B2B SaaS in China
China is a large and tempting market for software vendors. In April 2017, our Canadian based SaaS B2B company Nimonik acquired a similar company base in Shanghai, China. The company in Shanghai is called Envitool and was setup in 2010 by a Swedish company.
Envitool is a Wholly Owned Foreign Enterprise (WOFE) and it offers an online service that helps businesses understand and monitor environmental, health and safety regulations. It also offers some consulting services that are critical to the use of the software system. When researching the market and legal requirements in the run-up to the acquisition, I read some interesting articles about selling software as a service in China and insightful articles on dos and dont’s on China Law Blog. Despite our research, there was not a lot of positive articles on B2B SaaS or SaaS in general in China.
Since the acquisition we have learned that running SaaS in China is not as hard as you might think, but it does require additional resources, costs and complexities. For one, you need to pick the appropriate legal arrangement for your entry into the Chinese market. The company was already a wholly owned foreign enterprise (WOFE), but we did look at various options below.
Legal Options for SaaS in China
- Do business through a Reseller:
Keep the server is located outside China to reduce risk that the Chinese government would put up a firewall and block access. At a minimum, the reseller locates customers for the foreign company’s SaaS product. The reseller provides the ultimate customer with a username and password that allows the customer to connect to the foreign server hosting the SaaS product. The reseller collects the fee from the customer and deducts and pays applicable Chinese business and income taxes and then remits the remaining amount to the foreign software provider.
- Set up a WOFE
We estimated it takes about 6 months of time and $50K to $100K USD for paid up capital. Once paid up capital is resident in China, restrictions apply to taking out 50% of it, once the WFOE is profitable. Basically, you need to park money in the company in China and you can never take all of it out.
- Do business through an Agent
Licence the your software to a Chinese entity that obtains the commercial ICP license that allows for offering the SaaS service to Chinese customers through a Chinese server. If a partnership type arrangement is set up, the Chinese Agent would invoice and collect payment from customers, and continue to be responsible for the operations in China.
- Do business directly in China from Overseas:
You are short paid for the amount of taxes (withholding tax 10% & VAT). Payments may be delayed and clients may not receive permission to send payment as they cannot easily send money overseas. As a non-Chinese company, it would be difficult to get approval to run the software on a Chinese server, and if run on a non-Chinese server, you run the risk that the Chinese government would put up a firewall and block access.
Key Lessons Learned So Far
For a variety of reasons we opted to acquire the existing WOFE and continue to run the company from China. We are in the process of integrating the data from the Envitool software into our more modern platform, NimonikApp. Once that is complete, we will move all of our clients and data to the new platform and offer only that to the Chinese Market. We maintained the legal entity in China, maintained our ICP licence and ensured that we have trademarks in China.
To setup the Swedish Envitool company in 2010, the services of Scandic Sourcing were used. This is a Swedish consulting company that helps businesses setup in China. They also offer back-office services related to accounting, taxes, payroll and other items. We are still using their services and are very satisfied. They work with our team to ensure that all of our documents and paperwork are in order.
Though all the legal questions are fun and interesting, the main worry for many foreign businesses is “will I get paid and how!” If there is one thing the Chinese Government is serious about, it is the collection of Taxes. Invoicing in China is interesting, the workflow is as follows:
- We speak to an existing or a new customer
- We send them an order form with a quote, this order form is stamped with our company seal (called a Chomp)
- They sign and return the order form (sometimes in paper format and sometimes in electronic format).
- We then send a real invoice (FaPiao), this is printed from a specific machine that is connected to the government servers, so they know exactly how much we charged, when and to whom
- We stamp the invoice with another company seal (you have three different ones, one of which authorizes the sale of the business)
- We then physically send this invoice to our client
- Our client pays us via bank transfer
- We charge a 6% VAT on all of our invoices and we have to remit that amount immediately, not when we get paid.
- If an invoice never gets paid, it can be cancelled, but it is complicated. This happens in less than 2% of our cases.
I could go on with the intricacies of managing a team of Chinese sales and EHS experts, the cost pressure from local Chinese competitors and the demands for constantly increasing salaries – but I will spare those details for now. Long story short is that you can do B2B SaaS in China, but be prepared to invest at least 500 000$ before you see profit and make sure you work with local partners who really understand the system. Feel free to contact me with questions or comments, always happy to help a fellow weiguoren!
Published on January 30, 2018
Business Books for Scaling Up a Successfulish Startup
When I started Nimonik in 2008 I had read some key books on business and software. Nimonik is my main occupation and our stated goal is to Improve the world by helping businesses comply with environmental, safety and quality regulations. We offer a software as a service and now help over 500 companies track and comply with both regulations and internal standards. Though we are doing well, the company is still in its infancy.
Many of my friends think I know what I am doing and they ask me about their business ideas or how to get started. To help, I thought I would discuss a bit of the knowledge I have acquired and that now helps Nimonik grow sustainably. Ten years ago, I blogged that books such as Good to Great and Getting to Yes were respectively helpful in understanding leadership qualities of great CEOs and negotiating tactics for getting deals done. Both of those books were critical to what we have done at Nimonik. Another key book that helped us start was the 37Signals book on developing software, Getting Real. The book and blog posts by 37Signals came to my attention prior to starting Nimonik and they had a major impact on our choice of the programming framework Ruby on Rails and our approach of building clean and focused software based on the user’s real needs. For anyone looking to start a software project, I think Getting Real is a critical book to read.
10 years after I first blogged about Good to Great, I have learned a lot and made many mistakes. Starting a business is one thing, growing it is way harder! Nimonik was a tiny and fragile operation between our start in late 2008 and 2013, we were focused on securing key clients and slowly growing our operations and our product. In retrospect, we probably underinvested in the company and this hampered our growth. When we started, my two partners and I put in $25,000 and started with two clients who provided revenues of about $40,000 per year. However, the counter point is that had we taken in more investment, we likely would have wasted more on the mistakes that we did make. Who knows!
Starting in 2013, the company started to pick up steam and we have seen a doubling of revenues nearly every year since then. In 2016 we acquired a Toronto based company that was both a supplier and a competitor and in 2017 we acquired a company in China that had good market penetration there. Both of these deals were primarily equity swaps and the book Getting to Yes and its companion book, Getting Past No, were instrumental in our negotiating tactics to obtain a fair deal for all the parties involved. This KMPG webcast, Why most Acquisitions Fail has been very helpful for our integration of the two companies we have acquired. These books were all critical to keeping us alive, but growth was another challenge.
Starting in 2015-2016 we started to have growing pains. Staff turnover was higher than we wanted and team members were struggling to adapt to a small organization that was growing. I must admit that I was underprepared for growth and struggled to figure out what type of leadership I should offer, what I should prioritize and how I could delegate responsibility. Happenstance is a critical part of life. I regularly play hockey and though I must admit to being a fairly poor player, I believe that everyone (and especially entrepreneurs) should engage in regular team sports – it really helps clear the mind and it sets a weekly pace with regular games. One day, in the hockey dressing room one of my teammates mentioned an entrepreneurs club he was part of and I explained some of my challenges. He recommended a book, Scaling Up.
I read the book fairly quickly after the meeting and it opened my eyes. For any entrepreneur who wants to grow their business, I cannot recommend it highly enough. In contrast to many business books, Scaling Up is very actionable and clearly explains the four critical parts of a successful operation.
Attract and keep the right people : People
Create a truly differentiated strategy : Strategy
Driving flawless execution : Execution
Having plenty of cash to weather the storms: Cash
Though we have not yet implemented everything in the book, we have clarified our mission, our values, improved our cash position and improved our retention by leaps and bounds. There is a good summary of the book here. Through the Scaling Up Newsletter (which I very highly recommend), I was put onto other critical books.
Confessions of a Pricing Man is an amazing view into the world of pricing. At Nimonik, we feel regular pressure from certain clients to reduce costs and with other clients we see opportunities to offer more services at higher prices. Our challenge has been how to price our services to maximize our profit and minimize lost opportunities. This book is a must read for anyone running a business. If there is one message it hammers home, over and over again, it is that you must focus on profitability – not revenues. This same message was passed along to me by one of my uncles a few years ago.
My uncle was a mid-level manager at a company in France. The company built and sold systems for train navigation to the French national railway company (SNCF) and to many metro systems in France. He worked there for many years and at a certain point, the owners of the business wanted to retire. It was a family owned business and my uncle, having been a manager and having raised a family did not have a large investment fund he could use to acquire the business from the owners. However, he had made a critical insight into the business, the French rail and metro companies were tied to this supplier. This supplier’s products were the best on the French market, having been developed by the French military and it would be very challenging for the French rail companies to switch suppliers. This meant that the rail navigation supply company he worked at had pricing power which it was not using. My uncle ran around and gathered as much money as he could and even then it was not enough. He explained to the widowed owner of the business that he could not pay the price they wanted, but that he could pay out of future earnings. Remarkably, she agreed.
After the acquisition, my uncle simply went to their customers and informed them of a substantial price increase. Of course, they objected and fought. He held firm and informed them that they could simply purchase other products if they wished, knowing full well they could not easily do this. Eventually, the customers agreed and overnight, the business became highly profitable. He then went on to sell the business a few years later and he intelligently played two potential acquirers against each other. He leveraged the French-German rivalry of the acquirers to get them to outbid each other and he increased the purchase price of his company by over 50%!
Of course, this all sounds very easy in retrospect, but it took good timing and smart moves. He had worked at the company for many years and so he knew the industry and the owners, he was at the right place at the right time and he had the courage to increase pricing overnight. My uncle always told me, “Profits are all that matter, not revenues.”. Confessions of a Pricing Man propounds the same message and offers fascinating examples of different markets, businesses and strategies to improving the profitability of companies.
The last book to mention is Mastering the Complex Sale. This book outlines what it takes to make sales to large companies with committees, competitive bidding and complex and imperfect decision making processes. At Nimonik we sell mostly to mid and large organizations – L’Oréal, FedEx, Bosch,… and though our contracts are relatively small – $5,000 – $80,000 per year, we are faced with complex decision making and conflicting priorities from our clients. Our sales strategies and tactics have been developed mostly by trial and error and gut feeling. We tried more and less aggressive tactics, more or less phone calls, more or less email, and a variety of permutations in between.
To date I have been responsible for most of the larger deals we have signed at NImonik and as I tried to scale our sales operation I kept hitting a wall with the sales team. They could land smaller contracts, but the larger, more complex contracts kept coming back to my desk. It was partially domain knowledge, but I could tell it was more than that. I tried training, explaining and doing problem shooting with the sales team, but it did not stick. They kept asking me questions like, “How do I gain the client’s trust?”. This question baffled me, I would simply reply, “By being trustworthy!”, but that was not enough. We needed a how-to guide for the sales team.
The book, Mastering the Complex Sale is the best framework for larger complex deals that I have found and we are starting to implement it at Nimonik. Here is an excellent summary of the book here, which states,
A smarter way to sell transforms the conventional sales pitch that customers must endure into a high quality decision-making process that customers value. It transforms salespeople from predators into valued business partners in the customer’s mind. It transforms the sales process from premature presentations to a process of mutual confirmation. And it transforms the conventional solutions-based, seller-first approach to sales into a diagnostic-based, customer-centric approach. In fact, a smarter way to sell, Thull [the author] persuasively argues in Mastering the Complex Sale, is to stop selling in the conventional sense and adopt a practical proven approach called Diagnostic Business Development (or the Prime Process).
There are other great business books that I have read recently, such as Double Double, High Output Management, Only the Paranoid Survive and Epic Content Marketing. However, if you are in a decision making position at a company, whether it is your own or someone you work for, I think that the three books mentioned above are the most powerful and actionable business books I have found so far. My colleagues, who completed MBA programmes at prestigious schools agreed that they probably could have skipped MBA school and simply read those books – it certainly would have been a lot more cost effective!
Published on November 26, 2017
Looking for Business Partner – romance, e-commerce, social media, blogging, and more
I am looking for a business partner to build a great company; the foundations are laid, we just need muscle power!
In 2010, I started a project called Make your Girlfriend Happy that has been sitting dormant for two years. If you know a great writer who is passionate about content and technology, please, please put them in touch with me.
To get the site running properly again for Valentine’s day 2014, I am looking to find someone by September. Any names or tips are greatly appreciated.
Full details below!
Make your Girlfriend Happy is a dormant startup in need of some love. Started in late 2010, the site has been sitting idle for the past two years. We are looking for an entrepreneurial new lead who wants to grow the company and take it to the next level! If you love startups, social media, technology and romance – this is the place for you.
You will be in charge – responsibilities vary from strategy to design to marketing. The site still receives lots of traffic and has thousands of members. There is currently no revenue, though some business models have been tested and work.
Significant equity will be issued to the appropriate person.
Some concrete tasks you will be responsible for:
- Content creation
- Social media strategy and content
- Execute a business model
- Deal with affiliate partners
- Improve the technological infrastructure and features
The company is currently owned by Jonathan Brun, an experience web professional, who has technical capabilities and resources for further developing the site. He will advise on strategy and technological development, but you will be the lead decision maker. The position can be part-time or full-time and work can be accomplished at any time of the day, from anywhere. You should have experience and knowledge of online marketing, communications, public relations and basic analytics skills.
If you are interested in starting the relationship revolution, please send an email to firstname.lastname@example.org with your LinkedIn profile, Twitter handle, and other pertinent information (CV, letter of motivation).
http://makeyourgirlfriendhappy.com/positions#leaderPublished on July 22, 2013
How to market your indie film or documentary
I have no experience in the movie industry, have never made a movie, and probably couldn’t make one either. But, I recently had an interesting email exchange with the creators of the documentary Buck. I contacted them to outline my frustration at trying to watch the movie in Canada. The movie had been on the festival circuit for many months, and was available on DVD in the United States, but it was not available in Canada. On their website, they mention a number of screenings in Canada, none of which were in Montréal.
Due to my frustration, I ended up illegally downloading the film to watch it. In this blog post, I plan to lay out my thoughts on how film makers can more effectively market their documentary or small indie film.
Let’s face it, the industry’s distribution model is completely broken – it is based in a world where the Internet does not exist. Film makers must fix their marketing strategy so that they can increase revenues and facilitate financing for future films.
1. Don’t waste 80% of your marketing budget!
Movies spend most of their advertising budget in the run up to the theatrical release. But ,by the time the film is ready for distribution on iTunes, NetFlix, and other large scale platforms – the public has forgotten your ads.
Time your advertising with easy access to your film. Since the best way to distribute your movie today is through online systems, not theatres, your marketing budget for online and theatrical release should be adjusted accordingly. Obviously leverage social media for promotion – Facebook, Twitter, etc.
You could also release the film online from the start to maximize exposure from reviews and critical acclaim.
2. Don’t release your film by country, eh!
With the internet, it’s insane to try and stagger your releases by country. When someone in Canada has to wait months to see your US movie, they will inevitably turn to a pirated copy, I did.
Most of your marketing will and should be done online. Because online marketing can easily link to a purchase or rental of your film, it seems wise to ensure it is available everywhere simultaneously. Because the producers of the Matrix 2 knew their audience was tech savvy and would pirate the film; they decided to release it globally at the same time. It worked.
3. Theatres no longer guarantee a better viewing experience
The traditional argument for releasing to theatres has been that the theatre provides the most authentic experience of the film as intended by the creators. In 2011, millions of homes have amazing HD TVs, surround sound and great seating: the theatre -quality argument seems weaker by the day.
As a side note, the move to 3D films in theatres has clearly been to keep consumers coming out to theatres, theatre companies are very aware of this HD TV issue. For traditional 2D movies and especially films that play in smaller artistic theatres, the home often provides a higher quality experience than the theatre.
It all boils down to this: someone has to break the control theatres and distributors have on movie creators. I understand the prestige of releasing your film in theatres, but if your goal is to have as many people as possible pay to see it; theatres are no longer the best approach.
Film production costs have been dramatically reduced thanks to HD cameras and high power computers. Filmmakers have un-rivalled distribution channels to millions of people; yet, they still seem set on the old model of festivals and theatres.
Your goal as a movie creator should be to earn a healthy living and have your film enjoyed by as many people see it as possible, not to get awards and help movie theatres. Simply stated, I think movie creaters should bypass the existing distribution traps, market your film directly to your audience, and retain ownership of the entire process.
It took the music industry a decade and billions of dollars to learn this lesson, how long will it take the film industry?
If you have not read the Long Tail by Marc Anderson of Wired magazine, please do.Published on October 23, 2011
Chocolate covered criminals
Chocolate is a delicious, delicious treat; however, it is far too often tainted with the sweat of child slaves. While slavery in the chocolate industry remains a small portion of the global slave population (~27 million people enslaved today), it is something that can easily be fixed.
Today, the cacao industry employees somewhere between 15 000 and 100 000 children in the Ivory Coast (as of 2002), which represents 40% of the world chocolate production of about 3.6 million tonnes. Hundreds (if not thousands) of children are trafficked every year from Burkina Faso, Ghana and other countries to work in the Ivory Coast, children go for 230 euros or less.
I don’t think anyone argues this is a good thing, so let’s move straight to possible solutions. To eat chocolate produced through slavery is to support slavery. Or as Frederick Douglas once said,
No man can put a chain about the ankle of his fellow man without at last finding the other end fastened about his own neck.
Chocolate is big business and requires a constant flow of cacao beans at low-cost. By making intelligent purchasing decisions and voicing your concern to cacao bean producers, the use of child labour can be addressed.
How can you help? The safest bet is to buy fair trade chocolate, though limited in availability, it does ensure a certain level of verification. Buying chocolate that uses beans from South America should also reduce your exposure to child slave labour.
The alternative is to try to avoid chocolate by the main companies who do not seem willing to enforce child labour laws in their supply chain (though some are doing more than others). Nestle (Nestle contact page), with 12% world market share, should be your first target, also consider Cargill (email@example.com), Kraft (Contact Page), ADM (+1-800-558-9958 Contact Page) , Mars (Contact Page) and Barry Callebaut (Contact Page). You can also sign the Avaaz Petition here.
This comprehensive report from Norway lays out details of the chocolate industry in West Africa. A couple of organisations I fell upon include Slave Free Chocolate and work by the Anti Slavery group in the UK with their app (which seems to be down at time of writing) Choco-Coat.com (blog post about it here). Also take a look at this report on the chocolate slave industry entitled Bitter Harvest.
It seems high time to boycott or at least voice your concern to the main chocolate companies we inevitably purchase candy from. Turning a blind eye is no longer acceptable and a short email or tweet is an easy task we can all do. Some dare more.
To expose the truth behind our corner store candy, journalists risk their lives. In 2004, French Canadian journalist Guy-André Kieffer was kidnapped in Ivory Coast and is still missing. Just that should make us appreciate the risks that journalists take when filming these illicit industries. To better understand the situation, take 45 minutes to watch the great documentary “The Dark Side of Chocolate” which lays out the situation quite clearly:
For more information on the current global slavery situation, see this TED Talk by Kevin Bales from Free the Slaves.netPublished on August 8, 2011