Editor's note: This article is adapted from the keynote speech delivered by Mr. Zou Wenbiao, co-founder and president of Zhoupu Data, at the 5th China FMCG Conference. It has been organized for readers (with some deletions and modifications). Zhoupu Data currently serves nearly 40,000 active distributors across the country, with an annual GMV exceeding 400 billion yuan. As a leading distributor business system service provider, Mr. Zou offers another perspective for the trading and circulation industry from a service provider's standpoint.
Reshape Cognition, Think Like an Entrepreneur In recent years, we have heard too many voices saying that business is difficult. But today, I want to ask everyone to temporarily forget the identity of a distributor boss, forget the rich experience in the industry, and also forget the hard-to-let-go emotions that come with experience. After discarding experience and emotions, how would a pure entrepreneur view the enterprise? This assumption is made because there is an essential difference between a boss and an entrepreneur. A boss is always a capturer and discoverer of opportunities in the market, acting quickly to monetize opportunities. An entrepreneur, on the other hand, thinks about value creation and how to change the world. So, one is called opportunism, the other long-termism. The advantage of opportunism is quick response, but it is also prone to two extremes: aggressive when the situation is good, pessimistic when the situation is bad. Today, pessimism is more prevalent, so we must discard emotions and experience, reshape cognition, and think like entrepreneurs. When you think like an entrepreneur and look at your industry and environment, you won't be so pessimistic. This is not an industry that should be pessimistic; on the contrary, this industry is full of opportunities at present.
Today's environment has opened the prelude to consolidation, and consolidation is the latest opportunity for quality players in this industry.
Core Competitiveness of Enterprises: Efficiency and Innovation An enterprise is a system where a group of people collaborate for a common goal, and it is also a creative system. The mission of an enterprise is to create some value, but creating value alone is not enough; to exist long-term, it must have core competitive advantages, either crushing competitors in efficiency or having significant innovation. Because of differences in different fields, the focus of core competitiveness will also vary. For example, distributor friends need to find core competitive advantages in efficiency leadership, while companies like us (Zhoupu Data) should build our core competitive advantages in innovation. But this does not mean distributors do not need innovation; rather, they need to clarify where their core advantage lies. You can think about it: the essence of so-called successful innovations in the past was efficiency, whether it was organizational reform or improvement in digitalization.
The expansion of a distributor's business is essentially high efficiency killing low efficiency. If a business is not profitable for others but profitable for you, more business will naturally flow to you. Efficiency improvement brings natural expansion; you don't even need to do anything extra for expansion.
What can bring competitive advantage is always your organizational capability. Organizational capability manifests as different problems at different stages. Initially, it may be a people problem—not being able to find enough excellent talent; later, it may manifest as goal and incentive problems—whether you can set clear phased goals and match them with reasonable incentives to pull everyone toward one goal; ultimately, it is a collaboration problem—whether you can clearly divide work and achieve extreme collaboration determines the upper limit of a company's scale.
When your organizational capability is strong enough, you may even feel a kind of confusion: you seem to be able to do anything, and everything you do creates value. You might even experience a certain tension with the definition of your mission because your organizational capability is too large. At this point, a new cycle begins, rethinking your value creation: what value should you create for whom? Running a business is a cycle of this triangle over and over.
What is the Core Value of Distributors? What is the core value of distributors? Before discussing this issue, we need to clarify: who are your customers? For whom are you creating value? Different types of distributors serve different customer groups. If the essence of your business is that the brand owner purchases your capabilities and hires you to do regional market services on their behalf, then your customer is the brand owner. What you need to do is serve the brand owner well and clearly understand their goals and will. If the brand owner is not important to you and your real customers are retail terminals, then how to provide selection and supply chain services for retail terminals is the core value. Regardless of which value creation you define, your enterprise must establish matching competitive advantages and organizational forms.
From the evolution trend of the Chinese market, both forms of value creation will exist long-term, but at the same time, more and more distributors' core value creation is shifting to the latter, that is, providing better services, category management, and supply chain services to retail stores.
The word 'innovation' has been somewhat sanctified, as if every business must talk about innovation. But in reality, in any industry, there are many efficient enterprises that survive well, and truly innovative enterprises are rare. Many of our so-called micro-innovations in operations are essentially efficiency improvements and optimizations. Therefore, pursuing innovation is not the competitive advantage distributors should seek. When we focus all our attention on efficiency, it is easier to find our problems and opportunities.
Today, across the industry, distributor efficiency is generally low. This is both a problem and an opportunity for the industry.
The core of the industry's low efficiency is that distributors are generally too small in scale. The fragmentation of this industry determines that it cannot be an efficient industry. Why is small scale the root cause of low efficiency? The low efficiency caused by small distributor scale is mainly reflected in the following aspects: too small a personnel scale leads to unreasonable division of labor, and without division of labor, there is low individual efficiency. If a salesperson also does driving, picking, and loading, obviously their efficiency cannot be high. In the past evolution of distributors, some natural division of labor has emerged, such as separating sales and logistics, but these natural evolutions are still insufficient.
Division of labor is the most important efficiency improvement method proven in human history, but under today's distributor business and personnel scale, the degree of division of labor is very low. An organization of 10-20 people cannot reasonably divide labor. If the organization scale reaches more than 100 people, the efficiency improvement brought by division of labor will become extremely significant.
Another core reason why small business scale affects efficiency is that it greatly hinders investment in infrastructure and construction. Another important path to efficiency improvement is to use technology to replace people and reduce dependence on personnel capabilities. In the current cost structure of distributors, the proportion of personnel costs and technology investment costs is abnormally distorted. Many distributors' personnel costs even account for more than 80% of total costs (excluding procurement costs). This means we are not only a traditional industry, but even a primitive industry, similar to the Stone Age, where value creation almost entirely relies on human labor. This might have been tolerable in the past, but today it could be fatal. Because labor costs are always determined based on the future; even if your business does not grow, your expected labor costs will still rise. Technology costs are investments made in the past; they never rise with the tide but become cheaper with use.
What does this have to do with scale? If your scale is too small, you will always tend to indefinitely postpone technology investment. A simple example: a 100,000 yuan technology investment that can improve each person's efficiency by 5% for a company with 10 people and annual revenue of 10 million yuan—from an investment perspective, it feels painful in the short term; from a return perspective, it seems insignificant (efficiency improvement is equivalent to adding 0.5 people, not noticeable). But if you are a company with 100 people and annual revenue of 100 million yuan, the investment accounts for only one-thousandth of revenue (even lower than payment processing fees), and the efficiency improvement is equivalent to adding 5 people. These 5 people can be used to develop an incremental business or directly reduce the cost of 5 people. The larger the scale, the more obvious the benefits of technology application. For small-scale enterprises, unless they have sufficient courage, they will naturally be pulled further and further behind by larger enterprises in efficiency.
The competition among distribution enterprises is essentially efficiency competition; efficiency is the competitive advantage of distributors.
Without scale, there is no efficiency. Many distributors are trapped by scale, ultimately because they cannot solve the problem of division and collaboration. They cannot solve the problem of collaboration among a group of people, cannot recruit people, and cannot solve collaboration issues, so it is difficult to grow. This is also the organizational bottleneck that determines the competitive advantage of distributors.
In the digital intelligence era, efficient enterprises should appropriately reduce dependence on people. If your operation form is like everyone making a Rolls-Royce, of course you cannot scale up. How many excellent craftsmen can build a car from start to finish? Perhaps you can only recruit 5 people in the entire market; the sixth person won't work, so you stop at that level. The essence of this problem falls on the digital intelligence level. Digital intelligence essentially solves two levels of problems: collaboration and decision-making, equivalent to the cerebellum and cerebrum of a person. Many digital projects fail today because everyone is solving the wrong problem—solving monitoring problems. If you put the cart before the horse, digitalization goes astray. Only by solving collaboration and decision-making problems and greatly reducing dependence on personnel can organizational scale expand. In the past, taxi companies could only rely on local experienced drivers, so no national-scale taxi company could emerge; it was a fragmented industry like our distributors today. But now, with the improvement of digital intelligence platform capabilities, the emergence of companies like Didi has become inevitable.
Efficiency, Scale, Collaboration Times have changed. We can now turn highly personalized professionals into large-scale group collaboration, which is the biggest change brought by the digital era. If digitalization and digital intelligence cannot bring large-scale collaboration, then everyone is doing it wrong. In the distributor industry, without efficiency, there is no future; without scale, there is no efficiency; without digital collaboration, there is no scale.
So how should distributors solve the collaboration problem in the digital era? Taking Zhoupu Data as an example, over the past 8 years of development, Zhoupu Data has cooperated with infrastructure manufacturers to improve this fully automated system. It doesn't matter how many salespeople you have; with the full system in use, you can grow to 100 without any problem, and you can add people at any time. With Zhoupu Smart Warehousing and Distribution, you no longer need to worry that if your warehouse manager takes a week off, your goods cannot be shipped. The system is more reliable than people; it no longer relies on any warehouse manager's familiarity with the warehouse and products. With Zhoupu's Distribution Manager, during peak seasons when you need many temporary drivers, you don't have to worry about them not knowing the routes; with the system installed, they can deliver. When business scale expands and management complexity and decision-making complexity increase, Zhouyi products can help distributors quickly locate the essence of problems and provide improvement suggestions like a professional manager. Zhoupu Store Manager can effectively help distributors and customers establish an efficient online connection and transaction system, greatly promoting personnel terminal coverage and improving personnel efficiency... All this means that with full-process digital collaboration, scale expansion can be achieved more easily.
In addition, in recent years, Zhoupu has also launched management consulting services. Digitalization has been advocated for so many years; everyone may understand the significance of digitalization, know the why, but not know how to do it. We not only provide complete technical solutions but also provide full training and coaching services to help everyone complete the modern enterprise transformation in the digital intelligence era, delivering better collaboration tools, better management concepts, and collaboration methods. Whoever completes the transformation first will become the new big winner of this era, with a lot of new territory waiting for you to conquer.
Over the past 8 years, Zhoupu has been vertically focused on FMCG distributors. We are a pragmatic and professional company. We hope to join hands with quality distributors to help you establish solid competitive advantages and win greater growth space when the window of accelerated consolidation opens.
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