We’re always hearing hard-luck stories about venues shutting down, Chinese partners screwing over poor laowais, landlords jacking up the rent and employees stealing their boss’s business model. It seems like everyone’s got a reason why they failed to make a fast buck in China. For Made In China, we went and found a few people who bucked that trend, opened a business here and made a success of it. For a previous past Made in China story, click here.
Jordan Neufeld came here to teach foreign kids based in China how to pass their SATs and U.S. college admission tests. He launched his own company, New Horizons, seven years ago doing the same thing. It started with one classroom and now has more than 400 students each year for SAT tests alone. They also teach GMAT and GRE test prep and courses such as creative and academic writing. Here he gives us a few pointers on launching a successful business in China.
1. If your employer isn't doing something well enough, start a company that does it better.
"I was always teacher. I came here in 2005 to work for a company doing what I’m doing now, teaching kids how to pass the SAT test and training other teachers to do the same. I did that for a year and a half. The company was a franchise of a firm in the States. It was poorly run, and I didn’t like working there, but I liked the market and the students, so I decided to break off and run my own thing.
The firm was running the identical curriculum to the one taught in the States. The typical American student is not the same as the typical international student taking these SAT tests, so the course didn’t really fit well in the market here. But because they were tied to that big U.S. name, they didn’t have any right to customize their materials, they had to offer the same U.S. course. This made them less competitive over here. Really, the prep was too easy for the kids at international schools here. The schools here are excellent and the kids here often have a higher starting score than American high school students.
2. Start small.
We have always been self-funded. My partner and I started with 25,000rmb total and rented a boardroom in a hotel to teach the classes on the weekends. My office was in my apartment. It was kind of guerrilla style. After a few months I’d saved enough money to get a one-classroom office, and as soon as we had enough money we relocated and opened other offices. It took about a year to really see some decent cash flow, but within the first two years we had a big office in Minhang, and in three years we had three offices around Shanghai. It took off pretty quickly. We started with about 20 students. Currently we have a few dozen teachers and maybe… I don’t know how many students. A lot of students.
3. Don't take on investors or partners unless you have to.
One of the biggest killers for businesses is having too many partners. They screw each other over, whether it be Chinese partners or foreign partners, there are horrible stories about everyone. From the outset I tried to avoid having any partners. The one I started it with was a teacher from my background, so we saw eye to eye pretty much everything. We had no Chinese partners. We had a good Chinese office manager, someone we knew well who we could trust to help us with the licensing process and all that. You have to go to about nine different government agencies and get about 13 stamps. It was laborious but there was nothing prohibitive about it. No one ever asked for a bribe. Maybe if we had paid people off we could have sped the whole process up. It took about a year from beginning to end to get the license, but there was nothing impossible, there were hoops to jump through but it was straightforward. But that’s our industry. In F&B and other industries it’s probably a lot harder to set your company up with all the proper licenses and permits.
4. Keep things as legal and clean as possible.
Because we were on a shoestring budget to start with there’s a strong urge to cut corners or do things cheaply, especially being here, where you have an option of running a far more illegitimate business than in the U.S. There’s this temptation to do things off the books, but because we deal with so many foreigners, the best thing going for us is that we’ve been very diligent about being completely above board. Everyone’s always had proper visas, we got our business license as quickly as we could, and all that has really helped. We’ve had cops come by and do visa checks and all that stuff and we’ve always come out reasonably unscathed. Be as legitimate as you can, even in this place where it’s not always necessary.
5. The cops are not your enemy.
I’ve never bribed anyone. I’ve been fined a couple of times and the reason was because competitors were able to call the cops and they had more sway than I had. That’s not to say that I was fined for illegitimate stuff, they fined me for genuine things, things like having some part-time teachers who didn’t have the right visas. It was stuff that everyone else does, but I just happened to have the cops called on me by competitors. But all the cops we’ve had to deal with have been very nice, reasonable people. They’ve called and said, "These people contacted us, and you’ve got to come down here so we can sort it out." They basically said, "Just say this, this and this, sign off on this and let us do our jobs."
They’re just low-ranking men on the totem pole, but once an investigation’s been called by their superiors, they just have to fill out all the forms and do the paperwork and pass it on to their bosses. A lot of people get infuriated with these local government officers but they don’t do anything that they’re not told to do. They’re just doing their jobs. As long as you approach it that way the people are very straightforward and Okay. You play the China game and it’s Okay.
For all intents and purposes, the Shanghai government is very pro-business. They are interested in people coming here and opening businesses, employing Shanghainese people. If you’re a person who does that, you pay your taxes in Shanghai and you look after your Shanghainese workers, then, unless you’re doing something that’s causing someone headaches, then I think they’re very live-and-let live people.
Now the one thing that’s different is they have to respond to complaints, legitimate or illegitimate. You can have someone who makes something up and if they yell loud enough, government officials will do something to make that go away, whether that’s necessarily fair for all parties or not. That’s a little frustrating sometimes, and we’ve had that a couple of times with parents of students where maybe things didn’t go the way they wanted to, a class didn’t work out as they liked, and then if they complain to enough people then someone from the government comes to see us. Again, they're totally nice people. They might say, we have to give you this fine because then we can shut her up, or she’ll just keep complaining. They’re not “Did you do this or not?” They’re just, “Pay this fine so we can end this and put this to bed." We’re not talking about a big fine.
6. Know the system or be screwed by it.
There’s obviously a lot of genuine gripes about the way business is done here, but at the same time there’s a lot of idiots who don’t know the system, and they don’t figure out the rules and the laws before they get into a business, and then when they get nailed on something and do this “Oh fucking China fucked me” routine. But half the time they’re just idiots who don’t know what they’re doing. An example would be a friend of mine who rented out an apartment to a Taiwanese guy. The guy trashed his apartment so my friend said, fine, I’m keeping your security deposit. Now, in Shanghai law if you want to keep someone’s security deposit there’s some government entity that you have to tell, you have to report it to them. If you don’t do that then you’re not legally allowed to keep it. This is well known by locals but not by foreigners. He ended up being sued by the Taiwanese guy and having to give back the deposit and extra money to cover costs. His version of the story is “China fucked me.” But he just didn’t know the rental laws.
7. Don't expand too fast.
My father ran a small business and he always used to say that the number one killer for small businesses was success. A small business succeeds and all of a sudden they think they can be a big business and they don’t maintain the things that made them a success as a small business. That holds very true to everything I’ve seen in Shanghai, especially F&B businesses. Restaurants are great so they open a new massive venue and then they fail quickly. For us it’s just a numbers thing. We see how many students we have and then we expand when we need the capacity. We stay in Jinqiao, Minhang, places where there are lots of foreigners. Less is more, that's my main piece of advice.
There's a huge temptation that when you get successful offering one product then you should immediately offer 18 different products, but that's not right. That can kill a small business faster than anything. Adding new products and expanding too fast isn't necessarily the best thing for your business. With the products that you offer – less is more.
8. Stick to your principles.
You have to tailor your product to the market. That being said, if you try to abandon your core beliefs, if you say, "We have to do this to attract this market," then a lot of people have a tendency to lose their competitive advantage or lose their soul. Best to stick to what you think is the right way to do things, stick to your principles even if at first it's not the most commercially viable thing.
We could let everyone in who could pay, but in the long run it would scare away the best students. You have to be able to turn business away. You have to be able to say, "OK I know you're a super-rich Hong Kong person but your kid can't speak English, so he's not coming to my class." I don't think a lot of new businesses here stick to their principles if it means turning business away. That's another good thing about not having partners or investment money to pay back. I can take my time to grow something even if it doesn't generate revenue immediately or even for months or years.
9. Word of mouth is the best advertising.
This is the same in any industry, F&B and everything. If you’re really good, then you have to spend less or even nothing on advertising. I already had a good reputation as a teacher from working with this other organization, so when I started my own school some students came with me. Parents pay a lot of attention to teachers, more than to companies, so I was able to attract parents just because they heard I got good results and got on well with the kids. They didn’t really care what company I worked for.
10. Hire well and pay them to stay.
Hiring is always a tough part. Shanghai’s a very transient place. You can’t hope for a teacher to stay with you for more than a few years. The difficult part of hiring is all these tests involve a heavy math as well as verbal component. Good English teachers are pretty easy to find in Asia, but ask them to teach math, and teach math to kids who are already very good at it, and that makes it very hard to find new people. We try to hire locally when we can, but we sometimes have to fly in teachers from the US. We pay them good wages, but sometimes the culture shock means they don’t last as long as we’d like.
It's better to have a very few good, well-paid staff than having 30 people who are on QQ for seven hours a day. It can be dangerous because you're relying on a few people to run your business, and if they leave it's really damaging. But you find the people you trust, pay them well and that's better than lots of low-paid people who don't really care.
People want to be busy at their job and work hard. I'd say that 90% of people, if you give them more responsibility and more money to go with it, they're going to be happy. People don't complain about being busy at work. People complain about doing inane shit they don't want to do. No one likes to be over-worked, but if you're busy doing a bunch of interesting things then you don't complain about that. I've never had an employee who says they're too busy or says they want fewer responsibilities.
11. On corruption.
I heard this joke about corruption from one of the representatives of a district where we were trying to open an office. This is a Chinese local government guy who told me this… So, there’s this big UN conference and a Chinese diplomat meets an African diplomat and they become friends. And then the next time the African guy is in China, he goes to the Chinese guy’s house. It’s a nice big place with a big car outside and huge garden. The African diplomat says, “How do you afford all this on a government salary?” The Chinese guy takes him over to a window and says, “You see that bridge over there. I make 10% of everything that goes over that bridge.” A few years go by and the Chinese diplomat finds himself in Africa and goes to see his friend. The African lives in a huge sprawling mansion with tigers running around and fountains and new cars lined up outside. “How the hell do you afford this on an African government salary?” says the Chinese guy. And the African guy goes over to the window and says, “You see that bridge over there.” And the Chinese guy says, “What bridge?” And the African says, “100%.”
I guess that typifies the difference between corruption in different places. Here they know business has to run. If people can make a bit on the side, they do, but business gets done. In some countries the people in charge just steal all the money and nothing ever gets done.
12. Remember who you are.
First and foremost I'm a teacher. I still teach classes. And it means my teaching staff can relate to me as such. All my managers have been teachers I've promoted up through the ranks. I've always approached my teachers and my employees with a teacher-first mentality, so I can understand their problems as a teacher. I think a lot of bosses at ESL schools will tell teachers to do things that they never signed up for, and those employees are the ones who bail on their contracts or quit half way through a semester. I've never had that problem, I've never had a teacher break off and write horrible things about me and steal all my students. I've never had that happen. I'm not saying it never will, but I'm a teacher trying to be a business person, not a business person trying to relate to teachers, and that helps.
Jordan Neufeld runs New Horizons Prep. Read about their courses, fees and admissions requirements online, here here.