Notes From Duan Yongping's Talk at Stanford University - Part II

Q&A session

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Oct 10, 2018
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In my previou article, I shared the translated version of Duan Yongping's Q&A session with a group of Chinese students at Stanford University. Below is my translation of the second part of the Q&A session. Enjoy.

Q16: How have you expanded your circle of competency after you came to the U.S?

Duan Yongping: Circle of competency is not a circle you draw on the ground and tell others I don’t want to go out inside of the circle. The elements of circle of competency are: Be honest with yourself; know what you know; know what you don’t know. If I can understand something, it’s within my circle. Otherwise it’s not.

Apple's $1 trillion market value? I never care about this. I only care about its ability to make money. After buying a company I don’t intend to sell it unless its profitability deteriorates or there’s a better use of capital. When I buy a company there are only two filters: understandable and low price compared to value.

Q17: How do reconcile “never giving up” and “Stop Doing List” for entrepreneurs?

Duan Yongping: "Stop Doing List" is about doing the right things. If you know it is wrong, you have to stop. It’s the same with starting up a business. Doing things right is about methodology, which can be learned. If you don't know what is right or wrong, then it is difficult to achieve success in life. You have to have a clear idea of what’s right and what’s wrong and stick to doing the right thing. For example, smoking is bad, yet many people do not quit smoking. Because even though they know it’s bad, they cannot resist short-term temptation.

Q18. Why don't you speak to the media?

Duan Yongping: I don't want to leave the impression that I still control the companies (OPPO and VIVO) and steal the CEO's thunder. In fact, I have not been active in the companies for more than 10 years. If I were still of the CEOs of both companies, they would not have been unable to do so well.

Q19: What do you think are the differences between China and the U.S. in terms of starting up a business?

Duan Yongping: The U.S. is better. It’s harder to do business in China because besides running your own business, you also have to deal with a lot of miscellaneous things that don’t really matter.

Q20: You are against using leverage. But what if you miss the opportunity (by not using leverage)?

Duan Yongping: You make faster money with leverage of course. But as the saying goes, “When you walk by the river all the time, sooner or later you’ll get your shoes wet.” Why take this risk? By the way, most of our past competitors have long gone, and we are still alive, and the reason may be here.

Q21: What do you think of the smartphone protection case industry?

Duan Yongping: I don't understand it. But I know that good products don't needs to be promoted. When smartphones came out, it didn’t take much time for them to become popular. If your products don’t sell very well after launching, it’s probably because they are not good enough. You have to think about what the problem is.

Q22. Career advice for young graduates?

Duan Yongping: Fulfill your duties well and don't jump around. Many people in Silicon Valley like to quit. But I think it’s better to spend 30 years at Apple than jumping to another start-up.

Q23: What’s your advice for starting up a business?

Duan Yongping: If you don't understand what you are doing then it’s impossible to make the investors believe in you. Huang Zheng is a little bit better. He will keep asking what does this mean? Why is that? He focuses on the nature of the problem.

Q24. How do you think about corporate culture?

Duan Yongping: Corporate culture is all about mission, vision and core values. "Mission" is why the company is established. "Vision" is where the company is going. "Core values" is what is right and what is wrong.

Recruiting has two dimensions: Recruit the people that fit and recruit the people who quality for the job. Whether a candidate “fits” refers to whether there’s cultural matching. And qualification is related to his or her background experiences and abilities. It’s very dangerous to hire qualified candidates who don’t share the company’s values. Eventually they will be trouble makers.

Q25: What do you think of the Chinese companies who outsmart their competitors by taking shortcuts?

Duan Yongping: Alaska has a saying: “Taking the shortcut is the fastest way to get lost.” Success based on taking shortcuts is not sustainable.

Q26: How do you judge whether the stock price is cheap or not?

Duan Yongping: This is a question that people who pay attention to the short-term market fluctuation will ask. I don't think about it. I am concerned about the long-term and do not invest in companies I don’t understand. Anytime you start caring about what the market will do you may be on the wrong track. I don't look at the market. I pay attention to the business fundamentals. If you say a stock is expensive, how do you know? But if you have a 10-year horizon, you know it’s cheap. The market price is significantly below your estimated intrinsic value of the business, assuming you understand the business of course.

Q27. How should we understand the “Stop Doing List?”

Duan Yongping: The main thing is to do the right thing. It's not a skill or a formula, but a way of thinking: If you find something wrong, stop doing it immediately, because the opportunity cost is minimal at this time. But I can't tell you what is right or wrong or how to judge what’s right or wrong.

In terms of doing business, you should never lie to users or investors. You should know everything you say is a promise. When you don’t have the skill and a viable business plan, you shouldn’t go out and find investors. If you don’t know what you are going to do, how can investors believe in you?

As for how to do things right, it takes time to develop skill sets. If you stick to the Stop Doing List, amazing things will happen. In this regard, OPPO is the same as Apple.

"Stop Doing List" also means no shortcuts. You have to accumulate the experiences and lessons over time. When you find something wrong, stop right away. If you can stick to the “Stop Doing List,” the long-term cumulative effect is very obvious. Many people can't let go of the temptation, and they are the same 30 years later. If you are wrong, you must stop and resist the short-term temptation.

Q28: How to raise a kid in Silicon Valley?

Duan Yongping: The most important thing is to give your child a sense of security. How? Spend quality time with them. Be a good companion. Make friends with them. Put the phone away when you play with them.

Love them unconditionally. The Chinese parents often give conditional love. The Chinese also love to boast to their friends about how outstanding their kids are, which can put a lot of stress on them. The kids may think their parents only love them because they are outstanding.

I try to not say “no” to my kids unless it’s principle related. I let them explore.

Q29: What do you think of Warren Buffett (Trades, Portfolio)?

Duan Yongping: He is a very good person. He is sincere to people. He is very wise and can explain any complicated question in one sentence or two. He is so successful but kind at the same time. He is very rare.

Q30: Why do you sell Netease (NTES)?

Duan Yongping: I don’t feel too comfortable having too much capital managed by Ding Lei, who I think of as a big boy. Although the stock price proves that I may be wrong in selling my Netease stocks.