Innovation and Entrepreneurship

Yihaodian's Yu Gang: From Entrepreneur to Multinational Executive and Back Again

In a recent interview with China Knowledge@Wharton, Yu Gang, owner of Shanghai-based Yihaodian, a booming online suerpmarket that he started with partner Liu Junling, discussed why the Yihaodian venture is, in fact, a return to his entrepreneurial roots. Originally from Yichang in central China, Yu headed to the U.S. to study in the 80s last century and later juggled an academic career at University of Texas's McCombs School of Business -- publishing more than 80 articles and four books, and filing three patents -- and the launch a software company, which he sold to consulting firm Accenture in 2002. Then, a stint teaching at Tsinghua, Peking University and other business schools in China was followed by a move to supply chains and procurement at multinationals Amazon and Dell. 

It was at Dell that Yu and Liu met and began hatching their plan to develop Yihaodian, China's first large-scale online supermarket. Going live on July 11, 2008, Yihaodian now has eight million registered users across the country and sells hundreds of products from its virtual shop, while growing revenue from RMB 4.17 million (US$640,000) in 2008 to RMB 805 million (US$123 million) in 2010. As he revealed to China Knowledge@Wharton, he believes that the long hours are paying off as he turns Yihaodian into an online Wal-Mart for China's shoppers.

The following is an edited transcript of the conversation.

China Knowledge@Wharton: How did you get the idea of starting Yihaodian.com?

Yu Gang: Junling came up with the idea of starting a company. It was in 2007, when both of us were expatriate executives at Dell -- he was China president and I was vice president of global procurement. But being an entrepreneur wasn't something new to me. I had the experience of being one when I started a company from my basement in Austin, which grew to a team of more than 100 people developing a management system for almost all the major airlines in the U.S. As a first-generation Chinese in the U.S., there was a lot of hardship. However, my effort paid off.

Using experience gained then and as executives at multinationals, both Junling and I were able to look at many issues from a sophisticated commercial mindset and from all perspectives. Both of us got along well with each other in the past, and given all that, we were determined to do a bigger thing together.

When he brought up the idea of starting a new business in China, my entrepreneurial DNA was stirred. We did tons of market research and analyzed many companies, including Best Buy, Staples, Lianhua and Carrefour, and home improvement sector. Then it was my idea to start an e-commerce company. When I worked at Amazon, I was involved in its acquisition of [Chinese shopping web site] Joyo.com, which made me aware of the huge potential of China's e-commerce market. We then spent four months in a 10-square-meter room writing the business plan and there was a lot of debate and analysis.

China Knowledge@Wharton: What was the biggest debate at that time?

Yu: When we analyzed the market, we found that most e-commerce companies were vertical, targeting a single product line. For example, 360buy mainly sells digital products, Redbaby focuses on baby-care products and Dangdang mainly books. Few companies were selling a full range of products online. So we had to ask ourselves whether it would be feasible to offer a full range of products right from the beginning.

We also found that when the vertical companies wanted to expand, they always hit bottlenecks. Some companies tried being an online supermarket, but failed. We analyzed their failures too, and our conclusion was that their problem lie mainly in their supply chain management systems, which happens to be what I had been dealing with a number of years.

I learned operational management in Wharton, taught more than a decade of operational management, and practiced supply chain management at Amazon and Dell. So we were confident that we could beat these challenges.

China Knowledge@Wharton: What was the biggest challenge in the beginning?

Yu: The biggest was not money. Both of us invested our own money before raising financing from others. As mentioned, the biggest challenge was supply chain management. At the beginning, we had 3,000 SKUs [stock-keeping units] and hundreds of suppliers; now we have 70,000 SKUs and 2,000 suppliers. Managing the products, including quality control, inventory, online marketing and pricing, were all challenges. Inventory management was especially important -- if you underestimate inventory, you won't be able to deliver anything; if you overestimate it, you have too much, which sucks up your capital.

In the beginning, we spent a huge amount of time developing system software. We developed all our systems, apart from the financial software. The whole system has more than 10 modules, including customer, warehouse, distribution and marketing management.

China Knowledge@Wharton: How did you attract staff?

Yu: We recruited people one by one, all by ourselves. Entrepreneurs have to do everything. We don't have big salaries, but we attract people with our passion and vision. What else could attract these young men? Junling and I have given up everything. As expatriate executives, we used to have luxury houses, cars, drivers and so on. At Yihaodian, we didn't even pay ourselves salaries in the beginning.

Being an executive at a multinational means having a big crew in a big machine. Now, we are the engines. We have to drive this company with our passion, leadership and experience. We have to think of every means possible to solve problems and continuously create value. We were the first online supermarket, so there was no business model to copy, or regulation, process or institutions. But I really enjoy this process. It's like watching a baby being born and then grow up. The whole process is really exciting and rewarding.

The company has grown astoundingly fast. We had around 180 employees at the beginning of last year; now, it's 1,800. This year, we will recruit 3,000 more people. At the same time, such rapid expansion brings huge challenges, from culture to internal systems, from stock to service. There are a lot of bottlenecks. I have to solve many issues every day, but I am not scared. I call these problems "happy pains."

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