Seven logics of Xiaomi ecological chain management
Editor’s note:Recently, the China Management Model Outstanding Award Council investigated Xiaomi Technology, a short-listed enterprise, covering Xiaomi’s strategy, organization and human resource management system. In the survey interview, Liu De, co-founder and vice president of Xiaomi Technology, expounded the logic of Xiaomi ecological chain management from the following seven aspects:
1. Business logic: All devices are interconnected.
2. Strategic logic: Layout of high-quality manufacturing resources.
3. Partner logic: "Kill the chicken with a knife"
4. Competitive logic: Help eco-chain companies develop.
5. Growth logic: "Bamboo effect"
6. Operational logic: precision guidance and precision strike.
7. Business logic: No holding.
The following is a record of Liu De’s speech:
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Welcome the judges, experts and teachers of China Outstanding Management Model Award to Xiaomi for investigation. This year’s theme is "Sharing Ten Innovative Management Methods". Xiaomi started with the combination of mobile phone and miui software and hardware, and now it has formed a basically complete ecological chain, which is a concern of everyone. The so-called ecological economy is related to sharing, and I think this is a more revolutionary and open management model.
So, what logic supports Xiaomi to form the current model?
We say that big companies are created by the times, which is significantly different from small companies. It should conform to the main theme of the times. Just like when Xiaomi started making mobile phones, it actually caught up with the transition from traditional Internet to mobile Internet and from functional phones to smart phones. This is very similar to the success of Haier and Lenovo in the early years, and both have caught up with the great opportunities given by the times.
In the first half of 2013, we found that almost all three stages of the entire Internet were presented. These three stages are: 1. The traditional Internet stage, the era of PC; 2. In the mobile Internet stage, smart phones appeared; 3. IOT stage, that is, the Internet of Things stage of the Internet of Everything. One day, all the devices around us can be networked and controlled by mobile phones.
In the first two stages of the Internet, huge companies were born, which is a big trend. Therefore, we believe that the IOT era will definitely bring great opportunities. Based on such a judgment, combined with the actual situation of Xiaomi, we believe that when the tough battle of Xiaomi’s mobile phone has not been finished, we have neither energy, manpower nor concentration to do IOT. So, shall we do it or not? After thinking, we decided to intervene in the IOT field with the investment model. However, if the cost performance ratio of companies above medium scale is not high, then we should invest in start-ups and seize the trend of the times by means of investment+incubation, which is our earliest theoretical basis.
When this logic is determined, we begin to draw the line. What areas do we focus on and how do we do it? First of all, we analyzed our existing advantages. At that time, the advantage was that there were basic disks of mobile phones, all of which were very young, and most of them were science and engineering men from the age of 17 to 35. So I did it around this advantage. We have found several directions for ourselves:
First, smart devices around mobile phones, such as smart bracelets, smart watches, and non-networked devices such as mobile power supplies, Bluetooth headsets, and speakers. The business logic is to let these peripheral products enjoy the dividend of mobile phone sales. If the headphones are good enough, if we sell 60 million mobile phones a year, we can sell at least 10 million headphones, which is the bonus brought by mobile phones.
The second is smart white electricity. We count small household appliances as white electricity, including purifiers, water heaters, smart rice cookers, sweeping robots and so on. Traditional white electricity has been developed in China for 30 years, and the products have reached the super-fine level, and the competition is very full, so we will not have a chance in this field. However, in the process of intelligent white electricity, we believe that overtaking in corners can be achieved.
The third is personal short-distance transportation products. In Xiaomi’s strategy, the possibility of entering the real estate and automobile fields is ruled out, but personal transportation is very worthy of attention. We believe that the short-distance traffic problem and the last mile problem (after the public transport system) are just needed, and there will be huge market opportunities. So we thought, do you want to ride a bike? Do you want to take a short-distance electric motorcycle? Do you want to make an electric scooter? There has also been a heated debate within the company, and everyone will be worried about policy risks. Can our public system completely solve the problem of people’s short-distance travel? For example, we all know the passenger volume of the subway, and the answer is definitely no. Then, there must be huge market opportunities for short-distance transportation and the last mile. I think the government will also find this problem, and will gradually ease it for various reasons, so short-distance transportation has become our concern.
The fourth category is geek cool play products. It is today’s pioneer products that can attract young people’s attention, such as drones, robots, 3D, AR, VR and other products, and will also have huge business opportunities in the future.
The fifth category is related to people’s lifestyle products, which can also be said to be household and personal consumption consumables, or consumption upgrade products. We have invested in all products related to consumption upgrading, such as towels and mattresses. In the beginning, we sold hundreds of thousands of towels and 10,000 mattresses in one week, which is an astronomical figure. After testing the water in such a small scale, we found that the demand for upgrading people’s consumption is very strong. So our eco-industrial layout starts from these directions.
Sixth, we invest in high-quality manufacturing resources. Although we are a big manufacturing country in the world, high-quality manufacturing resources are still scarce. In the past three to five years, more and more manufacturing management elites have been trained and formed a talent pool in the manufacturing field. At the same time, the value of high-quality factories in many manufacturing industries is seriously underestimated — — The valuation is not up to its net assets. In this case, it welcomes any investment. For Xiaomi, such investment means huge opportunities, especially our requirements for manufacturing are very high. For example, the purifier, first of all, is that we are doing well enough and cheap enough; Second, the large mold it uses is very demanding, which is a technical barrier, so there is no fake version in the market. It is precisely because of this that we are very concerned about this kind of high-quality manufacturing resources and will take them as our investment direction.
With the direction and layout, what kind of thinking should we follow to find partners?
The first is to find a team. Because the Internet is a tool to enjoy the demographic dividend, our thinking is that the market area involved by this team should be large enough. If we set foot in the biggest field, which has a basic disk of 100 billion yuan, can we at least achieve 1 billion, 2 billion, 5 billion or even 10 billion yuan? But if it is only a small market, or a small and beautiful company, and it doesn’t have enough market space, it is not worth doing it through the Internet.
Second, there must be traditional pain points and shortcomings in this field. The range of pain points is very wide, such as low cost performance, too many categories, low quality, etc., because there are pain points, there are opportunities. If the product itself is beautiful, then what opportunities do we have? Including products that seriously lack social credibility, then this field is also worth investing.
Third, according to the long tail theory, this product has consumables or can be iterated, so the industrial structure will be rich. If a product can’t be iterated, such as hula hoop, and this product with hula hoop properties can only be sold once, it is not worth doing. Therefore, we must be able to iterate and complete the first generation, and we can also do the second generation, and we can continue to operate through continuous technological upgrading. Including filter elements like purifiers, which are consumables and can be put into use.
Fourth, products should meet the Xiaomi user base. For example, Xiaomi’s MIUI has 200 million active users, and their age boundaries are still expanding, and more and more female users are joining in. With the user base, it is easy to enjoy Xiaomi’s user bonus.
Fifth, there must be consistency of values. The company we invest in must require the boss of the other party to share the same values as Xiaomi. Many people ask me, how do you manage so many companies that you don’t hold shares and are not the head office of others? A very important point in this is the theory of values.
We are looking for people who are consistent with Xiaomi’s values. He believes in the future, our business model and cost performance. They want to be national enterprises, instead of operating with the idea of making quick money. What we have found must be a group of companies that are so congenial. In other words, in addition to the logic of demanding consistency of interests in business, we also need to have an emotional sense of identity. Investing in a company is like looking for a wife. Do we need to manage our wives? No need. Because they share the same values and common interests. The same is true for the logic of investing in a company. On the basis of consistent values, management troubles will also be reduced. On the contrary, it may be a good company with a good team in a good field, but if our values are different, we will not invest.
Because we firmly believe that the Internet has three logics: 1. Free principle. This can make the economic scale of the enterprise expand rapidly, of course, it does not mean absolute free, it also includes the situation of high cost performance; 2. Long tail theory. Products that can be iterated or have consumables will form a relatively rich economic model; 3. Sharing economy. Namely, full cooperation. On the basis of this logic, we can cooperate, otherwise, we have to rebuild, and there will be many difficulties.
Sixth, we must have a strong team. We should use the same team to "kill chickens", so that the projects we make can be handled with ease.
This is the logic for us to find partners.
So, how does Xiaomi help the development of eco-chain companies? We summed up the advantages of Xiaomi’s six-year development.
First of all, to achieve an active and hot brand. There are many brands in the world, and there is no point without heat. There are countless people paying attention to what products Xiaomi launches every day, and there are criticisms and praises. This is the popularity of the brand.
Second, we have a huge user base, and they have the ability to continue to consume in this channel.
Third, we have made a global supply chain. As long as we have more than 10 billion dollars of running water, we can basically build a global supply chain. The advantage of global system supply chain is that it can support a start-up company to enter a hardware field at a very low cost and can make products very cheap. For example, Xiaomi mobile power supply, the reason why our price is low is because we have a huge supply chain integration capability. An enterprise without such advantages can’t do it, and its cost is higher than our estimate.
Fourth, the channel of Xiaomi. We have opened up channels, such as Xiaomi Mall, Mijia App, and Xiaomi House.
Fifth, Xiaomi’s investment and financing ability and social influence. We have the ability to support these companies when they need funds.
Nowadays, after all, there are only a few enterprises that can run through the competitive field, and we use this platform advantage to help eco-chain companies to realize the grafting with Xiaomi’s ability, so that they have gained a huge advantage in the initial stage and can form a competitive advantage in this field in a short time.
At present, we have about 60 eco-chain companies with a scale of about 4,000 people, all of which are mainly engineers. There are about 200 people in Xiaomi’s eco-chain team, who provide product definition for eco-chain enterprises, supply chain support, quality monitoring and many other key node services.
These eco-chain companies have high response speed, few people and high efficiency. They are full of entrepreneurial passion, and in the past two or three years, they have become the new force of young entrepreneurs in China. We have united such a group of people and formed a great force. We use the platform to support them, and the internal team conveys Xiaomi’s values and methodology to them to help them improve their quality standards.
This internal ecological chain team is divided into two parts, with less than 200 people. Part of it is the eco-chain team, including helping eco-chain companies find teams and make investments, and supporting them to make product definitions; There is also an IOT IoT team, which is based on technology and helps eco-chain companies connect smart devices with mobile phones.
A few years ago, the growth rate of Xiaomi was beyond imagination. In the third year of Xiaomi’s development, many people are worried about the rapid growth of Xiaomi, because it is obviously abnormal, and they are worried that it will be risky to grow too fast. When we face such a problem, we consider it based on our understanding of the company history. Throughout the world, different from the path of traditional enterprises, on the basis of today’s technology, the development of technology companies is high-speed. For example, AT&T in its early years was the leader for 70 years, and no one surpassed it. Later, IBM came, Microsoft came, google came, and facebook came. The time they spent was getting shorter and shorter, and the development speed was getting faster and faster. This is an era of accelerated development of technology companies.
Therefore, we must first revise the concept of the speed of the company’s development, and don’t think that a company will encounter huge problems if it achieves a sales scale of $10 billion in five or six years. The world has changed, and the development speed of all companies is accelerating.
We compare a traditional company to a pine tree. It may take 100 years to grow up, but once one day, its interior is empty, it will fall down in an instant. We see that the collapse of Nokia and Motorola’s mobile phone business is a growth logic like pine trees.
However, Xiaomi strives to follow the growth logic of bamboo. In the Internet environment, our fast-growing business model is more like bamboo. After a spring rain, we grow up. Although the life cycle of bamboo may be short, just as many Internet companies don’t, what are the advantages of bamboo? It has the speed to form a bamboo forest, which is a very important ability. You have to grow into a bamboo forest quickly, new bamboo shoots keep coming out, and your elasticity keeps increasing. Soon, a bamboo forest that can resist wind and rain will grow up. This ability to resist risks comes from the iteration of new business. When a company can form this Zhong Zhulin effect, its ability to resist risks is completely different from that of traditional companies. So, although he may not realize it, what many Internet companies are really doing is a bamboo forest effect.
In this regard, Tencent’s performance is more obvious. When QQ business and WeChat business were launched, its bamboo forest effect was formed. Therefore, the new investment is like "bamboo shoots", and Xiaomi’s investment method is also trying to move closer to the bamboo forest effect.
Our eco-chain companies are all small teams, and small teams have their operational advantages. In the development process of Xiaomi, in order to manage the ecological chain well, in fact, many military theories were explored and used for reference. We believe that in an era, the most avant-garde theory must not be economic theory, because the success or failure of economic theory is measured by money. So what is the theory that leads the times? We think it’s military theory. The basic logic of contemporary avant-garde military theory is nothing more than two points. The first point is called precision strike. The so-called precision strike is to make products that accurately meet the needs of users. If it was a tough battle in the past, we didn’t know how many enemies the other side had, so all the guns were fired at once, and a whole mountain was blown off. There were two craters in nearly one square meter, ensuring that no enemy could escape. However, with the development of science and technology today, I clearly know the number and orientation of the enemy, so I can accurately guide and attack the enemy at once, and get the highest efficiency at the lowest cost. Therefore, Xiaomi also learned from this model. For example, we used to make 100 products, each of which should be aimed at different user groups. Now, using the internet, we can know exactly what users want. We may only launch a single product and use the only product to impress users accurately.
Second, small-scale special forces. Special forces were used during the Gulf War, with the support of the Pentagon, satellites and aircraft carriers. Xiaomi’s eco-chain company is like a special force. There are very few people in each company. A company with 20-30 people, or a company with 50-60 people, can make a sales scale of several hundred million yuan and more than one billion yuan. For example, Xiaomi’s mobile power company, with less than 100 employees, can achieve 1.5 billion to 2 billion yuan a year, and when it started in the first year, 20 people achieved the level of more than one billion yuan. Of course, the initial team of mobile power supply is veterans with five to ten years of rich experience in the hardware field, and then they are helped by Xiaomi platform and various advantages. In other words, we borrowed a lot from military theory in the ecological chain model and formed a very strong combat capability.
What mechanism do we adopt within the ecological chain? Two years ago, we did something unprecedented, that is, we did these eco-chain companies without holding shares. In the future, we may control 100-200 such eco-chain companies, which will be a great challenge. So why do it? This is the result of our internal discussion.
In our opinion, two things are very important. One is the wisdom of the group. We should give full play to the strength of the middle class and give them the right to speak, so that the middle class is willing to make contributions. Many enterprises can’t do group wisdom by talking at one word, but I strictly draw a line for myself, and I absolutely don’t touch anything offline. If I intervene in all affairs, I will be dragged into the ocean of affairs. Therefore, I am only responsible for the affairs above this line, otherwise the middle level can’t work. We can clearly realize that we can never control 100 companies at the same time, and we must have a strong middle layer, so our logic is to mobilize the wisdom of the group first.
Second, we should mobilize the power of the middle level, so that all the middle levels have the decision-making power, because this way will make the company run faster. We have set up a restrictive mechanism, that is, I have one-vote veto power on the project, but I don’t have the decision-making power, or I don’t have one-vote approval power. This is phased, which makes our logic more suitable for middle-level wisdom and collective wisdom, and in this way, we can achieve small and broad.
At present, there are about 170 people in our internal ecological chain, but only 10-20 people in the first year. We control the huge R&D system of engineers outside Xiaomi through very few people, otherwise these systems will be loose. Now there are so many products of Xiaomi, if it is completely developed by Xiaomi itself, I am afraid it will take tens of thousands of people to realize them. However, we have made full use of the external mechanism, so that thousands of people have reached this state and achieved very high efficiency.
At the same time, our national shareholding distribution mechanism has also been extended to eco-chain companies. Xiaomi’s shareholding mechanism has two characteristics, the first is that the whole people hold shares, and the second is that the team takes the majority. Xiaomi is not holding shares in all eco-chain companies, and we are only its investors. Not holding shares means that we leave the best interests to the team, which is the result of learning from the Mongolian legion. In Genghis Khan’s era, the Mongolian army did not pay for the war, and whoever grabbed the spoils would distribute them. When you use this logic to form a team, you will find that the enthusiasm of the team will become very high, and they will become happy to go to the front. The system determines everything, and when the mechanism is chosen correctly, the result will be extraordinary. This is the distribution mechanism of ecological chain.
Now, the company’s development has maintained a very fast speed. Last year, it increased by 230% compared with the previous year, and this year’s growth is expected to be within 100%. By the end of last year, 20 companies had released their products, seven of which earned more than 100 million yuan, and two of which sold more than 1 billion yuan, the largest of which sold 1.75 billion yuan last year. There are four companies with the highest valuation, which are unicorn companies with more than $1 billion. These eco-chain companies are all starting from scratch, because they are all new forces in entrepreneurial development. This speed of development is really amazing.
Of course, we are also aware of the problems that may arise from the rapid development, so we should slow down in an all-round way this year and strictly control the growth rate within 100%. In April and June last year, we organized two deceleration meetings to discuss how to slow down in an all-round way in the ecological chain system. This year, because the overall economic speed is slowing down, only one deceleration meeting was organized in June. We hope to control the whole growth rate within 100% to ensure the stability of Xiaomi mobile phone brand. We hope that there will be three years of peaceful life (stable operation) in the future, so that the ecological chain system can grow rapidly to the threshold of 30 billion yuan of running water. We plan to let the whole system enter the stratosphere in three years.