Personal Info

Hobbies and Interests: Art collecting, golf.

Sports teams: Manchester United.

Favourite Books: Books by and about Confucius.

Favourite Entrepreneurs: Bill Gates, Steve Jobs.

Company website: http://www.kongzhong.com

Adrian Bye: I’m here with Nick Yang in his offices outside of Beijing. Nick has founded and built a couple of companies. Nick, maybe you can just tell us a little bit about who you are and where you come from.

Nick Yang: I consider myself a professional entrepreneur. I’m 34 years old and starting my third company. My dad went to the States in 1983 when the Chinese government sent him to study engineering, and we ended up staying in the States. In 1999, I graduated from Stanford and started my first company.

What I decided to do was come back to Tsinghua University in China to start the company. I came back with two of my partners who I also graduated from Stanford with: Yunfan Zhou and Joe Chen. We actually raised $250,000 in capital for our company from about 20 of our classmates in the States.

Adrian Bye: What drove you to go back to China?

Nick Yang: The three of us went back to China in 1998 prior to our graduation because one of Yunfan’s family friends owns a big company in China and wanted him to work for him. We saw what was going on in China and decided that instead of working for him we’d start our own thing.

We felt that everything had sprung to life. It was almost like spring with all the little plants shooting new leaves. We were at the brink of a big and tremendous opportunity, like at the brink of a tidal wave. We were like surfers looking for a big wave. We felt that the waves were coming, and we just had to get in front of those waves.

Adrian Bye: What happened after you got back to China?

Nick Yang: We needed people, so we went to the top engineering university here in Tsinghua. We then went to the dormitories of the computer-engineering department, and we started knocking on doors and saying, "You guys are computer engineers. We are Stanford graduates, and we are starting an internet company. Do you guys want to work for us?"

A lot of students decided to work for us. As a result, we had to find a place outside of Tsinghua where the students could go to work and go back to their classes. That’s why we set up shop right outside Tsinghua.

We built a community site with the students called ChinaRen. The name is a combination of the English name of China and the Chinese pronunciation for people. This is a site for Chinese people, and it’s a fusion of the east and west. Our western background was our education; the Chinese culture and Chinese philosophies was the eastern side. We ended up selling the company to Sohu for $35 million of Sohu stock.

Adrian Bye: Why didn’t you just retire on a beach some place?

Nick Yang: We ended up in Sohu, for a year and a half and very depressed because the entire industry was depressing at that time. After 2002, we saw this new tidal wave coming up. Remember, we’re surfers. Whenever there’s a wave, you can be sure we’re going to get in front of it.

We have realized that the mobile wave will be even bigger than the internet wave, which we are still at the beginning of today. We decided to start another company called KongZhong.

Adrian Bye: And how did you get funding this time?

Nick Yang: It was very tough in 2002 to get funding because all of the VCs were just coming off the first bubble. Nobody wanted to invest. It ended up that only one leading VC, DFJ, decided we were the one. They invested $3 million for 33 percent, and that’s the only round we raised. We had also put in $500,000 when we started. We went public after only one round of fundraising, two years and two months after the setup of the company.

Adrian Bye: You’re still related to that company, right?

Nick Yang: I am still related with the company. I’m still the founder, the Vice Chairman, but I have resigned as President and CTO, so I don’t have a day to day role.

Adrian Bye: Can you tell us a little bit about what KongZhong does?

Nick Yang: KongZhong is a leading player in the mobile internet business in China. The business is called wireless band services, which is premium SMS, ring tones, logos, image downloads, mobile games, mobile communities, etc.

Adrian Bye: Where does the revenue come from?

Nick Yang: It comes from revenue sharing from the operators. We work with the major Telco operators in China: China Mobile, China Unicom, and China Telecom. Another revenue source is through mobile advertising where we get direct payments from major brands.

Adrian Bye: You have a U.S. education and are building businesses here in China. That must give you quite a head start, right?

Nick Yang: In the beginning it did because of the information asymmetry between the US and China. We saw how things were done in the West, adapted it to China, and did really well. Right now, with the information flow being so freely available on the internet, especially on technology and business, a lot of the Chinese entrepreneurs can actually have the same worldview as us. Now we have less of an advantage.

Adrian Bye: Now you are starting a search company called Monkey King Search right? Nick, maybe you can tell us a little bit about your plans for your search company?

Nick Yang: I’m involved with Monkey King Search in China because it’s always been my passion to build a search engine. We’ve been building things before like KongZhong, which is about services, mobile games, etc. These I consider soft drinks, like Coke, Pepsi, and iced tea. You can live without those, but you can’t live without tap water. I think a search engine is fundamentally as important to people’s lives as tap water, and I want to make a difference in people’s lives.

In many sectors of the Chinese internet, there are a lot of public companies, but in the search engine business there’s only one. Baidu is the one public search engine company of China. That number is too small. There should be at least another one that could go public.

Adrian Bye: I’m sure it can be done but how?

Nick Yang: I believe the idea is a conceptual search engine not a keyword search engine. You hear that talked a lot, but it’s actually very difficult to do. I really believe that search engine is a technology challenge.

There are basically two strategies in building search engines. One is a technology strategy. The other is a human strategy. There are also two extremes. One extreme is Google, which uses artificial intelligence, machine learning, and machine everything. Then there’s the other extreme, which is Naver in Korea. All their results are human produced, not in real time, but they just keep on producing it. We’re more toward the technology field because I believe in the future of artificial intelligence and machine learning.

Adrian Bye: How do you know there’s a market for this? Have you done sample test results, shown those to users, and said, "Users, if you had answers like these from a search engine would this be better for you than Baidu?" How do you validate what you’re doing?

Nick Yang: I don’t trust study groups. I don’t trust surveys. I don’t trust any of that. My personal belief is that a true entrepreneur has to be the passionate guy and the passionate user. That’s who I am. I’m the user checking for myself.

The current search engine doesn’t solve my problems. I have been searching for myself, and if I feel this is a good search engine, people will like it. It’s like they say, "The dog eats the dog food." I’m building it for myself, my teammates, and my employees.

I build things that are used by hundreds and millions of people in ChinaRen, in Sohu, and in KongZhong. I pretty much know what the general population thinks, and I feel that the current leading search engine sucks. That’s why I’m doing this.

Adrian Bye: This time around you’re funding it yourself, right?

Nick Yang: Yes, I’m self-funding this. I’m going to raise funding at the end of this year or early next year. I’ll probably raise one round, and then hope for an IPO.

Adrian Bye: One of the things I’ve been hearing while I’m here in China is that management is a real problem. You can’t scale up like you can in the US because people become very individualistic. It’s like there is a cap on how big you can get companies. Is that understanding correct?

Nick Yang: It’s the difference in culture. If you’re in Germany or Japan, it’s very easy to scale up very big because of the people’s culture. German workers and Japanese workers are very similar. They’re like robots and just toil away. In China, people think a lot more, and these guys are not as team oriented as in Japan or Germany. People here are very creative and very entrepreneurial.

With the right manager, the right motivator, the right coach, it could be done. It just takes a lot more work. You have to line people’s objectives with yours. Since we’re much more entrepreneur-focused in China, the head guy or the boss has to be the smartest and most capable guy in the company. Otherwise, people will leave you. There’s no way you can hire someone better than you.

For example in marketing, the head guy has to be the smartest marketing guy in the company. Otherwise, the guy will leave. It would be like, "Why should I work for this dumb guy? Why is he the boss? Why is the money I earn taking such a big cut by him?" In China, people think that way. You’ll have to be the smartest guy in your company. You can’t get guys who are smarter than you to work for you.

Adrian Bye: How many people work for you now? And what’s the organizational structure?

Nick Yang: I have 40 people working for me. I actually have a very innovative way of management. We have what we call the Senate. I told the company that we run a constitution monarchy. There are certain things I decide. There are certain things the Senate decides. The Senate is a representation of the teams. Every 10 guys have one Senator. The Senate decides on things such as budgeting, salaries, and compensations.

Adrian Bye: Why are you doing it that way?

Nick Yang: Because you get more involvement from the company and from the employees when they feel part of the team.

I actually learned this from the Swiss government. Have you been to Switzerland? The Swiss Government doesn’t have a head of state. It has a Council and in terms of foreign affairs, such as traveling overseas, it rotates. For example, this month it’s this guy and the next month that guy. There are about 20 guys who run the country.

That’s how I run things here and people feel they’re really part of the team because we have so much empowerment. Some issues, such as "Where do we go for our spring trip?" or "How do we spend our team building budget?" are decided by the entire employee body. Other things are decided by the Senate.

Adrian Bye: How is it working so far?

Nick Yang: Very well. People are very involved and happy that they have such empowerment. Any other type of company is a pyramid scheme. It’s like who decides for the salary and the bonus? It’s your boss. I’m doing a whole new system here.

Adrian Bye: One of the books I recently read said that because the Chinese are so entrepreneurial, there’s a sense of right or wrong, but Chinese people still just do what they want to do. As a result, you always need to have a strong system in place so Chinese people will understand that there’s consequences if you do the wrong thing. There’s not this internal code that a lot of other western societies have where there’s a feeling of right or wrong. Would you agree with that?

Nick Yang: Not necessarily. In China, people consider three codes. There’s only one code in the US, there’s a code of law, which means that the code of law rules the land in the United States. If you do something wrong but the police didn’t use the proper procedures, you’ll be let go.

Traditionally in China we have three codes: the code of heaven, the code of law, which is the code of country, and the code of all emotions. For example, in China, a woman kills her husband because her husband beats her a lot. In the United States, the law says how you’re punished, so that is how you’re punished. In China, the law of emotions could let her have a very light punishment because a very wide scheme Hall of Judge can decide.

It’s more of those three codes governing China rather than just one in the United States. People here have a lot of emotions, so that’s how things work here. That’s why relationships are more important here.