I wrote this piece for the Irish Times, published (in a shortened version) today..
Which company — just four and half years old — is now the most valuable technology start-up in the world? It has just been valued at €37 billion ($45 billion), more than established companies on the Irish Stock Exchange such as Kerry Group (€10 billion), Ryanair (€13.5 billion), or even Diago (€36 billion).
A Silicon Valley company presumably? Maybe you would nominate Uber – the taxi hailing app from San Francisco, and now being rolled-out in many cities worldwide? Uber has been controversial, for several reasons. Some regulated taxi drivers and their employers, and city and national governents, allege that its business practices are illegal. Critics assert Uber places members of the public at risk since its drivers are unregulated and insured. Some competitors have accused it of outright sabotage. Uber has been banned as unlawful in Spain, the Netherlands, Thailand, and now also in France. It has been outlawed in Berlin, Brussels, in some Indian cities and states (Hyderabad, Karnataka and New Delhi – where a driver allegedly raped a passenger). It has been fined in the Phillipines and in South Korea. Despite all of these complaints, litigation, and outright bans, nevertheless in a private bidding process just last month, Uber raised further funding which valued it at a massive €34 billion ($41 billion).
But Uber, at less than €37 billion, is thus not the most valuable start-up on the planet. Actually the most valuable start-up is not American: Uber’s closest American peers in value are Airbnb (an app for rental accomodation), Dropbox (a file and document sharing service) and SnapChat (a messaging app), with each valued during 2014 (according to the Wall Street Journal) at €8 billion ($10 billion).
Indian perhaps? Flipkart (an e-commerce site) is the most valuable Indian start-up, but — like Airbnb, Dropbox and SnapChat — valued at a ‘mere’ €8 billion.
So, if not American, or Indian, is it European? At €3.3 billion ($4 billion), the most valuable European start-up is the Swedish company Spotify (a music streaming service) — not without its own controversies with certain artists because of the weak royalties it pays them. However, Spotify was founded way back in 2006, and thus is no longer early stage. The highest value European start-up less than five years old is Berlin-based Delivery Hero, an online food-ordering service with a network of 75,000 restaurants across 23 countries. Delivery Hero raised €300 million in March 2014, and valuing the company at €825 million ($1 billion).
So: at €37 billion, which then is the most valuable start-up worldwide? Answer: Xiaomi (pronounced “she-ow me”) in Beijing, founded in June 2010 by eight co-founders including the 45-year old CEO Lei Jun (“lie joo”). Xiaomi designs and manufactures Android smart phones, particularly for the Chinese and South-East Asian markets. After selling its very first phone in August 2011, it has recently become the world’s third largest phone manufacturer — behind Apple in second place, and Samsung in first.
Unlike its international competitors, Xiaomi sells its phones almost exclusively online, rather than in physical stores. Further, Lei Jun took an early decision to price Xiaomi phones at very little more than their maunfacturing and component parts costs. However, models are normally sold for eighteen months or so, and thus have slower release cycles for new phone versions than competitor phones. Consequently, Xiaomi benefits from falling bill of material costs over the lifetime of each model.
It also is able to exploit each model with specific optional add-ons (both physical, such as protective cases; and virtual, such as software downloads) for a longer period. Finally, the company has relied heavily on “word of mouth” advertising via social networks, rather than the expensive and glitzy marketing undertaken by some international competitors.
Lei Jun admits to reading about Steve Jobs while at university, and subsequently to following both Jobs’ dress code (jeans and dark shirts) and style of product announcements (‘Stevenotes’). For the product launch of the Xiaomi Mi4 model last July, one slide from Jun’s presentation was actually in English: it used Jobs’ iconic “One More Thing…” catchphrase.
Can we ever expect an Irish start-up to join the global €1 billion plus club? By ‘Irish start-up’, I mean a company headquartered in Ireland, with the majority of its executive staff resident in Ireland, and a company less than five years old. While we all are proud of successful companies founded by Irish people overseas, a start-up operating from and controlled in Ireland is more likely to lead to both employment and wealth creation in Ireland.
Personally, I believe there is the executive talent, and sales and marketing leadership, to do so from Ireland, particularly given the internet’s global distribution and reach. I also have little doubt that there are the technology and engineering capabilities to do so here. The venture funding environment is reasonable, and very substantial sums are available internationally just waiting for the right business models and the right teams, regardless of geographic location.
Both Xiaomi and Uber illustrate the advantages of a reasonably uniform home market, in China and the USA respectively. But Delivery Hero and others — including our own Ryanair — show that even in the “common market”, which in practice is still fragmented across the European Union, rapid international scaling is nevertheless possible.
A prediction for 2015? I would like to think so.