How Xiaomi Engineered its “Surprise Comeback”

Hans Tung: Hi there. Welcome to the show, where we interview movers and shakers of China’s tech industry, as well as tech leaders who have a U.S.-China cross-border perspective. My name’s Hans Tung. I am the managing partner at GGV Capital, and have been working at startups and investing in them in both the U.S. and China for the past 20 years.

Zara Zhang: My name is Zara Zhang. I’m an investment analyst at GGV Capital and a former journalist.

On the show today, we have Lin Bin, who is the Co-founder and Head of Mobile for Xiaomi. We’re having this conversation at a very exciting time both for Bin himself, as well as for Xiaomi. Xiaomi is one of the most valuable private companies in the world. Its last round valuation was $46 billion, and reportedly is going public later on this year. Bin himself was just named Head of Mobile for Xiaomi a couple of months ago and many of the products have been hitting the market recently.

Zara Zhang: Xiaomi had an unprecedented comeback year in 2017. It was the fourth largest smartphone seller in the world by shipment in the fourth quarter last year, and in January this year, it was one of the top three sellers in the world. Shipment last quarter was almost 100 year on year increase. Beyond China, Xiaomi is the number one smartphone seller in India, which is the second largest smartphone market in the world. And Xiaomi is in the top five in 16 other countries.

Hans Tung: Bin, prior to Xiaomi, you worked at Microsoft 11 years and then at Google for four more years. You served as Engineering Director of Microsoft Research Asia in Beijing, working with Dr. Kai-Fu Lee who appeared on our show or podcast earlier this year. You were also the Vice President of Google China Institute of Engineering and then the Interim Director of Google Global.

When I first met you, while you were at Google, you had just decided to co-found Xiaomi in late 2009, early 2010 with Lei Jun, KK, Ah Li (Li Wanqiang) and 10 other top Chinese tech veterans. What a journey it has been.

Zara Zhang: So Hans and Bin, both of you met Lei Jun, the founder of Xiaomi pretty early on. I wonder, how did you each meet him?

Lin Bin: So I met Lei Jun back in 2009. I would say early 2009, because at that time, Lei Jun had already retired from Kingsoft, and he had started to enjoy investing into mobile and other companies. One of the companies he invested in was UC Web. And back then when I was at Google in charge of the Google mobile products and business developments, one of the key partners with Google in China was UC Web and it’s a pretty straightforward collaboration. You know Google just put the search bar on the UC Web browser, and when Lei Jun served as the Chairman of UC Web, it was pretty natural for us to meet.

We started to entertain the idea of starting Xiaomi together towards the end of 2009, early 2010, and I would say it took us a good six months or maybe more than that to eventually come to how we would like the company to really be put together, and what products that we wanted to build together. It’s a lot of discussions, I would say a lot of late night discussions, drinks, coffees and brainstorming.

Hans Tung: Smoking.

Lin Bin: Yes, and smoking.

Zara Zhang: Was it mainly his idea?

Lin Bin: It was mainly his idea. But there was discussion and the ideas changed, also evolve all the time. Both of us have a really–you know, as part of my job at Google, had a small team building an Android system. It was part of my job to evangelize the Android as an open-source operating system for the next generation of smartphones. And Lei Jun himself had a deep interest in Mobile at that time. So whenever I’d meet him, he had a bag of phones, smartphones. Some of the Windows mobile phones, and a lot of iPhones, at that time, and also Android phones. And I myself also had a bag of phones with me. It was my job to carry all these phones and use them, especially use the Google service–Google Maps, Google Search, voice search and all this on these different phones. And Android was also one of the phones I was carrying. Quite a bit of those. So we both had a really deep interest in smartphones at that time. And it was pretty natural for us to eventually say, hey maybe there’s a way that we can we can put together a company and build the next generation smartphones for the China market.

Zara Zhang: but did you think this was like a crazy idea at that time, because there were so many large players in the smartphone world?

Lin Bin: Yes and no. Yes and no. Globally, yes. There were a lot of big players back them. Right there’s a lot of big players back then HTC was great, Samsung just started to do that, and of course Apple. But in China, there were many players and at the time Nokia was the dominant. But the opportunity really–what we believe back then was, it wasn’t really about feature phones. It was just smartphones. It was, think of a smartphone as a computer, and it’s a computer that allows you to browse the Web and plus the computer could do many things. Anything that PCs could do, back in the old days, eventually smartphones can do all those things and more. So that was a really exciting idea. So we hadn’t thought much about competition and licensing. We were just thinking, hey there’s an opportunity. We can together build a company that builds the next generation phones that people would love to have. So it’s this opportunity that we talked about.

Hans Tung: Well, I first met Lei Jun earlier, around 2008. Back then he had a thesis around three drivers for Internet growth in China and they were similar to mine. Social networking was the first, e-commerce was second and mobile wireless Internet was the third. He and I tried to collaborate on social networking around Kaixin001. That wasn’t as successful as we had hoped it would be. Then we tried to collaborate on an e-commerce company, a brand called VANCL, which grew fast for a few years but eventually teetered off. The third project that we tried to work on together and make it work was in mobile, and now was Xiaomi.

I remember the first time I heard the idea about Xiaomi from Lei Jun, and then from Bin. I thought they were completely nuts, because in the history of phone companies in the world, no startup had ever been successful. And some even predicted, when I first invested in Xiaomi in 2010, that the only way Xiaomi could be big in China was if Motorola, Ericsson, and Nokia–and back then Nokia was everywhere in China, extremely big, all three had to fail for Xiaomi to have a chance to succeed. Yet, all of that happened. the more I heard Lei Jun and Bin talking about how they could succeed, the more I could see how they might have a chance. Because they were the only team in China that had experience in e-commerce, in brand building, in software engineering, in Internet services like gaming, and phone design experience. No one else had all five skills under one roof. This is why I thought they may have a chance to do something very special, that no one else had ever done before.

Zara Zhang: Another person that was key in Xiaomi history was Hugo Barra. I think it was you, Bin, who convinced him to join Xiaomi. He is now at Oculus at Facebook. Actually, at the recent CES, Oculus announced that it will form a partnership with Xiaomi to take it’s VR headset to China. So how did you first meet Hugo, and how did you convince him to join a Chinese company that was fast growing but little known outside of China?

Lin Bin: Okay, so the first time I met Hugo was actually back in 2007, I believe, a year after I joined Google. I was in charge of the Google mobile business for the China market, and when Hugo joined, he was the product manager for the Google mobile effort global. Right after he joined, he and I started to work very closely. He was based in UK and I was in Beijing mostly, but we traveled the world a lot and every month or every other month, if not every quarter, we met and talked about how we’d make great products together for Google. And about how we would take the next mobile products to the marketplace.

So, Hugo and I started working very closely together at the Google time. When we started Xiaomi, Hugo was one of the people who paid a lot of attention and of course interest in what Xiaomi was doing. Because what we were doing, building Android phones, was closely related to what Google was doing with Andy Rubin in the mobile efforts back at Google.

So him and I kept very close connections in discussions and conversations and meetings, even after I started Xiaomi. And as we launched the first phone with decent success, followed by the second phone with decent success, Hugo knew all of this. And as we started to look at expanding beyond the China market, you know Hugo is suddenly the person that came to my mind very quickly. Lei Jun and I talked a lot about who would be the best guy to help us start the international business and obviously, it was Hugo. We couldn’t see anyone better than Hugo who could lead that effort.

Hans Tung: I remember the first time I met Hugo. That was in 2006, when he came to China with a mutual friend, Robin Chen, and that was the first time they had ever come to China. Hugo was extremely impressive, and impressed by what was happening in China. That was before he joined Google and Android. And once he joined Google and Android, I think the rest was history.

Zara Zhang: So how long was Hugo at Xiaomi, and do you still keep in touch with him?

Lin Bin: Yes, yes of course. He joined Xiaomi in, I would say, late 2013, and he left and returned to Silicon Valley and joined Oculus in March, April 2017. So he was with us over three years, or three and a half years. During the three and a half years, he made huge contributions to the international effort, including starting the team building out operations in India, which is the biggest overseas market for us today. .

Yes we do keep very close contact with Hugo. Just last weekend, he and I met at CES at Vegas. And you know, on stage he launched the Oculus products with us. I missed that launch event by a few hours because of my flight. But we synced up right after that, and it was a couple of hours of really, really good discussion, day and night. You know him and I remain very, very close. Very close, good friends.

Hans Tung: I think China definitely changed Hugo. Hugo is now very used to working 9-9-6, if not seven days a week. Before he joined Xiaomi, I could tell he wasn’t sure whether he should join a China-based startup, even though from the numbers he saw that Android Xiaomi was definitely growing fast, if not the fastest among all Android phones worldwide. But I think China was such a unique situation that it took him some time to think and decide that Xiaomi was a perfect opportunity for him to try China, because he had a lot of friends and met a lot more people that he was comfortable with, inside Xiaomi. And I think China definitely made an indelible mark on him. So even though he’s now back in Silicon Valley, I think there’s a quite a bit of a China in him now.

Lin Bin: Yeah, and he speaks some really good Chinese, too. I think he’s got close to 1 million–he’s much more popular in China than in the U.S. and in Brazil, I guess.

Hans Tung: Once you guys assembled a team, it’s impressive how you made Xiaomi work. I know you guys went through a few iterations, and also changing working style. In the beginning it was more 9 to 5, 9 to 6, which was doing innovative work and then very quickly you guys changed to 9-9-6, 9 a.m. to 9 p.m. six days a week, or even 0-0-7–midnight to midnight, seven days a week.

I remember the first launch party for Xiaomi One that I went to. It was August 16, 2011. I’ll never forget that date. About 2000 people showed up. After Lei Jun went through the introduction of the phone, he finally got to the highlight of the launch party, which was the price of the phone. It was ¥1,999 RMB, or around $310 USD. As soon as he announced the magic figure of ¥1,999 RMB, everybody stood up and clapped. It was the first smartphone that was priced for the mass market with a world class spec, anywhere else in the world you couldn’t find it. And thereafter, we started to see the whole phenomenon around Mi Fans. How did this whole thing come about? How could this craze have happened so quickly in a market as competitive as China?

Lin Bin: I would probably trace it back to the time when we talked about starting a company which was able to build a really high spec and high quality phone, and offer it via direct channel, e-commerce which was fantastic growth back in 2010-2011ish. We’d sell direct to customers, which would allow customers in China to buy a really high quality smart phone running Android at a price they’d never seen. Back then all the smartphones, including Windows Mobile and of course iPhone, way up there, and also a couple of really high spec Android phones were all priced at ¥4,000 or ¥5,000 RMB. And we were able to come up with smartphones with specs equal or even higher than some of the high end phones from within the market, and at a sub-¥2000 RMB range. Customers just went crazy on this.

And the reason that we were able to do this is just because of the way the startups were being built. The business model was really around selling directly to customers. We are e-commerce, of course, it is the most efficient channel that we are able to establish and everything and is not only selling on third party e-commerce platforms, but our own channel, mi.com back then. So it was something that no other smartphone company had ever done. And this is really the tipping point for the company.

Hans Tung: And also remember, Google’s first phone that they tried to sell online back in 2011. That didn’t work out very well. It happened right before Xiaomi.

Lin Bin: Well it turns out that e-commerce operations wasn’t as simple as just set up a website, put the products on and start selling. There’s a huge operation effort behind really making the website work, including logistics, shipping, warehousing, customer service. A whole spectrum of work that has to be done to make e-commerce work.

Hans Tung: I also remember within the first 34 hours, you guys had something like 450,000 phones ordered online. It was amazing. Besides iPhone, I’ve never ever seen anything like it.

Lin Bin: It was an exciting moment, but also very stressful, because a lot of our customers who wanted to buy the phone but couldn’t buy it. They would turn around and really say bad things to us. What are you guys doing? We really want to buy the phone, but you just don’t have it.

Hans Tung: People called what you guys were doing in marketing hunger marketing, or “ji’e yingxiao 饥饿营销”, that you purposely starve the customers and not give them the phones quickly enough.

Lin Bin: Yeah that was the most stressful thing that we had. Because one of the aspects of our business model is to think of smartphones as just the customer as Internet users, who use the phones to get online. And frankly speaking, if we can sell a lot more then we’ll be able to produce, we will certainly do it. If you ask any Internet companies like Google or Facebook today and say, “Hey would you like to have an extra 10 million users to use your service?” They will say, “Of course, we’d love to have 10 million more users.” It’s just that as a young, small startup, we weren’t able to keep up with all the demand. It’s really about productions. And the last couple of years, it’s really been the time we spent to improve our ability to produce more units faster and better.

Hans Tung: As an investor and previous board member in Xiaomi, back in 2011, I predicted that in your first year, you guys could probably sell 200,000 phones and if you could do that, I would have been extremely impressed. Remember, by the end of 2011, you sold something like over a million phones?

Lin Bin: For the first generation Mi 1, we launched on August 16, 2011, Hans, as you said. And for the whole cycle of Mi 1, we sold 7.1 or 7.2 million phones.

Hans Tung: So 2012 was great. 2013 was even better. 2014 was absolutely amazing. Then things started to plateau in 2015 and 2016 was a tough year. But somehow as a team, you guys managed to come back in 2017 and that was also unprecedented in the phone industry. What did you learn through this up and down period for Xiaomi?

Lin Bin: Yeah let me talk mostly about the downs. I think it’s actually a really good period for us to run through. I think in 2015 and 2016 we were running into a couple of challenges. One challenge, I mentioned previously that our business model was e-commerce, and apparently. E-commerce growth, after the first few years–early 2010, ’11, ’12ish, e-commerce growth in China started slowing down. And it’s not just us but the whole entire e-commerce ecosystem, if you look at the e-commerce in the whole spectrum of China, especially in the smartphone market.

In the earlier years, we were seeing some amazing high double digit, even triple digit growth, and then slowing down to becoming a mid-double digit and low double digit growth for the last couple of years.

The second thing we are seeing, after people bought the first generation smartphones, they certainly were already aware of the spec, performance, and enjoying the really good pricing that was partially due to the Xiaomi model. Then they started to pay more attention to not just the spec and performance of the phone, but to the look and feel. You know, materials, how beautiful the phone is, how thin the phone is. Whether the phone takes great camera pictures and videos. The whole spectrum of experience. People are asking much more than just high spec and price. You know, they care a lot about the whole spectrum of experience, everything I mentioned plus more.

So we are learning the changes of the consumer electronics in a way where we haven’t seen. And then it’s a period where we started to ask ourselves like for Xiaomi to really keep innovating and out-innovating our competitors, what do we need to do? You know, we look at internally our team structure, how many people we have, and how many resources we should be investing in building out these great components and technologies that have an edge over our competitors. So this is the period where, although exterior-wise, as investors like Hans say “Oh, gee, Xiaomi is hitting some challenges.” But internally I think it’s actually a golden two years appearance where we see how we can become stronger. How we can harvest the change of business models in e-commerce when e-commerce is really slowing down, you know, what we should be doing to cope with that. And then, what we should be doing to capture the next wave, you know the next big growth, which is international.

So those are the two-year period that got us to think deeply into making Xiaomi stronger on product innovation, resource investing in R&D, and in catching the next big wave. So that was something that we really learned, and not in a good way.

Zara Zhang: So, Xiaomi has an ecosystem approach. When you go into a Xiaomi store, you not only can buy phones and computers, but also air purifiers, rice cookers, headphones, umbrellas. Could you explain how this ecosystem works? And how do you ensure quality control of these products that Xiaomi invests in, because they obviously have an impact on your brand?

Lin Bin: Okay, so this is something that came up about two or three years after we launched the first phone. The discussions internally between the founders, Lei Jun, myself and a couple of other founders, was this. If you look at the success of our model on smartphones, you can generalize it and say okay what we’re doing is not just phones. We can take consumer electronics, we can take IoTs, as the big opportunity. And can we apply what we have done on smartphones? Including building really high spec and high quality products, including selling direct to customers with e-commerce, and how can we take this and generalize it and build a bigger business that customers really love. So this is what the ecosystem idea comes out.

And of course, there’s a couple of discussions internally to say whether we should be building the products ourselves or whether we should be leveraging the start-up phenomena in China and really do it in a way where we can use the investment as a leverage. And Lei Jun being a really, really great angel investor and entrepreneur himself, generally encouraged us and led the way to do it.

We used the leverage of investment as a tool to build this ecosystem, and this becomes really effective. The way we do it is we have a team of really talented product managers. Each are responsible for some characteristics of products. The product managers will work closely with the ecosystem company to build and design the products, starting with the feature design. And we will work with them together to say, what features would we like to have in this product. What will be the look and feel that we would like to have in the products. We like them to inherit the same design philosophies. If today you look back and look at all the water purifiers, air purifiers, the scooters, the rice cookers, they all look very similar. They all have this like mi look design, which is being driven by our designer. And then our ecosystem committee will do the engineering. They will do the manufacturing and the supply chain management. and then we help them launch the products to the market.

We do the go to market, we do the sales. We put them in our store in a way where we design the store as one store. When the customer walks in, they will be able to see the phones in the center, then the ecosystem products around the phones. Some of the products are being put together right next to each other to form some kind of theme, like living room themes, or health themes, or gadget themes, right?

So that is the general idea, and it becomes very effective because it not only motivates the ecosystem companies to do great products, because they are entrepreneurs, they own big shares. We are just the small shareholders. But it also motivates our teams, because we have over 100 teams you know bringing these different products together with our designers. And it gives a really, really good spectrum of products on our website, that sells directly to the customers and in our store. There customers can walk in and look at all the products, not just phones, but a whole spectrum of IoT products.

Hans Tung: What’s amazing to me is that when you guys first started trying to build more products beyond phones, whereas it took Samsung and Sony to do everything in-house, you guys developed the ecosystem. The ecosystem had a network of very hungry Chinese entrepreneurs who all were very willing to learn from Xiaomi. They did everything they could to focus on their core product while carrying on a Xiaomi brand and leveraging the Xiaomi ecosystem of suppliers to help them to scale. As a result you have so many new offerings for users every day, every week, every month from your ecosystem of portfolio companies, both online and offline in the retail store. So these days when stand outside the Xiaomi store and see who walks in, the frequency of store visits is just a lot higher than any store for other phone companies in the world.

Lin Bin: And this is also one of the learnings we had in the last couple of years when we had challenges. It made me see the pattern of e-commerce and then we said how do we optimize our business models? Instead of doing everything on e-commerce, we realized the most powerful business model of Xiaomi wasn’t only e-commerce. It was sell direct, and that was the key. Sell direct means we can sell to customers on mi.com, which is certainly much more efficient. But when we have a store, if it’s within our own store, that’s also selling direct. Plus the store would allow customers to have a direct look and interaction with the product, at any given time. When they are taking their families to a shopping mall and have dinner and watch a movie, they can say, “Hey, look, Xiaomi has this product.” And they can try it and decide whether they want to buy it.

As long as these stores are all 100% operated by us, including employees are all Xiaomi employees, and designs are all Xiaomi design, and everything is Xiaomi. And we can offer the products at the same price as those being offered online, then customers, once they have an experience of the product, they can either decide to buy in the store or they can go onto our website and buy. So the sell direct becomes an optimized business model, either online or offline.

Hans Tung: Do you ever see you guys carry any products that is not branded Xiaomi in your stores or on your websites?

Lin Bin: We do. We do, but a very small percentage, and the products are very carefully selected. And all the products today that are selling in the Mi store are being built by the ecosystem companies. Most of them are carrying the Mi brand. Some of them don’t carry the Mi home brand, but they have the same quality bar as the Mi home products and the Xiaomi products, and they are all built by the ecosystem companies which believe in the same business models as Xiaomi.

Zara Zhang: During a past speech, Lei Jun was comparing Xiaomi to Muji, which is very interesting to me. Muji is like the exemplification of new retail where there is high quality, beautiful design, relatively affordable cost. And every time I go into a Muji store, I end up buying something even though I don’t need anything. And I think it’s the same with Xiaomi. When I go to China, I always go to “Xiaomi zijia 小米之家” and I always end up buying something.

So how fast is “Xiaomi zijia 小米之家” expanding in China? How many stores are there? How many cities are you guys in?

Lin Bin: So today we have 287 stores. It took us two years to get to this number. I was fully in charge of sales and marketing from 2014 to just two months back, when I changed my role back to R&D. And one of the major tasks when I was doing sales and marketing was to build these retail stores.

We are seeing a very clear customer trend in China. A lot of our customers are not only shopping online but they will take their families–kids, husband and wife, to spend time in the shopping mall during weekends. You know, watch a movie, have dinner, and then they stop by a couple of stores, including Muji stores, Zaras, Uniqlo and many other stores. And of course when they see a Xiaomi store, they say, “Oh, Xiaomi is now coming offline, we’ll have to stop by the store.” When they enter our store, a lot of customers know we’re building smartphones, but they didn’t know we have so many consumer electronic products. So a common expression when they are going into our stores is, “Oh, Xiaomi has so many products.” And they start spending time to look at every single product and then they become interested in purchasing.

Our product spectrum goes from products that sell for only a couple of RMB to ¥10,000 RMB or more, much more expensive products. Like we are selling this 150 inch projector plus TV set, plus top box plus speaker for 10,000 RMB. 150 inches. And even those products generate huge interest, because they have never seen products like this in the marketplace that are really high quality and sell at such a low price. A lot of the 150 inch projector will sell for like ¥30,000, ¥40,000 RMB. We’re only selling at ¥10,000 RMB. So it generated this really high interest for customers to spend time and browse around the products and eventually they will say, okay, they’re going to buy a ¥20 RMB product. But later they remember seeing those products in Xiaomi Home, and for these really nice products, they will come back.

So this retail presence really gives customers a deep impression that Xiaomi is not just a smartphone company, but that it is a smartphone plus many things including IOTs, gadgets and stuff.

Hans Tung: Basically, for the generation that grew up with smartphone, those born after 1985 or 1990, Xiaomi has become the brand for them to go to when they have their first apartment, first job, and first time they’ll be on their own outside of college. Because everything they wanted, you have it from Xiaomi and your ecosystem of companies, and they all fit the budget. The products are beautiful design and high quality.

Lin Bin: Well, that’s our goal. And so we’d love to get there, someday.

Hans Tung: Along the lines of new retail, I remember when Lei Jun first went to Japan in the late 2000s and looked at Muji and Uniqlo. I think back then there was already the seed that eventually you guys would build a brand that would be the national brand for Chinese consumers with many products. How did you think about going international and replicate your Mi Fan model beyond China?

Lin Bin: Yep. So that’s also an opportunity that we identified in the last two and a half years from a range of challenges. We studied our Indian business back in 2013. It was the first time Hugo and I went out to India and started offices and we hired Manu [Kumar Jain], who is the General Manager for our India business, and then we built a team around Manu. And as Zara mentioned earlier, we are the number one smartphone manufacturer in India. And as we are expanding our business in India, mostly we are e-commerce. Also, at about the same time or maybe slightly after we started the new retail operation in China, We started to build offline retailing in India, and it was a huge success. We now have about 100 stores in India. But the Indian stores are really smaller because they don’t have the number products that we have in them in China. But the retail presence in India is also is very successful. Each of these stores are selling anywhere between 4,000 or 5,000 phones a month. It was a pretty huge number for a very small store that’s about 700 square feet in size.

So the business is growing. It’s growing in a way that we just don’t expect. Our Indian business actually grew over 6X in 2017. And we believe that growth will continue, probably not 6X again, but I think each year we should be able to achieve another 100% growth. And we are looking to launch more ecosystem products in India.

One of the products that we are actively looking at is whether we should be launching a smart TV product. With Bollywood and entertainment being huge in India, you know, it actually makes sense. Air purifiers, also. A lot of these products actually were suitable for developing countries. So we see this whole opportunity in international developing countries where your smartphone industry is about three or four years behind China. It’s right at the verge of taking off. And people are starting to care a lot about the living quality. So the IoTs that we’re building, Mi Bands are selling well in India, also are happening.

Zara Zhang: So going forward, would you consider expanding Xiaomi into the more developed markets, for example by working with telecom carriers. Especially with the recent Huawei and AT&T deal which was killed by political pressure in the U.S., if and when will Xiaomi will ever have a product in the U.S.?

Lin Bin: So we have our hands full in the last couple of years working on Indian markets, Indonesia markets which we just officially entered back two months ago, and Southeast Asia countries. As far as Eastern Europe, we are number three in Russia and number two in Ukraine. So all these Eastern countries and developing countries are just a few years behind China. This is the market that is enjoying fast growth. We really have our hands full in these markets.

For developed countries, just about two or three weeks ago, we opened our first store in Spain. It was jointly opened by us and our distributors and so far the store is doing great. It was really a small trial in developed countries, and it seems to us that customers are really anticipating the Xiaomi products going even for developed countries. It’s a good result so far, even though it’s very short. We’d love to give it a bit more time to see how customers are reacting to our smartphones as well as some of the ecosystem products. But if this continues to go well, I think developed countries are within reach.

I would certainly say starting with Western Europe, these are really well-developed countries that we’ll be looking at, and probably followed by North America maybe toward the end of 2018, maybe sometime in 2019.

Zara Zhang: I think one of the reasons Xiaomi has become so successful is because it has a very unique approach to marketing. Could you share with us what is a Mi Fan or “mifen 米粉” in Chinese? And what about Xiaomi makes those “mifen 米粉” so enthusiastic?

Lin Bin: So most of our marketing is actually being done online, especially in the earlier days. We had this forum where that we built out at the very beginning of Xiaomi, where people were mostly getting onto the forums to try out the latest version of MIUI, which is our version of the Android system. They can download the MIUI onto their phones on a weekly basis, and give us feedback on the forums.

It helped us get the first group of really loyal users. And as we started launching more and more devices you know these were becoming the early adopters of our new device. From this forum, we expanded into a lot of online social media. We leveraged Weibo, which is really big in China and followed by WeChat, you know,WeChat friends and circles, followed by QQ Zone. We leverage a lot of these social media to do marketing, and it’s mostly between Mi Fans and customers. That was the starting back in 2011 and then we kept doing this over the last couple of years. Up until today, we’re still doing a lot of online marketing in China.

We have these events we call popcorn events. We have offline popcorn events in different cities in China on a monthly or maybe every few weeks, and then Mi Fans in each of the cities will gather together and they would share feedback on how to use Xiaomi products, especially as our products are expanding beyond smartphones. You know they’re really passionate about some of the new ecosystem product launches.

Now the last two years as we are building out retail stores, this has changed slightly, because for every single retail store that we open in a new city, the Mi Fans in that city would come join us in the opening ceremony. And I myself, as the team was building out the stores, I went to many of these stores. I actually personally picked many of the locations of these stores myself. And when I’m out there opening stores or doing some weekend sales events, our Mi Fans will come along. They would see this as an opportunity to get to know us more personally, as well as getting to know other Mi Fans. So it becomes sort of a platform for Mi Fans to get to see each other, get to know each other, and get to know a lot more about other Xiaomi products.

And we also started to see similar things happening in India, in Indonesia, and also in Spain. And one of the reasons we picked Spain to open the first store in a developed country was because we found that in Spain we had a lot more early Mi Fans. So as we are expanding our business in different countries, this will still be the core marketing events we will be holding.

Hans Tung: A lot of people in the U.S., especially those in the media, may not understand most of the things you just said. So it’s easy for them to say that Xiaomi is a copycat of Apple. When you hear this, how do you deal with it? How do you try to get them to see that it is different?

Lin Bin: Okay so in several aspects: First of all, I think as it comes to Apple, a bigger question would be when it comes to intellectual properties, IPs. Every year since Xiaomi started, every year, from the R&D team, from software, hardware and business models, we have been very heavily finding our own inventions, mostly in the form of patents. Just last year alone, we filed over 6,000 patents. Over half of these are being filed in the U.S. and other developed countries. This becomes a huge asset for Xiaomi, because a lot of inventions originated from our engineers on the software side, on the hardware side, in e-commerce, and almost every aspect of that.

Second, when you look at the way we push innovations, a lot of the product innovations actually initiated with Xiaomi. For example, August 25th, 2016, we launched Xiaomi Mix. When we launched the Xiaomi Mix phone, the whole media, including Western media, when they looked at the Mix phone, they said, Jesus, this is exactly what we expected from iPhone. But it was Xiaomi who came up with this phone that had no bezel on three edges, the top, the left and right. And of course this Mix phone was revolutionary. You know with our key suppliers and our engineers, many of these innovations are actually originated by our engineers. This Mix phone also earned several awards, including the IDEA award, which is a pretty prestigious award in the design field.

So all these things that are being built into our blood. If you look at the product offering of the whole Xiaomi model, we have a lot broader product mix, including phones and TVs and laptops and air purifiers and wearables–over 1000 SKUs. These are all product mixes that are all being designed and driven by the Xiaomi designers, by ecosystem engineers all together. I would say, we are probably to the other extreme of Apple, in many ways. We embrace openness a lot. It’s Android phones where it’s all open, but we have these IoT protocols where we encourage other IoT companies to build in, and then the standards are open. So any other companies who are building gadgets or appliances, they are more than welcome to take these modules and build them into their products, and it becomes devices that are all connected. It’s an open standard that we are pushing.

I think, instead of being like Apple, we are just the opposite of Apple. This will probably take some adjustment, and also for people who don’t know us, if they are able to come back and look at our store and look at our products, they would have a model of it.

Zara Zhang: So you guys launched Mi Mix 2 the day before Apple launched iPhone 10. How do you think it went, and what was the rationale for doing that? And if you could do it again, would you have done anything differently?

Lin Bin: I think the date is probably just total coincidence, because we usually have to set our launch date a few months at a time, just to lock on the venue and things. So I think it’s probably totally coincidence. But the Mix 2 it is again another really innovative product that we pushed out. We took Mix 1, which was a really innovative product, and we asked ourselves what we could do to make the Mix more practical to buy.

One of the challenges we ran into after we launched Mix 1 is because it was such an innovative device, it is so hard to make. And through the whole cycle, we just couldn’t keep up with demand. It became a huge complaint from our customers. And we asked ourselves, how can we make Mix 2 better than Mix 1 and yet allow more people to buy? So there’s been a lot of time and engineering efforts to build the Mix 2. It’s also a pretty well-received device, by the way.

And we also improved a couple of user experiences on Mix 2. For instance, one of the complaints that people have is that the back camera doesn’t take–it takes good images, but not great images. So on Mix 2 we really improved the camera experience, and if you compare the imaging from Mix 1 and Mix 2, you can see the difference.

Hans Tung: You have a lot more SKUs than any other phone company in the world, because your ecosystem products are already so comprehensive. Some people would say Xiaomi is already the number one Internet of Things or IoT company in the world. What is your IoT strategy and are you working on your own Alexa? What does that look like?

Lin Bin: Okay so two months ago we launched our first smart speaker. It’s called “Xiao ai yin xiang 小爱音响” and that speaker is able to drive–you know, we are Chinese, via voice, almost all our IoT products. You can ask it to turn off the TV, you can ask it to turn off our smart lamp, you can ask the vacuum cleaner to start cleaning the rooms.

So it’s a very natural fit to our IoT strategy. Whether we are going to build our own Alexa system, we have discussed that internally and it would make a lot of sense to actually build a system to control other IoT products. And with over 80 million connected devices, Xiaomi IoT devices out there, it makes total sense for us to have that.

We are also envisioning not only the smart speakers, but how can we more effectively control all these IoT products, or manage all these IoT products on the phone. And we do believe there’s a scenario where you would use the smart speakers at home versus when you are away, you know, how do you really control and manage all these IoT devices remotely on the smartphone. So all these are things that we have been working on.

One of the angles we’re looking at IoT products is, having all these connected devices with you or at home or at work provides a very unique opportunity for us to do a lot of data mining, based on the data that that these IoT products are collecting. Of course we put privacy ahead of everything else. But with user consent we are able to tell on a bigger scale what air quality looks like in all major and small cities in China. You know, what a pollution landscape looks like in the big and small cities in China.

And we know what population is more inclined to exercise with the Mi Band information and the Smart Scale information you were able to see, oh, it looks like this thousand Chinese people are more inclined to exercise and run than another part of China. So there’s a lot of big data mining opportunities and this is where the AI (Artificial Intelligence) algorithms and data mining algorithms can come into play. And I believe this is actually where the future opportunity lies ahead of us.

Zara Zhang: Xiaomi- recently launched a partnership with Baidu in AI and IoT. Why did you choose to partner with Baidu? Could you explain more about the thinking behind the partnership?

Lin Bin: I wasn’t personally in charge of this partnership but I think in general we are partnering with many companies on artificial intelligence, on AI. And Baidu is certainly one of the companies that has immersed very heavily in AI, and it’s a very natural partnership. I think in the future, AI will certainly come in play in consumer electronics in big ways, starting with smartphones. At present, I believe the smartphone would be the biggest preference for AI. Imagine your phone is not just a communication device, but is a device that can listen and watch and take great images and photos. It’s a device that is always with you, so this is a peripheral that we believe will be, in the future, one of the biggest peripherals for AI applications. And of course, you know with your home IoT devices, with the gadgets, people care a lot about exercising and living a very healthy lifestyle, all these are opportunities where AI can really come in play.

Zara Zhang: I think many people in the U.S. have the impression that Xiaomi’s main differentiation point is affordability. Do you think that’s still the case?

Lin Bin: Today, probably, but as we are coming closer to launching our products in the U.S., I think it would change a lot of customer’s perceptions. Some of my friends in the U.S., when they get their hands on some of our products, the impression that I hear is, Holy cow, look at these products. They love it so much and they don’t even know the price, because we are not selling any of these in the U.S. But when I bring over some of the products to the U.S. they say oh, these are such nice products. I remember one time I brought a scooter, our Mi scooter, over to Boston. And I was demonstrating it to a group of students in the classroom and they loved it. It’s because the scooters are–you are not only able to get on it and ride it, you can actually control it with a remote control. You can even have it follow you wherever you go and make smart turns left and right. Following you about two feet away from you, right? You can even have it carry goods around wherever you go. It’s really a cool piece of software. And at the very last, I told them that this thing only costs $400. They went crazy. They said, Holy–

Hans Tung: –How could it be so good but so cheap?

Lin Bin: But it is really the product itself that really attracts them.

Zara Zhang: So, Bin, how would you describe Xiaomi’s company culture, and what are some unique management practices that you have started at Xiaomi that’s different from Western companies you’ve been with? And are there any practices that you’ve brought to Xiaomi from either Google or Microsoft?

Lin Bin: Other than working hard? Well, I worked at Microsoft for 11 years and Google four years, and then a lot at Silicon Valley. Not that Microsoft and Google engineers didn’t work hard. They worked super hard, and a lot of them not only devoted the working time on their products and projects, but also their weekends. I founded this company together with Lei Jun and other cofounders and frankly speaking, I think the last seven, eight years, I was able to find a way to fit my life into work. Yeah I don’t know whether that really makes any sense. There is no work life balance, as a matter of fact. The only way to make this work is to fit your life into work.

And it turns out that a lot of the startups in China are able to achieve some level of success, and also, smartphone, as many of you know, is really competitive. One product’s success doesn’t guarantee the next. So you really have to really push the innovation and not just yourself but also the engineers, the product managers, operational persons. Even building our stores, we’re thinking how can we build a store different from and better than any existing store?

And that’s how I’m pretty sure all the founders and the management team have been working really hard. and I think in that aspect, we are really similar to many Silicon Valley startups. I know a lot of them you know. Google used to be a startup and still is a great company. And I think innovation is in the blood of Xiaomi and this is where Xiaomi and a lot of Silicon Valley companies are alike.

Hans Tung: I remember the first time I took HTC to meet you guys back in the summer of 2010. They walked away thinking that you guys are as talented and knowledgeable as well as innovative as any Silicon Valley company they ever met.

Lin Bin: And now we have a lot of HTC engineers here. I love to have them. They are great guys.

Zara Zhang: So on a more fun note, you are a success story of an engineer turned manager and founder. You changed your role a few times. But it’s not always easy for engineers to make good managers or founders. What advice do you have for Chinese engineers in the U.S. or China who may want to start their own company? What kind of things do they need to watch out for?

Lin Bin: Ok I wouldn’t call it advice, but I’ll be happy to share some learning that I personally went through. I think one of the big lessons is, it’s not a choice to say, “I would rather do R&D engineers and products, and I just don’t want to do the operational job or the sales job.” Because you have no choice. It’s your company. You have to do whatever is needed to make sure that it’s successful.

You know you’ve asked me personally. Certainly, I have been doing engineering myself and I enjoy being an engineer and building great products is what I have been good at.

But when it comes to Xiaomi, this is the company that I have founded. When sales and operational marketing is the job you have to take over, you just have to take over. You just have to find a way to make yourself enjoy it. Personally, I don’t like spending time in a shopping mall. Before I took over the sales and marketing job, whenever I was in a shopping mall I would be with my family, and I would be sitting in a chair waiting for the family to shop. And I had no interest at all in retail.

But when I realized that for Xiaomi we had to build a retail presence, I forced myself to start learning retailing. I traveled to Tokyo, Hong Kong, and many places, and the U.S. sometimes. And whenever I entered a store I started looking at why did they design the bazaar the way it is? Why did they use this type of font? What does the lighting look like? what’s the material they used to build the table? You know how did they design the store so that people walk in and walk out and they can maximize the outcome? And then it was interesting. The first few months, I have no idea how to build a store. But as I started building out the first store, the second store, and then I see the turn out of the store, and then I started improving the store with a team, it’s actually become fun. And I think for any people who want to do a startup, this is something that you just have to get ready. Get ready to take over whatever it takes to build a good startup. And I don’t think this is any advice, but it’s a lesson that I had myself.

Zara Zhang: Be open minded and be flexible.

Lin Bin: Yeah. I still remember that even in the earlier days when we didn’t have any finance person–Hans, you might remember that. We didn’t have any CFOs until a few years back. So in the first year we didn’t have any finance person. So Lei Jun and I looked at each other and said hey, we need to talk to some potential investors of Xiaomi and one of the potential investors was Hans. So Lei Jun said okay, we need to put together a business plan. And Lei Jun said Bin, why don’t you put together a business forecast? I had no idea how to do a business forecast. And Lei Jun said well go look at some books.

So I didn’t look up some books, by the way. Matter of fact, I went and talked to my wife. It turns out my wife had a small business back in the U.S. She had some experience putting together some finance forecasts. So she gave me the sales forecast. It was really simple. How many sales do you expect to have? What’s your operational cost, what’s your salary, what’s your rent? And that’s it.

So I took that and I built the very first company sales forecast. And I sent it to Lei Jun and he said this is really great. Send it to Hans. And I’m very happy that Hans looked at this and said well, okay, here’s the money.

Hans Tung: I know there are a lot of great Chinese engineers in the U.S. and increasingly, even the PMs are doing well in Silicon Valley. Many Chinese Internet companies have set up R&D centers in the U.S.. Bin, do you see Xiaomi doing that or doing more in the U.S. in the future?

Lin Bin: We actually just started. Yes we have our first office in San Diego, talking with Qualcomm. I think we now have four engineers at San Diego, and as we expand more business outside of China and get closer to entering the North American market, there’s a huge talent pool in Silicon Valley, and I think we’ll certainly tapping into that.

Zara Zhang: So for the last part of this podcast we’ll have a bunch of rapid fire questions. The first one is what was the best and worst decision that you have ever made?

Lin Bin: Frankly speaking, I couldn’t think of the worst decision. I might have made some bad decisions, but I don’t know how to rate–

Zara Zhang: You’ve only made good decisions.

Lin Bin: I don’t know how to rate which one is the worst. I made a lot of bad decisions. But the best decision I would certainly say that is the decision that I would co-found Xiaomi with Lei Jun. Looking back, I think it was probably the best decision of my whole life.

Zara Zhang: What motivates you to wake up each morning? What keeps you up at night? What are you excited and worried about?

Lin Bin: I think the part that keeps me really motivated every day is the learning that I have on a daily basis. I think learning is not just about learning the latest technologies, but the learning that comes with my operational jobs themselves. The learning of how to build great retail stores, the learning of how to do a good marketing campaign, and the learning from partners and suppliers, and also learning from founders and colleagues. So I’m pretty sure, as the pieces of Xiaomi keep growing, I can learn a lot more. What I worry, I think there are a lot of things I worry on a daily basis. Today, as my role changes again, two months back, looking at how to build great smartphones, I will think a lot about where the innovation comes in. How to fit in great AI technologies in the smartphone and what customers would like to see in the next generation phones.

So all these are questions and thoughts that I would have. I might even dream of some things in my head when I was sleeping. A lot of things are actually operational issues and this also comes with the way as you are starting your own startups. It’s going to come natural. It’s on a daily basis, you don’t really feel the excitement of things every day, but you would have your day to day, week to week, month to month operation issues that’s hitting you and you just have to get used to it and be optimistic to encourage yourself. You’ll figure out how things will play out, all by itself, very naturally.

Zara Zhang: What’s something you read recently that touched you a lot, whether it’s a book or an article?

Lin Bin: Yeah. So I read a lot of books when I have time. And I like biographies a lot. The latest one I finished is Shoe Dog, by Phil Knight. It’s not high tech related. But that book really resonated inside me about when you start a company–all the details in the stories in the book, you say this is exactly how you feel. The operational issues, the challenges, it sounds so familiar. I also enjoyed, a few years back, the Amazon story. So you can recommend me some new books, Hans?

Hans Tung: Yes. Okay, thank you so much Bin. It’s a pleasure to have you here.

Lin Bin: Thank you, Hans. Thank you, Zara.