Digital Innovation Opportunities in China Under New Conditions

Hello everyone, today I mainly share the following content:

First, from a macro perspective, why is digitization a historical trend driving innovation?

Second, in the new landscape, where are the opportunities for accelerated digitization and technological development?

Third, how can we seize the opportunities that belong to entrepreneurs?

From a macro perspective, why

is digitization a historical trend driving innovation?

From a macro perspective, why is digitization driving innovation a major trend? It is determined by several very important structural factors.

1. Technology drives world progress

This is indisputable; human history with written records clearly shows that the progress of the world has been driven by universal technological capabilities. Under the impetus of universal technological capabilities, we have historically had three wealth creation systems (see the chart below).

It is important to emphasize that in the physical world, there is only information and energy, so these three systems are basically determined by the structure of information and energy.

The first system is the agricultural system. Its core is using free solar energy for photosynthesis, and the structure is very simple. Therefore, in this system, people basically only need to invent simple tools, domesticate animals, domesticate plants, and develop agriculture to operate. Because the information structure is relatively simple, we can see that this curve is relatively flat.

The second system is the industrial system. Its core is fossil energy, and the carrier is electricity, which requires the coordination of equipment, infrastructure, electrical appliances, motors, etc. Therefore, the structure of wealth creation through electricity is more complex; it requires skilled personnel and equipment. Thus, in this system, we need to cultivate skills on a large scale.

The third system is the wealth creation system driven by digitization. It is driven by digitization, with the core being the invention of computers and universal computing capabilities in the mid-20th century. We can obtain knowledge through information, use knowledge to create new inventions, and then utilize resources more quickly to create wealth. Therefore, we can see that this curve grows particularly fast.

Everyone can observe that the high-value companies in the world, if you go back twenty or thirty years, were oil companies, electric companies, etc. The big companies in the past ten years and the next ten years are all on this blue curve.

As entrepreneurs, each of you must think clearly about your position; if you are not on the blue curve, your growth rate and the scale of value creation will not see significant increases.

2. The essence of digitization

In fact, all digitization has six core elements, and none can be missing.

First, information acquisition. Digitization is always aimed at obtaining information about a natural phenomenon or a social phenomenon.

Second, expressing information, using a specific mode of expression to convey the acquired information.

Third, storing information, keeping the expressed information on a physical medium.

Fourth, transmitting information to different usage scenarios.

Fifth, and most importantly, processing information for a specific task.

Sixth, delivering information, providing the processed information to a specific terminal to help humans complete tasks and obtain what we need.

Any digitization requires these six core elements, and they are always needed. With these six core elements, we can see why digitization has such a powerful, lasting effect on driving innovation and its significant meaning.

Essentially, science and technology, as well as innovation, are about using our understanding of nature and our universal capabilities to change natural phenomena and meet human needs.

Therefore, any innovation is a combination of physical processes, chemical processes, biological processes, and information processes. Digitization is about obtaining the corresponding information for human needs and tasks, and then using software and computation on a large scale to enhance our ability and efficiency in solving tasks and meeting our needs.

Before the invention of computers, information processes relied mainly on human brains, paper, and pens; now, we can efficiently complete a large number of tasks that humans need to solve. From this perspective, software is swallowing the whole world.

We are fundamentally changing the world with digitization, so the idea that software is swallowing the world is very accurate, and this trend is certainly accelerating.

Let me briefly mention online capabilities; online capabilities are part of digitization and often deliver information with low latency. This is also why we can see the driving forces and long-term significance of innovation from the essence of digitization.

3. Trends and development rules of digitization

Digitization is a development rule driven by information technology platforms, and the process of digitization is mainly driven by large-scale computing platforms.

Historically, it has maintained a certain scale and speed, with a new generation of computing platforms appearing roughly every twelve years.

Any computing platform has its unified core structure, including the ability to acquire and deliver information at the front end, such as human-computer interaction, mouse, keyboard, voice, camera, and natural delivery; the back end includes computing resources, storage, communication, scale, and coverage capabilities.

Deep learning has opened a new era of digitization, where human environments will be digitized and automated, and enterprises will undergo full-scale digitization, entering Industry 4.0.

4. Trends in the development of information technology and the future of digitization in China

First, the information industry itself needs to be restructured, as AI represents a new and different computing substrate (substrate), requiring a complete overhaul from chips to underlying software, operating systems, and applications.

Second, new computing platforms will gradually open up new frontiers in digitization.

For example, blockchain essentially digitizes trust and reduces transaction costs. Quantum computing can digitize the more microscopic world, especially chemical processes and new materials, as quantum computing itself involves a lot of computational content. Additionally, brain-machine interfaces will digitize human brain activities, thoughts, etc.; all of this will open up new and high-value commercial applications and social value.

But how can we seize the digitization process effectively?

In the development process driven by large-scale computing platforms, there are basically two phenomena:

Second, black swan events have a significant impact on historical processes; throughout human history, it has mostly been small probability, high-efficiency events that have changed things. Black swan events can change two things:

First, after a black swan event, old habits can be changed quickly, and new habits formed;

Second, they can allow society and humanity to accept new concepts quickly; for example, before the 9/11 incident, airport security checks never included shoe inspections, but after 9/11, it became a new habit. Today, many key principles in finance have been established after the 2008 financial crisis.

From this, we see some important acceleration opportunities.

First, the ability to prepare for pandemic outbreaks will drive the development of core scientific technologies.

This year’s pandemic can be compared to war, except the enemy is an invisible virus. In this case, we need a new generation of core capabilities that accelerate technological development and the digitization process.

When facing an invisible enemy, what counts is the capability of science and technology.

Second, digitization capabilities, especially digitizing physical spaces and cities, can quickly track and identify danger while protecting privacy, allowing for rapid local management in times of danger.

The combination of these two capabilities is the necessary preparation for any country to defend against the next pandemic outbreak.

In business, there will be many opportunities to accelerate the digitization process, especially in essential online services seen this time.

For example, cloud computing has become a core capability, and video communications, remote work, etc., have become supporting services that will accelerate development and application. Applications in various scenarios, such as robotics and autonomous driving, will also accelerate, which can significantly reduce the spread of diseases. Furthermore, it will speed up the development and application of telemedicine.

All of this is what we can currently see as accelerators for digitization, scientific development, and innovation.

At the same time, we must learn from this, as humanity faces not only the threat of pandemics but also a very significant threat: global warming. Among the entrepreneurs registered in this session of Qiji Chuangtan, there are already Chinese entrepreneurs beginning to focus on applications, technologies, and developments in this area.

Here, I want to emphasize that mitigating global warming may be one of the biggest commercial opportunities in the next decade because it can be fully commercialized. Broadly speaking, wealth is the ability to ensure human life safety and health, and we are all willing to pay for it.

In such a context, China has very good opportunities.

First, we have a very solid foundation, with technology, talent, capital, and markets basically in place. We have accelerated frontiers in digitization, automation, and online capabilities. Moreover, China’s macroeconomic driving levers are richer, with urbanization, consumption upgrades, and population increases.

Second, the economy is more diversified, and technology and digitization can accelerate the first, second, and third industries. For example, only China can produce a Pinduoduo or Meituan; it is difficult for other countries to do so.

Once a Pinduoduo or Meituan establishes itself in China, it can expand to Southeast Asia and Latin America, enriching our development. Of course, we also have international opportunities to spill our capabilities into more countries.

Seizing opportunities better: 8 words, 2 dimensions

Just now, I analyzed the macro background of why digitization is a historical trend and why there are many accelerated opportunities in the new landscape. How can we better seize these opportunities?

I summarize it as judgment, decision-making, execution, and construction in 8 words, which can be divided into two dimensions: what to do and how to do it.

1. Judgment: direction and timing

First, let’s talk about judgment. Any innovative entrepreneurial opportunity is always the intersection of three directions of judgment: technology trends, market trends, and product demand trends.

Next is the timing of judgment. Bill Gross said that many factors contribute to the success of start-ups or innovative companies, but the most crucial factor is timing. When to enter the market is the deciding factor for everything because of structural reasons. Specifically, any technology-driven product goes through several stages:

The first wave consists of innovators, some niche people who will use any new product, no matter how bad it is;

The second wave consists of those who have a certain vision for the future and want to find new technologies and products to realize their ideals;

The third wave consists of early adopters, but these people are more pragmatic; their adoption depends on whether their competitors or colleagues are using it.

Whether to use a new product is also related to age, income, and regional distribution; people tend to be more open when young and become increasingly conservative as they age.

Any technological product will go through such a curve; the key is to seize the timing point, and the best time to enter is when crossing the chasm. I want to emphasize that finding opportunities that transform from mutation to quantitative change and then to qualitative change, especially seizing the acceleration opportunities brought by mutations, is crucial.

2. Decision-making: entry and exit

Once the direction and timing are judged, decisions must be made; both large and small companies need to make entry and exit decisions, which can be divided into five levels.

First, look at the track; determine which track to enter, considering the size, growth rate, and development scale of the track.

Second, after selecting a track, assess the company’s strength; for start-ups, it is essential to see if the founder aligns with the selected track.

For example, if Yao Ming decides to stop playing basketball and switch to badminton, no one will be afraid of him. But if he decides to play volleyball, volleyball players will regard him as a competitor.

You must assess whether your company has the strength and whether the founder aligns with the matter at hand.

Third, examine market strength; if Yao Ming decides to play volleyball, will he play in China, France, or the USA? Different markets offer different opportunities; the core is to select a pond where you are the biggest fish.

Fourth, assess whether the product has differentiation capabilities.

Fifth, evaluate whether the team’s execution capability is strong enough.

Additionally, judgment and decision-making are ongoing dynamic processes; they are not one-time actions. Early-stage innovation and entrepreneurship often have very low visibility; the starting point is clear, but the destination is only roughly in that direction. As you move forward, you can only see a little bit of what lies ahead, whether it is a mountain or a bridge, a pit or water.

Therefore, you must iterate quickly, constantly seek signals, and make adjustments according to new clear signals, heading toward a new destination. Historically, many large companies have grown by exploring and adjusting simultaneously.

Based on the earlier judgment of direction and timing, we can see the opportunities for entrepreneurship and innovation in China, which can be divided into C-end and B-end.

① C-end

If I want to start a business at the C-end, how should I consider future opportunities?

When analyzing the C-end, there are long-term structures and principles: one is Maslow’s hierarchy of needs; the other is a growing recognition in recent years that users are never satisfied.

Based on these principles, we can categorize the C-end into demographics and time spent. The basic categories are as follows:

First is communication; communication is a perpetual necessity. Video communication, text messaging, real-time asynchronous communication, WeChat, WhatsApp, and other tools have vast long-term development potential. Group chats should not be underestimated; currently, all computing, experience, etc., mainly target individual users, and group computing has not yet been realized. Group chats are the first product with such development potential.

Second is entertainment; especially short videos, which have opened a new generation of interaction based on cameras, whereas previously we relied on text and images.

Third is social interaction; social interaction always has opportunities, as different age groups and eras require different social products, leading to new opportunities in social tools and mediums.

Fourth is consumption; retail, services, and building large brands all present significant opportunities.

Fifth is transportation; transportation is a long-term necessity, though it may face some challenges in the short term.

Sixth is health and fitness; this will become increasingly important.

Seventh is education and healthcare; these two sectors present particularly abundant opportunities in China due to demand far exceeding supply.

② B-end

At the B-end, I would like to share a long-term structure and principle: every enterprise needs to reduce costs and increase output, which is a perpetual necessity. Specifically, this can be divided into production, sales, customers, employees, supply chain, and financing.

First, enterprise informatization.

Currently, the situation of informatization and digitization in the To B sector can be divided into large B and small B, with their needs being very different.

This also relates to digitization platforms; the first and second generations of digitization primarily targeted large B, focusing on large B’s informatization. The earliest efforts were in office automation (office productivity), followed by resource management, product lifecycle management, and customer management after the advent of mobile internet. Meanwhile, there are many opportunities in vertical fields, such as MES for manufacturing.

Small B has a relatively low penetration rate of informatization; their pressing need is customer acquisition, which is crucial for small B through search engines, Facebook, and similar online customer acquisition methods.

Second, enterprise automation; artificial intelligence will elevate enterprise automation to a new level.

Third, digital twins; in the future, every device within an enterprise will have a digital model that can simulate, automate, analyze, and predict end-to-end. Therefore, Industry 4.0 represents a long-term demand for digitization in the B-end, and many entrepreneurial opportunities already exist.

These are the opportunities on the supply side of the B-end; next, let’s look at the circulation side.

Fourth, inter-enterprise circulation; enterprises need information flow, resource flow, transaction flow, and capital flow, including B2B trading websites, supply chain management, logistics warehousing management, and especially capital risk management.

In conclusion, the challenges and opportunities we face mainly involve the comprehensive restructuring of the global IT industry in the B-end. In China, we have the opportunity to find our way to leapfrogging because we have sufficient domestic demand, and the key is to have enough time to establish core ecosystems and technologies.

Because developing technology in the IT industry requires an ecosystem; not only does technology need time, but the ecosystem also requires time. But we have enough domestic demand, allowing us to build a series of core IT capabilities, addressing areas needing remediation during the digitization process and accelerating where needed.

3. Execution: finding the market and surviving

Next, let’s discuss how to execute; the execution of enterprises requires different methods at different stages. Any technology-driven enterprise will go through seed, early, growth, maturity, and decline stages. An early-stage start-up has only two tasks: finding product-market fit and surviving.

① How to find product-market fit

With the development of technology, inventions are increasing, ideas are proliferating, and technology development is accelerating, but people have only 24 hours a day, and each user cannot use new products all day long. The only thing to do is quickly find market feedback; rapid iteration is the only way to find product-market fit.

Marc Andreessen, an investor and founder of Netscape, believes that true product-market fit has three indicators: one is the ability to make money; two is that the product is in short supply; three is that competitors begin to emerge.

How can we better find product-market fit at the C-end and B-end?

For the C-end, it is essential to coordinate these four core elements: users, customer acquisition, monetization, and viral growth. Only by coordinating these four core elements can rapid iteration lead to a successful model.

For the B-end, two main points must be considered:

On the product side, customer satisfaction is key; you must monitor repurchase rates and NPS. In terms of form and delivery, products in the early stages are generally solutions and should not be overly productized too soon.

On the sales side, it is crucial to find a viable pricing model that ensures high margins and provides sufficient rebates to channels, as many products struggle to push through channels.

The most critical aspect is to find a profitable model, which requires a comprehensive approach to product and business development, with rapid iteration.

A good example is ZOOM; why does it start charging after 40 minutes? This is a result of constant iteration and A/B testing. Rapid iteration to find a profitable model is the most crucial key for B companies to find true product-market fit.

② Surviving

In the early stages, survival is essential. Any company’s revenue must reach a certain scale to sustain itself, so it is crucial to build strong survival capabilities.

Building strong survival capabilities hinges on: thinking clearly; only by thinking clearly can you communicate effectively; only by communicating effectively can you secure funding; and especially in challenging situations, finding ways to generate revenue is crucial.

I would also like to emphasize that during the pandemic, the situation remains unclear, so strict financial control is necessary to maintain a heightened state of alertness and maximize survival capabilities.

4. Enterprise building: creating competent team organizations

Every enterprise must not only develop products but also build the “team” as a product. For the founding team, it is essential to stick to doing what you are suited for.

① Continuously improve cognition. The quality of an enterprise is closely related to the speed at which its founder improves their cognition; the further they can see and the greater their insights, the less competition they face, which is quite challenging.

② Maintain strong long-term motivation. External factors (such as financial returns) are short-term motivators, while internal factors (such as mission and passion) are long-term motivators.

③ Hone communication skills. In the early stages of a company, good communication is essential for hiring good people, securing funding, establishing strategic partnerships, etc.

④ Identify core talent. Finding good technical talent is challenging, and finding a superstar is even harder. Talent is particularly critical in the B2B industry, such as sales.

⑤ Different stages require different organizational management. The early stage resembles a family, then a tribe, and later a village, city, etc.; different scales require different management approaches.

I firmly believe that China faces an unprecedented opportunity; Chinese entrepreneurs have excellent opportunities to establish first-class enterprises in the next five to ten years, becoming first-class entrepreneurs and business leaders, playing the role we should in China’s rise.

Thank you for your attention to my sharing today!