The backpacker’s guide to Far East venturing

 

Alex Farfurnik, Representative Director at Tianxi Japan

Alex Farfurnik was born in the Soviet Union in 1982 to Jewish parents in what today is the Ukraine, a region historically beset by anti-Semitism and pogroms. Early life was austere and regimented. Farfurnik remembers entering the Soviet educational system in first grade, where he was forced to wear a suit, sit straight and follow strict procedures when asking any questions, including permission to use the toilet. After the Soviet Union fell apart, his family moved to Israel. They took with them the maximum allowed $200 per person. Farfurnik was eight years old at the time. Nobody in the family was fluent in Hebrew. His parents didn’t have jobs.

Notwithstanding or because of his upbringing, Farfurnik learned to build from scratch. He started many businesses, first in his youth and later as an adult. Most failed. On his fifth ‘adult’ try, however, business took off. Shortly after turning 33-years-old, he floated his Beijing based digital advertising business on the National Equities Exchange and Quotation (NEEQ), China’s “New Third Board”. Recently he moved to Tokyo to repeat his China success in Japan. Over coffee at Shibuya’s Glorious Chain Café, Farfurnik told me the story of his entrepreneurial ventures that stretch across cultures and continents.

As a kid, Farfurnik tried starting many businesses. He sold flyers produced on the first PC printer he ever bought, soliciting family friends and local merchants. In high school, he sold flowers on the street. “I tried to start different businesses when I was young,” recounts Farfurnik, but he never sold much.

Later he started a car polishing business with friends. Each chipped in to buy an expensive wax polishing machine. Customers responded to promotional flyers they placed under the windshields of parked cars. “We did a perfect car wax polish at their home,” Farfurnik says. Also with friends, he built a food delivery service. In the mornings they would deliver freshly baked goods direct to customer’s homes. “In high school, I was making a lot of money,” he recalls.

After leaving high school and before being drafted into the Israeli army, Farfurnik worked as a web developer for a digital startup. It was the dawn of the internet age. The firm made 3-D picture models of products for brick and mortar retailers. End customers could then virtually browse a retailer’s entire product range online. The startup collapsed when the internet bubble burst in 2000. “It was fun while it lasted,” he says.

Farfurnik studied at Open University while in the army. When conscription ended, he aimed to travel the world. The BRIC countries were high on his to-do list. Russia wasn’t a challenge, so he crossed it off. Brazil was too dangerous, so he crossed that country off also. China appealed to him more than India, because he “liked Bruce Lee movies.” He headed for Beijing carrying only his backpack in hopes of studying kung fu at the Shaolin Temple. The temple is famous for originating a style of kung fu which combines martial arts with Zen Buddhism. He arrived in Beijing at 4 AM without a hotel reservation. He didn’t know anyone. And he didn’t speak Chinese.

In Shaolin, Farfurnik practiced martial arts from 5:30 in the morning until 8:30 at night, most days of the week for eight months. In the evenings he studied Mandarin. “When I spoke, it seemed people understood me. When they spoke, I didn’t understand them,” he says. It took him four months to figure out that they were replying in Henan dialect, the province where the temple is located. After he asked people to speak only in China’s official language, Mandarin, his Chinese skills improved dramatically.

Farfurnik joined his first China business as a cofounder in 2005, along with other ‘techies’ he met over the internet. Facebook was becoming popular in the United States. Social networks were popping up in China also, but there wasn’t a multilingual network connecting China with the rest of the world. So his team built a fully functioning multilingual social network. When it became clear the site would attract only a limited number of users, they began searching for more promising business opportunities.

In 2005, the Beijing tech sector was bubbling. Teams with strong business skills sought to partner with other teams with strong technical skills. “Let’s build a company together,” they suggested. “We had many options,” says Farfurnik. In the end, his team chose to partner with two Israeli businessmen who aimed to replicate in China a successful Israeli job search engine. Together, they built an aggregated job listings portal, with listings scraped from other Chinese job websites. They also built a rental listings portal, attracting 40,000 daily users. “We had quite advanced technology for the real estate market,” he says.

The real estate website solved the problem of fake listings. Letting agents in China routinely post fake rental listings to ‘bait and switch’ customers. Upon calling an agent posting a fake ad, the rental hunter is told, “Sorry, this apartment was let yesterday. But I have another (more expensive) one….” Even if he or she doesn’t take the bait, the agent then has their telephone number. Some agents use that information judiciously. Others harass apartment seekers with follow up calls. They also sell prospective customer phone numbers to other agents, who do the same. To collect the numbers, some agents mask their true agenda by posing as landlords, posting on multiple websites under different names and by regularly changing their own phone numbers.

Farfurnik’s team solved these problems by issuing one toll-free number for apartment seekers to call. They also created technology which identified agents by their simultaneous use of identical phone numbers on multiple websites promoting seemingly different businesses. Each agent was then assigned a unique code which apartment seekers entered after dialing the toll-free number. Before being connected, the agent heard the message, “You have another caller through our platform…..” By analyzing calls, the firm learned how best to match seekers with agents. They also learned to protect apartment seekers and promote agents with every phone call, says Farfurnik.

The team helped clean up the industry and assisted millions of Chinese to find apartments. The main problem was collecting money. Back in 2007, nobody trusted the internet. Agents wanted to pay the firm in cash. Some would visit Farfurnik’s Beijing office to do so. “It was hard for us to charge the agents,” he says. When the financial crisis hit in 2008, the firm began running out of money.

Farfurnik fell on hard times. All of his assets were tied up in the company. He also owed money to other investors. Yet the team managed to survive another 1.5 years. In the week they finally closed, Farfurnik also broke up with his long-term girlfriend. “I took my big suitcase, a smaller suitcase and my birds. Then I moved to a friend’s house to live on the sofa, because I didn’t have any savings,” he admits.

Later that year, in 2010, he started a new firm with team members drawn from the former bankrupt company. A small seed round was provided by an early-stage venture capital firm. The new firm made money by searching for ‘opportunities’ on the internet, matching topics that were not well covered on the web with those which could be monetized by Google display ads. Where there was missing content, the firm produced it, building complete websites around the subject.

An example is finger monkey. A finger monkey is a pet monkey about the size of a human finger. One can be bought for a couple thousand dollars. Little information was available on the internet about finger monkeys. The firm’s technology searched the internet to determine that money could be made by building an entire website about finger monkeys. An automated procurement system instructed independent copywriters and designers to create content for the new website. When published, Farfurnik’s firm made money every time users clicked on a Google display ad, for example, that of a pet store merchant. The volume of clicks per site was often low, typically under 1,000 clicks per month. But the cost per click could be very high—up to $10 in some instances.

All went according to plan, until one day Google changed its search engine ranking algorithm. Google did so in response to the actions of the US firm, Demand Media (now called Leaf Group). Demand Media is a well-known firm which creates and publishes ‘how-to’ articles and videos at ehow.com. The firm had acquired eNom, a domain name registrar, and began placing ads on websites that formerly were parked domains—domain names that were not in use. The tactic produced huge profits, but also angered many people. Google responded by altering their algorithms to remove offending websites from their search engine ranking’s index. The firm got caught up in Google’s update, even though they never did anything improper or illegal, says Farfurnik. “2011 was the end of that business,” he regrets.

His team wasted no time looking for new ways to apply their existing technology. In the past they had built great products, for example, connecting job candidates with employers and apartment seekers with real estate agents. However, none of these businesses were part of the final and most important transaction—billing and collections. Their new business, Beijing Xibao Network Technology CO., LTD (Xibao), solved that problem.

Xibao automates search engine marketing—also called pay-per-click optimization—for Alibaba and other e-commerce marketplace merchants. Alibaba, however, was the prize. It operates the world’s largest online marketplace, trading as Taobao and Tmall.

In 2012, about one-quarter of Alibaba’s estimated 2 million online shopkeepers paid Alibaba to promote their merchandise through Alibaba’s platform, in much the same way as merchants pay Google to promote their merchandise through Google’s search engine. On both platforms, merchants bid on advertising keywords to promote goods. The higher the bid, the more likely a merchant’s clickable ad will appear at the top of search results. Previously, Alibaba merchants manually bid on keywords or paid an advertising agency to perform that function. Either way, advertisers could only guess which combination of keywords and bid prices worked best.

The firm’s timing could not have been better. Xibao was one of the first companies in China to utilize Alibaba’s newly introduced web advertising platform interface (API). Merchants began downloading Xibao’s app, optimizing advertising campaigns based on aggregate merchant purchases, rather than by guessing. Many did so, ranging from small ‘mom and pop’ merchants to Fortune 500 companies. Within eight months, Xibao had 40,000 paying customers. Xibao sales took off. The company went public in March 2015 on China’s NEEQ.

About one year ago, Farfurnik moved to Tokyo to reproduce Xibao’s success in Japan through a joint venture company, Tianxi Japan, a firm financed by Japan venture partner Opt Holding Inc. He chose Japan because of its large market and the country’s proximity to his Beijing office.

Farfurnik is focused on hiring a great team and providing unparalleled service to clients in Japan. He hopes to eventually list Tianxi on the Tokyo Stock Exchange, before moving on to develop other markets. South America remains high on his ‘to do’ list, he says.

The entrepreneurial backpacker, who celebrates his 36th birthday today, exhibits an unusual humility when talking about business success. As a member of the Diaspora, he is aware that success is at best temporal. If necessary, Farfurnik is ready to start his next new venture—again from scratch.

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