WHEN GEORGIE YAM was posted to Shanghai in 2001 to represent a German line of hair-care products, he soon noticed a gap in the city's increasingly sophisticated spa industry. 'You could get a 30 to 40 yuan massage at a roadside parlour with no ambience and quality control, or you could spend 800 to 1,500 yuan for a massage at a five-star hotel. There was nothing in between,' he said. After discussing the matter with a colleague, Eve Zhou, Mr Yam decided to open a spa targeted primarily at expatriates. 'Ours is a mid-range to high-end retail concept. We offer five-star treatments at three-star prices,' said the founder and chief executive of Dragonfly Therapeutic Retreat. Because neither partner had started a business before, they both put a lot of thought into their business planning. The most difficult part was finding a suitable and affordable location with a heavy traffic of expats. That achieved, they had to set about obtaining a business licence and recruiting and training staff. The spa staff had to be educated in meeting the expectations of western customers. 'I believe all those on the spa team should share the same technique, so that if a customer's favourite therapist is not available, they can still experience a massage that's at least 95 per cent what they expect,' Mr Yam said. 'I personally test each therapist to make sure they can do this.' A lot of thought also went into the decor and ambience of the spa. The five Chinese elements of water, fire, metal, earth and wood were integrated into the design, and an atmosphere of peace and calm was created. There are no TVs and customers are requested not to use their mobile phones on the premises. Mr Yam knew he was facing a challenge by introducing an untested product to the market. 'I spent a lot of time thinking about this and finally decided to co-market the spa with established brands,' he said. He contacted relocation companies, travel agents, retail shops and restaurants. The response was mixed; not many seemed willing to risk their reputation by joining hands with a start-up. The breakthrough came when upmarket French, Italian and Japanese restaurants allowed Mr Yam to put vouchers and promotional postcards on their tables. Under the scheme, diners who spent a certain amount at the restaurant were entitled to a free massage. 'About 40 per cent of our business in the first four months came from that scheme,' Mr Yam said. Other strategies included direct marketing to law firms and consulates, approaching VIPs and advertising in English and Japanese-language magazines popular among expatriates. 'That was very expensive,' he said. 'We spent about 90,000 yuan a month on advertising alone.' Mr Yam graduated in Hong Kong in 1977 and then moved to London to study at the Vidal Sassoon School of Hairdressing. He worked at a Sassoon salon until 1980 before moving to Singapore, where he became involved in a number of salon projects. He also helped to set up spas at two five-star hotels, an experience that taught him the basics of the spa business. The first Dragonfly outlet opened in 2002 in Shanghai's former French concession. It took Mr Yam and his partner just eight months to recover their initial investment. Fourteen other outlets have opened since, in Shanghai, Beijing and even one in Oslo, Norway. Mr Yam plans to expand to Hong Kong and other European cities. 'In the medium term we are looking to build the Dragonfly brand into a worldwide chain of retreats with an Oriental touch. The long-term options are to grow the company, sell to a multinational looking for an established customer base, or list on the Hong Kong stock exchange,' he said. 10 THINGS I KNOW 1 Invest in people. If you have only one outlet, you can oversee everything and everyone. With a second outlet, that becomes more difficult. The more the business grows, the more you have to rely on managers and staff. No matter how good the system, you still have to trust people to run the business for you. That means educating them about requirements and procedures and letting them see there is a future in working for you. 2 Cultivate relationships. Get to know everyone, including your neighbours and government officials. Saying 'hello' in China is a more important part of daily life than in Hong Kong or Singapore. Maintaining good relations is an ongoing process, so do not wait until a problem arises. You will have to get various approvals, or at least inform the authorities of your intentions, so it makes sense to get on well with them. 3 Manage customer expectations. You should never over-promise and under-deliver. This is especially true when dealing with westerners and overseas Chinese. They understand quality and service standards, so don't disappoint them. 4 Be sensitive to change. Be ready to react quickly and decisively. For example, laws change quite often in China and new regulations may not be completely clear. Therefore, you have to adapt and co-operate with the authorities. 5 Never fool around with taxes. Paying taxes is a duty, although not all Chinese businesses see things that way. If anything goes wrong, however, they have no one to turn to for help. Make an effort to understand the relevant regulations and follow them to the letter. 6 Motivate your employees. Money is important, so pay your staff well, but remember that real motivation depends on more than a good salary. Employees also want a good working environment and to know they have a future with the company. We pay staff well and require them to work shorter hours and fewer days per month than the industry average. We also offer more paid annual leave. 7 Give value for money. Your customers will always want high standards at good prices. We think of ourselves as an affordable indulgence, and many of our customers come in as often as three times a week. 8 Respect people. If you have high-profile clients, respect their privacy and don't trade on their names. Many celebrities, government officials and heads of state visit our retreats, but we never use their names in promotional material. 9 Find a niche. During the planning stage, I decided to focus on locally based westerners and Asian travellers because nobody was catering to them at that time in Shanghai. I wanted to create a relaxing ambience, with dim lighting and soft music. I did not want any televisions, mobile phones, food or alcoholic beverages. 10 Create a brand image. People relate to the products they buy and the services they use, so branding is important. I was honoured to see the picture of a Japanese woman in a local magazine with our logo tattooed on her shoulder. We placed ads in the magazine to find her and were surprised when five women responded. They all had a tattoo of our logo, but we looked on this as free advertising, rather than an infringement of our trademark.