Xiaomi, once the world’s most valuable unicorn, looked set to become one of China’s biggest unicorpses: it burnt cash, and stumbled with supply problems. Now, with fortunes improving, it is staging its next act: Chinese phoenix.
The Beijing-based tech company, which makes products ranging from smartphones to smart rice cookers, re-entered the top five of global smartphone makers in the second quarter, as shipments surged 59 per cent year on year to 21m, according to the IDC research firm.
The recovery, noted founder and chief executive Lei Jun, “follows a year of setbacks that collectively signify the most challenging period in our company history”.
“We needed to slow down,” says Shou Zi Chew, the company’s youthful chief financial officer, speaking in Xiaomi’s surprisingly small headquarters in Beijing’s northwestern tech district.
“我们需要放慢速度，”该公司长相年轻的首席财务官周受资(Shou Zi Chew)在小米北京总部表示。地处北京西北高科技区的这个总部小得让人意外。
“From zero to $10bn in revenue, excluding the year we didn’t have a smartphone, it took four years. Think of the organisational challenge. We needed to build organisational strength.”
While history is a relative concept in China’s entrepreneurial world — Xiaomi is a mere seven years old — there is no disputing the setbacks.
The company was valued at $45bn in a late 2014 fundraising, exceeding Uber’s then-$40bn, but missed its 2015 handset shipment targets as smaller rivals grabbed market share.
It ceded its top three China ranking to upstarts Oppo and Vivo, smartphone stablemates that, like Xiaomi before them, came out of nowhere to rank as the second and third most popular handset makers in China, respectively, in the second quarter of 2016, according to Gartner.
Also, like their predecessor, they achieved this by selling heavily online and thus scooping up sales in third- and fourth-tier cities.
“A few years ago, we rushed too fast, achieving a miracle in the history of modern business growth, but we also overspent a portion of our growth,” a humbled Mr Lei wrote in a memo posted on his WeChat account and on Facebook in January.
“We must slow down and earnestly learn from our mistakes. Prevention is better than having to fix things later.”
Many industry observers give Xiaomi full points for doing just that. “A monster quarter has brought Xiaomi back into contention as a major player in the smartphone industry,” wrote Radio Free Mobile’s Richard Windsor in a recent note to clients.
很多行业观察者因此给小米打了满分。“一个好季度让小米作为智能手机行业重量级选手重返竞技场，”Radio Free Mobile的理查德?温莎(Richard Windsor)最近在写给客户的简报中写道。
The company has gone from 10,000 to 14,000 employees in the past year as part of what Mr Chew calls a long-overdue recruitment drive. “We had the same valuation yet a fraction of the staff of our peers,” he says.
Sustainability is the big question. “This recovery needs to be more than just a product cycle for it to stay there,” says Mr Windsor.
Xiaomi’s formula for its turnround is three-pronged: improving technology, broadening distribution and going global.
On technology, it has moved to design its own processor, enabling it to reduce battery weight as well as its reliance on foreign makers like Qualcomm. It has applied for more than 16,000 patents so far, and has been granted 4,000.
Mr Lei is also banking on the combination of supplementing online sales with physical stores, the seamless “new retail” being pursued by the likes of tech giant Alibaba, and conquering new markets, specifically India.
That same strategy helped Oppo and Vivo pick off customers beyond the bigger and wealthier parts of China, where many people were not online.
But Xiaomi has taken its stores a step further, adding a range of household appliances to its shelves — all items that come with apps for smart deployment and are a potential revenue stream, according to Hans Tung, partner at GGV, and an early investor in Xiaomi while at Qiming Ventures.
纪源资本(GGV Capital)合伙人、在启明创投(Qiming Venture)时成为小米早期投资人的童士豪(Hans Tung)表示，小米让实体店更进一步，在店内销售一系列家用电器——所有产品都带有App，使其可形成智能家居，并且开辟一条潜在的营收来源。
“Every single product has an app that controls it; as people spend more time on these apps, so you can sell ads,” he says. For instance, a home assistant speaker is a logical extension. From that, internet services can be bolted on such as gaming, as well as online ads.
The strategy is showing signs of success. Xiaomi is now the world’s top-selling maker of wearables such as fitness bands, with its 13.4 per cent market share putting it a whisker above Apple and Fitbit, the latter the one-time doyen of the sector.
Xiaomi now has 137 Mi stores across China, and prides itself on keeping the same prices online and in-store, while also managing the near-impossible task of keeping operating margins the same — the cost of a sale in-store is the same as online, thanks to blending on and offline, the company claims.
Global expansion is perhaps Xiaomi’s boldest step. The company has set its sights largely on emerging markets.
It claims to be the third-biggest handset seller in Indonesia and fourth in Russia. It is particularly focused on India, where Oppo and Vivo have won legions of fans largely through a canny use of cricket sponsorship.
It is, says Kavin Bharti Mittal, founder and chief executive of India’s Hike Messenger, a Tencent-backed messaging unicorn, a niche brand but a well-respected one, in a fickle market. “Smartphones get rotated every 12 months, that’s the average in India,” he says. “It’s all about price and features.”
腾讯(Tencent)支持的印度独角兽公司Hike Messenger的创始人和首席执行官凯文?巴蒂?米塔尔(Kavin Bharti Mittal)表示，小米是小众品牌，但在这个易变的市场深受尊重。“智能手机每12个月换代一次，这是印度的平均水平，”他表示，“关键在于价格和功能特色。”
Neha Dharia, a senior analyst at telecoms consultancy Ovum, concurs: with brand loyalty to handsets a thing of the past, Chinese brands are mopping up in India, she says.
Xiaomi says that over 95 per cent of its phones sold in India and Indonesia are made locally, although given the complexity of supply chains, this often means assembled rather than fully manufactured.
But Ms Dharia notes that the market remains fickle, and the rise of domestic telecoms operator Reliance Jio will further disrupt the market by boosting demand for 4G (aided by the provision of $63 phones).
It will fall to which manufacturers can keep up with supply, something that proved an Achilles heel for Xiaomi during its downturn.
For now, Mr Lei has a “humble” revenue goal of Rmb100bn ($15.3bn) this year and a target of shipping 100m smartphones in 2018. Beyond that, he becomes somewhat more ambitious, claiming Xiaomi’s future “is as vast as the constellations and beyond”.
Xiaomi chief models company on retail rather than tech icons
Lei Jun, founder and chief executive of Beijing-based Xiaomi, is often referred to as the “Steve Jobs of China”, write Yingzhi Yang and Yuan Yang in Beijing.
But Mr Lei has his sights set on a business model from the much less glamorous world of American retail rather than Silicon Valley.
“We have the same value system as Costco,” the serial tech entrepreneur once said. The company’s executives are obsessed with efficiency in manufacturing and distribution chains, as much as they are with new gadgets.
Xiaomi, which means “millet grain” in Chinese, was founded by Mr Lei in 2010 after a simple meal of millet porridge with its first employees. In his early 40s then, he was already a billionaire and had enjoyed success as a start-up founder.
Born in 1969 in central China, Mr Lei copied a childhood friend in choosing to study computer science, reading about Steve Jobs’ achievements towards the end of his time at Wuhan University.
His first job was working as an engineer in the early days of software company Kingsoft, where he later became president and led it to an IPO.
While at Kingsoft, he also started an online bookstore, joyo.com, before selling it four years later to Amazon for $75m.
Mr Lei is also a serial venture capitalist, who invested in 56 start-ups between 2014 and 2016, including social platform YY, the originator of China’s now-ubiquitous live-streaming platforms, and UCWeb, a web browser bought by Alibaba in 2014.