Note from Shlomo: After you’ve discovered how to open a design firm on our Dim Sum project, we now take you to the most famous air purifier company in China to learn from. Enjoy interview #6!
Thanks to Tom Wicksteed for conducting the interview!
Read addional interview(#4): Bringing Culinary Tourism and Social Entrepreneurship Together – Interview with Adlyn Teoh of Hias Gourmet
I met Mike Murphy at IQAir’s head office in a modern part of East Beijing, neighboring upmarket hotel chains and embassy complexes. It’s a long way, geographically and metaphorically, from Mike’s first Beijing office in the car park of a suburban shopping mall, selling Christmas trees to wealthy expats. Yet in the nine years since Mike and his wife moved from the pristine air of Vancouver to the haze of Beijing, they have managed to build one of the most successful air purifier businesses in China. Mike, in his typically self-effacing manner, puts this partly down to “luck: being in the right place at the right time and with the right product.” Yet what soon becomes evident is that a natural business brain, nurtured from a young age, and monumental work ethic, had far more to do with his success than simply luck.
Mike shared his fascinating story:
I’ve read that you started your first landscape gardening business at the age of 16. What do you think gave you the entrepreneur bug?
By US standards, I grew up in a poor home. My dad left when I was four and I watched my mom struggle to raise five kids on her own. We never went hungry, but growing up, we went without a car or a phone , and several times a year the gas or electric utilities would be shut off due to lack of payment. I don’t remember being sad or upset about any of it, but I am sure it was painfully difficult for my mother.
As I came of age in junior high, the first ‘real’ job I can remember was babysitting at the age of 12. It wasn’t much, but I got paid $20 per week for babysitting after school and on the weekend. As I had spent my entire life up to that point in second-hand clothing, every week I placed an order through our local Montgomery Ward’s store for either a new pair of Levi’s, a new pair of Nike’s or a nice shirt. I knew my mother couldn’t afford to buy these things for me, so this was what led me to earning and spending my own money on the things I wanted.
From the age of 12 on, I have always been working—I can’t remember a stretch of time that I wasn’t doing odd jobs for money. And honestly, since the age of 12, I can’t remember a time that I didn’t have all the things I needed and many of the things I wanted.
At the age of 15 I was working with a landscaper that gave me all the small extra jobs he didn’t want to do. At the time he was paying me $5.50 per hour. He passed a job off to me where I had to plant two apple trees and the job paid a flat rate of $15. A half an hour later I had an epiphany and my life changed from that of an hourly worker to that of a contract worker—an entrepreneur was born. From that moment on, I have spent my life assessing my various opportunities and always looking for the best way to take advantage of them.
[pullquote]“An entrepreneur is opportunity driven… They are either thinking of a new idea, launching a new idea, tweaking an existing idea or perfecting a matured idea… as an entrepreneur matures, so does the wisdom of knowing when to pass on an idea and when to pursue it.”[/pullquote]
What do you think makes a good entrepreneur?
An entrepreneur is opportunity driven. They spend their days working hard at whatever they have put their mind to. They are either thinking of a new idea, launching a new idea, tweaking an existing idea or perfecting a matured idea. At the same time, every single day presents an equal chance of a new idea or new opportunity popping up. All entrepreneurs are similar in this fashion. From experience, I would also say that as an entrepreneur matures, so does the wisdom of knowing when to pass on an idea and when to pursue it—especially once some degree of success has been had.
Entrepreneurship takes a huge amount or time, work and effort. What drives you on, especially on the bad days?
As an entrepreneur, every business I have ever started or worked in is just like raising my own child. You soon come to learn that no one is going to do the work for you and without you it will die (or you will have no/less money). Your business becomes your baby.
Sure there are many long, hard and frustrating days, but they come and go. If you believe in what you are doing, the motivation is that much stronger to push ahead. The only time in the past 30 years where work has ever felt ‘work’, was the few in between times in my life where I took a real job—and this for never more than a couple of months. Aside from these few cases, I have loved every minute of every day that I have worked on my own. Almost every one of my friends and family growing up express discontent for their jobs or careers, some even express hatred. I have never experienced this and wouldn’t even know what to do if I did.
Did you have your gremlins when you first started out, doubting whether you could succeed or did you have an unfettered confidence that you’d succeed?
Negative feelings are always there, it’s how you manage them that matters. I am not a risk taker per say, so I haven’t set myself up for any great falls. I have never entered a business with an exit plan, nor had any grand illusions that it could possibly fail and if it did, there wouldn’t be much to lose anyway. At the end of the day, my goal has always been nothing more than to be able to financially take care of myself, my family and to be able to help others would need be. Everything on top of that is icing on the cake as far as I am concerned.
If you did have gremlins, how did you overcome them? From personal experience and those of my friends, I think many people want to setup their own business but often don’t have the confidence to jump into the void. What do you recommend is the best way to make the first step?
The longer I live the more I believe that entrepreneurs are born and not made. There are millions of people with the skills and talents to succeed on their own, but there are millions more that simply don’t have what it takes to really make it. So many people want to run a business without counting the cost up front—little to no money, 80 hour work weeks with no time off, no security, difficult customers, difficult staff, government imposition, taxes, lawyers, breakdowns, setbacks, competition, etc. All these things combine to make a formidable obstacle to your business. Only craziest, toughest and street smart ones survive.
[pullquote]“There are many long, hard and frustrating days, but they come and go. If you believe I what you are doing, the motivation is that much stronger to push ahead.”[/pullquote]
I have lived my life by collecting a series of mentors. For anyone that has an idea and wants to start a business, I would always suggest that they find a few trusted people in their lives that have been in business (obviously, not those that might steal an idea or opportunity). I was lucky enough that my landscaping business brought me a large number of mentors in the form of retirees—all my life I have worked for older people that had retired from every spectrum of life. My favorites have always been those that retired from a lifetime of doing business. Even today, I regularly connect with several of my old clients and friends. Their collective knowledge and wisdom has helped me avoid making numerous mistakes that have allowed me to move forward at a quicker pace.
If you are thinking of starting a business, think twice and really work through your plans—especially if you are going into debt or investing a large portion of your own money. Make sure you know what you are getting in to, and make sure you are prepared for a bumpy ride for a year or two.
Why did you come to China? Was it a career move or a personal move?
It was a personal move. I lived in Vancouver Canada for nearly four years, from 2000 to 2004. During that time I met and married my Chinese wife. At the time I was commuting back and forth between Vancouver and Washington State doing landscaping on a large estate. When my wife became pregnant, we had to make a decision if we were going to stay on in Canada, relocate back to my home town in California, move to Washington State full time or move to China.
Prior to meeting my wife, I had been bitten by the travel bug. Due to the fact that landscaping tends to be seasonal, I had spent four winters in a row backpacking around the world, logging more than 40 countries. When my wife indicated that she wanted to be closer to her family when our son was born. She sold me on the idea that China was going through great changes and that there would be plenty of business opportunities. Although it took a couple of months to consider our options, with my previous travel experience, moving to China was an easy decision to make.
Did you arrive with some pre-planned business ideas or did you only start looking for opportunities once you’d landed?
We had no idea what we were doing when we left Canada. We sold off everything and arrived with about ten grand in our bank account. Prior to leaving we did talk about opening a coffee shop or an English training school. My wife was seven months pregnant when we arrived. After about six weeks of living with her family in Hebei, we moved to a 30 meter apartment in Beijing and I started teaching English just prior to my son’s birth. I continued to teach until November of our first year when we launched our first “start up”.
[pullquote]“I have lived my life by collecting a series of mentors. For anyone that has an idea and wants to start a business, I would always suggest that they find a few trusted people in their lives that have been in business (obviously, not those that might steal an idea or opportunity).”[/pullquote]
What were your first few month of running a business in China like? It sounds like you were working from the bootstrapping school of business rather than developing any sort of 5 year business plan, is that right?
My wife and I still argue today who’s idea it was, but our first venture in China was selling real Christmas trees. While teaching English was paying the bills, for me it was unfulfilling and we certainly weren’t getting ahead. Once the idea was born, it took off. Although we had very little money, I convinced her that we needed to do some “market research” on how to sell fresh cut Christmas trees to foreigners. What this really meant was that I now had license to go where the expat were and the only place I knew for sure I could find them were places like Annie’s, Grandma’s Kitchen and Paul’s Steak and Eggs. Our plan was to go into these restaurants and identify another expat family. We’d sit down close to them and strike up a conversation.
It turned out that we were correct in our thinking and Christmas trees were something that were needed. In one of our many conversations with expat families, one of them turned us onto Shunyi and “Little America” also known as Pinnacle Plaza. My wife was able to convince the management of Pinnacle Plaza to rent us a space in the parking lot for one month and through my wife’s uncle, we were able to source us the right sized spruce trees from the north of China.
My wife found us a large outdoor tent and bought several cases of Christmas lights and decorations from a wholesale market.
[pullquote]“If you are thinking of starting a business, think twice and really work through your plans. Make sure you know what you are getting in to, and make sure you are prepared for a bumpy ride for a year or two.”[/pullquote]
My contribution at this point was with a lifetime of landscaping skills at hand, I was able to trim these trees up beautifully so they were sellable. On November 26, 2004 our business was born and we sold the first of about 200 trees that year—money enough to far surpass my current income from teaching English.
From the first couple of days, it was apparent that we had stumbled on to a market that was in need of much more than Christmas trees. Expats in living in Shunyi were making big money with relatively few places to spend their disposable income. More important than the tree sales, were the business cards we were constantly being handed. In the first two weeks of doing business, I was meeting the China CEO’s of the biggest Fortune 500 companies, ambassadors, Vice Presidents, CFO’s, owners of large companies, and all kinds of other top-level executives. I was sitting in Starbuck’s going through all these cards and telling my wife, “If they need Christmas trees this badly, there are certainly other things they need that we can source and sell”.
We took the next two weeks to ask about other needs, wants and desires that the expat crowd wanted. We made it a rule that if only one person asked for it, it wasn’t important, but if several people kept asking for the same thing, we’d prioritize it. By the time we took down the tent the one big idea we came away with was sourcing and selling BBQ’s. In March I borrowed about $25,000 USD from my in-laws and made a trip to Guangzhou looking for a BBQ supplier. By April I had completely given up teaching English and in May we set up the same tent in the same parking lot at Pinnacle Plaza. I spent the whole summer of 2005 sitting in a lawn chair selling BBQ’s, Mosquito Magnet’s and trampolines. By the fall we had made enough money and knew enough about our market that we took our profits and opened the first Villa Lifestyles in Shunyi.
[pullquote]“The biggest [challenges] I have faced have been to do with my own personal growth as a business person. Rents, inventories and cash flow a never ending process in retail and at the time, I didn’t have enough experience to know what to do right away.”[/pullquote]
What have been the biggest challenges as Villa Lifestyles and later IQAir have grown in China?
In our second year of doing business, one of our wealthiest customers approached me unsolicited. He invited me out to a nice buffet breakfast and over the course of the meal mentioned that he really liked us and thought our business had a lot of potential. He offered then and there to invest whatever money we needed to grow the business. I had never had anyone offer me anything like this before. I got home with big dreams dancing in head. My wife was the first to caution me, and later I called a trusted mentor in the US. His comment was more direct, he simply stated that I should “Run as fast and as far away from this customer as possible”. I was floored. Why in the world would you do that? His explanation was simply that up to that point we had taken all the risk, had found a market, had found good products and had proven we could be successful. If we took this guys money, we would still be working equally hard, but that he would be keeping half of the profit, with little risk to himself. It was the first time I had heard the word “bootstrapping”, but he advised me to stay the course and keep up what we had been doing well. It was a bitter pill to swallow then, but today we have no debts and no investors to answer to (or share the profits with).
Doing business in China is a daily challenge—nothing is easy, but then again, nothing is that difficult either. For myself personally, the biggest difficulties I have faced have had to do with my own personal growth as a business person in in the areas of finance and administration. The sales I was making weren’t that much different from selling a customer on a landscaping idea, but working with cash flow and dealing with expanding overhead and employees was mostly new to me. Rents, inventories and cash flow are a never ending process in retail and at the time, I didn’t have enough experience to know what to do right away.
In the first two years of our business, we were certainly making money, but the model wasn’t stable, much less sustainable. Two of my closest mentors flew in from the US for a visit and took a look at the books. Between Christmas sales and summer BBQ sales, we had a business that would provide us a living, but without a product or products to sell in the shoulder seasons, we would be in a constant boom and bust cycle with the seasonality—one bad season would bring the whole thing to an end. Before they left back home, they pushed me hard to start looking for the product(s) that would carry us year round.
It was shortly after that, through a series of events, that I stumbled upon the idea of selling an air cleaner. I had picked up on mining various expat blogs and chat rooms for conversations or questions that might help us find the right product. The topic of air pollution and air purifiers came up over and over again. I even had a client give me an air purifier they were producing in China. It turned out to not be the right product, but the idea was solid. Over the course of about 3 months, I was consumed with finding the absolute best air purifiers on the market. I had in mind carrying multiple brands and was in direct contact with just about every western manufacturer of air cleaners. I narrowed it down to just five suppliers and began to build a price ladder from the cheaper products all the way up to the most expensive—I wanted to be the king of clean air. I never expected to end up with the exclusive rights to any of them, but luck and fate would find favor on me once again.
[pullquote]“I had built a [business] model that called for us to sell several [air purifier] brands at different price points. I turned to my mentors and they explained… even if the brands signed on with me, there would be no way I could cash flow the inventory and try to keep everything in stock – they advised to pick a brand and put all my efforts behind just one manufacturer.”[/pullquote]
From my earlier days of traveling, I had built up a very solid relationship with a family from Switzerland that I had met in Egypt. Over a period of about eight years, I traveled to Switzerland about every 9 months to work in their garden—I was cheap immigrant labor. They paid me enough to cover my plane and train tickets and I got to call myself an international gardener.
When the time came for me to start visiting air purifier factories, it was very natural for me to go to Switzerland, where IQAir is manufactured. We didn’t have a lot of money as it was the shoulder season—after summer but long before Christmas. I flew to Switzerland in early October. I spent the first day with IQAir explaining our Villa Lifestyles business model and explaining the niche we occupied out in Shunyi as well as in Shanghai. We had proven with the Mosquito Magnet that we could sell a 13,000 RMB mosquito trap and be successful in doing so. The second day of talking with IQAir, they explained that they didn’t have anyone currently operating in China and that if I was interested they would give me exclusivity to IQAir if I also gave IQAir exclusivity in our business.
At the time this was actually a difficult decision to make. I had built a model in my head and on paper that called for us to sell several brands at different price points. Again I turned to my mentors and they explained very clearly to me that even if all the other brands signed on to with me, there would be no way I could cash flow the inventory and try to keep everything in stock—they advised me it would be far better to pick a brand and put all my efforts behind just one manufacturer. We placed our first order of IQAir by the end of October and landed the first 60 units in Beijing on December 6, 2006.
Part of being an entrepreneur is recognizing when a bluebird has landed. By Christmas we had sold more than half of our stock and we were ordering more by right after the first of the year. Calls kept coming in and inventory kept moving out. We had used every Christmas tree delivery as a means to introduce IQAir to our customers and then something magical happened. One of our Christmas tree regulars got us an appointment with his embassy. I hacked my way through a formal presentation on a Monday and on Friday afternoon, their purchasing manager called me up to order 62 units. I was driving at the time and literally had to pull over to catch my breath. It was that very moment that I realized that what we had landed was much bigger than Villa Lifestyles. IQAir wasn’t just a lifestyle product for expat families in Shunyi villas—it covered a much much wider demographic—from expats to Chinese, from villas to apartments and offices.
[pullquote]“We couldn’t yet afford a real office, but I did manage to hire one IQAir-only sales person and we met every day in Starbucks to play our day and make our sales calls.”[/pullquote]
Right after Chinese New Year, I turned the day to day management of Villa Lifestyles over to a sales manager and I began spending all my time with IQAir. We couldn’t yet afford a real office, but I did manage to hire one IQAir only sales person and we met every day in Starbucks to plan our day and execute and make our sales call. My wife was able to secure us a small 40 meter office by spring and we hired one more sales person.
We slowly grew our business in this fashion—one person at a time. Once we had enough capital we would try a new store, purchase a vehicle, move to a larger office or hire a new staff member.
Honestly, growing the business was hardest for me when we went from about 20 people to about 40. This was beyond my span of control and it also was large enough to put us on the radar. For the first time I had social benefits introduced to me, VAT taxes, VAT compliance, employee handbooks, scheduled days off and maternity leave. Going from a small business to a “big” business was the closest I came to a nervous breakdown and at times I wanted to give up. It was a very painful two years, but it had to be done and in the end, we were much stronger because of it. Once the structure was set up, it was easier to grow from 40 to 100 than it was to grow from 20 to 40.
Having a vision and sticking to a plan has always been important. While he have always been strong with the expat market, about three years ago, we really saw our local Chinese market take off. This has required a significant change in how we do business and how we staff to meet these needs. While the corporate business has always maintained slow steady growth, we saw our Chinese residential market from 15% of our sales to around 85% in just a couple of years. And that is where we are today.
[pullquote]“A business takes on a life of it’s own. Many die before they ever have real life breathed into them. Some die in infancy and some die shortly thereafter. Hitting the five year mark for me was important.”[/pullquote]
A business takes on a life of it’s own. Many die before they ever have real life breathed into them. Some die in infancy and some die shortly thereafter. Hitting the five year mark for me was significant. Someone once told me that only 10% of new businesses make it to be five years old. At five years we were alive, healthy, profitable and growing. Today we are maturing as a company. We still have a long way to go before we plateau, but the real work now is in managing our growth, managing our capital and more than anything else, managing our people effectively.
Am I right in thinking your IQAir business model has to deal with the strange paradox where by worsening pollution could drive your high-income customer base out of China and yet improvements in pollution levels could mean people don’t feel the need to spend so much money on purifiers?
You would be absolutely correct in your statement if we hadn’t diversified and deliberately tackled the local Chinese market. Expats come and go, but the China market is thousands of times bigger and relatively very few are going anywhere. Our goal is to be hear when they need us.
The market for air purifiers is much bigger in the US, where the dominant perpetrator is pollen and not PM2.5. There are always going to be sensitive individuals who demand quality products and are not afraid to pay for them. We feel our business model and our product lines are sustainable well into the future, so we simply focus on doing everything we can in the present, but fully acknowledge the future may require us to make needed adjustments or changes along the way. Personally, I long for the day when the air and water pollution is cleaned up in China. I can always find another business to operate, but I only get one life to live.
What do you think are the main differences in running a business in China as opposed to the West?
This is the million dollar question. There is no way that my business model or most business models currently running in China would work in the west. The market in the West is too mature and has been refined down to a very fine science with little room for error in regard to margins and complying with ever expanding government regulations and control.
[pullquote]“China… is far more entrepreneurial [than the West] and is more akin to the wild west of yesteryear. This is a unique time in China’s growth and the window of opportunity will only be open for so long until the same control issues creep in and make doing business more difficult.”[/pullquote]
China on the other hand is far more entrepreneurial and is more akin to the wild west of yesteryear. This is a unique time in China’s growth and the window of opportunity will only be open for so long until the same control issues creep in and make doing business more difficult. A free market economy doesn’t truly exist in either place, but in my opinion, it is much easier to find success in China at the moment than it is in the west (but don’t let everyone know). Doing business in China is much more forgiving of the rookie mistakes that new businesses make.
How have you dealt with the cultural difference such as language, guangxi, red-tape etc?
Having a Chinese wife to work with the powers that be has helped considerably on some of the most important issues we have encountered. I assume that the same would hold true with any business that had a trusted local partner or employee that is committed to the business success.
We have never been a company that has used KTV-style guangxi. In our first year of business a customer told me to never pay out guangxi because once you are a payer you are always a payer. Of course we have no problem with building strong relationships with those that we do business with—this just makes good sense. We have tried hard to have a straight-forward business model that had great products, great service and fair pricing. Up to now this has worked very well for us and I don’t see any reason we would need to change course.
In regard to language and culture, we run our offices and some of the stores from a western model. All of our office staff, managers and direct sales people are bi-lingual—down to our mid-level management. At the retail level and outside of the major cities, English is less important as long as the direct line-manager is able to get us the data we need. As a foreign company in China we have a happy blend of cultural interaction.
Do you take a keen interest in the wider economic and political developments in China?
To be honest, I am pretty much solely focused on the task at hand. That said, I am a news junkie and seldom a day goes by that I am not fully up to day on local and international affairs, but only a very small part of this affects our business at all. Obviously we are very tied into the news that would affect our business, but figuring out China politics or economics is well above my pay grade.
[pullquote]“China is too big to think in terms of ‘a billion customers.’ I suggest that anyone starting out finds a specific niche or market to target. Be very specific on who you are going after.”[/pullquote]
Are you optimistic about China’s future from a foreign entrepreneur’s perspective? Do you think the government will make it easier or harder for foreigners to start up businesses in the future?
Whether they like it or not, China and it’s major cities (and to a lesser degree, the second and third tier cities as well) have become a hub of international activities. With international brands of all kinds flourishing, it is going to be hard to turn off the tap. And as long as there is local demand for high quality and or otherwise famous brands from around the globe, China has set its course to pursue a more capitalistic and global existence.
It would take some pretty strong action from the government to stem the tide or some pretty stupid actions on the part of expat companies and the employees to turn the tide against foreigners. I suppose anything is possible. Nationalism is a pretty strong narcotic—especially when so much is in your favor.
Change is inevitable and things will change for better and worse. Foreigners are just that—foreign. We are welcome here as long as it is mutually beneficial for our business and our knowledge. As long as there is a healthy balance, and at present I believe there is, things will go along nicely. However, and as we have seen with various visa crackdowns, once the balance is out of whack, drastic changes can be imposed very quickly.
What would be your top two tips for entrepreneurs starting out in China?
China is too big to think in terms of “a billion customers”. I suggest that anyone starting out finds a specific niche or market to target. Be very specific on who you are going after. You can always expand your target later, but if you are too broad in your approach in the beginning, you will miss your target.
I also suggest that people don’t go it alone. I am not suggesting that you take on partners, but make sure you have good relationships with other entrepreneurs who have walked the road you are headed down. I have saved myself from many pitfalls by bouncing ideas of other business people who have been here far longer than I have. (Hint: try to choose successful business people).
I would also suggest you work hard to find trusted local contacts that can help with the Chinese side. This may be in the form of a trusted employee, a partner, a boyfriend/girlfriend or a spouse. Knowing you guanxi protocol, how to measure up a government edict as serious or a passing threat, negotiating on prices, etc is critical and only a person with strong local knowledge is going to be able to help you get it right. Make sure from the beginning what this relationship constitutes and don’t agree to too much too soon. I have seen far too many businesses fail because of unclear or unfair agreements between parties. You may be small when you start out, but if you have a successful model, you will scale up much quicker in China than you can else where. Always think of your business many years ahead.
And one final question, what are your thoughts about the future of air pollution in China? Is there any hope or should we get straight round to the nearest IQAir store and stock up on a few more purifiers for the future?!
Absolutely, stock up on IQAir air purifiers! The pollution isn’t going anywhere any time soon. Even the best predictive models project out another 10-15 years of serious air pollution before all the measurements being put in place will make a big enough difference to air quality. As I stated before, the sooner the better—I can always find another business. I believe undoubtedly that they will find success in cleaning up the pollution—all advanced countries have. As China matures as an advanced country and the craziness of double digit expansions slows down, more time, money and resources will be spent on quality of life issues. It’s happened every other advanced country.