Startup Advice

Starting from scratch: Why launching your startup in China might be harder than you think

Stephanie Palmer-Derrien /

China

Matrak co-founders Brett and Shane Hodgkins. Source: Supplied.

Construction startup Matrak has secured almost $264,000 in government grant funding as it expands into China. But, according to co-founder Shane Hodgkins, the international growth has seen the business go back to its foundations.

Founded by brothers Shane and Brett Hodgkins, Matrak was designed to allow construction firms to track deliveries of materials, and to improve communication between parties.

In August last year, the startup secured $765,000 in seed funding, with the majority coming from former Aconex chair Simon Yencken, who has also backed Canva and Redbubble.

Since then, Matrak has brought on a team of 10 staff, and joined the Austrade Landing Pad program to start expanding into the Chinese market.

The latest $264,000 Accelerating Commercialisation Grant is intended to help Matrak commercialise its platform.

Shane Hodgkins tells StartupSmart the founders are currently focused on updating and modernising the platform, in response to user feedback.

“The version up until then was what we had built in our bedroom,” he says.

However, the startup is also making headway in its international expansion.

From very early on, Matrak was working with Australian companies that were getting building materials from China.

“We have always had users in China,” Hodgkins says.

“It’s always been a really core part of what we do.”

Challenges and opportunities

The founders wanted to go to China to try to understand the challenges in communication between Australian and Chinese companies and “really tailor our product for the market here”.

When they got there, they found “the standards in China are actually a lot higher than the standards in Australia”, Hodgkins says.

“But there are still a huge amount of issues Australian companies have when they work with Chinese companies. That seems to be due to miscommunication rather than product knowledge or quality level.”

Matrak’s whole business is based around connecting construction companies “so we felt that was a huge opportunity for us”, he adds.

However, going from Australia to China isn’t an easy transition, Hodgkins says, especially for a tech company.

“The great firewall of China has meant all of the businesses here have essentially evolved in a bubble, separate from the rest of the world.”

Things like business models, payment processing and user interaction “are all just completely different”, he says.

“Customers in the Middle East of the US can just enter their credit card details and off they go,” he adds.

“There’s a host of reasons why that can’t happen in China, so we need to go back and look at the business and how to tailor it here.”

Marketing and social media channels are completely different, and that’s before you even approach the challenge of the language barrier.

“Taking the time to validate the business in the market, and essentially go back to ground one after you’re used to having a somewhat established business, can be pretty daunting.”

Even something like going for a business lunch can feel completely alien, Hodgkins says. The Chinese tax office has to be directly involved in any B2B payments, he explains.

You have to give your tax information to the waiter, who sends it to the tax office and gives a code back, which you have to put into your system before you pay for your meal.

“There are lots of things like that which are completely different,” he says.

However, there are clear opportunities too. The tech scene is more advanced than in Australia, and “everyone wants to try out new apps and learn about new systems”.

People are also more inclined to make connections and share information, without trying to keep anything from their competitors, even using social media to share in a way you don’t typically see in Australia.

China’s WeChat system provides an all-in-one social media platform, Hodgkins says. Whenever you meet new people, everyone scans each others’ QR codes to connect.

“That’s pretty much the beginning of every single meeting,” he explains.

“You end up in different channels, with big groups of people sharing info and introducing you to people,” he says.

“You would never see that in construction or most tech work in Australia.”

While a lot of business sense has to be re-learnt from scratch, Hodgkins maintains there’s a huge opportunity in the Chinese market. If a startup gets it right, the opportunity to scale is immense.

The population of Shanghai is almost the same as that of the whole of Australia.

“Even doing really local solutions has this huge ability to scale, if you can navigate all the tricky parts,” Hodgkins says.

Have a good reason why

For Matrak, navigating all these obstacles was made much easier by the startup’s participation in the Austrade Landing Pad program, Hodgkins says.

The team applied for the program last year, following a string of meetings to help them understand the market, and whether they would be a good fit.

“Not every startup is a good fit for China,” he warns.

“It’s a very different market.”

For one thing, it’s a very competitive marketplace. A user base quick to adopt new technologies means there are more companies setting them up.

“You need to have some reason why they would pick a foreign company over a local one,” Hodgkins explains.

“Even companies like Uber ended up having to leave China because they couldn’t compete with DiDi.”

However, Matrak’s founders still haven’t seen much competition, globally, yet, “which is really lucky for us”, Hodgkins says.

“Our whole raison d’etre is to connect different companies, especially internationally, so the fact that we’re an Australian company and that Australia is such a huge market for Chinese businesses means they actually want to use our platform,” he explains.

For other startups, “having a good reason why people would want to use a foreign company would give you a huge advantage”, he advises.

For other founders thinking of entering the Chinese market, Hodgkins’ advice is to first contact Austrade, or a similar program.

These organisations are set up to help founders tailor their business models to the Chinese marketplace, meet contacts and investors, and even provide interpreters.

“It’s a huge boost to any company trying to get off the ground here,” he says.

However, he also warns that founders must be mindful that they will need a lot of information before they even apply for these programs, to figure out whether it’s the right route for them to go down.

“You would have to be prepared to set up everything from scratch again,” he warns.

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Stephanie Palmer-Derrien

Stephanie Palmer-Derrien is the editor at StartupSmart. You can contact her at [email protected].

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