Xu Zheng had a legendary track record and plenty of bold ideas, many of which turned out to be both bold and bad.
A closed Miss Fresh warehouse in downtown Beijing, July 29. Photo from CFP
By GUAN Diudiu
For a while, XU Zheng had it all figured out. College at 15; his first company at 17. He joined Lenovo at 19 and became its youngest department head at 28. In three years under his watch, he increased laptop sales from 500 million yuan to 30 billion. At 33, he was put in charge of Lenovo’s new agriculture subsidiary. It was there that he realized the tremendous opportunity in the grocery business. He quit Lenovo and founded Missfresh.
Sharp and eloquent, Xu got US$5 million (34.9 million yuan) of angel investment even before he had come up with a name for his company. Seven years later, in June 2021, he took Missfresh to Nasdaq.
The end came much sooner than expected. Only a year after its Nasdaq debut, Missfresh was a dead duck. When the app suddenly went dark, it became clear to staff that Xu's empty reassurances held little value.
Help was not on the way, despite some extremely dubious signals, especially from Shanxi Donghui Group, an industrial conglomerate. In July a press release appeared on the company’s long-dormant website about some local officials visiting an agro-industrial park. Apparently, Donghui had promised a 200-million-yuan lifeline to Missfresh, something the company bizarrely didn’t disclose to Nasdaq.
Least said, soonest mended and when, to the surprise of no one at all, the deal fell through the night before because Xu Zheng allegedly refused to use his house as collateral. Donghui saw it as a lack of confidence. But a mere 200 million would not have helped much anyway. The “business” model is simply unviable.
That model was to have mini-warehouses right where the customers were. Xu paid cold chain operators to haul meat and vegetables from the boondocks into city centers, but it was expensive and unreliable. It calls the business model qianzhicang (warehouse at the front) and none likes it, though many have tried. Hardly anyone, including Missfresh, has turned a profit. Proponents continue to extol the boldness of the idea and exalt Xu as nothing short of a visionary. His bold vision today is a hugely expensive fantasy.
Xu did indeed run Missfresh as a self-anointed visionary. He put new hires in key positions because Missfresh was “in it for the long haul.” Among the most high-profile hires were COO SUN Yuan, a private equity manager, and CFO WANG Jun, who led Missfresh’s B+ funding round when it was in financial distress in 2015 (Xu pledged his own house that time). Neither had any experience in the grocery business.
It’s crucial to have people who have been in the thick of it to steer a grocery company in its early years, said the founder of another grocery platform. The business has punishingly little margin for error. Promoting young people to high positions, noble as it sounds, deprived Missfresh of the talent it truly needed. Disaster unsurprisingly followed.
Xu is well versed in venture capital language. He talks about algorithms, scaling up and long-term thinking articulately and convincingly and fortifies his arguments with numbers and formulas, never failing to remind his audience of this math degree. WU Haiyan, partner at China Growth Capital, still remembers, when they first met in 2016, that Xu "gave perfect answers chock full of data" to her questions on Missfresh's operations.
When Missfresh first started, Xu and ZENG Bin, a colleague who followed him from Lenovo, would sit for days outside supermarkets to find out what people bought at what time of the day. Quantifiable and realistic targets were made and followed through; employees were substantially compensated if expectations were met.
Another obsession was “the second curve” - identifying new opportunities before the existing business model peaks. In the spirit of this, Missfresh ventured into "automated retail" and community group buying even when qianzhicang kept bleeding the company out.
LIANG Changlin, founder of rival Dingdong Maicai, dismisses “the second curve” as “something you’re always on the lookout for and you’ll never find.” An army veteran, he is the antithesis of the sharp-minded Xu. He staffs Dingdong Maicai with veterans for their discipline and execution power, and is hands-on in mundane operational issues, such as retention rate and customer service. Dingdong Maicai turned a profit for the first time last quarter.
Xu hasn’t given up on Missfresh quite yet. The company has moved from salubrious Wangjing to the seedy suburbs of Beijing, where he has taken the business apart and sold off bits and pieces that are still worth something.
The vending machine business was acquired only last year, at a time when Missfresh was already short on cash. In late August, Missfresh sold its vending machine business for over 30 million yuan to Meiri Bianli (Daily Convenience), founded only three months ago by WANG Anyong, who develops “smart retail terminals,” and is backed by large venture capital firms. This has turned out to be one of the few Missfresh’s businesses that was on track to profitability.
Xu still may yet stage a comeback. This kind of herculean failure is often a badge of honor in a confusing market. Entrepreneurship knows no end, and a single failure doesn't make the perfect founder less perfect. Never give up, never surrender.