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How Jack Ma's foresight helped Alibaba become an e-commerce giant

  • Alibaba chief Jack Ma realized early on that if he did not tackle a threat from eBay, it could jeopardize the future of his company
  • He instructed a handful of Alibaba employees to build an online marketplace — Taobao — that could compete with eBay's EachNet
  • According to Ma, if any kind of change is coming, it pays to prepare early
Jack Ma
David A. Grogan | CNBC
Jack Ma

Alibaba Executive Chairman Jack Ma believes that if there's a change coming, it's best to prepare early.

That philosophy served Alibaba, now a Chinese e-commerce behemoth, well in its early days fending off competition on its home turf from online marketplace eBay.

"When we see something is coming, we have to prepare now," Ma told CNBC. "My belief is [that] you have to repair the roof while it is still [sunny]."

When internet commerce in China was still in its nascent stages, eBay became one of the early entrants into the market. It ran a consumer-to-consumer online platform called EachNet that charged users a fee for each transaction.

Alibaba, at that time, was still focused on helping small- and medium-sized companies in China go online to do business.

Ma had "realized that eBay, sooner or later, as it grew in China, would start coming after Alibaba's customers," Porter Erisman, a former Alibaba vice president, told CNBC's "The Brave Ones."

To combat that potential threat from eBay, Ma assembled a small group of Alibaba employees and sent them to work on a secret project: an online marketplace that could directly compete with what eBay was offering. That was how Alibaba built its famous Taobao marketplace that currently handles huge volumes of transactions each day.

Taobao, Erisman said, started free for the first three years and it put pressure on eBay's pay-per-transaction model. EBay's reaction was "to put out a press release and say free is not a business model." But as more buyers and sellers began to move onto Taobao, Erisman said, Alibaba knew that ultimately it could make money.

In nearly two decades since Ma co-founded the company from his apartment in Hangzhou, Alibaba has become a mainstay in the tech world. It has a market capitalization of about $473 billion.

Early in his career, Ma faced a string of rejections, which he said helped to build his mettle as an entrepreneur. "As an entrepreneur, one of the quality I have is that when I'm rejected by people, I get used to them," Ma said.

The transition from a fledgling business to one of China's most valuable companies came with its share of ups and downs. In fact, Alibaba initially struggled to raise venture capital funding. One venture investor recently told CNBC that he had turned down an early investment into Alibaba because he was not convinced by their initial business-to-business model.

Ma has previously said that Alibaba was rejected by about 30 venture capitalists before it found a major backer in another tech visionarySoftBank CEO Masayoshi Son.

Then came the dotcom bust and Ma was forced to lay-off staff around the world.

"Alibaba went from this sort of optimistic expansion phase to this somewhat depressing phase of cutting back," Erisman said. "That was the only time I ever saw him doubt himself, when he was laying off people, and I think for just a moment in time, he even wondered if the company would survive."

It was then that Ma learned that being a CEO was vastly different from being an English teacher, according to Erisman. "Being a CEO means making the tough decisions and sometimes cutting back in order to allow the company to survive," he said.

Ma is already thinking about what the future will entail for Alibaba as new technologies and ways of doing business are discovered.

"Next 30 years," he said, "the technology is going to challenge a lot of job opportunities. People already are unhappy because a lot of machine learning, artificial intelligence are killing a lot of jobs."

The trade-off, according to Ma, is the improvement in people's lives as a result of new technologies.

To prepare for that inevitable change, when technologies like artificial intelligence and machine learning become a mainstay, Alibaba earlier this week said it will investment more than $15 billion over the next three years into technological research and development.

"What Alibaba wants to do in the next 10-20 years is to enable the innovation of traditional business," Ma said.