Overcoming Startup Obstacles, Hong Kong Style Babson College's Peter Cohan offers lessons to learn from WeLab, offering below-market personal loans to consumers.

By Peter S. Cohan

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For the fourth year in a row, I have traveled to Hong Kong to lead Babson College's "Singapore & Hong Kong Startup Strategy" elective. Twenty-seven MBA students have joined me.

But this year, something is different in Hong Kong: It's becoming clearer that the local startup scene is more difficult than it was before.

And the reason is that mainland China -- against whose increasingly tight control people were occupying the streets of Hong Kong's business district for the last four months of 2014 -- is winning when it comes to startups. Instead of seeing itself as a gateway to the rest China, thanks to its Western-style corporate governance and financial markets, Hong Kong has a tepid record of startup success while mainland China is basking in the glow of boffo IPOs such as that of Alibaba last year.

Meanwhile, Hong Kong has very high real estate prices that raise the costs for startups. It lacks a deep pool of venture capital. There are no pillar companies like Alibaba that invest in startups and supply them with talent and the local culture puts a premium on academic success and careers in fields like medicine, banking and real estate.

Related: How Jack Ma's 'Crazy' Management Style Built a Technology Empire

But one Hong Kong-based startup, WeLab, is showing signs of resilience and the ability to adapt to challenges. And those lessons are universal for startups everywhere: WeLab offers through its WeLend platform below-market personal loans to consumers in China and recently raised $20 million in venture capital from investors including Silicon Valley powerhouse Sequoia Capital.

Its CEO, Simon Loong, is a former Citigroup banker with a Stanford MBA who decided to step off the conventional track and start WeLab, thanks to an understanding wife and a strong sense of self-confidence, coupled with a track record of making banking more efficient.

WeLab's special sauce is technology that makes it possible to approve very quickly loans to consumers at 15 percent with relatively short payback terms and pay investors 10 percent yields to supply the capital.

Here are four lessons that WeLab's burgeoning success offers for startups:

Related: 3 Enticements U.S. Cities Could Copy From Hong Kong to Encourage Entrepreneurship

1. Make other people want you to succeed.

When you have no capital or resources to offer, the only possible way to build a company is to get other people to desire your success. You can do that if you have a mission about which you are passionate and you're an honest person who considers how your actions will benefit others.

"When you start a company, you have nothing," Loong tells my class this week. "Your most powerful resource is the ability to inspire others with your startup's vision and to behave in a way that warrants their trust. You must be hard-working, respectful of others and fulfill your commitments."

2. Be honest about weaknesses.

WeLab decided that the Hong Kong market was too small to build a significant business. After surveying several countries, the company decided that the best option would be to try to enter the market of mainland China. This would pose enormous regulatory and other difficulties. But WeLab decided to tackle the biggest market opportunity despite the challenge.

WeLab's management initially knew nothing about mainland China. "I do not have to know everything," Loong says. "But I do need to be able to hire talent that does know about China. So I shifted resources and hired a team there. I spend almost every day in China working with the team. It is a sacrifice but that is what needs to happen for our business to succeed."

3. Realize that failure is not the end of the world.

In Hong Kong, parents are not proud of children who fail. While meeting with people at local startup incubator, StartupsHK, my students were shown a humorous picture of a Chinese mother captioned "I love you son, as long as you are doctor."

Loong was not immune to this pressure but he did step away from a successful career in the banking industry.

Why? Loong explains, "I was meeting with a group of Stanford students and someone said, 'We are above average and that ability should enable us to succeed at anything we put our mind and talents to solving. And if we fail, we can always go back to a corporate job.'"

4. Do your homework.

Another humorous picture I saw at StartupsHK was one of a Chinese father captioned "Facebook? Yes -- face book and study." This picture emphasizes the importance of preparation and study in Hong Kong's culture.

And even though Loong has left the safe career track, he has not lost that studious mindset. Before he met with my students, he studied the resume of each one in great depth and when a student asked him a question, Loong recalled details from the relevant resume during the answer.

The valuable lessons of WeLab suggest that despite the challenges Hong Kong must overcome to succeed as a startup scene, through trial and error, it may end up offering more startup lessons for the rest of the world.

Related: Top Chinese Tech Companies to Watch in 2015

Wavy Line
Peter S. Cohan

President of Peter S. Cohan & Associates

Peter Cohan is president of Peter S. Cohan & Associates, a management consulting and venture capital firm. He is the author of Hungry Start-up Strategy (Berrett-Koehler, 2012) and a full-time visiting lecturer in strategy at Babson College in Wellesley, Mass.

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