China’s business & start-up incubators are adopting different models than those popularized from Silicon Valley and other mature, Western ecosystems. The drivers developing a different incubator model are rooted in a different local context, but the successful application of these models can have global implications.
By Incubator I mean…
I’ve been tracking the term ‘incubator’ on Twitter since last year and am amazed not only by the number of incubators that have sprung up all over the world, but also how many diverse and loose definitions of ‘incubator’ there are.
By ‘incubator’ I do not just mean co-creation space, or consolidated back-office support, or start-up competitions, or a crowd-sourced website of projects, or classes on pitching and writing business plans.
By ‘Incubator’ I DO mean in addition to the above, tactically helping to build businesses through to sustainability by bringing in the needed people/partners, asking the right questions & molding the business model, coming out with a working product/service & organization, and utilizing ready-made launching platforms which include financing, marketing and/or retail/distribution channels.
THE RISE OF INCUBATORS AS A CULTURAL PHENOMENON
It is important to first understand the cultural and social significance of incubators in western society to help us gain a comparative perspective on how China incubators will impact a new generation.
The reason why the start-up incubator is enjoying success and widespread popularity in our time and not before has to do with one unique occurrence: The rise of the highly educated, freelance individual. While two other factors have also been vital for the popularization of incubators – 1) macro economic demand for innovation competition, and 2) an abundance of investment capital looking for alternative asset classes and the development of mezzanine financing options – only the rise of the highly educated, freelance individual is unique to this generation and unique to the rise of the incubator.
Tracking the emergence of the highly educated, freelance culture
The expansion of a highly educated mass population happened in western society and North America with education reforms and a greater access to higher education in the Post-War era. The popular expansion of the North American freelance culture (as documented by Douglas Holt in ‘Cultural Strategy’) began in the 90’s as we experienced the early 90’s recession and then accelerated as corporations and industry underwent an intense period of outsourcing, thus shifting us away from the concept of lifetime employment.
And so since the 90’s we’ve witnessed the emergence of a highly educated, freelance generation. These individuals, being more creative, independent, and autonomous, have been building a new proposition of economic pay-off that rewards ingenuity and seeks not a steady pay-check, but periodic bulk payments that allow for more pivots in a person’s freelance-style career. Additionally, as an economy built on high-educated, freelance culture demands greater creativity, integrated thinking capacity, and greater specialization, these individuals seek an actionable, and reliable form of collaboration that will see their unique capabilities and ideas properly utilized.
It’s therefore understandable why it is this generation, a highly educated and freelance group, which would construct and consider start-up incubators a viable and important vehicle for long-term freelance achievement, and career success. In fact, as chronicled by GigaOm, the first popular wave of incubators emerged over 10 years ago, during the Dot-Com boom, when high-educated freelance culture hit its first period of maturity.
Our current cultural legacy: the Silicon Valley incubator model
The current wave of incubators like the iconic YC, TechStars, and 500 Startups are a product of A) a much more networked, collaborative culture, learned and reinforced by social media’s dominance in our society, B) further maturation and refinement in the venture capital/private equity apparatus, plus C) the justifiable fixation on timelines and incubation processes specifically catered to technology and digital venture types.
The Silicon Valley incubator model is built to graduate start-ups within 3 months of incubation. Fast ideas, fast iteration, fast testing, fast scaling. High independence, high autonomy. This is the incubator’s cultural legacy we’ve inherited from the success of Silicon Valley and American-style venturing from a generation of highly educated, freelance individuals.
There is a growing perception that the Incubator can become a new model for graduate school. I too observe that this generation is beginning to perceive incubators as having the same cultural significance as graduate schools. Indeed, these are important implications for how a new generation of young Americans and global citizens will classify ‘education’, fit for their future world.
instituteB - a Canadian Incubator reframing as a new kind of 'skool'.
But with this understanding of the cultural role of the Incubator for a highly educated, freelance society, the Incubator finds a different role in China and is therefore developing into a different creature.
A NEW FORMATION: CHINA INCUBATOR AS ENTERPRISE
Over the last year, a number of China incubators have either reformed, or newly emerged, as professional enterprises, away from the classic western incubator model that just serves as a prototyping platform for independent start-ups. China Incubator Enterprises are acting more like niche early-stage private equity acquisition groups – without the private equity.
Incubator Enterprises characteristic #1: A longer timeline with greater vested interest.
These China incubators are elongating the incubation period, bringing the start-up more permanently into the incubator, well beyond the traditional 3-month timeline. Often times the gestation period is dependent upon the start-up’s complexity and development needs. Many times incubators will not graduate a start-up until there is a fully sustainable business model, and there is more to show than just a prototype product.
This is taking a page out of more established corporate innovation processes, like the one system made famous by 3M. Here, what is provided is not only space and supplies for a team to get their idea off the ground, but the host organization also takes a lead responsibility in filling the missing team and functional gaps such as finance, marketing, project management, and strategy. In this way the incubator graduates not only entrepreneurs with a product and some mentoring, but instead a founding team, fully equipped to grow from start-up to small business.
Innovation Works, an incubator I’ve written about before, was one of the very first China Incubators and still one of the most famous. Created by Ex-Head of Google China, Li Kai Fu, they incubate tech start-ups, but bring these companies in-house and build out fully functioning teams around them. They usually graduate only after a product is tested and there are investors lined-up to take it to the next step. This whole process normally takes much longer than 3 months.
Incubator Enterprises characteristic #2: Cut out start-up pitching, instead cultivate investor expectations.
Whereas the mark of a great incubator in western countries is giving the start-up a chance to pitch to a packed room of potential investors, China Incubator Enterprises instead opt to act as agents, selecting the right investor introductions and brokering the right deal.
This deal making has much to do with the fact that each incubator has pre-existing relationships with a set investment community or network, usually specializing in one specific area of interest. In some cases, an incubator’s inception is the direct result of a pre-existing fund’s desired investment objectives, looking to develop investment opportunities.
With the Incubator Enterprise knowing the investor preferences and objectives so well, there is little need for pitching but instead collaborating with the investors on their investment expectations and involvement right from the outset. In this way, the start-up, and the investor(s) are developed from inception to be the perfect partners.
Xindanwei has been the poster-child for Co-working spaces in China since its launch in 2009, with a very distinct and strong open community culture. Last year Xindanwei expanded to build Xinchejian (New Garage), a specialized program for the Open Hardware, hacker and maker communities. Xinchejian provides specific events, workshops, machining tools & technology, plus prototype product exhibitions; all crucially needed to grow this emerging community. What is more, this special unit has developed its own network of specialized partners and investors, people who have a specific interest in funding and prototyping co-hacked gadgets. These partners coming in at the very earliest stages and develop ideas together.
Incubator Enterprises characteristic #3: Find industries to fill beyond tech. The emergent Incubator Enterprise, with the intention of incubating longer, more thoroughly, and molding investor expectations from the beginning, find greater capabilities to nurture new business models. This is proving powerfully applicable for capturing the new opportunities emerging from China’s diversifying economy needs.
Each Incubator Enterprise, in capturing its industry specialization, is also customizing their incubator to fit the specific needs of that industry’s start-up needs and also that industry’s investor requirements. With this evolutionary approach, Incubator Enterprises from different industries will have different incubation timelines and boast different incubator component strengths. It is only in customizing the incubator format can the incubator fill the needs existent beyond tech.
Transi.st is an incubator that seeks to develop tech that has direct impact on social good. Shifting from the ideology that a start-up’s primary path leads to IPO, Transi.st chooses its China incubation projects first for its scalability in social impact.
Yuenfen-Flowhas constructed itself as the nexus between tech, business, art, and sustainability. Boasting its offering of methodologies such as IDEO’s Human Centered Design, Yuenfen-Flow chooses its projects for their creativity and the merging of artistic and technical form and function.
Jue.io is perhaps one of the most exciting examples of an Incubator Enterprise, specializing in manufacturing incubation. Jue,io seeks to attract creative youth culture products; from new iPhone case concepts to innovative RFID key chains for offline social networking. Jue.io was set up to cater to the needs, expertise and interests of its founding investor, who comes from the manufacturing industry. Boasting a vast network of OEM manufacturer relationships, Jue.io offers not only team, product development, and funding for the right manufactured product idea, but also the right manufacturing and distribution partners. Jue.io’s incubator capabilities are specialized for the needs of the industry it serves.
Localized industry contexts force incubators to structure differently
It is easy to see that these incubator innovations come from the different industry forces present in China’s very different economy. As chronicled above, traditional western incubators are a product of a driving macro demand for innovation competition, a mature alternative asset-class investment community, and a highly educated, freelance generation. China does not strongly possess any of these forces. The incubator was started in China not as a reaction to competition need, but with the intention of leading social change. It found itself in an economy with a very immature investor community, and within a generation and culture that is not overtly highly educated nor freelance. And so in order for the incubator to survive, flourish and add value in a different industry context, the China incubator has had to evolve, with a longer timeline, a greater vested interest, a different approach to cultivating investors, and filling opportunities in many other industry fields.
These non-traditional forces are not unique only to China. We are seeing the incubator evolve into Incubator Enterprises in other fields that require adaptation for distinct requirements. In Canada, an Incubator Enterprise exists named InstituteB, a specialty incubator focused on sustainability start-ups and cultivating particular skills for the sustainability field with special relationships with sustainability-focused investors. They also bring in start-ups for a long timeline, build thoroughly, and graduate only with the right investor already in place.
CHINA INCUBATOR’S ROLE FROM A CULTURAL PERSPECTIVE
And so as people have alluded to the Western incubator as a new form of graduate school for a highly educated, freelance generation, what is the meaning of the emergence of China’s Incubator Enterprises to this new generation of Chinese?
I would offer a suggestion that China’s Incubators act more like the equivalent to an after-school program, or a special summer program, or an extra-curricular sports team. What I mean is that it is within these kinds of environments that many Western-raised children first developed specialized skills, and first learned how their unique skill integrated into a larger team. More importantly it is within these extra-curricular program that many talented youth first developed passions for personal hobbies and interests, and added very important components to their developing self identity.
I feel the China Incubator’s cultural role is providing a similar, and vital service, albeit not extra-curricular, but full-time.
Leading edge Chinese youth, with newly constructed identities and the beginnings of unique talent, are in need of space to refine and sharpen what raw ability they have. Incubators become the place this cohort of creative talent can deepen who they are and sharpen their skill.
This being still one of the earliest generations of Chinese creative talent, these innovators have not enjoyed as comprehensive an upbringing as the young talent in other mature societies. Therefore Chinese incubators are calibrated to allow participants to specialize on one creative ability, while the incubator fills the other skill gaps. As a consequence, the incubation period grows longer; to not only allow the business to mature, but also the creative talent powering it.
Incubators in China can develop in this way because China creative talent is still so rare and offers the great potential for highly unique value creation. As the competitive pressures in China continue to rise, the value proposition to incubate talent and new China business solutions is something no investor can ignore.
It is within these incubators that a new generation of Chinese creative talent is realizing that there are other options to their future career and life path. For the first time China’s creative middle class sees a viable, and socially acceptable path to having one’s own ideas & inventions realized.
The new Chinese incubator enterprises are in part instigating new culture, and may become the modus operandi for a new creative class of Chinese youth.
In the past year, I’ve met with scores of new people and talked about how the research & consulting company I help lead, China Youthology, has also launched a non-profit platform to directly engage youth called Open Youthology. The most common response I get is “Are you an NGO?”
It puzzled me why so many people couldn’t see the logic: investing directly in what’s good for the community, will secure what’s good for business. I felt a little anxious; why were we the only ones doing this? Are we totally wrong? How come there wasn’t anything to support what we knew in our gut was right?
The concept of Shared Value recognizes that societal needs, not just conventional economic needs, define markets. True long-term, sustainable, and competitive economic value is reaped when business aligns with societal needs. Therefore the purpose of Capitalism and the corporation must be redefined as creating shared value, not just profit per se. A narrow concept of capitalism has prevented business from harnessing its full potential to meet society’s broader challenges, but by broadening our perspective and adopting a Shared Value mindset, we recognize that the competitiveness of a company and the health of the communities around it are closely intertwined. A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment.
The article laid out paragraph by paragraph, with numerous supporting case examples, everything my partners and I believed and are trying to build at China Youthology. I looked to see who had authored such amazing research: Mark R. Kramer, senior fellow at Harvard’s Kennedy School of Government, and Michael E. Porter, Harvard Business School professor, and one of the greatest business thinkers of our generation.
Read the HBR article if you haven’t already, or take a quick first glance by watching this talk by Michael E. Porter about “Creating Shared Value”.
This article reaffirmed to us that building Open Youthology was not wrong, we were just early.
In fact, the concept of Shared Value isn’t that new. Porter’ Shared Value Creation codified the business’ new role in a Shared Economy, but the other half of this equation is Shared Value Consumption, which is better known as Collaborative Consumption. Collaborative consumption is based on the concept that access to goods and skills is more important than ownership of them.[i] People are building collaborative consumption economic models based on sharing, swapping, bartering, trading or renting access to products as opposed to ownership.[ii]
Fast Company thoroughly explains and showcases the world of Shared Value Consumption in an April 2011 article, “The Sharing Economy”. And you can watch Rachel Botsman give a paradigm-shifting TEDtalk titled “The Case for Collaborative Consumption” during the May 2010 TEDxSydney conference.
We must enlarge our purpose for creation to help us discover what really needs our attention. And we must enlarge our definition of consumption so that what we already have can best serve the most of society’s needs.
I believe that Shared Value is the next frontier of Globalization and the true motive behind Free Trade.
Free Trade is built on the law of Comparative Advantage: everyone benefits when everyone can offer what they do best and most efficiently.
Shared Value Creation and Consumption is taking this one step further: We now recognize that by ignoring externalities, especially negative externalities, we are in fact ignoring or even building barriers to other forms of value creation that in the end would help the entire societal ecosystem.
The Shared Value Economy is shifting us away from only thinking about assets, capital and traded goods to repositioning Capitalism for what the law of Comparative Advantage originally intended: the holistic betterment of society.
These concepts of Shared Value Creation and Shared Value Consumption are currently early adopter trends, enjoying niche acceptance and having their first initial success cases. But what will allow the Shared Value Economy to gain mass adoption, and benefit an entire society?
Looking at the examples from the rise of past major societal systems – Capitalism, Communism, Feudalism, Imperialism, etc. – we know it takes the right generation of people with fitting cultural traits to collectively buy-in and believe the new model works and must be realized. So will there be a generation that culturally fits to truly push mass adoption of a Shared Value Economy?
It is not a coincidence that it is this current generation that birthed the genesis of the Shared Value concept. The rise of Participatory culture in social media, Web 2.0, Open Source, mobile networks, is teaching us that the whole is greater than the sum of its parts. An entire global generation is now raised with this experience and truth, and we are starting to want it enacted in the other areas of society, from commerce to government to family.
But wanting it and having mass adoption are two separate things. It still takes the right generation with the right cultural traits and the right environmental circumstances to really embrace the concept and adopt it systemically.
Michael E. Porter believes that this generational tipping point may come from places at a disadvantage in the current capitalist system. From the HBR ‘Creating Shared Value’ article:
“Equal or greater opportunities arise from serving disadvantaged communities and developing countries. Though societal needs are even more pressing there, these communities have not been recognized as viable markets. Today attention is riveted on India, China and increasingly Brazil, which offer firms the prospect of reaching billions of new customers at the bottom of the pyramid… As capitalism begins to work in poorer communities, new opportunities for economic development and social progress increase exponentially.”
This and next generation of China’s youth may be the pivotal group the Shared Value Economy is looking for. Here’s why:
1) Chinese youth are already in-step with the newest global ideas.
Participatory culture from the Internet, social media, and mobile has been the experience of Chinese youth, similar to those in other countries. New concepts such as Shared Value not only have a receptive audience with Chinese youth, they are actively advocated and spread. Isaac Mao, one of China’s earliest bloggers, leads Sharism.org in China, an organization dedicated to educating and advocating the philosophy and practice of Sharism. “The more you give, the more you get, the more you share, the more you’re shared”. Frequent meetings and conferences are held in Beijing and Shanghai, attended by some of the top thought-leaders and internet influencers in China.
photo credit: bergstromtrends.com
Other than the Internet & Social Media, Youth growing up in China have few other social spaces to call their own. So Participatory culture and derived concepts have become important for them to cling to, as it makes up a larger piece of their generational identity.
2) Hyper growth means less entrenched traditional norms.
Chinese youth have only known fast and radical change. New is normal. Therefore Chinese Youth are seeking new meaning in all aspects of their life; the meanings of self-identity, of being an individual, of being a society. This extends to re-examining old ideas that older generations hold so dear. Chinese youth are less resistant, and more willing to re-define the meanings of ‘business’, ‘industry’, and ‘capitalism’. Unlike other developed societies where the definitions of these concepts are treated as sacred and entrenched at an early age, in China these terms are newer, and much greyer. Other developed capitalist countries will take longer to extricate themselves from what they know and dare to reconsider the validity. China’s youth do not have that problem. They are re-defining traditional capitalism right now.
3) China’s next generation cannot keep up with traditional consumption.
This is one of the most important drivers for China’s potential leadership in Shared Value. Young people’s job and income prospects are far worse in China than in many other developed countries, while competition is several times greater. Even the hopes of achieving middle class consumption levels are a real struggle in China. A young person would need to take out a 70-80 year mortgage to buy a small apartment in one of China’s major cities. The traditional expectations of a consumption economy are not possible in China’s reality. Chinese youth are driven towards different solutions to survive and flourish. Shared Value can fit this need.
4) First chances for creation, making new rules
If we had the first 3 reasons but a completely restrictive government and market, there would be no chance for this generation of China’s youth to champion Shared Value. Luckily this is not the case. China’s emerging marketized economy means there is room for new Firsts in everything. Few legacy systems or processes means entrepreneurs and organizations have the chance now to re-structure the market and industries to newer business concepts. In addition, few legacy ecosystems and competencies mean entrepreneurs and organizations must develop new clusters to create markets and pool resources to gather strength enough to build something of value. This is Shared Value in action.
We already see Shared Value Consumption taking root in China.
Swap shops are opening and swap markets are being organized by normal members of the community. Chinese youth love the feeling of surprise they get from thinking they can turn old, under-used items into something useful they need – all without spending more money.
Swap Shop in a popular Beijing Hutong
Buy42.com is a new website and service that asks people to donate their second-hand clothes. The people at Buy42 then mix and match the donated clothes to create fashionable vintage or alternative, edgy ensembles to be resold. This provides a few important societal values: 1) educates & leads a larger mass population about vintage and alternative fashion styles 2) makes it easy for them to buy whole outfits at low prices 3) does it all using existing products without new manufacturing.
Buy42.com now has a fast-growing following on Sina Weibo, China’s Twitter. It has set up dedicated channels for the clothes donated by leading indie designers and influential arty-youth. Buy42 only takes a percentage of the money made from the resale of clothes to run the website and staff the company; the rest of the income is donated to charity for China’s poor.
Shared Value Creation in China is still in its infancy, but companies large and small are finding numerous fertile opportunities to align business value chains with society. One important role companies can play for this Chinese generation is creating Shared Value in culture.
Nike China invests in underground street-ball tournaments, sponsoring local rap artists to write street-ball anthems, and even designing and freely giving away customized street-ball Nike products. Nike understands that directly investing in a strong street-ball culture builds Nike’s future China market.
China Youthology also strives to lead by example in Shared Value Creation.
Open Youthology, a platform offering youth free inspirational conferences, equipping community research, and funding for innovative new cultural assets, is China Youthology’s current strategy for Shared Value Creation. Developing China’s youth in cultural creativity, the courage to explore, and critical questioning, we are enlarging and strengthening our own market.
By helping Chinese youth grow as bright, inquisitive minds, we benefit from a larger and stronger pool of young researcher talent that we can hire. We also benefit from deeper acceptance into youth subculture communities because of the added credibility and legitimacy gained from our youth engagement. This benefits our research insights as we can dive deeper than normal researchers, into the lives of Chinese youth. We then in turn offer better research to our clients, who keep us profitable so we can continue investing in youth engagement and building China’s youth communities.
Through this Shared Value business model, we not only create a competitive advantage for our business and ensure greater market sustainability, but more importantly, Shared Value enables the leaders of tomorrow’s China a greater youth experience and more positive life inspiration.
Perhaps Shared Value Creation as a business model came quicker and more naturally for us because China Youthology is so immersed in Chinese youth’s mindset and culture – or because we are Chinese youth ourselves. But as we see other young entrepreneurs building Shared Value Creation business models, we think we’re only at the beginning, with the potential to bring the Shared Value Economy into greater mass adoption.
Someday when I introduce Open Youthology, instead of a confused responding question about maximizing profits, I hope I get a response of illumination: “ah! You’re creating Shared Value!”
Youth attending a Butter Youth Conference by Open Youthology
First I’d like to quickly apologize for being absent from blogging for so long. The exciting and intoxicating challenges of leading a growing company means I have less time for other pleasurable endeavours, but it won’t keep me away forever. With that, lets ease back into genYchina.com with a review of Gerald Clayton.
In the past year that I’ve had Gerald Clayton in my playlist, there are countless times that I’ve heard his songs and had to flip through my iTunes to check who it is. Every time I expect it to be Robert Glasper, because their playing styles are very similar — lyrical, light and elegant, yet with deep-seeded funk and soul driving the course of their musical compositions. While Robert Glasper uses a lot of hip-hop and RnB elements in many of his jazz-fusion pieces, Gerald Clayton utilizes a traditional jazz ensembles but can still capture the same rhythm and blues attitude we’ve come to know and love.
It doesn’t surprise me therefore, that Gerald Clayton, a Jazz Pianist, has for some years been a fixture in Roy Hargrove‘s quintets. Roy Hargrove has been one of the main stalwarts of Jazz-Funk and Jazz-Soul fusion for over 10 years with both the RH Factor and his Quintet. Gerald Clayton toured with Hargrove’s Quintet throughout the 2006-2007 seasons and was the pianist in Hargrove’s 2008 ‘Earfood’ album. I am sure these were important formative years for Gerald Clayton and did a lot in forming his sound today.
I believe the ‘Earfood’ album was when I first noticed Gerald Clayton. If I go back to that album I am sure we would find a few tracks that showcase some exquisite piano playing.
Clayton’s edginess is matched and rounded-out by his deliciously intricate playing. Growing up trained in classical music, he brings the full breadth of his repertoire and experience into his jazz music. His 2006 work on two Diana Krall albums may have brought good seasoning to this side of his sound.
What is even more impressive is Clayton’s youth. Graduating with a bachelors of Arts from USC Thorton School of Music in 2006, at the age of 27 Clayton already has 2 albums under his own name. He’s already garnered 2 Grammy nominations, one for the song “All of You” on Clayton’s 2009 ‘Two-Shade’ album, and another for his work in “Battle Circle” on the 2010 ‘The New Song and Dance’ album from his father and uncle’s band, The Clayton Brothers. While Gerald Clayton’s first grammy win eludes him, it is obvious that it is an inevitability. Gerald Clayton is defining himself as one of the leading figures in this new generation of Jazz.
I’m still working through Gerald Clayton’s newest album, ‘Bond: The Paris Sessions’ released earlier this year, but what I’m hearing so far is a continued maturation of Gerald’s sound; drawing on his classical piano training, he is wisely being patient with his compositions, letting them simmer and ripen at their own pace. Clayton is not afraid of the nakedness of raw, articulate jazz. Instead, he boldly fills the space with unwavering, refined, independent piano that demands your attention and respect. At each moment you can hear he is in complete control, and is aggressively driving you, the listener, to meet him at the middle in the world he is creating.
I’m thoroughly impressed by this young pianist and have already gained hours of enjoyment from his music. I have nothing but continued high hopes and expectations for what is to come.