or were domestic revolutionaries, were valuable. He insisted that there was nothing wrong with the revolutionary method itself; all major failures stemmed merely from mistakes in military command. Under his wise leadership, Bo Gu and Li De’s military command was revoked, while Mao himself was promoted to the Standing Committee of the Politburo and became Zhou Enlai’s military assistant.
What is more profound is the leadership style displayed by Mao Zedong. In situations where he had to use wisdom to persuade others and win the trust of his team, he didn’t choose manipulation or oppression, instead, he rationally used logic, facts, and data to touch everyone’s heart. With such charismatic leadership, he led the Red Army to create the legendary miracle of the Long March across the Chishui River four times, solidifying his leadership as invincible and unbreakable.
Ordinary people tend to feel bewildered and panicked when facing adversity, to a large extent because they have not yet experienced trials and tribulations, let alone overcome difficulties. But looking back, we will find that those so-called obstacles are actually trivial. Just like the Long March of 25,000 li, those things we considered insurmountable difficulties proved to be just a part of life once faced and conquered; on reflection, they are merely experiences in life.
After all, those difficult decisions of the past that could determine life or death for a general, might only be a corner of everyday challenges for modern people. Focusing on the present is essential, just as in the relentless encirclement and fierce battles, one must concentrate on how to overcome the current difficulties, ignoring the distant economic situation. The macro environment is the same, thus fear and pessimism for the future are completely unnecessary.
The real issue is how to surpass competitors and perform even better. Macro policies cannot be controlled, but concentrating on strengthening oneself and striving to take the lead in the market is the key. Having trekked through numerous provinces and visited the cradle of the Chinese revolution, we constantly seek our own stronghold within. All confusion and dilemmas dissipate in a moment of revelation. Similar to what Constant Pile, a small venture capital firm, did: they found and established their base in Shanghai and nearby cities such as Suzhou, Hangzhou, Nanjing, and Ningbo. For them, this region is equivalent to Shaanbei during the revolutionary era, and Shanghai is their Yan’an in mind.
In discussing the final journey of life, we must not overlook the importance of spirit and emotion. These factors play a crucial role in determining a person’s behavior. We can often feel each person’s state of mind from the behavior of scrolling through social media, such as attitudes of pessimism, crisis awareness, hedonism, and optimism.
Despite the fact that macro trends, national destiny cycles, societal transformation pains, and international situations are grand topics that we as individuals cannot grasp or directly influence, one thing is certain—we can truly control only ourselves.
We should cultivate a strong body and an indomitable spirit. I often recall my mother’s advice as a child, telling us not to hang out with the naughty kids. This teaches us that people are always influenced by their environment, and animal instincts tell us that humans are also capable of imitation. A typical example is the influence among students: “If others are not doing homework, why should I?” With people and events around us, as well as the current explosion of information, subtly affecting our judgments and behaviors, one might wonder if it is really only the “smart kids” who climb over the wall to play video games and pool, and the children who devote themselves to studying are the “clumsy nerds”?
In our industry, a hot topic often discussed is how a venture capital firm can survive through economic cycles? From another perspective, each of us can ask ourselves, imagining the average lifespan to be 80 years, starting from the age of 12, we face a series of competitive challenges such as the middle school entrance exam until retirement at 65 to enjoy a life of leisure, in this time span of more than fifty years, we will face at least five major cyclical challenges.
So, the question is, what kind of strength can support us to the end? The answer is that the resiliency to endure setbacks and challenges, and a healthy body are the forces we can grasp and rely on. On the unpredictable and challenging journey of life, we need to maintain unwavering determination, fight every small battle, and win little victories one after another. Through long-term honing and accumulation, we will eventually build up considerable strength to undertake great responsibilities.
