Exclusive interview: Kai-Fu Lee’s Innovation Works (Q&A)

By Qiang Xiaoji from chinadaily.com.cn

Kai-Fu Lee, the chairman and CEO of Innovation Works, explained the latest development of his Innovation Works in an exclusive interview with chinadaily.com.cn after giving a keynote speech at the TMT China 2010 Internet & Mobile Forum held in Beijing on Monday.

After resigned from Google China, Lee established his own venture Innovation Works in September, 2009. The company is intended to be something of an incubator to help Chinese entrepreneurs start up companies in mobile computing, e-commerce, and cloud computing while also seeks external projects in these areas to invest in.

Here is an edited excerpt:

Q: Could you briefly introduce the latest development at Innovation Works?

A: We’ve built a very strong team and we’ve brought in 100 engineers. They are very topnotch, new graduates from industry. We funded nine companies. Some were internally generating ideas, others were entrepreneurs approaching us. The nine companies and 100 engineers are getting started in building interesting products. Some of the products will be ready this year. The areas are mobile Internet and e-commerce.

Q: As far as I know, Innovation Works will develop projects mainly in three areas: e-commerce, mobile computing, and cloud computing. Does your team put equal energy on these three aspects or have any preferences?

A: We are putting much more emphasis on mobile computing. Seven of the nine projects are in mobile computing; two are in e-commerce. Cloud computing is something we are still very excited about, but I think that one can wait. Because mobile Internet and e-commerce are growing so rapidly in terms of users, application, opportunity, competitors, marketplace. If we do not act quickly, we may miss out. Cloud computing is developing more slowly. I think we can enter when we are more ready.

Q: Is it because the security problem is people’s greatest concern about cloud computing?

A: There are many parts of cloud computing in terms of building a technical infrastructure and having websites build electric services. I think the market is not quite ready for that. Technical work is very substantial.

In terms of building outsourcing for companies to move their enterprise services into hosted solutions, as you said, security is a problem. Enterprises are afraid they will lose their data. Well, we do see opportunities in the applications area, where an existing software application might be moved to become a hosted service. In the past you have to buy software, pay license fees, now you just go on the website and it’s all there. So that kind of application cloud computing, we are still optimistic (about). But again, it’s not as urgent as the other two.

Q: So far what is the biggest challenge or difficulty you have come cross since the establishment of Innovation Works?

A: We found no difficulty. Everything is going very smoothly. But if you ask me what area was maybe a little bit surprising, I think we found incubating projects internally takes a lot more time than we thought. So we need to grow the organization to accommodate more projects but also shift our focus to external projects. So we are talking a lot more to external entrepreneurs. I think over time, our external projects will significantly outnumber our internal projects. That’s one difference.

The second difference is that the best entrepreneurs are often hidden, because they might be low profile. They might be very successful. They might not want the limelight. They might not come to you. Many of them, maybe half of the best entrepreneurs, you have to go find them and dig up yourself. You can’t just open the door and say, send me your resumes, send me your business plan. A lot of the very best ones will have their own fixed way of doing things. They will contact you at home when they feel like it. If you want to become their investor, you have to find them. You can’t wait for them to come to you.

So we’re doing a lot more. Basically we have a team of people. We tell them, don’t ever come into the office, go out there and meet all the entrepreneurs in the areas that are promising, listening to people we trust, and get referrals and get to meet everybody, and go meet the best people. Go to events like this and say, send me your business plan.

What we want is in 10 years, when you look back, there was the Baidu (and) Tencent of the last decade – companies X, Y and Z. We do not want to miss out. We want to at least capture a few of them, hopefully most of them, but at least a few of them. If you look at the history of Chinese Internet, the biggest home runs, the big successes…There are only a few. Alibaba, Baidu and Tencent are the huge home runs. If we sit here and wait, we might or might not get the next Robin Li, or Jack Ma, or Pony Ma come to us. But if we go out, basically, look everywhere for talents, we increase our chances of finding the next Pony or Jack.

So last year, for example, we went to campus and hired 30 people. They are all now working on these startup companies. This year, we will probably hire 150. So we are very optimistic that great engineers will be a great fit for us. If you come to visit us, you will see and feel the energy in the place. It’s amazing.

Q: Do you think the Innovation Works model is workable in China?

A: Absolutely.

Q: If you have expansion plans, will they cost a lot more money?

A: Yes, we are also going to need to increase our funding, but for now we have enough money. But there are many people wanting to invest in us.

Q: What is the short-term goal and long-term goal of Innovation Works?

A: Our business objective is just to create valuable companies. That’s what we have to focus on, because that’s what investors expect us to do. But at the same time, I also see that there are additional important outcomes that we will create.

One is by being immersed in the Innovation Works culture, these entrepreneurs and engineers can and will become the next generation of entrepreneurs and leaders in China. Some will go into business, some will succeed and become the next big CEOs. Others will fail but eventually succeed. Some will find that maybe they should go to a larger company, others might go to government, and so on and so forth. I feel that my largest contribution may be the environment of the culture.

My legacy at Microsoft and Google is not so much the products or the technology, but the people that I’ve been able to influence and coach and help. And that they would have a more successful life, and lead a life of integrity and become part of the company that was built to last. And also they might contribute to the future of China. So I think that’s really the largest legacy I hope to leave. But I can’t focus all my time on that, because I have to go to create great companies.

But at the same time, if you visit us, you will see the open fun environment we have. You will see that we will openly share everything, that we are encouraging each other, we care about society, the sustainability of our company. We are not just trying to cheat consumers out of their money or build virus software. We don’t do any of those evil things. I think it’s possible to build a set of companies that have strong values and very good culture. And when these companies go out, hopefully because they spent a year with me, they will have better values and they will build the right culture for their companies. And their companies will be built to last, and their companies might even become international brands one day. So that’s really the legacy I hope to leave. But if you look at my everyday agenda, I’m focused on making these companies successful and profitable.

Ninety-five percent of my time is focused on building successful businesses, but the 5 percent of how I do things, I think, will have a larger impact and leave a stronger legacy. It’s the same way at Microsoft and Google.

Q: For those young Chinese who fail to be hired as employees of Innovation Works but still want to start up their own companies, what are your suggestions?

A: I suggest that they join a startup and learn from the startup. Don’t start your company too soon unless you feel you are ready. Because there are a number of false conceptions about doing startups. One is people are too optimistic and they don’t realize the failure rate is very very high; 999 out 1,000 companies will fail. You have to recognize that. Second is, people believe they have a brilliant idea, and that will take them far. But first, that idea may not be as brilliant as they thought. Second, the success factors of a startup are mostly about the team, the people, the discipline, the execution, and the experience of the team. Idea is secondary. They’ve got to recognize that. And third, they might be less ready than they think, especially if they are just coming out of school with no experience. So they are much much better off joining a startup, learning from it, seeing if there could be a good founder, an entrepreneur CEO and start a company a few years later. That’s not too late. Don’t feel like you have to do it right after college with no experience. You will increase your likelihood of success if you go learn first.

Innovation Works is one environment to learn, but joining another startup is another way to learn. Don’t worry too much about how much your starting salary is, and you’ve just got to get the experience. It’s also possible to go to a larger company and learn first. That would be another way. In that case I would suggest take a company that you say, wow, I would be really proud if one day I could found a company that could become like this. If you admire Tencent, I want to one day build a company like Tencent, well, go to Tencent and learn how it’s done. In a few years, come out and do your company then.

Q: Do you think Innovation Works is more American style or Chinese style? Just now you mentioned team is more important than ideas.

A: Successful Chinese VCs will tell you they agree with me, too. Absolutely the team, especially at the early stage. I think you know the team is by far the most important. Because ideas, you know, you might be wrong about the idea. Many other people have the same idea. You will probably, most companies change their ideas over time. If you look at Google or Baidu or Tencent or Alibaba. Jack Ma’s first company was “Zhongguohuangye,” the company will change. Pony Ma’s first company was an outsourcing company. Robin Li’s first company was doing searches for Sina. These are all different. So don’t think the ideas will get you far, because if you think this is the idea that will never change, the three of them would have failed. I think it’s their personal adaptability and their personal perseverance that made them succeed. Their personal quality that helped them succeed. It’s not that original idea. See how far they have changed it.

Q: Do you want to promote the Innovation Works model in China because the Chinese market is really large?

A: Sure. We’ve been talking with various government ministries about how this model might apply to more cities and to more domains. We’re more than happy to open up our ideas. If somebody in biotech wants to learn how we do things, we will tell them everything. They can go do another one. Everything we do is, we wanted to be open and helpful to others.

Q: Someone published on the microblog that after ex-Yahoo Chief Executive Jerry Yang visited Innovation Works, he gave out three suggestions: always hire someone smarter than you；keep the original culture；IPO is just an option. How do you take these suggestions?

A: They’re all very good advice. Jerry is a smart person with a lot of relevant experience. I think they apply to us in terms of hiring smart people. That’s always something I do. There’s a saying that I strongly believe in: A people hire A people, B people hire C people. The reason is you are a super A person, you are confident enough to hire people smarter than you or equally smart as you. If you are not that super person, you are afraid that people you hire will outshine you so you hire people lesser than you. Then the problem is organizations, once you start to hire the C person, that person will hire C people, the C people will hire D people and your organization will go downhill. So it’s absolutely great advice that we strongly believe in.

In terms of culture, I think it’s really very important. As I mentioned to you, I feel the legacy that I will leave is more about the people who are influenced positively than the value founders created. That’s the same point that Jerry made. When you talk about culture, it’s how you do things. Users come first. If we show everything we do, it’s very subtle in the things you do. If you want to create a user-first culture, you need to tell the engineer who comes up with a brilliant idea and says, “I’m so excited about this. I love to have this feature. I have to build it tomorrow.” You need to pour some cold water on them, say, wait a minute, you are not a normal customer. A normal customer can never use an advanced feature like this. So you have to be willing to do that.

So if you come to Innovation Works, you will see that we put the persona of our users on our walls. We made a big poster out of it. That might say, well, that means you worship your users. The smart people immediately get the idea. It’s very subtle.

And also, if you want to create a culture as open then you don’t let people create little political groups and you share everything openly. So every week we have an open meeting with everyone and we tell them everything. In most companies, the CEOs act very secretive, because they are afraid things will leak. So we tell people everything. I tell them how much money we have raised, I tell them when we get the investors coming on board. So they know. All of our engineers know all the details and secrets of our company, because I trust them. I think when they go start up their own company, they will have an open culture. I’m not saying everything can be shared completely. But they will use their own discretion. Because in an Internet startup you have to have an open culture, in order to resemble the Internet itself.

As for the IPO question, I think the first two, I would repeat myself. The third one, he has more experience than I do. So I have to listen and learn. Innovation Works potentially can go public. But when people ask me about when will you go public after Jerry’s advice, I tell them, it’s not a goal. Our goal is to create valuable companies. Whether we go public or not is irrelevant. It’s too early. It’s premature. We will discuss it when the time comes. I think we should take the advice as an option, and not make that an outcome.

I think the other important thing to realize in that comment is that many companies lose the size of their goal. They no longer think that their company exists to create values for the users, or create value for the shareholders, or to be a great environment built to last. They start thinking of IPO as their company’s cause. And that’s very dangerous, because during that time, they may be making sacrifices and hurting their real mission and legacy.