The Next Silicon Valley – Part 2

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China has changed the face of manufacturing worldwide, and if Dr. Leonard Liu, one of the best CEO’s according to Japan’s Joichi Ito and leader of several multi-billion dollar companies has his way, China will change the face of software development too. With Augmentum, Dr. Liu’s latest venture company, at the forefront, China will leap-frog what India has accomplished, showing along the way that China can compete with the world’s best, and that working with China does not mean having one’s intellectual property compromised. Dr. Liu knows this will not happen over night. His is a ten year journey at the least. Three years in, Augmentum has some impressive stats – 1000 employees and customers that include Microsoft, Palmsource, and Intel. In Part 1, we spoke to the prevailing challenges that make having a software company in China ambitious and why if any person could accomplish it, Dr. Liu stands as good a chance as any. In Part 2, we share more about this unique company, what it’s like to see it in person, and why you might want to become their next customer.

As others have remarked, a 1000 person company hardly seems like a startup. It does, though, when the company intends to have 40,000 by 2010. Accomplishing that means doubling every 12 to 18 months, and in the first three years, that is exactly what has happened. They’ve done it by focusing top talent and placing that talent in an infrastructure that understands how to both handle, grow, and manage talent as the companies continues to double. From day one, Augmentum has been preparing to become 40,000 strong.

As to obtaining talent, the company holds recruiting sessions around China. More than 10,000 people applied for the most recent round of new hires. Of those 10,000, six thousand were invited to take a lengthy test. (The company even controls the delivery of the test to insure cheating does not occur.) Less than 50% will pass, and only 1/3 of those will be offered a job. In the end, the company will have hired 500 from the initial pool of 10,000. Unlike rumors of certain top schools, at Augmentum, things do not get easier once hired. New employees go on a three month probationary period, and while I cannot remember the exact numbers, as many as 30% will make it through probation. Teams will start to form the months following, where perhaps another 20% will depart. Those that make it by skill and choice will stay.

In a contrast to technology companies in the US, Augmentum employees are expected to arrive at work at 8:30am. Come late a few too many times, and even if you are a top talent, you could be asked to leave. Work doesn’t end eight, nine, or ten hours later either. Many employees will stay past 8pm with managers often staying later than 10pm. It is an ethic shaped by its founder. Those who worked with him at IBM and elsewhere referred to him as 7-11. He arrived at 7am and left at 11pm. Asked at 65 if he is still 7-11, he responds, “It’s more like 7:30 to 10:00 now.” His son, an Internet entrepreneur living in Shanghai, remarks that his father only works less because his commute has grown – one hour each way.

Donald Dixon, a venture capitalist at Trident Capital and an investment partner of Liu’s, said in a USA Today piece on Augmentum that if you blindfolded an American and dropped them into Augmentum’s facilities in Shanghai, he would think he was in Silicon Valley. Having visited the office, I’d say it’s more like Silicon Valley meets Fort Knox. To allay fears of intellectual property abuse, security at the company is more than tight. All employees where badges; visitor badges are distinct and obvious with employees being trained to report any visitor walking around on their own. Every door, including every office, has an electronic lock on it; were a visitor to be on their own, they could not get past the lobby. Employees have access to only certain sections of the company. Even Dr. Liu does not have access to every room, and it’s his company. Video cameras track all movement, and employees’ cubes look more like bland workstations than expressions of their personalities. The machines have no USB drives, no CD-R/W drives, no way to store company data outside their workstation; employees can visit only a limited number of sites, have no ability to install programs unless approved by the company, and for most, can only use their work email to send/receive to internal addresses. And, when an employee gets assigned to work for a new client, they move workstations, keeping nothing of their old machine, to a new secure area dedicated to that client.

Everything about the office seems deliberate. The cubicles line up perfectly; each room looks just like the last. There is no dust; in fact employees even clean the bathrooms. The smallest details are carefully controlled down to the blinds. You will notice that they too not only line up perfectly, but are set to the same height throughout the office. The company runs under the philosophy that discipline begins with the smallest of details, and that if you cannot handle the small, you will not handle the big. For those with experience in Western companies, especially Internet firms, the work environment at Augmentum is a culture shock.

Employees will be the first to say Augmentum is not an easy place to work. Workers are not coddled. They don’t force people to work hard though, or adhere to their discipline. Those that choose Augmentum know in advance what to expect and have selected it because they want to work hard and have the discipline. Work at Augmentum, for some, means accepting a lower salary than at Western companies in China. As they describe the reasoning for accepting harder work, longer hours, and lower pay, it sounds much like Google in the earlier days or Microsoft must. People there believe in the mission of the company and want to be a part of it. They know that by working for Augmentum they will not only work on leading products but learn skills in management, leadership, foreign language, security, process and more; both necessary for Augmentum to scale and for whatever they might do post-Augmentum…not that any have designs for that yet.

As the demand by Chinese companies for software solutions is still in its infancy, almost all of Augmentum’s clients reside outside of China. The clients represent leaders in all sectors of business from cargo companies, semiconductor firms, those in the PDA space, stock exchanges, desktop software, to mobile companies. Their clients require, and Augmentum specializes in offering, more than localization and Q&A. They build leading UI, mobile applications, web-based services, platform integration, even embedded software for hardware products. Dr. Liu knows that regardless of the talent level at Augmentum, the company only works if it can provide substantial savings. Today, engaging them will save about 2/3 the normal cost for development. And much like the manufacturing industry, by working for the top technology firms, Dr. Liu in effect gets paid to grow a top technology team. At some point in the future, when the cost savings for outsourcing evaporate, Augmentum can compete on talent for business anywhere in the world, and that’s exactly their plan.

Simply saying a company has opened in China to offer outsourced software development and solutions implementation would not have aroused interest. Knowing more about the person behind it – along with the other members of the executive team, its vision, success to date, and methodology, though, means we should pay attention. More importantly, this is a resource that you can use. Already one Internet advertising firm uses more than 30 of Augmentum’s staff. Augmentum is, if anything, a symbol of the new China, or perhaps more accurately, it is a symbol of the old China – dominant, confident, strong – one company of many to follow that will transform the face of China as the rest of the world knows it.

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