We started technical days with a great name – Lego Day. Yes. The Lego means the Denmark toy manufacture Lego.

We bought Lego 66284 Build and Play Value Pack that consists of 5573 and 5576.

Among all the bricks, obviously, LEGO 3001 is the star. A simple brick that is manufactured the most, and most easily found in every corner of this world. It is the spirit of create something and make it really good, instead of creating many different functions but none of them is as classic as Lego 3001 (I am talking about website design and almost all business).

We talked about the network effects of a real society many days ago. Hopefully, that explains why Chinese don’t use voice mail, calendar, or classified. We talked about it in YLF 2009 conference, and there are people who don’t agree with what I said.

Then I have another great example. When I was in Chengdu, no one uses coins. They always use the paper money of 1 RMB. Everyone hates coins. Why? Not for a rational reason. It is just because when you have a 1 RMB coin, you cannot spend it. People won’t accept it, and they ask you to change it to 1 RMB paper money. Just because you cannot spend it, you don’t accept it, and because you don’t accept it, others cannot spend it. The stronger the current feedback loop is, the harder it is to break.

On the contary, people in Shanghai LOVE coins. They don’t want paper money, although they unwillingly accept it. People will be surprised to get 7 coins as change to buy a 3 RMB ticket with 10 RMB note.

That is the network effect. Before debating about whether coin money is better than paper money or not, we need to look at where you are going to spend it, Chengdu, or Shanghai.

Feld posted an article about Ten Characteristics of Great Companies. Nice article. Among the ten, if you ask me to pick three, here it is:

3) Great companies make lots of money but leave even more money on the table for their users and partners.

4) Great companies don’t look elsewhere for ideas. They develop their ideas internally and are copied by others.

6) Great companies are led by entrepreneurs who own a meaningful piece of the business. As such, they make decisions based on long term business needs and objectives not short term goals.

There are some hard lessons on this to run great company.

When we read about books about several years of transition of competition, we take it for granted that some brands can quickly take over the other brand, but in reality, since that happens slowly, we are also slow to recognize the shift. IBM laptop vs Dell laptop is an example.

Previous Perception of Quality and Service

I always consider Dell as the brand of “bad quality + good service”. The image was there since I started to use Dell desktop and laptop in 1998 in Microsoft. Dell’s computer parts break easily, but they offer second day on site service, and they are happy to exchange any part in their service period. I especially love their “service tag” design.

On the contrary, IBM’s ThinkPad series is of so good quality. I switched to IBM many years after I used Dell, and started to understand why so many people insist in buying IBM ThinkPad over Dell, even when it is much more expensive. It just gives people the feeling of safety – never breaks, and works as solid as stone. However, IBM’s service is so bad – I never saw an IBM service people, but I even know some Dell guy by name and face.

What about Now?

Today, the IBM ThinkPad quality goes down dramatically. I feel it is even worse than Dell. Meanwhile, Dell’s E-series gets better and better reputation. I heard about many good things about it (just as I heard about good things about Windows 7).

Now the competition becomes:

ThinkPad = Bad Quality + Bad Service

Dell = Good Quality + Good Service

Dell is also relatively cheaper than ThinkPad.

I won’t hesitate to bet on the result.

IBM vs Lenovo?

To correct what I wrote, ThinkPad is no longer IBM ThinkPad. It is Lenovo ThinkPad.

I wrote United Airlines is Good 7 years ago, when I just started flying to US. On one hand, my expectation was lower than today, and on the other hand, they were much better in the good economy. The trip UA858 leaving PVG on July 2, 2009 for SFO was really bad. However, this time, I was not the same person many years ago, and I started to investigate this company from the business perspective.

Morale Issues

Obviously the morale of the company was hit by the bankruptcy, the job cut, and the recent financing problems. Why I saw this? The attitude of the service attendants have never been so bad.

The guy serving the back rows asked to an elder person to put her baggage to the overhead luggage space: “You only have two choices: put it there, or out of the plane”. Then he opened the cover of the luggage space, and looked at the passenger. The behavior was unbelievable, and many passengers rose and shouted: “How bad the service are!”, “How can you be so mean!”, or “It is YOUR duty to help the passenger!” This alone does not mean a bad morale, just bad customer service, but when I saw the other flight attendants passed by indifferently, and seemed didn’t care about what their peers were doing, that was obviously a company morale issue. Who cares about this “little” things in a sinking boat? I experienced this in eBay China before.

The other thing is the Channel 9. The fewer and fewer time can I listen to the Channel 9 on flight of United Airline flights. Channel 9 is the channel for pilots to communicate with traffic control tower, and United was the first (is it the only one) offering the voice channel to all the passengers. What a great idea, and how ambitious they were to build the best airline when they launched this? Channel 9 worked before 2006 (I remember), and never worked afterwards.

No to mention Channel 9. Even the Channel 1 didn’t work – the audio of movie program. I watched three movies briefly with no audio at all – the only thing from the earphone was noise.

Details? Customer Satisfaction?

Besides the details of customer service, channel 9 (innovation), and channel 1 (basics), there are other things that added up to the bad impression.

Some of the reading light was broken, while the overhead background lights could not be turned off. It lit up for some time, and then went off for some time, and lit up again. The whole flight alternated from light to dark. Only when this happened did I realize that most flight should be completely dark during the night journey. I guess that is the main reason they gave me a apology card, and allowed me to enjoy 10% discount of next flight.

Ironically, the almost broken and shaking movie screen showed something like “Customer Satisfaction is Our Priority”. Actually, United is in big trouble: their satisfaction rate was lowest in DOT

and received 2.6 complains for every 100K passengers and was lowest since 2001. You see, the passengers can feel it.

Business behind it

Now I understand that when customer service has problem, it is not the VP of customer service, or VP of flight attendants or anyone who should be responsible. It was the strategic choices the CEO made.

Actually, customer service is not that important if United wants to be another Southwest Airlines, whose mission is to provide lowest possible fare. United really need to lower the cost of their service. However, that does not mean the attitude issue should not be solved. United was stuck in the middle: they cannot provide service at the same standard as before due to cost constrain, and they cannot lower the cost further to compete with the low cost players in this bad economy. Something must be done to save this company.

After the National Holiday, I started to take bus to work, so I got the opportunity to walk along the Tianping Road (天平路), and pass many breakfast eatery shops. That is good since it solved my breakfast problem.

The interesting thing is, they does business in an exteremely cost sensitive way.

For example, I buy the pan egg cake 鸡蛋饼. They will cut like 1/8 of the whole cake as you asked them to do. Then they will weigh it on a weigh, and tell you: total price is 0.9 RMB.

Sometimes I just take the cake and said: keep the change. Interestingly, most of them will insist to either give the 10 cents to you, or insist to cut a very small piece of egg cake, and put it into your plastic bag.

For people like me who pays attention to capital market, and bigger P&L than them, I just didn’t get sensitive enough for the 10 cents – it does not matter, but I realized the breakfast eatery business IS that small business that the small amount of money matters, and they built their reputation of being reasonable and do not cheat by the small piece of cakes, or the 10 cents.

Different mind set, and I have all my due respect for them.

Winter is coming. It is not the winter in the weather and seaonal sense. It is for startups.

With the financial crisis gets worse in US, which is no longer news, the recent reaction in Venture Capital market in Silicon Valley is huge. Signaled a bunch of emails and meetings by top VC firms and others, everyone just realized what the slight change in temperature means: it means the arrival of winter.

We saw Sequoia’s Get Real or Go Home presentation.  We saw Alan Patricof’s Chill Out memo. Ron Conway wrote an email Get Ready For It To Suck which is simply a resent one that he wrote in 2000. Benchmark’s Adapt and Live Lean memo went out, and finally John Borthwick’s Don’t Panic – Profit memo. (I got the article list from Feld’s Thoughts)

My 2 Cents

I feel lucky that I am experiencing a winter myself as a participant. There are Internet bubble burst around 2000 and 2001. I was not directly involved – work in Microsoft does not seem to exposed me to the change in that deals.

This time, I finally have the chance to face the environment change, and then make decisive decisions to adopt the change. This is very different senario for me than the last time.

I also believe it is the best time for real Internet companies. By real, I mean people who loves Internet, and want to do something, instead of just gambling. Great companies are those who come out of the shadow of a big crisis. I think we are very well prepared, and we even designed to have a warm hot-pot on the table when it is snowing outside.

I always react very slowly to what is happening in stock market in China.

Recently, the big drop of Shanghai Stock is also crazy (like that crazy and more crazy increase before).

After I reported the increase from 998.23 in June 2005 to 4040 in May 2007, and more than 6000 in 2008, it gets back to something around 2800 these days.

I am not involved in the stock market this time. People say, there is bubble in China, and there are always people believe: This is China, so economic rules do not apply.

Well. Even western rules do not apply, there must be some rules that works…

Found out some note on my notebook when I listened to Jeff Immelt’s speech during a meeting. Just some random notes.

Big vs Small

• Credibility
• Big + Fast always beat small + fast
• Love and inspire people, but GE is not for everyone
• Mistakes we still make
  • Allow bureaucracy to win – too process based
  • Too intenal/too American – lose love of customers
  • Confuse current success with future position
  • Metrics that reward the wrong behavior
  • Play small

Leadership

• I have stayed at GE for 25 years so that I could be in the front seat of history
• Zoom in, zoom out…
• "I don’t believe in professional management".
• 4-5 things deep dive
• Good managers show interest…
• These is no substance of experience
• Build something that last is beautiful

Innovation

• 10 years ago, everyone was trained by processes, like six-sigma. Now we are all about innovation
• People has to be the core DNA of the company
• You cannot just come to work and chop wood
• You have to drive change and develop other leaders

Making deicisions and Communication

• Make decision fast, faster and faster, for small companies, and large companies!
• Decision cycle time
• How the organization can be quicker
• Clarity of community
• Drive the speed
• Decisive = clearly Yes or No
• Clarify is key
• When we go, we go
• Make a very clear call

On Exit

• Someone can run the business better than us, it is time to exit
• A company that makes money from chaos.
• In a good company, you always has to prioritize very hard
• GE is all about system, that is tough to match

After dinner, and open TV, I noticed a piece of news on China Business Network (CBN) channel:

Motel 168 is going public this third quarter, aiming to raise 100 million USD. Morgan Stanley will be the underwriter.

I also find a piece of news here.

Home Inn (HMIN) was just listed, and I believe Motel 168 is a good hotel. I remember one of the first Motel 168 Hotels was opened near my home, and I visited it immediately. It is a good hotel, with more modern design than Home Inn, and the color design is more lovely.

You can see from the pictures I took three years ago. Interesting news. Going NASDAQ seems to be destinaty of any “promising” company, while they all avoid Shanghai Stock Exchange or Shenzhen’s.

Disclaimer: Don’t treat it as an investment advice.

A reader was preparing for a debate. The debate topic is,

Will Shanghai be the next Silicon Valley by 2009?

He sent me a list of questions. I’d like to answer from an individual’s perspective and share with everyone. Disclaimer: I am not a professional on economy, politics, or culture. The opinions and data may not reflect the truth.

Economic

Q: Is it difficult for start-ups to obtain funding from local and foreign VCs? Is it difficult to find funding in general? How about transferring funds in and out of Shanghai?

A: I would say, it is not easy. I saw some foreigners who start companies in Shanghai and could easily get some fund from their existing relationship in U.S, but it is not the case for local start-ups. There is no good way to get funds. The public service to help small companies is not ready yet.

Local residents have huge amount of money in banks; the house and car mortgage transactions are very active; but there is not a good market for local start-ups to get money. The Small-Medium Enterprise Stock Market just opened in Shenzhen. It is good news but it didn’t start operation yet.

Transferring money to Shanghai are easy. Wired transfer and check all work well. I can get my Google check with local bank. It costs 20 RMB per transaction in China Merchant Bank.

However, PayPal and most other credit card gateways do not support direct transfer money to China yet.

Q: Is getting loans from the banks difficult? What other difficulties are there associated with banks?

A: It is easy to get small-amount investment loan in Shanghai. But the upper limit is 100,000 RMB. Any individual can apply that. But obviously, it is not for start-ups. To get higher loan is not easy (I didn’t try it yet).

Political

Q: What tax incentives are there for start ups? Are they similar to what we find in Silicon Valley?

A: If you register at a software park, like the Shanghai Pudong Software Park, you enjoy 0% tax policy for the first three years and 50% tax cut in the next two years. (Disclaimer: Check with the park for latest information. Use the data at your own risk.)

Culture

Q: Is there a general entrepreneurial fervor among recent grads from the universities in Shanghai (vis a vis grads from Stanford and Berkeley)?

A: I am not sure. The job market is very hard nowadays. Many students were forced to look at the option to setup companies by themselves.

…or steps toward computerized world.

United always surprises me with its avanced equipment recently. EasyCheck-In is another one.

Easy Check-in

Easy Check-in Demo

But bad news from United states that the deployment of Easy Check-in is put on hold indefinitely.

Chief among the projects put on hold at United was the deployment of self-service check-in kiosks at airports, a project called Easy Check-In. Also on hold is the installation of new electronic signs at airport gates.

It is said that the hold is due to the sequela of Spet 11. These equipments really costs much. Easy Check-in costs $70.7 million along in 2001. Source: Subcommittee on Aviation

Hearing on Airline Customer Service Commitments: Status Report

Today, I received my air ticket for Seattle.

I love the ticket

Yes. I love the ticket issued by United Airlines. It is a decent paper ticket with a nice cover. It is also informative. I can easily find the starting point and the destination, with local times. It is bad to see some air tickets in China only give the departure time without arrival time.

For the departure airport, the United is thoughtful enough to add /PUDO to Shanghai, while most tickets only print Shanghai as the departure airport. There is airport code PVG somewhere in the ticket, but it is not easy for common travellers to recongize whether it is Pudong airport or Hongqiao airport. This has caused lots of confusion.

Here is the information printed on my ticket.

10NOV     UNITED             FLIGHT: 858    CLASS: M
SU        SHANGHAI/PUDO      DEPART: 1300
          SAN FRANCISCO      ARRIVE: 0725   TERMINAL I [Meal] [Meal] [Film]

10NOV     UNITED             FLIGHT: 366    CLASS: M
SU        SAN FRANCISCO      DEPART: 0857   
          SEATTLE            ARRIVE: 1101   TERMINAL I [Music]
                                            ETKT: 016 2188233825 

Return ticket:

16NOV     UNITED             FLIGHT: 1547   CLASS: M
SU        SHANGHAI/PUDO      DEPART: 0935   
          SAN FRANCISCO      ARRIVE: 1140   TERMINAL 3 [Music]

16OV      UNITED             FLIGHT: 857    CLASS: M
SA        SAN FRANCISCO      DEPART: 1335   
          SHANGHAI/PUDO      ARRIVE: 1910   TERMINAL I [Meal] [Meal] [Film]

It is very good.I believe every business should provide enough information to their client on tickets, invitation letter, or web site like this.

It is a ETKT (e-ticket)

According to United Airline website,

Electronic tickets are stored in United’s computer rather than printed on paper. United’s E-Ticket service is similar to the traditional paper ticket process, but eliminates the time and hassle associated with purchasing or exchanging a paper ticket. Electronic ticketing is the primary ticketing method used by our customers.

I apprieciate this kind of effort to utilize computer and network and reduce the cost of paper ticket. I have the experience of E-Ticket before. When I was flying to Seattle in the year of 2001, the only evidence I need to fly is the passport. I shown the passport to the lady at the gate of the plane and I got my boarding pass immediately. No questions were asked. It is fantasitic – I thought.

A Bug in Mileage Plus

Not all my experience about United is perfect. My mileage Plus is an example.

After travel via United for some time, I finally decided to apply for a United Mileage Plus Membership. It is good that I easy found the entrance to Mileage Plus at the homepage, but when I fill in the application form, I didn’t realize they need at least 3 questions for the “Secure access questions” section. It is buried in the long paragraph. So I entered into only one field and clicked Join.

An error message prompted to enter three. OK. I entered three question accordingly. But after that, whenever I press the Join button, it always tells me “You have submitted”. It is obvious that the programmer associted this message when the “Join” button is clicked but he didn’t realize the submitting process may be stopped by the validation routines.

— Pardon me if I am too picky. I was a test lead for one software project.

I cannot complete the transaction

After I reload the form and re-enter all the required field, I am told I cannot apply a mileage plus. I don’t know why and the web site didn’t tell me about it. I tried to call their Shanghai representivieat +86-21-62798009 only to find their business hour is 8:00 AM – 6:00 PM.

Anyway, United is a good company

…and I am looking forward to travel with United next week.

Update July 17, 2003

More information about United Airilines:

Beijing

Telephone: (010) 6463 1111

Address: Scite Tower

Suite 204, 22 Jianguomenwai Ave No.2

Beijing, 100016

or

Beijing Lufthansa Center

No. 50 Liang ma qiao Road

Beijing 100016

Shanghai

Telephone: (021) 6279 8009

Address: Shanghai Center, Portman Ritz Carlton Hotel

1376 Nanjing Road West

Level 2 South Podium Suite 204

Shanghai 200040