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Authors: Porter Erisman

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BOOK: Alibaba's World
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After a couple months on the job, Savio made a trip to the Shanghai office, where I’d been working, to present what Jack
and the Alibaba cofounders had been
working on. Savio led us through the slide presentation:

We’ve made a lot of organizational changes lately as we’ve cut back staff and moved our operations to China, as you know, but we have to make clear to everyone
that we have only two options from here: grow or die. We all believe in this business for the long term, and we have one great advantage over all of our foreign competitors, which is that we
can keep our costs much lower in China. So as our competitors fall each day, we just have to achieve one thing—to be the last man standing.

In the last few months I’ve been meeting with Jack and the company founders, and we’ve hammered out the company’s mission, vision, and values. I’m here to present
them to you today:

First, Alibaba’s mission: To make doing business easy.

Next, Alibaba’s vision: To be a partner to all business people.

Finally, Alibaba’s nine values: Passion, innovation, teach and learn, openness, simplicity, teamwork, focus, quality, customer first.

Savio stood back from the projection screen with a dramatic pause to give us all a chance to soak it in. As I sat in the silence, I couldn’t help but be disappointed.

That’s it?
I thought.
Three months in and this is all we’ve come up with? A few touchy-feely PowerPoint slides about mission, vision, and values?

Savio went on:

These are the core values that everyone will be evaluated on. From now on, everyone will have a quarterly review and scorecard. 50 percent of
your points will be based on your performance in reaching goals. The other 50 percent of your points will be based on how well you adhered to Alibaba’s core values.

I was starting to catch on. This was actually going to be a part of a process.

Savio continued:

And with these values, we will have a new system for hiring, evaluating, promoting, and firing staff. From now on each personnel decision will be made according to
“one over one plus HR.” So for each employee’s review, four people will be present. The employee. The employee’s manager. The employee’s manager’s manager.
And a representative from HR. This is going to ensure that our personnel decisions are clear and consistent across the company.

This type of review system was new to me but it seemed to make sense. As Savio introduced these systems he’d brought with him from GE, I could see that Alibaba’s organization and
procedures were beginning to take shape.

“We’re also initiating something new—we’ll have two tracks for people to advance within the company,” Savio said. “There will be a management track for people
who would like to move up in the organization as managers. And a ‘specialist track’ for specialists, so that they can also advance in the company.”

This was an idea that had never occurred to me, but once Savio explained it, it made perfect sense. The natural tendency
for a company is to promote a high-performing
specialist, such as an engineer or graphic designer, to the position of manager. Most employees would accept this because they want to see their salary and recognition increase. But not every
skilled specialist makes a great manager. Alibaba had made this mistake several times and in the process lost a great specialist while gaining a terrible manager. It usually didn’t take long
for the role mismatch to become so uncomfortable that the manager left the company or was forced out.

Savio’s next step was to announce training tracks for the team. Entry-level employees, such a sales staff, would be put through a training program tailored to their specific functional
skill in the company. Managers would participate in separate training tracks focused on developing their management skills. In addition each new employee would receive at least a week of
orientation to the company. At the core of these training tracks were Alibaba’s mission, vision, and values.

As Savio wrapped up, I was still slightly skeptical but I decided to keep an open mind and give Savio and his plan a chance. He did have 25 years of business experience, after all. Maybe there
was more to Savio’s approach than met the eye. Plus, Savio seemed to appreciate the urgency of rescuing Alibaba’s deteriorating balance sheet and was beginning to focus
management’s attention on coming up with a strategy to actually make money.

In the next few months we batted around ideas about how the company could generate revenue. Unable to make money on our own website, we discussed the idea of selling e-commerce solutions to
local governments in China, with the idea that they might build “Alibabies” that local businesses could
use as platforms for posting their products online.
After knocking on a few government doors with this idea, and quickly realizing that local government officials would demand bribes and kickbacks from us in exchange for purchasing an Alibaby, we
dropped it. Following the Alibaby strategy might keep us out of bankruptcy, but it might also put us in jail.

As we struggled to find a way to make money, we noticed an interesting trend. At just about the time that sellers on Alibaba. com were beginning to make deals with overseas buyers they’d
met on the website, their product listings on were being crowded out by the increasing number of competitors who were signing up for Alibaba. So, for example, the first electric scooter
manufacturer on Alibaba received all the inquiries from interested buyers around the world and, with no competition, had little incentive to pay Alibaba for the free service he was receiving. But
over time he was increasingly crowded out by a growing number of scooter sellers who were joining the site and posting their products online. Sellers began to ask us for the opportunity to pay us
for a sponsored listing of their products so that they could appear above Alibaba’s organic search results. It appeared that, after giving Alibaba’s services away for free for two
years, we had finally reached the critical point at which customers were willing to pay.

In spring of 2001 our budding sales team decided to focus its efforts on a product we’d test-launched called China Supplier. For roughly $2,000 an exporter in China got a nicer-looking
company profile, could post more product listings than a standard member, and received priority listing for the exporter’s products in Alibaba’s search results. For a typical
manufacturer $2,000 was a bargain compared to the costs of advertising in
an expensive trade publication or traveling to the United States or Europe to attend an industry
trade show to display products. While a magazine advertisement might be obsolete after one month, and a trade show would last only a week, the Internet offered these sellers an opportunity to run
their online trade show on Alibaba 24 hours a day, seven days a week.

This was good news, but the lack of trust in the anonymous Wild West of the Internet still posed a difficult challenge for buyers and sellers, especially when compared to trade shows, which
offered the chance to meet business partners face to face. That customers were willing to pay Alibaba for a premium listing offered a bit of confidence in their solidity to prospective buyers
overseas. But it still didn’t answer two key questions: Is the seller I’m communicating with a legally registered business, and does the person I’m communicating with actually
work for the company?

We soon realized that it wasn’t enough for sellers to have a paid listing on Alibaba. Buyers needed to have some assurance that the person they were dealing with was legitimate. So we
launched a service called TrustPass. The only way to be certified with TrustPass was for a company to go through a third-party authentication-and-verification process that demonstrated that in fact
it was a legal business and the person was authorized to represent the company in trade dealings.

The launch of TrustPass marked a key breakthrough for Alibaba. With it we had finally recognized that the main inhibitor of online transactions was the issue of trust. With a critical mass of
buyers and sellers around the world, we had plenty of members. If we could solve the trust issue, we could crack the code of e-commerce. So we required each China Supplier to also
have TrustPass verification. And this combination gave us a perfect excuse to begin to charge our customers. It made China Supplier customers, who paid for that status, appear more
trustworthy. It made those members still clinging to their free accounts seem
trustworthy. After all, if they had such a good business, why weren’t they willing to pay up a
little to prove it?

With China Supplier we finally had a product that seemed feasible. But we quickly realized that selling the product on a mass scale to our members couldn’t be done over the phone or the
Internet. We needed to move our customers from simply testing the e-commerce waters to diving in. And to do that we’d need to meet with our customers in person.

Like a team of Pied Pipers playing the intoxicating tune of e-commerce, we spent the second half of 2001 on a national road show, inviting our customers to member gatherings up and down
China’s east coast, where the majority of the country’s manufacturers, exporters, and trading companies were located. In city after city we opened new offices and organized launch
events for our members under the theme of “Give e-commerce back to the business people.” The message was one of empowerment—that the magic of the Internet allowed small businesses
to compete with the largest multinationals. The message had strong appeal in a country where entrepreneurs valued their independence and believed that “it is better to be the head of a
chicken than the tail of a phoenix.”

The formula for each of our member events was simple. Jack’s growing celebrity status helped us draw attendees. Jack would first give a talk about the future of e-commerce and how he
thought small businesses could benefit from it. I was rolled out next to talk about Alibaba’s overseas activities, somewhat
like a talking monkey for local business
people curious to see a foreigner speaking Chinese. Although the freak show got their attention, having a foreigner rather than a local present Alibaba’s growing overseas reputation carried
more weight to an audience that might otherwise have been skeptical of Alibaba’s claims to have a strong reputation with buyers overseas. After Jack and I spoke, members of the newly hired
local sales teams would take the stage to introduce the specific products and services that our new China Supplier status offered.

One by one the sales started to roll in as we traveled from city to city. With each stop I began to learn more about the unique characteristics of each city. Yongkang was known for its many
electric scooter manufacturers. Ningbo, for its disposable lighters. Jinhua, for its prosciutto-like ham. Each city had its cluster of manufacturers with distinct specialties.

No trip was complete without a local team dinner at a small roadside restaurant to celebrate the establishment of each new office. My tour turned out to be a chance to try all the local
delicacies. Turtle shell soup, raw crab soaked in alcohol, bamboo shoots, fruits I’d never heard of before.

What struck me most was the energy and enthusiasm of the young sales team recruits, even though they were tasked with selling Internet services at a time when most people in China had given up
on e-commerce. We were in the depths of the Internet winter, so our team was not made up of recent graduates from top universities such as Beijing University or Fudan—they had far too many
other well-paid options at multinationals. Instead Alibaba was attracting sales team members who’d grown up in small townships and rural areas, the sons and daughters of farmers and laborers.
The pay was low and conditions harsh,
but Alibaba was a small step up for them and their families—a source of hope.

We’d often visit the new offices after our customer events. The budget for each office was so low that they were often located in drab apartments in dreary, run-down buildings. The staff
often slept and worked out of the tiny apartments, furnished with little more than metal frame beds on concrete floors, with fluorescent lightbulbs creating an eerie glow that bounced off the stark
white walls. But no one complained about the conditions, because we all had a shared sense of ownership of the company and its potential rewards. Nearly everyone in the company had stock options;
there was a spirit of shared sacrifice for the greater good of the company. Every penny saved would help Alibaba survive and grow to the benefit of all employees.

As our road show gained momentum, our presentations became more sophisticated. In a span of a few months, our events grew from tens of customers in two-star hotel conference rooms to hundreds of
customers in five-star hotels. With each road show the local media reported on the growing movement that Alibaba was creating. One by one we were convincing China’s business people to move

But despite the growing sales numbers, we still were burning through cash and not generating enough revenue to cover our costs. At the beginning of 2001, a few months after Todd Daum voluntarily
left Alibaba, I had been assigned to take over his role of vice president of international marketing. My first move was to cut our advertising budget to zero. One look at Alibaba’s website
traffic had shown me that even without advertising support, our website had natural viral growth. So, much to the marketing team’s dismay, I told them that we had changed
our strategy to “zero budget marketing” and would rely solely on word of mouth and public relations to take advantage of free media coverage. Any marketing plan would have
to involve no budget.

The good news was that cutting our marketing budget to zero seemed to have little impact on our website’s growth—we were still growing organically through word of mouth. But the bad
news was that it made our marketing team a bit obsolete. With the advertising budget eliminated, we began to focus on PR to gain free publicity. But with the web industry in a deep freeze, the
media lost all interest in Internet companies. Toward the end of 2001, Jack pulled me aside for a conversation.

BOOK: Alibaba's World
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