Conversation with Founder of Ele.me after $9.5B Acquisition by Alibaba

On April 2, Alibaba Group joined hands with Ant Financial in conducting the buyout of Ele.me at $9.5 billion. The Vice President of Alibaba Group Wang Lei will serve as the CEO of Ele.me, and there will be no differentiation between the teams of the two companies. Alibaba laid out new retail strategies, and has incorporated both Ele.me and Koubei.com (Alibaba‘s local commerce platform) into its local life map. “This is Alibaba‘s most important investment ever,” says Zhang Yong, CEO of Alibaba Group. Zhu Xiaohu, managing director of GSR Ventures, revealed that Alibaba’s acquisition of Ele.me is the largest cash buyout in China’s internet history.

SEE ALSO: Alibaba to Purchase Ele.me and Enter Competitive Chinese Food Delivery Market

There are two highlights of this acquisition:

1. Zhang Xuhao, founder and CEO of Ele.me, will serve as the chairman of the board and special assistant in new retail strategy to Alibaba‘s CEO Zhang Yong for strategic support; Wang Lei, the vice president of Alibaba Group will serve as the CEO of Ele.me.
2. Using its localized instant distribution networks for food delivery, Ele.me will become a logistics infrastructure that supports various new retail scenarios in collaboration with Alibaba Group’s various companies and strategies. They include Alibaba‘s new retail strategy named “3km ideal activity radius”, “half an hour delivery” by Hema Shengxian (Alibaba‘s online-to-offline supermarket), 24-hour family emergency services, Tmall Supermarket’s one-hour delivery, and the two-hour deliver promise of many first-tier brands.

This means that Ele.me will be fully integrated into Alibaba’s new retail strategy, exploring new possibilities of local services under the Alibaba ecosystem, and completing the crucial transition from new retail to new consumption.

In 2016 and 2017, Alibaba Group invested in two consecutive rounds in Ele.me, for a total of $2.25 billion. Once considering accepting more of Alibaba‘s financial investments, or directly going public, Zhang Xuhao realized clearly that the problem of China’s food delivery market cannot be simply solved by burning cash. “It will be a war of resources in the future.”

Zhang Xuhao, born in 1985, will receive billions of yuan in cash and end his 10 year entrepreneurial career. From CEO to special assistant of new retail strategy, how could he be feeling right now?

From starting the business to now being acquired, Ele.me has gone through chaotic growth, strikes by Meituan (another Chinese food delivery app)and crazy rate of cash burning… How had all this changed Zhang?

Here is an excerpt from a conversation between Zhang Xuhao, the founder and CEO of Ele.me, and the reporter Wu Xiaobo:

1. Ten years of growth created a barbaric and wild path

Recalling when he first started this business, Zhang Xuhao said to Wu Xiaobo, “At the time, I was just thinking about starting a business, but I had no idea what I could do. My three buddies and I were planning day and night with no avail but we ordered food deliveries time and time again. Eventually I couldn’t stand it any more and said, let’s just do an online food delivery business.”

It was a rather ordinary start. At that time, in the Minhang Campus of Shanghai Jiaotong University, there were at least a dozen startup teams like his. The reason Ele.me succeeded was that Zhang Xuhao tried to direct both supply and demand side to make transactions online from the first day: students placed orders on their computers and restaurants also took orders online. Ele.me also independently developed a transaction software called Napos. According to Zhang, this is the world’s first Internet-based closed-loop food delivery transaction software.

In the first three years of starting the business, Ele.me signed 50 small restaurants in total, and had 50 employees at its peak. Later on, due to failures in opening up the Shanghai white-collar market, 46 of them left the company. Zhang thanked Zhu Xiaohu of GSR Ventures for his $1 million US dollar investment in 2011. “He didn’t even visit the company. He might not have invested if he found out that there were only four of us left.”

Ten years of growth was a barbaric and wild path. China’s takeout and food delivery market has been expanding rapidly, and has maintained a three-digit growth for many years. Ele.me’s employees increased from 200 to 2,000 in half a year. The current number of employees is 16,000, and the number of registered delivery person is at an astonishing 3 million.

According to Zhang, during the explosive period of the industry, speed and rate of growth are much more important than detailed management.

Unlike other native Shanghaiers, he is actually a rather aggressive person who enjoys physical confrontations and speaks loudly. He resembles Zeng Liqing, the marketing director of Tencent’s “Entrepreneurial Five” in a way. They are both well-built, unrestrained, and only wear T-shirts, Hawaii shorts, and sandals in summer.

2. WHAT IS ZHANG XUHAO’S BIGGEST WORRY?

Zhang Xuhao isn’t worried about Ele.me’s future.

In reality, Zhang Xuhao had been worrying by two problems in the past few months: first, strikes by Meituan. Wang Xing, the founder and CEO of Meituan, diversified Meituan‘s business which made it more flexible and less costly for Meituan to deal with Ele.me. Second, the rate at they are burning cash. Ele.me is still at a cash-burning stage. With its current market value of 10 billion US dollars, any investor would think twice before making more investments.

Therefore, in Zhang Xuhao’s view, there does not exist another “optimal choice.” He even optimistically believes that “after we join Alibaba, with Alibaba‘s multiple traffic channel now open to us, we could lead a strike upon Meituan.”

As for whether or not Ele.me will be gobbled up by Alibaba, Wu agrees with Zhang Xuhao. This buyout is a “building block merger”, as there is not a single business unit within the Alibaba system that can swallow Ele.me whole. This is totally different from the relations between Meituan and dianping.com, Didi and Kuaidi, or Ctrip and Qunar. It is also different from Ele.me’s acquisition of Baidu Waimai.

The transactional style and wolf culture of Ele.me are very similar to Alibaba. Zhang Xuhao’s personality is a great match with Alibaba‘s corporate culture as well.

What really worries Zhang Xuhao is something else: the fact that people will talk about how Shanghai, already deprived of internet companies, lost another unicorn with the purchase of Ele.me.

3. HOW WILL ZHANG XUHAO CHANGE?

After the acquisition, Zhang will serve as the chairman of Ele.me’s board, while the CEO will be from Alibaba.

Zhang shared another detail with Wu.

Ever since high school, Zhang has always loved basketball, and was captain of the basketball team at school. He once led the team to win Shanghai’s city championship, and he still plays once a week. Every game, he gives his all in order to win as his happiness is dependent on it. He reflects on the play after every game, and if he loses, he will be feeling down for a while.

Over a month ago, the general course of the Alibaba purchase had already been set. “During my recent games, I suddenly realized that my desire to win is not as strong anymore. I feel like winning or losing is not as important anymore, and what really matters is if I enjoyed playing the game.

Such was the change in Zhang in just over a month. What about half a year, one year, or five years later? How will he change then?

All entrepreneurs and the companies they found are linked in a cooperative relationship. An entrepreneur gives birth to a company that genetically belongs to him. At the same time, the company also takes part in the formation of the entrepreneur’s personality. They build and torment each other like lovers. This kind of partnership is rarely based on reason: it is more often built upon desire, fear, or longing.

Zhang Xuhao also shared the story behind his entrepreneurial inspirations: ten years ago, he stumbled upon a film called “Pirates of Silicon Valley” that told the story of Bill Gates and Steve Jobs. He said to his classmate Kang Jia, who later became member the founding team, “In the past, I used to think that business is about transporting values. But after watching this movie, I feel like it is about creating values. I create something, I can change world, as long as I have the passion and the belief that I can change the world.”

If this sentiment still holds, then all is well with Zhang Xuhao and his Ele.me.