Alibaba's World

In the late 1990s, the internet was still nearly uncharted territory in China, and the big international investors were betting all their chips on Silicon Valley companies. It was in this inhospitable landscape that Jack Ma, a former English teacher with no technical training in programming or finance, gathered seventeen friends in his cramped apartment in the city of Hangzhou to found Alibaba.

Jack Ma's initial thesis rejected slavishly copying American models: instead of building a portal aimed at the end consumer, Alibaba was born as an intermediary platform connecting small Chinese factories to buyers all over the world. The goal was to help small businesses export their goods without needing expensive middlemen.

This stance of focusing on those forgotten by the traditional financial system is a golden lesson for the American entrepreneur. Instead of fighting over the same wealthy customers in the big cities, Alibaba found its blue ocean of opportunity by serving the thousands of small family workshops that powered the economy of the interior.

Shortly after receiving million-dollar investments from Western banks, market euphoria evaporated with the bursting of the dot-com bubble in 2000. Venture capital disappeared overnight, and Alibaba found itself with expensive offices opened in the United States and a cash burn rate that threatened to close the company's doors within a few months.

Porter Erisman recounts with candor the anguish of that period of painful cuts. Jack Ma had to make unpopular and immediate decisions: he shut down operations in Silicon Valley, laid off expensive foreign executives, and refocused all operational energy on the Chinese headquarters in Hangzhou, where the team lived on modest salaries and near-monastic dedication.

That forced austerity saved the business from bankruptcy. Financial sobriety and relentless control of fixed costs allowed the company to get through the hardest years of the tech crisis, proving that in times of economic storm what guarantees survival is not grand speeches, but cash liquidity.

When the American giant eBay bought the local platform EachNet to dominate e-commerce in China in 2003, the entire market considered the contest settled. eBay's CEO, Meg Whitman, publicly declared that China would be the company's new growth engine and invested one hundred million dollars to buy advertising exclusivity on the country's main portals.

Jack Ma responded with one of the most memorable strategic statements in business history: eBay may be a fierce shark in the open ocean, but we are a crocodile in the Yangtze River. If we fight them on the open sea against their financial might, we will be devoured; but if the battle is fought in the waters of the Chinese river, we will win.

To challenge the Western monster, Alibaba launched the Taobao platform. The great strategic move was to offer listings and sales completely free for three years, breaking eBay's business model, which charged sellers heavy fees on every transaction.