Du Xin, Founding Partner of Niuou Capital: The Road to Brand Rise in the New Era | WISE 2024 King of Business
The environment is constantly changing, and the times are always evolving. The "Business Kings" follow the trend of the times, insist on creation, and seek new driving forces. Based on the current great transformation of the Chinese economy, the WISE2024 Business Kings Conference aims to discover the truly resilient "Business Kings" and explore the "right things" in the Chinese business wave.
From November 28 to 29, the two-day 36Kr WISE2024 Business Kings Conference was grandly held in Beijing. As an all-star event in the Chinese business field, the WISE Conference is now in its twelfth session, witnessing the resilience and potential of Chinese business in an ever-changing era.
2024 is a year that is somewhat ambiguous and has more changes than stability. Compared with the past ten years, people's pace is slowing down, and development is more rational. 2024 is also a year to seek new economic momentum, and the new industrial changes have put forward higher requirements for the adaptability of each subject. This year's WISE Conference takes Hard But Right Thing as the theme. In 2024, what is the right thing has become a topic we want to discuss more.
Du Xin
On the afternoon of November 28, Du Xin, the founding partner of Niou Capital, delivered a speech with the theme of "The Road to Brand Rise in the New Era". The following is the speech record of Du Xin, sorted and edited by 36Kr:
Good afternoon, everyone! It is a great honor to be the first speaker this afternoon. Today, I will discuss with you some stories about brand globalization. As a fund focused on the incubation of early-stage products and brands in China, I have many personal experiences. At the same time, I have also served as the founder and chairman of a startup company in the past two years, which has given me a deeper understanding of the opportunities for brand development in the current economic environment. 2024 is undoubtedly a special year.
We often think about whether there are still growth opportunities for brands in the current market environment. Intuitive data shows that since last year, the number of emerging brands is decreasing, and the road of brand entrepreneurship seems to be getting more and more difficult. People often ask how the early-stage enterprises I observe as an investor will develop in the current economic environment. Our intuitive feeling is not optimistic.
Therefore, my theme today is "From Rocket Mode to Airplane Mode". We can review the path of economic development in the past. The growth path of many brands is similar to launching a rocket. In the past few years, including the period of the rapid growth of new consumer brands before, when we launched rockets, there were many unknowns about the future. We prepared a relatively vague direction and found the selling point of the product or the gap in the market, which is actually finding the fuel. As an early investor, in the face of future uncertainties, we at least fill the fuel and launch the rocket. There may be a certain mortality rate and success rate. As long as the direction is relatively correct, the brand may stand out. However, since 2021, a large number of new consumer brands have emerged, and this strategy in the current era has encountered many problems. Basically, in today's world, if many strategies and methods are not well thought out, whether it is the investor or the entrepreneur, with the mentality of launching a rocket, basically, after flying up, it is likely to fall down.
First, the current brands are facing a traffic dilemma. In 2024, many founders began to build personal IPs, such as Lei Jun, Zhou Hongyi and other top tycoons, which also reflects the dilemma and anxiety of traffic. Indeed, the emergence of any brand requires the so-called traffic dividend era. In the past few years, whether it is Douyin, Xiaohongshu or Video Account, behind every wave of traffic dividends, there are opportunities for new brands. These large platforms need to develop customers and create their own business ecosystem, and in fact, they have released a lot of low-cost and cheap traffic to the market. After we seize this wave of traffic dividends, we have used the leverage of traffic to generate many new brands. When the large platforms no longer provide traffic subsidies and support, every traffic will become expensive and the effect will become worse and worse. If you still have a gambling mentality and try to launch a rocket, you will often encounter great difficulties.
The second major dilemma is the channel dilemma. It is precisely because all traffic platforms, including channel platforms, are pursuing a profit-oriented strategy, that many problems have emerged in the originally strong companies. They need to pay channel costs to cover the growth of the brand. For new and cutting-edge brand products, a greater channel dilemma is often required. Many startups are thinking about whether to build their own team or use third-party channels. Previously, everyone thought that self-building was the most reliable way. When all channel capabilities are in their own hands, it is relatively more controllable. But in fact, in the current unknown environment, it is very important to maintain a flexible and elastic channel. Now, whether a brand should build its own channel and whether it should deploy many channel personnel is facing a great problem. Therefore, a brand is now facing a great challenge in deciding whether to build its own channel and whether to deploy many channel personnel.
The third major dilemma is the financing dilemma. In the industry, we see that many predecessors are saying that what investors can give now is emotional value, and they can no longer really support many enterprises with funds. In the current financing environment, after a large amount of US dollar funds have withdrawn, many strong enterprises supported by US dollar funds in the A and B rounds, and the funds that promote the rapid growth of enterprises have disappeared. Now, there are still high-net-worth individuals willing to invest in the angel round, and it is probably still possible to get some funds. However, if the enterprise does not reach a positive sales model or does not reach a considerable scale of sales ratio, it is actually very difficult to obtain funds from the market. The brand itself is the education of the user's mind. If there is no capital investment in the relevant brand building, how can the brand grow? Therefore, since this year, whether it is consumer goods, technology products, digital medical care, or health products, everyone has reflected the common problem, that is, financing is difficult, very difficult. It is difficult to obtain funds if the enterprise has not obtained a large amount of funds in the past few years or has not achieved considerable results in the segmented field. How to resolve and solve the current dilemma? In fact, in the past, it was launching a rocket, and now it is to build an airplane. The logic of building an airplane is not only to manage takeoff but also to manage landing. When the wind is good, we can fly higher, but we also need to consider how to fly more smoothly when problems occur. This puts higher requirements on entrepreneurs, who need to consider many details from the first day of entrepreneurship.
In our opinion, the two most important points are:
1) Why start a business? We need to grasp the story of the two overall engine engines. We believe that China's greatest advantage is still the ultimate supply chain. Therefore, when I talk about cost reduction and efficiency improvement, and the story of being cheaper than others, it can always be favored by the market. Since this year, the biggest hit products in the new energy vehicle field also reflect the ultimate supply chain optimization. Although China is highly competitive now, it has competed for the strongest supply capacity. If in the niche track and market, we can compete for a stronger supply chain optimization ability and a more extreme cost optimization, it is still an advantage that China cannot give up whether it is for products or brand globalization. If the current product or entrepreneurial project cannot give full play to China's strong supply chain advantage, I think it is very difficult to obtain financing, and the growth of the brand is also extremely difficult.
2) The ultimate product innovation. If it is just a simple efficiency improvement, making a 10 - 20% improvement, and there is no product innovation with several times improvement, I suggest that there is no need to do such a direction. In the past few years, why in some niche tracks and consumer tracks, the competition is fierce and there are a large number of deaths? To a large extent, it is an inefficient competition. Maybe a new product or brand only completes a 20 - 30% optimization. I understand that it completely fails to hedge the risks and pressures of the growth of a new brand.
We advocate that in the ultimate innovation of a product, there is a several times performance improvement or cost reduction compared to competing products, and it is worth starting a business to make this new product. Maybe the bad environment gives everyone a new opportunity, that is, relatively speaking, the competition is not so fierce, and we can spend time on the path of greatly improving the overall innovation.
After having the two engines, grasp the two wings. In fact, we can see these two wings. I think the first wing is to cooperate with the local government's investment promotion. Now there is no need to avoid this matter. For any enterprise in the growth stage, after obtaining the angel round and reaching the A and B rounds, the most suitable funds are the local government's investment promotion funds. Therefore, since this year, you will see that many startup companies will go to many small counties in Jiangsu, Zhejiang, the Yangtze River Delta, and the Pearl River Delta to communicate, because the local areas need to attract investment, and the demands of the local investment promotion can be consistent with the continuous development demands of the product brand. They are willing to accept a relatively appropriate valuation, plus a company stage that has not yet reached such a large scale, to get this money. At this time, it poses a great challenge to our brand side. That is, originally I only considered the development of the brand itself. How can I combine the development of my brand with the investment promotion demands of the local area? In fact, this is a big lesson that we currently need to learn and improve. For example, the return investment of physical fixed assets. Previously, there was no such concept. All products were outsourced, and the factories were outside. Can it meet the local investment promotion demands and at the same time combine with its own product planning to become a combination of manufacturing, sales, and many foreign investments and many factors, and perhaps it can also be obtained by the local government. Therefore, this must be an important wing. In the next 3 - 5 years, I think that any brand that can be proficient in obtaining local investment promotion funds will have a good opportunity.
The second is globalization. There are many discussions about globalization. Some people are making a difficult choice between seeking death and waiting for death. This year, we have also made many explorations with many companies we have invested in. We have also participated in exhibitions like those in Germany, Italy, and France, and we also often pay attention to the CIS in the United States. We even help enterprises find overseas distributors and channel partners, and help them explore whether they can promote and sell through live-streaming with goods and the promotion of Internet celebrities. In the current rise, going to the Chinese domestic market and the overseas market simultaneously is a simultaneous implementation process, and it is not necessarily more costly than going straight to the domestic market. Because relatively speaking, the competitiveness of Chinese products is now very high. If we go to the overseas market simultaneously, we will find that the unit price and gross margin in that market are relatively high. For the same product in China, the return rate is very high, and many users find various problems with the product, resulting in no money to earn. When investing in the platform, you will find that the ROI changes from 1:3, 1:5 to not making money. This is a problem caused by extreme involution. But the overseas market can still have a good development, which requires us to have the relevant awareness. Once a company in Beijing is established, no company thinks of only doing business in Beijing. It must think of doing business nationwide.
If a company is located in Silicon Valley or Europe, from the first day of its establishment, it is to do global business. At this time, it forces entrepreneurs to consider how to simultaneously carry out the process of globalization in the current entrepreneurial and brand rise process. Globalization now has many formulas. Participating in overseas exhibitions, obtaining distributor channels, and then through one or two OEM and ODM cooperations to obtain some basic revenues and gradually grow and develop. This has almost become the only way and standard action for many product brands to go global.
Two landing gears. In the past, you will find that many companies died in the C round or D round, especially in 2024, many companies have many problems due to cash flow. There were too many problems before, resulting in our failure to control the risk of cash flow well. Currently, it is easier to obtain cash flow from the market and banks than to obtain equity financing. How to balance the benefits of cash flow is actually the winner takes all. In 2024, we also talk about survival. How to survive, especially for product globalization companies and brand companies, our investment in marketing and advertising is relatively large. At this time, the control of cash flow is very important. My personal suggestion is that there is no need to maintain many teams. What can be outsourced should be outsourced to maintain the flexibility of the brand. When expanding, it can expand quickly, and when slimming down, it can also shrink quickly without bearing particularly high personnel expenses and costs.
Finally, it is about the founder's personal involvement. Whether it is product innovation or globalization, when the founder is on the front line, even if you speak broken English when communicating with overseas distributors, it still represents a strong confidence and will lead the company to the most difficult things. If we cannot move towards these two points, brand globalization is full of risks. It is indeed the most difficult time at present. We have done a lot of artificial intelligence, and there are many technologies that are stuck. When will it be the turn of our products, brands, and consumer goods? I believe this day may be coming in 2025. Because there are many demands in the world, and everyone's demands are also many. It is impossible to always have innovations in the supply chain.
I believe that the era of consumer goods, the era of technology products, and the era of consumption-driven will eventually return and come. Thank you everyone. This is our greatest expectation for 2025.