Alibaba Fun Facts: Rejection Turned Into Success

Alibaba Fun Facts: Rejection Turned Into Success

by Michelle JonesMay 29, 2014, 12:02 pm

A firm calling itself a “reverse Alibaba” shares some fun facts about Alibaba’s rough start

Alibaba’s initial public offering is one of the most highly anticipated ones this year, but sentiment surrounding the company wasn’t always so high. In fact, 40 different venture capital firms in Silicon Valley rejected the Chinese online retailer, according to Gloglou, a company which says it “provides ‘reverse Alibaba’ services” designed to help companies market their products and services to China.

Alibaba rejected… again and again

Ben Lee of Silicon Valley startup Glogou Inc. told ValueWalk that he has spent a lot of time studying Alibaba as his firm aims to do the opposite of what Alibaba does by enabling international companies to sell in China. Of course Alibaba sells Chinese products to those both inside and outside of China.

According to Lee, Softbank Corp (OTCMKTS:SFTBF) (TYO:9984) is now Alibaba’s biggest shareholder, with a 35% stake in the Chinese ecommerce giant. Softbank invested in Alibaba Group Holding when 40 venture capital firms rejected it in the early days. Yahoo Inc. (NASDAQ:YHOO)’s stake is closer to 20% now after Alibaba repurchased some of the search giant’s initial stake in 2012, and the stake will shrink further after Alibaba’s IPO.

Alibaba’s management less than inspiring—at first

Perhaps one of the reasons venture capital firms were skeptical about Alibaba in the early days was because the company was Executive Chairman Jack Ma’s third attempt at creating an Internet startup. His first two failed. In fact, Lee told ValueWalk that Ma also failed twice in trying to get into college. On his third try, he was able to get into a third-tier college in China, which is seen by most in China as being only slightly better than a U.S. community college.

Alibaba’s current CEO, Jonathan Lu, actually majored in hotel management and then worked as a waiter at a hotel for four years. Then he switched tracks to get into the Internet business. Those jobs are certainly not what you would expect to see on the resume of one of China’s top and most influential executives. In spite of what many saw as an inexperienced management team that might not be successful, they have clearly been steering Alibaba in the right direction.

“The huge success of Alibaba can be attributed to the combination of the growth of China, the growth of Internet and Alibaba founding team,” Lee told ValueWalk. “Jack Ma and his founding team has [sic] created a unique corporate culture for Alibaba. This corporate culture is very important for the success of Alibaba.”

Alibaba, from rags to riches

Alibaba Group Holding actually has 18 different cofounders, which is significantly more than most companies. The company has ballooned in size from where it started in 1999. Lee said Alibaba had trouble even getting people to work there in the early days. He quoted Jack Ma as saying at one time, “Hire anyone on the street who are [sic] not crippled too much.” The Chinese marketplace operator now has almost 20,000 employees.

During the first couple years of its existence, Alibaba Group even ran its keywords campaigns on Google Inc (NASDAQ:GOOGL) (NASDAQ:GOOG)’s platform because its own platform did not have enough visibility or traffic to service its clients well. The company also didn’t start with much technology, as its first platform was based on an offshore bulletin board system, according to Lee.

Alibaba versus Amazon, eBay

That’s changed significantly in only five years, however, as Alibaba now runs the biggest ecommerce platform in the world. The amount of the transactions on its Taobao platform is now more than those of Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) combined. In the first 18 months of its existence, Alibaba had no revenue, but today, it’s the world’s most profitable ecommerce business and has a hefty profit margin that Amazon and eBay envy, according to Lee. Some analysts have suggested that Alibaba has the potential to crush Amazon in the future.

So will Alibaba Group be able to keep chugging along at this pace after its initial public offering this year?  Lee says there are challenges ahead, just as there are for any company.

“Alibaba is already a very large company and dominates its market,” Lee said. “Can it continue its fast growing path in coming years? That will be a challenge for Alibaba management team.”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

<span>%d</span> bloggers like this: