"For the vast majority of companies, disruptive innovation knowledge is a one-time eventuality. If you can't abstract past successes into methodologies, tools, and theories, you won't be able to proactively apply them next time." -Christensen

There's no doubt that Meituan is a strange company that has entered many seemingly unrelated fields, but has always managed to come out later in those giant-rich fields.

Meituan was founded in 2010, and then listed in Hong Kong in September 2018, with a market capitalization of $51 billion, surpassing Xiaomi and Jingdong, and becoming the fourth largest hulai me company after BAT.

What's even rarer is that for most businesses, disruption or disruption or innovation is a one-time eventuality. But time and time again, Meituan folds, and the later business always replaces, replaces the original main business.

In Answers for Entrepreneurs, Christensen says that top CEOs have a long-term responsibility: to lead the development of a process we call a disruptive innovation engine, through which growing businesses can be launched repeatedly and successfully.

The book was written around 2000, when he said that no business had yet built a disruptive innovation engine that never dies.

I think in the Chinese Internet space, Meituan is the third company after Ali and Tencent to build a disruptive innovation engine, and that's Meituan's core competency.

This article is not one of the many that have analyzed Meituan. Telling the story of Meituan is not my purpose, what I want to do is to borrow the false to repair the true, by the example of Meituan, to put forward a core point of business innovation, to answer the question: after a certain volume of a company, can it realize the innovation from the inside out again and again?

Moritz, founder of Sequoia Capital, said, "A company's DNA is determined as early as its first 18 months. It's unlikely that the company will change much after that; if the DNA is right, it's a piece of gold; if it's not, it's basically game over."

That's an exaggeration, to be sure, but it's an important description of the importance of its early startup years. In which business was Meituan's play formed? Group purchasing, which was the first business of Meituan, and the thousand-tuan war it triggered was also almost the most disastrous one in China's Internet sector, so to understand the core competitiveness of Meituan, we have to start from that time.

In the battle of a thousand tours, Meituan is not the earliest, not to mention the most financing, why only it won? I will answer this question with three keywords: innovation, strategy, and competition.

Wang Xing is not a hobbyist entrepreneur, and after his first project, the school network, went online in 2005, he tried nearly 10 directions, an average of one project every two months, before finally choosing the school network.

Doing group buying is also the same, in 2010, when the founding of the United States group, Wang Xing does not count the Internet world well-known big names, his first consideration, actually is how to stagger with Ali. This shows that, before fighting this battle, he has already thought about how to find a different positioning for himself and the giant. This thinking of entrepreneurial choice is a key step to his success.

Why choose group buying? Wang Huiwen, co-founder of Meituan, discovered a theory, or AB taxonomy, which is enlightening to experienced people once they hear it:

"The whole Internet can actually be divided into two categories, one of which is the supply and fulfillment online, such as Tencent and Baidu; and the other is the supply and fulfillment offline, such as Ali. "

Want to plow in the field of e-commerce in the presence of Ali, usually people will think of subdividing the industry in the vertical. But the perspective of the United States is different, he believes that e-commerce can be subdivided into physical e-commerce and life service e-commerce, Ali only do physical e-commerce, did not do life service e-commerce. This is a different perspective!

I think seeing the market opportunity from this perspective is a major boundary breakthrough, where the original e-commerce giants monopolize to the sky, he took a different route, pointing out that there is also a large area of life service e-commerce.

Life service is a non-standard commodity, the need for details of the operation, is a very low gross margin of hard work, dirty work, often the giants do not see the business, but in fact the market is large enough. Wang Xing has a very good grasp of macro data, he knows that 2012 is the tertiary industry output value is less than the secondary industry output value of the last year, and Meituan happens to do is the tertiary industry, is the service industry of e-commerce.

The living services field can be cut horizontally, one class is the off-site living services, such as Ctrip; the other class is the local living services. Meituan focuses its main battlefield on local life services.

The most important reason why Meituan came out on top in the war with Ctrip is because of this horizontal cut. Ctrip's users are mainly business travelers who go to other places, while Meituan sees that, especially in low-end cities and low-end hotels, nearly half of the population is staying locally. This positioning avoids Ctrip, Where to go, Yilong and other rivals, in the two years of killing into the wine travel industry, the number of nights of Meituan wine travel has been equal to the sum of all the Ctrip system.

In the early days of the venture, the choice of mismatch competition, is the key point of Meituan survived and made it big. Facts have also proved that most of the physical group-buying site is not killed by the United States group, but by Taobao's bargain dragged to death.

In a sea of red sea to find out the local life service group purchase this blue sea, stagger with the giant competition, this is called innovation-driven growth strategy.

After the positioning of the innovation, the next step is to talk about the strategy of its implementation.

More than 100 years ago, Schumpeter's definition of innovation methodology is: the recombination of the basic elements of the original economic structure. There are two key steps in this, the first is to dismantle the basic elements from the economy at a small enough granularity; the second is to combine them in different ways. The first step in making a strategy is to find the most critical "one", i.e., the meta-starting point, around which all the other elements can be combined. There is one and only one meta-starting point.

According to this methodology, there are three basic elements of e-commerce: the demand side, the supply side, and the connection side, which can be expressed as people, goods, and field.

Meituan and Ali ultimately want to occupy the field, flow, super platform, of course, but the field is the result, you need to start from the people and goods before it is possible to establish. The huge difference between MMT and Ali is that they find that "one" is not the same.

Ali's "one" is what? Merchants. This is written in its mission - "to make the world no difficult business". Why is Ali successful? Its business model has been around its mission, the strategy behind the organization all around this to play.

The "one" for Meituan is the consumer, which is its strategic breaking point. It is written in the mission, "we help people eat better, live better" Wang Xing himself also said: "The customer is divided into consumers and merchants at both ends, both ends are very important, both should be served well. If there is a conflict between the two, we choose to put consumers in the first place. If there is no consumer, merchants will not use us."

One of the most influential quotes for me from the book Good Strategy, Bad Strategy said, "Strategy is the role of the bar. What do you mean by bar? Finding a pivot point, stretching it and then pressing all the limited resources through the bar to solve the core problem."

The "consumer first" strategy of Meituan is determined, which also means that other temptations are relatively easy to break.

In 2011, the most frantic time of the thousand group war, each in the advertising war, the group treasure network invested 550 million advertising costs, glutinous rice 200 million, the public praise claimed 300-400 million advertising costs. In contrast, Meituan has only $12 million in the A round.

Want to invest in advertising for fear of not having money, do not invest in advertising and afraid of death. At that time, Wang Xing hesitant to follow up on the advertising occasion to consult the former Alibaba COO Guan Mingsheng, Guan Mingsheng gave him a key opinion: "for the merchants that is, the B side of the advertising is useless, the merchant side of the advertisement to put more, is not as good as the execution of the offline team; and for the consumer side, Ali's experience is that the cost-effectiveness of advertising on the line is much greater than offline ."

These two sentences, is to go back to the essence of the point to think, if the consumer first, then the online advertising pen offline is good, if the merchant second, then the ground push team is better than the advertising effect.

By 2014, only 176 Chinese group-buying sites existed, with a mortality rate of 96.5%, avoiding the burning of unnecessary money, and in the cold winter when the United States group cash flow is very good.

A good model has a feature called the enhancement loop, which is a syntax of "the more you do something, the more you do something", and we can also call it a growth flywheel. The bilateral market is a good growth flywheel sentence, the more consumers the more merchants, the more merchants the more consumers. But remember, there is a threshold effect in the middle, "you have to exceed a certain threshold before you can enter into a positive cycle, and before it reaches the threshold you have to invest, invest, invest".

The next question is, the flywheel effect generally speaking at least 3 wheels, but the engine wheel is generally only one, if you put all the money on average to 3 wheels, so that each wheel grows by 30%, it is better to put all the resources smashed into a wheel, smashed to 100%, so that it turns, and as long as a wheel can be turned up, it can drive the other wheel.

Since Meituan's meta-starting point chose consumers, its big growth flywheel is consumers first. So, what will drive the growth flywheel of "consumer first" for Meituan?

Specifically, it is the three highs and three lows: high-tech low gross profit - > high efficiency low cost - > high quality low price. That is, consumers will always like low prices, high quality --> which in the operator will require high efficiency, low cost, how to improve efficiency? --> The answer is high-tech. So far, the Mission's R & D expenses are more than 10% of revenue.

Recalling the key elements of the success of the United States group purchasing, on the demand side it captures the consumer first, the tactics used is to do the mobile Internet with full force; the supply side to capture the business second, the tactical point is to push the team's three high and three low playing method; third, the tactics used is high-tech. And these things are basically it in 2010, 2011, 2012 to think clearly.

Strategy in the front, competition in the back, Wang Xing is how to fight a business war? There are three key words in this section: capture the mass market, mismatch competition, and low-end subversion.

In the group-buying war, the real long-term competitor of Meituan is VW Dianping. Founded in 2003, Volkswagen Dianping had more financing than Meituan in the early days, and it has a big advantage in traffic, especially in first-tier cities, where it has always been No. 1 in terms of market share.

If the country's 350 prefecture-level cities are divided into five levels of SABCD, S is the super city of the north, Guangzhou and Shenzhen; AB is the provincial capitals, and CD is the second, third and fourth-tier cities, then which area should be invested the limited resources? The strategy of Meituan is to choose to prioritize flanking into AB cities.

Former Alibaba VP of Sales Gan Jiawei joined Meituan as COO and made the decision to only bite the top 3 in S super cities and never fight for first place, because the money to fight such a city can be used to fight many AB cities. At a time when every family puts its soldiers in the super cities, Meituan has spent half a year to take an unquestionable lead in all AB cities.

The result? 2011 Meituan was second, 2012 Meituan was first, and finally won the war.

In October 2015, Meituan and Dianping merged, with a whopping 82% market share after the merger, and the battle of a thousand tours was over.

The story isn't over here, the war is over, but it's absurd that the end of the war is also the day the group-buying industry disappears. 2014 the whole group-buying site suffered a limit point, and 2015 Meituan's own group-buying business also suffered a limit point, what to do at this time?

What the group did was to upgrade. Upgrade the group buying business to the store business:

1. Supply-side upgrade: the original is the consumer to go to the merchant to consume, the United States will be upgraded to go to help merchants to do the Internet service, that is, from the 2C service to the 2B service, for example, in the store to install the code preferential buy single service, become a new business of O2O, while the group buying business itself is declining. By 2015, as the business that Meituan started, group buying did not even have a name in its organization chart, and the whole department was upgraded to the store business group.

2. Demand-side fractal: the scope of the store business continues to expand, adding hotels, tourism and other businesses to make up for the decline in the original group-buying business.

This upgrade is very effective, but not long after the completion of the store business again reached the ceiling of growth, and at this time, Meituan is faced with the problem of "what to do".

The "hungry" win, the small independent team of disruptive innovation against the odds

In The Innovator's Dilemma, Christensen suggests that there are three ways for a company to face a new business: First, acquire a company with new processes and values; second, transform the company to adapt to the new processes and values, like Microsoft, which is the first time in the history of the company. processes and values, like what Microsoft has already done; third, set up a small independent organization, run new lines of business in the small independent organization, run through the closed loop, and find new engines of growth.

Wang Xing chose the last one, using independent small teams to find the possibility of disruptive innovation. These small independent teams grow in the wasteland, the company's attitude is to give you full independence, do a good job I will put more resources on you. It's a form of alternating exploration and execution, and the wine and movie business has been successful, with takeout being even more successful and growing into a second main channel business.

After internally verifying that this model works, it is necessary to invest heavily to start competing. At that time, the main competitor of Meituan takeaway is hungry. Founded in 2009, it was the first team in China to do takeout, and in October 2013, when Meituan first came online, it was a dominant player with a market share of more than 50 percent.

If you look at it from a static point of view, isn't this battle impossible to fight?

At that time, the hungry one was positioned in the college market, Tao point point, Baidu is located in the city white-collar, the two markets are completely different, the difference is that the college market is large, but the white-collar customer unit price is high. The American group takeaway found that the white-collar market is still to be educated, but the campus market has been educated by the hungry one almost. And in the campus market, Hungry Mou does not have an exclusive share. Therefore, they set a strategy: stabilize the existing white-collar market, most of the energy on campus.

After staggering Taodot and Baidu, how can Meituan go to war with Hungry's in the campus market, which already accounts for 50% of the market? The answer is still misplaced competition.

Hungry's had a serious miscalculation at the time, believing that areas outside the first-tier cities did not have much opportunity and that the market was not mature. The judgment of Meituan is different: although the first-tier cities are big, they account for at most 30% of the total market share, and the bigger opportunities are in the second and third-tier cities. What's more, the hungry one has been in the first-tier cities to verify the success of the U.S. group should be the model quickly pushed to the whole country.

After seeing a larger chessboard, the United States does not have the first-mover advantage of the United States group quickly run horse enclosure, in 2014, an average of 1.5 days they can open up a new city. Such a speed of ground push is the core advantage established in Meituan from the group buying era.

In the summer of 2014, they chartered an auditorium in Jili University, chartered a few layers of dormitory buildings, recruited 1,500 people from all over the country, training for a month on the battlefield, sent 100 cities to do the ground push. in August, the Hungry Mansion found that this tactic is also beginning to follow, however, it is already too late. Because the original hungry only 300 people, never played a large ground push war, no underground ground push experience, the original operational rhythm and inertia was disrupted.

By the end of June 2014, Meituan Takeout had taken the lead in the number of cities (60:40); in terms of performance, the ratio of Meituan's and Hungry Mansions' performance is roughly 2:3.

By the end of 2014, Meituan had basically established a winning position in the campus market, and then began a low-end counterattack, and in early 2015 turned to the white-collar market. If the most important key element in the campus market is the demand, then the white-collar market is the most critical is the ability to fulfill, each delivery time, stability is crucial.

After figuring out this thing, in 2015, Meituan made a major decision, this decision means heavy capital investment, that is, self-built rider delivery system, which has established a very large barrier for Meituan, and the order density has reached a new high.

Behind the visible riders is the invisible technology, Meituan Takeout has developed a takeout super brain system, full name "O2O real-time logistics and distribution intelligent scheduling system", according to different distribution scenarios intelligent scheduling, so that the order and the rider intelligent matching, to keep the capacity in the best state.

The description of the technical team has this data: "under the premise of a stable increase in the rider's salary, the average delivery cost has been reduced by more than 20%". The low gross profit of the catering takeaway industry is mainly due to the high cost of riders, which accounts for 90% of the overall cost structure. But the technical support of Meituan still brings relative operational efficiency and cost advantages.

In this way, the Meituan takeaway business has successfully completed a two-tier transcendence of the inner core and the outer - externally, the takeaway business surpassed Hungry Mou, and internally, it surpassed the group-buying and shop-to-store business, and accounted for 62% of the revenue composition of its entire business in 2017.

Behind the complexity of the business, from group-buying to takeaway, why is Meituan able to derive and navigate so many businesses? Going back to the beginning and the essence, there is one and only one key point to learn in this case, and that is the fractal innovation engine.

How to build a fractal innovation engine, simply put, there are four steps:

1. The first step, that is, to strengthen the first curve, by way of supply-side technology upgrades, to consolidate their business main channel.

2. After the main channel of the first curve is compacted, the second step must be carried out, that is, the fractal exploration, based on the original demand-side traffic, the exploration of a variety of emerging businesses. Usually with a small independent team to complete the business closed-loop approach.

3. Once the business can be closed within a small range to complete the loop, put enough resources to compete with the real rivals, the formation of the second curve. At this point, the average CEO will usually fix resources in the main business, but the top CEOs will make a completely different choice - to put all the resources into the second curve.

The best way to do this is through disruptive innovation, or what Christensen calls disruptive innovation - finding an element of ten-fold speed and using low-end disruption to compete with the leaders.

4. After the disruption is complete, turn the second curve into your new main channel. At this time, the company has two main channels, the original first curve, and the new second curve. At this point, the company should be able to break the non-continuity, no matter from the mind, organization Shanghai business cutting.

There are two key nodes in the above disruptive innovation engine, and entrepreneurs always forget the second one:

1. Starting from the demand side first, the mass high-frequency needs, and the blank market entry.

2, but the last rammed moat is the supply side of the technical ability to upgrade. Over the past decade, we have seen many innovative companies seize the opportunity of traffic and market, but why do they not have the strength?

Why didn't they form a moat?

Why didn't they form a moat? It's because they didn't finish upgrading their technical capabilities on the supply side.

Only after the demand-side market entry and supply-side capability upgrade are completed can we say that this disruptive growth engine is complete.

This theory may sound false, but you can be assured that if you use this model to reorganize Meituan's business, your understanding will be much clearer. People often use the phrase "one horizontal and one vertical" to describe Meituan's business, with "one vertical" being all of its food-related businesses, and "one horizontal" being all of its businesses other than food.

But this expression is too static, I think a better expression is still fractal innovation:

1, the first curve of Meituan, its main business at the time of its establishment - group purchasing

2, group purchasing business was later upgraded to the store business, the main channel has been consolidated, Meituan's main business is the group purchasing business, the group purchasing business has been upgraded to the store business. The main channel has been consolidated, and Meituan has upgraded its moat.

3. Before the group-buying business reached its limit point, Meituan started to explore the demand side of the fractal. They should have done dozens or even hundreds of fractal explorations in those years, and the more successful ones include movie tickets, takeout, and wine tours, all of which are supplied from the first curve of traffic to other business lines.

4, many explorations, takeaway grew into its second curve. Next, the takeaway business continues to be consolidated, that is, the supply side upgrade mentioned above, including the platform of 600,000 riders, catering ERP, platform, 2B, supply chain, etc., takeaway has been consolidated into the main channel of the home business.

In the second curve of the takeaway, Meituan has begun the fractal of new business, such as bicycle, online car and so on.

The latest structure of Meituan is like this:

Meituan's original main business is group buying, hotels and travel, collectively known as the store-to-store business, which is the first curve, and the second curve is the home-to-home business triggered from takeout. The second business in its prospectus is called new business and others.

As of April 30, 2018, the first curve (to the store, hotel, travel business) accounted for only 27%, the second curve accounted for 61%. When did this conversion happen? The takeaway business accounted for only 4.3% in 2015, and it went to 62% in 2017. That is to say, in these two years, Meituan realized the completion of the first and second curve handover, and realized the upgrading of internal capabilities.

In summary, I think that in the Chinese Internet field, Meituan is the third company after Ali and Tencent that has established a disruptive innovation engine, which is the most core competitiveness of Meituan.

Disruptive innovation knowledge is a one-time eventuality, unless ....

We can use the second curve theory to interpret the past of Meituan. Likewise, it is possible to use this theory to predict its future; what is at stake for Meituan? What is its next third curve?

I think there are two dangers:

First, it has a single engine of growth, and now the engine of growth is still based on the consumer side, based on the flow;

Second, its competitors are upgrading, like fighting monsters, you fight to the end of the big BOSS are out, and it's another big battle.

The matter of the growth engine is very important, Apple's growth engine is the hardware phone and iOS system two; Amazon has two e-commerce and AWS; Tencent has QQ, WeChat, payment, games; Ali has Taobao, ants gold service, Ali cloud, rookie; today's headlines have headlines, jitterbugs, and half of the internationalization.

But look back at Meituan, group buying this engine has come to an end, Meituan's largest traffic entrance, from the business revenue, traffic entrance, and then to the demand side, is takeout. Previously, its group purchasing encountered a limit point, the future of the takeaway will certainly encounter a limit point, and the more intense the competition. The fiercer the competition, the faster it will hit the breaking point. So what if the new business curve doesn't get up before the takeout business hits its breaking point?

As emphasized earlier, there are two key nodes in the engine of disruptive innovation:

Node 1: Start from the demand side, and look for mass, high-frequency, just-demanded, and blank markets to enter, as Meituan has already done.

Node 2: the real tamping moat is to provide the supply side of the technical ability to upgrade.

So it only needs two suggestions on the demand side: suggestion one, the takeaway market will still be booming; suggestion two, find a new traffic entrance on the demand side as soon as possible. There should be two criteria for choosing new traffic entrances on the demand side: criterion one, belonging to the life service, especially the local living service; criterion two, the public, high-frequency, just need.

Mass, high-frequency, just demand these three points also appear in its prospectus, why? Because the new business should be used as a traffic entrance, so that the total cost of customer acquisition is low, and the value that can be created in the life value of the user is high.

In line with these two criteria, let's look back again, should MMT acquire Mobay, should we do online car? The single volume of Meituan takeout is 21 million units per day; the order volume of Mobay bicycle is 25 million units per day; the single volume of drip taxi is 20 million units per day. These are all in line with the local life service, according to this standard, not to do business is wrong. Therefore, a note asked Xu Xin, founder of today's capital, how to look at Meituan traveling? Is it worth continuing to invest? Xu Xin's answer is almost the same as the word I just used, that is, the high-frequency travel is just a business, the United States Mission is very suitable for doing.

If Meituan wants to break through the $100 billion market capitalization and become a real first-line force, it must change lanes inside its own category. In addition to finding the second curve on the demand side, you must find the second and third growth engines on the supply side, and when both growth engines are available, the company can stabilize and become an upper-level company.

Wang Huiwen had a speech in March 2017, titled "the opportunity of the second half of the Internet, in the supply chain and 2B", he said that the next wave of China's Internet, if you want to rebound, an important direction is the supply chain and 2B industry innovation. Meituan prospectus has a sentence: "Meituan to build a set of data service system based on catering business", this is not catering cloud computing? Meituan has already invested in almost all the information facilities used by catering stores, menu, positioning, cashier, SAAS, ERP and so on. This thing is likely to become the third curve of the Meituan.

Finally, let's talk about competition. Today vaguely the rival of Meituan has become Ali.

Ali and Jingdong's competition, simply put, is to do addition, you do logistics, I go outside to do a rookie to peripheral blow you. Ali can not use the same to do addition to crush the United States Mission? I originally physical e-commerce, you Mission is a local life service, that same local life service, I will heavily support the hungry one and the word of mouth, can not fight against the Mission?

What comes, comes sooner or later. Wang Xing, who climbed out of the pile of dead people, after this battle, can he be king again? I don't know. But there is no doubt that the next two years, this war will be very interesting.