‘I am finding more and more that everyone still has a lot of misunderstandings about Xiaomi,’ Lei Jun told the ‘Chinese Entrepreneur’. He added that he had always been worried about this.
After ten years of establishment, Xiaomi successfully went public and ranked among the top 500 in the world, and its smartphone shipments returned to the top three in the world. We can say that Xiaomi has handed in a considerable report card in ten years. Lei Jun has already had success in the secular sense. But this ‘model worker’ is still running at a high speed, and his troubles still do not disappear.
A few months ago, Lei Jun also said, ‘In fact, many people don’t understand Xiaomi.’ His trouble is that Xiaomi has not yet grown into his ideal.
Starting from graduating from university to starting a business, to devoting sixteen years of youth to Jinshan, and then starting anew, Lei Jun started his second entrepreneurial adventure with a bowl of Xiaomi porridge. He successfully used Internet thinking to change the Chinese smartphone industry and promote smartphones. The popularity of mobile Internet has accelerated the take-off of the mobile Internet. The story of Xiaomi and Lei Jun has long been familiar to the outside world, but the ups and downs are far more complicated than outsiders imagine.
Xiaomi’s ten years
Lei Jun’s sixteen years in Jinshan was a period of passion. But at that time, there was a huge gap between the market value of Jinshan and Internet companies, and even some game companies could not match it. This made Lei Jun later reflect: ‘Jinshan is like planting grass in saline soil. Why not fly a kite at the typhoon? Standing at the mouth of a typhoon, pigs can fly to the sky.’
After leaving Jinshan, Lei Jun was lost for a while. But when he saw the opportunity of the mobile Internet era and decided to enter the smartphone industry, his huge ambition and impulse came back.
At that time, the China’s smartphone market was grassy. Besides Nokia, Motorola, and Samsung, there were a few copycat smartphone brands. Looking at the global market, the birth of the iPhone announces that the era of smartphones has officially arrived. The global economy is growing rapidly, a large group of middle classes are rising, and the manufacturing industry is undergoing transformation and upgrading.
This was a historic opportunity that made Lei Jun faintly excited.
‘Follow the trend’ is one of the experiences that Lei Jun successfully summed up on Xiaomi later. Tong Shihao, managing partner of GGV Jiyuan Capital, remembers very clearly the scene of meeting Lei Jun in Pangu Seven Star Building in January 2010. At that time, the first sentence Lei Jun said was: ‘In the next 10 years, smartphones will replace computers and become the center of users’ lives.’
A layman who has never made a smartphone, from scratch, uses his Internet experience to empower the manufacturing industry to transform and upgrade. In 2013, the three-year-old Xiaomi created a precedent for the Internet sales model under the background of the rise of domestic consumer groups and the explosion of smartphones. This caused the demise of a large number of copycat companies, and even changed the outside world’s stereotype of crude manufacturing in China.
Participating and even influencing the trend of China’s manufacturing industry is one aspect of Xiaomi’s growth story. Xiaomi also broke into the top three positions of Chinese smartphone shipments in this process, becoming the new favorite of the mobile Internet era. Although the mainstream smartphone companies in China at that time expressed disdain for Xiaomi’s practice of ‘pursuing market share at low prices’, it proved in the future that with the advent of the reshuffle, Xiaomi also played a driving role in the popularization of smartphones.
Wu Bofan, a researcher at Peking University’s Institute of New Media, once said that Lei Jun has many contradictory points, including both a ‘pirate’ side and a ‘farmer’ side. ‘Pirate’ refers to the pursuit of victory without breaking fast, while ‘farmer’ is pragmatic.
Understanding of manufacturing
The best embodiment of the farmer spirit is the backwind of 2016 that Lei Jun often mentioned to the media.
Time to go back to 2015. The long-standing backlog of problems finally broke out in the fast-growing Xiaomi, and Xiaomi entered a critical moment of life and death. Due to supply chain problems, the Xiaomi Mi 5 has not been released for a long time, and production capacity has not kept up after the release.
At that time, Lei Jun hesitated for a long time, and finally rushed to the front line by himself, took over the smartphone department personally, and assumed the task of ‘fire-fighting captain’. At the swearing ceremony of the Xiaomi smartphone department at that time, he said, ‘If you believe me, please work with me to turn things around.’
Lei Jun also frankly confessed that the crisis that Xiaomi encountered in 2016 was actually a supplementary lesson, especially a lesson on hardware manufacturing. ‘If the conditions are not met, the pursuit of high speed will easily capsize. In 2016, we proposed to respect the manufacturing industry. In fact, we have fully realized that in the process of accumulating manufacturing experience, no matter how good the team is, how smart, and how hard you are, you have to pay for this, and you may have underestimated the price before.’
During that time, Lei Jun often went to work at 9 in the morning and was still sitting in the conference room at one or two in the morning. One day when he was off work, Lei Jun counted, and there were 23 meetings that day. Looking back now, despite the painful process, Xiaomi almost broke itself and rebuilt it. However, it was the supplementary lesson in manufacturing in 2016 that allowed Xiaomi to truly enter the field of smartphone hardware manufacturing and deepened Lei Jun’s knowledge of manufacturing.
Lei Jun believes that one of the misunderstandings of the outside world about Xiaomi is that ‘All Xiaomi products are manufactured by OEM’. The back of this sentence means that Xiaomi has no technology and does not understand manufacturing. The key to affecting Xiaomi’s smartphone business is largely its dependence on the upstream supply chain. In order to improve Xiaomi’s understanding of the manufacturing industry and help the foundry further improve efficiency, Lei Jun decided to build a smart factory in Beijing Yizhuang.
Three years ago, Xiaomi set up an industrial fund to engage in industrial investment, deploying cutting-edge technology and upstream and downstream industrial chains. Now, it has invested in more than 100 companies, focusing on promoting the coordinated development of China’s smart manufacturing. Today, Xiaomi Smart Factory has realized an automated high-end smartphone production line, with a hundred people capable of producing one million machines per year, and its efficiency is 25% higher than the current most advanced factories in the foundry industry. All equipment in the factory, except the placement machine, is self-developed by Xiaomi or a company invested by Xiaomi.
In the speech on the tenth anniversary of Xiaomi, Lei Jun clarified the future direction of ‘Internet + manufacturing’ and gave the future vision of Xiaomi’s intelligent manufacturing: ‘In the next ten years, intelligent manufacturing will further help the rise of Chinese brands.’
‘After ten years of work, I still feel that we underestimated the difficulty of manufacturing.’ Lei Jun said that ten years later, Xiaomi is still working hard. But when it first entered the manufacturing industry, Xiaomi aimed to solve the problem of domestic products. People look down on, poor quality, poor design and other problems. Lei Jun hoped to improve commercial efficiency and cost-effectiveness to help domestic products improve products and improve designs. ‘But after we have been working for 10 years, some people still think that Xiaomi’s products are mid-to-low-end, which makes me very depressed.’
In order to solve this misunderstanding, Xiaomi embarked on a high-end road in 2020. The Mi 10 series and Mi 10 Ultra were released successively this year, and they lived up to their expectations. Market research firm Canalys data show that Xiaomi’s Europe 2020 third quarter market share ranked third, up 91% last year. According to data provided by Xiaomi, products in the price range of 500 to 700 euros have increased by nearly 300% year-on-year, and products with prices above 700 euros have increased by more than 300%. Xiaomi is advancing rapidly in the high-end market.
In the next decade, Xiaomi will undoubtedly face a bigger business risk in the high-end market and manufacturing sector.
Follow the trend
If the development of Xiaomi is to seize the vent of the mobile Internet, then the birth of the Xiaomi ecological chain is to seize the vent of the Internet of Things.
In 2020, the war between smartphone manufacturers has reached the IoT ecosystem. Apple, Huawei, OnePlus, OPPO and many other smartphone manufacturers have competed with each other. However, Xiaomi is one of the first manufacturers to lay out the IoT ecological chain. Due to the way of ecological chain enterprises and the rapid expansion of product lines, the Xiaomi ecological chain is already huge and like a giant. Now, it has the first mover advantage among smartphone manufacturers.
In Xiaomi’s report of the second quarter 2020, ending June 30 2020, we can see the total investment of Xiaomi exceed 300 companies, which total book value of 36.8 billion yuan, up 28.4%. Among them, we can mention such brands as Redmi, Mijia, Stone, and No. 9. The number of connected devices (excluding smartphones and laptops) on the IoT platform reached 271 million units, a year-on-year increase of 38.3%.
The success of Xiaomi’s ecological chain is inseparable from Lei Jun’s concept of industrial layout. In 2013, when he saw the huge opportunities in the IoT field, Lei Jun felt that something should be done. So he transferred a few old employees from various departments and formed an inexperienced investment team. The Xiaomi ecological chain plan started.
Liu De, who built the Xiaomi ecosystem in one hand and is also the co-founder of Xiaomi, believes that Xiaomi is a brand that relies on heat to drive life. Xiaomi has a huge fan base, and products and conferences have brought Xiaomi a steady stream of Internet heat. Back at this point in 2013, the battle for Xiaomi’s smartphones has not yet been completed. IoT categories can replenish brand enthusiasm. Explosive products can not only drain the flow of Xiaomi, but also supplement the capital flow.
Liu De has explained to the outside world many times that the model of Xiaomi’s ecological chain follows the growth logic of ‘bamboo forest ecology’. A single tree cannot become a forest. Once a bamboo forest is formed, new bamboo shoots continue to sprout, and the ability to withstand wind and rain is rapidly enhanced.
In the end, Lei Jun decided to use the ‘investment + incubation’ approach to seize the new outlet. The ecological chain department was established in 2014, and it achieved a turnover of 1.7 billion yuan that year and reached 60 billion yuan in 2019. Most of the more than 300 ecological chain companies do not belong to Xiaomi and only have a few equity investments. But they have come together because of their recognition of Xiaomi’s values and formed a benign cooperation.
The story of Xiaomi is the result of grasping the pulse of the era of changes in China’s consumption trends and the upgrading and transformation of the manufacturing industry; the success of Xiaomi cannot be separated from Lei Jun’s ‘pirate’ adventure and ‘farmer’ pragmatism.
This year’s May Fourth Youth Day, Lei Jun posted a photo on Weibo of himself at Wuhan University with a sentence: ‘May you leave for half your life and come back as a teenager.’ In the photo, Lei Jun is sitting on a lawn in Wuhan University. At the end of the lawn is the Old Library of Wuhan University. And it was in this old library that he read the ‘Fire of Silicon Valley’ that changed the trajectory of his life.
In the next ten years, where Xiaomi will go, Lei Jun, who has passed the fate of his life, is already confident.