Last Man Standing

Not long after Jack and I returned from the United States, Joe pulled me into his office. “Porter, I need you to prepare an Alibaba organizational chart,” he explained. “We’re bringing in another candidate for chief operating officer, Savio Kwan, and I’d like you to bring the org chart along when you interview him so that he can have a better understanding of Alibaba’s company structure.”

In any other company this would have been a simple and straightforward task, but in the case of Alibaba it was daunting. Alibaba was almost two years old and had never had an organizational chart. I didn’t particularly relish the task of trying to make sense out of the amorphous blob that was our structure.

Internal chaos was the price we were paying even as Jack boasted publicly, “Alibaba doesn’t plan.” New departments formed and disbanded so quickly that nobody had a good sense of who was doing what and who was in charge. Day-to-day decisions were difficult to make without having Jack weigh in. Important personnel decisions, such as the hiring and firing of new staff, were made without any clear procedures, resulting in anger and resentment among staff members who felt they were being treated unfairly. The organizational chart would be a pain in the ass to put together, but the prospect of having an adult in the room, in the form of a COO, was enough to motivate me.

As I set out to draft the organizational chart, I contacted the managers I thought were in charge of the various departments that had popped up in the previous six months, as the company swelled from 40 to several hundred employees. Not surprisingly my guesses were not always correct. Like a pinball I was bounced around to various colleagues who clearly didn’t know what departments existed or who, in fact, was in charge. After hammering out the best chart I could, I realized that not everyone in the company had been accounted for. Partly to cover my bases, and partly as an ironic joke to myself, I placed an asterisk next to the chart and, at the bottom of the page, wrote:

*If you do not see yourself on this organizational chart, it does not mean that you are not employed by Alibaba.

By the time I sat down with Savio, he seemed just as confused as I was—in fact, he was frazzled by the whole Alibaba interview process. “So who have you met so far?” I asked.

“I’ve had about eight meetings so far with the company founders, and it really seems like there’s a lot of confusion.”

A 25-year management veteran, with 15 of those years spent at General Electric, he was no doubt used to a more structured organization. While interviewing at Alibaba, he’d been tossed from manager to manager with no proper introductions.

“I can’t understand why all these people are interviewing me. It’s pretty unorthodox for a COO to be interviewed by his potential subordinates. And no one seems to have clear agreement on what the company’s strategy or priorities are.”

I was afraid that we’d already scared Savio away. Seeking to bring some calm to the situation, I pulled out a folder with the Alibaba organizational chart I’d created, along with a few articles and background material about Alibaba that gave as close to a comprehensive introduction to the company as was possible at the time. He took a deep breath and seemed to feel a bit more at ease.

“Eight meetings in, this is the first time anyone has given me any kind of overview of Alibaba,” he said. I could only imagine what had been discussed in his earlier meetings.

Savio settled in and told me a little bit about himself. He had been born and raised in Hong Kong, then had studied in London, and ultimately found his way back to China, helping lead GE’s medical equipment business there in the 1980s and ’90s. He had been working in China at a time when few people from Hong Kong were willing to do so, and that had given him a front-row seat for China’s transition from a planned economy to a market economy. It gave me some comfort to know that he had worked in China before doing so became a trend and would probably be accustomed to a rough-and-tumble environment.

Savio was not the first person whom I’d interviewed for the position, and my first impression of him was that he wasn’t the best candidate. He had a warm and jovial spirit that told me he might fit in, and the graying hair that signaled experience, but I worried that he lacked the industry expertise and decisiveness necessary to bring order to Alibaba’s chaos. I preferred the first candidate I’d met, a strong, bold—even brash—China country manager from a large multinational tech company who seemed like he’d bring real backbone to the company. Savio seemed almost too nice. I shared my thoughts with Joe Tsai.

“So you liked the other guy?” Joe responded. “Well, I don’t think we’re going to be able to get him. He’s in a pretty high-level position at his current company, and in this market it would be hard to convince him to join a little start-up like Alibaba.”

In January 2001 we announced that Savio was our new COO. And a few weeks after that Savio surprised me with his decisiveness by cutting the majority of the remaining international staff at the company. First he cut Hong Kong, keeping only a few financial and administrative staffers. And then he cut what was left of the US office, save for a couple technical experts. The suddenness was a shock, which left me with a strange loneliness that even the staff members with whom I’d had disagreements were now gone. With the exception of Abir Oreibi in Europe and a few other international staffers, I now found myself the lone survivor in the group hired about the same time I was.

As painful as it was, the layoffs were crucial to stop Alibaba’s financial bleeding. Jack should have recognized this earlier, but doing it took an outsider who did not have personal relationships with the staff. In the wake of the layoffs I arrived at work to see rows upon rows of empty desks where my colleagues used to sit.

In severing the international staff, the company had made an attempt to be fair. Employees were offered a choice of three months’ salary or one month of salary plus two years’ worth of their unearned stock options. Disgruntled and with little faith in the company’s prospects, many of the laid-off managers chose the full three-month salary offer, not wanting to be left holding worthless stock certificates for a company that appeared to be headed toward bankruptcy.

Savio’s next step was a more symbolic one—clearing out the bunk beds from Alibaba’s main Hangzhou office. “This is unsustainable,” he contended. “If people are working around the clock like this, they will burn out. We have to allow people to spend time with their families and have a life outside of Alibaba, or they won’t last long in the company.” On the one hand I got his point. But on the other hand, I worried that not only was he cutting staff, he was cutting back the hours that existing staff were working. Might he be bringing a big-company working culture to Alibaba without any of the actual business to justify it?

With his quick, bold cuts in staff, Savio had defied my initial impression of him as lacking conviction. But cutting costs was one thing. Building a business was another. And Savio’s next moves failed to impress me. Rather than taking the company by the reins, defining its strategy, and moving forward with a bold execution plan, Savio decided to focus senior management on a lengthy process of defining the company’s mission, vision, and values.

Hadn’t we been talking about these things for more than a year already? I thought to myself. If there was one thing that Alibaba had been big on, it was talking about dreams and values. Our problem, it seemed to me, was that we had a lot of lofty talk and not enough tangible results. With Alibaba’s money running out, shouldn’t we be doing more than writing down typical corporate-speak on PowerPoint presentations?

After a couple months on the job, Savio made a trip to the Shanghai office, where I’d been working, to present what Jack and the Alibaba cofounders had been working on. Savio led us through the slide presentation:

We’ve made a lot of organizational changes lately as we’ve cut back staff and moved our operations to China, as you know, but we have to make clear to everyone that we have only two options from here: grow or die. We all believe in this business for the long term, and we have one great advantage over all of our foreign competitors, which is that we can keep our costs much lower in China. So as our competitors fall each day, we just have to achieve one thing—to be the last man standing.

In the last few months I’ve been meeting with Jack and the company founders, and we’ve hammered out the company’s mission, vision, and values. I’m here to present them to you today:

First, Alibaba’s mission: To make doing business easy.

Next, Alibaba’s vision: To be a partner to all business people.

Finally, Alibaba’s nine values: Passion, innovation, teach and learn, openness, simplicity, teamwork, focus, quality, customer first.

Savio stood back from the projection screen with a dramatic pause to give us all a chance to soak it in. As I sat in the silence, I couldn’t help but be disappointed.

That’s it? I thought. Three months in and this is all we’ve come up with? A few touchy-feely PowerPoint slides about mission, vision, and values?

Savio went on:

These are the core values that everyone will be evaluated on. From now on, everyone will have a quarterly review and scorecard. 50 percent of your points will be based on your performance in reaching goals. The other 50 percent of your points will be based on how well you adhered to Alibaba’s core values.

I was starting to catch on. This was actually going to be a part of a process.

Savio continued:

And with these values, we will have a new system for hiring, evaluating, promoting, and firing staff. From now on each personnel decision will be made according to “one over one plus HR.” So for each employee’s review, four people will be present. The employee. The employee’s manager. The employee’s manager’s manager. And a representative from HR. This is going to ensure that our personnel decisions are clear and consistent across the company.

This type of review system was new to me but it seemed to make sense. As Savio introduced these systems he’d brought with him from GE, I could see that Alibaba’s organization and procedures were beginning to take shape.

“We’re also initiating something new—we’ll have two tracks for people to advance within the company,” Savio said. “There will be a management track for people who would like to move up in the organization as managers. And a ‘specialist track’ for specialists, so that they can also advance in the company.”

This was an idea that had never occurred to me, but once Savio explained it, it made perfect sense. The natural tendency for a company is to promote a high-performing specialist, such as an engineer or graphic designer, to the position of manager. Most employees would accept this because they want to see their salary and recognition increase. But not every skilled specialist makes a great manager. Alibaba had made this mistake several times and in the process lost a great specialist while gaining a terrible manager. It usually didn’t take long for the role mismatch to become so uncomfortable that the manager left the company or was forced out.

Savio’s next step was to announce training tracks for the team. Entry-level employees, such a sales staff, would be put through a training program tailored to their specific functional skill in the company. Managers would participate in separate training tracks focused on developing their management skills. In addition each new employee would receive at least a week of orientation to the company. At the core of these training tracks were Alibaba’s mission, vision, and values.

As Savio wrapped up, I was still slightly skeptical but I decided to keep an open mind and give Savio and his plan a chance. He did have 25 years of business experience, after all. Maybe there was more to Savio’s approach than met the eye. Plus, Savio seemed to appreciate the urgency of rescuing Alibaba’s deteriorating balance sheet and was beginning to focus management’s attention on coming up with a strategy to actually make money.

In the next few months we batted around ideas about how the company could generate revenue. Unable to make money on our own website, we discussed the idea of selling e-commerce solutions to local governments in China, with the idea that they might build “Alibabies” that local businesses could use as platforms for posting their products online. After knocking on a few government doors with this idea, and quickly realizing that local government officials would demand bribes and kickbacks from us in exchange for purchasing an Alibaby, we dropped it. Following the Alibaby strategy might keep us out of bankruptcy, but it might also put us in jail.

As we struggled to find a way to make money, we noticed an interesting trend. At just about the time that sellers on Alibaba.com were beginning to make deals with overseas buyers they’d met on the website, their product listings on Alibaba.com were being crowded out by the increasing number of competitors who were signing up for Alibaba. So, for example, the first electric scooter manufacturer on Alibaba received all the inquiries from interested buyers around the world and, with no competition, had little incentive to pay Alibaba for the free service he was receiving. But over time he was increasingly crowded out by a growing number of scooter sellers who were joining the site and posting their products online. Sellers began to ask us for the opportunity to pay us for a sponsored listing of their products so that they could appear above Alibaba’s organic search results. It appeared that, after giving Alibaba’s services away for free for two years, we had finally reached the critical point at which customers were willing to pay.

In spring of 2001 our budding sales team decided to focus its efforts on a product we’d test-launched called China Supplier. For roughly $2,000 an exporter in China got a nicer-looking company profile, could post more product listings than a standard member, and received priority listing for the exporter’s products in Alibaba’s search results. For a typical manufacturer $2,000 was a bargain compared to the costs of advertising in an expensive trade publication or traveling to the United States or Europe to attend an industry trade show to display products. While a magazine advertisement might be obsolete after one month, and a trade show would last only a week, the Internet offered these sellers an opportunity to run their online trade show on Alibaba 24 hours a day, seven days a week.

This was good news, but the lack of trust in the anonymous Wild West of the Internet still posed a difficult challenge for buyers and sellers, especially when compared to trade shows, which offered the chance to meet business partners face to face. That customers were willing to pay Alibaba for a premium listing offered a bit of confidence in their solidity to prospective buyers overseas. But it still didn’t answer two key questions: Is the seller I’m communicating with a legally registered business, and does the person I’m communicating with actually work for the company?

We soon realized that it wasn’t enough for sellers to have a paid listing on Alibaba. Buyers needed to have some assurance that the person they were dealing with was legitimate. So we launched a service called TrustPass. The only way to be certified with TrustPass was for a company to go through a third-party authentication-and-verification process that demonstrated that in fact it was a legal business and the person was authorized to represent the company in trade dealings.

The launch of TrustPass marked a key breakthrough for Alibaba. With it we had finally recognized that the main inhibitor of online transactions was the issue of trust. With a critical mass of buyers and sellers around the world, we had plenty of members. If we could solve the trust issue, we could crack the code of e-commerce. So we required each China Supplier to also have TrustPass verification. And this combination gave us a perfect excuse to begin to charge our customers. It made China Supplier customers, who paid for that status, appear more trustworthy. It made those members still clinging to their free accounts seem less trustworthy. After all, if they had such a good business, why weren’t they willing to pay up a little to prove it?

With China Supplier we finally had a product that seemed feasible. But we quickly realized that selling the product on a mass scale to our members couldn’t be done over the phone or the Internet. We needed to move our customers from simply testing the e-commerce waters to diving in. And to do that we’d need to meet with our customers in person.

Like a team of Pied Pipers playing the intoxicating tune of e-commerce, we spent the second half of 2001 on a national road show, inviting our customers to member gatherings up and down China’s east coast, where the majority of the country’s manufacturers, exporters, and trading companies were located. In city after city we opened new offices and organized launch events for our members under the theme of “Give e-commerce back to the business people.” The message was one of empowerment—that the magic of the Internet allowed small businesses to compete with the largest multinationals. The message had strong appeal in a country where entrepreneurs valued their independence and believed that “it is better to be the head of a chicken than the tail of a phoenix.”

The formula for each of our member events was simple. Jack’s growing celebrity status helped us draw attendees. Jack would first give a talk about the future of e-commerce and how he thought small businesses could benefit from it. I was rolled out next to talk about Alibaba’s overseas activities, somewhat like a talking monkey for local business people curious to see a foreigner speaking Chinese. Although the freak show got their attention, having a foreigner rather than a local present Alibaba’s growing overseas reputation carried more weight to an audience that might otherwise have been skeptical of Alibaba’s claims to have a strong reputation with buyers overseas. After Jack and I spoke, members of the newly hired local sales teams would take the stage to introduce the specific products and services that our new China Supplier status offered.

One by one the sales started to roll in as we traveled from city to city. With each stop I began to learn more about the unique characteristics of each city. Yongkang was known for its many electric scooter manufacturers. Ningbo, for its disposable lighters. Jinhua, for its prosciutto-like ham. Each city had its cluster of manufacturers with distinct specialties.

No trip was complete without a local team dinner at a small roadside restaurant to celebrate the establishment of each new office. My tour turned out to be a chance to try all the local delicacies. Turtle shell soup, raw crab soaked in alcohol, bamboo shoots, fruits I’d never heard of before.

What struck me most was the energy and enthusiasm of the young sales team recruits, even though they were tasked with selling Internet services at a time when most people in China had given up on e-commerce. We were in the depths of the Internet winter, so our team was not made up of recent graduates from top universities such as Beijing University or Fudan—they had far too many other well-paid options at multinationals. Instead Alibaba was attracting sales team members who’d grown up in small townships and rural areas, the sons and daughters of farmers and laborers. The pay was low and conditions harsh, but Alibaba was a small step up for them and their families—a source of hope.

We’d often visit the new offices after our customer events. The budget for each office was so low that they were often located in drab apartments in dreary, run-down buildings. The staff often slept and worked out of the tiny apartments, furnished with little more than metal frame beds on concrete floors, with fluorescent lightbulbs creating an eerie glow that bounced off the stark white walls. But no one complained about the conditions, because we all had a shared sense of ownership of the company and its potential rewards. Nearly everyone in the company had stock options; there was a spirit of shared sacrifice for the greater good of the company. Every penny saved would help Alibaba survive and grow to the benefit of all employees.

As our road show gained momentum, our presentations became more sophisticated. In a span of a few months, our events grew from tens of customers in two-star hotel conference rooms to hundreds of customers in five-star hotels. With each road show the local media reported on the growing movement that Alibaba was creating. One by one we were convincing China’s business people to move online.

But despite the growing sales numbers, we still were burning through cash and not generating enough revenue to cover our costs. At the beginning of 2001, a few months after Todd Daum voluntarily left Alibaba, I had been assigned to take over his role of vice president of international marketing. My first move was to cut our advertising budget to zero. One look at Alibaba’s website traffic had shown me that even without advertising support, our website had natural viral growth. So, much to the marketing team’s dismay, I told them that we had changed our strategy to “zero budget marketing” and would rely solely on word of mouth and public relations to take advantage of free media coverage. Any marketing plan would have to involve no budget.

The good news was that cutting our marketing budget to zero seemed to have little impact on our website’s growth—we were still growing organically through word of mouth. But the bad news was that it made our marketing team a bit obsolete. With the advertising budget eliminated, we began to focus on PR to gain free publicity. But with the web industry in a deep freeze, the media lost all interest in Internet companies. Toward the end of 2001, Jack pulled me aside for a conversation.

“Porter, I want to let you know about a decision that all of the senior managers in the company made together. Me, Joe, John, Savio—we all decided to cut our own salaries in half.”

Jack had a smile on his face but also a serious look.

“So I want to let you know that you are now the highest-paid employee in the company. No one has complained about it. But I just wanted to let you know that.”

I gulped as Jack walked away. I was now being paid even more than the CEO. Many of the founders of the company were living at a level that most Americans would have viewed as poverty. Not to mention that I had just visited sales offices where my own colleagues were crammed into spartan quarters, scrimping by on instant noodles and making only a few hundred dollars a month. It just didn’t feel right to be paid so much more than my colleagues when the company was still not even profitable.

And of course I realized that Jack’s words were a friendly hint that my salary was unsustainable. Shortly after my conversation with Jack, at my next quarterly review with Savio, we started talking about my future role at Alibaba. “Jack told me that I was the highest-paid person in the company, but I realize there’s not so much of a role for marketing and PR right now,” I said.

“Well, for marketing and PR, there’s not as much work as before,” Savio responded. “One idea we had was for you to move to the Hangzhou headquarters, where you could head operations of the international website. But it’s hard to think of what you could do based in Shanghai.”

I mulled it over. Hangzhou was a beautiful city that I loved to visit. But in the previous year I had already moved from Beijing to Hong Kong and then from Hong Kong to Shanghai. I wasn’t quite ready for another move even further inland to a city with a tiny expat community. Plus, I had one unrelenting dream of my own that I had not yet fulfilled—to travel around the world for a year.

“I’ve always had this dream to travel around the world,” I said. “It’s something I’ve been wanting to do since I was a kid. Why don’t I take time off, and once I’ve finished that, we can check back in to see if there is a greater role for me?”

Savio seemed happy with the solution. It would save the company a large lump of money and would still give us the option of my coming back. He generously offered me the same severance options he’d offered the others who’d been laid off. When I told him I’d take the three months of salary and leave the stock options on the table, he stood up from his chair and said, “Wait here for a second—I just want to check with Jack on something,” before walking out of the office.

He came back with a smile on his face and surprised me, saying, “I checked with Jack, and we’d like to let you keep all of your stock options, with the hope you’ll come back to the company.”

It was a nice goodwill gesture but one I didn’t pay much attention to. I assumed that Alibaba would at most be a $10 million company, making my options worthless, well below their strike price. To be polite I smiled and thanked him, although my hopes of becoming an Alibaba millionaire had long since been dashed. “Thanks, but don’t worry about that,” I said somewhat dismissively. “I hadn’t even thought about the stock options.”

“No, really, we’d like you to keep them. And we hope you’ll come back.”

I rode the train back to Shanghai, staring out the window at the rice fields, waterways, and small gray factories that dotted the countryside. I was excited to finally have the chance to realize my dream of traveling around the world. But a melancholy set in as I realized I was leaving the Alibaba dream behind. And a part of me felt I was abandoning my colleagues at a time when they needed my support. I couldn’t help but wonder, after my travels were done, would Alibaba still be around?