by Duncan Clark
This helped keep costs low, too. For the price of one engineer in Beijing or Shanghai, Alibaba could hire two. The comparison with Silicon Valley was even more dramatic, as Jack pointed out: “[To] keep one programmer happy [in Silicon Valley] takes $50,000 to $100,000. For that much money in China, I can keep ten very smart people happy all the time.”
As a “second tier” city real estate was cheaper in Hangzhou, too. Even after Alibaba moved into a 200,000-square-foot office in early 2000, its total rental bill was just $80,000 a year, a fraction of what it would have been in Beijing or Shanghai. Jack liked the distance from Beijing: “Even though the infrastructure is not as good as in Shanghai, it’s better to be as far away from the central government as possible.”
Ali People
When building up his team Jack preferred hiring people a notch or two below the top performers in their schools. The college elite, Jack explained, would easily get frustrated when they encountered the difficulties of the real world. For those who came aboard, working for Alibaba would be no picnic. The pay was low: The earliest hires earned barely $50 per month. They worked seven days a week, often sixteen hours a day. Jack even required them to find a place to live no more than ten minutes from the office so they wouldn’t waste precious time commuting.
From the outset, Alibaba has been driven by a Silicon Valley–style work ethic, with every employee issued share options in the company, vesting over a four-year period. This is still a rarity in China, where the traditional setup in private companies was an emperor-like boss who treated employees as disposable and salaries as discretionary.
As the Alibaba.com website grew in popularity—aided by offering its services for free—the team in Hangzhou struggled to keep up with the volume of incoming emails. Alibaba’s customer service team found themselves at times acting as free tech support to clients, responding to questions about how to reboot a computer. But wedded to its “customer first” tenet, Alibaba resolved to respond to every email within two hours.
Keeping the team focused, cofounder Simon Xie recalled, Jack was “a culture, a nucleus.” Jack greeted new recruits with a sobering message, and a promise:10 Then trotting out one of his favorite sayings: “Today is brutal, tomorrow is more brutal, but the day after tomorrow is beautiful. However, the majority of people will die tomorrow night. They won’t be able to see the sunshine the day after tomorrow. Aliren11 must see the sunshine the day after tomorrow.”
Cofounder Lucy Peng, Alibaba’s first human resources director and later its “chief people officer,” also played an important role in the hiring process and in shaping the company’s culture. In a 2000 Harvard Business School case study on the company, she commented that “Alibaba employees don’t need experience. They need good health, a good heart, and a good head.”
As the website’s members grew, companies in China began to use the site to connect with one another as well as to the outside world, prompting the launch of a Chinese-language marketplace12 for wholesalers in China seeking domestic trade leads.
Yet Alibaba still encountered difficulties winning converts to the e-commerce cause. Some balked at the high costs of buying computers; others lacked personnel with a sufficient understanding of IT. An even bigger obstacle was a pervasive lack of trust. Suppliers worried that customers they had never met might never pay for their orders. Buyers overseas were concerned about fake or defective goods, or shipments that never arrived.
Alibaba couldn’t wave a magic wand to make these risks go away, as Jack emphasized to the media: “We are just a platform for businesspeople to meet, but we do not take legal responsibility.” Alibaba kept its focus as a bulletin board for businesses. But others, such as MeetChina, were talking up their plans to expand into areas like market research, credit checks on suppliers, quality inspections, shipping, insurance, and payments.
Jack argued this was premature: “Small- and medium-sized companies do not trust transactions online yet. And we believe the current banking system is good enough for small business. As long as our members feel it’s easy, they’d prefer to do their transactions offline.”
Alibaba was struggling to define itself in ways that investors could understand: “We don’t really have a clearly defined business model yet,” Jack admitted. “If you consider Yahoo a search engine, Amazon a bookstore, eBay an auction center, Alibaba is an electronic market. Yahoo and Amazon are not perfect models and we’re still trying to figure out what’s best.”
Goldman’s cash had helped, but the commitment to free listings meant that Alibaba had to raise more capital soon, something made more pressing by the opening of the new Hong Kong office and another in Shanghai, which Alibaba announced would serve as its new China headquarters. To sign up more customers, Alibaba started to host gatherings of SMEs in hotel ballrooms, arranging tables to group together companies from similar industries.
Despite the hectic pace during the Internet bubble, and the growing sense of inevitability that it would soon pop, Jack betrayed few signs of anxiety. I visited Hangzhou several times in late 1999 and 2000 and witnessed Alibaba sprout from the Lakeside apartment through a series of ever-larger offices.
I never witnessed Jack lose his cool, even when he dinged the fender of his car one day on a concrete column when we were parking at a restaurant where he’d invited me to lunch. I always found my visits to Hangzhou enjoyable. Spending time with Jack was invariably good fun. Like many visits before and since, I enjoyed seeing the city’s sites. On one visit Jack’s wife, Cathy, took me to visit the famous Long Jing (Dragon Well) tea plantations, including a walk through the bamboo forest nearby—a breath of fresh air (literally) after Beijing.
Jack was now spending much of his time away from Hangzhou, speaking at industry and investor conferences. In January 2000 we were both invited to speak at a student-organized event13 at Harvard. I met up with Jack before the conference. As we walked along an icy pathway on the banks of the Charles River I noticed one of his entourage was filming the scene, something I later discovered she had been doing for years already.
The conference featured a number of other China Internet entrepreneurs, most with much stronger academic pedigrees than Jack. Some were recent returnees to China like Shao Yibo of EachNet, who had actually studied at Harvard. Peter Yip from China.com was also there.
But Jack quickly emerged as the star of the show, especially when he confessed to the audience that he really had no idea what Alibaba’s business model was, adding “and yet I got investment from Goldman Sachs!”
Jack reveled in the attention he received at Harvard, including the moniker “Crazy Jack” that Time magazine gave him shortly after. He particularly enjoyed talking about the reversal of fortune of being once rejected14 by Harvard but later being invited there to give a talk. “I did not get an education from Harvard . . . I went to Harvard to educate them.”
Jack has always been dismissive of business schools: “It is not necessary to study an MBA. Most MBA graduates are not useful. . . . Unless they come back from their MBA studies and forget what they’ve learned at school, then they will be useful. Because schools teach knowledge, while starting businesses requires wisdom. Wisdom is acquired through experience. Knowledge can be acquired through hard work.”
SoftBank Invests
One of the reasons that Jack was on such a high at Harvard was that he was on the verge of announcing another important milestone for Alibaba: $20 million in fresh funding from the Japanese investment firm SoftBank.
With this, and a subsequent investment, SoftBank became Alibaba’s largest shareholder. The deal was teed up by Alibaba’s investor, Goldman Sachs. SoftBank was on the lookout for tech investment opportunities in China when Mark Schwartz, then president of Goldman Sachs Japan, told Masayoshi Son, SoftBank’s founder, about the bank’s growing portfolio of tech investments in China.
In October 1999, Jack was one of several entrepreneurs invited to meet Masayoshi Son in one of a series of “speed dating” sessions bet
ween the Chinese start-ups and the Japanese billionaire arranged by Chauncey Shey, president of SoftBank China Venture Capital. The two men met at the wedding cake–styled Fuhua Mansion in Beijing. The venue turned out to be a fitting one, their meeting the start of an enduring partnership that would eventually make Son the richest man in Japan. Son’s backing of Jack, coming just months before the dot-com crash, transformed Alibaba’s fortunes.
Masayoshi Son
Masayoshi Son, known to his friends as “Masa,” shares some similarities with Jack. Both are short in stature and known for their outsize ambitions.
Son grew up in circumstances even more difficult than Jack’s. Born on Japan’s southernmost main island of Kyushu, the Sons lived in a shack that didn’t even have an official address. His father was a pig farmer who brewed moonshine on the side. Son was bullied for being ethnically Korean and was forced to adopt the Japanese surname Yasumoto. At the age of sixteen, Son moved to Northern California in search of a brighter future. Staying with friends and family, he attended Serramonte High School in Daly City, just south of San Francisco, before gaining acceptance to the University of California, Berkeley, where he started his entrepreneurial career. His most successful venture was building a voice-operated translation device to be sold at airport kiosks. Son designed, built, and then licensed the technology to Sharp Electronics for half a million dollars. In the United States, Son started to import early models of the Pac-Man and Space Invaders game consoles that were becoming popular at the time, leasing them to local bars and restaurants, including Yoshi’s, a North Berkeley sushi bar (now a famous Bay Area jazz venue). At Berkeley, he also met and hired Lu Hongliang, whose venture, Unitech Industries (renamed Unitech Telecom in 1994), later became part of the technology venture UTStarcom, the Hangzhou-based company in which SoftBank invested in 1995.
After moving back to Japan in the early 1980s, Son started a software distribution company. At the launch of the venture, in a scene echoing Jack’s own irrepressible optimism, he famously climbed on top of a shipping box in front of his employees—just two at the time, both working part-time—and vowed that their new venture would make 50 billion yen ($3 billion) in revenues within ten years.
By the time he first met Jack, Son had become a billionaire many times over. He was known for making quick decisions. One of his best was the prescient investment he made in Yahoo in 1995. When Yahoo went public in 1996, Son topped up SoftBank’s stake in the portal to 37 percent, becoming its largest investor. Son also negotiated the right for SoftBank to become Yahoo’s exclusive partner in Japan, a deal that would yield him tens of billions more.
Meeting Son, Jack knew he had found a kindred spirit. “We didn’t talk about revenues; we didn’t even talk about a business model. . . . We just talked about a shared vision. Both of us make quick decisions,” Jack recalled.
“When I went to see Masayoshi Son, I didn’t even wear a suit that day. . . . After five or six minutes, he began to like me and I began to like him. . . . People around him have said that we are soul mates.”
At their first meeting, after Jack had finished describing Alibaba, by now some 100,000 members strong, Son immediately turned the conversation to how much SoftBank could invest. “I listened to Mr. Ma’s speech for five minutes and decided on the spot that I was ready to invest in Alibaba,” Son recalled. Son interrupted Jack’s presentation to tell him he should take SoftBank’s money because he “should spend money more quickly.” Around the time of Alibaba’s 2014 IPO, Son was asked what it was that prompted him to bet on Jack back in 2000: “It was the look in his eye, it was an ‘animal smell.’ . . . It was the same when we invested in Yahoo . . . when they were still only five to six people. I invested based on my sense of smell.”
This impulsiveness was typical for Son. “Masa is Masa. He has ADD [attention deficit disorder] and can’t sit still. He just wants to give you money now, now!” commented a former business associate.
A few weeks after their first meeting in Beijing, Son invited Jack to Tokyo to finalize terms. Joe Tsai joined him on the trip.
As soon as they entered Son’s office, the negotiations began. Jack would later infuse his description of their meeting with martial art imagery: “Masters of negotiation always listen, don’t talk. Those who talk a lot only have second-rate negotiation skills. A true master listens, and as soon as he moves his sword, you pretty much collapse.”
Joe, who had met up with SoftBank China’s Chauncey Shey before the trip, told me the details of their meeting. “Goldman and the other funds had just invested $5 million for half of the company, valuing Alibaba at $10 million. Masa opened the negotiations by offering $20 million for 40 percent of the company. This valued Alibaba at $50 million ‘post-money,’ and $30 million ‘pre-money.’ In just weeks, Goldman’s investment had increased in value by three times.”
Joe and Jack looked at each other, Joe recalled, thinking, “Woohoo, that’s three-times! But then we thought, we didn’t want to give up too much equity. So Jack said, ‘Masa, that doesn’t work for us.’ Masa had a calculator; he was literally doing the math right there. But Masa wanted 40 percent, so he said, ‘How about double the amount. I put $40 million for 40 percent.’ That means $60 million pre-money.”
Jack and Joe offered to think it over. Upon their return to China, Jack wrote Son an email turning down the $40 million investment. Instead he offered to take in $20 million for 30 percent, adding, “If you agree, we will go ahead; if not, that’s it.” Jack later explained why he turned down the larger amount: “Why would I need to take so much money? I didn’t know how to use it, and there would definitely be problems.” Jack didn’t have to wait long for his reply from Son, which came in the form of two words: “Go ahead.”
Jack credits fortune with playing a hand in connecting him with Son, conceding that “[i]t is quite difficult to find such an investor.” Commenting on the dynamics of their relationship, Jack said, “I think Masa is definitely one of the world’s best [businessmen], very sharp on investment.” But he adds Son is also a good operator of business, too: “It’s not easy to shift from investor to operator and meanwhile still be a good investor. For me, I’m just an operator. I love to be an entrepreneur. I’m not a good investor.”
Jack also liked to joke about their appearances: “The difference between me and him is that I may look very smart, [but] in fact I am not; that guy seriously doesn’t look very smart, but he is a very wise person.”
An early Alibaba employee, Shou Yuan, has an interesting take on the relationship between the two founder-CEOs: “Son has a lot of self-confidence, he’s even conceited, but his appearance is always one of modesty. He’s crazy, but Ma’s also crazy. It’s very common for crazy people to like each other.”
Announcing the deal, Son himself drew a comparison with his wildly successful investment in Yahoo.
“We would like to make Alibaba the next Yahoo. . . . I think this will probably be the first Chinese Internet company which will become a global brand, a global success in a big way. I am very excited to make that happen.”
The two firms also announced a joint venture for Alibaba Korea, which would launch in June 2000, to fend off the growth of a local player there, and drew up plans for a site in Japan as well.
The deal was clearly a transformative one for Alibaba, and cause for celebration. In less than a year after the company’s founding, Jack and Joe had reeled in $25 million from two of the largest and most prestigious investors in the world.
The deal was not without a price: The sale of 30 percent of Alibaba to SoftBank came on the heels of the sale of 50 percent of the company to Goldman Sachs, meaning a hefty dilution of Jack’s stake.
Yet the SoftBank investment provided Alibaba with serious street cred in China, just as the three Chinese Internet portals geared up for their U.S. IPOs. The deal also gave Alibaba insurance. No one could predict with any certainty how long the tech investment boom would last. SoftBank’s $20 million allowed it to build out a
much longer “runway” on which to achieve takeoff and future profitability.
Jack wanted to be noticed in Silicon Valley, too. Soon after he secured the $20 million investment from SoftBank, Jack headed to Santa Clara, California, the home of Yahoo. He traveled there to offer John Wu15—a Yahoo executive whom Jack had first met when working at China Pages—the post of chief technology officer of Alibaba. It was an ambitious pitch. Jack was proposing that John take a 50 percent pay cut and leave the hottest company in Silicon Valley for a risky start-up in Hangzhou.
John expressed his misgivings to Jack, as he later recalled, “Yahoo was doing well, my parents were immigrating to the U.S., I wasn’t seriously considering this possibility.” He was particularly keen to avoid moving his family back to China. Instead Jack proposed he run Alibaba’s R&D team from Fremont, California. John accepted.
Jack, with a background as an English teacher, was keen to ensure that his own ignorance of technology was not replicated in Alibaba. “For a first-class company, we need first-class technology. When John comes, I can sleep soundly.” Hiring John Wu also gave Jack the opportunity to sprinkle some more Yahoo stardust on his venture. Sitting next to Jack in a press conference, John described Alibaba as a new form of Yahoo: “Yahoo’s search engine has shaped the way millions of people surf the Internet. Now Alibaba’s e-commerce platform will fundamentally change the way people conduct business online.” The Los Angeles Times commented that the “ability of a Chinese start-up to poach one of Silicon Valley’s key players could bolster China’s claim as the ultimate Internet frontier for the best minds in the industry.”
John jumped from Yahoo to Alibaba, he explained, because Alibaba’s idea was an original one. “If you compare the other leading Internet companies in China,” he said, “almost all of them are copying business models already existing in the U.S.” Shirley Lin at Goldman Sachs had been attracted to Alibaba for its “localness.” John Wu saw the same merits: “There are a lot of Internet companies started by people who studied in the U.S. and came back to China. . . . Jack Ma is different. He has been in China all his life.”