Dialogue between Sun Lulu, Vice President of ZhenFund, and Xue Chengkun, Founder of Zhangshangfucai: Do Three Things in Three Years

Zhangshangfucai is Chengkun's second venture. The last time he started his business, he had a Tsinghua computer background and chose a very TMT field; this time he started his business, but he chose a very industrialized field. From one battlefield to another, from his perspective, he feels that these two fields also have a lot in common.

Accompanying him for the past few years in starting a business, I feel that Chengkun is a person who is not afraid of competition, not afraid of difficulties, and even eager for change and challenges. He is constantly thinking and iterating. Every time I communicate with him, it is like a learning session. I hope this conversation can also bring you some inspiration.

——Investor of Zhangshangfucai

Sun Lulu, Vice President of ZhenFund


Sun Lulu: When deciding to start a business for the second time, as a team with a relatively TMT background, why did you choose the direction of Zhangshangfucai?

Xue Chengkun: As a serial entrepreneur, my last entrepreneurial project was in the automotive field. After the last company was sold, I was always looking for something bigger than cars, so I quickly focused on the real estate field.

First of all, I saw that decoration accessories are a 400 billion a year market.

Secondly, I noticed the original solution: the offline building materials city model, with the increase in the proportion of urban stock housing, the decline in regional decoration density has become less and less efficient. I realized that the central warehouse model will definitely replace the front warehouse model of the building materials city and become the most efficient business model for urban building materials distribution in the future.

The building materials city of the central warehouse essentially needs to solve two problems, one is the problem of remote customer acquisition without a storefront, and the other is the problem of efficient contract fulfillment. I think these two problems are not in line with the genes of people in the traditional building materials field, and this is precisely the area of strength of the TMT team. So he decisively entered the field of auxiliary materials e-commerce.

Sun Lulu: Many people say that the Internet team is unreliable and will step on the big pit when it comes to the industrial Internet. What do you think of this issue?

Xue Chengkun :I basically agree with such a point of view, but this is just a superficiality. Whether any business can be done well, the core is not that the team comes from the Internet or from the industry, but the depth of understanding of the industry. I think our understanding of the auxiliary materials industry today is no less than any team with an industrial background in this field.

We often see that an Internet team enters a new industry and is unwilling to enter the game, and is unwilling to spend three to five years clearing itself to learn this industry, so it cannot have a deep enough understanding of this industry .

The practice of Zhangshangfucai is just the opposite. We are a company established for 5 years. In our first 3 years, we cleared ourselves, and from the aspects of industry cognition, organization construction, and industrial strategy, we truly face ourselves as a small company in the industry, earnestly learn from customers, upstream and downstream, and peers, and explore in practice. During this period, we did not pursue rapid scale-up. We only did 3 things in 3 years: we spent 1 year in Beijing to verify the feasibility of the scale-first model, and spent another year in Beijing to verify the profitability of a single city. For profitability, it will take another  year to copy the proofing in Beijing to Chengdu to verify the reproducibility.

Opening 2 cities and doing 3 things in 3 years is too slow for most Internet teams. But we resisted all kinds of temptations in the process. We didn't make a big move quickly, and didn't cater to the taste of capital. Instead, we had a deep understanding of the industry and thought about it while doing it. The essence of our approach is to accumulate knowledge, keep learning and iterating, and solidly verify our own cognition and then amplify it.

In the 4th and 5th year, Red Star Macalline and Easyhome successively invested in our A and B rounds, and finally certified that we are a well-deserved leading company in this industry. After all, as a leader in the field of home building materials in China, the recognition of experts is the biggest certification.

Sun Lulu: How does the Industrial Internet break through the boundaries of traditional trading companies? For example, in terms of management radius and scale advantages.

Xue Chengkun : I think the biggest difference between the Industrial Internet. For example, for our auxiliary materials self-operated business, we actually mainly do three things, procurement, sales and logistics. We are doing these three things, and traditional trading companies are also doing it, but our efficiency is much higher than theirs.

For example, in the field of procurement, the inventory turnover of Zhangshangfucai can be 8 days, while the inventory turnover of traditional trading companies in this industry is 60-90 days. To achieve this, we actually rely on big data to select products and keep a streamlined collection; for example, in the field of sales, we use the method of remote online customer acquisition to enter any city, and after 3 to 6 months, it is unimaginable for traditional trading companies in the industry to convert 30-70% of the decoration foremen in this city into our registered users; another example is in the field of logistics, we have already achieved 90% of the orders in half a day delivery, while the industry's traditional time limit is T+1 or even T+2. To achieve this, we completely rely on a complete set of WMS and TMS systems that we built ourselves for the characteristics of the auxiliary materials industry.

With these digital methods, through the deconstruction of the original process and targeted use of technical means to improve efficiency, we can achieve efficiency far ahead of our competitors in the core business links.And without these technical means, I believe that competition will always remain in a low-level price war.

Sun Lulu: What is the key point to clarify about industrial Internet?

Xue Chengkun: Taking the auxiliary material industry as an example, I think the essential opportunity of this industry is:stock houses will become the main body of future decoration, and then the central warehouse-style auxiliary material e-commerce will replace the front warehouse-style building materials city. It will become an inevitable development of the industry .As we all know, the area density of new house decoration needs is high, but the stock house decoration is scattered in every corner of the city, which is a low density in the whole city. In the case of high-density areas, the building materials city is the most efficient solution. Because there are many building materials plazas in a city, each building materials city covers a surrounding 3 kilometers. When these 3 kilometers are in the stage of intensive development of new houses, the building materials plaza as the front warehouse has high customer acquisition efficiency and contract performance efficiency. Once the stage of centralized development of new houses is passed, the total amount of decoration within these 3 kilometers will drop to 1/5 of the previous one. At this time, for the building materials plaza, the difficulty of acquiring customers and fulfilling contracts will increase exponentially. At the same time, it is a certain trend that stock houses replace new houses and become the main body of decoration.

After understanding the nature of this industry, and looking at many of our strategic choices, it will be very clear. Here are a few examples:

How to choose the order of Kaesong? A city with a large amount of second-hand housing decoration means that the advantages of auxiliary material e-commerce will be significantly higher than that of traditional building material cities, and such cities should be the priority cities to enter.

Is the subsidy to do GMV established in this industry? invalid. The function of the subsidy is to grab the competitor's share. The biggest competitor is the building materials city. The subsidy will certainly accelerate the decline of the competitor, but compared with the company's own blood loss, it is not worth the loss. After all, for a business with an annual transaction volume of hundreds of millions to billions in a single city, it is not difficult to subsidize tens of millions or hundreds of millions a year. The first factor that determines the life and death of building materials cities in these cities is the increase in the proportion of stock housing decoration. If you choose a quick subsidy, it is very likely that you will bleed to death before the building materials city is demolished.

So I think the most important thing for the industry is to understand the nature of the industry, why it is this (central warehouse) solution, why it is this time (the inflection point of the change in the proportion of stock housing decoration), and why it is us.

Sun Lulu: In the past few years, all major cities have more or less been affected by the epidemic. How did Zhangshangfucai deal with it?

Xue Chengkun: In the past three years, the impact of the epidemic on our company as a whole has been very limited. In fact, in 2021, we have bucked the trend and achieved a high growth rate of 5 times the year-on-year GMV.

First of all, the purchase of materials for decoration is a rigid need. Although the epidemic has affected it in recent years, everyone still has to live in their houses and install them for decoration. There are more than 20 million house decorations/refurbishments in the country every year. Each set of decoration needs to buy hydroelectric shingles Oil and various auxiliary materials, so the nature of rigid demand ensures the stability of our basic disk.

Secondly, we are one of the few companies in the industry with a national layout. Currently, handheld auxiliary materials operate in nearly 20 cities. Therefore, when some cities are affected by the epidemic and the city is closed, the impact on our national market is actually limited. Traditional building materials cities operate in a single city, so the impact of the epidemic on offline merchants is often fatal. We have observed that after a wave of major epidemics is over, a city's building materials city will undergo a major reshuffle. In fact, this will promote the continuous improvement of our position in the local industry.

Again, the development of new houses has stepped on the brakes in the past few years, which has accelerated the increase in the proportion of existing houses in decoration. Our comprehensive operational efficiency in customer acquisition and contract fulfillment has become more prominent compared with our competing products in the building materials plaza. When the epidemic caused intensified competition, the high operating efficiency and low overall cost helped us build a huge advantage.

Sun Lulu: Because I believe, so I see. What kind of future do you see for Zhangshangfucai?

Xue Chengkun: As a pioneer of auxiliary materials e-commerce, Handheld Auxiliary Materials positions itself as a building materials city in the new era .In the future where stock housing decoration is the main focus , the central warehouse-style auxiliary material e-commerce will definitely replace the front warehouse-style building materials city and become the dominant business model for auxiliary material distribution.

In the longer term, handheld accessories have the opportunity to become a Home Depot with Chinese characteristics. With the rise of the self-contained model, the decision-making power of decoration materials has gradually shifted from the original owner's side to the decoration foreman and decoration company. And Pocket Auxiliary Materials has the largest customer base of decoration foremen and decoration companies in China, and maintains a perennial transaction trust relationship with them. Therefore, we have a unique opportunity to further cut into the fields of main materials, design services, decoration promotion services, home decoration finance and other fields from auxiliary materials, so as to become a Home Depot with Chinese characteristics.

Sun Lulu: In the past few years with Zhangshangfucai, I feel that you are always a person who is "calm in every major event". What do you usually do when making decisions on key issues?

Xue Chengkun: How to make key decisions, I really appreciate a saying of our party: Seek truth from facts and emancipate the mind. How do I understand this sentence?

Seeking truth from facts means that we must find out the truth of things, seek truth, and understand the essence of things. This is seeking truth from facts. Many times we make wrong decisions not because of our lack of thinking ability, but because we have obtained wrong information. We did not go deep into the front line, did not understand what the real problem is, just took it for granted, listened to reports, and slapped our heads So under the wrong premise, the wrong decision was derived with the correct logic.

To emancipate the mind, I think two points are very important: one is to have the courage to face problems directly, and the other is to solve problems creatively. Those so-called key decisions, in hindsight, are often "difficult but correct things." Because they often seem difficult at the time, it especially takes courage to make choices. In fact, there is no particularly good way to do this. I have a habit of forcing myself not to hesitate, overcome all difficulties, and take risks once I think about the right thing.

Sun Lulu: How do you keep recruiting and managing teams with different backgrounds?

Xue Chengkun: The first thing is to know what kind of people the team lacks.This is the most difficult problem for founders. Many times, it is because they don’t know what they don’t know, and think that their team is perfect and competent for today’s business, so they delay the opportunity to find the necessary talents and delay the opportunity. This point has a lot to do with the understanding of the industry mentioned above. Only when we face the industry realistically, understand the nature of the business deeply, and look at the organizational structure of our competing companies, can we understand the shortcomings of our own team and Know what's missing in our puzzle. There is a small experience I can share with you: Pay attention to and understand companies in related industries that are more successful than you, and focus on finding the best ones that are exactly 2 to 3 times your own size.A company that is much bigger than yourself may not have good reference value, and the problems everyone faces are very different; while a company that is not as good as your own may have little reference value. But the general suggestion is to go deep into the industry.

The second is to have a deep understanding of the value of each team member to the business. Our colleagues come from traditional Internet companies, as well as from the traditional building materials industry, with business backgrounds and research and development backgrounds. In fact, these people have very different backgrounds and work experiences, and even have vague understandings of each other's value creation. At this time, the founder should establish the concept of "employing people to make use of their strengths" in the company, and guide the team to discover each other's strengths, so as to unite the team. There is also a little trick that I can share with you: With the deepening of entrepreneurship, we need to bring in people from different backgrounds, ranks, and experience levels. Contribution is an important issue. A specific suggestion is that when introducing people with relatively different backgrounds, we must let the core team participate in the interview process. By contacting this type of people, and in the process of selection and comparison Deepen the cognition, so that after this new person comes in, it will be easier for everyone to understand and accept.

The third is a general leadership principle. In fact, no matter what the background, the universal leadership principles are still applicable. Basic skills such as sharing a vision, challenging the status quo, leading by example, motivating others to act, and motivating people are also needed.

Sun Lulu: What is the book you most admire and recommend?

Xue Chengkun: If there is only one book, I recommend Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz.