Xiaomi admits it got carried away chasing growth

A refreshing admission in these frenetic times see Chinese smartphone maker Xiaomi admit that its thirst for growth started to become counter-productive.

Bloomberg has reported on Xiaomi Chief Exec Lei Jun outlining his company’s goals for the year, including a revenue target of 100 billion yuan. This is the same number he was aiming for in Xiaomi’s best year so far – 2015 – but we never found out if that was achieved. We were given a shipment number of 70 million units for that year, but the company is likely to have fallen well short of that last year.

The Q3 2016 smartphone numbers revealed a running total of just 45 million for the first three quarters, making a final total much over 60 million unlikely. Xiaomi has seen Chinese market share taken away by other fast growing brands such as Oppo and Vivo, but Lei seems to think it was also hampered by chasing growth at the expense of other operational best practice.

“The worst is over,” Lei said in a memo posted on his WeChat account seen by Bloomberg. “While creating a growth miracle in the modern history of business, we missed out on potential growth areas as well. That’s why we must slow our pace, and seriously learn from our mistakes.”

Among those mistakes, it seems, was an excessive reliance on the online direct channel at the expense of others, which was previously viewed as a signature piece of cleverness by Xiaomi. “We won’t settle for being just an e-commerce smartphone maker,” said Lei. “The e-commerce only strategy has become insufficient because online sales only [take] up 10 percent of total retail sales, after all.”

The other main innovation in the Xiaomi business model was to offer handsets at prices so low as to make them effectively loss-leaders, the rationale being the cultivation of a captive online audience to flog other gear to. The new strategy could be to focus less on smartphone shipment growth and more in increasing the business done with existing Xiaomi customers.