[Part 2/2] The New Normal with Dianping’s Zhang Tao and JAMM Active’s Chih Cheung17 min read

“There is incredible opportunity in a lot of different industries, particularly traditional industries that may need to be digitized, and might have a new way of selling.” – Chih Cheung, co-founder and co-chairman of JAMM Active

You can read part one here. Follow us on Spotify and iTunes for more conversations with founders and investors in Asia.

About our guests

Zhang Tao is the founder and CEO of restaurant review site Dianping. In 2015, Dianping merged with Groupon-like Meituan. He currently holds a stake in the combined business, which went public in Hong Kong in 2018. Zhang received an MBA from Wharton School of the University of Pennsylvania in 2002, and returned to China in 2003, when he set up Dianping.


Chih Cheung is the co-founder and co-chairman of JAMM Active Limited, a leading global producer of innovative performance fabrics for active apparel. He is also the managing partner of C2 Capital Limited, a private investment company. Chih also serves on the board of Wheels Up Partners Holdings LLC and Talent First Limited.
Previously, Chih was the non-executive chairman of RSI Apparel (China) Limited, a director of RSI Apparel Limited, the non-executive chairman of Yucheng Technologies Limited, the managing partner of Staples Asia Investments Limited, a director of The Taiwan Fund, Inc., the co-founder and chief executive officer of HelloAsia Corporation, the chief executive officer of Crimson Solutions and an analyst at Goldman Sachs in New York and Hong Kong.
Chih holds a Juris Doctor degree from Harvard Law School, a Master of Business Administration degree from Harvard Business School, a Master of Arts degree and a Bachelor of Arts degree from Harvard University.
0:32 Fundraising during a crisis, lessons from Dianping (Zhang Tao);
4:26 Supply chain opportunities (Chih Cheung);
5:52 Capturing opportunities while managing burn rates, leaner headcount (Chih Cheung); 
8:25 Impact of COVID on M&A and consolidation (Chih Cheung); 
10:21 Industries that will bounce back post-lockdown (Zhang Tao & Chih Cheung); 
14:56 Advice for twenty year-old self in 2020 (Zhang Tao & Chih Cheung); 

Yinglan Tan: You mentioned earlier that at Dianping, you were trying to raise a small round of financing when the crisis hit, and we have a question here from an entrepreneur on what are the most effective ways of raising capital for a business during this time of crisis? What would be your advice for companies to raise capital now, given that you’ve gone through the journey? 

Zhang Tao: We actually ended up not raising. The reason is, because we sat down and we went through our finances and we kind of figured out at that time the burn rate is very small. We are talking about, I forgot the exact figures, maybe two hundred thousand a month, US dollars, and we have a little bit of income. So we did some financial analysis and figured out if we push a bit harder, actually we can break even with all our capital. 

So that’s one big important reason. Then we say okay we’ll look at the environment. Obviously it’s very hard to raise money; [it was] always actually even tougher for entrepreneurs in China than I think even now, because when there’s a financial crisis it freed up cash and more importantly at that time, there are not many VCs here. So this entrepreneur thing was not a sexy thing and a VC was not a big industry in China, so you didn’t have a lot of choices. 

So I think the number one reason is that we figured out we didn’t really need money. And the number two reason is we look at the market, there’s just no reason we should go out and waste all our management time, and the result is probably not going to be good. So we didn’t do it and ended up to be actually a blessing in disguise. 

So now I think it depends where you are. So for example, the markets with a lot more VC activities, in China, for sure, Indonesia, you can actually see a few good businesses which benefit from this crisis like education, entertainment. Actually, it’s easy for them to raise money. I actually invested in an education company a year ago. They raised another round and valuation almost tripled and it’s already a unicorn. 

So I’m going to say it depends because this time is different from ‘08. There’s a lot of VCs, there’s a lot of money. A lot of funds raised a lot of money before the crisis. And it’s actually hard to deploy in the past couple years. So money’s there; it’s just that people are cautious. And so it depends where your business is. If your numbers and your metrics all show very promising growth then the money will be there then you can start trying. If your numbers are not there, then maybe [be] cautious.  

One thing I will add, as I mentioned earlier, one thing I do see in Southeast Asia the valuation will be higher. I think it’s a couple years behind China. So China cooled down already, the valuation in ‘18 and ‘19, but Southeast Asia is a couple years behind. So I would say before the crisis valuation is too high, like in China, maybe early ‘18 or late ‘17 level. Now during the crisis, if you are good, you will still be able to make money, but maybe because of the valuation jump, you [need to] be more realistic, because you are coming from a higher level.

Yinglan: Let’s move on to Chih and we have a question on supply chain and Chih is actually an expert in this space, given his vantage point as a board member of Li & Fung. So the question is on the supply chain in China. This virus has raised the question about supply chain diversification from China. Is this real? And what do you think are the impacts?

Chih Cheung: I think it’s definitely real. It’s not just China. I think globally. I think what most countries have realized is that they cannot depend on just simply a global supply chain; it’s too complicated. So during a crisis, for example, you take the masks, you know, a lot of the masks are not made in the US. And in the country where even if it’s a US company, like, for example, 3M’s a US company, they have a factory in China that makes N95 masks, the Chinese government will not allow them to ship [these masks] from their factories in China to the US. So what’s going to happen is that the supply chain will shift from globalization to regionalization. And I think that actually goes well for Southeast Asia, because diversification is happening. So I think that’s an area that is definitely happening. Now, the trend of moving away from China was already happening because of the US China trade war, and I think the COVID-19 just accelerated that dramatically.

Yinglan: I want to follow up on that. There’s a saying, which is, “not to waste a good crisis.” At the same time, Tao also cautioned that we don’t want to waste cash and resources trying to bark up the wrong tree. We also see that  Bytedance is adding 10,000 jobs to COVID while everyone else is cutting 10 to 40%. And I love to get your thoughts on how should operators like yourself or business owners look at business growth and capturing opportunities during this time as they manage burn rates, and leaner headcount. I know, this is a difficult question to answer. But I think you have seen enough businesses to answer this.

Chih Cheung: Well, I agree with Zhang Tao, in a sense that at the end of the day, I mean, sometimes we forget about it, but at the end of the day, cash is king, right? So whatever business model you have, ultimately people use – like, WeWork is a good example because they use these metrics that don’t make sense. 

But in a crisis like this, it makes it very clear. Well, it comes down to whether the business model is sound or not sound, whether there’s too much cost versus the revenue you are bringing in. And so I think first and foremost in any crisis, you need to look at, one, can you survive? And the basis I think is a couple things. 

One, is your business model, fundamental, sound? If it is sound, I would definitely be more aggressive because everything else is cheaper. Your valuation is cheaper, so hopefully, you won’t need to raise money. I mean, what I recommend on the fundraising part is that I will not go try to talk to any new investors. If you need money or you need funding and you believe that you have the right business model, I would definitely go back to your existing shareholders. So one of the things I’m seeing is that if you have good backers, they’re willing to put in more money because they believe in your business model, and you have a good plan. 

Secondly, I think that the crisis forces you to become more efficient in the way you do things. Three, there’s a bright side to the fact that a lot of people are being let go, which is you can actually hire talent, better talent, cheaper, and hopefully more stable. So I believe that the good company, just like for example, Dianping back in ‘08, they’re going to come out stronger, not weaker, as other companies, their lesser competitors will go away.

Yinglan: I think there’s also a very interesting point here on consolidation and M&A. And I want to tap on your previous life as a Goldman banker, on your thoughts on M&A in various industries going forward. I think there was a question on healthcare and medtech; there was also a question on other traditional industries, whether they’ll be more consolidation, like travel, do you see faster consolidation, Hyatt, Hilton, or even Airbnb, in this sector? Well, what do the tea leaves tell you on M&A, in the next six, twelve, 18 months?

Chih Cheung: I think in general, in a timeline like this, the company that actually has a strong business model, a strong management team, and a strong capital base, they’re going to have incredible opportunities to buy things for cheap. And so in some way, there’s going to be consolidation. And I think certainly in industries where consolidation does benefit, you’re going to see more of that so scale benefits certain types of industry, for example, you kind of mentioned hotel, right. I think having a bigger scale makes you run more efficiently. 

Having said that, given what’s going on in the supply chain, I’m not sure having a bigger scale really helps. For example, if all your factories are in China, it’s not good for you to buy more factories in China, because your customers actually want to diversify sourcing things. So it really depends. The one area that I do see, beyond sort of what Zhang Tao and I have talked about already, is I really believe in healthcare awareness, and biotech. If you have to look at one area that is going to do well in the next three to five years and find the right company, that would be the one area we’ll definitely look at, because people are just a lot more aware about it, and people willing to spend money on that.

Yinglan Tan: Actually, both of you – I think Tao is in Singapore but he’s very familiar with China, and Chih you are in Shanghai or Taiwan. China was first to be hit by the COVID situation, and I think it’s also the first to recover in terms of the lockdown ending. Southeast Asia is just going through it. So I think there’s a lot of learnings. And this is a question for both of you and maybe Tao or Chih. What are some of the industries that you see that have bounced back quickly? And I think the other thing is that we ended up with the last webinar with how should our founders be well prepared to bounce back to capitalize on growth, once there is recovery? I think Wuhan was like a lockdown for 68 weeks. Now it’s been up and running. So what are some of the pointers you would give to our founders in the audience on the China experience, especially?

Zhang Tao: So what are the most specific industries in China bounce back more quickly? Actually, not really anything particular come to my mind, except for you know, all the online things I already talked about. I don’t have much comment on this. Maybe Chih has more.

Yinglan Tan: I have a data point — I think it was on the news, which is that Hermes, in the weekend that lockdown ended, I think clocked like two plus million of sales in one weekend. So that was quite surprising to me that the first thing to bounce back was actually luxury goods. Chih, what do you see in the industry?

Chih Cheung: Well, I think first I want to agree with Zhang Tao in terms of what he’s saying that one of the things that obviously has bounced back or never really went down that much was all the online services, whether it be commerce, delivery, or even entertainment. That kind of [business] has since the opening has actually come back stronger. I think there’s going to be a normalization of a lot of other normal business activities. 

Frankly, I’m actually not surprised by the bounce in terms of sales for Hermes. It’s a premium brand. If you think about it, ultimately, people feel good when they consume. And if you think about the alternative, in the past, they could have taken the same amount of money and gone on a luxury trip, private trip somewhere in Africa or Europe, for the Chinese. They’re not doing that anymore. They could go to a fancy restaurant and buy a nice bottle of wine and drink it at a fancy restaurant. They can’t do that anymore. 

So in some way, I would argue that short term, there actually might be more opportunity for people to consume physical goods, as opposed to experiences. But I think the other thing is that for me, one of the things that is interesting that I see is that the way people conduct business has changed. Whereas in China in the past, right, everything needs to be done face to face — ren-ching (人情), it’s like critical. Now people realize that, well, it’s actually not so critical. You still should meet people face to face; it’ss important, but does it have to be every night going out to dinner meeting with your people? Not necessarily because it’s not very efficient, frankly. 

The other thing that I will caution the founders in Southeast Asia is that you can certainly look at China as a playbook in terms of what potentially could happen. Like, for example, how Nike, Starbucks, and everybody open up their store, but the recovery rate is different, and actually might be different in Southeast Asia. So I actually would caution you on taking making too much of the China playbook and just applying it blindly. I will also look at the local conditions because one of the things that I think will have a huge impact on how every country recovers in Southeast Asia is the role of the government. 

I think China in my opinion has done a better job than most countries in terms of controlling sort of the crisis, the pandemic, and coming out of; it is much more controlled, regulated, and they have the capital versus, I don’t want to talk about Southeast Asia, I don’t want to pinpoint any country in Southeast Asia. But if you look at India, I think they’re going to come out of it much harder; the recovery is gonna take longer than a place like China, because of government policies, government bureaucracy, and the way they are connected.

Yinglan Tan: We have one last question asked by, I think, I guess a young participant, which is, if you’re in your 20s today, what skills we’ll pick up and what we will do differently now in a post-COVID world. I think this will be great for some of our younger audience and actually I just checked we have 250 plus people tune in today. So I think the thoughts from Chih and Tao will be great. So go back to time and if you’re in your 20s again, how do you tell the 20 year old version of yourself in 2020?

Zhang Tao: It’s always the skills, and also another I think, is the passion. So it’s a balance. So I would usually argue, instead of the skills you want to pick, maybe focus on what you really like to do. That cannot be a better bet. Because if you like it you’ll be better. It’s very hard to predict what kind of skills will be useful, what kind of maybe entrepreneur ideas, industry, and sector will do very well in the future. It’s not easy. If it’s good, so many people already do it and the opportunity is gone. 

So I think it’s a much safer bet to focus on what you really like to do, same with your knowledge base, your skill sets, and also in particular with the company you want to start in the future. It’s much safer and the process will be much more enjoyable. You will have a lot more insights with the thing you are doing; you will find the real needs instead of what other people tell you. So all the good things will come along and you will enjoy the process. So if you need to focus on skills, I’m obviously the trend, I think with COVID especially it’s going to be more online. So anything to do with digital and online, along that line, I think that’s where the future is. So if you can combine your passion in that kind of arena, something with the digital world, if possible, I think that would be the best compliment you. 

Chih Cheung: If I had to give myself one piece of advice, it would be to go to school less […]. But I think on a serious note, I actually think that it’s great to be in your 20s. The opportunity cost is actually not that high if you try something new. So I totally encourage everybody to be an entrepreneur and try something new because the cost of being an entrepreneur is so much lower than it was during my days. 

In my days, back in 1999, to set up a website, cost basically five million dollars, because you got to get the SUN servers, you got to buy the broad vision package, and spend like a million and a half to get an SI to system integrate the software for and you customize it for you. And it’s still very bad compared to what you can get today. 

My last piece of advice for those people who are thinking about businesses, I actually think that there is incredible opportunity in a lot of different industries, particularly traditional industries that may need to be digitized, and might have a new way of selling, I would really just focus on, you know, one industry that you have some sort of experience in, some sort of expertise, and some sort of passion or interest. But then think about the industry in a slightly different way. How can you take advantage of technology and the current prices to kind of offer a better service or better product at a cheaper cost to a greater group of people, because you still fundamentally have a model that is slightly different than what’s out there today. Because you’re going to be able to change and pivot because you don’t have a lot of the legacy issues that a lot of traditional current leaders have hands. 

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