In this episode of Acquired, hosts Ben Gilbert and David Rosenthal, along with guests Hans Tung and Zara Zhang from GGV Capital, delve into the remarkable journey of Xiaomi, a company that transcended its origins as a smartphone manufacturer to become a multi-faceted consumer electronics and internet services powerhouse. They explore Xiaomi's innovative business model, which combines high-quality hardware with a unique ecosystem strategy and a commitment to low profit margins, aiming to build consumer trust and loyalty. The discussion also touches on Xiaomi's global ambitions, particularly its success in India, and the company's ability to adapt and thrive amidst a rapidly changing tech landscape. Hans and Zara, who also host the 996 Podcast, offer insights into the broader Chinese tech sector and the importance of cross-border learning and execution in today's interconnected world.
"I had something weird going on. My Internet cut out, too. Did you get that? Did you see that? I mean, it's fine because we're not using any kind of, like, web upload thing we're just doing. But, yeah, when I disappeared for a second, it was to go turn on a fan because I was like, maybe it's, like, hot. And that's affecting. I don't know."
The quote explains Ben's actions to resolve a technical issue that briefly interrupted the session, highlighting the practical step taken (turning on a fan) to mitigate any potential overheating that might be affecting his equipment.
"Welcome to season three, episode two of acquired, the show about technology acquisitions and IPOs. I'm Ben Gilbert."
"I'm David Rosenthal, and we are your hosts."
This set of quotes marks the beginning of the episode, where the hosts greet the audience and set the stage for the discussion on Xiaomi and the Chinese tech industry, also acknowledging their guests' expertise.
"Hans was an investor in the very first round of Xiaomi and was involved in the initial ideation of the company. A rare and amazing feat to be with a company from conception all the way to IPO."
The quote highlights Hans Tung's involvement with Xiaomi from its earliest stage, emphasizing the rarity and significance of accompanying a company through to its IPO.
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The quote introduces Pilot as a sponsor, emphasizing its role in supporting startups and growth companies with financial services, which aligns with the theme of focusing on core business strengths.
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The quote explains the purpose of Statsig, highlighting its capabilities in product development and experimentation, which is relevant to companies looking to innovate and improve their offerings efficiently.
"So before we get to the Xiaomi story itself, since we have Zaran Hans with us today and this is our first China tech episode. We thought we'd spend a couple minutes just kind of setting the stage on what is going on in China tech right now."
The quote sets the stage for a broader discussion on the current state of the tech industry in China, indicating the significance of the Chinese market in the global tech landscape.
"I first moved to China to do VC full time back in 2005."
The quote marks the beginning of Hans Tung's venture capital career in China, which coincided with the rapid development of China's tech sector.
"The first wave were the portals. And then Baidu, Alibaba, Tencent were all started in the mid to late 1990s. The next wave, when you talk about a DD or a byte dance. Mitwan Xiaomi. They all happen mostly around 2010 and later."
The quote outlines the different generations of Chinese tech companies, from early portals to the more recent mobile-focused enterprises like Xiaomi, highlighting the evolutionary nature of the tech industry in China.
"Nine nine six is the term that refers to the standard work schedule of a lot of chinese tech companies, which is 09:00 a.m. To 09:00 p.m. Six days a week."
The quote defines the 9-9-6 work schedule, illustrating the demanding work culture within China's tech sector, which is often seen as a necessary element for success and competitiveness.
"Xiaomi, history starts as we've talked about, April 2010, the beginning of 2010. And there's really a superstar team that comes together, led by a guy named Lei Jun."
The quote introduces the founding of Xiaomi and its leader, Lei Jun, setting the stage for a discussion on the company's origins and the vision of its founding team.
"David introduced me to his angel investor, and that was Leijing... The first thing he said to me was that he thought a lot about what he did for the 17 years at Kingsaw and realized that in order to do well, one needs to capture the right trend that has a chance to take off."
Hans Tung was introduced to Leijing by David, and they shared a similar investment thesis on key trends, which led to their collaboration.
"In China, it's so much about nation building... In order for the country to be more efficient, Internet will need to play a role... So there are trends that you can capture so people look at."
Hans Tung explains how China focuses on trends to build and improve the nation, which is different from the disruptive innovation mindset of the US.
"I think chinese entrepreneurs are especially eager to learn from western entrepreneurs... So if you read, although it should... I read tech news in chinese... Over half of the news there is about the fans in the US."
Zara Zhang describes the eagerness of Chinese entrepreneurs to learn from the West and the disproportionate coverage of Western tech news in Chinese media.
"The discussion that Jung and limping had was that, is it possible to build a phone using Android kernel that can offer a better integrated experience by owning both a hardware and a software piece?"
Hans Tung reflects on the initial conversations between Lei Jun and Lin Bin about creating an integrated phone experience, which led to the development of MIUI.
"So three or four people in a crazy idea, $20 million valuation... But if you believe in him, in the team, and what he's trying to do, you will bet... The valuation jumped up to a billion post."
Hans Tung discusses the rapid increase in Xiaomi's valuation and the belief investors had in the team's ability to execute their vision.
"Early on, de Jung had an inkling that to make it work... you got to be able to have a hardware that when it's quote unquote integrated with a software, can offer superior experience than a decoupled solution that was out there."
Hans Tung explains the strategic thinking behind Xiaomi's initial focus on software development (MIUI) before venturing into hardware production.
"But I think we also get people enough credit to take an idea and do whatever it takes to make that work. That's much harder and takes a lot more discipline and a grind for a longer period of time."
Hans Tung emphasizes the importance of execution in innovation, suggesting that adapting and improving upon existing ideas is as valuable as originating them.
"Xiaomi literally has a forum that is a thing that they built in house where anybody who uses a Xiaomi phone can request a feature, and it works like Reddit, and there's upvoting and down voting, and the community basically says, at any given time, this is the most important thing to us that's not currently in the product."
This quote emphasizes the interactive platform Xiaomi has created to involve its customer base in product development, which sets it apart from many other companies.
"If you look at the founding team and you look at some of the original investment theses...the notion was, we're going to manufacture these phones. They're going to be world class hardware. It's going to be a great experience. We're going to do e commerce, we're going to sell them online, which is fairly unique at this time."
This quote outlines Xiaomi's initial business strategy, focusing on manufacturing world-class hardware and leveraging e-commerce for sales.
"Within the first day of 340,000. Within the first couple of days, 460,000. Wow. It was mind boggling. And at the party, lunch party, 2000 people showed up."
This quote illustrates the immediate success of Xiaomi's first phone release, which was a significant milestone for the company and its employees who invested.
"They have over 80 products now designed and then manufacturer supply chain from over 100 companies."
This quote highlights the scale of Xiaomi's ecosystem strategy, with a wide array of products designed and manufactured by a network of companies.
"I think he's mentioned before that his goal for Xiaomi is really to allow customers to be able to shop in their store with their eyes closed."
This quote conveys Xiaomi's ambition to build a brand so trustworthy that customers would feel confident purchasing any product without hesitation.
"Well, I think limbin also from Google, so he knows Hugo Barra from before. And also there were mutual friends, in particular, Robin Chen, who helped to bridge the gap."
This quote explains the connections that facilitated Hugo Barra's recruitment to Xiaomi and underscores the importance of strategic hiring in the company's international expansion.
"n, becomes the most valuable startup in the entire world. Pretty amazing. After that, there's some hard years."
This quote summarizes Xiaomi's rapid rise to become the most valuable startup and the subsequent difficult period it faced.
"So in 2017, though, things really turn around. The company goes from flat revenue growth to 70% revenue growth in one year."
This quote highlights Xiaomi's remarkable turnaround in 2017, with a significant revenue growth that marked a recovery from the previous years' challenges.
"One, Beijing, in addition to deciding to do Xiaomi ecosystem, also decided to launch a phone called Redmi as not as popularized."
This quote explains Xiaomi's strategic decision to create the Redmi brand, which played a key role in capturing a segment of the market that was sensitive to price.
"And by that time, Xiaomi's phones have done so well in the market and have such a great market share."
The quote emphasizes Xiaomi's success in capturing significant market share, which was critical in establishing its brand and facilitating further growth.
"In May, they announced that they file with Hong Kong stock Exchange."
This quote marks the significant milestone of Xiaomi's public offering, indicating its readiness to access capital markets and expand its investor base.
"Ends up pricing July 9 at hk$17 per share or a $53 billion market cap."
The quote provides specific details about Xiaomi's IPO pricing and the initial market capitalization, which is a measure of the company's perceived value at the time of going public.
"And in fact, Lei Jun has recently announced that Xiaomi will never make more than a 5% profit margin on any hardware that it makes."
This quote reflects Xiaomi's commitment to maintaining low profit margins on hardware, which is a key aspect of its value proposition and competitive strategy.
"It's really about kind of getting penetration with the hardware to have a very meaningful services revenue stream in people's lives."
The quote explains Xiaomi's strategy of using hardware as a means to build a customer base for its more profitable services revenue stream, mirroring a trend seen in other tech companies.
"I think what Xiaomi is doing from the start is they're in the market everyone's talking about and they're already thinking international."
This quote highlights Xiaomi's global perspective and ambition to capture international markets, which is a core part of its growth strategy.
"You will see something of similar trajectory in these countries with startups, some of which will have their apps bundled into Xiaomi."
The quote discusses Xiaomi's approach to investing in startups and integrating their services, which can lead to mutual growth and an enhanced ecosystem for users.
"We firmly believe that anybody that's more open minded and willing to learn and share what they're seeing around the world would eventually become better for it."
This quote captures the ethos of the podcast hosts, who encourage learning from global perspectives to foster improvement and success in the tech industry.
"We want to have a podcast that promotes openness and promotes idea sharing."
The quote reflects the hosts' desire to create a platform for sharing ideas and fostering a community that values open-mindedness and collaboration in the tech sector.