Lessons From Alibaba’s Record $25 Billion IPO

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With all this talk about Jack Ma and Alibaba – the biggest public offering of all time – I thought it was only appropriate to share a few rather surprising lessons with you…

When Alibaba went public in September 2014, it raised $21.8 billion, with the stock surging more 38% on the first day of trading. This led the underwriters for the IPO to exercise options on an additional 48 million shares.

In total, the giant ecommerce company raised $25 billion, beating out the previous record of $22.1 billion raised by the Agricultural Bank of China in 2010.

Alibaba is one of those companies whose reach is difficult to overstate. It is estimated that during September 2014, 80% of all online sales in China took place on an Alibaba website…

For founder Jack Ma, the IPO was the crowning achievement of an incredible success story.

From a teacher living in a small one bedroom apartment, earning only $12 to $15 per month, he is now worth an estimated billion dollars – and potentially poised to not just change ecommerce in Asia… but in the United States as well.

Jack Ma’s Humble Beginnings

Ma’s early academic performance showed few signs of the success that he would one day achieve…

Ma says that he failed the entrance exam to university twice before he was finally accepted to what was considered the worst university in his city.

Upon graduating, Ma became a university teacher himself.

However, he always harbored feelings that his destiny was in business success, not the world of academia.

To realize his dreams he applied (and was rejected) for numerous jobs.

Among his early rejections was an application for a position as general manager of a KFC. Imagine that…

It wasn’t until 1995, while on a trip to Seattle as part of a trade delegation, that he came into contact with the technology that would change his life.

It was there that he first encountered the internet – using Yahoo to search for the word “beer.”

This was enough for Ma to see the transformative impact that the internet would play in people’s lives…

He was hooked, and upon his return to China, he started to get involved with nascent tech scene.

In 1999, he gathered eighteen people in his apartment and asked them to fund his next startup idea. Whatever he told those investors must have been persuasive – he was able to raise $60,000.

This was enough to get the company started.

Showing a high degree of foresight, Ma chose to give his business an English name so he would be able to appeal to a global audience.

The name he came up with – Alibaba – was easy to spell, difficult to forget, and reminded him of the potential of the treasure-finding hero in a story from “One Thousand and One Nights.”

Mistakes Made Along The Way

Like many new businesses, Ma struggled at first…

In fact, he once remarked that the business should really have been called “1,001 Mistakes.

One of the biggest was expanding too fast, and then being forced to lay off staff when the dotcom bubble burst…

Another issue Alibaba faced: while they were able to attract a lot of free members, turning them into paying customers was far more difficult.

(A problem for a LOT of online companies…)

Eventually though, Alibaba came up with a model that let members use the site for free, while charging businesses if they wanted to purchase premium advertising space.

Why Alibaba Has Been Successful

One of the keys to Alibaba’s success was the ability to solve a key problem – trust.

As Jack Ma remarks, one of the problems that any online marketplace in China faces is that:

“Many Chinese are reluctant to trust strangers.”

This lack of trust was both a challenge and an opportunity.

To solve the problem, Alibaba built tools that helped to fill the trust gap…

First, they needed to provide a reliable way for customers to pay for their purchases.

Alibaba developed their own online payment service that held funds in escrow, and weren’t released until the customer received their product.

The site also launched an independent verification service that has sellers vetted by a third party service. The sellers on the site pay for the verification.

By enabling sellers to overcome the wariness of their customers, it makes it easier for businesses to sell on the site.

The Future Of Alibaba

The success of the public offering gives Alibaba a HUGE war chest to play with…

Earlier this year, Alibaba entered into a partnership with US ecommerce company ShopRunner to export goods from the United States to China.

It has also invested in the car service Lyft, and the messaging service Tango.

A large part of Alibaba’s growth has come through acquisitions, and this is likely to continue both in China and the United States.

It will be interesting to watch what other ways this Chinese ecommerce giant is able to turn problems into opportunities in the coming years…

What challenges have you turned into opportunities for your business?

In your corner,

Charlie

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