Click to read the original article for details. Source: Fudan Business Knowledge (ID: BKfudan)
"Squirrel Dad" Zhang Liaoyuan's office resembles a product laboratory, with rows of nut packaging on the table—red, yellow, and blue color schemes that prominently highlight the words "Three Squirrels," along with squirrel prints. These are the squirrel New Year gift packages he designed for the upcoming holiday. From selection, research and development, packaging, to copywriting, it's hard to imagine that a CEO who controls the company's overall strategy would be so attentive to the details of all products.
Marketing and branding have always been Zhang Liaoyuan's strengths, and this has been a major competitive advantage for Three Squirrels since its founding in 2012. During the early chaotic period of snack e-commerce, Three Squirrels became a leader in the field, thanks to marketing, speed, and the e-commerce dividend. When the e-commerce dividend was exhausted, and the incremental market became a stock market fought over by all parties, with consumers' tastes changing, Zhang Liaoyuan, who had been running with Three Squirrels, sensed that problems were emerging.
How to transform? Three Squirrels chose to return to the most fundamental products and user experience; Zhang Liaoyuan returned to his most familiar marketing role. "Look at former Apple CEO Steve Jobs; he was always involved in product design," Zhang said. He couldn't afford to lose his advantage either.
After the Dividend Period
Q: In 2017, Three Squirrels' "Double 11" sales were not ideal, but in 2018, sales surged by 40% year-on-year. What do you think are the main reasons for this growth?
Zhang Liaoyuan: In my view, the success of our entrepreneurial companies is basically due to finding a relatively vacant or dividend-rich field. From 2012 to 2017, Three Squirrels was in the internet snack dividend period. However, around 2017, the entire market shifted from an incremental market to a stock market. Our "Double 11" sales in 2017 were not good, with almost no growth compared to 2016. In such a situation, if a company doesn't adjust its strategy, it's easy to go downhill.
The biggest difference between internet companies and traditional companies is that if a traditional company stops growing, its overall curve declines slowly, while internet companies experience cliff-like declines. They grow rapidly and decline rapidly because their traffic model has changed.
After 2017, we realized this problem and began to transform. Overall, we placed innovation at an unprecedented height. In the past, our innovation was in business model innovation. In 2017, our major direction was to innovate in products and user experience. Two other changes were shifting from nuts to full-category snacks and from an online brand to an omnichannel brand. That's why we saw such a change in "Double 11" sales in 2018.
For entrepreneurs, it's essential to do the right thing at the right time, but at different stages of company development, the focus may differ. You can't start with product upgrades because you don't have initial capital; initially, you think about how to survive. In the past six or seven years, Three Squirrels' focus was not entirely on product innovation itself because there was an e-commerce dividend. Many people shopped online, and as long as the product was the same as offline, with lower prices, guaranteed service, and a bit more fun, it was enough to attract consumers.
The reason Three Squirrels is still doing well is that during that window of opportunity, we completed our accumulation. Now, we're going offline, and I look at where our competitors are and think about how to use the next five or six years, this window of opportunity, and the new retail opportunity to catch up with and surpass traditional snack companies.
Q: Three Squirrels has expanded from pure online to omnichannel, starting to establish investment stores in 2016 and using Retail Link to reach offline stores in 2018. How do you view the offline layout?
Zhang Liaoyuan: Now our opportunity is the new retail opportunity, which improves the relationship between efficiency and cost. Our move offline is not simply about putting products in offline stores; rather, we choose high-efficiency channels, such as the 2B distribution Retail Link, which bypasses distributors. In just a few months on Retail Link, our products reached 250,000 small stores. In the past, to reach 250,000 small stores, you would need at least 5,000 people, if not 10,000. Now, we only need 12 people, greatly improving efficiency. Additionally, our investment stores and squirrel small stores are also high-efficiency models. Our offline layout first considers efficiency; if efficiency is high, products have price competitiveness offline. If the price of the same product can be reduced by about 30% through a model innovation, then you win. So I think offline is a great opportunity for us.
CEO's Core Competence Cannot Be Lost
Q: During Three Squirrels' transformation, you conceived and implemented the organizational reform of small business units, but canceled it in 2018. How did you consider this?
Zhang Liaoyuan: To summarize the failure of our small business units in one sentence: You give the land to the farmers, but if the farmers don't know how to farm, giving it to them is useless. In fact, small business units originated from the Amoeba model, which has two prerequisites: management philosophy and values, which must achieve consistency and sharing. For us, there was no problem with the sharing of values, but we had problems with the sharing of management philosophy. Many people had not yet reached the ability to operate autonomously. If the management philosophy is not understood, it's like farmers who don't know how to farm; if you give them the land, it will be even more barren than if you farm collectively.
After canceling the small business units at Three Squirrels, we now retain very small units. Our new organizational system is: values as the cornerstone, business as the guide, competition as the evaluation, and promotion as the driving force. How to view the relationship between values and business is quite difficult in corporate management. Companies at different development stages should balance the relationship between the two. For example, early-stage companies should lean more toward values, even being values-oriented is fine. As the company grows, you need to make values a standard, a foundation, and then focus on performance evaluation.
Q: You realized that the small business units didn't work and corrected it in a short time. During the transformation, what other reflections and insights do you have?
Zhang Liaoyuan: My biggest summary is that I overestimated the role of organization and ignored the existing core value. Ultimately, every company's success has a core, and that core stems from the founder's strongest aspect. Take me as an example. I was originally a person with strong marketing abilities, but to make the company operate better, I thought management was the strongest ability of every CEO, so I abandoned my marketing ability, hoping to cultivate people to do marketing better.
But that's not the case. Excellent talent is developed by following the most capable person. Over the past six months or so, I have returned to my main business line, leading everyone in product and marketing. I don't spend too much effort on other things; I just find reliable people to handle them.
Another reflection is not to over-innovate. I have a strong inner subversiveness; I don't want to follow others' paths, and I hope everyone in the company is like an entrepreneur. Later, I found it had some problems. For example, when we managed offline and investment stores, we wanted to establish a completely flat management structure, with 1,000 store managers directly connecting to various headquarters modules, without any regional managers in between.
In hindsight, that's good, but it was too ahead of its time, ignoring the management experience left by the industrial age. You can improve it, but you can't overturn it overnight. So how should we understand innovation? Creating something from nothing is innovation, but recombining various elements and maximizing a certain prominent aspect is also innovation.
Open Sources, Don't Cut Costs
Q: What is the most troubling issue for you at the moment?
Zhang Liaoyuan: I think it's still in terms of talent. The key to organization is talent. Chinese companies should pay attention to these advantages:
First, China's manufacturing capability is very strong; Second, China has a very large consumer market; Third, China has become the world's largest country in higher education.
If a company can combine these three points, then it will be powerful.
Of course, this also matches the development stage of our company. In the first stage of entrepreneurship, companies shouldn't talk about how strong their organizational capabilities are or how good their talent is. In fact, entrepreneurial companies never have as much talent as large companies. Relatively speaking, individual abilities may not be as important because initially, companies move forward by riding the wind and taking advantage of dividends. That's the past of Three Squirrels; we ran for six or seven years in one breath. Seven years is a cycle. Now the dividend is gone. Previously, growth masked everything. Once a company stops growing, problems immediately surface.
When a company faces a growth crisis, what do you choose to do? Open sources or cut costs? In my view, open sources but don't cut costs. When Three Squirrels faced a growth crisis, we chose to increase wages, with an average salary increase of 40% across the company. If we chose to cut costs, what would happen? Growth through cost-cutting is equivalent to giving up growth and choosing meager profits. Some employees would lose confidence, unable to see the future, and cost-cutting would also limit the introduction of external talent.
Q: What is the consumer profile of Three Squirrels? Is it urban young people?
Zhang Liaoyuan: Not exactly. We hope it's a brand for the general public, a broad audience. In terms of positioning and appeal, consumers may think it's a white-collar brand, but our prices are affordable. You could say our brand targets young white-collar workers born after 1985 and 1990, but consumers in third- and fourth-tier cities are also our loyal customers. So, positioning sometimes just sets a consumption trend indicator. The audience for Three Squirrels must be broad; our goal is family consumers—grandparents, parents, siblings—everyone can eat our products.
The Future Is Supply Chain Competition
Q: Where do future threats mainly come from?
Zhang Liaoyuan: It's still from ourselves. Whether our speed of product innovation can be faster than traditional companies determines who will win this war. Our core still needs to return to making products. In terms of product innovation speed, we have advantages that traditional companies don't have. Compared to traditional companies, we can operate more categories under one brand, and we have offline direct-operated stores, franchise stores, and alliance stores. Online, we can launch new products faster. We can quickly bring products to market and directly reach users online. Additionally, our factories use flexible production and are OEM-based, allowing rapid product adjustments.
Q: In the snack market, product homogenization is quite serious. How does Three Squirrels create its own characteristics?
Zhang Liaoyuan: Our current positioning for products has several keywords: flavor, fun, and freshness. Understanding flavor means products should have a certain uniqueness to differentiate from others and be adjustable in real-time. Regarding fun, besides being delicious, snacks are a form of enjoyment that brings pleasure and has social attributes. For example, our giant snack pack sells very well. A boy sends it remotely, and when a girl opens it and sees such a big pack, she'll be very happy and post it on social media. So, snacks are not just food; they are an indispensable emotional expression in daily life. Freshness is also very important for products. Next, Three Squirrels' challenge is to achieve a strategy of full-line freshness. For many products, we will shorten the shelf life to three months, while ensuring that consumers receive products produced within 20 days.
We now talk about digital supply chains, hoping to solve information asymmetry through digitalization and use all means to shorten the distance between factories and consumers. Perhaps in the near future, we can truly achieve instant ordering and instant production. We are developing a system called Squirrel Cloud Manufacturing. Its core mission is to shorten the distance between consumers and factories, making every process and every action visible on this APP. Users order today, and the product is shipped tomorrow, produced the night before. This is the ultimate ideal, and we want to achieve it.
Q: In fact, your overall control of the supply chain will also become your core competence.
Zhang Liaoyuan: Yes, in the end, all capabilities are supply chain capabilities. The product innovation I just mentioned is all "techniques." The ultimate "way" is having a supply chain capability that others don't have. Although I don't own the factory, our system was developed earlier than others. Once a factory connects to our system, its speed in supply and other aspects becomes faster, and consumer feedback is also quick.
Currently, information is fragmented. For example, everyone makes a budget based on sales, determines how much product is needed, then orders are sent to logistics and procurement departments, which then place orders with factories. That's the typical process for most companies. In the future, can sales directly place orders with factories, eliminating intermediate steps?
Currently, our system is a quality system that only involves one intermediate link and is not integrated. The Squirrel Cloud Manufacturing system we are building aims to include three aspects:
First, it ensures an ultra-fresh model from consumers to factories, quickly responding to consumer needs, such as ensuring consumers receive goods within 20 days; Second, it provides comprehensive quality assurance; Third, it provides all effective data, empowering every link in the system to facilitate more precise decision-making.
When a factory receives an order, it can know all the background information behind that order, such as where the product was sold in the past, how it sold, at what price, and the logistics situation. Understanding this information, the factory can make better decisions and arrange production capacity reasonably.