How does a lawyer begin an internet startup, and how can they ensure they are on the right path?
Zhu Chenhao, co-founder of Zaihui Technology, spent eight years crafting an answer: It starts by finding a first and then a second co-founder, thereby building a complementary team by the angel round. It involves identifying pain points in a burgeoning trillion-level market and keenly adapting to market demand and product iteration. Utilizing personal knowledge and networks ensures the company has ample resources and stable support to win each battle.
In the realm of the internet, local living has always been a fiercely contested area. Zaihui Technology’s growth from a ‘ant to an elephant’ may well be embedded in its digital transformation strategy. From three co-founders to over 2,000 employees, Zaihui Technology did not lay off staff during the pandemic. From zero customers to serving over 20,000 mid-tier restaurants, the company secured five rounds of financing within six years. It garnered 32 independently developed and successfully registered computer software copyrights, was recognized as a “Foreign-funded R&D Center” in Shanghai, and became a “Specialized, Excellent, Peculiar, and New” enterprise in the city. In 2023, Zhu Chenhao was selected for the “2023 Forbes China Youth Returnee Elite 100.”
Reflecting on an eight-year entrepreneurial journey, Zhu Chenhao feels it was “thrilling at every step”: The odds of success are slim, and challenges are ever-present. “In peace, prepare for potential dangers; in change, remain steadfast and patient for success,” Zhu often reminds himself.
01: The Dream of a Social Entrepreneur
Before embarking on his entrepreneurial journey, Zhu Chenhao was a quintessential law student.
He graduated from the University of International Business and Economics’ Law School and then went on to study at New York University and Stanford University in the United States. After earning his Master of Laws, he joined K&L Gates, one of the world’s largest full-services law firms, at their Silicon Valley office. Over four years, he handled nearly a hundred financing and M&A cases for startups.
In 2013, Zhu met Zhao Yang, who would become one of the co-founders of Zaihui Technology, through a start-up project. Although the project didn’t come to fruition, it ignited their passion for entrepreneurship. After numerous in-depth discussions, they agreed that China’s rapidly evolving market environment and scale were ideal for startups. Their knowledge and networks complemented each other, and they shared a common entrepreneurial goal. With this in mind, they returned to China, driven by the motto “Two suitcases and one dream, ambitious to return to our homeland.”
Zhu recalls that from February to May 2015, “they shuttled between Beijing and Shanghai, searching for the right entrepreneurial direction. At that time, he noticed that apps like Dianping and Meituan were becoming increasingly integral to people’s daily lives and were showing signs of merging. He predicted that 80-90% of the catering industry would rely on these online giants for traffic. The biggest pain point for these businesses was online customer acquisition, and there was no effective system to handle this influx of online traffic. How do you acquire customers in a world where they no longer walk inside your stores? What products should you make today and in the future? How should you price your products online and in-store? How do you drive customers’ repeated visits? Who could help restaurant owners tackle these questions?”
Zhu was profoundly influenced by the book “Banker to the Poor” by Muhammad Yunus during his graduate studies. Yunus, a Bangladeshi banker, economist, and Nobel Peace Prize laureate, developed the idea and the system of microfinancing and microcredit, founding the Grameen Bank to provide loans to impoverished entrepreneurs without access to traditional bank loans. Yunus believed that the poor have the drive and basic skills to escape poverty. Providing them with low-interest microloans and startup capital could create a positive cycle. Yunus’s ideal of “Social Entrepreneurship” deeply impacted Zhu. When founding Zaihui Technology, he harbored a simple and sincere wish—to help SMB local merchants level playing field.
From its inception in October 2015, Zaihui Technology targeted small and medium-sized businesses. “Compared to giants like KFC and Starbucks, China has over two million mid-tier restaurants at a disadvantage in terms of traffic, rent, and supply chain terms,” Zhu said. Zaihui Technology aims to help these underdogs with AI and digitalization. SMBs now risk being left behind in the convenience economy where consumers have become accustomed to obtaining everything in a few clicks, a trend that has only accelerated in a post-COVID world.
02: Tapping into the Trillion-Dollar Catering Market
Almost coinciding with the founding of Zaihui Technology in October 2015, Meituan and Dianping merged,. As online traffic for local life services further concentrated, a major pain point for businesses emerged: Despite being listed on platforms like Meituan, how could they attract customers and achieve high in-store conversion and order rates? “Even the name of a dish, or the color scheme of a Kung Pao Chicken photo, could affect conversion rates.” Many SMB restaurant owners tended to rely on intuition or gut feeling to solve these issues. “If they feel a product is good, they will spend money to launch a promotion.” Clearly, this impulsive decision-making approach was not optimal, and sometimes even counterproductive.
“I hope to assist them in acquiring online traffic, building their own private domain traffic, helping them with product selection, and providing ready-to-cook supply chain solutions. Essentially, we want to be the external brain for these small and medium-sized catering businesses, helping them operate more efficiently,” Zhu explained.
Zhu used a typical mid-tier restaurant in Shanghai as an example: With a monthly rent of about 60,000 yuan and monthly revenue of around 300,000 yuan, approximately five times the rent, Zaihui Technology helped the restaurant increase its monthly revenue to eight times the rent. This shift helped a barely-break-even restaurant into a 10% net profit margin. With gradually accumulating profits, the restaurant could fund the opening of another branch. “Running into the chain business, they could expand to 20 stores within three to five years.”
During this period, Zaihui Technology also continuously evolved. From initially offering only software, to providing software and services, and then advancing to the AI-powered upgrade of all software and services, Zaihui Technology has fully transformed into a full-stack service provider of digital and new media solutions. It provides a broad array of services that enable merchants to solve mission-critical challenges such as customer acquisition, delivery, insights and analytics, merchandising, payment processing, and customer support, and to fulfill demand generated through their own channels.
Over the past eight years, the local life industry has continuously evolved: Meituan launched community group buying as its core takeaway business, while Douyin, with its short videos and intelligent recommendation algorithms, pushed local life from the era of text and images to videos and live streams. Alibaba, leveraging its takeaway and map services, competed with Meituan and Douyin. Additionally, platforms like Xiaohongshu (Little Red Book) were on the rise, causing a continuous shift in traffic.
Zaihui Technology adapted to this shift. As social media content platforms like Douyin and Xiaohongshu rose, traffic gradually became more content and influencer-oriented. When traffic shifted from transactions to “grass-planting” (influencing), Zaihui Technology began to help restaurants attract traffic on these content platforms.
In 2018, Zaihui Technology established its video-production department, starting to incubate its own influencers, and now has signed up over 20,000 influencers. “Local short video content has become the most disruptive traffic model, and we benefited from early deployment. By incubating many influencers and gathering a large fanbase, Zaihui Technology gained a traffic aggregation advantage. With this traffic, restaurants are willing to offer attractive group buying vouchers and packages, creating a positive cycle,” Zhu stated.
Zaihui Technology’s software services complemented its video-production department. “Focusing solely on customer acquisition quickly hits a ceiling. To further unlock traffic for restaurants, more online exposure is needed, enhancing the product’s effectiveness.” Zhu anticipates that as Douyin group buying and small-scale group buying continue to penetrate China’s third and fourth-tier cities, the business ceiling for Zaihui Technology will keep rising.
Official data shows that by 2023, Zaihui Technology had served nearly 20,000 stores, creating an economics of scale. “The more users we serve, the more configurations we encounter, and the more precise our algorithms become,” Zhu observed the snowball effect. “While many companies still rely on adding bodies, our AI-powered software has enabled us to generate content through algorithms, significantly improving operational efficiency while reducing costs. This allows us to offer better prices to our clients.”
Zhu said that some of the first batch of clients from 2015 have transformed from single stores into regional chain brands, which is gratifying for him and his team.
03: Marching Towards a Multi-Billion Dollar Enterprise
During his time as a lawyer overseas, Zhu Chenhao mainly focused on corporate and securities law, handling hundreds of financing and M&A cases for startups. His comprehensive understanding of the laws and regulations involved in a company’s journey from startup to IPO, and his grasp of the processes and risks associated with founding, financing, and going public, proved highly helpful in building Zaihui Technology. He sums up his experience, by quoting Steve Jobs, “life is all about connecting the dots.”
Today, Zhu oversees multiple departments at the company, including legal, finance, marketing, and overseas offices. “Ensuring business compliance, good capital market engagement, and managing the middle and back office operations are crucial to support the rapid expansion of the sales team.” Additionally, Zhu utilizes his insights into industry trends and market dynamics to guide the company through crucial stages of development with fitting strategies, facilitating multiple rounds of financing for Zaihui Technology.
Take, for example, the company’s financing. The first two rounds of Zaihui Technology’s financing occurred during the industry’s boom period. Even when the market cooled down by the third round in November 2017, the company still managed to secure funding and accelerate expansion. As the industry rebounded, Zaihui Technology received $50 million in Series C funding. Over six years, the company raised over $300 million from investors like ZhenFund, B Capital Group, DCM, Yunfeng Capital, SoftBank Vision Fund, and Blue Lake Capital.
As Zaihui Technology grew, Zhu, as a young entrepreneur, increasingly engaged in social activities. He participated in community events as a representative of the Overseas Chinese Federation, was elected as the Vice President of the Second Council of the Shanghai Europe-America Alumni Association in Putuo District, and received honors like the “Putuo District Model Worker” and “New Youth of Putuo District.” During the pandemic, Zaihui Technology proactively gathered medical supplies, purchasing large quantities of N95 masks and disinfectants, and contributed to Wuhan’s Ninth Hospital and the COVID-19 Prevention and Control Command Center in Qingshan District.
Regarding his identity as a returnee, Zhu believes that studying abroad provided him with a valuable international perspective and a keen ability to identify market opportunities in China. “Looking back, returning to China was the right decision.” He feels deeply that China offers a better and broader market.
While expanding in China, Zhu also keeps an eye on business opportunities in the United States, Europe, and Southeast Asia. His international perspective aids Zaihui Technology in expanding its business overseas. He noticed that TikTok has become a major traffic source for young people in Singapore, and many restaurants wish to operate on the platform. Consequently, Zaihui Technology applied its experience in managing Douyin content and traffic to TikTok. Zhu notes that since Douyin and TikTok are both products of ByteDance, the application of their strategies has been notably effective.
Today, Zaihui Technology has established an office in Singapore to test the water abroad. Zhu views the first step of internationalization as an experiment, with the company’s focus remaining on the Chinese market. As the digitization and node density of China’s catering industry is far more advanced compared to the West, Zhu believed that by digging deep into the Chinese market, he could create the most sophisticated and reliable software platform for local businesses across the globe. This is just the beginning—Zaihui strives to become a merchant’s first call whenever and whereever they want to grow their business.
Zhu estimates that China’s catering market has the potential to reach trillions in scale. With Meituan, Douyin, and others combined accounting for only a few hundred billion, the market penetration rate is just in the teens. He believes that in the next five years, the penetration rate could double, and it’s possible for a company worth over ten billion dollars to emerge. Zaihui Technology is striving towards this direction. Though China’s market does have a long runway for growth, Zhu believes the technology Zaihui Technology has built ideally positions them to fulfill our vision of empowering all local businesses in all countries to compete in the convenience economy.
Zhu believes that Zaihui Technology exists today to empower brick-and-mortar businesses compete, succeed, and flourish in these rapidly changing. . Expanding from a core of SaaS solutions to short video marketing, online operations management, Douyin group buying, and incubation of proprietary brands, the company aims to build a comprehensive ecosystem that transforms the way local merchants do business and enrich the communities in which they operate.
Employees at Zaihui state that Zhu places great emphasis on shaping a humble and down-to-earth corporate culture. “He advocates for a positive and open management style, deeply respects the ideas and wishes of employees, and aims to provide ample growth opportunities for everyone.” Zhu believes that those values make his company uniquely situated to seize the opportunity—to enable local merchants, to level the playing field for underdogs playing from behind, and to empower local economies.
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