Jingbo Wang: In Finance, Operations Are What Make Licenses Valuable | 2017 Source Code Capital

On April 22, Jingbo Wang, Chairwoman and CEO of Noah Holdings, shared with entrepreneurs at Source Code Capital's 2017 "Ma Hui" gathering how to survive the "three-year cocoon-breaking period" in the startup journey.

Having founded her company twelve years ago, Wang is now in her fourth three-year cycle, having built China's first wealth management firm to list in the United States. She distilled her entrepreneurial experience into insights on financial operations, embracing regulatory costs, building enduring enterprises, and talent management philosophies.

Like Noah Holdings, every successful startup must undergo a process of creation and fission — from nothing to something, from something to abundance. Wang crystallized this into three stages of understanding: first, seeing mountains as mountains and water as water; second, seeing mountains as not mountains and water as not water; third, seeing mountains once again as mountains and water as water. Each stage must be personally experienced by entrepreneurs in the course of building their companies.

The following is the full text of Jingbo Wang's speech at Source Code Capital's 2017 Ma Hui:

Thank you to Source Code Capital and Yi Cao for the invitation to share some of my experiences from the entrepreneurial journey.

Why the three-year cocoon-breaking? Yi Cao said it's because this is Source Code Capital's third year, and many of the founders here are also in their third year. For Noah Holdings, it was in our third year that we received investment from Sequoia Capital and began growing from a small regional firm. I believe the wealth management market in China holds enormous opportunity, for two reasons: first, the rise of China's middle class — by 2020, China may have the world's largest middle-class population. Second, population aging and Chinese people's enthusiasm for wealth management.

1

Without understanding operations, without wanting to operate, collecting licenses is useless

I recently participated in Hupan University, whose rowing club has a motto by Qiandao Lake: purity, tranquility, progress, competition, reverence, and reflection. "Purity" — I believe good entrepreneurs maintain a pure heart, creating products to serve people. "Tranquility" — with stillness comes deep thinking. "Progress" — the drive to advance. Having walked this path for twelve years, I feel it's more about "reverence." Especially in financial markets, in our industry, the more experienced the driver, the more fearful they become. Finally, "reflection" — the ability to look in the mirror and examine what you've done well and poorly, because there are always countless challenges.

Over twelve years, the company has passed through three stages. In the first, I was the product manager myself. I had understanding of the industry and wanted to create service products for clients. In the second, the company itself became the product, and for a long time we focused on internal operations.

I believe that in the financial industry, if you don't understand operations, if you don't want to operate, then even collecting more insurance, banking, and securities licenses is meaningless in the long term — at best you'll make some quick money. The third stage, which we're now in, is the difficult one: how to use a traditional company with good cash flow to incubate new businesses and position well for the industry. We're still exploring this. I believe the greatest risk for a company is not having thought through its direction clearly. If the direction is clear, everything else can be fine-tuned.

2

Deeply understanding financial compliance costs

Before founding Noah Holdings, I had a strong sense that individual clients in China were not being well served. Moreover, we couldn't serve small clients at first, so we focused on high-net-worth individuals. Around 2013, we began building new internet-based services for white-collar professionals.

Over these twelve years, Noah has faced many temptations and maintained many convictions. In 2014, what we heard most was that the internet would disrupt finance. Everyone was saying customer experience comes first, that whatever you do must achieve "T+0." But in this process, the so-called "T+0" customer experience we heard about was all backed by someone putting up capital. If you're funding something for a day at 8% annualized cost, you need enormous sources of capital, and the risk becomes very large.

We've also encountered many problems, but we believe it's more important to distinguish between temptations and opportunities — otherwise you cannot become a friend of time in this market over the long term.

You must have a deep understanding of financial compliance costs, because in finance, risk is delayed. Looking back from 2014 at American enthusiasm for the internet, we see today that much of it was wrong. It looked like easy money, but it couldn't produce genuine core competitiveness — it was simply patchwork. So at the core, regulatory cost is the primary risk cost in finance. You must face it. This process cannot be avoided, and requirements will only become stricter going forward.

3

To survive in finance, just outlast everyone else

Jack Ma says he prefers the Seattle model over the Silicon Valley model. Because in Silicon Valley, everyone wants to sell their company and build another. But Seattle's Starbucks, Amazon, and Microsoft are built to last. At Noah Holdings, we too hope to build an enduring company, a century-old shop.

We're in a fascinating industry — finance. This industry can last a very long time. What you need to do is endure, endure until everyone else has fallen, and then you've survived.

I used to work at a securities firm and never imagined that the 2008 financial crisis would bring down so many companies. I believe that at any point in time, you must sacrifice short-term interests for long-term interests, constantly distinguishing between temptations and opportunities.

Our broad strategic shift from wealth management to asset-driven, from traditional management to internet-based management — much of this emerged from spontaneous experimentation, but we continuously summarized and clarified along the way. Of course you must also find what you're good at, whether your DNA in doing this can truly build your capabilities. The process of building capability is very long-term.

I used to be very impatient, wanting to accomplish things immediately when I saw them. Now I feel somewhat differently. I think building a company is like raising a child. My son is twelve this year. Every day I want to correct his flaws, but I've found he doesn't listen to you. Perhaps only as he grows and matures will he gradually change.

In strategic execution, my experience is that you truly must have high aspirations but low posture. You must be flexible enough to bend down and do the work. You can't just talk about grand dreams every day, but every dream must also have a real entry point, something that lets you compete with rivals and win those battles. I believe this is very important.

4

Managing people is the most painful; poaching from competitors is useless

Since today's topic is breaking through at year three, my greatest difficulty has been talent — talent attrition, integrating acquired talent with company culture, using different people at different development stages. The process is very painful, but these are all things that must be faced.

In learning about people management, I've gone through several stages myself. First, more talent isn't always better. Sometimes we're all eager to poach some amazing superstar, but I basically never poach from competitors. Or if you do poach them, they don't work out. The good ones you can't poach anyway, and those who come are basically second-tier. If it's all second-tier people with no homegrown talent, there's no way to grow.

What I've done worst is being unable to fire the "big white rabbits" — people who grew up with you. I'm too embarrassed to let them go, so I just wait and wait. I see this person isn't working out, I'm too embarrassed to face them, and when I run into them on the stairs, I turn around first. This is wrong.

In this process, personnel changes are enormously costly. For example, when one department gets a new head, several people below leave. I feel that as a new company steps up to a new level, you always encounter personnel attrition, but the replacements keep getting better, keep feeling more right.

Overall, strategic execution and people operations must be integrated. Especially with personnel — someone leaving isn't necessarily bad, it might actually be good. Because suddenly you feel relieved. When they were sitting there before, you always felt their energy was off.

I've also been through this: early in the founding process, when we were about to go public, we discussed who should get stock. Our COO said we should give it to everyone, to motivate people, including drivers and secretaries. I thought, that makes sense, they'd be happy. But looking back, this was all wrong. Either concentrate it or just give cash. Whether it's broad-based ownership or majority ownership — we've paid a lot of tuition on these lessons, experiences I can share another time.

Finally, I feel that in the three-year entrepreneurial process there's tremendous excitement and passion, a real willingness to commit. But entrepreneurship is a never-ending process. It's like playing Plants vs. Zombies — I played the final level with my son, and you find the zombies just keep coming, endlessly, with no way to get past them.

But in this process, if you're doing okay, you can become something of a small leader in the industry. But to truly do well is very difficult, very stressful. If you asked me to go back to day one, I wouldn't start a company. It's too exhausting.