How to scope out the Shenzhen startup scene

Written by Marty Spargo

In March 2017 I spent a few weeks in China to immerse myself in the Shenzhen startup scene, network and research the local market for our product. I had an amazing time and want to inspire other Australian entrepreneurs to get on the first available flight to China to go and experience it for themselves.

I hope to provide some practical tips for people like myself to plan and execute a trip like this, but if you’re only interested in hearing about the startup scene please skip ahead to the second half of this article.

Some context

The last time I set foot in mainland China was about 9 years ago as a Qantas pilot. In those days I regularly flew to Hong Kong, Shanghai and Beijing and I would estimate my vocabulary in Mandarin was roughly 100 words at its best. Since that time I’ve barely spoken a word of Chinese and my vocab has shrunk to just a handful of mispronounced words.

Marty China
Flashback to early 2006 arriving in Beijing during the northern winter after tanning myself in the Aussie surf before the flight. I thought the contrast in dress was worthy of a photo!

Let’s go to China!

Our business is growing rapidly in Australia and the time is right for us to start looking at opportunities further afield. China is a very interesting market to us for a bunch of reasons, not the least of which is that there are around 1.4 billion potential customers there. 

I’ve long known that you don’t achieve much by sending emails and making the odd phone call from the comfort of your home and that if you really want to kick a few goals somewhere you need to turn up and meet people face to face.

It gets pretty cold in China!

This is going to sound like a ridiculous way to choose a destination, but I’m not much of a fan of cold weather. I knew that I wanted to spend a few weeks in a big Chinese city, but I thought that anywhere would do and I would have a chance to learn a lot about the local market wherever I went. 

With that in mind I consulted a weather forecast that showed Beijing around zero, Shanghai around 10 degrees and a bunch of other cities too cold for my usual shorts and a t-shirt attire. Then I noticed in the south Shenzhen had pretty much the same temperatures forecast as Sydney did. I figured that was the winner.

Cheap flights – boom!

The good thing about not being overly fussed about your destination or your exact travel dates is being able to get really good deals on flights. A site that I love and use whenever I travel these days is Skyscanner. I did an initial search for Sydney to China (anywhere in China) and ended up getting return flights to Shenzhen for about $394 AUD just 10 days before my departure. Not bad!

Getting a Chinese visa

Unfortunately for Aussie’s, we need to apply for a visa before traveling to China. I think that might be a factor in why you see so few Australian’s up there in general. Anyway, the process is quite simple, you just need to book your return flight to China and your first night of accommodation (I booked an Airbnb) and then take your printed itineraries to the Chinese Visa Application Centre in Sydney. 

The price is pretty steep as far as visa’s go and the visa you get seems like a bit of a negotiation, but in the end you just leave your printed travel plans and your passport with them and then come back 3 business days later to pick it up. I guess if you don’t live in Sydney you could easily just post everything to them, and I assume they have similar visa application centres in other Australian cities too.

Make sure you understand how many entries your visa allows. Even though Hong Kong and Macau are technically part of China, if you do a day trip across the border and then return to Shenzhen that will be counted as an exit and a re-entry. Confirm that’s OK if you plan to do that.

Preparing to hit the ground running

I started off by joining a couple of Shenzhen Expat type Facebook groups and asking a few questions about which areas to stay and where to find some good co-working spaces and before I knew it I was getting invited to all sorts of WeChat groups and had a pretty good feel for where I wanted to base myself.

Having done that I did a bunch of googling meetups and events that would be on at the time I was going to be there and put them in my calendar. I was really keen to meet as many entrepreneurs, potential partners, potential investors and potential distributors as possible. I figured getting out to a bunch of these events and mingling with the go-getters of the world was a good place to meet some of these types of people.

Arriving to a different planet

I had such an overwhelmingly positive experience of my time in Shenzhen that I want to start off by sharing the experience of my first 24 hours which were pretty average.

After a long flight from Sydney with a layover in Shanghai (yep, that’s why the flight was so cheap!) I arrived about 1am and discovered that none of the ATM’s in the airport would accept my Australian bank card and that all the money changers were closed.

As I’m loathe to change money with a money changer, especially at an airport, I had arrived without a single shred of local currency and just assumed I would be able to hit an ATM for some cash when I arrived.

I searched the entire terminal and tried every machine before crossing paths with a friendly family I had met on my flight from Sydney who kindly swapped me $20 AUD for 100 RMB so that I could pay for a taxi to get to my Airbnb and then deal with the money problem in the morning.

I woke to 16 degrees and drizzle in an industrial looking area miles from the centre of town and set about finding some money so that I could get some breakfast. As I walked out into the rain to some odd looks from locals who seemed surprised to see a foreigner I began to wonder if I had made a mistake. After all, I only had one little light jacket with me and it was seriously cold – just the thing I was trying to avoid. 

Then came the challenge of finding an ATM. 

Despite being only 30km’s from the centre of one of the world’s great global cities – Hong Kong, in Shenzhen many people don’t speak a word of English which makes communication a constant battle. 

I managed to find a couple of ATM’s, but they were missing the “Cirrus” or “Maestro” logos that I have printed on my card and therefore didn’t work. I pointed to the logos on my card at one place and had a bunch of the staff trouble shooting for me, neither party able to communicate anything with the other besides me saying “bu hao” (no good) as I pointed back and forth between the logos on my card and the mismatched logos on the ATM I was standing in front of.

They sent me a couple of kilometres away by taxi to a Bank of China location where I had the same problem. A guy there spoke English and sent me down the street and around the corner in search of a Bank of Communication ATM, but when I got there it was a different bank at that location.

Down to my last 20 RMB (about $4) and after getting advice on the actual whereabouts of a Bank of Communications ATM I rolled the dice on another taxi. If I got there and couldn’t get any money out of the machine I would have a pretty decent sized problem. It was like my trip to Cuba in 2007 all over again!

Fortunately I did get money successfully and that marked a turning point in my fortune. I was able to eat (finally!) and headed back to my temporary home to grab my laptop and get on top of some work.

For the record, the only ATM’s that I found that worked during my stay in Shenzhen were Bank of Communications ones.

Simply the best

It was recommended that I checkout Simply Work 2.0 co-working space in High Tech Park and I popped in to check the place out on that first afternoon.

I’ve spent plenty of time in lots of different co-working spaces, but this place is really something else. 

Water features run most the way around the walls with gold fish swimming around, there’s a café that serves nice food, the staff are super friendly and speak great English, there’s ample space for people in shared working spaces, there’s fixed desks if that’s what you’re looking for, there’s enclosed offices that a bunch of local companies call home, there’s a games room, there’s a gym and there’s even a mediation room if you need a bit of time out.

The shared work area
The shared work area
The Simply Work resident cat was often chasing these guys
The Simply Work resident cat was often chasing these guys
Kitchen-China
The café has some good food – I ate my body weight in yoghurt from this place!

I instantly felt like I had found my base and despite the manager telling me I couldn’t pay with cash (WTF?) and suggesting I go somewhere else, I persisted and with a bit of arm twisting she accepted my payment in cash along with a refundable deposit of 2 months on top.

(I thought it was interesting that many places think you’re a weirdo when you try and pay with cash and everyone seems to prefer WeChat Pay or Ali Pay

The price for a month desk rental was 625 RMB, or about $120 (March 2017 rates xe.com) and that includes access to the gym. Total bargain if you ask me!

Fairly regularly there would be a social gathering breakout in the seating area near the café and anyone was always welcome to come and join in for food and a chat. Super friendly atmosphere.

Another spontaneous social event
Another spontaneous social event

Speaking of gym’s

I had one workout in the Simply Work gym, which is about the size of the average kitchen in Australia and found it a bit inadequate. If all you want to do is run on the treadmill and do some stretches it’s fine, but if you are looking for anything more you’ll want to head downstairs in the same building and talk to Michael who runs Attitude which is a proper gym and he’s a nice guy to boot.

Michael and Fortune of Attitude Fitness
Michael and Fortune of Attitude Fitness

He’s spent half of his life in Canada and the other half in China and speaks better English than I do. He hooked me up with a pretty good rate for a couple of weeks membership. I can’t remember exactly how much I paid, but I think it was roughly $60 for 2 weeks.

You’re gonna need a VPN

If you’re like me you probably rely pretty heavily on Google and Facebook to run your business. You might have heard, but China and Google are not best buddies and as such absolutely nothing Google works in the mainland (but works perfectly in Hong Kong which is just across the road!).

Gmail, Google Drive, Google Sheets? Forget it. Facebook and Instagram are blocked too. 

I was interested to hear from a few people that it’s not all about censorship anymore. These days there are domestic alternatives to anything you’ll find in the West, so by blocking FB and Google they give Chinese companies a better chance to grow and thrive. As someone put it “why support employment and taxation in the US when we can support it here?”. 

Fair enough, but it’s still annoying not to be able to get anything done.

You’re gonna need a BETTER VPN

I spent the first week banging my head against the wall complaining about how slow the internet was, until eventually a Dutch guy named Rueben told me that he thought the internet was fine and that I should consider getting the same VPN that he uses.

Get used to waiting for pages to load

I was originally using Viper, which I’ve had for about a year and has done the job in most places, but in China I recommend getting something more robust and suited to China. The one I switched to is called Fyzhuji and you can download an app for it called “Shadow Rocket” for $1.49 in the app store so that you can ping test the fastest server every few hours and then switch both your mobile and your laptop over to the best performer.

That was life changing, although the internet was still worse than Australia at times – and we all know that’s not a very high bar for speed. 

A word of caution – during my stay I saw a news story that it had just become illegal to use a VPN in Chongqing (a city) and anyone caught would be fined around $3000. It’s worth understanding the rules around this, but I really don’t see people stopping their use of VPN’s.

What’s with all the cats?

Shenzhen is cat crazy. It seems like everywhere you go, whether it be the gym, the office or to a restaurant restaurant – everyone has a cat. 

I asked about it a couple of times and no one seemed to know it was a thing and didn’t even notice that there are cats everywhere you go.

Cat-China
The café around the back of the Simply Work building does great juices. They also have a cat.

Michael from the gym brings his cat “Fortune” with him 6 days a week to let him roam around the gym floor and make sure everyone is putting their weights back after use. He says he gives him one day off a week to stay at home and sleep.

Amazing food

I’m a fan of Chinese food in Australia, but there often doesn’t seem to be a lot of diversity in what you can find and a lot of it is fried and leaves you feeling pretty heavy after a meal. In Shenzhen there is so much epic food everywhere you look and it’s mostly really cheap.

Dumplings, pork buns, wontons, dim sum (thanks Reagan)… geez I miss it already. Breakfast was typically 4 steamed pork buns from the street vendor outside the Simply Work building for 6 RMB (about $1.10) and I don’t think I managed to spend more than $15 AUD in a single meal sitting the entire time that I was there.

The lady I bought breakfast from most days hiding behind her delicious goodies

The lady I bought breakfast from most days hiding behind her delicious goodies

It’s totally possible to find great eats for around $4 AUD and it seems like you can walk down any random street and stumble upon some good places to eat, unlike other parts of Asia – like Jakarta for instance where you can walk for miles without finding anything that looks edible.

Fried wontons and something that tastes like satay sauce – delicious and just $3.50
Fried wontons and something that tastes like satay sauce – delicious and just $3.50

Getting around

The train network (MTR) is awesome and a piece of cake to navigate. Apparently the entire city was modelled on how Singapore does things and that shows when you jump on the MTR to go anywhere.

There’s enough English on the ticket machines, signs and displays in the carriages to get by and a one way ticket to the other side of town will set you back 6 RMB ($1.10).

tube
The Shenzhen MTR network looks complex, but is pretty easy to navigate
station-sign
Easy to understand signs on every platform in the stations

I personally found getting around by MTR to be easier than taking a taxi and took about the same amount of time.

Accommodation

I stayed in a serviced apartment in High-Tech Park for around $45 per night. You could certainly do things much cheaper if you were willing to stay a bit further out, give up a few creature comforts or just grab a room in someone’s place on Airbnb instead of the entire place.

room
My humble abode

I heard that the wealthiest people in China live in Shenzhen and the area I was staying in was one of the top five most expensive places to stay.

Getting a Phone

On my first day I went and bought myself a new Samsung phone for the very lucky price of 888 RMB. I figured I would get a local sim card for my stay and it would become my Chinese phone.

Turns out they wouldn’t sell me a sim card because I didn’t have my passport with me. So I just decided to wing it for a while and assumed I would buy the sim card some other day. 

I got by the entire time using wifi on my Aussie phone. 

Everywhere you go has wifi. It’s not like in Sydney where wifi is the exception rather than the rule, in Shenzhen every single café, restaurant or place that you’ll find yourself has wifi. Even little mum and dad dumpling joints have wifi. It’s great.

It was so handy that I never got around to getting a sim card and so far I’ve still never used my lucky new phone.

WeChat

In China people communicate on WeChat, so download it and get ready to embrace it. In the Philippines people use Viber, in Indonesia it’s Whatsapp, in China it’s WeChat.

It’s actually pretty handy because it has its own translate function. Someone can send you a message in Chinese characters and all you need to do is long press the message and then click “translate” and although it may not be perfect, you’ll be able to figure out roughly what they are talking about.

Google Translate

Google translate has an awesome feature whereby if you download a language it is available when you are offline and you can point your camera at some Chinese text and see an English translation on your screen. 

It seems like translations aren’t perfect, but it’s generally enough for you to get the gist of what something says which is really handy when you’re in a restaurant trying to order food off a Chinese menu without pictures.

Friendly People

Shenzhenner’s are mostly very friendly, but often not particularly outgoing at first. I think a lot of people aren’t confident in their English ability, or perhaps they just instinctively don’t want to ambush you with questions, but once you give someone a reason to engage with you they are generally incredibly friendly and welcoming.

One example was when I was roaming the streets trying to find a laundry to do a load of washing and a guy that I approached spent the next 15 minutes walking around with me trying to find one and then offered that I could use his washing machine. I think it was all innocent, he just wanted to help me out. 

(For the record I ended up just doing my own laundry. It’s not like Bali where you can take a couple of kilos to a laundry and have them washed, dried and folded for $1.50. In Shenzhen everyone does their own washing)

Be prepared for everyone you meet to ask to add you on WeChat. I’m not sure what the etiquette is for declining, but I never declined once. Even the guy I sat next to on a ferry who couldn’t speak a single word of English. I’m not sure why he wanted to add me, but I accepted his request too!

The Shenzhen Startup Scene

The startup scene has only really existed for about 5 years or so, but it feels like it’s a special moment in time. I couldn’t help but think that “these are the days” while networking, meeting people and going to events.

When you go to startup events in Sydney people seem a little more reserved, but in Shenzhen it seems like everyone has the attitude of “hey we’re here on the other side of the world, let’s just go for it”. People seem really interested in meeting you and finding out as much as they can about your business – and that’s just the other foreigners.

I found the Chinese to be awesome and super helpful too, although don’t expect someone who isn’t confident in their English to come and try and strike up a conversation with you.

Shenzhen is really tech focussed. VR, AR, robots, electronics – all stuff that I know absolutely nothing about. 

I went to an event run by HAX one night and despite not having a clue about what the presenters were talking about when they were discussing their products, when they came to talk about running a business and sourcing from a country other than your home country I found some common ground and could relate.

There are loads of events on every week. I recommend putting yourself out there and going to as many of them as you can, even ones that aren’t exactly aligned with what you do because you’ll meet interesting people everywhere you go.

As far as networking goes I think you get out what you put in. 

If you say yes to every invitation, put yourself out there as much as you can and go out and actively try and talk to as many people as you can at an event you’ll be surprised at how easily things happen for you. But if you keep to yourself and don’t make much of an effort to mingle you might find that less opportunities fall into your lap. You only live once, just go for it!

Ground Zero

Shenzhen and Shanghai are currently ground zero for startups and entrepreneurs in China. If you’re into tech you’ve gotta be in Shenzhen though. Shanghai sounds like it might be a more suitable base if you’re interested in financial startups.

I was told that Guangzhou is the region where new food products cut their teeth, although I didn’t make it there on this trip. That will have to wait for another time.

Valuation Gap

Thirty percent of Chinese VC’s have their headquarters in Shenzhen and there is a crazy amount of money there.

Equity valuations appear to be on a different level compared to Australia. In Australia an early stage idea with something to show investors might be valued at around $1 - $1.5M, but in China it sounds like a $1M cash injection might just be considered an Angel Round. That gives you some idea of how much money is up here.

Chinese work harder than Aussie’s

Steve and I often joke about how Sydney entrepreneurs talk about how hard they work, but all knock off for the day at 6pm and go home. The same is not true in Shenzhen. 

At Fishburners it’s typical for there to only be a handful of people still grinding after 7pm and no one in sight after 9pm, but at Simply Work the office was still buzzing until about 8pm and even at midnight there would be some movement.

One guy in particular was there every single day (even weekends) until 11:30pm and I never saw him say a single word to anyone. I have no idea what his name was or what he was working on, but he was in the zone.

A Communist Nation?

Yeah right. Chinese love money and business is booming. I recall as a child thinking that China was a poor country, but these days there are so many super wealthy people that it boggles the mind. Just look at how many Chinese are now Australian real estate owners for evidence of that. 

The personal tax rate caps out at 45% (sound familiar?) and Chinese businesses pay a bit more in taxes than Aussie businesses.

Chinese businesses pay 17% of all revenue (VAT) and 25% of profits. Compare that to an Aussie business that pays 10% of all revenue (GST) and 30% of profits. Not that different.

China doesn’t have great welfare and health care like Australia does, which seems odd for a “Communist” nation. 

So Australia is a Capitalist nation and China is a Communist nation? I don’t buy that argument for a second.

Confucius Says

On my second day in Shenzhen a German guy named Phillip told me “in China nothing is impossible, but everything is difficult”. I was hoping that only applied to his business.

Unfortunately after 3 weeks in Shenzhen I still don’t have clarity around the import rules and regulations for our product which seems totally absurd, considering that is the first question that we would seek to answer about whether we can do business there. 

In addition to language difficulties that mean making a phone call to any company or government agency is basically impossible, it seems the Chinese government agency I needed to talk to wasn’t the most efficient of operators. Who would have thought?!

Every few days I would ask a native speaker in the office at Simply Work to help me to make a phone call to the CFDA, but they never answered the phone. I guess those guys don’t get paid based on how many phone calls they handle!

Such inefficiencies mean that you need to work with some kind of private sector broker who is incentivised to help and get things done. Still, after weeks all I know is that it may be possible, but it’s going to require jumping through a lot of hoops and red tape.

Progress Takes Time

I had several meetings with Austrade officials during my time in Shenzhen and found their advice helpful, if only high level. One of them made the comment that what I hoped to achieve during my stay was optimistic and that I should “dream big, but take small steps.”

This means that to make solid progress in China (or any country) you will have to spend some serious time on the ground there. It’s not realistic to think that you will be able to have a few meetings, meet the right people, learn all you need to know and establish a successful company in any jurisdiction in just a few days or even a few weeks.

Swimming Against the Tide

Of course, I was the odd man out in Shenzhen for more reasons than one. In addition to sticking out like a sore thumb because of my signature Aussie shorts and a t-shirt attire most days, I was also the only person I met that was trying to sell to China as opposed to source from China.

Sourcing your products from China is obvious. Production is cheap, Chinese are efficient and you can iterate quickly and scale rapidly.

Indeed, there is a saying that a week in Shenzhen is worth a month anywhere else when it comes to robotics and electronics because of how quickly the local suppliers act on your feedback and deliver improved prototypes.

Unfortunately for me, the same is not true when trying to set yourself up to sell to China, although I do feel in some ways that a week in Shenzhen is worth a year in Sydney in terms of how much networking you can do and how many important people you are able to meet. 

It’s amazing and I had to pinch myself a few times to check if it was actually real life or just some parallel entrepreneur universe nirvana.

Domestic Cultural Diversity

Every city and region in China is different. There is also the concept of “first tier cities” and “second tier cities” that we don’t have in Australia.

Basically the key point is that what works in Shenzhen may not work in Beijing, or anywhere else. I get the impression some products focus on one area or region and then spread their wings and grow to other regions.

As they expand into other regions they may need to employ different marketing techniques though. 

One really obvious example of this is the language

I’ll admit, it has bothered me for many years that Chinese don’t just all speak Mandarin and make it easy for us foreigners, but after I recently learned that China wasn’t always a united country, that the different dialects are an important part of each regions cultural identity and that more recently the government is trying to impose a “one China, one language” policy which threatens the survival of these dialects, I’m now in favour of everyone in different corners of China maintaining their local dialects so that they aren’t lost.

Besides, I’m giving up on ever becoming fluent in Madarin – it’s way too difficult. I think I’ll just stick to trying to learn Indonesian!

Good Memories

Like I said at the outset, I hope this article brought some practical advice that you might find useful if you want to do a similar trip. Much of what I’ve covered would be applicable to any region in China, not only Shenzhen.

I feel privileged to have had this short stay in Shenzhen and to have met the people that I did. To think that I had all of these great things happen to me because I decided to go to China on short notice and then chose the warmest destination on the map is kind of humbling. Sometimes I amaze myself at how lucky I get.

Some of the entrepreneurs I met at Simply Work 2.0
Some of the entrepreneurs I met at Simply Work 2.0

If you have any interest, however remote, in selling your product in China, sourcing from China, doing business in China or raising Capital in China I beg you to just register your Trademarks and go. It’s cheaper and easier than you think and you’ll be glad you did it.

In fact, even if you have no interest in doing business in China I still suggest you go. You’ll get to see some different co-working spaces, meet people from all over the world who are doing all sorts of interesting things and have some cool experiences. 

Best of all, you’ll get to eat plenty of great dumplings!