The LeEco Problem

Source: Outspoken Billionaire Works to Salvage His Tech Empire in China – Bloomberg

Even if LeEco and the rest of Jia Yueting‘s business holdings implode over the next few weeks, those of us who will pick through the wreckage looking for the lessons will surely learn two things very quickly.

The first thing that we will discover will be that anyone who dismisses Jia as a “fool” or an “idiot” will be wrong. Under the bluster, we will find that Jia is an exceptionally smart guy who had a fantastic vision for his company.

The second thing we will find is that the reason for Jia’s failure was not his overall strategy. Let me explain that a bit.

Jia is an implicit subscriber to an ethos that is common among entrepreneurs that I call “conglomeration mystique.” Seeing himself as cut from the same cloth as Elon Musk, Steve Jobs, and Jeff Bezos, Jia sees no reason why he cannot do what they did.

All things being equal, he’s right. Other entrepreneurs, supported by a war chest from a core cash-cow business, have leapt into unrelated fields and surprised their critics. I know of no gift possessed by those people that Mr. Jia might have lacked. So the vision was not wrong.

Jia’s mistake is one that has plagued so many Chinese entrepreneurs: operating in a market that rewards speed and short-termism, he became convinced that he had to do everything right now, or the opportunity would be lost to him.

As the Bloomberg article hints, Jia’s pace of execution outstripped his ability to build the capital to support it. At several points, he likely had the choice to slow down and let the capital catch up. Instead, he chose to risk overextension, to gamble on things working out just right, and in so doing proved Gordon Sullivan’s maxim that “hope is not a method.”

The question this leaves is thus: how do you get an entrepreneur, forged in China’s Make-It-Today-For-Tomorrow-The-Government-Will-Change-the-Rules business environment, to eschew the very thinking that made him money in the first place? I don’t think you can, which means that the kind of grand-scale Hail Mary approach that has tripped LeEco is likely to become a fixture on the China business scene in the coming years.

For some, it will work. And LeEco is down, but it is not out, yet.