How to Transform An Organization, with Alibaba.com's President

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1:33There's no safe like SimpliSafe. From Entrepreneur Media, this is Problem Solvers, a show in which entrepreneurs do what entrepreneurs do best, solve unexpected problems in their business. We were completely wrong. And I'm just like, it's not selling. It was like, we have to start from scratch. I'm Jason Pfeiffer, the editor-in-chief of Entrepreneur Magazine.

1:59You know that phrase, you're leaving money on the table? I looked it up. Apparently, it's originally a gambling reference. The idea is if you're at a casino table, then there's money on the table. And if you haven't bet it and you win, you left money on the table. People apply this to business all the time. You're not optimizing your marketing, so you're leaving money on the table. You're not pursuing this new customer base, so you're leaving money on the table. But here's the thing I don't like about this phrase. It implies that the money is visible, that the opportunity is there in plain sight for all to see, and you're just leaving it there.

2:38But that's not actually how business works. Instead, opportunity is often invisible, and it requires a great leader and a great team to look at a company or any opportunity and say, I see where the growth can happen. I see the opportunity that others don't. And I'm going to get us there. So how do you do that? That is a more interesting question than what's the money on the table. How do you see the invisible money on the table? Well, that's what I asked this guy. My name is Kuo Zhang. And in 2017, just seven years ago, I joined as the president of Alibaba.com. Quo is the president of Alibaba.com, as he just said, and under his leadership, the service has radically transformed.

3:27As you may know, Alibaba.com is a B2B e-commerce platform for global trade. So basically, if you make or sell products, then you either need suppliers and manufacturers or you need wholesale products to sell. And Alibaba.com is where you can do all the sourcing and transacting. Back in 2017, when Quo took over, Alibaba.com looked a lot like the yellow pages. It was simple, basic, most people accessed it on desktops, and transactions were less than$100 million a year. But today... The transaction on Alibaba.com is more than$50 billion. Which is to say that when Quo took over in 2017, there was, very literally,$50 billion worth of transactions being left on the table.

4:12And like I said, I wanted to know, how does a leader see that hidden opportunity? How do you look at something small and envision how to make it big? Quo's answer to this is fascinating. And it starts with this. You need to predict what's going to change or what's going to happen two or three years later. Do you mean you need to predict what the consumer is going to want two to three years later? Or you have to predict how you, the company, are going to be evolving the product within the next two to three years. I think both. Kuo has a background in computer science, and that's where he draws that answer from.

4:49Because to develop a new technology product, he says, you need to understand not what people need now, but what they will need years from now. If you only design for today, then by the time something has come out, you've really just designed it for yesterday. He is an analytical thinker who sees things as structures and systems. And today on Problem Solvers, he's going to walk us through his process of looking at an organization, of identifying where it could go, of building the team to get there, and of constant innovation and iteration. It was a really fascinating conversation about leadership and growth, and it is all coming up after the break.

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7:28All right, we're back. We're going to dig into Kuo's approach to growth and opportunity, but let's start a little more foundationally. What did he actually see when he looked at Alibaba.com in 2017? You know, before the plan even came together. To start, he said he thought about what Alibaba.com actually is. It's a marketplace, right? It's a B2B marketplace. So then he thought, where can he take inspiration from really robust and well-designed marketplaces? The answer is B2C marketplaces, because it is so easy for consumers to buy things online. Online shopping is super easy. It is built around the pain points of consumers.

8:13So could he make his B2B marketplace as simple and easy as that? To do that, he had to think about the unique pain points of the B2B user. And that's where we're going to pick up. And I think about the nightmare for a buyer or for an entrepreneur who started a business and started for global sourcing in the beginning to support their money safety. So you need to pay someone outside your country. You don't even know him. And you need to pay him a big amount of money and wait for the product. So how to guarantee that your money is safe? And when you pay the money and you wait for your product, how you can ensure that the product can be delivered in time?

8:56These are challenges that all the SMEs go portray. And these are the opportunities for the platform who can use all kinds of technologies to help them. For example, when you're doing the online shopping, but there's actual escrow payment like PayPal or Alipay. B2B need escrow payment as well. So we introduce escrow payment called trade assurance to make sure that you pay the money and the money actually paid to the suppliers when the product meets your quality, qualifications and to deliver in time. So it gave you some certain of assurance. And second, when you pay it, you need to pay in all different methods, like credit card for$100 trial, and maybe a million for a big order.

9:48So you need to pay by credit card, digital wallet, wire transfer, and all kinds of methods. And when you pay it, you not only pay it for the transaction itself, you may need to pay it in terms, so three installments or even longer, three months to nine months. So how we can guarantee that the buyers and sellers actually can agree to the term. So that needs technology to help as well. And this go to the logistics is even complicated. You can imagine that it's a kind of technology to digital transform global sourcing. You said one of the starting points was understanding the pain points of the users and then developing solutions around them.

10:31And I would love to explore for a minute what it means and what your advice would be for a leader who comes in to something that isn't fulfilling its full opportunity and then helps it do that. Because Alibaba.com seven years ago was serving people, but not to its fullest opportunity. If you could take me into your mind seven years ago, you were looking at this. What were you thinking about where the missed opportunities are and how to start finding them? I think all this kind of capabilities does not come in day one. So as I give you some background of mine, so I was computer science background.

11:12So I understand how the technology or know where the technology goes. actually is a part of my fundamental skills in school. And after school, actually, I joined IBM and Microsoft. So the biggest kind of lesson I learned or the kind of the capabilities I grow is how to manage tens of thousands of people working together towards a product. And that product, you need to predict what's going to change about what's going to happen two or three years later. For example, when you work in Microsoft, they release a product at that time. Like you release Office or release Windows. That when you design the product, it will release two or three years later.

12:01So you need to predict what's going to happen there. Do you mean you need to predict what the consumer is going to want two to three years later? Or you have to predict how you, the company, you're going to be evolving the product within the next two to three years? I think both. So first, you need to have a kind of picture what the ultimate goal look like, not the 100 years later, ultimate goal is two or three years. What we need to do to change to make this product a better product, make this marketplace more competitive. So there are multiple ways to do that. One is that we talk with enough customers to understand the pinpoints.

12:42and give the priority. So here are the things that we need to do first. Not only in global sourcing. So there are all kinds of challenges or all kinds of innovations in different worlds. For example, in B2C. So we already see how the B2C involved. It involved from PC to mobile. It's from yellow page to transactions. And people now trust each other. When you buy something, you never think about whether this supplier will cheat on me. because platform protects you. So all these kind of fundamental paradigms, we think it should be the same for global sourcing. Something as simple, for example, you're watching this evolution happening in B2C and you're using what's happening in another marketplace to inform your prediction of how your own marketplace will evolve.

13:31So something as simple as, for example, if you think about trust, I might think of eBay, right? How do I trust that the person who I'm paying is going to send me something? And the answer is that eBay basically absorbs that risk themselves. And so if you're seeing that happen in other marketplaces, then you're saying this is where my B2B marketplace is going to need to go. Exactly. And I read a lot of books about global sourcing as well. So even in college, there's a course to tell you how to do global trade. and there are all kinds of terms like FOB, CAF, all this kind of stuff. And that term actually is designed probably by WTO 20, 30, or 40 years ago.

14:18And now people are still using that. I'm just thinking, the first four, is it necessary that you do global sourcing and you understand all terms? People invent their terms at that time because the people don't trust each other. And because it's too complicated, so I need to set up different kinds of rules for different situations. But fundamentally, if you think from the first principle, what are you doing here? Just like online shopping. I want to create this. I pay all the money. We deliver the product. The only difference from what kind of a domatic B2C did is cross-border, across nations. And you need to apply to the nation's law or other kind of requirements.

15:03And the logistics is much more complicated. You need somebody to pick up your product, clearance of the customer by R or by C, and drop and go clear the customers again, and then put it into your warehouse. But it's still logistics. So everything here, if our starting point is, how do you take over something and then identify where the missing opportunities are? Your starting point is, it doesn't matter if it's new or not. Your job as a leader and a developer of something is to be predicting two to three years out where it's going to go. You're going to be looking around at all sorts of inputs to help you understand where that evolution is going to be.

15:51You're going to be talking to customers and understanding their needs. So this is what they need now. Therefore, how do you start to build towards it? You're looking at other marketplaces and you're saying, okay, this is what they're doing. how do I apply that to my own problems? And now you're listing out logistics, for example. Okay, that's a little more complicated than just buying and selling something off of eBay, but the same principle has to apply. So let's figure out what it would mean to do that. So that gives you a useful thesis to start. So maybe seven years ago, when you walked into Alibaba.com, you said, okay, we can project out where we need to go based on all of this information.

16:25So then what? Then how do you decide what to start building first? So actually, the first thing we did at that moment is mobilize the application. So we said that it's a PC-based before. And why is that? Because I asked people, so now the 2C world is already on mobile. Why the 2B world is still on PC? They said before, because when we see the customers, they always sit behind a computer. And since it's too complicated, probably it's not easy to do on mobile. But I said, look at what happened to Facebook, what happened to Google. The whole world, actually, their time is spending on mobile other than PC.

17:10No matter if it exists today or not. So when you build something and they spend more of their time on, it will help them. Why do we start to build the application? Because they bring more traffic to the customers. And by using mobile, we can acquire more buyers. So the demand and supplies is the first fundamental rule. or you get enough demand and supplies, then we move to transactions. And we start from the payment and the logistics because payment is easier than logistics. So you have a goal. You can have a clear view of what it looks like. And then what you need to do is prioritize. So the more you can prove that your theory is correct, then the more trust you can get to the team.

17:51And the whole team can mobilize that to the direction that you set for them. That is a step-by-step approach to how you achieve the end goal. I really love the phrase that you use there, proving your theory. You have a theory and you're not going to expect everything to change all at once. You're going to start with the more accomplishable things. So for example, you said payments is easier than logistics, right? Sure. When you started talking about mobile, the thing I wanted to ask you was, I remember this moment when the mobile shift was happening, where there was some analysis that people were doing things that felt lower risk or breezier on mobile, but then they were reserving.

18:44For example, they would make smaller purchases on mobile, but then they would make larger purchases on a desktop because it felt somehow more secure or something, right? And I could imagine seeing that data and maybe even applying it to what you were doing at Alibaba.com because maybe people are more comfortable making casual consumer purchases on mobile, but maybe they're not so comfortable making more expensive and consequential business decisions or B2B relationships on mobile. I think that's proven not to be true now, but back then maybe it was. How do you start to test these theories? And maybe even how do you start to decide which theories to test?

19:26One of the kind of theories I have is that focus on the facts, not the words. So you said whether mobile is more serious or PC is more serious, are the words. But the facts is that, so can you make it more secure on mobile? Or does PC really have some kind of more advantage comparing with mobile? And because of that, actually people trust PC most. If that's not a fact, it's not going to happen. So the fact is that people are using mobile more, and mobile is more easy for people to communicate with each other. So you can talk to a supplier in bed or in the way to office or even at office. And the more you communicate, the more detail that you see their product.

20:16You can even use mobile to see their manufacturer, have a tool, and understand what their kind of specifications, their certifications. And the more you trust them, the easier for you to pay the money. It's not the device that I use. This is more easy because it's APP. So I trust PC that app. So that is not the facts. So the more that you close to the facts, the decision that you make is more leaning to correct. Why do you think people end up focusing on the words instead of the facts? Maybe it's a human instinct. For example, you read newspapers all the time, right? And the headline that attracts you is only one sentence of words.

21:00And they try to do it as much as eye-catching as possible so you can click into that. And the words actually are more attractive. You tend to read it more. But it's a kind of anti-instinct that you think what the rules and what are the reasons behind that. You need to add everything together and you think it through actually. You can prove that it's just right. Then it's just more close to the facts. It's a great point. There's a great psychological term for this and I forgot it. I like to try to collect these psychological terms because they always sound fancy, but I forgot this one. But it's a term that means that the more you hear something, the more it seems true.

21:43And so even if something is not true, if you hear it enough, then you start to accept it as true. What you're identifying here is that this seeps into not only business, but the way people make business decisions. If we hear something enough and we start to repeat it ourselves, then it becomes a kind of fact. And we start to make decisions based on that fact. Even if the thing that we're saying doesn't actually align with reality. That's almost such an obvious human instinct that when we say it out loud, it may not even sound revelatory, but I bet a lot of leaders fall victim to it because it is not natural to want to interrogate things that we already believe are true.

22:28In the business world, actually, it's more critical since if you make your strategies or decisions based on the newspaper's headlines, I should not say 100%, but 90 % of the time you are wrong. Since you want to build something successful, you should solve some problem the others did not dare to solve or they did not solve it correctly enough which means the common understanding does not exist yet until you did it and you prove that there's enough value in it then everybody starts to believe that so you start from a kind of not in common understanding thing and you need to do it different from others so that you can win you cannot do the same thing as 99 % of people believe, then you'll still win.

23:18That is not possible. One other subject I want to follow up with that you said a moment ago, which was when you were talking about proving out theories. You said that as you prove out theories, the team comes along. And that's an interesting observation. You have a team, anybody who has a team, the team is going to have a lot of opinions. and they may or may not think that you're right. And so can you talk to me about when implementing a large change, how to think about bringing the team along? Think about you are starting your own business, a startup. Why does the VC want to bet on you with money?

24:02So some of the case, they like your ideas, like your background. And many of the cases, that they trust your credibility. So why they trust your credibility? Because you have a track of record. I prove that I can build something. I prove that I succeed once. So since I succeed once, I prove I have some quality that people does not have. So probably I will succeed again. So this is just a kind of basic instincts from human. And the team is the same. So they need to spend their time. Probably they need to build their career with you. So why they want to build it with you? Because you have a certain kind of track record and you prove that your decision, not 100%, but probably 90 % of your decision is correct.

24:54So in the beginning, even I don't know whether you are right, but you prove you are right most of the time. So I trust you once. So let's do it together. And then you prove that it's right again. So I can trust you again. you'll get a credit tank. Every time you put more credit in that, and then they will trust you. Sometimes you're wrong. It takes out some credit, but still there's enough in there. And then they'll just follow you to do the things. And it's not only that you prove you have a kind of unique idea. So think about your team. Many of them is working with you for many years. They have their kind of critical ideas as well.

25:34So before you make a decision, we try to seek for consensus as much as possible. So maybe that doesn't exist. But for example, I bring all my leaders here to Vegas, attend this co-create, and they hear from the buyers themselves. They're telling that you are doing this wrong. You should do it that way. This product sucks. You should change it. And then we seek for consensus to see what's the problem and challenge and how to prioritize altogether. And then since the people are seeing altogether, then they have more confidence to believe and work it together. So you have some ideas, you have credit.

26:15I think that's the beginning. And then you try all the ways to bring for consensus for the core team so they can believe in it on the kind of embark on your journey. And then the people now, it's more and more people working together towards this journey. I think this is a fly view for the team. What you just described there reminded me of a concept that I don't know if he made it up or if he just got the credit for it because he talked about it in the New York Times. But Toby, the CEO of Shopify, talks about the trust battery. And he says, when somebody starts at a company, their trust battery is at 50%.

27:00And every time they do something that proves them trustworthy, they make a decision and it proves right, then their trust battery increases. And every time that they do something that's untrustworthy, then their trust battery decreases. And he says, everybody has a trust battery with each other. And you can be mindful of that, that every action that you take will impact the battery, positively or negatively. And it doesn't matter who you are. And I've always loved that idea because it means, number one, that trust isn't binary, that I don't just, I am trusted and therefore I can abuse that trust or I'm not trusted and therefore I will never be trusted.

27:40It's not binary. Everything that you do will grow or shrink it. I really, I like that it makes every action that we take intentional. But what I especially love, and the way that you applied it to the perspective of a leader is the leader shouldn't assume that their trust battery is at 100 % just because they're the leader. And you still have to do the work of building the trust with the team. Am I right in saying that's the way that you were thinking about this? Exactly. And since you asked how we can success, so the trust is the first step. So you can have the full team trust you and you set up the right directions.

28:23But the execution actually is the most important part. Probably, I think, 90 % of the companies can set up the right direction. But only 1 % succeed. So because the level of details different teams execute on is a difference from each other. And from the leaders, you can see in probably 1990s or 1980s, the leaders are more lean on strategy thinking. So I have a strategy and the leadership. I want to do acquisitions and I can merge them together and then I can succeed. But as you see nowadays, successful leaders like in the U.S., Steve Jobs, Jeff Bezos, Bill Gates, they are all focusing on details.