Professor Huang Tieying of Peking University has cases called 'Haidilao You Can't Learn' and 'Chucheng You Can't Learn'. I want to take a different direction and review Xiaomi's five years to find what Lei Jun's 'you can learn' first secret is. I believe there are three knives, which are also the three knives that traditional enterprises must bleed from in their internet transformation: product knife - hit product strategy; value chain knife - 5%; traffic knife - fans + e-commerce. On April 6, Lei Jun posted on WeChat Moments: Five years ago today, in Room 807 of Yinggu Building, Baofusi Bridge, Zhongguancun, Beijing, 14 people drank a bowl of millet porridge together, and a small company opened. Cai Wensheng commented: Xiaomi's fifth anniversary is equivalent to 20 years of China's internet, pioneering a precedent for rapid growth through the combination of software and hardware. It is said that a few months ago, at an internal company meeting, Lei Jun suddenly asked colleagues present how they evaluated his work. Everyone was silent, probably no one dared to evaluate. Lei Jun said: I won't talk about whether my work is good or bad; you can see it. Over the past five years, I have worked 12 hours a day, 6 days a week, never slacking off for a single day. I have not wasted any day of these five years. Xiaomi's five years have been awesome, disruptive, fierce, and transparent, with basically no secrets. Professor Huang Tieying of Peking University has cases called 'Haidilao You Can't Learn' and 'Chucheng You Can't Learn'. I want to take a different direction and review Xiaomi's five years to find what Lei Jun's 'you can learn' first secret is. I believe there are three knives, which are also the three knives that traditional enterprises must bleed from in their internet transformation: Product knife - hit product strategy Hit product strategy, simply put, is a single product that kills, using one product to break through the market and even become number one. In fact, traditional enterprises have also succeeded with hit products, but relatively few. For example, JDB, relying on a red can of herbal tea, achieved tens of billions. Internet companies must compete with hit products; for example, Tencent is good at making hit products. But what is special about Xiaomi-style hit products? I think it is still related to the founder's personality. I use a word: All In. All In is a term in Texas Hold'em, meaning to go all in, to bet everything. I once discussed this topic with Liang Ning, who received investment from Lei Jun and later sold to Tencent. She said, do you know how Tencent creates hit products? It relies on spending money like water. She said she only knew what spending money like water meant when she went to Tencent. Once, she asked a design company to fix an image, a very small detail. She signed off 20 times and her hand was tired, but at Tencent they finally revised it 200 times. She told this story to Lei Jun, who said, we also spend money like water. Lei Jun's biggest waste was throwing away 400,000 units of the first-generation Redmi. They had already placed the order, but it didn't meet standards, so they threw it all away. Xiaomi prepares several plans, and only one is eventually launched. "This of course brings huge waste, but this waste is necessary." Zhou Hongyi is a product innovation expert, but his first attempt at a special phone failed. He summarized the biggest reason for failure: not enough All In. Old Zhou even said he talked to Lei Jun, who said, if you want to make phones, think about whether you can go all in, whether you can lead. If you can lead the team personally, we might have a fight. He said you can't just set up a department and a director and think you can fight me. He also said your company has many people, but how many can you put on phones? 100? 500? I have thousands of people doing this. Lei Jun's biggest killer move in making hit products is doubling performance and halving price. This kind of value chain knife is real: to cut prices, Lei Jun cut all channel links and directly faced users. This part can cut 30% of costs. To cut prices, Lei Jun even cut marketing costs, selling phones through the internet, not relying on offline channels. This part cut another 10%. How to make money? The wool comes from the pig. "The wool comes from the pig" was once popular on WeChat Moments, but I haven't seen any traditional enterprise achieve it, because the essence of this model is the hit product strategy. Where are Xiaomi's pigs? One is value-added services, one is selling software, and one is fan economy. Xiaomi's biggest move in the last two years is ecological chain investment, using the Xiaomi model to replicate 100 ecological chain enterprises. The key word behind it is replicating the Xiaomi-style hit product model. Value chain knife - 5% Why is Xiaomi so disruptive? Because Xiaomi truly cuts the value chain. What is the value chain? It is the value that users can get at a certain price and perceive. I summarized a formula: product = manufacturing + perception. What does it mean to cut the value chain? It means innovating in the value chain, cutting down inefficient high costs from the past. Take an industry rule as an example: in the clothing industry, the retail price is usually more than 8 times the production cost. A garment costing 100 yuan must sell for 800 yuan. Another example: the home furnishing industry is usually more than 4 times the production cost, the mask industry is 10 to 50 times the production cost, and small appliances are usually more than 2 times. Why so much markup? Because operating costs are high, including advertising, channel fees, multi-level agents, etc. What is Xiaomi's value chain logic? Xiaomi has an internal red line: 5% operating cost, meaning total operating costs as a percentage of total sales cannot exceed 5%. So Lei Jun can say Xiaomi can price close to cost. For example, Aikongjian, invested by Shunwei, is not yet a Xiaomi ecological chain enterprise, but it also adopts Xiaomi's model to disrupt the traditional home decoration industry. The secret weapon behind it is also reducing operating costs to 5% and pricing close to cost. When Aikongjian founder Chen Wei first met Lei Jun, Lei Jun questioned the product, one was the price, and the other was a question: what is the shortest construction period? Chen Wei thought for a long time and finally said ruthlessly: 20 days. Lei Jun said, OK, for each extra day, you fine yourself 10,000 yuan. Aikongjian's home decoration product hits two points: 699 yuan per square meter, from rough to fine decoration in only 20 days. Some industry insiders saw Aikongjian's product and gasped: such a business can only break even when annual revenue reaches 1 billion yuan. So, internet transformation is not just about marketing and social media; you need to cut deeply in the value chain. With such deep cuts and low profit margins, how to make money? It relies on standardization, high supply chain efficiency, and high operational efficiency. The result is hit products. Traffic knife - fans + e-commerce Traditional enterprises find it hard to cut the value chain and achieve hit product strategy. Why? Because of a very cruel and realistic problem: traffic. The essence of all business is traffic; without traffic, there is no business. Traditional enterprises' traffic entry points basically rely on channels and dealer networks. Cutting too much can easily kill yourself, but not cutting is also not possible, leaving you in a dilemma. So, Boloni founder Cai Ming told me: Those wearing shoes look at these barefoot ones and are completely helpless. Xiaomi cut offline channels; how to solve the traffic problem? The answer is fans + brand e-commerce. On April 6, Lei Jun sent an internal letter to employees, saying a few things: Facing the harsh market environment, we should keep our original intention: 1. Always insist on making high-quality, high cost-performance products; trust users, rely on users, and always be friends with users! As long as we adhere to these two points, Xiaomi's dream can be realized. You see Lei Jun's keywords are: product + fans. Why are fans so important? Because they are the power source of Xiaomi-style traffic, and the word-of-mouth of loyal users and enthusiasts is crucial. The brand e-commerce model like Xiaomi.com serves as an amplifier for Xiaomi-style traffic. Undoubtedly, this is a high-quality, efficient, and more sustainable way to obtain traffic. I even believe that "fans" + "brand e-commerce" is the most trendsetting upgrade direction for Chinese brands in the future. Look at Vancle: the secret weapon for its comeback is learning the essence of Xiaomi's model, which is also these three knives: First, cut the value chain: the recently released shirts and T-shirts are also priced close to production cost. Second, cut the product: push single-product hit strategy. Third, gather fans again and rebuild a self-brand e-commerce model. The results are very good because this is advanced productivity and a higher-dimensional approach. What is Xiaomi's biggest future challenge? Or possible pitfalls? I think there are three challenges, which are also the biggest challenges of hit product strategy and the pits most likely to kill smart hardware startups: The first challenge is product definition. What is product definition? It is the earliest decision point when I decide to make a product. For example, Xiaomi Note was launched in January 2015, and product definition was done 1.5 years in advance. Xiaomi Power Bank was launched in December 2013, and product definition was done 1 year in advance. Currently, all Xiaomi product definitions must be confirmed by Lei Jun. So far, Xiaomi basically has hit products one after another. But predicting 1 or even 2 years in advance is still a huge pressure. In the mobile internet era, consumer needs and market conditions change dramatically every six months. Making an accurate product definition is the hardest thing for a chief product officer and a must for smart hardware startups. The second challenge is inventory. When talking to Xiaomi's founders, they often say "we are doing seafood business," meaning raw materials depreciate quickly. To make a hit product, you first need volume, using large volume to leverage the supply chain, factories, and consumers. But because volume is large, if one link goes wrong and becomes an inventory problem, it becomes a huge pressure. The third challenge is quality. For phones and smart hardware, quality is a big pit, especially the transition from lab product to factory production. Many products are designed in the lab, but once they hit the factory, production issues become big trouble. I talked with Zhang Feng, founder of Xiaomi Power Bank, former general manager of Nanjing Inventec. He is a veteran in manufacturing. When making Xiaomi Power Bank, the aluminum battery case had huge process issues. He stayed in the factory for a month to completely solve it. After making the product, he met Lei Jun and said he felt ten years older. I hope traditional enterprises can learn these three knives! 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