The Vicious Cycle Amid The Current Startup Wave In China

摘要: Internet does facilitate the development of startups. However, the current startup wave in China has been trapped by a vicious cycle and several strange phenomena have emerged.

(Chinese Version)

Opportunities and risk often go hand in hand. This is true not merely in martial arts and fantasy novels, but also in real life. When the first wave of laid-offs stroke China in the late 1990s, many workers were forced to “xia hai”, which means to “jump into the commercial sea” and do business, which indirectly led to the development of market economy in China. At present, when Chinese economy is slowing down, China is gradually transforming into a nation of startup and entrepreneurship.

Statistics suggest that over 4,000 startups are established every day in mainland China. However, all these startups featured Internet. Entrepreneurs have given up traditional industries. It seems that only by integrating with the Internet can they enjoy a better future. Internet does facilitate the development of startups. However, the current startup wave in China has been trapped by a vicious cycle and several strange phenomena have emerged.

The current startup wave in China

According to UHY International, an independent accounting and consulting firm based in the UK, the number of startups in China peaked around the world and over 4,000 startups are established every day.

On the one hand, many entrepreneurs are forced to be their own boss and establish their own companies as traditional industries are shutting down corporate ladders and with the increasing tolerance towards startups and innovation.

China ranked the first around the world in terms of the growth rate of startups. (Source: UHY)

China ranked the first around the world in terms of the growth rate of startups. (Source: UHY)

On the other hand, the Chinese government has also been actively upholding entrepreneurship and mass-innovation and transforming China from an investment and export-driven economy to a consumption and service industry-driven economy. At present, the government has promised to provide subsidies and venture capital to promote the development of the Internet industry, technology and innovation and making them the new engine of the Chinese economy. In addition, Internet Plus was even included in Premier Li Keqiang’s annual work report during the Two Sessions, indicating that Internet Plus has been included into the top-down design of the Chinese government and has become part of the grand development strategy of Chinese society and economy.

Statistics also suggest that Internet has had a significant impact in recent years: the total number of startups in 2014 has doubled to 1,609,700 compared to that in 2010, and the growth rate here in China ranks the first around the world. The UK ranks the second, yet its growth rate lags far behind that of China. At the same time, most of these startups are actually based in the Internet industry.

Three strange phenomena

Internet is inclusive and innovation-intensive in its nature, so Internet industry is the most suitable place for different kinds of startups. Startups that succeed in the Internet industry enjoy a more promising future than traditional startups. However, the Chinese Internet industry has entered into a vicious cycle, and many strange phenomena are haunting the industry.

To name just a few:

1. With the rise of the recent startup wave, innovation incubators begin to emerge one after another in China. However, the quality of these incubators varies a lot and most incubators are actually making profit in the name of encouraging startups. So these incubators are actually doing no good to these new startups;

2. Although many cafes are packed with entrepreneurs of all walks of life, these get-togethers and conversations do no good to entrepreneurs, and may even mislead them instead;

3. Most entrepreneurs enter the O2O market because they are too eager for success and fortune. However, when the capital winter comes, O2O projects that are based on money-burning market strategy will ultimately fail.

In addition, many entrepreneurs are better at talking big than figuring out a feasible revenue model.

Worse still, the current startup wave may look new on the surface but old and enclosed fundamentally. Many startups fail soon after their launch due to a misunderstanding of joint-stock system and the adoption of traditional business models. In this case, the so-called startup wave is nothing but a farce and many entrepreneurs end up in failure.

A few suggestions

Starting one’s own company is the must road for those who still dare to dream to seize their own destiny. The future is bright, yet the road is tortuous. Sparkling ideas and chicken-soups wide-shared in WeChat friends circle are far from enough to support a business. A clear mind, not enthusiasm is what really matters.

This is true especially in the Internet industry. Although there is huge potential and lots of success stories in the Internet industry, entrepreneurs should be clear about their own situations. The current Chinese O2O industry is still dominated by BAT, so it’s no easy thing to start one’s own company. The current bankruptcy wave of O2O startups demonstrates that only those entrepreneurs who have real innovation and a mature business plan can survive.

At last, I want to warn that entrepreneurs should never go with the tide. Instead, they should stick to themselves and have a clear mind of their position. Only when they survive can they have the right and opportunity to retell their success stories.


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[The article is published and edited with authorization from the author @Constantine, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at ECHO), working for TMTpost.




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