Author: Jiulu

Source: entrepreneurial Dark Horse College

1. Even if it all ends today, XIAOMI is already a successful startup. In an already highly competitive market, it has made its own world in the way of an entrepreneur, and its market ability is second to none among Chinese start-ups.

two。 For a start-up company, market power is a more important concept than a "moat". The primary strategy of a startup company is not to build a "moat", but to form effective power.

3. The product values based on future judgment, the fan circle of making friends with users, and the ecological chain of "investment + incubation" model can be regarded as XIAOMI's market "strategic weapon". From the three dimensions of cognition, relationship and resources, they construct the power boundary for XIAOMI to survive and develop in an unfamiliar market.

On July 9, Lei Jun rang the bell and pushed many investors into a decision-making dilemma:

Mobile phone sales account for 70.28% of XIAOMI's total revenue, which is not a very promising industry. as we all know, mobile phone giants have long fallen into the rain, not to mention XIAOMI's claim that his hardware after-tax profit margin will never exceed 5%.

Another difficult knot is the "ecological chain". According to the financial rules of Hong Kong stocks, XIAOMI carries large paper losses, but invests in more than 200 ecological chain enterprises at the same time. Many people still remember that A shares once had an Internet listed company that lost money and created an "ecology". Its founder is still hiding abroad.

According to the traditional value evaluation system, investing in XIAOMI may not be a good choice.

However, simple financial analysis can not erase the historical fact of rapid growth. As a super unicorn, XIAOMI may be the fastest start-up in the world in the past few decades with sales rising from zero to $10 billion (less than two years after the company was founded). Its valuation fluctuated, but it took only seven years to go public from $1 billion in 2011 to about $49 billion (at HK $17 a share) when it went public.

In these seven years, even with the halo of the Internet, XIAOMI is a real "small generation" and latecomer in the mobile phone market, and the challenges he faces every day are by no means easy. From Nokia, Samsung, Apple Inc, to the "China Cool Federation", and then to the countless copycat phone manufacturers of that year, capital, technology, resources, scale, cost, manufacturing capacity, business flexibility …... In all aspects, there are many people who are stronger than XIAOMI, but it is XIAOMI who has survived and achieved great market success.

Moreover, in the list of subscribers for XIAOMI's shares, there are many familiar names, from Wu Xiaobo to Soros, from Li Ka-shing to Ma Yun, Ma Huateng and so on. As a Hong Kong stock review column said, "this group of investors have always lost everything." is their investment just for friendship?

In any case, even if it all ends today, XIAOMI is already a successful startup. This shows that Lei Jun and XIAOMI must have done something unique, which may not be reflected in the traditional business value evaluation system, but it is very critical to XIAOMI's development.

In order to crack the secret of XIAOMI's growth, the Entrepreneurship Dark Horse College once organized forces to observe XIAOMI for many years and took advantage of many opportunities for curriculum cooperation to conduct in-depth exchanges. We find that XIAOMI actually represents a new form of corporate organization that has sprung up in recent years, which is linked by values and blends the boundaries of the organization with the boundaries of the market, forming a great combat effectiveness.

To some extent, XIAOMI's market power is unparalleled among Chinese start-ups. It is in an already highly competitive market, in the way of an entrepreneur, to create its own world.

Some observers have attributed XIAOMI's success to the victory of "Internet thinking", but the actual situation is much more complicated. As a matter of fact, I am afraid that even today, the "thinking" of Lei Jun and XIAOMI is still being revised and improved. From a practical point of view, the formation of this ability is closely related to the key points that led to XIAOMI being questioned: the product values based on future judgment, the fan circle of making friends with users, and the ecological chain of "investment + incubation" model. It can be regarded as XIAOMI's "strategic weapon".

From the three dimensions of cognition, relationship and resources, they build the power boundary for XIAOMI to survive and develop as a start-up in an unfamiliar market. This dynamic boundary of power, different from the traditional "moat" and "breakthrough", has the dual attributes of attack and defense, which makes XIAOMI sing all the way in the mobile Internet market surrounded by powerful enemies.

This scene "Game of Thrones" is a classic tutorial for Chinese entrepreneurs.

1. What determines the market power of startups?

How to define XIAOMI's value model? It is not only about your evaluation of a company, but also about how you view the changes that are taking place in the world.

XIAOMI is a start-up company, it may be wrong to evaluate a start-up company by using the value model of traditional economics to evaluate a manufacturing company.

According to tradition, people like to define an enterprise's market value and development prospects according to its position in the competition. This is because the classical value evaluation model is based on the ideal clear organizational structure and environmental development forecast. These evaluation systems have an economic premise formed half a century ago-the hypothesis of "rational man", that is, the default enterprise is a completely rational selfish person who naturally pursues self-interest.

Therefore, the more excellent companies are, the more able they are to pursue profit maximization. They form local monopolies and build competition barriers through business model design and market planning. Competition barrier is the key to ensure that corporate profits will not be embezzled and eroded, and when they want to expand the market scale, they need to carefully choose a "breakthrough" to break down other people's barriers.

In response, Buffett once vividly described: "my favorite enterprises are like strong castles, surrounded by broad moats, ferocious crocodiles in the river, and castles full of ruthless warriors." "

Today, many stock commentators and media people also use the "moat" and profitability evaluation criteria when evaluating XIAOMI's prospects.

However, start-ups are not the product of a moat. Entrepreneurs, especially those who start a business for the first time or cross-border businesses, often face not the picture of the confrontation between the two armies, but like a drop of water on paper, gradually expanding their own market boundaries from a point. Whether there is a barrier or a "moat" is not a decisive factor in whether startups can gain a foothold in the market.

Teacher Xu Xiaoping, founder of ZhenFund, once told such a story:

Once, he asked an entrepreneur, "the technical threshold of your startup project is not very high. What will you do if someone else does it?" The entrepreneur replied that the team was well prepared for the future, and they had pondered day and night, listing dozens of "black swan" events that could lead to the failure of the company, including the death of the founder, the entry of the giant, and so on. The team has prepared a plan for each black swan incident.

Teacher Xu Xiaoping said, "when I heard this answer, my hand shook at that time!" "he thought it was completely wrong to do so.

Xu Xiaoping believes that an entrepreneur is "creating something out of nothing" and creates opportunities by freely controlling and using existing resources, so he should not try to defend himself before doing anything. Entrepreneurs have limited resources, and to ensure flexibility, they cannot be bound by established goals and roadmaps.

Moreover, it is impossible to guard against "black swans" by fences. Start-ups should become "black swans" for others, build their own value in the market, solve problems when they encounter problems, assess losses and make choices if they cannot be solved. instead of spending resources and energy to build a fence.

In fact, people's subjective initiative and market uncertainty are precisely the magic weapon that a start-up company can win in the market, they are the weapons and friends of the start-up company, but the idea of "moat" tries to exclude it.

Because it can not accommodate people's subjective initiative and market uncertainty, the "moat" model based on competitive position can not really explain the market value and market strategy of a startup company. Overseas researchers have been exploring other methods.

Catherine M. Eisenhart (Kathleen M Eisenhardt), a professor at Stanford University, found in her research that successful entrepreneurs can always build a unique market by doing something to distinguish themselves from the rest of the market. In the process of development, power factor is the unified logic behind its decision-making.

Because the future market faced by entrepreneurs is highly vague, they always tend to seek greater market power, have a beneficial impact on other actors in the market through the setting of power boundaries, and blend organizational development with market construction to achieve market leadership and defensive positioning. On the basis of this research, around 2010, she put forward the concept of "power boundary" of start-up companies.

The boundary of power is different from the moat:

First of all, the power boundary of a company is dynamic, offensive and defensive, while the moat is static and defensive. Startups do not have to have a clear moat, but they must have their own boundaries of power.

Secondly, in the boundary of power, entrepreneurs are active, and their relationship with the surrounding environment is not a confrontation, but an interactive relationship. The first task of entrepreneurs is not to squeeze profits as much as possible within the boundary of power, but to expand the scope of influence of their power as quickly as possible.

Third, more importantly, the power boundary model effectively contains human initiative and market uncertainty. It includes both hard power (the behavior of forcing others through coercion, direct rewards and intensive resource calls) and soft power (which depends on meticulous influence mechanisms).

For a start-up company, the boundary of power is the boundary of the market that can be covered by its own organizational force. the size of the power boundary and the effective control of the boundary constitute the market ability of the start-up company. only powerful companies can survive in the market.

Niu Wenwen, dean of Entrepreneurship Dark Horse College, once commented: "in the history of entrepreneurship in China, XIAOMI is very rare. At the strategic level, it starts with the top-level design and 'calculates and wins'."

XIAOMI's "top-level design" is reflected in many aspects, such as partner structure, business model design, financing rhythm and so on. In this case, we focus on XIAOMI's marketing strategy, because success in the market is the key to a startup's survival and growth, otherwise everything else is on paper. these contents also have a wider reference significance for other entrepreneurs.

We find that XIAOMI's case is applicable to the "power boundary" model. It can even be said that XIAOMI is a top player of Game of Thrones. Although he is relatively weak at the beginning, he has established a dominant position in the market in some aspects.

This market advantage does not come from unique technology or resources, but from a certain market power strategy, which enables XIAOMI to effectively claim, divide and control the mobile Internet market at the three levels of cognition, relationship and resources. it has established a very aggressive power boundary, which has dominated the market growth in the past eight years.

2. Values occupy the market: the expansion of the cognitive boundary of power.

The American TV series Game of Thrones has a line: "turn your character into your strength, and it will never become your weakness." Arm yourself with it, and it can never hurt you. "

XIAOMI is an Internet startup that has entered the mobile phone market, and its market strategy completely serves its original ambition, no matter how conflicting and different it is from other companies in the current market. More importantly, XIAOMI unexpectedly walked down all the way, and let the whole industry enter its own rhythm at least in part. This is a completely different from the traditional manufacturing enterprises of the market expansion road, and even different from the previous Internet enterprises, is a unique "XIAOMI road."

1. Define a new species

The most beautiful wish must be the craziest.

From the classic master works of strategy to the "success study" books on the street, they all like to tell us the story of "scheming"-- business operators use "36 tricks" to discover the gaps in the market and find the flaws of their opponents, so as to achieve success. This stereotype has shaped many Chinese people's perception of market power.

More valuable for entrepreneurs, however, is another understanding of power: they see the market as the result of their own creation, and enterprises are powerful tools for creating new things for the world. In other words, the acquisition of the market does not come from the victory of the competition, but from the value creation of the enterprise itself.

The "original intention" of value creation conveys the power basis for a startup to form a perception in the market: who are you? Who do you exist for? Why should people choose you? This is also a "unique talent" that helps many entrepreneurial teams gain a foothold and persevere in the face of competition from large enterprises led by professional managers.

XIAOMI's entrepreneurial concept can be traced back to the Fire of Silicon Valley, a book Lei Jun saw in college. Later, his experience of starting a business and making angel investment in Jinshan gave him more insights. He found that a company and a person are essentially products of the times.

Idealistic entrepreneurs take advantage of the opportunity of the times to hold up the banner of the computer revolution to transform the world and create personal wealth at the same time. "pigs will fly above the tuyere," so he wants to embrace an uncertain future and hitch a ride on the technological revolution.

At this time, the biggest "tuyere" is undoubtedly the mobile Internet. With the advent of Apple Inc's smartphone and the issuance of 3G licenses in China in January 2009 as a watershed, the previous mobile Internet was the "marginal Internet", and those who could not afford a computer or broadband would surf the Internet on their mobile phones. but now it will formally and comprehensively replace the traditional Internet, and will be more deeply involved in every aspect of life.

However, XIAOMI's understanding of the value of future mobile Internet products was fundamentally different from other companies in the mobile phone market at that time:

Lei Jun believes that in the Internet era, the core of the market is user word-of-mouth, and successful companies must focus on user word-of-mouth. The way for the company to win the reputation of users is to make a good product with "touching and generous price".

He also believes that the information transparency of the Internet is a natural enemy of high gross margins, and if there is a high gross margin in an industry, it naturally provides Internet entrepreneurs with opportunities to invade.

XIAOMI, founded on April 6, 2010, is such an Internet start-up company.

It can be said that XIAOMI is an "airborne army" modeled on the envisaged future Internet ecological model. It not only allows users to participate in product research and development, nor does it make major sales through e-commerce channels, but believes that hardware can survive at a low gross margin in the future, and the recognition of users will bring ultimate commercial benefits to enterprises.

We would like to believe that this is Lei Jun's real motivation for starting a business, although it seems to run counter to the Friedman Creed (corporate social responsibility is to improve profits).

In fact, XIAOMI's values, like Alphabet Inc-CL C's "do not do evil" and Jack Ma's "make the world without difficult business", focus more on the social significance of enterprises, not entirely based on self-interest motivation. therefore, there is a natural conflict with the "rational man" hypothesis of traditional economics.

But it is not necessarily the entrepreneurs who are wrong.

In recent years, the international management circle is also reflecting on the traditional value evaluation system. In 2017, the Nobel Prize in economics was awarded to Richard Sailer, a professor at the University of Chicago who specializes in behavioural economics. In Dawes & Thaler,1988, he points out that the assumption that rational and self-interested people make mutual choices based on self-interest in economic models is too absolute; under some conditions, it is often the "wise collaborators" who get the best benefits in society.

Obviously, XIAOMI wants to be a "wise collaborator" with the best returns. This is in line with the dreams of kind-hearted literary and artistic youth and technologists. XIAOMI's way to make more profits in the future may be Internet services or other ways, which is uncertain, but they believe that no matter how uncertain there is in the future, the task now is still "touching". Instead of using hardware to seek exorbitant profits.

After the defeat of Mi Xiao and the test of MIUI, the first "XIAOMI mobile phone" was released in August 2011.

Although the product is a mobile phone, after careful study, we will find that XIAOMI cannot be regarded as a mobile phone manufacturer from the very beginning. XIAOMI's organization and marketing system is based entirely on the Internet model: removing all obstacles to direct communication with end users and all internal transactions that can be offset from the outside. In mid-2014, less than 2000 of XIAOMI's more than 7000 employees were related to mobile phone design, manufacturing and production management; on the contrary, nearly 5000 were XIAOMI employees, half of whom focused on direct customer service.

XIAOMI is actually an Internet company that exists for users, is a "new species" based on the concept of value creation, and the mobile phone is the entrance and tool for XIAOMI to venture into the mobile Internet. Lei Jun's templates are Walmart Inc and Costco of the United States and Tongrentang and Haidilao International Holding of China, but there are no mobile phone manufacturers. This essential difference was the source of all the market advantages and market difficulties of XIAOMI later.

Lei Jun is betting that the hearts of consumers will eventually follow the path of the Internet as he understands it; but this is not gambling, because the judgment comes from his years of knowledge of the Internet and consumption trends, and he firmly believes in the direction of this trend.

two。 XIAOMI model

"when I am different from the world, it makes me different. "

In 2010, the mobile phone market was full of hills, and the three major multinational brands of Nokia, Sony Ericsson and Motorola have not yet seen an obvious decline; domestic manufacturers such as China (Xing), Huawei (Wei), Cool (pie), Lian (want), BBK (vivo and OPPO), plus Samsung, HTC and other enterprises, are rising rapidly through the accumulation of the manufacturing industry chain. In addition, with the support of Shenzhen Huaqiang North Market and MediaTek, shanzhai phones are still enjoying the last sunshine. Different from XIAOMI, these enterprises grow naturally in the original industry, which is more in line with the "rational people" in the sense of economics.

It is conceivable that the alternative XIAOMI is like a little girl who broke into a sauna full of adult men and immediately became the focus of attention. The well-intentioned people advised him to back down in the face of difficulties, while the malicious people were waiting to see the jokes.

At this time, many entrepreneurs will choose to "keep a low profile" or avoid reality.

XIAOMI did not do that, but they declared in a high profile that they were different and represented the "Internet". And XIAOMI also clearly defined his own differences-high quality, good appearance, but also high performance-to-price ratio, which is the "touching, generous price" XIAOMI product concept.

You know, the sales of XIAOMI at that time were less than a fraction of those of the giants. At a time when there was a big difference in scale and manufacturing experience, there was a huge risk in putting the "three high" label on yourself.

But in retrospect, unlike what most people understood at that time, XIAOMI's definition of the boundary was not a competitive strategy aimed at others. This is XIAOMI setting up a "flag" for himself, which is not only a symbol of the external market, but also a spur to the organization: "XIAOMI does not pursue extremely high gross profit, XIAOMI pursues extremely high efficiency." In this way, XIAOMI claimed to occupy a market called "Internet mobile phone" and personally defined the cognitive boundary of this market.

This is the XIAOMI model.

Lei Jun believes that XIAOMI's model will lead to positive feedback: with word-of-mouth, we can achieve rapid market expansion with zero market cost, and put forward higher requirements for product research and development, operation efficiency, and service quality. these improvements in turn bring better word-of-mouth, so that the entire business "snowball" can roll bigger and bigger.

According to XIAOMI sources, "XIAOMI mode" is a word with a high internal mention rate, and Lei Jun says it almost every day. XIAOMI may not be successful, but XIAOMI's model will certainly be successful.

The "XIAOMI model" sometimes even rises to the height of a certain belief. XIAOMI once sold a commemorative pen on his website, costing about 6 or 7 yuan and priced at 19.9 yuan. This is a very marginal product, not even in the major market planning.

However, it was not long before Lei Jun found the main person in charge, saying that his "bad conscience" price was too high. Subsequently, the price was changed to 9.9 yuan. But in fact, whether it is 19.9 yuan or 9.9 yuan, the sales of pens have not changed much. This shows that the implementation of the "XIAOMI model" is not based on the consideration of immediate interests, but a "red line" of values.

In a recent letter, Lei Jun once again publicly stressed that from 2018, XIAOMI's annual comprehensive net interest rate for the overall hardware business will not exceed 5 per cent. If there is any excess, it will be returned to the user.

It is much more difficult to promote values than to sell products, but it is the persistence of values that keeps XIAOMI from being assimilated by competitors (the so-called "Internet mobile phone" brands that emerged during the same period or later failed to insist on this). This will bring long-term benefits.

As more and more users regard XIAOMI as the spokesman of "XIAOMI model" and agree with this idea, XIAOMI's market space is also expanding, which is the exclusive market set up by XIAOMI in the field of user cognition.

3. Create a "climate"

Although there is already a "XIAOMI model", Lei Jun's bigger challenge is to find a way to make more people believe that this model can be established. The success of a company can be accidental, but the success of a model can create a climate that means soft power in the market.

At an event in 2011, the author witnessed 20 or 30 journalists in the field of IMT to challenge XIAOMI's model: "Why did XIAOMI's mobile phone become a 'futures'? "" is XIAOMI's capital chain broken? "" do all your investors know about the communications industry? When sharp questions are thrown out, they always attract whispers. The crowd is full of emotion, the distance between the author and Lei Jun is less than 5 meters, but I can't grab the microphone when I raise my arm to get numb.

Lei Jun of that year was also quite patient and answered every question conscientiously. in the end, he always brought the topic back to the arguments of how dedicated XIAOMI was as a mobile phone and how good the user's reputation was.

Similar scenes were repeated again and again in May and June 2018. It's just that the person who asked the question became the SFC. This time, perhaps the communication cost is too high, Lei Jun and XIAOMI no longer patiently answer, directly withdrew the application to issue CDR in the A-share market.

XIAOMI at that time needed more attention, so Lei Jun kept clinging to the microphone even though he was attacked unkindly by reporters without regulatory authority.

In December 2013, Lei Jun delivered a speech on "how Internet thinking can transform traditional industries" at the Guangdong e-commerce conference, emphasizing that "the core of the Internet is seven words: focus, extreme, word-of-mouth, and fast."

This "seven-character formula" has been widely circulated, and Lei Jun has become the standard-bearer of domestic "Internet thinking". Lei Jun said: "people who do not understand think we are a mobile phone company, people who understand a little bit think that we are a mobile Internet company, in fact, we are not. We are a brand company and a cultural company." "(in 2012, Lei Jun was interviewed by the Chinese version of Business Weekly).

People's attention always gathers to the head, after becoming the "flag bearer", XIAOMI's brand image is much higher than the real market share at that time.

In the ranking of the popularity of various mobile phones in the first quarter of 2012, XIAOMI ranked eighth on the list for the first time. On this list, Apple Inc won the dust. Eight of the top 20 are Nokia models (data source: Baidu, Inc. Mobile Internet Development trend report _ 2012 Q1).

PV, a popular model of ✲ 2012Q1, accounts for TOP20.

At that time, the real sales situation in the market was that Samsung and Nokia shipped more than 80 million units in the first quarter, Apple Inc 30 million units, ZTE and Huawei all more than 10 million units. XIAOMI shipped a total of 3.2 million units in the first half of 2012, equivalent to many copycat phones and not of the same order of magnitude as the giants.

The value of the brand lies in telling users, "what am I doing for?", it can help enterprises create a favorable climate in the market, once the climate is formed, the wind will be stronger and stronger.

In traditional market operations, the hardest thing for startups is to realize that they have to let users know who you are when there are not many products, so it is often expensive, but XIAOMI took this step easily. The market cognitive power boundary based on unique values and the uncompromising adherence to this boundary enabled XIAOMI to gain greater market influence when he was still very weak.

But what really takes root in these perceptions and makes XIAOMI move faster than other brands that also have strong values and market influence, such as hammer phones, is the next frontier.