For the May Day holiday in China that honors laborers, we decided to focus on the expatriates building the Chinese technology companies that put people to work. Building a business anywhere in the world is tough, but foreigners find navigating China’s business world very tricky.
Danny Levinson is an American expat who has lived in China for 20 years. He first arrived in China in 1997 and has continuously lived in China. While he says he still maintains a home and car in Beijing, a couple years ago he moved his family to Hong Kong.
During his tenure in China, he has built, operated, and sold 3 separate tech companies, 2 of which were sold to 2 different publicly-listed foreign companies, and he has invested and advised handfuls more. Danny took time from his busy schedule to let us know what it takes to create a start-up, build it, and exit in China.
Question: So over the last 20 years you’ve lived in Shanghai, Beijing, and Hong Kong. Which city is your favorite, and why?
Danny: Beijing was my first home when I arrived in 1997 and it’s still my favorite place. On a clear, non-polluted day you can see the mountains that ring Beijing and on the weekends you can get away to the hills and mountains. Plus there is just so much culture in the city, and great food from all across China. And its a laid-back town with few pretensions.
I spent about 5 years in Shanghai, but I never adapted to it as much as I did to Beijing. The food variety in Shanghai is not as great as Beijing when looking at Chinese fare, and the city is a sprawl. Shanghai is nice because of its weather, but I choose Beijing. Shanghai is much more pretentious.
Hong Kong is heaven though. Unobstructed Internet access, it’s easy to get around, and there are so many hiking and outdoor activities to keep us busy. Hong Kong is definitely the most livable city in China and I like living there the best right now, but if Beijing cleaned up its horrible pollution I would move my family back to Beijing immediately.
Question: In which city do you think is easier to start a tech company?
Danny: I think all three are as difficult as we want to make them. I always found dealing with the tax bureau in Beijing easier than in Shanghai, but other people may have had other experiences. It was also easier to find good tech-minded staff in Beijing than in Shanghai or Hong Kong.
Hong Kong is just void of good technical staff — the local Hong Kong government is spending lots of money and time to pitch Hong Kong as a tech and fintech destination, but it’s just an empty-calorie city for tech. Hong Kong is also very expensive. As easy as it is to live in Hong Kong, there are just some roadblocks to success there.
That said, Hong Kong does have its plusses. As a CEO or founder you can get lots done on your own. I file my own trademarks, for example, in Hong Kong. It’s extremely easy and takes a few months to get the marks confirmed. But in Beijing it takes me 18 months to 4 years to get trademarks registered in the past, and I need to pay a lawyer to get the job done. So when Ivanka Trump recently got her trademarks approved in what seemed like days, it all appeared very fishy — the trademark process in China does not move that fast.
Bottom line though is you should start your company where you feel comfortable and where you see market potential, so any type of tax bureau or banking issues will disappear if you focus on making great products and hiring stellar staff.
Look at Hangzhou — the city has a population the size of Hong Kong but it is home to Alibaba, one of the biggest tech companies in the world. So I think any city is the right city if you feel you can use the city’s resources to their full potential.
Question: If a foreign entrepreneur is planning to come to China this year to start a company, what advice would you give them?
Danny: The China you read about growing up is gone. It’s much more expensive to live in Beijing now than it was even five years ago. But that said, you should still come and find your niche.
If someone wants to build a company in China, the fundamentals are the same as elsewhere: you need a revenue model that works. I’ve always created businesses that are modeled on high revenue growth with a solid sales force, but many tech companies just cannot make decent revenue. So sales and business development are fundamental to making a business a going concern. A tech company with a high valuation but no revenue is just a receptacle of investors’ hopes and dreams.
I also had a very good business partner for 4 of my businesses over 17 years, so finding a good partner is key.
I gave up giving much advice many years ago when I saw people still continuing to make the same mistakes — my advice is useless and everyone needs to stumble and pick themselves up so they can learn. But get a good air mask.
Question: A few months ago you sold your Shanghai company China Newswire to Isentia, an Australian publicly-listed tech company. Why did you decide to sell and what did you learn from the process?
Danny: In the late 1990s in Beijing I was the sales manager and then online development director for a company named SinoFile that was acquired by Isentia’s predecessor Media Monitors about 10 years ago. So I’ve had my eye on the company for a while and I saw them grow. In 2010, I sold my SaaS marketing company BDL Media to Vocus, a U.S. tech company, and I then ran Vocus’ operations in Greater China and I saw Isentia as a possible acquisition for us. So I always liked Isentia’s CEO John Croll and I respected how he grew their services in Asia Pacific.
Selling to Isentia made sense because my company needed a larger platform on which to grow. I am very focused on platform businesses and China Newswire was a solid business of this type, and to take it to the next level we needed to fit it inside of a larger tech business. We were a content distribution platform and even if I had taken a US$5 million investment, it was not clear that we could reach our goals as quickly as putting China Newswire directly into another organization who already had thousands of paying clients and operations in a dozen countries. Selling made sense.
The due diligence was much faster than previous deals I worked on — a matter of weeks instead of up to a year on a previous deal I did. So I think I didn’t learn so much, but instead I was able to put to work the lessons I learned from previous deals. So I knew I had to have clean and easy accounting records; a clear roadmap for post-acquisition growth; and a very good working relationship with my soon-to-be bosses.
Question: Is it easy to go from being the boss to then working for someone else?
Danny: It’s been easy for me because I’ve chosen exits that put me under CEOs and bosses whom I respected and could teach me new things. For 2 of the 3 exits of companies in which I had operational roles, I made sure to carve out a niche where it still felt like I could make my own decisions and my new bosses were more like colleagues rather than overlords.
Question: What was the worst situation you faced in China running your businesses?
Danny: The worst situation I’m not quite ready to share — maybe one day I’ll write a book about the experience. It relates to the Chinese government and detention in 2011, and that’s all I’ll say for now.
We had a bad situation in 2001 when I was running an online game company and we were trying to move out of our offices in Pan Shiyi’s SOHO complex in Beijing. Our landlord was very bad, and SOHO’s management were unresponsive, so my colleagues and I staged a move-out around 3AM and had a run-in with the local security guards. We were carting 25 computers out in suitcases, and this was in 2001 when computers and monitors were huge. It was a mess that was placated the next day with some apologies and payment of some “fines”.
I also had a hiccup around 2003 when an invested company we were incubating in our Beijing offices had some tax bureau issues and the tax authority came and photographed all our terminals and asked my CTO for passwords to his devices so they could gather evidence. Nothing ever came of it all, but it was a very worrisome period and I learned that incubating companies can be troublesome when I’m legally responsible for them yet I have limited operational control.
Question: How has China changed since you arrived here?
Danny: China has changed, but I’ve changed too. So it’s difficult to objectively gauge China’s changes through my own eyes. Chinese people have definitely become wealthier, even in the small cities. I also own property in a 3rd tier city in Central China, and even there people are eating better, buying more, and giving their kids better opportunities than they had 2 decades ago.
Unfortunately all this “progress” has meant very polluted cities. So those that can leave, are leaving. Even among expats, in Hong Kong I know of at least 10 people who are successful foreign entrepreneurs in China and they have fled the mainland for Hong Kong in the past few years. The pollution is just not good for sustainable growth, unless you are a cancer doctor.
Many thanks to Danny Levinson. Danny is currently the Regional Director for Asia at Isentia and runs his own investment firm Matoka Capital. You can find more information about Danny at DannyLevinson.com.