---
title: "Zhang Ye of Tsingshan Capital: Consumer Startups Should Not Overly Pursue Profits"
description: "Startups must first survive and develop, and only increase profits when the time is ripe. When resources are relatively scarce, profits should appropriately give way to building long-term competitiveness; investments in product R&D, brand building, and channel management may conflict with profits in the short term but achieve win-win in the long run. The markup rate should not be too high; giving benefits to consumers is an eternal truth. The markup rate is always our first concern, but is a higher markup rate always better? The answer is definitely no. Giving benefits to consumers is an eternal truth. 'Water can carry a boat, but also overturn it'..."
author: "张野"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2024-04-29"
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# Zhang Ye of Tsingshan Capital: Consumer Startups Should Not Overly Pursue Profits

> Startups must first survive and develop, and only increase profits when the time is ripe. When resources are relatively scarce, profits should appropriately give way to building long-term competitiveness; investments in product R&D, brand building, and channel management may conflict with profits in the short term but achieve win-win in the long run. The markup rate should not be too high; giving benefits to consumers is an eternal truth. The markup rate is always our first concern, but is a higher markup rate always better? The answer is definitely no. Giving benefits to consumers is an eternal truth. 'Water can carry a boat, but also overturn it'...

Startups must first seek survival and development, and only increase profits when the time is ripe.
When resources are relatively scarce, profits should appropriately give way to cultivating long-term competitive capabilities. Investments in product R&D, brand building, and channel management may compete with profits in the short term, but in the long run, they achieve mutual benefit.
**Markup Rate Should Not Be Too High**
**Giving Benefits to Consumers Is an Eternal Truth**
The markup rate is always our first concern. But is a higher markup rate always better? The answer is definitely no. Giving benefits to consumers is an eternal truth. "Water can carry a boat, but also overturn it." How far an enterprise can go ultimately depends on consumers. Do not try to stand on the opposite side of consumers by relying on excessive markups and profits.
There is no standard for markup rates: 5 times for clothing? 4 times for food? 3 times for electronics? The so-called consensus can only serve as a reference in markup rates. The most basic economic principle is that "commodity prices are determined by value and fluctuate with supply and demand."
The markup rate is only related to supply and demand, and ultimately returns to value itself in market competition. How much your product is worth, how much consumers are willing to pay, how much they pay reluctantly, and how much they pay happily will all be fed back to you by the market.
Except for exceptionally talented entrepreneurs who create products far ahead of their time and have relatively free pricing power, most startups should provide high-quality, low-priced products to consumers. If you don't do this, then sorry, the market may not have a place for you.
High quality and low price correspond to a limited markup rate and limited gross profit. **Gross profit space is a stage; essentially, it's where everyone showcases their talents.** Some are good at crosstalk, some at dance. The stage is limited, but you can perform as you wish. If you insist on going beyond the boundaries of this stage, the result may be that your eighteen martial arts skills never get a chance to be displayed.
You might say that someone can sell something made for 2 yuan for 100 yuan. I won't argue with you. But the big trend is that consumers are becoming smarter, information is becoming more transparent, and market competition is more intense.
Today's consumers are more rational and receive more external information during their decision-making cycle. In the past, they might only have time to compare three products in a limited time; now, by opening internet platforms, they can search for dozens or even more professional reviews of the same category. Previously, they looked at ingredient lists and composition tables; now, there are many professional software and experts doing ingredient analysis.
"It's not that XX can't be afforded, but that XX is more cost-effective." The logic behind this popular internet meme may not be consumption downgrading, but rational consumption. Relying on the logic that consumers are fools to mark up products is no longer advisable.
Now we see comparing multiple products, planting and weeding out grass, and professional reviews. What about the future? In the unpredictable future, consumers will have more helpers, more professional tools, more comprehensive information, and more convenient services. Fully armed consumers will definitely tear off the fig leaf of fake products and make them feel ashamed in the market.
Therefore, a reasonable markup rate and a gross profit space acceptable to both enterprises and consumers are the basic criteria for doing business today.
**Invest Profits into Complex Channel Construction**
Channels are the bridge connecting producers and consumers, bearing the heavy responsibility of expanding consumption scenarios and optimizing consumption services and experiences.
In today's rapidly changing market and increasingly diverse channels, channel construction is no longer as easy as entering a department store and waiting to collect money. Customer groups have long been divided by different channels. Especially in a market environment of stock competition, diversified channel construction is more important and very complex.
Take online platforms, for example: Tmall, Taobao, JD.com, Pinduoduo, and Douyin each have their own strategies, and new players are constantly entering. The construction of each online channel is a significant investment, from registration and store opening, store decoration, advertising, daily operations, logistics and transportation, to after-sales service, all requiring professional talent and continuous investment.
Offline channels are the same: mom-and-pop stores, convenience stores, KA, new retail—each type and each region has differences, requiring specialized and localized strategies. From store selection, customer acquisition, product selection, display, to service, the process is increasingly complex and professional.
Take Sam's Club, for example: a startup brand wanting to enter Sam's Club must go through docking, review, and negotiation on multiple aspects such as product pricing, distribution plans, and supply capabilities. Without half a year to a year of polishing, it's basically impossible.
The complexity of channel construction directly reflects in channel construction costs, with both explicit and implicit costs being very high. Explicit costs such as channel cooperation fees, advertising and marketing expenses, labor costs, and logistics and warehousing costs need no elaboration. Implicit costs such as time costs for communication, negotiation, and coordination in channel construction, risk costs from cooperation and market changes, and opportunity costs in channel trade-offs cannot be ignored.
Doing channels is a matter that requires solid and deep cultivation. Smooth information flow can support longer-term marketing and brand building.
Channel construction is not a one-time thing. Modern channel construction is more professional. In addition to early channel expansion, subsequent channel maintenance and management also require significant investment. The core of channel construction is to acquire traffic and find low-cost and effective channels. If low-cost channels continue to emerge, it means enterprises must be ready at any time to open up new battlefields.
**Invest Profits into Tedious Brand Building**
Brand is the business card of a product in the minds of consumers. Building a brand is an important means to win consumer trust and obtain product premium.
**In today's world of diverse products and media, brand investment is no longer as simple as buying an advertisement.** In the past, buying a CCTV ad could make you famous overnight. Now, advertising and marketing are pervasive, and making a brand stand out is even harder.
Nowadays, brand self-media is indispensable: Weibo, Douyin, Xiaohongshu, and WeChat official accounts. Which ones do you do, which ones don't? Each one costs money. The traffic dividend is gradually disappearing, so corresponding advertising costs are higher; marketing methods are diverse, so content requirements are higher. Nowadays, it's said that content should be done by yourself, but the word "content" doesn't correspond to just one thing; it includes a series of jobs such as copywriting, editing, design, shooting, and even live streaming.
Industry media, consumer media, and official media are all indispensable. Industry media (B2B) can increase visibility in the supply chain, partners, and capital markets; consumer media (B2C) can increase consumer awareness and brand trust; and official media goes without saying—the importance of endorsement is self-evident.
Brand building involves brand positioning, brand visual identity design, brand story and values construction, market promotion and publicity, and continuous adjustment to market changes. Each link alone is a significant investment, and for startups from 0 to 1, the investment needed in between is even harder to estimate.
Building a brand is a long-term endeavor, achieving qualitative change through quantitative accumulation. If early investment is insufficient or you give up halfway, you may very well fall just before dawn.
Brand building is not achieved overnight; it is a process of continuous optimization and sustainable development. Facing the ever-changing market environment and increasingly diverse consumer demands, enterprises need to continuously optimize and adjust brand strategies to ensure the brand remains vibrant and competitive.
**Startups Overly Pursuing Profits**
**Is Not Conducive to Healthy Development**
Consumer brands that influence people's lives worldwide have all continuously invested profits into product R&D and market promotion in their early stages, whether it's Nestlé, Coca-Cola, or Tesla.
In 1938, the Brazilian government hoped to find a way to solve the problem of coffee bean surplus and maintain long-term storage of coffee. Nestlé's chemist in Switzerland, Max Morgenthaler, was assigned this task. He led a research team to conduct extensive experiments and explorations, trying various processes and formulas, including freeze-drying and spray-drying methods. It took as long as 7 years, and finally in 1938, they launched an instant coffee named Nescafé.
The success of Nescafé became a milestone in Nestlé's development. A product that seems ordinary today consumed a large amount of Nestlé's resources at the time.
Consumer entrepreneurship has never been easy, at least much harder than it looks. On the one hand, the Chinese market is friendly to consumer entrepreneurship because opportunities are everywhere and the entry barrier is low. On the other hand, it is very demanding because competition is extremely fierce, and a slight carelessness can lead to elimination.
**In such an environment, consumer startups should invest most of their gross profit into healthy sustainable development, strengthen R&D capabilities, expand high-quality channels, and accumulate brand assets. Pursuing high profits too early is equivalent to giving up the future.** Of course, this excludes profiteering products that rely on "IQ tax."
Finally, I want to add one more thing: the value of an enterprise is reflected in pursuits beyond profits.
**Recommended Reading**


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