Only five months ago, Mike Xu, 25, was founder and chief executive of Guangzhou-based Natural Pioneer, an information technology startup of nine young entrepreneurs bent on becoming the Steve Jobs of the mobile app industry.

“We thought we would change the way people think and use smartphones,” Xu said.

“We thought it was the next big goldmine, but we walked into the battlefield unprepared.”

Facing the pressures of running a business and fierce competition from rivals, the team collapsed after just four months.

The lesson? Overzealous young techno-whizzes eager to make their mark in China’s booming mobile app market need to look before they leap.

It’s little wonder that so many aspiring entrepreneurs and venture capitalists are drawn to the mobile app market. In 2012, the number of smartphone owners in China increased 80 percent from a year earlier to 240 million, according to iResearch Center. That number is expected to swell to 740 million by 2015, and all smartphone owners are potential users of mobile apps, particularly games.

“The boom in mobile games is a big challenge to console games,” said Li Yu, founder of Yurong Network and former CEO of Shanda Games, one of the biggest players in China’s gaming industry. Li has been investing in mobile startups for the past three years.

She said startups with small teams, relatively low financing and short lead times to turn a profit will generally be more successful than larger endeavors that eat up cash and may take three years to become successful.

“But among 100 mobile game companies, only five will succeed and the rest will shut down,” she said.

Spotting innovations first

Every mobile app developer dreams of becoming one of those five, and every angel investor’s dream is to spot the hot innovations first in a market that’s fast outpacing the personal computer.

“I never use a PC when I’m out of the office,” said Li.

“In the future, those who are successful will have realized that the desk computer is being replaced by cellphones, pads, television and even accessories like wristwatches.”

Domestic social networking sites such as Weibo and WeChat have the largest numbers of users, and mobile games are the fastest growing segment in that sector. In the third quarter of 2012, about 37 percent of all Android downloads were games.

More than 270 million users are estimated to have played mobile games last year in a market valued at 5.21 billion yuan (US$850 million). This year, the market is expected to top 7.85 billion yuan or even reach 10 billion yuan.

“The key is to find the right niche to specialize in,” said Han Sheng, CEO and founder of QuVideo, a Hangzhou-based mobile app developer.

“The market has great potential but it is also very fierce. Once you create something new, copycats will follow and you will quickly lose your advantage.”

Now in his early 30s, Han was vice president of a well-established IT company before starting up his own business with a team of 10 late last year.

“The future lies in mobile,” he said. “We are in the market a bit late already, but fortunately, we are one of the first ones in the more niche market of mobile video apps.”

His team’s app, called XiaoYing, allows users to edit and polish their videos, with functions that include cutting, adding subtitles, inserting sound tracks and sharing the video on social networks. Launched early this year, the app now has a user base of about half a million.

Leader in the field

“The current mobile Internet speed in China makes video streaming a bit slow in some places,” Han said. “But once the speed is increased, we will be leader in this field.”

Han and his company are currently adding more functions and themes to the app while they search for investors to help them expand. But investors, too, have to assess risk and reward.

“It rests somewhat on hunches,” said Michael Yang, a venture capitalist who has been switching his funding focus from websites to mobile startups in the past two years. “Being a venture capitalist requires a lot of creativity and involves taking risks,” he said.

“Investors like me prefer to fund apps that already have a stable user base, usually of 5 million or more. But I enjoy trying to spot the really creative ones and help them make it to 500 million.”

User experience is considered key to the success of any application.

“Some people think most Chinese apps are simply translations of top apps in the English market,” Yang said. “That’s both true and false. Many are simply copies of English ones, true, but the best ones are the successfully localized ones. Localizing is more than just translation. It’s all about the user experience offered.”

Angela Bao, an American student and a frequent mobile app user, tried the popular Chinese photo-editing and sharing app called mei tu xiu xiu, known to many Westerners as the Chinese version of Instagram.

One of the most downloaded apps across platforms, mei tu xiu xiu is geared to Chinese women who want to give themselves a beauty makeover.

“It has a variety of features that put it above Instagram,” Bao said. “It offers considerably more filters, even including slimming yourself down using the shou lian (slim face) or shou shen (slim body) tools.”

Making money can be difficult in a market accustomed to free downloads. “Chinese users are much less willing to pay for games, even at a few bucks and even after trying it for a while,” said Derek Wang, a Shanghai-based mobile game developer.

“That is a tradition carried from consoles and web games,” he said. “Instead of charging from the very beginning, you have to set up many value-added tools that can be purchased. Mobile users are much more willing to pay for the tools. So the profit lies in how to set up creative and tempting ones.”

Gaming investor Li said that many startups fail because young entrepreneurs have no expertise in running a business.

“Experience is cardinal,” she said. “At least, you should know what a good game is before venturing out with it. Don’t think you have to catch a trend to make money. Don’t start blindly.”