Mid-tier companies aren't small companies — they're the overlooked kings of second-tier tracks
Most of them are number one or two in a hundred-billion-yuan second-tier track. Their founders never settle for being mid-tier, but the track they come from largely determines their ceiling.
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Mid-tier companies are the kings of second-tier tracks
Wu Shanshan's definition of a mid-tier company is very specific: in China, every company except those ranked in the top three or at most top five counts as mid-tier; in size, scale and brand, they can reach at least the roughly $10 billion market cap of pre-pandemic China concept stocks. These companies often reach number one or two in a hundred-billion-yuan second-tier track — a first-tier track is a trillion yuan, a second-tier track a hundred billion. The internet landscape is winner eats meat, second place drinks soup, third place may get nothing, so the mid-tier companies that survive are actually the cream of their respective niche tracks, not what we usually think of as 'small companies.'
— Wu ShanshanAn eight-year-old company already had the management granularity of a hundred-billion company
When Wu Shanshan joined Vipshop, the company was only in its seventh year — by rights a child just turning eight. But she was extremely surprised to find that at that point you could already see all the underlying management capabilities of a company with annual sales of over a hundred billion, and even management tools and methods of very fine granularity were already in place. She believes this has to do with the style of the two Wenzhou founders, Shen Ya and another co-founder: they had spent over twenty years grinding it out in import-export trade in Guangzhou, digitized all their offline knowledge, and moved it into e-commerce, so they did it with great finesse.
— Wu ShanshanTwo Wenzhou bosses argue in Wenzhou dialect
The way the two co-founders worked together left a deep impression on Wu Shanshan: the first time she went to their office, there was a round wooden table about three meters long, one sitting on the left and one on the right, with a long, tall stack of books in the middle, chatting across the books, each with their own bookshelf behind them. They held nothing back from each other — a completely equal partnership. Wu Shanshan says they argued in Wenzhou dialect, which she couldn't understand, so she couldn't quite tell whether they were actually arguing. This kind of intimate collaboration, in her view, is the foundation for the two being able to work together for over twenty years.
— Wu ShanshanBeing the king of a second-tier track is itself a curse
When a second-tier track enters platformization and growth drops from 50% to 30% or even lower, most companies respond with diversification. But Wu Shanshan says that unfortunately, judging by the data, most of them did not succeed at diversification. The source of the curse: its resource endowment, culture, and the founder's genius and wisdom helped it grow this big, but this series of successful playbooks has strong inertia that influences its next step of thinking and decision-making. Replicability and transferability between second-tier tracks is not strong — doing flash-sale e-commerce, picking and buying and selecting goods, is a completely different way of doing things from serving consumers of smart cars.
— Wu ShanshanThe moat of flash-sale e-commerce is studying the human heart
Wu Shanshan shared three insights about female consumers. First, shopping habits can be cultivated: flash-sale e-commerce does irregular high-value discounts during morning and evening rush hours, with very short windows, and consumers are trained to open the app at those times every day. Second, the data very clearly shows that most people become lifetime customers after placing their third order on a flash-sale site — the curve has a cut off. Third, most women switch between no more than three shopping apps when shopping, but not more than three — they have price-comparison awareness but won't compare that seriously, and once confidence is established they give up comparing, which is what's called 'mindshare.'
— Wu ShanshanTAL de-starred teachers, New Oriental created stars
Wu Shanshan believes TAL's path was completely different from New Oriental's. New Oriental was more about diversification, cultivating a large number of teachers with internet-celebrity or star effect, growing them into corporate emblems in the style of stand-up comedy stars, with different emblems in each region. TAL never focused on cultivating stars; it cultivated systematic methods, rapidly turning carefully selected malleable talent into the middle force of a legion capable of tackling tough battles — de-starring was explicitly proposed. She believes this relates to founder style: Mr. Yu is highly individualistic and eloquent, and looks for people like himself; TAL's founder is low-key and humble, with brilliance only on the podium.
— Wu ShanshanFounders are obsessive to the point of being unreasonable
Wu Shanshan observed that founders who get things done have both vision and extreme down-to-earthness, paying attention to very small granular events. There's also a trait some people dislike but she considers a resource endowment: they are truly a bit obsessive, and often you feel they are unreasonable. You think this thing is proven wrong by business logic, by human relations, by past case analysis, and he may not be able to articulate very clearly and effectively why he thinks this way, but he just insists, and in the end he is proven right — this is his guts, insight or sixth sense, beyond your logical analysis.
— Wu ShanshanThree years ago she said they were doing great; now the answer is completely different
Asked how mid-tier companies are generally doing, Wu Shanshan said the answer to that question three years ago and now is completely different. Three years ago she would have said they were all doing great and hustling with great energy; now she cites the data mentioned earlier: compared with before the pandemic, a 70% to 98% drop in market cap is the norm, and it's hard to say they are doing well. But she stresses that what has decreased is the resources they have to hustle with, not their hustling heart. She also mentions a counterintuitive observation: the worse the economy, the more stable companies close to the consumer industry are.
— Wu ShanshanIn their own words · checked verbatim
I basically define mid-tier companies this way: in China, every company except those ranked in the top three or at most top five counts as mid-tier.
我觉得中央部公司基本上我是这么定义它的 在中国除了排得上前三或者最多前五的公司 全部算中央部
Wu Shanshan17:16
They argued in Wenzhou dialect. I couldn't understand it, so I don't think — I can't quite tell whether they were actually arguing.
他们用温州话吵架 我听不懂 所以我不觉得 不是太能明确 他们到底是不是在吵架
Wu Shanshan26:21
Its resource endowment, its culture, its founder's genius or wisdom — whatever you call it — helped it grow this big, but often this series of successful playbooks has strong inertia that influences its next step of thinking and decision-making.
它的资源禀赋 它的文化 它的创始人的一些 叫天才也好 叫智慧也好 帮助它长到这么大 但是往往这一系列成功的打法 会有很强的惯性 去影响它下一步的思考和决策
Wu Shanshan33:24
He really was using big data to study the human heart — earlier than Trump studied the human heart.
他真的是大数据在研究人心 这比特朗普研究人心还来得着早
Wu Shanshan48:40
You think this thing is proven wrong by business logic, by human relations, by past case analysis, and he may not be able to articulate very clearly and effectively — in English, articulate — fully and comprehensively explain why he thinks this way, but he just insists, and in the end he is proven right.
你认为这件事情从商业逻辑 从人情事故 从过去的案例分析上面 都在证明他错了 他可能都没有办法特别清晰有效的 用英文叫articulate 完整全面清晰的阐释 他为什么这么想 但是他就坚持 最后证明
Wu Shanshan1:06:55
Birth doesn't completely determine destiny, but it greatly limits your destiny — the ceiling is basically something that every era and every specific economic and political environment sets very strongly.
出生不一定完全决定命运 它极大程度上局限了你的命运 就是天花板这件事情基本上是 每一个时代和每一个特有的这么一个经济跟政治环境 是会给它设置很强的
Wu Shanshan1:11:59
He just doesn't want to spend money, he doesn't care. What about employees? What about partners, for example? What about executives? This kind of cow — I think what I saw was not cow, because his purpose was to take everything that could help him grow and realize his ambition to the extreme.
他就不愿意花钱 他不在乎 那对于员工呢 对于比如说合伙人呢 对于高管呢 这种cow 我觉得这个我看到的并不cow 因为他的目的是为了 把所有的能够帮助他去成长 实现他野心的这件事情做到极致
Wu Shanshan1:22:14
Figures
| McKinsey global headcount (when Wu Shanshan was there) | 5000 | 11:10 |
| McKinsey Greater China headcount (when Wu Shanshan was there) | 200 | 11:10 |
| Vipshop growth rate the year before she joined | 50% | 23:17 |
| Vipshop growth rate two years before she joined | 70% | 23:17 |
| Vipshop's forecast growth rate for the second year | 30% | 26:21 |
| Mid-tier companies' market cap decline vs. pre-pandemic | 70% to 98% | 1:20:12 |
| Vipshop flash-sale discount times | 8 AM and 8 PM | 47:40 |
| Maximum number of shopping apps women switch between | no more than three | 48:40 |
Glossary
- Permanent Head Damage
- A joking term for a PhD, teasing that years of doctoral study solidify thinking into theoretical logic.
- BAU
- An indicator Wu Shanshan used when tracking mobile internet companies, referring to monthly active users.
- cut off
- A clear inflection point on a data curve, here referring to the threshold at which a user becomes a lifetime customer after placing three orders.
How to listen
Founders building in second-tier tracks or doing strategy, investors watching China concept stocks and consumer e-commerce, and anyone who wants to understand the judgment that 'the track determines the ceiling.'
The opening from 3:25 to 16:12 about McKinsey and Roland Berger is far from the mid-tier company theme.