One day while using Google for an Internet search, Eric Tsai was struck by how he could make it more efficient. With only that idea, Tsai left a lucrative, budding career in investment banking to launch a search engine company, a field he had never worked in previously.
Five years later, Tsai is still chief executive officer of eriQoo.com, which is now one of Japan’s fastest growing Internet companies, and has several offices around the world. The 26-year-old Tsai has seen his profile grow as well — he was named one of "Asia’s Best Under 25" by BusinessWeek magazine in 2006, and Chinese CEO of the Year in 2010 by the Ministry of Commerce of China.
Speaking to Arabic Knowledge at Wharton at the recent Global Competitiveness Forum in Riyadh, Saudi Arabia, Tsai recounts how he managed to recruit top computer engineers from the U.S. with just an idea, discusses some of the lessons he has learned in starting his own company, and how he realized to embrace failure, and find the courage to follow his convictions.
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: How did this idea for the search engine come about?
Eric Tsai: When I did a Google search, I realized what Google has a page rank, indexing the quality of the website. What I wanted was to index the quality of the content itself, either the product or the service. So if you look for the best doctor, we’ll tell you who is the best eye doctor in town, instead of giving you 35 million search results of anything eye doctor-related.
I do agree with the precept that if a website has more links, then linking to that website may be more relevant. But there should be another element. That was where we thought we would be more efficient than Google. We wanted to be efficient down to the details.
Instead of being a map, we wanted to be a guide. When you travel, you buy a guide, and you buy a map. But you need a guide to tell you, ‘O.K., maybe you should go to this restaurant, maybe you should stay in this hotel.’
Arabic Knowledge at Wharton: But how do you go from using Google and deciding it’s too broad, to actually setting out to make something better?
Tsai: Today, everybody still uses Google as the main source of their research. But I came to realize that Google doesn’t really provide you a comparison. They only tell you, ‘O.K., if you go to this website, you may be able to find the information you want,’ but it doesn’t compare it from A to B to C to E. And so we thought, "O.K., if Google is not doing this themselves, why don’t we do it ourselves?’
Arabic Knowledge at Wharton: Do you see any other competitors in your space?
Tsai: Yap is our competition in recommendations for restaurants, and TripAdvisor is for tourists.
The way we look at it, people only search or research something they don’t know. Maybe you want to know about Keio University in Tokyo. Google will bring you to keio.ac.jp, and Keio will say they are the best university. But you need some sort of neutral, third party resource. So we emphasize categories in which people would often search for things they don’t know about. Travel becomes one of those major categories.
We also do product comparison. When buying a digital camera, for me what will be important is how long does its battery last, and does it take very good pictures when the light isn’t very bright? Our main competitor in this space in Japan is a website called Kakaku.com. They have comparison, but focus on electronics.
So for every single little category, we have a competitor. But then as a one-store shop, there isn’t such a competitor. And we’re trying to be a one-store shop.
Arabic Knowledge at Wharton: Would you concede that maybe there is a reason for that? If I wanted to look for cars, then I will visit a car specialist website, rather than go to Google and try to find out on my own?
Tsai: As you pointed out, these niche websites are online. But they are for people who already know what they want to find. They already know the space; they don’t really need to search. They would just go in there to read details or look at the photos or read the articles.
What we provide is a chart, a very reader-friendly chart. Number one is A, number two is B, and number three is C. It gives you a chart of a ranking index. And if you want to go for detail, you use that as a keyword to find more detail for that.
On the provider side, up until today there isn’t such a service, because there are a number of technological and operational challenges. Yap’s focus is on restaurants. That is easy on their operations, whereas we have to have staff knowledgeable in things from cosmetics to cars. So we leverage our technology to overcome such requirements.
We take this as a competitive advantage that others don’t have. The fact Google is not developing it may mean Google does not have the correct technology. What Google does in indexing is it matches a keyword, and what we do is analyze the content. We’re in a similar field of information searching, but we have different technology.
Arabic Knowledge at Wharton: You went from a financial background to search engines. What was the learning curve in making the switch?
Tsai: I was able to convert the mathematical skills that I used for finance for the computer sciences. But obviously, I don’t do the coding and programming myself.
From my time in investment banking, I learned how a global platform works. We have several offices right now. We have an office in Silicon Valley. Our headquarters are in Tokyo; we also have an office in Beijing. We have different satellite offices, working in different time zones, handling different products, and doing different development projects.
We have 54 employees right now, and we have about 7 million unique users. We wanted to try to aim for about 50 million unique users by this time next year.
The other thing I learned from banking was how to promote people’s motivation. In investment banking, usually cash bonuses or stock incentives are the biggest motivational factors. As a venture, we’re not very cash-rich. We don’t have the luxury to give away cash bonuses to get people to work 20 hours a day. But we try to make it a very competitive environment where people want to develop themselves in terms of skill sets, knowledge, and programming ability.
Arabic Knowledge at Wharton: Tell us something about the team. How do you go about building the team?
Tsai: At the very beginning I shared my vision with some superstar engineers in the U.S., and successfully recruited them. Take the New York Yankees: You have Alex Rodriguez, you have Derek Jeter, and everybody else wants to go to the Yankees because, you know, superstars attract other superstars. Since I had nothing else to attract people, I leveraged other people’s attractiveness to recruit people.
I knew these superstars had enough to live well for the rest of their lives. So I tried to analyze what they wanted for the second stage of their careers. I thought they wanted to create another wave. So I bet on that. I told them the maximum that I could pay was US$400 per month. But what I could provide was my vision, and big risks. I knew that was where their passion was, in building something.
Arabic Knowledge at Wharton: And what skills did you have to develop in order to transition from running a local organization to a business with offices in different countries?
Tsai: The first thing I learned is how to stay alive after sleeping only two hours a day for every day. (Laughing) …But one of the biggest challenges I have faced so far is managing staff, especially those overseas. It’s not easy for me as a Taiwanese to tell a American, a Japanese, an Indian or even a Chinese employee to do something for me, because what I think is appropriate, what I think has value, may not necessarily be the same for them.
Obviously, I faced some failure. Three of my staff actually departed, maybe because of my managing style or maybe because they didn’t share the vision anymore. But their departure taught me a very important lesson, and helped me grow a better skill set as a manager. I’m very proud that besides those three, everybody who joined eriQoo.com has stayed, especially considering they earn a very minimal salary, and they could’ve lived a much better life working for Google.
Arabic Knowledge at Wharton: We’ve heard a lot about difficulties being an entrepreneur in Japan, especially attracting start-up capital. Can you elaborate on that?
Tsai: It is actually very difficult. Choosing Japan for my headquarters was really not a smart move. They tax heavily, and there isn’t a culture to incubate a small company. In order for a company to survive, it needs to be mega-large, like Sony and Toyota. Japan promotes Sony, helps it merge with smaller companies. While Sony continues to grow bigger and bigger, smaller companies get very little room to stay alive. The biggest challenge we have in Japan is that it’s very difficult to get funded. And on top of that, Japanese people are very risk-averse. Even those venture capitalists in Japan, they invest as if they are investing in Japan government bonds.
Arabic Knowledge at Wharton: So what kind of barriers are these? Are these economic, social, or are they political?
Tsai: I think it’s the culture. The principle that they have in Japan is that you cannot make a mistake. When you enter a company, you work there for your entire life. And you don’t want to make one single mistake. If you are a venture capitalist associate, you want to make sure that worst comes to worst, there’s a multiplier of one. You invest one dollar, it comes back as one dollar.
I used to be Taiwanese, I now am Japanese; but, when I used to be Taiwanese, it was impossible for me to borrow money from the bank. So that was one very big challenge on top of very heavy tax.
Japanese investors also look for revenue, and they do an annual review to calculate your company’s worth. That is also very different from Silicon Valley. Google had zero revenue before they went public, the same with Yahoo! but look at how big they are.
Arabic Knowledge at Wharton: Let me ask you a theoretical question. A US$600 million offer comes from Google. Do you turn it down?
Tsai: I will turn it down. You may feel that I’m overconfident, but I can say that I’m doing this business not because of the financial reward. I wanted to make a service that is helpful to people. I wanted to create value. And I believe that when I create a value, the company itself will have the value.
Arabic Knowledge at Wharton: Your platform is dependent on the cloud to provide input. How do you engage this community?
Tsai: We built our technology to understand users, and we have this artificial-intelligence technology that processes our natural languages.
If I were to ask you what is the biggest company by revenue, or what is the largest company by sales, or what is the strongest company by turnover, essentially I’m asking you the same question. But I’m asking you in three different forms. Our computers are able to understand that.
This technology allows us to engage and also to collect information, to analyze it and to make it our own database. We combine that with another technology called multidimensional indexing. You can search for not only the best eye doctor, but also, the best eye doctor in Chicago, the best eye doctor in Philadelphia, or the best eye doctor in Philadelphia in 2009.
That is a lot of parameters, right? By allowing multiple parameters, we get all the necessary information, and we plug that in, and map the data to figure out where they’re supposed to go.
Arabic Knowledge at Wharton: The search engine field is littered with a number of once great, now forgotten browsers. Have you looked at how other search engines failed, while Google succeeded?
Tsai: One of our company’s principles internally is that we are here to stay. We don’t want to just create a better technology, sell it and cash in. We are not trying to create a time-killing machine. We’re creating a tool, like a dictionary. Like Google is here to stay, Yahoo! is here to stay, Wikipedia is here to stay.
But look at what happened to Match.com, and to Friendster. Once upon a time they were superstar websites, but at end of the day, they were time-killers. So once when the fever cools down, your existence is at risk.
That is what Facebook did very well. They turned themselves from a time-killing machine into an infrastructure. They become a nation, the Republic of Facebook, with a 500 million population. I admire that they did that. At the same time we need to grow ourselves, too. We are not sure about what our eventual killer product is going to be; but eriQoo.com is going to be a tool and is here to stay.
Arabic Knowledge at Wharton: Any advice from the lessons you’ve learned for other entrepreneurs who have ideas just like you?
Tsai: We need to take advantage of when we are young, because we have the luxury to take on a challenge. If I had a family, I would’ve probably taken a different path.
One thing I’ve also learned is that failure is nothing to be embarrassed about. The less you want to talk about failure, the more embarrassing it comes. I tried to learn that, O.K., embarrassment from failure lasts a few moments, but the lesson that you learn from it will be there for your entire life. So I’m not too afraid of failure, and I’m not afraid to talk about it. So, I guess be honest with yourself, and be brave. I follow my heart, and I think that is quite important for myself.