(Chinese Version)

Editor's Note:

“Recently, since there’s something wrong with our supply chain for three months, Xiaomi seems to be near the nadir, and negative reports over Xiaomi are often seen on the internet. However, Xiaomi shall soon bounce back and emerge as a brand new Xiaomi with all kinds of great products developed in the past two years,” Xiaomi’s founder Lei Jun said.

For a while, people began to bad-mouth Xiaomi on the internet. Lei Jun, founder and CEO of Xiaomi, responded to such voices in a meeting with some experts in the Chinese internet industry.

In the speech, Lei Jun suggested that Xiaomi’s real goal was to revitalize the entire Chinese manufacturing industry. In addition, he pointed out that Xiaomi was not a charity organization, and customers’ tips and revenue from the internet apps and platforms would become the major source of Xiaomi’s revenue.

"Up till now, we have already had 8,500 employees and invested in over 220 startups. These startups are part of Xiaomi’s entire manufacturing ecosystem."

In addition, Xiaomi pointed out that Xiaomi avoided becoming a giant but cumbersome company by “nurturing” and investing in other startups. Up till now, Xiaomi has already invested in 55 startups. Although these startups are all part of Xiaomi’s ecosystem, each of them has the ability to come up with an idea, overcome both software and hardware problems and make it into a real product. For him, Xiaomi is like leading a fleet of various warships. Although these warships together form a huge fleet, each of them is independent and responsible for itself.

The following is the full transcript of Mr. Lei Jun’s speech, edited by TMTpost:

Above all, I’d like to share with you why we started Xiaomi at first.

After Kingsoft went public in 2007, I felt so tired, so I would sleep until I woke up natural at that time, and made appointments only for today and tomorrow, not the day after tomorrow. To a degree, I lived a retired life. However, after three or fours years like this, I suddenly realized that I was already forty years old, that I shouldn’t live this way for the rest of my life, and that I’ve got to pursue some dreams. After all, there’s nothing to lose.

Well, I admit that my dream was a little bit “crazy”: to improve people’s impression on Chinese products and to allow ordinary Chinese to use high-quality products. In my eyes, Chinese products used to be of poor design and quality, but very expensive. In comparison, the price of American products were generally 50% lower than that of Chinese products and American products were known as high in quality and safe, while the average income of Americans were six times higher than that of Chinese.

By 2010, I became financially independent and was able to put some of my ideas into reality. It was in this background that I started Xiaomi.

Costco’s business model enlightened Lei Jun

When going on a business tour in the US, Dr. Zhang Hongjiang paid a visit to Costco soon after he landed. When he came back, he boasted how great Costco was and convinced nine other senior executives into visiting Costco themselves. When they all came back and again praised Costco, I asked them what made them think so. They told me it was only about one thing: “cheap”: every product sold on Costco was 9/10 cheaper than that sold in China.

As the only one left who still didn’t pay a visit to Costco, I woke up the next morning and went directly to Costco. I understood what my colleagues were talking about after 15 minutes. Costco’s model is actually similar to that of zhuoyue.com (later acquired by Amazon): 1) products are carefully selected; 2) at least one out of ten products should amaze everyone; 3) internet finance: users are encouraged to use Costco’s credit card, and Costco made profit mainly through member fees and credit card system; 4) wholesale price is even lower than retailing price, and labor cost is also extremely low.

But what’s the problem of Costco’s business model? Since it couldn’t make much profit, it also couldn’t raise money. In a recent financial crisis, Costco was even on the verge of bankruptcy and was sold to a venture capital firm. Costco’s founder had no share in Costco, but was still managing the company. His dream was to make Costco a great company, no matter if he owns it or not. It took Costco almost fifteen years to convince American customers that they could buy products without worrying about price and quality, since Costco never cheated customers. In other words, American customers have “faith” in Costco.

To some degree, Xiaomi wants to do the same thing as Costco. For one thing, our product must be of high quality; for another, we must be able to maintain high efficiency and low profit margin. The strongest motivation of me to establish Xiaomi is make some really great products.

Xiaomi aims to revitalize the Chinese manufacturing industry

When establishing Xiaomi, we have three models: 1) Costco, as I have mentioned before; 2) Tongrentang, which is a time-honored traditional Chinese medicine store known for high quality, or crastsmanship; 3) Haidilao, which is known for its eye-catching marketing strategy.

To be frank, I am a little bit stubborn. I wasn’t willing to stand here and talk about Xiaomi’s history and vision, because I believe the hard truth fifteen years later will best demonstrate how significant Xiaomi’s cause is. I often tell my colleagues, jokingly, that my ultimate goal is to inscribe in my epitaph: He changed China, at least the Chinese manufacturing industry. Compared to seeing people around and boasting about may dream, I prefer to focus much of my attention on developing some really great products. After all, I believe time is the best proof.

I prefer practice than theory. There should be someone who dares enough to change the status quo in China, and revitalize the entire industry, probably with strategies very unique for others.

First of all, we decided to make smartphones, since the momentum towards mobile internet was gathering. It has been four years and a half since Xiaomi entered the Chinese smartphone market, and it took one year and a half for Xiaomi to become the number one. For us, the biggest contribution of Xiaomi, however, is boosting the development of Chinese smartphone industry and increasing the penetration rate of smartphones in China. As a result, the quality of Chinese smartphones is generally better, while the price is generally lower.

Recently, we released Xiaomi plug board, because when most plug boards on the market are made with techniques thirty years ago, and are generally packed in plastic bags. In comparison, Xiaomi’s plug boards are carefully made, just like a piece of art. When I give Xiaomi plug boards as gifts to my friends, they mistook it as Apple’s product, because it’s so delicately packaged and beautiful. Besides traditional plugs, we also integrate three USB plugs to Xiaomi’s plug board. Although it took us one year and a half to make this product, it is priced at only RMB 49 (over $7.3).

We are really serious about our products, so we craft all of them as pieces of art. As we entered various markets and made all types of products, criticism ensued. However, I always tell my colleagues that we are still criticized because our products are still not perfect. If there is really nothing to find fault with our products, then nobody will bother to criticize us.

Xiaomi aims to become the MUJI in the Chinese tech industry

Our problem is that sometimes we don’t know how to convey our thoughts to users, while our users also don’t understand why Xiaomi is doing this or that. Many users might think that Xiaomi is not focused enough because we have released all kinds of products, from smartphones, mobile power bands, air purifiers to electric cookers, fans, etc. However, if you see such “variety” from another perspective, you might understand that Xiaomi is actually very focused.

Fundamentally, Xiaomi’s goal is to give every Chinese, even people around the world, access to technology and enjoy the convenience and fun brought with it at a very low price.

In addition, Xiaomi aims to boost the development of Chinese manufacturing industry. But how can we achieve this goal? We have to develop various types of products and enter various fields.

It took Xiaomi five years to develop our own e-commerce platform xiaomi.com. In the next five years, our focus will lie on Xiaomi Store. In this aspect, our model is MUJI. Our ultimate goal is to develop 50 to 100 high-quality products and sell them in our Xiaomi Stores across China.

At present, the average land coverage of electrical product stores in China is 5,000 square meters, while the average sales per store is around RMB 40 million (over $5.98 million). However, for us, the ideal land coverage of Xiaomi Store should be around 250 square meters, while the average sales per store should reach over RMB 50 million (over $747 million). Currently, the peak sales per day of Xiaomi Store is over RMB1.43 million (over $2,130,000), and Xiaomi Stores are always packed with customers on weekends. Our plan is to open five to ten Xiaomi Stores every month, and open in total one thousand Xiaomi Stores within the next three or four years, whose total sales might reach RMB 40 billion to RMB 50 billion ($5.98 billion to $7.47 billion). Besides, we shall never adopt franchise or member system, and manage all these stores by ourselves, believing that only when we take things seriously can we do it well.

You should bear in mind that Xiaomi’s goal is to become MUJI in the Chinese tech industry. Since MUJI not only developed various types of products, including fridges, washing machines and suitcases, but also sold them by itself, Xiaomi also adopts such “develop and sell” model, and focus our attention on both developing and selling products.

We develop all kinds of products not only to boost transaction volume inside Xiaomi’s ecosystem, but also help our users improve efficiency. As a result, we don’t need to increase our profit margin in order to make profit.

In no time will Xiaomi bounce back and emerge as a brand new Xiaomi

At last, I want to point out that Xiaomi is not a charity, so even if I don’t want to make money, I have to help Xiaomi’s employees make money. Thanks to the internet and the long tail theory, Xiaomi’s core profit will come from users’ tips and from all kinds of Xiaomi’s apps and internet platforms. Up till now, the number of Xiaomi’s apps whose daily active users has reached over 10 million is 9, while the number of Xiaomi’s apps whose monthly active users has reached over 10 million is 43. Although traffic won’t directly be translated into revenue, we have confidence that we shall make over RMB 10 billion (over $1.49 billion) through these platforms next year.

Besides, I’d like to introduce to you Xiaomi’s family and ecosystem. Up till now, we have already had 8,500 employees and invested in over 220 startups.

By investing in these startups, Xiaomi avoids becoming a giant and cumbersome company. How does this work? For example, if Xiaomi decides to make a plug board, we shall go around the world, find the leading innovators in the field and convinced them into establishing a startup. These innovators are the biggest shareholders of these startups, while Xiaomi would only take a minor stake. As long as the products these startups developed meet Xiaomi’s standard, we shall help these startups sell them.

Up till now, we have already invested in 55 startups this way. These 55 startups, managed by 170 entrepreneurs, together form a “quasi-incubator”, while each of them has the ability to come up with an idea, overcome both software and hardware problems and make it into a real product. Xiaomi is like leading a fleet of various warships. Although these warships together form a huge fleet, each of them is independent and responsible for itself.

Among these startups, Huami, the developer of Xiaomi Band, has grown significantly, Ninebot, the developer of Xiaomi Scooter, has become the number one scooter maker in the world, while Zimi, the developer of Xiaomi Power Bank, has become the number one around the world in terms of business scale. All of them make this happen within two or three years.

Xiaomi doesn’t want to become a giant but cumbersome company with low efficiency. Instead, we encourage all of these entrepreneurs to be their own boss, directly face market competition, while we shall help them come up with ideas and support them financially. As long as they succeed, Xiaomi will also succeed. Our goal is to enter 100 fields and revitalize 100 fields in the Chinese manufacturing industry.

In addition, Xiaomi is an investor of TouTiao, the leading specialized news app in China, three major video streaming platforms Youku, iQiyi and Sohu, as well as Thunder, the leading download assistant in China. So Xiaomi also plays a fair role in the IoT field, and demonstrates our existence from terminals to terminals.

Moreover, MIUI is also a giant internet platform where we can cooperate with various players. In 2016, since there’s something wrong with our supply chain for three months, Xiaomi seems to be near the nadir, and negative reports over Xiaomi are often seen on the internet. However, Xiaomi shall soon bounce back and emerge as a brand new Xiaomi with all kinds of great products developed in the past two years.

Although we brought out lots of innovation in the past, most of them were out shadowed by our transformative business model, or our innovation was still not eye-catching enough. In the next year, however, we shall release some very different products, and we are very confident that our customers will love these products.

The other days, I encountered Feng Xiaogang (a popular Chinese director), and when I tried to introduce Xiaomi to him, he told me that Xiaomi’s products could be found everywhere in his house. In the future, when Xiaomi’s products could also be found everywhere in people’s houses, people’s understanding of Xiaomi must be very different than now.

To conclude, Xiaomi aims to develop some extremely great products, and we are so excited to see a day when Xiaomi’s products can be found everywhere in people’s houses.

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Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.