November 4, 2021

Building Bridges and Entrepreneurship between China & Europe

Written by German Accelerator

Fabian von Heimburg has a truly global background, having worked at Google, the United Nations, the London School of Economics, and more. Seven years ago, he and a Chinese co-founder started Hotnest, a digital consumer brand accelerator.

In addition to running Hotnest, Fabian is an investor, and works to connect VC investors and entrepreneurs, as well as to strengthen the general understanding between Europe, China, and the U.S. Fabian currently serves as an advisor for the German Accelerator China offering.

Learn how to scale your startup or company in the Chinese market in this interview with Fabian von Heimburg

Could you please share more about Hotnest and your background in China?

We grow brands in China – our own brands and other consumer brands as well – in addition to the retail channels to support them. Hotnest uses big data to optimize everything from our supply chain to marketing and sales in order to sell products more effectively to the growing Chinese middle class.

Our end goal is to build a company like Procter & Gamble or other similar brand holding groups from China. Historically, these kinds of companies only existed in the U.S. and Europe.

I also connect VC investors and entrepreneurs, and strengthen the general understanding between Europe, China, and the U.S.

What excites you about the Chinese market? What made you want to build your business there?

Everybody knows that the Chinese market is one of the biggest markets in the world. Seven years ago that wasn’t as clear from an outsider’s perspective, particularly the idea that China would be such a technologically advanced market. I didn’t foresee it, it’s exciting to see those opportunities flourish.

For the industry we’re in, consumer goods, China was the perfect fit, and now it’s also a cutting edge market for big data and AI. There’s amazing talent in China, and you have fantastic possibilities to develop new solutions that don’t even exist yet in Europe or the U.S., whether that’s ecommerce, FinTech or something else entirely. Even some of the AI capabilities in China are equal to or ahead of Europe or the U.S.

To be honest, I also went to China for the culture and language, which I find fascinating. There’s a lot of exciting stuff going on in China, and that’s why I decided to come here.

What major wins or successes have you had in China so far?

Professionally, I’m happy to have built such a fast growing, long-term company with my co-founder Mu Qing, in addition to our big data systems and proprietary technology. For Hotnest to still grow fast after seven years in China is an accomplishment. It’s not common to have a long-lasting company in China, and the death rate for companies is much higher than in Europe or the U.S., and even high-growth companies can fail after just one or two years.

On a personal level, I’m happy that I immersed myself in such a different culture and also managed to eventually understand it on a deeper level. That’s an important aspect to operating in China: You have to at least partially master the culture and language to succeed in the market over the long term.

We’re a fast growing company that has generated tens of millions of dollars in revenue for our customers. I’m proud to have such a strong team, co-founder, and customers.

What are some of your biggest challenges in China?

Beyond the obvious challenge of the language and cultural barriers, is a contradiction about the speed of the Chinese market.

People say China is the fastest market in the world, and it is. Everybody’s using messaging services, nobody’s using email anymore. You’re expected to reply within half an hour. Everything is just extremely fast. As I said before, companies grow quickly then die quickly. The speed in China is just on another level. But the big contradiction is that – in my experience working between different continents – China is also extremely slow.

For example, getting customers, building up trust, and succeeding as a company all take much longer in China than it might usually take in Europe or the U.S. Even if you’re a Chinese founder (or have a Chinese co-founder like me), it takes a long time to build up trust with customers, investors, and employees.

And that’s the big contradiction: China is fast, but it can also be extremely slow. It’s important to see China as a long game and not somewhere you can just arrive and grow quickly. You need to build a strong foundation and that can actually take longer than in the U.S. or Europe. From a daily operations perspective, China is fast paced, but actually many times, it can be the opposite.

What are some misconceptions that German startups have about entering the Chinese market?

First, many startups and companies think that because China is a big, fast market that it’s easy to get venture capital money. That’s definitely not true.

You need to have a business foundation and good product-market fit here. You need to have a good and trusting relationship in China if you want to get more money here. Otherwise, it’s more competitive than elsewhere. The VC funds here are actually the same as in the U.S.; Sequoia and the big funds are all in China too. In order to compete for funds with Chinese startups, you need to be extremely aggressive and scalable. You need a long-term approach to actually persist and succeed.

Second, there’s a big misconception around how easy it is to scale fast here. Business leaders think that if China has 1.4 billion consumers and you capture just 1% of the market, then your numbers are huge. But startup founders forget: everyone wants to enter the Chinese market. No matter which industry you’re in, everybody wants to come here. The competition is fierce. I’ve worked in the U.S. and in Europe, and China is the most competitive market in the world. Whatever you’re offering, you need to be extremely competitive and scalable.

Of course, it is possible to both scale big and also raise a lot of VC money in China, but you need to consider that it might take a long time. You need to have even more persistence than some other markets because of the trust you need to build. The benefits of staying long-term in China are huge. All of the foreign companies and startups that have persisted here have experienced huge benefits and have grown massively.

You’re an advisor for German Accelerator’s China offering, you’re the Regional Head for China for the German Startups Association (Bundesverband Deutsche Startups), and you’re part of the Advisory Board Young Digital Economy for The Federal Ministry of Economics. What makes you so passionate about building bridges for entrepreneurs and companies between Germany and China?

In my mind, what China has achieved in the last 40 years is amazing. Going from extreme poverty to now competing with the U.S. and Europe in high-tech while also lifting the rest of its population out of poverty is truly remarkable.

Right now, there’s a lot of negativity building up between China and the West, but it’s important to collaborate closer with the Chinese ecosystem, while also clearly criticising where there are issues. Certainly from an entrepreneurial perspective, a lot can be learnt from both sides. For European entrepreneurs, they can learn from China in areas like ecommerce and FinTech, because China is actually ahead of us by five to 10 years. And when Chinese entrepreneurs come to Europe, we’re sometimes ahead of them in terms of the Internet of Things or some industrial processes.

There are many collaboration opportunities. Take Climate Tech, for example. China’s putting a massive emphasis on this industry right now, and is a huge area where we should cooperate even more in the future, eventually benefitting the whole world.

We only stand to benefit from cooperation. Think: China is home to 1.4 billion people, the EU is home to 440 million, and the U.S. is home to about 330 million. It’s clear where tomorrow’s innovations will come from. I believe it’s important for all of our sakes that we collaborate, and entrepreneurship is a great starting point.

What are your suggestions for companies or entrepreneurs who want to explore the Chinese market?

First, definitely take advantage of great startup accelerator programs like German Accelerator and others where you can streamline your experience. Accelerator programs like these let you talk to local experts within your industry. You can then get feedback from investors and from potential customers of your product. That last one is particularly important.

Joining one of these programs for startups or other companies is essential for getting feedback from actual Chinese consumers on whatever product you have. It’s the norm that you have to customize your product for the Chinese market. There’s rarely a one-to-one product-market fit for whatever solution you’re offering – no matter whether that’s a Software-as-a-Service (SaaS) or a consumer product. Chinese consumer behavior is different and you will most likely have to adapt your product.

China has perfected a trial-and-error mentality. If you want your business to be in China, you need to have the same mindset. Take your initial feedback from your accelerator program and put your product on the market. See what works and what doesn’t. Then, iterate and eventually you’ll get there. But you need to have a long-term approach. Quick wins are rare in China.

Your next step is to find a good business partner who will help you scale in China. It’s important to understand that this is going to be a big project for you and your company. It’s not a side project like expanding into Luxembourg or somewhere like that. You need to be fully committed. You need to spend the time to do it right. With COVID-19, it’s difficult to find a local partner on the Chinese side, but you need to find a partner organization who can help you sell and localize your product.

So those are the steps: Network with experts, test your product with initial feedback, find your product-market fit, then find a good partner who can help you with the local execution. The key is to stay involved, even as a founder. Don’t completely outsource your China expansion.

You’ve previously mentioned that a lot of digital innovation will come from China in the future. What implications will that have for German companies looking to expand in China?

One big implication is that German companies don’t just have to come here to expand to China, but you can also come here to learn from China. The big enterprises are already doing this, from electric vehicles to ClimateTech to ecommerce. They’re all learning from China. Of course, this used to be the other way around.

When you come here, you can learn what the future might look like in your home country. Then you can pretty much just copy-paste those innovations back into Europe. What China used to do with us, we can now do with China – in a lot of different industries too. And in areas where China is still catching up, be careful, because eventually they’ll compete with Europe in those areas as well.

Another big consequence is that more products from China will come to Europe. There’s a lot of innovation in China, and you can see this already in examples like TikTok, NEO, Xiaomi and others. That’s just the beginning. There will be a lot more companies coming from China to the rest of the world in terms of internet and consumer goods. I think there’s a big opportunity for German entrepreneurs to understand this trend and to work with Chinese firms as they expand into Europe.

Even with all of the above, there’s still never been a better time to expand into China. Ten years ago, if you came to China with an AI solution, nobody would be interested. The companies here just didn’t see the benefit of different tech solutions, like Slack or AI or other software. But with the change in the economy, a lot of tech solutions from Europe now have great potential in the Chinese market.

What are your thoughts on the German Accelerator China offering?

German Accelerator offers a streamlined approach to enter the Chinese market, which for many founders and leaders is still a black box. But it doesn’t have to be a black box. The Chinese people aren’t trying to be secretive about their own market – it’s just that there’s a big information asymmetry, mostly due to the language and culture difference.

I think the main advantage of such accelerator programs is that they bring together experts from different areas and then give you, as a founder, a streamlined, guided approach on how to enter a foreign market. I think that’s a great first step for companies to learn more about the Chinese market in particular.

Anything else you want to add or say?

Entrepreneurship is a great starting point for both Europe and China to cooperate and learn from each other. There are so many mutually beneficial opportunities we can build together, and I think that accelerator programs are a great way to connect across continents. We can only solve the biggest issues facing the planet if we work together.

If you’re ready to start the journey of assessing whether China could be a market that offers valuable opportunities, our free China Essentials workshop is a great place to start – find out more here.