Chinese tech giant LeEco, famed for everything from its Netflix-like video streaming service to its not-quite-real-yet self-driving car, has been having a rough go of it in America.
It missed its 2016 US sales targets by a lot. Its content subscription service, EcoPass, flopped and has been shut down. Its deal to buy US-based TV maker Vizio has fallen through. The land LeEco bought last year to build a massive campus in Silicon Valley is reportedly up for sale, and the company’s US branch has been hit with both high-profile executive departures and layoffs.
In short, things are falling apart for LeEco in the US. Which begs the question: what exactly did the company do wrong?
1. Expanding faster than it could afford
Not long ago, LeEco (then called Letv) was mostly just a video streaming company. But over the past few years, bolstered by founder Jia Yueting’s personal fortune and an apparent assumption that China’s easy-VC-capital era would last forever, the company exploded. By 2016 it was involved in smartphones, virtual reality, smart TVs, electric smart cars, cloud computing, music streaming, live sports, smart bikes, film production, wine ecommerce, internet finance, and real estate/property – just to name a few!
And of course, on top of that was an aggressive geographical expansion that saw the company buying property and big-name talent in Silicon Valley ahead of a ritzy US launch last fall. Plenty of people (including me) worried that the company was spreading itself too thin.
At least financially, that seems to have been the case. LeEco’s funding situation has always been a bit murky, but the company clearly doesn’t have the cash to sustain its ambitious American plans. Even after a round of layoffs, cash has apparently been so tight that the company has missed payroll at least once, according to Bloomberg.
Former employees told Gizmodo that reimbursements were also incredibly slow, and some claim they’re still owed significant sums of money.
The lesson here: the more ambitious your plans, the more conservative you ought to be when allocating funding. LeEco seems to have been counting on an instant sales explosion in the US; its 2016 sales target for the region was reportedly US$100 million. A Bloomberg source says that in reality, the company didn’t even crack US$15 million in revenue, and it apparently didn’t have the capital on hand to cover that kind of shortfall.
It’s a deal: Jia Yueting (left) with Vizio’s William Wang in happier days. Photo credit: LeEco’s Weibo account.
2. Assuming what works in China works in America
LeEco launched in the US using a strategy that has worked incredibly well for new smart gadget companies in China: online-only flash sales. Ever since Xiaomi rose to prominence in the Middle Kingdom using that strategy, it has been a tried-and-true approach for new smartphone makers looking to enter the arena.
But many people (again, including me) were skeptical that this approach would work in the US. Americans don’t buy their smartphones via flash sales, but even if they did, how many American consumers would be willing to pay hundreds of dollars through the website of a Chinese company that had just launched? The answer, it turned out, was not many.
The lesson here: Know your market culture. The things that worked in your home country may not work when you expand overseas. That’s a lesson many American companies learned the hard way when trying to expand into China, too.
3. Not trusting the local talent it hired
4. Not taking the time to build a brand
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