Thursday, 2022 December 8

Duan Yongping: From chopping firewood in the countryside to creating a billion-dollar legacy (Part 3 of 3)

In the previous installment of this three-part series, we saw how Duan Yongping displayed promise in his early career and how he subsequently turned things around at Subor. Now, we follow him through his establishment of BBK, which would eventually split into three brands including the Vivo and OPPO we know today.

Duan’s departure from Subor

Duan left Subor quite suddenly, just as the brand was reaping the fruits of his efforts. The main reasons for this were conflicts of interest and clashing ideas.

The original agreement was that Duan was solely responsible for Rihua Factory. Of the profits from the factory, 80% was to be handed over to Yihua Group and Duan could distribute the remaining 20%.

What they hadn’t anticipated was Subor gradually becoming the pillar of Yihua Group, accounting for 90% of its total profits. Yihua’s head office often used Subor’s profits to make up for the losses of other subsidiaries, and the 20% share of the profits promised to Duan was not always delivered in full.

Duan felt that this unstable 80–20 distribution mechanism was not enough for him to fulfill his commitment to providing equity incentives to Subor’s executives and employees. He made repeated suggestions for reforming Subor’s shareholding system, but these were futile, as Chen Jianren (the general manager of Yihua Group) did not have the authority to make such decisions.

After attempting negotiations several times, Duan was disheartened enough to consider resignation, even though Subor meant losing a job that earned him millions of yuan a year.

He later said in an interview with financial media group Yicai: “Money is not the most important thing to me. If I had stayed at Subor, I wouldn’t have been able to fulfill my duty, which would have made me unhappy. I would have been unhappy, no matter how much money I earned.”

Although Duan was leaving Subor, Chen was still grateful to him for having done so much for the company. They reached the agreement that Duan could take six people from Subor with him if he started a new company, but could not compete with Subor in the same domestic market for at least a year.

Several Subor employees considered resigning together with Duan, a testament to his leadership.

On August 28, 1995, Duan Yongping officially left Subor. A month later, Duan Yongping went to Chang’an Town in Dongguan with three others: Chen Mingyong, Shen Wei, and Jin Zhijiang. These three would later play crucial roles in BBK.

It was here that they started Ligao Electronics Co. Ltd. and embarked on a new journey.

A new beginning

The news that Duan had started a company soon reached his former colleagues’ ears. Some wanted to join the company, some wanted to invest, and some wanted to act as agents for his products. It was clear that people trusted Duan because he was competent, generous, and principled.

Ligao Electronics quickly assembled sufficient resources and manpower and was soon ready for business.

In light of the gentlemen’s agreement he had made with Subor to avoid competing in the domestic market, Duan Yongping started trading electronic products with Russia and other countries to keep the business going.

However, Ligao Electronics lacked experience and struggled to expand overseas initially, eventually losing a third of its total assets.

During this time, Duan was also preparing to re-enter the domestic market. One of the most important tasks was to come up with a strong brand name. Duan solicited names from all over the country, promising a reward of RMB 5,000 (USD 730) to whoever suggested the best name.

Eight people chose the name “Bubugao” (BBK). Duan Yongping liked the name and decided to adopt it. Though others had tried to persuade him to adopt a name that sounded foreign, he refused, reasoning that to do so would be deceptive.

Making a comeback

At the end of 1996, the time limit stipulated in the agreement with Subor had ended and Duan was ready to enter the domestic market. In a shocking move , he announced that BBK spent RMB 81.23 million (USD 11.8 million) to reserve the commercial break slot before the CCTV weather forecast.

This vast sum was almost all BBK’s money at that time, due to the initial losses it had borne earlier. Moreover, due to slow payments from Russia, the company only had RMB 20,000 left in its account while it faced calls for payment from its suppliers and CCTV.

However, Duan pulled through. He steered BBK through the crisis by persuading most suppliers to become shareholders in BBK, and overcoming the payment problems from Russia by getting his Russian colleagues to bring it in cash instead.

Why such a gutsy move? He later explained his reasoning in an interview with Yicai that a strong comeback was needed so that everyone would sit up and take notice, including his agents, suppliers, and customers.

The commercial proved to be an excellent investment. With the help of its distributors, BBK student computers soon became the leading brand in the industry.

Though competition was fierce, Duan never shied from it. In 1997, he led BBK into the fray again in the domestic VCD (video compact disc) market, even when there were already more than 200 manufacturers.

One of BBK’s competitive advantages was its product quality control. At the end of 1997, 232 types of products from 214 VCD manufacturers in China were tested. Only 13 types of products from 18 enterprises met national standards, and BBK’s VCD was one of them.

Getting to the top

Not all was smooth sailing. BBK lost to competitor IDALL VCD in a bidding war for the best CCTV commercial slot. IDALL spent more than RMB 80 million (USD 11.6 million) to win the first VCD advertisement on CCTV and hired Jackie Chan to shoot a commercial called “IDALL, Good Kung Fu.” It soon became a well-known brand, with an annual output of more than RMB 1 billion (USD 145.6 million).

True to nature, Duan was undeterred. After some brainstorming, his team came up with a few marketing strategies that would boost BBK to the top once again.

In a move that targeted IDALL directly, BBK hired Jet Li to shoot a commercial called “BBK, Real Kung Fu.” IDALL’s “Good Kung Fu” versus BBK’s “Real Kung Fu” became a hot topic for a short time.

In the end, this copycat move generated so much buzz that BBK quickly became one of the top three VCD manufacturers.

IDALL eventually went into decline in 1999 due to internal equity disputes and other conflicts, leaving BBK to take a lion’s share of the market. Without IDALL in the picture, BBK won the bidding war for the best CCTV commercial break slot in 1999 and 2000. It also invited Arnold Schwarzenegger to shoot commercials and became the top player in the industry.

A BBK VCD package in the 1990s featuring Arnold Schwarzenegger

Of course, some questioned the necessity of BBK spending such so much money on marketing. Duan Yongping addressed the matter during CCTV’s International Forum on Branding and Communication:

“When I invited Jackie Chan to be a brand spokesperson, people remembered the product after watching the ad three times. Without Jackie Chan, they might have only remembered the product after watching the ad nine or ten times. According to my calculations, the money we paid Jackie Chan was only a tiny percentage of our total spending on advertising, not even 10%. As long as he could improve the popularity of our products by even a few percentage points, we would make a profit.

We invested in commercials every year and usually chose the prime time slots. Of course, those are the most expensive, but the most expensive ad slots are often the most effective, and the most affordable advertising may turn out to be least effective.”

BBK also expanded from manufacturing learning computers and VCDs to repeaters (machines that record and play sound, much like tape recorders and Dictaphones), cordless phones, and cell phones. Using similar business strategies, they soon reached the top of these industries.

It took Duan only five years to turn BBK into a business with an annual output value of RMB 1 billion, making him indisputably one of the top business legends of that era.

Retirement for family’s sake

Just as BBK reached its peak, Duan suddenly announced that he was retiring and moving to the United States, in a move reminiscent of his earlier departure from Subor.

This time, however, he left for love and family.

He had been pursuing his now-wife, Liu Xin, since his university days. Many of his decisions were motivated by her, such as wanting to study together with her in the United States after leaving Subor. During his time at BBK, she had moved to the Netherlands to further her studies, and he also made several trips there just to accompany her to class.

Finally, his persistence bore fruit and Liu Xin fell in love with this young, successful, devoted businessman.

When Liu returned to China to visit her family in 1998, she decided to marry Duan on the condition that he would come and live with her in the United States.

Duan agreed, though he postponed his resignation at first as BBK was still growing rapidly, and he did not know how long it would take to get a US green card. To his surprise, his green card application was approved at the beginning of 2001, and so he fulfilled his commitment to Liu by moving their family to the United States.

Many were shocked by Duan’s decision to retire at the age of 40. Would he really leave the career he had worked so hard for? In response, Duan smiled and said, “I already have children. How can I stay in China while my wife lives in the US?”

In preparation for leaving BBK, Duan made a bold move: he divided BBK into three separate entities with independent equity and equal status in relation to each other.

The three who had left Subor with him were put in charge. Huang Yihe was made responsible for BBK’s electronic education business and was succeeded by Jin Zhijiang after his retirement. Shen Wei was made the head of BBK’s communication technology business, later renamed Vivo. Chen Mingyong was put in charge of BBK’s audiovisual electronics business, later renamed OPPO.

Image courtesy of OPPO

Although Duan kept his 10% stake in each of the three companies, he left the operations to the three CEOs.

In an interview with Chinese business magazine Entrepreneur, Chen said that Duan was true to his word. “Now, he comes back to China two or three times a year but stays less than a month each time. We talk and play basketball together when he’s here, but that’s just for fun, not business.”

Playing the investment game

After retiring, Duan Yongping enjoyed a quiet life in California. In addition to spending time with his family, Duan played golf and invested in stocks.

He was a big fan of Warren Buffett’s teachings, especially the concept of value investing. Such was his admiration of Buffett that in 2006, he became the first Chinese to win the auction for Buffett’s charity lunch at a bid of USD 620,000.

When the news broke, many questioned whether it was worth spending so much money on a meal. Duan Yongping addressed the issue in an interview with Entrepreneur: “I didn’t treat this lunch as business. I just wanted to support him and tell the world that his ideas are really valuable.”

Duan’s eye for investment proved to be just as sharp as his business acumen.

His first investment was in NetEase. When the internet bubble burst in 2001, NetEase’s share price fell to USD 0.64, and the company was even suspended from trading on Nasdaq at one point. Though its owner Ding Lei wanted to sell the company, Duan encouraged him to keep developing. He saw that NetEase had plenty of cash and its stocks were undervalued, and felt that there was great potential in shifting its focus to online games.

In early 2002, Duan Yongping invested more than USD 2 million in NetEase at a price of USD 0.8 per share. The share price rose to USD 70 in October 2003 after NetEase had turned things around with computer game “Westward Journey II”, earning Duan a return of nearly USD 200 million in one fell swoop.

NetEase proved to be an excellent investment in more ways than one. In 2002, Ding introduced Duan to a young talent: Huang Zheng, who would later become the founder of Pinduoduo.

Huang saw Duan as an invaluable mentor. Duan helped him with career advice, took him to Buffett’s lunch, and gave several suggestions when he was starting his business.

When Pinduoduo was engulfed in a scandal caused by vendors selling counterfeit products, Duan gave Huang a public show of support, stating that they had been friends for more than ten years and that he had faith in him.

The Pinduoduo App

A pragmatic investment approach

Like Buffett, Duan Yongping is quite cautious when it comes to investments. He only invests in companies he can understand and concentrates his capital on a few high-quality stocks.

Over the years, apart from BBK and its companies, Duan Yongping has only heavily invested and held long-term shares in Apple, Moutai, and Tencent. He observes companies for long periods before making any decisions.

Duan Yongping had been interested in Apple as early as 2002. He held off on making investments then, as he was unsure of Apple’s ability to maintain its success in the long term.

It was only in January 2011 that he bought Apple shares at a price of USD 47 each and never sold them again. He increases his shares every time the price falls. Now, Apple’s share price has reached USD 156, and Duan has made a significant profit.

Duan adhered to the same approach when investing in Tencent. He felt Tencent was a good company and WeChat had great potential, but the share price was too high back in 2010. In 2018, he purchased shares when the game industry hit a low point and affected Tencent’s share price.

tencent krasia
Graphic by KrASIA.

By 2020, Duan realized Tencent was monetizing traffic through social media, with the potential to make even better profits in the future. He predicted that Tencent would grow even stronger over the next ten years, and even though his view ran contrary to others, he continued to buy shares in bulk every time Tencent’s share price fell.

As a cautious investor, Duan missed out on some opportunities, such as Tesla. Though Tesla had caught his attention in 2013, he did not invest as he was uncertain of the business model and its management. However, it proved to be a missed opportunity, as Tesla’s current share price has increased.

The same story also happened with Zoom during the COVID-19 pandemic. Although Duan had looked into investing in Zoom when its share price was less than USD 100, he stopped short of committing. He explained his reasons in Snowball, an investment community platform. “I like Zoom’s corporate culture and its CEO, but I can’t understand the valuation of Zoom, and I can’t predict what Zoom will look like in the next ten years.”

It’s clear that Duan keeps to his principles of investing only in companies he understands and trusts. While he acknowledges that this approach may cause him to miss out on some good opportunities, it has also helped him cherry-pick investments that have turned out well.

Duan’s current life

What’s happening in Duan’s life now? Aside from spending time with family, Duan plays golf and occasionally exchanges investment tips with netizens on Snowball. He remains low key, playfully calling himself an “idler” in his profile on social media platform Sina Weibo.

Throughout his life, Duan’s pragmatism and determination in carving out a path for himself have served him well, and made him a legendary businessman. Though there have been many opportunities for power, fame, and fortune, he has never been greedy, choosing instead to remain focused on the important things in life—and of the many laudable traits he has, that is perhaps the most admirable of all.

This article was adapted based on a feature originally written by Qiu Chuji and published on QiuChuji (WeChat ID: qiuchuji_1993). 36Kr Global is authorized to translate, adapt, and publish its contents.

KrASIA Connection
KrASIA Connection
KrASIA Connection features translated and adapted content published by 36Kr.com, the largest and most influential tech portal in Chinese language.
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