Finding a meaningful job that comes with decent pay is no easy task. The alternate route of starting your own business in China is just as daunting, and far more difficult. In addition to all of the difficulties in dealing with the bureaucracy that is the government, there are other, more significant, challenges that entrepreneurs (both foreign and local) face. Studies, however, show time and time again that entrepreneurs and small businesses are what drive economic growth and job creation. The Chinese government has made more of an effort to support small business, but it is unlikely they will succeed in making a meaningful impact unless the some issues are addressed. Here are the three main struggles facing startups in China.
Lack of support networks and entrepreneurship ecosystem
The first of these major challenges is that there is a severe shortage of startup support networks and entrepreneurship ecosystems. In many western countries, there are things like incubators, startup accelerators, startup competitions for entrepreneurs to put their ideas to the test and get the necessary guidance. Getting the proper guidance from both peers and potential mentors is incredibly valuable in the beginning, as these people can prevent an entrepreneur from steering the ship off course.
In China, incubators, startup accelerators, and startup competitions are slowly making their way into first tier cities, but there truly are not enough to go around. As a result of this shortage, many startups don’t even make it past the “idea” phase.
While this ecosystem usually doesn’t directly provide funding to startups, they are often the platform that links investors and entrepreneurs so that entrepreneurs can get the necessary funding to test out their ideas. The lack of these facilities naturally makes it more difficult for entrepreneurs to find investors, and subsequently, for investors to find entrepreneurs. Even if entrepreneurs are able to find investors, they will face an entirely different set of challenges which I address in the next section.
Part of this challenge stems from the fact that Chinese culture inherently does not promote entrepreneurship, but rather encourages stability, employment at large companies/organizations (government or private) and, above all, teaches people to be risk averse. Not surprisingly, most young Chinese do not even consider starting their own business as they come out of high school or university. Even if a young Chinese individual has the intention of starting their own business, their family usually places a lot of negative pressure on them to forget about entrepreneurship and instead look for a ‘stable job’.
Chinese angel-investors aren’t really “angel-investors”
Despite the fact that there is seemingly a lot of funding available from various funds and investors to help businesses fund their operations, the operative word is “mature business”. Investors in China are typically much more risk averse than their western counterparts. As a result, they typically only invest in more mature stage companies, leaving startups in their very early Greenfield stages without the necessary funding.
In the west, angel investors typically invest [relatively small sums] in very early stage projects. They are a very important part of the investment value chain, in that they provide startups with the necessary funding to get their ideas off the ground. That is, angel investors will usually provide funding if there is a solid business case and strong idea, but is yet to prove itself.
This creates a significant gap (and opportunity) in the investment area to invest in very early stage companies. If China’s entrepreneurship ecosystem is to thrive in the future, this gap in early stage funding MUST be resolved.
Reliable human talent is very difficult to come by
If you talk to an HR manager of any organization, public or private, small or large, for-profit or not-for-profit, you will no doubt hear them say a Chinese phrase which roughly translates to “There are too many people in China, but there is always a shortage of talent”. It truly highlights the difficulty in recruiting, and retaining, the right staff for any company or function.
If the HR challenge is this big for large public organizations, you can bet that the dilemma is exponentially more difficult for small startups who can’t afford to pay their employees much (if anything), or offer any career development opportunities aside from building the business from the ground up. To make things worse, working for a startup in China is far, far less glamorous than working for a startup in the west.
As a result of cultural issues related to working for startups, the low pay and general stigma towards working for a startup, the talent that these newly established companies are able to find tend to be under-qualified and unreliable – a total disaster for a company who needs to execute on their business plan with minimal errors to just survive the month.
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Keywords: Struggles Facing Startups in China
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Excellent discussion on the comments here. I can understand both sides of the coin. Guest655508, are you living in Beijing (e-commerce startups, etc. lead me to belive you're there). I am in Shanghai with a new small business and I am writing my Master's thesis at Copenhagen Business School. At the moment we're exploring: RESEARCH QUESTION "How do the tech-based startup ecosystems in Shanghai and Silicon Valley compare regarding access to support and funding for expatriates – from start until IPO?" If anyone has any feedback, or would allow me to PM them, I'd be very APPRECIATIVE. I really enjoyed the article, and was particularly fond of the constructive and direct feedback. Thanks :) Email or WeChat possible?
Sep 15, 2014 00:27 Report Abuse
i am heavily involved with chinese startups, my friends have have (had) startups, and my entire social circle are startup founders. i myself have a (well, after 7 years can no longer call it so) chinese startup. i CANNOT find myself, my friends or my social circle (both chinese and foreign) in these arguments whatsoever... #1 is simply bu--sh--. so, what, there's no bitcoin coffeeshops at the back of your hubei provincial farm? who cares?! china has high-speed trains within a day's reach of all corners of the place. nobody can say the five large cities are out of reach anymore. this simply is not an existant issue #2 i would not include such a section. this kind of information is just wikipedia babble. you don't need to live in the real world to write this. what i would talk about in this section are the differences between how investors do view themselves and their investment. some investors see themselves as private money lenders and have no further eye for your business than the interest payments from your loan. some investors see their investment as a guarantee for assets rather than risk capital. i would base this section of the article specifically on what position investors/investments hold in this country. perhaps even including legally. #3 i cannot voice this opinion. hr shortcomings are replaced by shaping operations around them. this is how its done in every e-commerce startup ive ever come across. long story short---- i just cannot agree, or see, any of what's written here. honestly.
Apr 21, 2014 10:28 Report Abuse
Before I address your points, do you believe the entrepreneurial ecosystem is alive and well in China? Now, on to your points 1) What does accessibility to first tier cities have to do with support networks and entrepreneurship ecosystems? Just being in a first tier city does not mean that your startup will succeed. I'm talking about guidance and support from either other entrepreneurs who have been there before and succeeded, or business professionals who are qualified to give advice or offer contacts. There's a difference between getting business advice from your friends and family (who will always be biased), and getting advice from individuals who've been there. 2) Whether investors view their investment as lenders looking for interest payments, or a guarantee for assets - does this help a fledgling startup find funding? Further, what angel investor uses an extremely illiquid early stage investment as guarantee for assets? 3) Shaping operations can reduce the difficulty of finding reliable talent, but it definitely doesn't remove the issue altogether. People flat out lying about their experiences and abilities is not uncommon.
Apr 23, 2014 10:19 Report Abuse
do you believe the entrepreneurial ecosystem is alive and well in china? - yes, one could not walk through city alleys without concluding that it works. ** what does accessibility to first tier cities have to do with support networks and entrepreneurship ecosystems? - using your words to answer your own question: "getting advice from individuals who've been there" ... goes better in cities with access to such individuals. ** does this help a fledgling startup find funding? - it does not. which is why i'd prefer to have this subject highlighted over the current content. ** but it definitely doesn't remove the issue altogether - i have found chinese startups within the e-commerce scene to more or less make talent a redundant issue, replaced by large numbers in bd staff.
Apr 23, 2014 23:20 Report Abuse