Hans Tung, managing partner at venture capital firm GGV Capital, spoke at Ibotta’s Mobile Innovation Summit last month about secrets to finding and building billion dollar companies. More than 10 years ago, GGV invested in “a little company in China in 2003,” he told the audience.
Now that company’s market value is more than $400 billion: Chinese ecommerce company Alibaba. The fastest growing brands are doing certain things right, he says. They’re creating unique experiences around their brands, encouraging the feeling of a community tied to the product or service, and they’re targeting a massive audience.
Tung says that the companies GGV looks for are the ones that can target the most number of people – mass markets.
“Look at shoppers who are value conscious,” he says. “How to go after services and markets that maybe you or your wife or husband might not use, but what 99% of the market will use.”
For instance, UberX. Uber’s luxury black car service UberBLACK did great, Tung says, until the company came out with UberX, the “everyday price” version.
“Even I ride UberX all the time,” he says. “Not having the UberX for any product, any company, CPG [consumer packaged goods] included, would be a real shame.”
When targeting this type of service or product to a big audience, it’s not as much about how much money the company spends on marketing, but more about how they do it, Tung told Street Fight in an interview.
“Increasingly, if we are looking at younger companies, we look at not only how the product is designed, but also how they tell their story, how the user reacts to using it, suggestions they have for it,” he says. “Also, we look at how well the product is marketed on social media, how they build their relationships with users on social media.”
Social media is a great place to reach a millennial audience, Tung says, but understanding how they use Snapchat or Instagram and how to effectively market to them can be difficult.
“Most people who run CPG companies tend to not be in the same age groups as their target users,” he says. “What they like, what they don’t like is tough for most executives in CPG companies to understand, and hiring more people on their teams who can relate to the younger user is extremely important.”
Tung says he applies that rule to himself – he’s closer to 50 years old than he is to 30 years old, so he looks to younger people on his own team to help him keep in touch and make better decisions. Don’t lose touch with the consumer and target user base, he says, or your company won’t be able to innovate on the same level as the audience.
“Look at Amazon versus Walmart,” he says. “Amazon innovated much faster than Walmart. The way they approach things to make things happen fast, iterate, make changes, do a quick test, change again, test again, change again – that kind of speed is what we look for.”
Tung says brands that are able to create a feeling of community and membership around the product are the ones that already have the right idea. The “community feel” is something that Alibaba does well, he says, noting the company’s success at generating revenue around Singles Day, a Chinese party event celebrating single people.
“Friends comfort each other and buy things for each other,” Tung says. “It started as a marketing gimmick and ended up becoming the biggest shopping event in the world – bigger than Black Friday and Cyber Monday combined.”
Alibaba also generates significantly more money in sales on Singles Day than Amazon does on Prime Day – almost $18 billion in 2016 compared to Amazon’s estimated $1 billion in 2017. Alibaba does have about six years more experience with its event compared to Amazon, which launched Prime Day for the first time in 2015, without an established holiday.
There’s also value in looking for companies outside Silicon Valley, Tung says.
“We’re much more interested to see how a team in Denver, Austin, Dallas, D.C., would try to do something in a way that makes sense to that Heartland America audience,” he says.
April Nowicki is a staff writer at Street Fight.