Lei Jun: Mobile phones are becoming more and more expensive, which is a dead end. Users don’t buy promoters and advertisements.

　　On the afternoon of October 28, the "China Green Company Alliance Roundtable Meeting· Xiaomi Station" was held at Xiaomi yesterday. Lei Jun, founder, chairman and CEO of Xiaomi , shared Xiaomi's mission, business model, values, how to achieve business turnaround in the past year, and some thoughts on corporate management. Let's follow the mobile phone portable editor to learn about the relevant content.

　　Lei Jun revealed that Xiaomi achieved a monthly mobile phone shipment of 10.6 million units in September, a year-on-year increase of 111%. The goal of 70 million mobile phone shipments proposed at the beginning of the year has been completed ahead of schedule. "But what I care about is not how much growth this year, but whether we can achieve a continuous growth rate of more than 50% in the next three years."

　　Regarding the current trend of consumption upgrading, Lei Jun believes that it is not about selling products at higher and higher prices, but that you can buy better quality products at the same price. "Many people think that consumption upgrading means it is getting more expensive, but I think this is a dead end. Can we improve efficiency and provide better services under the current circumstances? Only in this way can you survive in future competition."

　　He believes that the core of Xiaomi's business model is to do everything possible to make the product better, and then systematically reduce the overall cost, rather than reducing the manufacturing cost. Many people have the wrong idea when making products. Users want to buy products, not promoters or advertisements.

　　Regarding the new retail that Xiaomi is currently planning, Lei Jun revealed that Xiaomi has already opened 219 Mi Home stores and plans to open one thousand stores within three years.

　　On November 5, the Xiaomi flagship store in MixC Mall in Nanshan District, Shenzhen, will open. It has two floors with a total area of ​​650 square meters. This also shows the change in the layout of Xiaomi Home. Lei Jun said that in the early stage of the development of Xiaomi Home, it was basically located in places with relatively cheap rent. In the future, the location of the store will be better and better, which will help to enhance the popularity and recognition of the Xiaomi brand. (Zhang Jun)

　　The following is an excerpt from Lei Jun’s speech:

　　First of all, I would like to welcome all the entrepreneurs from the Green Company Alliance to Xiaomi! Our reception facilities are limited, but we are very enthusiastic and sincere in welcoming you. Thank you for coming to Xiaomi today to see the growth process of our startup company.

　　Seven and a half years ago, we were just a dozen people with seven or eight guns. We started our business after drinking a bowl of millet porridge. When Xiaomi first started, we put ourselves in the same conditions as Zhongguancun startups and started according to the standards of entrepreneurs. Because I believe that if we don’t return to the entrepreneurial mentality, we will never succeed. On our seventh anniversary this year, the seven of us partners retraced our entrepreneurial journey and went to the office we worked in back then. As a result, the other party would not let us in. I thought they really didn’t know how to do marketing. We could only take a group photo downstairs.

　　We were lucky to have created a series of miracles, most of which were due to luck, and perhaps 20% to our hard work. The mobile phone industry is the most competitive industry in the world, and a small company with only a dozen people became the first in China and the third in the world in two and a half years. At the same time, Xiaomi is the company that has exceeded US$1 billion in revenue the fastest, and the company that has exceeded US$10 billion in revenue the fastest. It took us less than five years from our founding to exceed US$10 billion in revenue.

　　This is difficult to explain using economics and management theories. It shows that Xiaomi's innovation has far exceeded everyone's imagination, and that the Internet methodology we have mastered is far ahead.

　　In 2014, Xiaomi's valuation reached 45 billion US dollars. I thought for a long time, why are Internet companies so valuable? The answer is because the Internet represents advanced productivity. In 2015, I was also honored to be selected as one of the 100 most influential people in the world by Time magazine with the help of many Xiaomi people and Mi fans.

　　Then we encountered huge difficulties and challenges. Why did we encounter difficulties? It's very simple. Every company would come to learn and study. Some of our basic skills were not as solid as those of our competitors. Only when your basic skills are the same or close to theirs, your advantages will be obvious. Because in the era of all-around champions, if you have shortcomings, you will definitely not be able to succeed. But at the same time, our turnover has actually maintained positive growth.

　　What makes you even more upset? This sentence says that no mobile phone company in the world can successfully reverse its sales decline. This is true, especially in the mobile phone industry. Once it starts to decline, it is basically a "death passage" and few people can escape it.

　　In the second quarter, we grew 70% month-on-month, and our mobile phone shipments exceeded 20 million units. In addition, people generally only see the Chinese market. In the past year, we have entered 60 overseas countries, and ranked in the top five in 12 of them. Basically, we have blossomed in all overseas markets. As you know, when we entered the Indian market, Samsung occupied 30% of the market share. It only took us one or two years to reach the level of competing with Samsung. So I am proud to add four words after the sentence "No mobile phone company in the world can successfully reverse the decline in sales": "Except Xiaomi."

　　We achieved a monthly mobile phone shipment of 10.6 million units in September, a year-on-year increase of 111%. At the beginning of the year, I said that the target for mobile phone shipments this year was 70 million units, and now our shipments have exceeded 70 million units. It is difficult to achieve high growth after the scale of the enterprise. But what I care about is not how much growth this year, but whether we can achieve a continuous growth rate of more than 50% in the next three years.

　　Why was Xiaomi able to successfully reverse its situation? The essence is innovation. The competition in the mobile phone market is very fierce. Whether it is Apple, Samsung or Huawei, they are all top technology companies in the world. It is difficult to win if they use homogeneous products.

　　First of all, it is the innovation in core technology. At the beginning of 2014, we were thinking about what the future mobile phones would look like, and finally reached a consensus: the front of the future mobile phones must be all screen. Therefore, our entire design concept is moving towards the full screen. Last year, we released the Xiaomi MIX full screen concept phone, which led the world trend for the first time.

　　One year after the release of Xiaomi MIX, we won the IDEA Gold Award, which is jointly awarded by the Industrial Designers Society of America and Business Week. It mainly rewards innovation in the field of design. In the 39-year history of IDEA, only 12 mobile phone products have been awarded. Apple has only won the first generation of iPhone. Many people who are not in the mobile phone industry can also see the impact of this event on the whole world from the publicity of mobile phone companies. Now Apple, Samsung, and Huawei are all promoting full-screen phones. This is the impact of Xiaomi MIX on the entire industry.

　　The Finnish National Museum of Design proposed to collect this work. Their reason for collecting it is: Xiaomi MIX shows the future direction of mobile phone design and is a milestone work. Later, three or four world-class museums also contacted us. This year, Xiaomi swept the gold medals of the world's top four design awards. We are the first to do so in history. This is the result of our seven years of work together with all designers, which is to raise the design level of China to a very high level.

　　We invited Philippe Starck, a master of industrial design, to design Xiaomi MIX. Our designers told me that when they were learning design as children, the examples used in their textbooks were all works by Philippe Starck, a master of design. This year, when we released the second generation of MIX, we made a unibody full ceramic, which is flawless and looks like jade.

　　We are also challenging the world's strongest communication capabilities. The MIX2 global frequency band supports networks in 226 countries and regions, making it the mobile phone that supports the most global frequency bands.

　　I just used a mobile phone case to introduce how we work on technological innovation, product innovation and design innovation. Next, I will introduce how we innovate in business models.

　　The core of Xiaomi's business model is to do everything possible to make the product better, and then systematically reduce the overall cost, rather than reducing the manufacturing cost. Many people have the wrong idea when making products. Users want to buy products, not promoters or advertisements. The first step of Xiaomi's model is how to make the product better.

　　For example, rice cookers. I have studied this issue specifically. Japanese rice cookers are good because their technology is several generations ahead of ours, mainly in three aspects: IH electromagnetic heating, 1.2 times atmospheric pressure, and gray cast iron 360-degree heating.

　　When the Mijia Pressure IH Rice Cooker was first released, I searched and found that there were 965 ordinary rice cookers in China, 69 IH rice cookers, and none with pressure IH. Therefore, many domestic rice cookers that claim to be high-end rice cookers may have just evolved to the first generation in Japan in terms of technology.

　　How did we solve this problem? We looked for the best people in the world. After searching many patents, we found that Takeshi Naito was the inventor of pressure IH technology. We invited him to China to make rice cookers together. The old man said he wanted to do better than Japan and sell it to Japan. So, my point of view is to find the best people in the world to do this, and the team is also the best team.

　　What makes our rice cookers better than Japanese ones is that we have adapted them to each region and each type of rice, and they are very accurate. The big data results show that Hainanese people cook the softest rice, while Qinghai people cook the hardest rice. Interestingly, our Mijia pressure IH rice cookers are also available in Japan. The price is much higher than in China, but it is still the cheapest in Japan.

　　Many people think that consumption upgrades are getting more expensive. I think this is a dead end. Can we improve efficiency and provide better services under the current circumstances? Only in this way can we survive in future competition. I remember when Xiaomi's mobile power bank was released, my peers told me that it was a sleepless night for the entire power bank industry. Today, the level of the entire power bank industry has improved. Therefore, consumption upgrades are not about selling more and more expensive, but about buying better products at the same price.

　　When making products, I think that in addition to functionality, Xiaomi also takes design and quality into account. In the past, we only talked about whether the product broke or not. Now, we not only care about whether it broke or not, but also whether it looks good and is easy to use. Our understanding of products is different from that of the traditional industrial era. Every Xiaomi product is beautifully designed. Our emphasis on design and user experience exceeds everyone's imagination.

　　Our products are made with great care and we take them very seriously. When it comes to making products, we try to make them perfect at all costs, and then reduce costs through large-scale sales. When your volume is large enough, you will find that the R&D costs have also been reduced. My total R&D costs are very high, but I have a small number of models and sell a large number of products, so the R&D costs allocated to each product will be extremely low. Reducing the number of models will bring savings in all aspects, such as maintenance costs, warehousing costs, marketing costs, etc. When you go to our Mi Home store, you will find that there are only one or two models of each type of product.

　　I once told a leader that I was willing to spend five years to lead 100 companies to demonstrate the transformation and upgrading of the manufacturing industry. After Xiaomi came in, the entire Chinese mobile phone industry has improved. Don't think that we came in to steal business. No, if you do well, I won't do it.

　　When a mobile phone is finished, if the cost is 2,000 yuan, how can the sales price be more than 2,000 yuan? So I opened my own e-commerce platform - Xiaomi.com, with zero channel cost and zero advertising cost. I firmly believe that if the product is not good, a lot of costs will be wasted in the middle link, and a good product has very strong penetration. It is with this determination that we built a sales platform, with Xiaomi Mall and Youpin Mall online, and Xiaomi Home and Xiaomi Store offline. We are the third largest e-commerce platform in China and also a new retail company. This is a very important point in the Internet thinking I talked about: extreme.

　　This is not enough. Without the right profit, shareholders, investors, employees and bosses will be unhappy. Therefore, for us, Internet value-added services and revenue are our key. The core of the entire Internet is cross-border integration and user-centricity. I have users, and as long as the user needs it, how can we cross-border integration? This is the key to the entire business model.

　　Xiaomi's business model is very difficult. How do we implement it? We focus on one thing every six months. The entire business model is spinning like a whirlwind. The more it spins, the stronger it becomes. Everything we do adds points to this model. We absolutely do not allow anything to detract points. Therefore, we use a whirlwind diagram to explain our business model internally. Each business unit must be user-centric and must add points to the Xiaomi brand.

　　Xiaomi is really a new species. You say Xiaomi is a mobile phone company, of course, but it is also a mobile Internet company and a new retail company. Moreover, including the Internet finance sector, the scale of Xiaomi's entire Internet business is already very large, and our investment is also very high. We are a new species of cross-border integration as a whole, organically integrating hardware, new retail and the Internet. We also call this model "triathlon."

　　When it comes to new retail, I think Xiaomi's core competence is how to sell products in the most efficient way. Without this, it is impossible to make a good product. Because the cost of raw material manufacturing, R&D sharing costs, marketing costs, advertising costs, sales channel costs, etc., each layer is a fixed cost. Only the manufacturing cost can be controlled. If you want to maintain profitability, you have to reduce the manufacturing cost, and the product will become worse and worse.

　　Next, I will introduce how Xiaomi Home is done. We have opened 219 Xiaomi Homes in more than a year, and plan to open 1,000 stores within three years. On November 5, the Xiaomi Home flagship store located in MixC Mall in Nanshan District, Shenzhen will open grandly, with a total area of ​​650 square meters on two floors. I suggest that you go to Shenzhen to see what a retail store run by an amateur looks like.

　　In the early stages of Xiaomi Home development, we basically chose locations with relatively cheap rents. Later, we gained confidence step by step. In the future, the locations of our stores will get better and better. Now shopping malls are increasingly recognizing the Xiaomi brand.

　　There are two operating indicators of Xiaomi Home that I am very proud of: the first indicator is sales per square meter. We have achieved sales of RMB 270,000 per square meter per year, which is currently the second highest in the world; the second indicator is the cost rate, which we have always controlled within 8%, that is, the cost of selling a product worth RMB 100 is only RMB 8. Many friends who have been to Xiaomi Home gave me feedback, saying that there is only one disadvantage, that there are too many people. Many people ask why it is so popular? In fact, it is very simple, because the products are good.

　　In the past year, Xiaomi has also made many innovations in management. Six years ago, I experimented with an extremely exaggerated management method. We called it getting rid of KPIs, titles, and management. I have been managing companies for nearly 30 years and have used extremely complex management methods. The side effects of strong KPI management are very obvious.

　　When I founded Xiaomi, I wanted to try some management innovation and see what kind of management is the best. So I thought further: What kind of people don’t need management?

　　First of all, this person must be capable. Secondly, this person must have a high sense of responsibility and does not need your management. Another point is that he must have infinite motivation in his heart, that is, he must want to change this society and make a good product like me. You don't need to applaud him, cheer him up, or stimulate him. If you can find such a group of people, your product will definitely be very good and you don't need to manage them. Then our profit distribution mechanism is reasonable, so I tried such a management model that only grasps the essence of the problem, that is, to find capable, responsible, and self-driven talents.

　　In May last year, I started to directly manage the mobile phone department. In the past, we basically did not sort out the organizational structure and did whatever we wanted. I first sorted out the organizational structure and then fully staffed it. Then this year, we clarified three major tasks. The first is to start paying close attention to quality. We attach great importance to quality. If a user buys something online and it is defective, what will they do? In the traditional sales model, as long as there is a problem, the consumer will go back to the store to exchange it. But here, if there is a problem, the user will choose to talk about it on Weibo or in Moments before complaining. Therefore, Xiaomi's entire quality requirements are much higher than the traditional ones. Since the beginning of this year, we have been very determined to set very high quality standards and goals. We have a saying internally, that is, to use the iron fist of quality to defeat the opponent. This year, our quality has improved very rapidly, and even several mobile phones have almost zero returns.

　　The second key task is delivery. We are often out of stock, and some even say it is starvation marketing. I really don't know what starvation marketing is. Users will queue up only if a product is popular. If a product is not popular, it is impossible to achieve starvation marketing. This year we have made great progress in delivery, but there are still serious problems. There are so many markets today, and our regions are still complaining about out of stock.

　　The last task is to continue to maintain the engineering culture and innovation capabilities. Xiaomi is now learning how to achieve integrated production, supply and sales, and how to make the quality exceed user expectations.

　　In short, I think Xiaomi's previous innovation in management went a bit too far, and today we are trying to recover and find a balance. It is too early to talk about Xiaomi's success now, and Xiaomi's entrepreneurial journey has just begun. The entire refined management thinking and adjustment started last year, and I estimate that it will take another one or two years to find the best balance.

　　I used to work in software, the Internet, e-commerce and investment, and I had never worked in hardware. When I was 40, I felt that our domestic products were not good enough. I am a perfectionist. I said I can make a good product and I will show it to you. I think if I can make something into a work of art, it will definitely be a huge contribution to the transformation and upgrading of China's manufacturing industry.

　　I think the secret of Xiaomi is to do our best to make the product and improve business efficiency. There is no room for opportunism. The starting point of Xiaomi is not how much money I want to make now, but how to do this thing beyond expectations. This is different from other people's ideas. Maybe many product developers do it for users, or for dealers, for turnover, for profit, but I do it for myself. I hope to do it beyond expectations, and then I rack my brains to think about how to improve efficiency and sell more than users expect.

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