This article on Colin Huang’s reflections on Pinduoduo as well as his early life lessons was originally published in Chinese. Some of the insights on his upbringing and entrepreneurial philosophy are quite interesting and relevant for many of us.
Few years ago, when everyone in China thought the ecommerce fight was over, with Alibaba and JD dominating, Pinduoduo came about and took the market rapidly. Some of Colin Huang’s thinking offers very good lessons for all of us in the entrepreneurial journey. For example, on how to carve a path against the giants, and how Pinduoduo maintains perpetual efficiency as a large organisation.
Pinduoduo’s overseas expansion has also been aggressive and impressive. Its overseas platform, Temu, has taken the world by storm. Within only 7 months of its launch, Temu has become the most downloaded app in the US App Store with 3 million downloads and has become one of the fastest-growing applications in the United States.
Pinduoduo’s success is inseparable from Colin Huang’s management philosophy. In this article, we will take a look at Colin Huang’s early experiences and thoughts.
You can refer to Momentum Works’ “Tech Leaders with Chinese Characteristics” and “Who is Temu” reports for a more structured analysis and insights about the company. You can also read our book “Seeing the unseen: behind Chinese tech giants’ global venturing” for more case studies, analyses, and reflections.
We have translated the article into two different sections:
Part 1: Lessons from the early life experiences of Colin Huang and the founding of Pinduoduo
Part 2: Personal and business philosophy
Part 1: Lessons from early life experiences
Money is a means to an end, not an end in itself
When I was young, I wouldn’t say that I was poor, but we were tight on money. I often had to wear clothes from my mother’s colleagues or relatives’ children. Many of my spending habits have less to do with the wealth I have now and more to do with my early family environment.
For example, my mother still doesn’t like taking taxis. She thinks time is not valuable enough and it’s too wasteful.
This has had a big impact on me, including my thinking about doing business. I always remember how my parents, from an ordinary family, think and live.
I came from an average primary school, but I got into one of the best middle schools in Hangzhou, Hangzhou Foreign Languages School (HFLS). Compared to other middle schools, we were exposed to Western culture earlier and to a greater extent.
After graduating from Hangzhou Foreign Languages School, I was recommended for admission to Mixed Class of Zhejiang University (浙大混合班), which was the predecessor of Chu Kochen Honors College of Zhejiang University (浙大竺可桢学院).
When I was in school, I realised a few things:
First, it is a rare occurrence for a child from a poor family to become successful; and most wealthy second-generation individuals, especially children of high-ranking government officials, are often outstanding.
Second, “The Race of the Field Marshal” (田忌赛马) i.e.: It refers to a famous ancient Chinese story about a general named Tian Ji who used strategic cunning to win a horse race against a stronger opponent: Even when you are in an absolute resource disadvantage, you can still win the battle by creating comparative advantage. Based on this, ordinary people can achieve extraordinary things.
Third, money is a means to an end (i.e. a tool), not an end in itself (not the final goal).
When I was in school, I had a major regret, that is, my goal was too clear. I spent too much time pursuing being the first and being a good student, and I lost my rebellious and mischievous youth. Later, I slowly realised that “Long-live 60%” (60分万岁) is a good philosophy (i.e.: not pursuing the perfect score; getting the passing mark of 60% is good enough).
My first internship was at Microsoft, but I did not stay there after graduation.
Firstly, because I thought I could expect what I would look like in ten years if I were to stay in Microsoft.
Additionally, a “life mentor” introduced me to Google, which was still a fairly young and immature company at the time. So I worked as a programmer and product manager at Google, and later became one of the first groups of employees to return to China and participate in the start-up stage of Google China.
I have some personal observations about Google.
Firstly, Google is very focused on ideology, and when there is a conflict in ideology, its response goes beyond that of a typical company.
Secondly, Google encourages grassroots innovation, but the core power is highly centralised, which has institutional advantages in mobilising resources.
Thirdly, Google’s “Don’t be evil” value is deeply ingrained in its DNA. It puts mission and values before profits, and profits are only a byproduct of doing the right thing.
Finally, most of Google’s acquisitions have been very successful. These acquisitions mostly involve small companies with excellent teams, which gradually become larger as they integrate into Google’s culture.
However, there are also many things that Google is unable to change, such as the hierarchical management model that Google has not been able to escape, and Google’s unsuccessful attempts at social networking.
Background of Colin Huang (For more refer: Tech leaders with Chinese characteristics)
In 2002, when I went to the United States to pursue graduate studies, I met Duan Yongping. After graduating, I worked at Google, which was very close to his home, so I began to help him with some investments.
The earliest businesses I started were an ecommerce enabler and a gaming company. As a business, profit should be a moral objective, and one should follow the logic of business to be a responsible businessman.
Why do I want to start another business?
Firstly, I enjoy what I am doing now and I love working with a team of like-minded individuals, creating something new and innovative.
Secondly, I have some ambition left, and there is still some untapped potential within me. I have a vague sense that the current opportunities can allow me to do something with a greater impact and a stronger sense of achievement.
Part 2: Entrepreneurship
You can look down on me, you can say I’m “low”, but you can’t ignore Pinduoduo (可以说我low，说我低级，但你无法忽视拼多多)
Pinduoduo’s business philosophy
First, on core value:
Upgrading consumption is not about making Shanghai residents live like Parisians, but ensuring that people in Anqing, Anhui (third-tier city) have access to toilet papers and quality fruits.
Only people living within Beijing’s 5th Ring Road (五环内 i.e.: urban) would say that the third wave of mobile internet is for the ‘sinking market’ population (下沉人群 i.e.: mass, lower income segments of the population); Pinduoduo‘s focus is actually the biggest segment of the population, which is the ordinary people.
Mobile internet does not necessarily mean that users are ‘sinking’ (moving lower-segment), but rather it evens the playing field, giving China’s largest segment of the population the same access to information and transaction abilities as those living in first-tier cities, which could not be done in the PC era.
Pinduoduo attracts people who seek high value-for-money products. They would buy a Hermès bag and also buy a box of mangoes for ¥9.9 （US$ 1.5). This is their income level.
Affordability is a universal need. For example, my mom is considered a wealthy mother, but she still cares about the difference of one or two yuan when buying groceries and tissues, while also buying a high-end iPhone.
Traditional companies divide people into tiers based on first, second, and third-tier cities, while Pinduoduo meets the many different needs of an individual.
The low price is just a way for Pinduoduo to acquire users at a certain stage. Pinduoduo’s understanding of value for money is to “always exceed consumers’ expectations”. Pinduoduo’s core is not to be cheap but to make users feel the product is cheaper than it should be.
Pinduoduo is trying to integrate consumption and entertainment, and its mission is to provide consumers with more affordable and fun things and make them happier in the process.
The people within Beijing’s 5th ring road will not relate to the core competitiveness of Pinduoduo.
Second, on operation:
At present, Pinduoduo has very basic control over the quality of goods and services. Pinduoduo is improving the quality of goods by upgrading the supply chain and cracking down on fake goods.
Some employees still understand the company as traffic-oriented (i.e. focused on the operational methodology of attracting and converting consumer traffic). These employees have been educated in a traffic-oriented environment for many years. Pinduoduo has not been established for long, and the organisational value needs to be better aligned with everyone; it has to be aligned from top to bottom.
Pinduoduo’s assessment of operational employees is based on retention and repurchase first, and GMV second.
Third, on future development:
Pinduoduo will not do procurement and sales (采销 i.e.: handling the entire supply chain management process from sourcing of goods to their distribution); we will also not do logistics and distribution. Pinduoduo’s long-term strategic focus will be on upgrading the supply chain. The ultimate model of Pinduoduo is to enable upstream suppliers to do batch-customised production.
Based on the traditional logic of traffic, expansion into all product categories is the way to go; Brand upgrade (品牌升级 i.e.: improving brand image to appeal to higher-tier customers) is also a concept of the “people in the 5th Ring Road”.
Pinduoduo doesn’t necessarily need brand upgrades or going full categories. Pinduoduo’s mission is to do better matching – to let the right people buy the right things in the right scenario.
Pinduoduo does not plan to do service ecommerce at the moment because physical goods ecommerce is already large enough.
Service ecommerce is traffic-oriented thinking, which essentially channels a large pool of consumer traffic in and feeds traffic into different services. Pinduoduo appeared because it did not follow old thinking. Instead, it first considered what the person needed in a people-oriented way.
Pinduoduo’s model is fundamentally different from Taobao’s.
Taobao operates on a traffic logic that relies on search. Users have to find the products themselves, so a massive SKU inventory is required to meet long-tail demands.
Pinduoduo, on the other hand, represents matching. It has to recommend products to consumers – it can have a limited SKU, but need to have a diverse range of products.
Taobao has always advocated for C2B (consumer to business), but it’s difficult to implement due to people’s thousands of different demands, which cascade down to diverse search needs. This makes it quite difficult to centralise demands to make batch orders from suppliers (reverse customisation).
Pinduoduo concentrates massive traffic onto a limited set of products and then achieves reverse customisation at scale, significantly reducing costs.
This is also the difference between Walmart and Costco. Pinduoduo’s ultimate positioning is to build different Costcos catering to different groups of people.
Pinduoduo and Taobao are in a “dislocation competition / disruptive competition” (错位竞争), competing for the same group of users but under different use cases. By focusing on different use cases, we avoid direct competition, leading to faster overall growth.
Pinduoduo doesn’t want to become the second Alibaba. Its existence is a model itself: You can look down on Pinduoduo or call it unsophisticated, but you can’t ignore it.
JD, VIP.com （唯品会）and Mogu.com （蘑菇街） have all experimented with similar models to Pinduoduo’s, but for them, group buying is just a tool to create GMV growth.
Pinduoduo follows human logic, understanding people through group buying and recommending products through people, and transitioning to machine recommendations later.
There is almost no search and no shopping cart on Pinduoduo’s app. You can imagine Pinduoduo as Toutiao (a ByteDance-owned news aggregator which pushes news articles based on recommendations) – but instead of recommending news articles, Pinduoduo recommends products.
Relationship with Tencent
“I believe Tencent did not foster Pinduoduo as Pinduoduo was also banned from Tencent platforms many times. JD and Mogujie can be featured in WeChat Shopping, but Pinduoduo cannot” – Colin Huang
Before 2018, Pinduoduo had also signed a mutual non-poaching agreement with Tencent – which means Pinduoduo could only hire Tencent employees with Tencent’s permission.
Tencent is more like a regular financial investor and I do not think Pinduoduo is part of Tencent’s ecosystem. When rumors of Pinduoduo’s fraud spread widely in WeChat groups, I sought help from WeChat, but it was rejected. WeChat said they would only handle it if Alibaba had come to them.
I think if WeChat helped Pinduoduo, people would say it was because Tencent is a shareholder of Pinduoduo. On the other hand, if it is Alibaba, helping Alibaba to refute the rumors would show that Wechat / Tencent is impartial.
Tencent has many other investments, and even if Pinduoduo fails, Tencent will not die. The logic behind Tencent’s investment in Pinduoduo is not to compete strongly with Alibaba, but more of a business ROI decision. Investing in Pinduoduo brings returns, and competition is just a byproduct of business ROI calculation.
Alibaba and Tencent have a very low proportion penetration into offline retail. Therefore, if we focus on (various offline) use cases instead of (online) traffic, there is a lot of room for development.
The reason why Tencent’s attempt at ecommerce failed is because they believed that ecommerce is about traffic * conversion rate = GMV, but the traffic logic will no longer work today.
Investment and entrepreneurship
Warren Buffett said buying stocks is like buying part of the company. One should have a long-term mindset to seek good business and partners.
This is similar to entrepreneurship. On the one hand, one should pay attention to the business model and choose the right one, and spend a lot of time researching the details of the business model.
On the other hand, when investing, one should consider the founder and CEO as one’s future partners and see if they are willing to work with them in the long term.
Apart from focusing on a good business and team, investment also requires caring about a good price.
This is also similar to entrepreneurship. Charlie Munger made Buffett realise that he should use a reasonable price to buy a good company instead of spending time picking up cigarette butts (companies that are cheap in price, have some residual value, but often are not very good).
Similarly, a good company should focus on solving/overcoming the right and difficult problems, rather than picking up random sesame seeds (i.e.: menial work).
When investing, it is important to consider whether the deal can withstand losses as a whole. From an entrepreneurial perspective, investing in a business means ensuring that it will not kill oneself during the process.
Survival is the top priority in entrepreneurship, while also assessing whether one has the ability to win from another perspective.
Just as paying close attention to the business model is crucial in investing, the choice of industry and business model in entrepreneurship often determines a large part of the outcome. Therefore, it is important to spend a lot of time researching what is the right thing to do, and then figure out how to do it correctly.
It is better to gradually move forward in the right direction than to rush in the wrong direction.
Entrepreneurship is just like investing, it is more important to make the right choice than to work hard. If you’re on the right path, even though you are moving at a slow pace, the compounding returns on the correct path can be impressive.
When Warren Buffett talks about investment targets, he often mentions the moat of a business.
If we consider all the decisions made during the entrepreneurial process as investment decisions, we must distinguish between the assets and the expenses that we obtain with our time and money.
Assets are often things that deepen the moat of the business over time, while expenses that become increasingly detrimental to oneself over time can be considered as costs. Wasting money on assets is not as bad as wasting it on expenses, which can often have negative effects.
In upcoming part 2: We share more about Colin Huang’s Way of thinking and business philosophy.
Momentum Academy conducts sharings, workshops, and simulations on Pinduoduo’s culture, its key success factors, people and organisation practices. If you are interested in bringing such learnings to your organisation, please contact [email protected].
Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].