Lei June: How Xiaomi successfully reversed

2017-08-17 Regun Rey

Recently, more than 30 members of the Asia-China Entrepreneur Forum visited the headquarters of our Xiaomi company, Chen Dongsheng, chairman of the Forum, chaired the CEO seminar on "Internet + and China manufacturing Upgrade".

At the meeting, I shared the millet business model, values, millet in the past encountered difficulties, and in this year, how to achieve a successful reversal, around the millet model, Chen Dongsheng, zhangweiying, Andrew Y. Yan, Wang, Yu, Zhang, Wang Xing and other members of the Council with me in-depth exchanges, we discussed very warmly, After the meeting I also took you to visit the home of millet.

As I introduced the interpretation of the time is relatively long, the following excerpt part of the content to share with you.

There are some cognitive differences about millet, mainly because millet belongs to new species, has an unprecedented structure of new business model, so it is easy to misunderstand when it is not enough to understand millet. For example, Xiaomi entrepreneurial early success, we think Millet mode is king, the internet thinking is fierce, and then millet encountered difficulties, we also think millet mode is not good, internet thinking is a flicker. In fact, Internet thinking is originated from the spirit of the Internet thinking, but not only the Internet is applicable, its essence is transparent and efficient. The Internet is 0, industrial is 1, if the industry cannot stand, no more internet thinking is not used.

In July, when we reversed our two-quarter performance, we made a summary at the Executive Strategy seminar, the core content of which is the four issues on PPT.

First, the beginning of Xiaomi entrepreneurship, only 2.5 of the time, why can we do China from zero?

We recall today that a small start-up company in 2010 took 30 million yuan as a mobile phone and entered the world's most competitive industry. How fierce is the competition in this industry? International mobile phone market, in fact, only two major players, one called Apple, a Samsung, you think again which industry only two major players. In the Chinese market, we entered the 300, to now live only more than 20, of which I think basically can survive, the back of more than 10 are still robbing the right to survive. This is the most competitive field in the world. In such a fierce competition field, a start-up company from scratch only 2.5 to the first place, to today I feel strange. But a miracle happened, why?

Xiaomi was founded when I sold the excellence, Jinshan successfully listed, retired three or four years later, when I was 40 years old decided to do things. What does Xiaomi want to do? I want to solve the practical difficulties for China, the practical difficulty is that the domestic goods are not good enough, the price is very expensive, many people go abroad to buy buy buy.

Second, in the past two years, millet in the end encountered any difficulties?

In the past two years, outside public opinion almost one-sided that we are not, so what is the problem we have encountered? If we do not understand our own problems, in fact, it is easy to make decisions, especially when the company encountered pressure. When I talked to some entrepreneurs, I said four words: it was surprisingly. When confronted with a problem, it is wrong to expect to be reversed with odd. Encounter difficulties must be a certain basic problems, Shou proportional surprisingly more important. In fact, enterprises are defeated by their own, only when you are in the right, standing up to be a little better, and then you think how to win the odd recruit. Especially large-scale enterprises, such as Xiaomi now more than 100 billion turnover, more than 10,000 people, Shou is very important.

We shipped in the first quarter of 13.62 million units, last few quarters of the figures are not good, global shipments fell the top five, negative reports, and even early this year, there is a comment that "the world does not have any mobile phone company sales decline, can successfully reverse, Xiaomi's future is worrying." "Why is it hard to reverse the decline in cellphone sales?" Because this is a highly integrated supply chain industry, and upstream is a high degree of monopoly, technology iterations and very fast, your success requires a lot of partners to work together to achieve. If you don't look good you mean that the support you put in will be reduced, and you'll slip into the abyss one step at a pace.

What difficulties have we encountered? The first difficulty, the online market suffered vicious competition. When we value 45 billion dollars, everyone thinks he can do it, just burn the money. So in the past two years, some peers in the mobile phone market to compensate for the astronomical amount of money.

The second difficulty, we focus on the line, but missed the county and township market under the offline change of the tide. Xiaomi's entire business model is for high quality, cost-effective. Cost-effective is the efficiency revolution, to improve efficiency in the prevailing market conditions only e-commerce can achieve the efficiency of millet. So we have been focusing on e-commerce in the past few years, but there is a huge flaw, e-commerce only accounted for 10% of the total retail sales, so far 90% of people buy things or online buy, that is, even if the line 100% is yours, you also only 10% of the market. The biggest problem that Xiaomi has faced over the past few years is how to upgrade strategy, how to win, so our most painful is how to do the offline.

The mobile phone industry is generally priced at 2-2 of the cost, 5 times times the price you need to spend a lot of money to do the offline market. Originally we do e-commerce close to 0 gross profit can do, today do offline when the pricing structure has a problem, I want to cost price do e-commerce at the same time, but also add 100% of the price to do offline, began to hand-to-hand mutual bo, personality distortion. So in the past two years, we are all in a strategic breakout, or willing to do a good mobile phone e-commerce company, or to find ways to improve the efficiency of the entire Chinese retail industry, there will be like Wal-Mart, Costco founded the same determination to change the business of China.

The third difficulty, the rapid growth brought about by the management challenge. Think about it, a company that grows from more than 10 people to more than 10,000 people, God, it's leaking everywhere. About the business that we do, I say again and again is "seafood" business, half a day will be done, otherwise the afternoon stinks. The last time our Xiaomi CFO said, one of the phone company bosses told him we were doing "ice cubes" and took out the sun. Our business is complex and involves huge cash flow, inventory and very long cycles: orders need to be 4 months in advance and inventory turnover requirements are high. In this case the rapid growth of the company slightly careless is abyss.

In fact, the above three questions, I think the most deadly of the three problems is the second: business model can not be broken?

Third, today's millet Why can the successful reversal?

How do we solve the three major difficulties we have just mentioned? In fact, at the beginning of last year, Xiaomi's full mobilization will be mentioned two words: Make up lessons. I think to realize that before our first is still very empty, we have not really the strength of the match, we have to put down the shelf from scratch start a business, what is missing what, to the industry leader, to maintain a humble mentality. We only mention the lessons, sales are not in our plan, adhere to the good lessons, basic ability up, still can not win? The key is to practice good basic skills.

Lessons

How do you fill this lesson? First, the organizational structure of the standard, each industry has the law of the industry. The industry's leading companies in the organizational optimization has found the best solution, we must respect the industry law, to peer learning.

In business management, the core is to realize the complexity of mobile phone industry, need supply integration. We are in the cell phone department, supply chain, Xiaomi network sales team to set up a special staff planning coordination Department, a year from 0 began to build more than 100 people of the collaborative team. This is the 100 people who are helping me coordinate the whole huge supply system joint operation.

After several abilities have been made, I have mentioned three major propositions this year. We have 300 problems, I say 300 can not solve, we have to innovate, quality and delivery of three propositions as a leader to solve the problem. For the mobile phone business, quality is the lifeline, we are relying on quality in China to become the first, we also rely on the quality of the elimination of all the Shanzhai machine, but this year's problem is the opponent is not a cottage machine, our opponent is the most bull X company in Chinese enterprises, the problem is how can the quality of all over them?

Earlier this year, I personally led the quality committee, after more than 10 special meetings of the discussion, developed a detailed outline of the quality of action, and the establishment of a quality office dedicated to supervise. Our goal is to win the market with the iron Fist of quality.

Of course, I told the worst in the early part of this year is over, soon the second quarter immediately, we shipped 23.16 million in the second quarter, the chain growth of 70%, back to the world's top five. Now it seems that the performance of the return is much faster than we think, I think it is our past 1.5 tamping Foundation, hard internal strength of the inevitable result, so we created a miracle, the basic realization of reversal. I think the core of the reversal is to clarify the strengths and weaknesses, focus on the weaknesses, give up the KPI and sales, to consolidate the foundation, to ensure the healthy operation of the company.

I think there is a key reason why Xiaomi can be reversed, because innovation is not reversible, what do we do in terms of innovation? First of all, one of the results is that we were in the most difficult time, at the beginning of this year Boston Consulting Group (Boston Consulting company) released the World Innovation 50 report, two Chinese companies were selected, Xiaomi in 35. Fast Company (Quick Magazine) is ranked among the most innovative companies in the world, with 6 Chinese companies selected and Xiaomi in 13.

Core technology Innovation

What is core-end innovation? For example, last year we launched a full-screen phone mi mix across the globe to amaze the world. The full ceramic fuselage of the mobile phone screen accounted for 91.3%. We named this new phone design form "full Screen". Now includes this year's Samsung Galaxy S8, September forthcoming release of IPhone8, everyone has followed this design, the entire industry has accepted the "full screen mobile" this definition. We stand at the pinnacle of the world, leading the whole technology trend.

Then in the camera above the input, Xiaomi 6 is highly recognized by the user is: Change telephoto, shoot people more beautiful, we in the change telephoto than peer flagship confidential, we found a notary, seriously did Millet 6 and another two peer flagship phone blind test, 63% of people think Xiaomi's mobile phone good. It's not just the screen, our kids. A series of core components including chips to recruit talent to form the industry's top team, invested huge, the hard work, to achieve a large number of core technology innovation.

Up to now, Xiaomi has been granted 4,806 patents, half of which are international patents. Last year we applied for 7,071 patents and obtained 2895 patents. In support of product technology innovation continues to emerge, these patent reserves also for our future foray into the European and American markets laid a good foundation.

Business model Innovation

The essence of understanding business model innovation is "what kind of company is Xiaomi?" A lot of people have asked me about Xiaomi's business model, it's hard to say it, and then I finally figured it out because we're a new species, so you can't define what this company is. I recently summed it up in one sentence: Xiaomi is a mobile phone company, a mobile internet company, and a new retail company. We have done a lot of things in the field of mobile Internet, also to a large scale, this year's revenue is also over tens of billions. And many have not yet realized that Xiaomi has another value: we have evolved from an e-commerce platform to a new retail platform.

By looking at this picture, we can understand all the strategies of Xiaomi. Millet mobile phone to do well, led the sale of millet network, millet network to do, and sell more mobile phone to users, and then in the Xiaomi mobile phone pre-set the Xiaomi Mall app again pull the sale, simply speaking is the explosive products to promote the platform, platform and promote explosive products, is a benign interactive mode.

Then our bigger strategic breakthrough is to do the home of millet. Xiaomi Home is an e-commerce-efficient offline retail outlet, with a ping effect of 270,000 RMB per square metre, currently ranked second in the world. I think it is Xiaomi's great innovation in the past two years, that is, it can do the offline retail shop with the cost of electric business!

Buying a mobile phone is a low-frequency behavior, the manufacturers have played a large number of ads to persuade users to buy two years, two years later need to play a large number of ads. So how do you solve this problem? It needs a product portfolio, we invented the hardware ecological chain of play, rich and perfect product portfolio, with one hundred or two hundred products sticky users.

Our philosophy is different from all companies. My goal is to do the best quality products, selling more and more cheap, this is my seven years ago to do millet, can let my own excitement of the great dream.

What is the disadvantage of this model? Too complex for this person to understand hardware, software, IOT, retail, and so on, is almost an "all-in-one" model, which is very demanding for the entire team and very difficult to implement. Which company in the world can do the platform, and can do hardware products, but also capable of the Internet? Few. The Xiaomi model itself is very difficult and has a world-class competitor at every latitude and you have to win.

This is our summary of the millet pattern, we call the cyclone diagram, from the diagram can be clearly seen that the various business of millet is interlocking, gradual, continuous ascension.

We first built the millet community, gathered a group of mobile phone enthusiasts. Then made the MIUI operating system, MIUI released after we made a cell phone, and then made a Millet network e-commerce. E-commerce success immediately after the huge determination to do cloud services and big data, and then immediately penetrate the TV and routers. In fact, television is the first thing we are prepared to do, but we are too stringent product requirements, released several months late. Do router is want to do smart home center, and then do the whole network e-commerce, mutual entertainment, ecological chain, millet home, internet finance and have goods Mall (formerly known as "Rice Home has goods"). There is a product mall is based on crowdfunding screening for the whole network of boutique e-commerce platform, the current scale is already very large. We define a product mall to have 20,000 SKUs, Xiaomi Mall has 2000 SKUs, Xiaomi's home has 200 SKUs.

Iv. what is the core competitiveness of Xiaomi?

I repeated in the millet inside the words have such a few words: the first is rice noodle culture, is to make friends with users. In fact, and users to make friends is a very difficult thing. Many people always think of the marketing method is how to sell things more expensive to consumers, such users are enemies how can be friends? Put the money in his pocket in your pocket is "Rob". So how to make friends with users, is the basis of all our business. The second to do touched the hearts of people, the price of good products. The third is the triathlon, is three basic skills: Hardware + new retail + Internet, and the four is industrial + investment, with the ecological chain to improve the product portfolio.

Xiaomi Eco-chain plus Xiaomi Company's own investment department has invested more than 200 companies, the coverage may be far beyond the imagination of everyone. My view is that I can not do it, because our business is very complex, always emphasize focus, simple.

The evolution of our eco-chain business can be likened to the "big ship to the fleet". In early 2014, co-founder Fang with more than 10 people set up the ecological chain department, has done a variety of products. Now the hand ring to do the world's first, air purifier last year is China's first, in fact, the world's first. Balance car is the world's first, rechargeable treasure is the world's first, sweeping robot is also the world's first.

The company has won more than 145 industrial design awards, including Xiaomi mobile phones, televisions, boxes and speakers. I think good products are also better in design, in our 8 founders, Fang is the art Center College of Design graduate, previously served as the head of the Beijing University Industrial Design department. I was in the formation of millet, I think the Chinese products to change the design, before we think that quality is the function of quality, in fact, the quality of feeling is also very important. You went to the home of millet, we know that today's Chinese manufacturing design things are the world's top, every day attracted a lot of foreigners to our millet home "sea Amoy."

Xiaomi's home has opened its first house since last February and opened 156 in August this year. Currently open a fire, ping effect is very amazing, second only to Apple, in the world. We use the idea of making friends with users to constantly think about how to improve efficiency and how to make users have a better shopping experience.

The weekend to Millet home, each family is a sea of sea. We think that the retail industry is not good, in fact, the traditional retail industry does not, in order to have a bright prospect in the retail sector, the key is to achieve e-commerce efficiency, and the traditional retail industry in the display and experience of the advantages of combining.

The goal of our millet home is three years to open to 1000, five years of operating income to strive to break 70 billion. At present, the average shop is 200 square meters, with an average turnover of 65 million to 70 million.

How can you make such a performance in just over a year? I think the key is Xiaomi's values. The first is to make friends with users. You regard users as friends, you want to treat friends should be to give what kind of price, what kind of service. The second is to have a suitable product portfolio. Third, adhere to high-quality, cost-effective. When the high-quality, cost-effective implantation of the impression of consumers, users feel that in Xiaomi buy anything is not to money, and now millet home is like a supermarket with baskets, many people are holding baskets to buy things.

The core of Xiaomi mode is to get the trust of the user. My idea is to do a good job to do cheap, so that users do not think, buy things do not look at the price, such sales efficiency to achieve the highest. If users say you have a high margin, some low margin, to choose, this is the practice of ordinary shopping malls. There is no need to pick anything in our shop, and everything is worth it. If Xiaomi did this, Xiaomi's business model is the first, is the top reputation! In fact, the American Costco did this. We have a lot of friends, they do not buy things in Costco do not look at the price. Let's think about what it means if the user doesn't look at the price if they're doing business. I think this is the highest state of business. You have to do the business users do not need to look at the price, this is the user's trust in you, this is the biggest business success.

Lei June: How Xiaomi successfully reversed