NIE 2023 | Xingfu Capital Wang Tingfu: Tech Entrepreneurship, From 0.1 to 1, and Then from 1 to N

Wang Tingfu stated that new investments must be in line with the pulse of the times.

Since the reform and opening up in 1978 until now, GDP has increased by 400 times. How have enterprises achieved relatively good development? First and foremost, it is necessary to fully grasp the pulse of the times and enjoy the dividends of the era. For example, from 2003 to 2018, there was the urbanization dividend. In order to improve the housing conditions for ordinary people, some individuals with capital and land resources quickly became owners of huge wealth in China by developing the highly profitable real estate industry. From 1995 to 2017, the internet traffic dividend swept through, and a number of internet companies in China rose to prominence, including Baidu, Tencent, Alibaba, etc. From 2018 to the present, it is the era of technological innovation dividends, which is also an important reason why Xingfu Capital has been firmly investing in the technology field.

Wang Tingfu pointed out that the current period is the golden age for technology entrepreneurship.

The first point is the changing domestic and international environment. On one hand, China has entered an era of stock economy, with Chinese enterprises shifting from a period of territorial expansion to one of innovation and intensive cultivation. On the other hand, the United States has imposed high-end technology blockades on China, forcing our technology industry to grow rapidly.

The second point is the cycle of technological development. In the fourth wave of technology, there have been many opportunities for 'changing lanes and overtaking' in the technology industry, with rich cross-field technological innovations.

The third point is policy-driven. The state encourages scientists to start businesses at the policy level. For example, in the revised 'Promoting the Transformation of Scientific and Technological Achievements' law in 2015, it was proposed that the shareholding of scientific and technological talents should be changed from ≤30% to ≥50%, and in some places, it is ≥50%. At the same time, the government will provide support for project implementation and the introduction of scientific and technological talents.

The fourth point is capital support. In 2019, the Sci-Tech Innovation Board was officially launched, and the registration-based system was fully implemented. Technology companies have become a hot topic in the primary market.

The fifth point is the increased market acceptance. The threshold for product and technology validation has been lowered, making it easier for domestic alternatives to secure orders.

The sixth point is a high-quality entrepreneurial team. Research institutions, industry giants, and startups are all actively engaging in entrepreneurship or incubation in the technology field, enriching the sources and profiles of tech entrepreneurs.

Wang Tingfu pointed out that technology startup products are divided into three types: imitation, improvement, and innovation, each targeting different market positions and development paths. Imitation products, due to performance and brand gaps, could only snatch market share from existing market leaders at low prices in the past, essentially a life-and-death struggle; however, under the current backdrop of U.S. technology blockade, domestic technology imitation products have market opportunities as long as they are successful in imitation, especially in areas where there are bottlenecks. Improvement products target niche markets, making improvements in product functions, characteristics, and costs to achieve differentiated positioning and capture the needs of specific customer groups. Innovative products, on the other hand, are unique and require cultivating new customer groups, as well as creating entirely new markets.

First is 0.1 to 1.What does 0.1 mean? It refers to the initial product concept and technical prototype formed through ideation. How is '1' achieved? We define it as the product matching technology, gaining market recognition, and reaching Product-Market Fit (PMF). Andy Rachleff, founder of Benchmark Capital, once said, 'Finding PMF is about defining a compelling value hypothesis and finding product features and business models that can attract users to purchase.' And from 1 to n, it means the product enters the market, truly commercializes, and achieves good revenue and profitability.

Imitating the 0.1→1 stage of a product is generally referred to as Push-Development (PUSH). Typically, the product is brought over for reverse engineering, with prototype/prototype machines used for internal testing. After customer trials, adjustments can be made.

The 0.1→1 improvement and innovation of products is generally referred to as Pull Development, which involves validating customer hypotheses and driving the product development process. First, it is necessary to assume the customer's needs and pain points, abandon all features and processes that are not directly useful, then create a Minimum Viable Product (MVP). Customers conduct repeated measurements and tests, continuously improving through a feedback loop with the customer's input. If the customer validation is successful, it indicates that the PMF mentioned earlier has been achieved. Overall, the definition of tech entrepreneurship is that if you want to reach 1, your product must find an applicable market and gain customer recognition.

Next is 1 to 10.Imitation products range from 1 to 10, targeting the existing market. The gap between angel customers and mainstream market customers is very small, or even negligible. If there is no gap, it means the market is mature. To stand out, startups should emphasize their product's differences from existing products in terms of product advantages, service advantages, and distribution channels.

The 1→10 phase of improving or innovating products is the process of expanding from early adopters to mainstream markets, which presents a significant gap. To bridge this gap, entrepreneurs need to identify a long-term niche market that has been suffering from pain points, concentrate all company resources on developing it, collaborate with partners to create an integrated product, and provide end-to-end solutions for the problems of target customers. Focusing on a niche market in the mainstream market to become a leader and become the 'big fish in a small pond'.

How to achieve 10 to 100?Wang Tingfu introduced two methods.

The first is the bowling ball cylinder development model.Taking the first niche market as a foothold, leverage the established leader's reputation and advantages to continuously expand related niche markets: For customers in the same market, collaborate with partners to develop new complete products; extend existing complete products and gain a leading position in similar niche markets. The bowling ball bottle development model often exhibits linear growth.

The second is the standardized infrastructure model (applicable when the product addresses the core pain points of the entire mainstream market).Build an attractive core value proposition in niche markets, gradually establishing a reputation within mainstream industries; after establishing a dominant market leadership position, third parties will become compatible and complementary with the leader's products and interfaces; standardize and homogenize the complete product, giving up on personalized customer needs; expand distribution channels as quickly as possible or hire a large number of direct sales personnel to ship products; build the product into an infrastructure for mainstream markets; and finally enter an exponential expansion phase.

Finally, Wang Tingfu put forward the following five suggestions for technology entrepreneurship:

1) One must have the determination to go all in, to overcome uncertainties and difficulties on the entrepreneurial path. It is difficult to succeed by taking on part-time jobs or keeping options open;

2) It is necessary to introduce capable partners and relevant talent teams to complement each other's strengths and address any weaknesses in capabilities;

3) It is necessary to establish a clear and comprehensive interest distribution mechanism and implement equity incentive systems at appropriate times;

4) It is necessary to change mindset, comply with business rules, and realize customer value to drive the development of the company's business;

5) Follow a scientific method, starting from 0.1–1, then moving on to 1–N.