Xiaomi and OnePlus proved that it is possible to start a successful smartphone company, even with express resources. Here's their strategy in a nutshell:

  • Create a compelling product for tech enthusiasts
  • Sell it direct as a loss leader
  • Limit production to create scarcity
  • Build awareness and need
  • Sell profitable related products and services
  • Scale production once component costs drop

Editor's Note:
Jeffrey Yuwono is CEO and co-founder of Feecha, a hyperlocal news app for neighbourhoods. A Stanford MBA and Knuckles undergrad, Jeff writes insightful observations about technology once a twenty-four hour period on his blog The Cornerplay and now on this weekly column on TechSpot.

Small Chinese companies like Xiaomi and OnePlus were able to create markets even while competitors like Apple tree and Samsung spend billions in advertising their smartphones. Their success is a blueprint for others to follow, whether you lot're running an established smartphone company or starting one.

The Wall Street Journal wrote how Xiaomi became the leading smartphone vendor this quarter in Communist china with a 14% marketplace share. Samsung had 12%. The differences in momentum is stark; in the previous quarter, Xiaomi had 11% while Samsung held 18%.

Co-ordinate to Canalys annotator Jingwen Wang

The installed base of its own interface MIUI, which has a lot of localized improvements, is more 50 million in the world.

OnePlus' parent, Chinese manufacturer Oppo, may have deeper pockets, only is nowhere virtually the class of Apple and Samsung. All the same, there is an organic buzz most the OnePlus 1, even in this crowded, highly competitive smartphone market. The International Business Times called it "the most talked about smartphone in 2014."

Xiaomi and OnePlus built its success on the strategy of compelling products, made deficient and sold directly every bit loss leaders.

1. Create a compelling production for tech enthusiasts

To be a successful smartphone company, you lot must have a good production. Xiaomi built its reputation on Apple-quality phones. While some accuse Xiaomi of being too Apple tree-like, Xiaomi's products are in fact highly localized.  For example, Xiaomi phones are highly customizable, which is anti-Apple tree.

OnePlus created what they called a flagship killer -- a phone so good it can stand toe-to-toe with the near expensive phones and with a design to match. The Cornerplay agrees the company has succeeded in its objective.

Xiaomi and OnePlus are smart to target tech enthusiasts. They didn't create for people uninterested in gadgets and just want a phone that works, they created phones for people who cared about functioning, hardware pattern and user feel. For brand sensation to experience viral growth, this is a segment you must win.

If you lot desire to be a successful smartphone visitor, y'all must be able to brand a good smartphone for tech enthusiasts.

2. Sell it direct as a loss leader

Xiaomi and OnePlus both avoided setting up third party distribution channels or costly retail stores; instead, they sell direct to consumers through e-commerce. This saves on costs and time.

The disadvantage with selling direct is that it's unremarkably harder to get noticed. Xiaomi and OnePlus gainsay that past selling their phones at price. A phone which would price $600 if from Samsung, Sony or HTC, now being sold for just $300? And to nifty reviews? When the value proposition is this obvious, it'southward piece of cake to reach customers.

In this state of affairs, sellers don't take to approach buyers -- buyers are the ones beating a path to sellers' doors.

3. Limit product and create scarcity

Yous tin probably sell a lot of phones that should cost $600 but are priced $300. Nevertheless, small companies have limited manufacturing capabilities and lack the capital to go big. Moreover, if every phone sold is just pause-even, information technology might be improve to wait for component costs to go downwards before ramping production.

So at first, you limit product.

There is a big upside to this and that is creating scarcity. Apple tree used scarcity to great effect with iPhones and iPads; the harder it was to get an already compelling production, the more desirable information technology became.

Xiaomi and OnePlus both deliberately created scarcity and their hard-to-go phones accept become condition symbols among the technorati. Xiaomi sells out their phones in seconds, and invites for the OnePlus 1 remain rare.

Non just have Xiaomi and OnePlus delivered functional value (this is a bully phone), they've also created emotional value (owning this telephone makes me feel special).

The other upside to limiting production is that Xiaomi and OnePlus don't have to acquit inventory; no expensive warehouses are necessary as they tin ship straight from the factory.

As an bated: isn't the fact that Chinese phones have become so sought after a sign of changing times? The Middle Kingdom has risen.

4. Build sensation and demand

Not only take Xiaomi and OnePlus innovated on product and pricing; their become-to-market strategy is besides dissimilar.

Xiaomi utilizes the power of flash sales in their marketing. They announce on their website, social media and through the printing whenever they have phones to sell, and because those phones sell out quickly, followers hang on to their every word. This creates hype and a strong human relationship with their audience. Every time Xiaomi has something to announce, they know people will listen. Contrast this to traditional brands that have to invest in marketing campaigns to reach customers.

OnePlus went across even Xiaomi. To buy the OnePlus I, you must receive an invite. These invites are issued to the most passionate and socially influential. Y'all had to share on Facebook, tweet, etc. just to beconsideredfor an invite equally office of the former. Journalists, bloggers and Youtubers got their invites and, as expected, reviewed this hot new phone. Because the phone'southward value proffer is so stiff, coverage led to more people wanting to purchase the phone, and more than people sharing on social media to get an invite. The result is a virtuous cycle of free marketing and the kind of awareness that's difficult for coin to buy.

5. Sell profitable related products and services

If yous followed the above 4 steps, you lot can succeed in creating enormous hype and market demand for a telephone that you're selling at intermission-even. So, how do you actually brand money? This is a concern later all.

The respond is to sell products and services that do make money. For Xiaomi, those are accessories, an e-commerce site in Tmall.com and online services through the phone (e.chiliad. purchasing themes).

OnePlus is selling an expensive bamboo case for $50, which many people will buy anyway equally a condition symbol. Attention to OnePlus likewise often leaks to parent company Oppo, who sells decent phones for a profit. Many websites like The Verge reviewed both phones together.

There'south no reason a big visitor similar HTC can't also have this approach. Designate a loss leader to drive awareness, demand and hype; this will bring the HTC brand top of mind for tech enthusiasts, and a halo effect for HTC'south other phones (which are in plough sold for a profit). Tin can y'all imagine the excitement a $300 HTC Ane M8 would generate?

This is a strategy that retailers utilise all the time. Advertise a production at an unbelievable cost in limited quantities to draw people into their stores. Those customers so tend to purchase other things in the store to make upwards for the loss leader.

6. Scale production once component costs drop

Even though Xiaomi and OnePlus may start selling a telephone at price, it doesn't hateful costs stay the same. Component costs become cheaper over time and in the smartphone industry, ofttimes very rapidly. A phone that's break-even at launch might be profitable 6 months after. For instance, Xiaomi's Mi3 sells for nearly $240 and today costs less than $157 to make and distribute, according to Fomalhaut Techno Solutions.

"I call up they are making at to the lowest degree 100 dollars of profit with the Mi three," estimated Minatake Kashio, Fomalhaut's director.

I expect OnePlus One production to ramp up this holiday menstruum, but as the phone'due south internals become terminal generation.

Declare an astonishing toll to get attention, limit production and create backlog need; and then hope that demand remains once costs get downwardly, production has increased and profits can be fabricated.

Xiaomi and OnePlus have shown the way. It's upward to bigger, established phone companies to humble themselves and learn from these two Chinese upstarts.

Desire to start your own smartphone company? Now you know how to succeed.