Robert Haddock is founder and CEO of Global Strategy Partners, a consultancy that helps finance, develop and market technology products and services. Haddock, formerly a technology journalist was recruited by Citibank in the 1980s to work on its information business, helping develop what was essentially the world’s first online, browser-based financial newswire. He then moved into electronic banking and designed and built the first smartphone, introducing the screen and SIM card that forms the basis of mobile phones used today. He also developed the first voice-over internet protocol-enabled phone. As a consultant, Haddock has spent the last few years focusing on projects in China and spends about eight months here each year. He talked to CHINA ECONOMIC REVIEW about the challenges involved in identifying and developing tech ventures.
Q: How did come you start doing work in China?
A: I’ve advised a lot of technology companies, probably over 100 internet ventures. In 1999, I was asked by one my clients, RH Donnelley, to create a business plan for a startup venture in Shenzhen called ChinaBig. They had developed a database of businesses in China. We got US$2.5 million in investment from two US companies, including Donnelley. A few months later PCCW came in with US $25 million. We ended up doing a joint venture with China Unicom and ChinaBig is now the yellow pages for Unicom. After that, a friend of mine who had set up his own Chinese medicine manufacturing plant near Guilin asked me to help him. All of a sudden I became an expert on Chinese medicine. I organized the US distribution and people were talking about it as the most successful natural products launch in US history.
Q: What happened after that?
A: I worked on several more projects in China related to Chinese medicine – some of them are very sad stories. There was a company in Zhengzhou that had a medicine, with a patent, for depression. I did the due diligence and checked with the head of mood disorders at the National Institute of Health in the US. He said it was one of the most promising new medicines they’d seen. The company had done some research and found the drug produced equal results to the largest selling depression drug in the world but with fewer side effects and at one-fourth of the cost. I thought, “Wow, this is it,” and put together a business plan, but the company was in such a mess I had to walk away.
Q: What have you learned from experiences like these?
A: You have to “pay a little tuition” in China – you have to get your fingers burned. There are companies with problems and they can be cleaned up. But the two big issues are transparency and trust. A Chinese professor at Columbia University’s business school told me he knew of 20 private equity firms struggling to find somebody they could trust to manage their business in China. It’s not just finding the companies; it’s finding the people who find the companies. Right now I’m working with a company in Shenzhen called Huiheng Medical, which makes a gamma knife for treating cancer, and it is a breath of fresh air. They are going to NASDAQ in October and have hired me to advise them and organize the process. We’ve signed an underwriting agreement and the whole deal is already structured. They have US$10 million in private equity investment from US groups and are angling for another US$25 million.
Q: How do you identify projects you want to work on in China?
A: I’ve probably looked at 50 projects and had initial agreements for about a week with some of them. But I turned most down. I am very careful about what I do and can go for months, looking at deal after deal and then suddenly something will happen. It’s always based on friends referring me to projects.
Q: To what extent does this referral-only system insulate you from exposure to bad deals? Compared to other markets, how big a risk is this in China?
A: I find an unusually high number of charlatans in China. There are very few people who are really serious about developing strategies and business plans, rather than just saying, “Okay, we’ll get you US$1 million.” You always hit singles or doubles but you want to hit a home run once in a while. If you’ve got money, the deals come to you and this means you have to be very careful.
Q: What projects do you currently have in the pipeline?
A: I am starting an internet venture in Beijing. Imagine if you could organize the 100 top websites in the world into one user interface. I cannot say much more but I designed it and actually stopped consulting for six months to work on it full time. I’ll be applying for several patents relating to it.
Q: Why are you developing this internet venture in China?
A: I can build the first part of this project with my own investment – I think I can take it to a point where the next stage would be a US$5-10 million venture investment. I could not do that in the US. But the other side of the sword is the people. I have built strong teams in the US and I believe that if you can get five great people working together, you can move mountains. In China it is especially hard to find the right people.
Q: What do you see as the key to developing a strong internet venture?
A: On one side you have the people who have business models and make money; on the other side are people with great ideas who attract huge audiences but don’t make money. It seems investors are willing to pay for both. In China, the business model part is more difficult.
Q: What are China’s weaknesses in an internet venture?
A: In China e-commerce just isn’t very good – you don’t have the payment and delivery systems that exist in the US. There are three legs to the internet business model and, without strong payment and delivery systems, that is one leg gone. The other legs are advertising – which is not as mature and well structured in China as in the US – and subscriptions, and paying for something on the internet is just not very Chinese. The idea of developing internet applications here which are then launched in the US, I find extremely appealing. I plan to launch my venture in China as well as the US but I don’t expect to generate much profit from that. But as long as it works and the costs are reasonable, at some point there will be an inflection point and people will make money.
Q: Are there enough innovators in China to capitalize on this?
A: No. I have met so many smart people here but, as for creativity, entrepreneurs have to see something and go against the odds. Inc. magazine once did a survey of 500 successful startups and found that, on average, the CEOs had failed 1.6 times before they hit. Can this happen in China? I don’t know. It would be viewed differently.
Q: What do you make of government efforts to foster innovation?
A: There are departments in every city that promote innovation, but what they are really doing is promoting investment. If you were promoting innovation, it would be a different animal. There is so much focus on getting investment and that’s a little bit backwards – great ideas will always get investment but great investment does not always mean great ideas. In general, governments cannot innovate. Their job is to protect the status quo, to keep things healthy, but innovation destroys the old and brings in the new. The benign government could provide fertile grounds for innovation but they can’t do it themselves.
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