Shenzhen: China's start-up city defies skeptics

Based in Shenzhen, Makeblock makes mechanical kits that have been described as "lego for adults."

Story highlights

  • A few short years ago, Shenzhen's start-up community was fighting for attention
  • Now it has a thriving scene of small companies investing in hardware
  • A few have attracted major investors and global consumers, like Makeblock and drone maker DJI

Shenzhen, China (CNN)Soon after computer engineer Terry Ouyang finished university, he found there was plenty of work with industry behemoths such as IBM. But it wasn't long before he ditched the corporate ladder to make hardware on his own terms.

"Our generation's motivation is different," Ouyang told CNN. "Our parents were focused on making a living. But we want to do interesting and original things. Instead of making things for other companies, we want to make things ourselves."
Just a few short years ago, Shenzhen's start-up community was fighting for attention. Today, this sprawling city of over 10 million -- which lies just north of Hong Kong, across the border with mainland China -- is home to big names like Huawei, as well as a thriving scene of small companies.
    A select few of which have attracted major investors and global consumers, from robot kit maker Makeblock to drone maker DJI.
    In recent years, Shenzhen's hardware entrepreneurs have faced skeptics who say real entrepreneurial energy can't flourish in a country such as China. They say while it is evolving economically, it still struggles to protect companies from intellectual property theft, and retains a closed political system.
    Yet, the government has publicly declared that it supports entrepreneurs, while "maker" communities and incubators are sprouting up across China.
    Ouyang, 31, is one of the administrators of SZDIY (Shenzhen Do-It-Yourself) a member's association that meets in an old industrial building and builds everything from vehicles to games. The workshop is a study of contrasts: at once dusty and hi-tech.
    "Our goal at SZDIY is to find like-minded engineers and others who are really passionate about making things," says Ouyang.
    But he tempers his enthusiasm with a dose of reality. Despite the attention they've received, the Shenzhen start-up community is still a minnow in China, given the country's size.
    "The people who have the mindset of a maker is a very small group," he says. "It's easy to start a company in Shenzhen. But we need time to fail and to learn from mistakes. Also, the engineers and the designers don't talk to each other enough."
    Cyril Ebersweiler is the 36-year-old founder and managing director of Haxlr8r -- a Shenzhen-based hardware start-up accelerator.

    Silicon Valley and Shenzhen

    Cyril Ebersweiler, the 36-year-old founder and managing director of Haxlr8r -- a Shenzhen-based hardware start-up accelerator -- says it makes sense that entrepreneurs are flocking in ever-greater numbers to the epicenter of the world's electronics manufacturing, despite any uncertainties about China's socio-political evolution.
    "Entrepreneurs need to be in the right ecosystems at the right time," says Ebersweiler. "For fundraising, you go to Silicon Valley. For hardware and manufacturing, you come to Shenzhen."
    It also helps that Shenzhen is home to Huaqiang Electronics World -- a massive components emporium where, day-in. day-out traders sell the circuit boards, LEDs, bolts and screws that go into the world's electronic gadgets.
    Shenzhen is home to Huaqiang Electronics World, where traders sell the circuit boards, LEDs, bolts and screws that go into the world's electronic gadgets.
    Originally from France, Ebersweiler has worked in Asia for over a decade. Haxlr8r acts as an early investor for a range of hardware start-ups from all over the world, which apply for a spot in Haxlr8r's program.
    They invite the companies to their loft in Shenzhen for 111 days of intense prototype development and refinement. Then it's off to the U.S. to meet potential investors and impress the media.
    "This is only the very beginning of the battle," he says. "What the companies do here is only an indication of what's next. The biggest challenge is fear. And today there is enormous pressure. Everyone expects Apple-level quality."
    As for fears of intellectual property theft, some say China's pirated goods purveyors -- collectively known as "shanzhai" -- are actually bringing benefits to the hardware start-up community.
    "It's interesting, the shanzhai are getting to a level of quality that's actually helping us," says Ebersweiler.
    "If you go to the market and take a look at shanzhai products, if you look at the finishing -- some of it is incredible. We learn from their cost-saving techniques."

    Back in Hong Kong

    DJI, the world's leading maker of personal drones, is based in Shenzhen.
    Hong Kong also has a batch of recently launched accelerators, though the former British colony is lacking the major benefit of Shenzhen, which is the proximity to parts suppliers and some of the world's most experienced factories.
    Brinc, which also has offices in Shenzhen and Guangzhou, is a Hong Kong-headquartered accelerator focusing on IoT -- or, the 'Internet of Things' -- hardware. Brinc gives its companies an introduction to factories in China, and helps with crowdfunding campaigns and distribution launches.
    "Hong Kong has a fantastic banking system, (a) very strong litigation system, and it has an ecosystem of local service providers that help with branding and registering IP," says Manav Gupta, 30, CEO of Brinc.
    "If you decide to do some of this in Shenzhen, it's a little more challenging -- understanding who to talk to, understanding the psyche of doing business in China. We provide a service backbone to our companies so they can plug in when they go to China."
    Soundbrenner, a company founded in Germany and invested in by Brinc, makes what it calls the world's first wearable metronome for musicians, which they are anticipating will go on sale by the end of the year.
    "Coming from Berlin, the biggest problem building our product in China was finding reliable partners because we had never manufactured anything before," says Florian Simmendinger, the 26-year-old Soundbrenner CEO.
    "The second problem was the communication barrier -- which we solved with a very good Chinese project manager.
    And the third problem was the cultural differences, the way you solve problems and the quality of execution in each phase, which we successfully overcame to leverage as opportunities in doing business in China."
    For now, change is accelerating for Shenzhen's entrepreneurs, despite China's significant growth challenges.
    "In the past few years, the mindset has changed," says Ebersweiler.
    "Manufacturers are willing to give something new a shot. Until recently, factories weren't willing to take anything less than an order of 100,000 units. Some big factories are now willing to take a punt, especially since we've been around for a while."