Avoid ‘Xiaomization’: Y Combinator, HAX Accelerators On Chinese Hardware

Hardware entrepreneurs should avoid what they call ‘Xiaomization’, said a panel on hardware startups including Y Combinator, HAX and early stage VC fund Yunqi Partners at TechCrunch Beijing this month. 

“We call ‘Xiaomization’ the phenomenon of innovative products being commoditized.”said Benjamin Joffe, general partner at HAX. Xiaomi is famous in the Chinese market for producing a dizzying range of hardware products for low prices, including everything from batteries to air purifiers and their latest ‘hands-free’ Segway-like project with Ninebot.

“In the showroom, we found a Google Glass lookalike as well as a telepresence robot,” “Those are not rough copies. They are possibly better than their inspiration: high quality manufacturing, more functions and for a fraction of the price,” added Mr. Joffe.

“Xiaomization is a valid strategy. By virtue of the name, Xiaomi is a great example of its success, and many Chinese companies like to follow Xiaomi’s model,” said Yi Pin Ng, a managing partner at Yunqi Partners. However the panelists agreed that continuing to shave prices could harm the innovation ecosystem China is trying so desperately to promote.

“Many Chinese companies, in pursuit of low prices, failed to invest sufficiently in technology and design. They end up making another ‘Mi-Too’ product. In the end nobody makes money in that category,” pointed out Mr. Ng.

Luke Iseman, Director of Hardware at Y Combinator, mentioned the importance of the uniqueness of the product. “If it is a consumer facing product, a strong brand is a prerequisite. Xiaomi is selling well in China, but still many Chinese people want to buy Apple products,” he says.

“Rather than caring about the cost of the product, build a great product. Show us execution and something new.” 

HAX also announced the opening of applications for a new accelerator program focused on purely Chinese startups. Their main program is currently composed of 90% of foreign teams, including those from MIT, Stanford, and even former Apple staff.

Joffe said that in China he saw two main types of teams; those with manufacturing experience who were often doing incremental innovation, and those coming from research who did not know manufacturing and branding. Their new program intends to support both types.

“Y Combinator invested in 960 startups for over the last decade. But we haven’t funded a hardware company started in China. I want to see that change,” Mr. Iseman remarked.

Mr. Joffe mentioned that they are looking for a team who can build, a working prototype with a defensible aspect, such as science, software or community, and a sizable market. “We know well that if things are easy to copy, then they will be,” he added.

“If you’re doing hardware, and you are thinking to provide your device for half the price of what is already available on the market, your business is done. Rather, differentiating your hardware from others is crucial,” Mr. Iseman said.

“Hardware companies need more than a low selling price and online distribution to win. They also need good concepts, appealing design, technology barriers and a smooth supply chain,” Mr. Ng added.