How To Build A Start-Up Culture In A Large Company
In a recent post, I described how Haier is the biggest start-up factory in the world. Over the last decade, Haier has restructured their organization into digital platforms, autonomous teams (internally called micro-enterprises), and micro-communities of internal teams and external partners (internally called EMCs). This allows for rapid innovation and represents a launching pad for entrepreneurs and start-ups. In this post, I will share a case study of one such start-up.
The case study I'm about to share perfectly demonstrates how Haier's high levels of innovation and entrepreneurship are rooted in practice. This is well-illustrated by the story of Zhang Yu and what we’ll call his Grand Peking Roast Duck Adventure.
I have been studying and following Zhang Yu's story for a few years now. Together with INSEAD professors Michael Lee and Wesley W. Koo, we recently wrote an INSEAD teaching case based on how Yu brought his entrepreneurial dream to reality.
As many of you know, we have written extensively about Haier in the past. But for any readers who are not yet familiar with Haier's way of working, please view the animation below for a quick intro to the firm so the rest of this post has the proper context.
An idea is born
Yu had been working at Haier for over 10 years before he became the leader of the micro-community (or EMC). His first three years were spent being a sales representative and the next five years saw him working on Haier’s high-end brand Casarte.
In 2018, Yu competed for and won the Smart Kitchen micro-enterprise (or ME) leadership role, a market-facing micro-enterprise with roughly 30 people selling smart kitchen appliances (those that can connect to other electronic devices via Bluetooth or Wi-Fi ).
One day, in early 2019, Yu went out for dinner and wondered how the restaurant managed to serve him a complex dish less than 15 minutes after ordering. He learned that many high-end restaurants in China purchase “semi-finished” foods and use their professional kitchen equipment to prepare the final dishes presented to diners.
This discovery prompted Yu to come up with the idea of bringing this semi-finished dish approach to the home by using smart kitchen appliances similar to the ones used in those establishments. His thought was that customers could then enjoy foods that would otherwise only be available at high-end restaurants.
Yu was determined to bring traditional Chinese dishes to private houses. And he had most of the resources to pull it off.
This case study perfectly demonstrates how Haier's high levels of innovation and entrepreneurship are rooted in practice.
Launch of a micro-community
Yu and his team initiated the Smart Cooking EMC in May 2019 and debated over which traditional dish they should go for first.
They decided on Peking roast duck, one of China’s famous dishes regarded locally as a treat for special occasions—mainly due to the complexity of its preparation.
Yu and his team knew that most Chinese people could only access Peking roast duck by getting a table at a fancy restaurant. So the dish became the symbol for a daunting challenge: how to help ordinary people easily cook restaurant-quality dishes at home.
The team felt that if they could get this iconic dish right, they could definitely carve out a meaningful niche in the market.
Search for a chef
Yu went and shared his ideas with Quanjude, a restaurant known for its culinary heritage dating back to its establishment in 1864—and its Peking roast duck.
It didn’t really go over all that well. “Quanjude respected our ideas but thought they were whimsical,” said Yu. ‘They said: “Our masters are from the ninth generation, but you are just a household appliance manufacturer. Are you kidding?’ But this just made us more determined.”
Yu certainly wasn’t put off. He searched for partners and eventually found an ally in chef Zhang Weili, who was willing to collaborate because he himself had a dream of bringing his Peking roast duck to the masses.
But this was just the first challenge.
The search for more external and internal partners
When the COVID-19 pandemic hit China, Yu and his team felt the time had come to move forward. They recruited more external partners and micro-enterprises into their micro-community to help hash out all the details of how in the world this was all going to work.
Now that they had a chef to develop the optimal recipe, the next step was to identify farms that could source the specialty ducks, called tián yā, raised only by a few dedicated farms throughout the country. Yu and his team then identified a firm based in Chengdu to provide the packaging needed to keep the ducks fresh after transportation and storage.
The group followed this by inviting internal micro-enterprises into their micro-community via internal bidding to help develop the necessary technology. They needed to work with an internal refrigeration micro-enterprise to study the parameters of temperature control once the semi-finished ducks were delivered to the customer.
But that’s not all. Yu’s team was also obliged to develop a new programmable oven that could properly roast the duck with the push of a single button. Pretty futuristic, right?
Several internal micro-enterprises won the bidding process and joined the Smart Cooking EMC. They all worked together to program the oven properly and notify the user when the duck was ready.
The start-up phase
Once all necessary partners were integrated into the micro-community, the development process could fully kick off. However, some partners were not guaranteed compensation. Instead, they were expected to invest their own time and money, as their incentives were based purely on the potential for future profits.
Other partners were offered an EMC contract that specified what was to be delivered and the percentage of profits they would receive if the project turned out to be a success. For example, 10 percent of the profits would go to the chefs that develop the recipes, 10 percent to the farms who provide the ducks, 10 percent to the packing partner, and so on.
By all accounts, everyone had bought in. They were believers that this would work.
The testing phase
The teams spent the next six months making nearly a thousand tests before offering an actual first batch of Peking roast ducks.
One particular internal micro-enterprise that specialized in gathering customer feedback oversaw a trial of 200 customers in September 2020. They reviewed the feedback and spent about a month improving the product before committing to the full-chain process.
Now Yu and his team were ready to bring Peking duck to the masses, and all with the push of a button.
The launching phase
In December 2020, the EMC sold more than 20,000 Peking roast ducks and achieved a revenue of some four million yuan (€500.000).
But Yu and his team regarded the roast duck offering as just the beginning. Their eventual goal is to bring all kinds of complex dishes to their customers’ homes.
Yu explains how Haier is providing him with a platform to do just that:
“I have set up my own company and become a real CEO thanks to Haier’s platform. And because of this platform, I now have more opportunities for trial and error.
Our success can also be attributed to the EMC mechanism. The EMC contract allows our ecosystem nodes, including chefs, duck farms, food processors, and logistic partners, to abandon the zero-sum game. Instead, they all aim at improving user experience, and we create and then share the user value-added.
It is precisely because of this platform that we entrepreneurial units can conduct our own business better and realize our dreams.”
The spin-off phase
Based on its early success, the EMC successfully spun off as an independent company.
Yu mortgaged his house and invested over 1 million RMB (154k USD) in the new company. Together with 18 other micro-community members, they invested a total of 2.1 million RMB (324k USD) in their own start-up.
The start-up eventually expanded its offerings in the months following by developing 16 new dishes with regional characteristics from around China, such as Beijing, Shandong, Fujian, Guangdong, and Sichuan.
How To Build A Start-Up Culture In A Large Company
These days, there seems to be a massive interest in less hierarchical, more liberated approaches to work. “Agile,” sociocracy, Holacracy, “teal,” self-management, and other management techniques are now of great interest to a growing number of companies around the world.
People in commercial companies used to think of those working in charities as well-meaning hippies. And those in not for profits viewed their private sector brethren as individualistic, sales-driven sociopaths who struggle to see beyond their bonuses.
Recently, a CEO told us something along the lines of this: "I am trying to set a bit of a frame for a remuneration conversation—for myself and other leaders. One way of talking about it is the ‘appropriate´ ratio of lowest to highest paid, from the front lines to CEO. I also recall you saying that if you ask employees what they think, the usual response is in the order of 6 to 8 times. Is my memory accurate? Are you aware of any empirical basis for this? Or have I made it up?!"