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chinamorningAs the delegation returned to our hotel in smoggy dusk a lime green rickshaw was playing chicken with a big tan BMW 7 sedan. Some unseen signal passed between the cyclist and driver and the tangle resolved itself smoothly; the perfect metaphor for my adventures in China last week.

The country is a fascinating jumble of the old and new, the Chinese are inventing new ways of working together on the fly in the midst of unprecedented growth and change. The whole country smells of wet concrete. Construction is everywhere.

In the spirit of “Beginners Eyes” I’ve captured in this post a few of the things that caught my attention over my 6 day visit. We’ll be making an announcement soon about the business venture we worked on, but in this initial post I’ll focus on my personal experiences.

Patterns

22 hours of travel took me from the warmth of Austin to the winter chill of Beijing. As we descended the street patterns of the communities on the flight path caught my attention. Everything is catawampus, it has an organic and erratic look to it. Villages, large apartment complexes, and farms all have irregular layouts.

The Cartesian orderliness valued in North America isn’t that important here – even in the most modern zones. As much as architecture reflects patterns of thought this aerial perspective provided some insight on cross-cultural differences. The Chinese are at home with complexity.

Nightlife

My bleary eyed search for dinner took me in a taxi to Huhai, a restaurant and bar district encircling a small lake in the center of the city.

Strolling around the lake I heard emo girls with guitars, a tight hard-rocking house band, and blind erhu (Chinese violin) players. I had to shake off numerous touts (“Lady Bar?”) who could give Bourbon Street’s dollar-a-holler hustlers a lesson or two in persistence. The scene was a pleasing mix of cultural vibrancy and the peace of the lights reflected around the lake.

chinesebanquetAbout the Food

That first night the menu featured turtle, bullfrog, fish heads, intestines, duck feet, alongside spring rolls and pork. Over the course of the week we ate rabbit, conch, foie gras, yak, duck eggs, bamboo, and all variety of chicken, pork, beef, and lamb. I don’t think we had squeal, quack, or moo, but if it could be cooked it found it’s way onto the table. Every bite was delicious and my personal favorite was a spicy Sichuan chicken dish that left your mouth numb. The yak was damn fine too.

I discovered quickly that the trick to surviving a Chinese banquet is taking just one bite of each dish. When 15-20 dishes are served it adds up to a full meal with a head spinning range of tastes and textures. I found it far more interesting than having just one dish to yourself.

You should try the corn juice too.

In a case of stereotyping and thoughtfulness the Chinese assume we want ketchup with everything. I was also amused to see a full display of Tabasco sauce products in our Sichuan hotel. Sichuan sets a high bar globally for spicy hot food, they do everyday things with peppers the Cajuns only dream of. And yet, there was Louisiana’s finest front and center.

forbiddenmaoThe Sights

My first full day was a chance to see the city and adjust to the 14 hour time shift. I headed off to the Forbidden City and had my first full contact encounter with Beijing cueing protocol. After I got skunked on the first subway I got into the spirit of the thing and muscled my way onto the second one.

The Palace was clearly built for intimidation – the scale must have been awe inducing when it was an active residence of the emperor. But the funny thing is the hordes of tourists clung together in the center of the passage through the various squares – leaving acres of empty space to the left and right. The scale remains intimidating even today.

Wandering in the hutongs (alleyways) behind the Palace gave a small taste of daily life in the city. Mountains of vegetables, laundry lines, and construction everywhere.

Where the heck are the trash cans? It isn’t like there is a lot of litter (there isn’t) but I spent half my time with trash jammed in my pockets.

Driving

During the long taxi ride out to the 798 Art Zone I noted that the question of front seat vs. back seat in cabs has a generational split to it. Older more egalitarian comrades ride shotgun while the new generation sits in back.

Anyone who learned to drive in Boston feels at home with the traffic patterns in China. Aggression mixed with a fine sense of when to give ground, a general disregard for lanes and lights, and a love affair with the horn are hallmarks of Chinese automotive arts.

Chinese trucks are impressively built, not fancy but engineered for power and scale. Half of them seem to be dragging great loads of brush and trees that spill out of the cargo area.

Seatbelts in cars and helmets on the ubiquitous motor bikes are entirely optional. In most of the cabs I rode the seat belt tab was hidden too deep in the seat to be used.

798artzoneArts and Culture

798 is a wonder – artists colonized and then overwhelmed an East German Bauhaus factory center about 10 miles northeast of the city center. Galleries, cafes, and shops spread over 10-15 blocks and feature a mix of local and international artists. The local scene is vibrant and ranged from deeply profound to kitschy (Maobama!). The streets are littered with sculpture mixed in with industrial detritus that creates an enervating contrast.

In one magic moment I emerged from the 798 Building into a small courtyard. An icy breeze brushed the trees and all the leaves came down at once. Essence of autumn.

Soaking the Laowai (foreigners) who want to remain in their cocoon is a finely tuned art. A 25 minute taxi ride back to my hotel was less than a cup of regular coffee in the hotel lobby. It was also 10x what I paid in a local café earlier in the day.

State sanctioned media (China Daily) mixes decent straight reporting with eyebrow raising howlers like “Kids Keen To Learn Financial Management.” I am not making that headline up. Things are not THAT different around the world.

Morning

I hit the streets for a walk at 5:30 AM (3:30 PM in wide awake Austin). We were staying in the financial district so you wouldn’t expect it to be vibrant. But it was totally dead. A few taxis idled sulkily and that was it. No pedestrians, no early morning coffee shops, no traffic. Nothing. I noticed a similar pattern in Sichuan a few days later.

As a night owl myself this makes total sense to me. Perhaps millennia of civilization have taught the Chinese that the early worm gets eaten.

A semaphore for income inequality – they still have payphones everywhere.

hlhlfoundation2011Ceremony

We were lucky enough to attend the HLHL Foundation awards in Beijing, the Chinese equivalent of the Nobel Prize. As guests of one of the founders we were given seats in the VIP section and added a touch of the West to the event.

All the judges and VIPs spent the better part of the ceremonies flipping pages of the documents they had been provided. This, rather than attending to the speakers, seemed to be the polite thing to do. They were very nicely printed documents and fortunately there were enough pictures to keep me entertained.

Dining protocol for business dinners is strict. The host always sits with his back to the wall facing the door, honored guests are placed in a pecking order in the seats radiating away from the host. I guess I expected something a little more egalitarian in a Communist culture but it seemed to work well for making sure people at the same level in the different organizations were able to interact.

Chinese toothpick style is a habit we should adopt in Texas. They cover their mouth with one hand while the other manages the excavation hidden from view.

commflagOutside Beijing

From there we headed to Sichuan Province in the center of the country. The parts of Beijing I saw were comparable to other world cities I’ve visited – Prague, Toronto, San Antonio. Just bigger – much bigger. Arriving in Sichuan felt a bit like landing in Mexico. It is a roiling dynamic area of construction and growth, but it also has more visible poverty. One block from our elegant hotel were broken windows, open markets, and obvious signs of economic stress.

The pollution is choking. If you can recall what LA was like in the ‘70’s double it and you will get some sense of the chemical fog that is a part of everyday life. If Made in China products are cheaper because of laxer environmental regulations we are doing nothing more than externalizing the health costs onto people who are least able to deal with them. Its taken the better part of a week for my lungs to clear, and I was only in Sichuan two and a half days.

This may be an inevitable part of industrialization but you would think we’d have learned better in the 150 years since London choked with smoke and the 40 years since Cleveland’s rivers were aflame.

Homeward

I rose before dawn on my last day for my flight to Taiwan. On a dark and empty boulevard someone tossed a bundle of firecrackers that crackled in the industrial fog. It was a punctuation mark for the end of my first visit.

I’ll be back. I love this place.

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r67ye5tertgrgtreBooks, iPads, and the Kindle are changing the fundamental structure of the publishing industry. From a strategic perspective they are having the largest impact on the development and pricing of products. In other words it is affecting the “what” deeply. The “how” has not changed all that much, regardless of whether you are selling print and/or technology.

There are four fundamental strategies for a growing a company in the K12 sector because even in the best of times K12 is (mostly) a zero sum game. In 2008 I wrote a post about this competitive dynamic:

In normal times education budgets grow at 2%-5% a year. Most start-ups or new products need to grow at a huge multiple of that – 30% to 300% or even more. Mathematically in order for you to grow someone else is must lose out.

We are most definitely not living in “normal times” these days. Any growth strategy in today’s market is fighting gravity as school budgets are expected to fall next year after the stimulus has expired.

K12 Growth Strategies

How does a company go about “stealing” share from other players in the market? Below we look at innovation, distribution, acquisition, and diversification.

1. Innovation – This is the most obvious – if you build a better product people will flock to you while ignoring the tired offerings of your competitors.

The best example in the market today is interactive white boards which are now in over 60% of classrooms (70% is considered market saturation for most technologies). This has mostly happened over the last 5 years.

Since this platform is now ubiquitous a new innovation frontier is content for these devices like Saddleback’s excellent math programs.

PCI published our award winning PCI Reading Program – the first research based comprehensive program for intellectually disabled students in decades. It is designed for today’s Special Ed population, including a much higher number of students with autism. Tellingly it is a combination of print and software. This product line has seen explosive growth in a rough market.

Success requires a clear vision of market needs and how to apply new tools to those needs in an economically efficient way. Easy to say, really hard to do.

2. Distribution – Distribution is the achilles heel of all K12 start ups. If you have something innovative making more people aware of your innovative solution will drive new business. The problem is that there are 3.8 million teachers in the US and they are bombarded with marketing messages. Cutting through that clutter at that scale takes time and money.

The largest publishers have actually contracted their distribution networks in the last five years. They collapsed their supplemental teams into their core basal teams with the predictable result that the supplemental business has shrunk. There is a fair debate on how much of this shrinkage is falling demand on the customers’ side and how much is publisher neglect. What is clear is that the publishers’ actions have fueled the fire at some level.

This has created opportunities for mid-market players with niche distribution networks to fill the gaps at both ends – with their own products and as distributors for larger and smaller players. As I noted last fall:

“…[in the attention economy] access to expertise becomes very valuable and companies that can help their customers make informed, relevant, and effective decisions will thrive.”

An investor once asked me what it took to build a distribution network in K12. My answer was most definitely not what he wanted to hear – 10 years and a lot of patience. Most new companies don’t think in that kind of time frame but the survivors will all tell you that the trick was a long term bloody minded dedication to the challenge. There is no quick fix here.

3. Acquisition – Between starts ups innovating new learning technologies and mature mid-market companies seeking exits Education is a target rich environment for those seeking acquisitions.

The core challenge has more to do with investor expectations for returns on capital and the speed at which the education market moves. Due to the stickiness of education solutions once they are adopted they pay out nicely over a long period of time. Put another way – the payoff is there in this market but most investors are not patient enough to earn it.

Right now the larger publishers seem to be sitting this out but people looking to enter the market – like News Corp – are active. Private Equity groups are circling as well but many probably see education as a low risk hedge rather than a core investment. The VCs are quite active – but they are investing in small innovative start ups.

One of the more interesting plays may be marrying the playbook of the PE and VC camps. Leverage the distribution muscle of an established player than can reach across the market with the disruptive innovations coming from the smaller players through creative acquisitions. Culturally and operationally there are significant challenges in this approach, but the payoff if done correctly is a dramatic reduction in the time to market for innovations at a time of disruptive change.

4. Diversification – Another approach is branching into new markets. There are opportunities in corporate learning, education systems in other countries, tutoring, trade publishing, home schoolers, etc. for publishers who currently sell just to schools.

This mistake that may company’s make is underestimating both the changes in product design and the distribution challenges associated with moving into other markets.

Does your box say “program” instead of “programme”? At a minimum you will need a new box if not a complete page review and spelling update for the guts of your program if you want to sell it in the UK or Australia. Are you ready for the rough and tumble of trade publishing or corporate learning?

Moving into new markets requires sustained discipline as you learn the rules of the road and a willingness to invest over a long haul. If you are looking for a quick hit don’t waste your time on this approach.

Summary

If you are thinking about how to grow your business (rather than just holding on in tough times) then some combination of the four approaches outlined above is where you will probably end up. Your vision, access to capital, and discipline will determine what the right mix is for your company.

I’ve probably missed some obvious alternative to the four core growth strategies outlined above. Feel free to drop me an email or comment and we’ll update the list.