Discover more from The Asianometry Newsletter
The Billionaire Speed Run
Colin Huang and Pinduoduo
Author’s note: The video is below
Right now, Pinduoduo is a $100 billion company. That’s kind of crazy if you think about it, for two reasons. One, is that this is a company that is less than 10 years old. It is no longer run by its founder. And it is situated smack dab in the middle of one of the country’s most “high-profile” regulation rundowns.
Second, on the other hand, the company has nearly 800 million users and thus in this particular metric is as big or larger than Alibaba. Alibaba is a $380 billion company. Now, the metaphor is not quite one to one. After all, Alibaba also has a whole bunch of other valuable things like Ant, AliCloud, and its investments. But it is something to think about.
Recently, the company announced their most recent earnings. They are approaching nearly 900 million users, focusing as always on agriculture and 2nd/3rd tier cities. The stock has dropped a whole lot as the market digests how the company would be impacted by the ongoing tech regulation trend. The company leans heavily on WeChat and there are signs that the Chinese government is moving towards reigning even that in too.
If you are interested in helping to support the channel, I’d appreciate if you check out the Patreon. Check out the Early Access Tier, where you can watch videos before they are released. Every little bit helps.
Colin Huang founded a company in 2015. Three years later it IPO'ed. His shares in that company? Worth $14 billion. Then the value of those shares doubled.
Colin Huang began selling his shares in 2020. He stepped down from being CEO and took up the chairman position. Then in March 2021, he stepped down from that too, retiring completely. As of this writing, Bloomberg says he is worth $45 billion, the world's 30th richest person.
In this video, I want to talk about a guy who got very rich, very fast. And then he got out just as fast. I have never seen anything like it.
Colin Huang was born in 1980 to two factory workers in Hangzhou. Like fellow tech titan Jack Ma, Colin Huang came from a humble background. He did very well at school and earned a spot to the prestigious Hangzhou Foreign Languages School.
The HFLS is one of China's best schools, and 20% of its students are exempted from taking the big college exam that haunt most Chinese high school students. They just go straight to a top university. Fellow alumni include Xi Jinping's only child Xi Mingze.
After studying computer science at the prestigious Zhejiang University, he moved to the United States to earn a masters at the University of Wisconsin.
There, William Ding, the billionaire founder of NetEase, connected him to billionaire Duan Yongping. Duan is probably most well known in America (if at all) for paying $620,000 for a lunch with Warren Buffett. But in 1995, Duan founded BBK Electronics.
BBK is the world's largest smartphone vendor and the company behind Vivo, Oppo, and Realme. Americans might know it better for being the company behind the OnePlus smartphone brand.
Duan founded BBK but soon retired to be an investor. And after Colin's graduation in 2004, Duan encouraged him to join a small startup called Google.
## Colin in Google
Colin had offers from Microsoft and IBM but turned them down to join Google as an intern. After two years there as a programmer and then product manager, he was sent to his homeland to work on Google China.
He did his best, but Google China failed to gain traction against Baidu. The company was too inflexible to adapt to local traditions. Colin would have to fly to California to get the founders to sign off on minor changes like the size of the Chinese font. This frustrated him.
Regardless, he had good things to say about his experience at Google:
> Google’s “do not be evil” goes deep into its genes, putting its mission and values before profit, and profit is just a by-product of doing the right thing
He resigned in 2007. His Google shares would be worth millions of dollars after the search engine's IPO. Seeing the effects of such sudden wealth had on early Google employees made an impact on him - "Too much money in an instant."
Colin was already a rich man by then but he had ambitions to create something greater. You already got the sense that this was a guy who saw wealth as a pathway to something else.
## Starting Pinduoduo
Over the next few years Colin started a number of small businesses. The first was an e-commerce site called Ouko that sold consumer electronics. After that was a Taobao marketing firm. Then after that, a RPG WeChat games company. The latter two were sold for a pretty sum.
Upon selling those companies, Colin fell into a funk trying to figure out what to do next. He began studying Alibaba and Tencent, he noticed that the two companies did not cross paths with one another. Tencent dominated social media and gaming, but could not sell physical goods to its consumers. Alibaba knew how to sell such goods, but it could not foster community amongst its users.
The two companies did not get how the other made money. Huang decided to mash his two experiences together - gaming and e-commerce - to create the gamified shopping experience that is Pinduoduo or PDD. He raised $8 million from Duan Yongping, William Ding, and other angel investors. Pinduoduo was launched in April 2015.
## How Pinduoduo Works
Colin built Pinduoduo as a game. This was not an accident. The shopfront has colorful photos and hidden bargains to stimulate that feeling of deal hunting Kind of like how customers go to Costco to see what might be on the show floor, Pinduoduo features new things every day to get users to keep coming back.
The discounts are steep, but at the same time you cannot get them without a little work of your own. If you want to buy a box of mangoes for $1.50, then you have to convince your family and friends to join in on the fun.
These "group discounts" echo Groupon, but are different in that they are more social and localized. Groupon needs only a number of people in an area to purchase the discount for the offer to "unlock". Like, 35,000 coupon purchases for a massage. For Pinduoduo, you join "circles" of local friends, acquaintances, and family to get your cheap box of mangoes.
The company very heavily leverages Tencent's social network. Friends can see what their friends have purchased or reviewed. You share your deals through WeChat. At the start, Pinduoduo almost entirely existed within WeChat.
Naturally, Tencent is one of Pinduoduo's investors. Though they seem to have a weird relationship. Colin has said that Tencent does not really support Pinduoduo other than as an ordinary financial investor - neither particularly good or bad to them:
> Recently, there was an incident that made me feel very wronged. There were a lot of rumors that Pinduoduo was scamming. The rumors were widely spread through WeChat groups. I asked WeChat for help but was rejected ... I can understand, because if WeChat stands up to help me deal with the rumors, the masses will say it is because Tencent is our shareholder ...
> If I die, Tencent won't die. Tencent has thousands of sons.
I like that last bit. Unlike Meituan's Wang Xing, who seems to prefer historical metaphors, Colin Huang speaks in floral Chinese poetry.
The company has started to guide its customers away from WeChat to its own dedicated mobile app. Some 50% of their transactions now take place there.
## Speed Running Pinduoduo
In just four months, Pinduoduo had 10 million users. By February 2016, less than a year after launch, the company had over 20 million paying users. Just five months later, the company had 100 million.
They raised $100 million that same year. In just 21 months, the company would be worth over a billion dollars. In April 2018, they raised $3 billion. And then just three months later in July 2018, the company raised $1.6 billion on the US NASDAQ exchange at a valuation of $60 billion.
That's three years from nothing to IPO and a $60 billion valuation. Few companies have gone from literal start to American IPO so fast.
Facebook stayed private for eight years. AirBnb took 12 years. Alibaba took 15 years. It is kind of nuts.
As you might expect, Pinduoduo's speed has had real and concerning consequences.
## Product Quality
One has to do with the quality of its goods. The company targeted residents in third and fourth tier cities. People living in metropolises that nobody has ever heard of.
These people are extremely price sensitive and Pinduoduo embraces that spirit wholeheartedly. Colin likes to describe his customers as being unknowable to the elites on Beijing’s Fifth Ring Road - a reference to the city’s business districts.
The company wants to deliver good cost value for its customers. Even if a bag of Lay’s potato chips arrives at the customer’s home with half of the chips broken (and a few weeks late), they would consider that a success. Because the other half arrived intact and the customer had paid so little.
This blasé attitude has led to a product quality problem on the company's platform. Business websites have noted that Pinduoduo is ranked first in the e-commerce industry in terms of complaints.
The company also has issues with trademark infringement and fakes on the platform. One of their best selling products is a $4 bottle of aphrodisiac, with over 4 million units sold. Soon after the company IPO'ed, they were sued for imitation products. In response, they removed thousands of stores and millions of listings. This in turn pissed off a lot of manufacturers, who made threats against Pinduoduo employees.
For what is worth, when you search for Pinduoduo in Baidu one of the most common suggested searches are: "How to unbind the bank card with Pinduoduo", "How to cancel Pinduoduo", and "How to close Pinduoduo."
## Working Life
The second concern has to do with the structure and operating conditions of the company itself. For a guy who portrays himself in the media as being thoughtful and considerate of the working man, he sure works his people extremely hard.
The company pays more than your average startup. They recruited talent from Alibaba and JD.com with offers of up to 60% higher than their current salary. But they work them hard too, leading to a new twist to the company's motto: "The more you strive, the more you earn."
Being in such a hurry to a billion dollars has had consequences for Pinduoduo’s employees. In January 2021, a 22-year old collapsed and died on her way back from work at 1:30 AM. To be fair, a lot of people work long hours and it does not literally kill them. But the incident served as a lighting rod for criticism of the company's 996 working schedule.
Soon thereafter, a 15-minute video by ex-Pinduoduo front end developer Wang Taixu accused the company of forcing employees to work over 300 hours a month. Wang also said he was fired after sharing a video of an ambulance coming to collect an employee for over-working.
Pinduoduo for their part said that Wang was fired for making "extreme remarks". In other words, the guy is a crazy liar. Some Chinese netizens attempted to cancel Pinduoduo with their own "delete PDD" campaign but the company has soldiered on.
A few days later, an employee in Changsha committed suicide by jumping off a building to his death. The employee had been on probation but scored well enough to be retained by the company. He had booked a return flight to Shanghai.
996 is tied to other, less savory aspects of Chinese working life. I know that. But it shows that there are still substantial challenges to be addressed at Pinduoduo both in and outside the company. It is a real funny time for its founder to be stepping away.
## Conclusion and Retirement
In his 2017 Bloomberg profile, Colin was already hinting at an early retirement. The article offhandedly mentions at the end that he would not be working there forever. He cites his admiration for how Benjamin Franklin retired from business at the age of 40 to focus on science and politics.
Colin also has a role model to follow. His friend and mentor Duan Yongping, who left BBK at a relatively young age to invest and now resides in the United States.
Of course, lots of people think out aloud about retiring with extreme wealth but few actually go through with it. Especially in the West. So Pinduoduo investors were shocked in 2020 when he sold 30% of his shares and stepped down from his leadership positions in the company. First, the CEO job in 2020 and then the chairmanship a year later. The company lost $50 billion of stock value.
In his resignation letter, he says that he would be focusing on life sciences and agriculture in his retirement. So far as I can tell, it has had nothing to do with politics or government pressure like in the cases of Jack Ma’s retirement and ByteDance founder Zhang Yiming’s resignation. Dude just wants to enjoy his 40 billion dollars.
But he leaves at a time of great uncertainty for the company. Pinduoduo faces massive challenges. In addition to the aforementioned product quality complaints and internal growing pains, the company is not profitable and spends 60% of its revenue on marketing alone.
It is also facing fierce competition not only from Alibaba but also the food delivery super-app Meituan. Meituan also has a similarly minded young philosopher-CEO at its helm. But that guy hasn’t retired from his company.
Anyway, it is his successor’s problem now. Best of luck to Colin in his new life. I hope he spends his newfound wealth well. Speed run of a lifetime.