How Alibaba survived restructuring, SARS: A chat with its former president and COO

Very few people knew or could remember what Alibaba looked like in 2001.

It had an unprofitable local yellow page business that it managed around the world. Its corporate account only had US$10 million left and was burning US$2 million every month.

These were the circumstances when Savio Kwan arrived in Hangzhou after 17 years at General Electric, one of the best companies anyone could work for back then. Alongside Jack Ma and his co-founder Joe Tsai, Kwan managed to cut down Alibaba’s cost to US$500,o00 per month and bought it a runway of 18 months to figure out a new business model.

During this time, Ma managed to lead the business into profitability with a cross-border business-to-business listing platform that helps small and medium-sized enterprises in China sell overseas.

Photo credit: Moovstock / 123RF

This not only helped Alibaba weather the SARS crisis later on, but the culture it had built between 2001 and 2002 laid the foundation for its future growth in its product lines Taobao, Alipay, Tmall, and Alibaba Cloud. In the company’s current astonishing US$559 billion market cap, the original B2B listing business (Alibaba.com) accounts for less than 3%.

In a recent webinar that GGV Capital did for entrepreneurs navigating Covid-19, I spent an hour with Kwan and asked him how he turned Alibaba’s operations around, maneuvered through SARS, and set up the unique Alibaba culture.

Here’s an edited version of that night’s conversation. You can listen to the full episode here and watch the recorded video here.

Disclosure: Kwan is an old friend of GGV Capital. GGV was very fortunate to be able to become an investor in Alibaba 17 years ago. We met Kwan back in 2003, and my partners Jixun and Jenny have spent quite a bit of time with him since.

Soon after you joined Alibaba, you realized that the company only had about five months of cash flow left. How did you and your team put together a strategy to overcome that?

This is actually one of the defining moments of my career. The company had about US$10 million, but the burn rate was US$2 million per month. We – Jack, Joe, [Alibaba’s former chief technology officer] John [Wu], and I – quickly huddled together and came up with a cohesive strategy. We called it “three B2C.” This stood for three things: back to China, back to coast, and back to central. Essentially, we had to pick where we were going to fight our last battle for survival.

Very quickly, we closed down all overseas offices and scaled down to around 150 personnel. It was important to do all these within 30 days because if we hadn’t done that, it would have meant another month, another burn rate of a few million dollars.

All we did back then can be translated into the phrase “last man standing.” Do not die, do not give up.

How did you tell the employees that you were letting them go?