The secrets of the fastest billion dollar company

The fastest billion dollar companyBARNEY LOEHNIS on 14 March, 2014 at 09:03

You might have heard of Xiaomi: it’s one of the most exciting start-ups that China has produced; a Blackberry & Apple slayer; a hero for a generation of young Chinese, and a model disruptor.

It is the fastest ever start-up to reach revenues of $1bn. Within 3 years they have built a business that is selling 20m phones a year with a revenue of $5.3bn; this is projected to rise to 40m handsets and over $10bn in 2014.

In a such a viciously competitive world, where giants like Nokia, Blackberry, Ericsson, Microsoft and others have utterly failed, what drives such incredible success from Xiaomi? Why?

What ever they’ve got, get me one of those.

At first glance the recipe seems simple: they come with a clear vision of what value proposition consumers are looking for (low price, good quality); they ask their fans what features they want, and involve them every step of the way; and they are incredibly quick to market; quick to respond to competitors, and quick to deliver against the feedback and requests that consumers have given.

It’s true they are unfettered by a legacy organisation to hold them back. They are neither an engineering firm trying to “get” marketing, nor are they a marketing firm that’s detached from the consumers or product they are putting into the market. They care about their consumer – their slogan is “Just for Fans”. Rather than make a product and figure out how to sell it, they ask their fans what they want, and then they give them what they want: how simple, and correct.

Lei Jun and six other partners setup Xiaomi in 2010. Lei Jun is charismatic and has a strong point of view on the world, and what he wants to do for Xiaomi’s fans. He’s a big supporter of people following their dreams and understands where Xiaomi fits into that vision. To that extent he very much crafts, leads and lives the core brand values.

Every phone they build is in response to the needs and input of their predominantly techie and rabidly supportive fan base. They started off with a panel of core fans/users who they still use to help develop new product. They do production runs of 200-300,000 and sell out within hours of going on sale; there’s always a frenzy of excitement and buzz online.

70% of their sales are via eCommerce online. This vastly simplifies their business as rather than have to fight it out in a busy retail environment, they can focus on delivering brilliance online in a market where everyone shops online anyway.

Their profit margins on the phones are low, to optimise  the price / value ratio, and they make much of their money on a diverse and cute set of accessories. A consumer electric company with charisma, there’s a first…in fact there’s only one contender which is Apple itself, whose meticulous customer experience model they largely stole wholesale and then adapted and improved it for China. Unlike Apple whose utter genius is credited to a divine few gods within Apple, Xiaomi’s brilliance is clearly credited to the fans themselves. It’s more of a “by the people, for the people” type of success.

Fallibility, granted by consumers because they are so intimately connected to the brand, is an interesting attribute. They do fail quite often, but they have great humility and try to manage the situation honestly. For example, they actually make it quite a hard process to buy the phone: there’s a  tortuous pre-booking system, with some really innovative but quite complex, integration with social channels like Weibo and WeChat. Lots of people complain that it’s too hard to buy. The scarcity of the phones breeds desire.

So the ingredients to their success are: charismatic leadership, consumer-led product development, agile product development with small runs, smart eCommerce-led distribution, clever business model with low pricing but strong structural and emotional bonds via selling accessories, low marketing costs and scarcity.

The honest truth is that the product is not that good, but its good enough, and people can afford it; and it’s not Apple, or Samsung; and its a fun ride being connected with Xiaomi. They make phones fun and empower customers to love the brand.

Best Viewed in Chrome, IE8/9 and Firefox.