As part of our Insights report ‘The Journey East’ we interviewed Mikkel Hippe Brun, Co-founder and SVP APAC, Tradeshift.
Tradeshift is a cloud-based business network connecting buyers and suppliers around the world. It was founded in Copenhagen in 2010 by Christian Lanng, Mikkel Hippe Brun and Gert Sylvest.
All three have hugely entrepreneurial backgrounds: Mikkel co-founded one of the first catalogue and database publishing companies to leverage XML technologies before working with the Danish government to roll out technology-driven services across the country. He was Denmark’s XML guru and, with Christian, built Danish invoicing infrastructure e-billing systems for both business to government (B2G) and business to business (B2B).
It made obvious sense to leverage all the knowledge they had on ebusiness and ecommerce from both the entrepreneurial and regulatory standpoints, and so Tradeshift was born. Says Mikkel, “We didn’t want to just be the best e-billing business, we wanted to be the best business to business platform for commerce around the world. We knew that this could be huge and from really early on we decided we would not settle for second place: it wasn’t about the money but about creating something unique and enduring.”
Today, Mikkel has particular responsibility for Asia, serving as Tradeshift’s Senior Vice President, APAC. Singapore-based Scentan Ventures made a significant investment in Tradeshift, which included rights to operate the platform in Japan; so Mikkel’s focus has been expansion in Greater China.
Tell Us About Your Journey Into China
“We started looking at China four years ago. We were incredibly excited that if we were going to make one big bet, it should be on China. So we created an R&D hub in China and engaged a local government affairs firm to advise us on how and where to set up.”
“We wanted to locate somewhere with the best talent, but we wanted to avoid the Silicon Valley salaries found in Tier 1 cities – along with the talent retention problem that environment creates. We chose Suzhou, a Tier 2 city (still 13m inhabitants strong!) which benefits from being just outside Shanghai. Another attractive city is Hangzhou – where Alibaba was founded – just half an hour out of Shanghai by bullet train.”
“Tradeshift’s reputation was helpful. Being a Silicon Valley startup meant it was attractive to prospective employees to leave their jobs at Microsoft or Oracle to work for us and get all the benefits of a hot Silicon Valley startup: the pool table and ping pong etc. Plus, we have a flexible
What was your experience looking for joint venture partners?
Tradeshift spent the first two years in China learning, building a network, and looking for a JV partner. Mikkel explains, “A big part of our value proposition is invoicing, which is very sensitive: only Chinese companies can access the “Golden Tax System”, a government controlled tax infrastructure where all invoices are registered centrally in real time. So we needed a JV to validate our proposition in China.”
“Tradeshift is now the only western company with access to the Chinese Golden Tax System; through our JV partner.”
Mikkel continues, “On the flip side, doing a JV is high risk. You rarely hear about successful Chinese JVs in tech because they often go sour. It can be difficult to find a good partner: We have met many potential JV partners, where it turns out that we have different goals for the business, so it can be a difficult territory to navigate for a foreign company.
Furthermore, the whole JV process can be a very long. At one stage we were in conversation with a company offering a global satellite network for broadband who were looking for a business partner to connect their customers all around the world. It made sense, but we were just a smaller part of their plans so we ended up working in circles. The final goal of the potential partnership was always three months away, plus there were technical integration barriers. In the end, I stopped the negotiations and started from scratch to find a partner with a more equal balance of power.”
When China was approaching the deadline for a major tax reform, Tradeshift was approached by a company called Baiwang. “Mikkel says, “They had access to the Golden Tax System, but needed a tech partner. So we entered a JV with them.
How did the Baiwang relationship go?
Baiwang – and its clients – were not familiar with cloud or the notion of a platform. Mikkel says, “In China, especially in traditional business, what you do as a tech company is what the customer wants. Since customers wanted their own data centres and customisations, we focused on delivering that instead of a single technology layer”
“Tradeshift was born in the cloud, but suddenly we found ourselves building products in private clouds and managing multiple on-premise systems with no access to the data centres. These implementations cost us hugely on maintenance, but we have been following the traditional Chinese way of doing business and following the customers wishes. Even though this is not the way we usually would do it, we went along with it, thinking we could migrate customers to the cloud at a later stage. We were working insanely hard to go live across China in May 2016. We succeeded, but due to the on-premise solutions the revenue did not materialize. At a certain point we found the JV structure difficult, and we decided to restructure to align better with our global values. Our philosophy had been that we would operate and support their business, but our focus needed to be Tradeshift.”
Tradeshift has now restructured to place the “Baiwang Tradeshift Joint Venture” underneath Tradeshift China.
He continues, “Moving the operations under Tradeshift China was challenging, but we are now achieving major milestones. We’ve rolled Tradeshift out with Amazon, we’ve secured new global corporate customers and some big local Chinese companies such as Sunwoda, Dahua and Zijin Mining.”
What have you learned?
“In China, people look for an edge. Any book on doing business in China will tell you this. There is no such thing as being a friend with your partners: it’s just business. They will always look for the upper hand and you must do the same.
So, to succeed in China you need a strong Chinese team and to pursue your own agenda. We have no Westerners in leadership positions, but I hand-picked everyone as I believe the most important thing you can do is to find people you trust. Then, learn and come up with your own strategy.”
How are you succeeding in China?
Notwithstanding the challenges, Mikkel is adamant Baiwang has been a really good choice.
He explains, “Baiwang are closely associated with the tax authorities, so being associated with the brand opens a lot of doors for us. As a result, we have access to the finance leaders in all of the biggest companies. Creating familiarity is critical and this partnership has done that for us.”
“Next, you need to understand what’s really important in the local market. For our clients, it’s ensuring that there are no fake invoices on their system, it’s a simple as that. We keep CFO’s out of jail which is a pretty strong value proposition for any executive, but especially a CFO from a western country.”
How do you sell?
“With locals. We have 5-6 deals using five Chinese engineers who have cross-trained into salespeople, plus one Account Executive in Stockholm supporting them. Imagine if we had real sales people in China!”
Tradeshift is moving to the next phase of growth. Mikkel continues, “We have product-market fit and so we are hiring 30 people in sales in China. There is a long ramp in China, but the sky’s the limit. We have a window of 18-24 months before any of our other major competitors have significant access. Our JV with Baiwang and the access it gives to the Golden Tax System gives us a good shot at the market.”
It’s all about the team
“We have now reached a size where we really need a local leader. Until six months ago, my plan was to hire the GM early, but my government affairs advisers told me that was a dangerous move. We interviewed a few people, but the salary expectations were exorbitant: they all had US college degrees and wanted out-of-this-world benefits. They also want to bring in their own team.”
Mikkel’s advice is to hire a great team, but retain overall control
He explains, “Hire a deputy GM, and retain overall authority but give the team autonomy. And don’t do a matrix organisation: we started with a matrix and it didn’t work. You will hear again and again “you don’t understand China” – which is frankly correct!”
“So our priorities right now are building out a team and creating a strong culture that works.”
Mikkel’s Chinese takeaways
• Be skeptical about the people you meet. “I’m a trusting person, but in China I have become a lot more wary.”
• Read Doing business in China for Dummies. I had a checklist of mistakes that I really didn’t want to make, but I still did.
• Tenacity is key. Most companies would have left after what we’ve been through, but I won’t give up. That said, if you don’t have the long-term vision to warrant fighting even with a bloody nose, then don’t do it. We are determined to be the one-in-a-thousand success story.