Most of what we hear about Korean startups is their success story. But what’s more to be heard about is a successful failure story. In fact, there are very few startups that can be described as successful, simply because the odds of succeeding a business is substantially outweighed by those of failing. One out of two Korean startups wind up within the first three years of business. It somewhat makes sense – nobody expects a world where everyone succeeds in their first shot.
Silicon Valley is also described as Failure Valley, depicting the countless failures underlying the success stories it nurtured. A considerable number of successful stories are from entrepreneurs who have failed. It is the environment which allows a second, third shot to entrepreneurs that empowers the startup ecosystem.
Bongjin Kim, CEO of Woowa Brothers, failed his handmade furniture business; Jaeseung Choi, CEO of Spoqa, failed his coupon service app. Today, however, they lead the most popular Korean startups. It is easier to find someone without a trial and error among those who head well-known startups.
It is important to fail correctly. Even without an outcome, you gain experience. The tangible and intangible network and experience from the previous startup increase the possibility of success to some degree. This is the very reason why there needs to be a widespread culture of eating crow and active encouragement to re-challenges for the vitalization of a startup ecosystem. Failure is not a loss in a virtuous startup ecosystem. A positive failure becomes an asset that contributes to a success in a new challenge. In a healthy society, an opportunity to recover is guaranteed.
Kay Woo has had two failures – one in the US and one in Korea – prior to founding Easi6 Ltd. in China which provides a booking service for a cross-border transport between Hong Kong and Shenzhen.
The following is a recap of Kay’s speech in Koreans in China (중국의 한국인), an event co-hosted by Platum and Startup Alliance at Naver Green Factory in October 31.
Feeling no enthusiasm for his previous office work, Kay started his first startup in 2012 in New York. He accounted himself a lucky man for having competent teammates by his side despite his numerous failures.
“I am truly lucky. I was able to start a startup with a team of outstanding people, both in terms of education and capability. Ever since the first startup we’ve been challenging new opportunities together.”
They did, however, fail their businesses in New York and Seoul. Kay recounted five causes for his business failure: bragging about the idea, being overly ambitious for technology, disregarding marketing/sales, excluding cooperation, and overlooking financing.
“I thought our idea was the best in the world during my first startup. For that reason, I kept everything confidential from others. I was also very ambitious of adding more functions with better technology. Because I believed in the excellence of our product, I didn’t feel the need for marketing, and thought everyone would just start using our product. Naturally, I didn’t care about sales. External cooperation was not even an option for we believed we could make a better product on our own. I thought investment was a matter of time with the outstanding team and technology, and of course, the idea. I urged my team not to worry about investment. Committing all of these five mistakes at once, I went down without doubt.”
After wrapping up from New York, Kay and his team came back to Korea to discuss about their next startup. The result was VOX (Voice Of boX), a voice recording app. “But during this process, the only mistake we did not repeat was bragging about the idea. This was because we thought anyone could have come up with the same idea.” The other four mistakes, on the other hand, remained unsolved. Eventually, the second startup also plunged.
Around the time of his second failure at Seoul, Kay began considering the odds of surviving the competition against existing businesses in the Korean market; and even if he did, the market share he would be able to retain. The search for a venue for his next challenge led him to China in the winter of 2014.
“We observed for what we could do in China. BAT (Baidu, Alibaba, and Tencent) were mammoths even back in 2014, and there were already well-performing businesses in the country’s market. Nevertheless we concluded to go to China. Considering the market breadth, even a small success in China was equivalent to having a middle-scale success in Korea.”
Kay and his Easi6 team spotted their business opportunity in the distinct characteristics of the border between China and Hong Kong. Hong Kong, despite its return to China 20 years ago, still maintains its border with China. Because the terms guarantee 50 years of autonomy, the border will last for another 30 years. What caught their attention was that notwithstanding the daily volume of 650,000 cross-border passengers the return trip was not so convenient. A trip from Shenzhen, a city adjacent to the border, to Hong Kong requires two immigrations – once while leaving Shenzhen, and once while arriving at Hong Kong – where the passengers need to get off the car. Considering a round trip, a passenger must go through four immigrations, which takes about three hours.
“The private car services targeting people who cross the border were already prevailing at the time we started conceptualizing our business. Some services that target corporations were 40-50 years old. But no Chinese service dominated the market. We thought we had an opportunity. That’s how we came up with the idea.”
Private cars are a means to avoid the congested public transit between Shenzhen and Hong Kong. In order to operate in both cities, a private car must have two license plates from each jurisdiction – mainland China and Hong Kong – on the vehicle. A vehicle suitable to run this business costs $90,000, and so does each plate. In other words, you need $270,000 for one vehicle in this business. To bear this considerable cost, most private car services offer corporate service. Easi6 decided to create a booking service that connects the dots between the existing services and the customers.
“After formulating the business idea, we thought, considering the uniqueness of the Chinese market, cooperation was inevitable. We sought and found a local partner and began cooperating from the very beginning. We swiftly incorporated in Hong Kong under the partner’s name and went for marketing and cooperation side by side. As a result, we were able to create a booking system which allows a passenger to easily call a van to cross the border. Our customers don’t need to wait in line or get off the car while crossing the border. It’s like going through immigration through a tollgate. This saves at least an hour on the road. This is all possible because our call-vans are all registered in both Shenzhen and Hong Kong with plates from both cities.”
Kay, in doing business in China for over two years now, successfully overcame three out of the five aforementioned mistakes he repeated in his previous failures: bragging about the idea, disregarding marketing/sales, and excluding cooperation. However, he is struggling with the remaining two: being greedy for technology, and overlooking financing.
“The repetitive mistakes we make are being too relaxed about financing, and craving for technology. We were approached by a potential investor, but ended up without meeting a consensus on the valuation. Looking back to it, it was my fault.”
He also declared that this startup has a limited marketability.
“This market’s size is about $9 billion. Considering our margin, the maximum scale we can retain assuming we completely seize the market is about $90 million. In other words, the market poses a limit to our business. The investors agree on this point. So, in order to break through the regional limit, we are considering to expand to different regions in China as well as overseas.”
Kay explained that while preparing for this startup he has observed a meaningful vision to resolve the Chinese rent car business environment beyond providing a plain O2O service.
“I observed that the Chinese rent car industry is in dire need of an organized system. There are about 2,000 rent car companies registered in Shenzhen. Approximately 70% of them are petty and disorganized. They get phone call inquiries for reservations and jot them down on a piece of paper, which is then passed over to the drivers. The ones with a minimal system prints out and posts up an Excel sheet of their daily schedule. For this reason they want their own system. Some companies tried to construct their own system through IT agents, but all of them failed.
We started providing out system in November 2016. Subsequent statistics show a significant rise in the number of reservations. Our system provided an efficient business processing. Cancellation rate also showed a drastic drop. Cancellation during the worst period was as high as 50%. With our service it is below 6%. The data proves the efficiency of our services provided to the vendors. I would also like to provide a business administrating system on top of simple reservation management – another opportunity we found through this business. Of course, it’s not our priority. For small enterprises, we believe their reservation system, which can boost their quantitative growth, should come before the administrative system. We’ll think about the rest in the near future.”
Kay pointed out that small vendors in China, Hong Kong, Japan, and Korea all portray similar behaviors. Easi6 wants to change that by providing a platform for them. Instead of competing against Uber of Didi Chuxing, Kay and his team aim to cooperate with them by connecting small vendors in a platform and supplying their services to customers.
He wrapped up his speech noting his utmost effort to survive his third startup.
Inspired by Platum
Image source: Platum