Layoffs, unpaid wages, and property sales: LeEco's US strategy is now in tatters

In 2016, China's star tech company LeEco made a bold move to conquer the unfamiliar US market with its low-price advantage. But just a few months after the high-profile launch, LeEco's US operations have fallen into chaos. From delayed salaries to employee resignations, former employees of this once-hot startup are here to tell us how LeEco got to where it is today.

Last October, LeEco entered the US market with a number of small tech products and services. As a tech giant in its growth phase, LeEco is well positioned to succeed in the US market. LeEco Ecosystem is part of LeEco's sprawling business empire, which was founded by Jia Yueting. His business empire includes the listed LeEco.com and LeEco Technology, known as the "Netflix" of China, which now has hundreds of millions of users thanks to its LeTV TV streaming service. In addition, Jia Yueting's other businesses are collectively referred to as the "LeEco Ecosystem", selling low-priced but high-end super TVs and smartphones, electric bicycles and electric cars. At the same time, Jia Yueting is also the largest investor in Faraday Future, an American electric car startup.

Last October, he also described LeEco's ambition to enter the US in his blog, saying that he has been paying close attention to the US market for many years. Old technology giants Apple and Samsung have already gained great popularity in the US. LeEco is not the first Chinese technology brand to try to enter the US market, but it may be the first company to succeed. Technology rising stars such as Huawei and Xiaomi, as well as TV companies such as TCL and Hisense, have failed to establish brand awareness here, which shows how difficult it is to conquer the US market.

Apparently, the plan failed before it even started.

Former employees of the company said LeEco's plan in the United States is to use its success in the Chinese market to acquire American companies and buy market share.

Last June, LeEco spent $250 million to buy 49 acres of land in Santa Clara from Yahoo. Jia Yueting claimed that LeEco had more than 500 employees in the United States at the time and would eventually employ 12,000 people at its new "EcoCity" headquarters in Silicon Valley. In July, LeEco announced that it would spend $2 billion to acquire Vizio, a veteran TV manufacturer (currently accounting for 20% of TV sales in the United States), and executives saw this move as a shortcut to enter the US hardware and content market.

The former employee also revealed that LeEco actively recruited outstanding talents with high salaries as bait, poaching Todd Pendleton (hired as Chief Marketing Officer), Shawn Williams (hired as Chief Administrative Officer) and Danny Bowman (hired as Chief Financial Officer) from Samsung, and Josh McGuire from Google as General Counsel.

LeEco has told investors and new U.S. employees that it is like a combination of Apple and Netflix, not only making high-spec, reasonably priced devices but also integrating them with a content ecosystem.

It is difficult to present the product if it is not fully prepared.

In recent months, a series of events at LeEco have proven that it is not ready to gain a foothold in the US market. In March this year, LeEco put the $250 million land it bought for EcoCity up for sale. LeEco has also admitted to overexpansion and wage arrears. As of April this year, a large number of layoffs have also made it difficult for LeEco's US legal, financial, sales, and human resources departments to carry out their work. Earlier this month, LeEco's plan to acquire Vizio also ended due to "regulatory headwinds."

Last week, Bloomberg reported that LeEco had not met its 2016 sales targets and that market share deals had been halted due to restructuring plans and financial problems.

Many people believe that LeEco's experiment in the United States cannot last long. The employee also said, "Now it's all over."

"The mission failed before success"

Last October, LeTV’s cool live broadcast of a press conference in New York attracted a lot of attention. I was also attracted by LeTV’s popular theme of “Breaking Boundaries and Igniting the Ecological World”. The exquisite interstitial advertisements also showed the audience how LeTV’s ecological mobile phones can “shape the future of technology, entertainment and lifestyle” for users through an interconnected ecosystem.

Uninformed journalists and invited "industry influencers" attended the press conference. Before it was officially held, the press conference was postponed twice. It was originally scheduled for August, then moved to September, and finally postponed again to October. A former employee said, "It is difficult to hold a press conference when the product is not ready." It is obvious that LeTV phones have not really reached mass production requirements at that time.

Even after the press conference was postponed to October 19, not everything was ready for the event. In addition to showing LeTV TVs, smartphones and electric bicycles, the LeSEE electric car, a potential competitor to Tesla Model S, did not appear as expected. A few hours before the press conference, LeEco claimed that LeSEE had a minor problem on the way to the venue and could not be displayed on the stage as originally planned. Jia Yueting also expressed regret in the interview.

Former employees who witnessed the entire event said that other mistakes occurred at the launch event: Todd Pendleton, the chief marketing officer hired from Samsung, was not in attendance. Employees were told that Pendleton was still at the company during the company's regular all-hands meetings to align goals, but they finally learned that Pendleton had left the company several weeks later in late November. One of the former employees said that they had learned that Pendleton left because he did not believe in and did not want to try to realize the company's vision. Other sources said that Pendleton clashed with the Chinese leadership team over sales and marketing strategies. We contacted Pendleton through LinkedIn and sent an email to his public email address, but received no response.

Pendleton is not the only one to leave. McGuire, the general counsel hired from Google, will leave in late July, and Williams, who managed human resources, also left in March. According to Bloomberg, Winston Cheng, the head of global finance at LeEco, also left in April. McGuire has confirmed his departure to Gizmodo in an email, and the other two have not yet responded.

After learning about the comments on this incident, LeEco Ecosystem issued the following statement:

"Due to policy, we are not suitable to comment too much on other people's private affairs. If you want to confirm, our leaders are waiting here. Like other companies, LeEco will continue to evaluate its team to ensure that it has the right talent and scale to focus on the right market opportunities. We comply with all state and federal requirements."

LeEco has also released some solid information about its retail products through press releases and marketing materials, which we will not post here for the time being.

Looking back at the entire press conference, a former employee said afterwards, "It was obvious that the plan had fallen apart before it even got off the ground."

Layoffs, and more layoffs

Just two weeks later, in addition to flashy electronic products and electric cars that have not appeared, more pressing problems have begun to surface. LeTV CEO Jia Yueting sent a memo to Chinese employees, explaining that everything was due to the company's rapid expansion. The following is part of the original text of the memo, which was nicknamed "Yueting's letter" internally:

“No company has ever experienced this kind of ice and fire at the same time. We accelerated blindly, our cash needs surged, and we were overextended in our global strategy. But at the same time, our funds and resources were limited.”

LeEco America’s management immediately tried to reassure employees. At a general meeting afterwards, employees were told that everything was going well at the company and that the media reports were just misunderstanding us. A former employee said, “The leadership told us that the media deliberately portrayed our company as being in a bleak state because they didn’t understand China,” and employees believed that layoffs would not happen, and that everyone would get a raise and year-end bonus.

But in December, the layoffs came. At first, the company explained that it was to address the redundancy caused by the previous press conference. Many employees were doing the same work before, and now they had to make some adjustments according to the time. Within a few weeks, it was obvious that the scale of layoffs in January was larger than before. But the company did not communicate directly with employees about the layoffs through all-hands meetings or emails. "It took me several weeks to understand what was going on," said a former employee.

We were told that the media deliberately portrayed our company as having a bleak business situation because they did not understand China.

Some employees were informed of the layoffs in advance, while others were caught completely off guard. At the end of the workday, one employee would say “goodbye” to the rest of the staff to let everyone know that they had been laid off. All-hands meetings were often canceled without reason, leaving employees in the dark about what was about to happen.

Another employee described walking into an office after a particularly large layoff and seeing empty desks, no computers or other equipment: “It was like a ghost town.”

Less money, more trouble

Layoffs were not enough to alleviate the cash shortages that Jia Yueting said he was suffering. According to former employees, the bills are either unpaid or overdue. The EcoPass video content provider subscription service has begun to delay payments. LeEco confirmed to Variety that the company ended the EcoPass subscription service on April 1.

The worst part is that employee salaries have been repeatedly delayed. Bloomberg reported that LeEco missed the March 31 salary payment, but it was still able to pay salaries on April 4. This is not the first time LeEco has missed a salary payment date. Former employees said that LeEco first delayed salary payments in mid-January, and the company explained that it was delayed by the four-day Martin Luther King Day.

One former employee did not think much of the delayed salary at first, thinking it was a minor matter. However, another person held a different view: "After the old employees received their salaries, they were obviously relieved."

They also said the process of getting reimbursement from LeEco has been slow. Employees must first pay for their own travel expenses and then ask the company for reimbursement. Reimbursements often arrive very late. Other employees claim that LeEco still owes them thousands of dollars.

Culture clash

Former employees said one of the main reasons for the loss of top talent in the LeEco ecosystem is that executives hired to run the North American business have not been given the opportunity to run the company. Instead, the company is still managed by Chinese executives who are not familiar with the U.S. market and business strategy.

It took me weeks to figure out what was going on.

For example, Chinese leaders are keen to sell smartphones and TVs through online "flash sales," which make products available at discounts during specific time periods. Jan Dawson, chief analyst and founder of Jackdaw Research, said the problem with the online sales strategy is twofold. First, no one has heard of LeEco's ecosystem, and consumers have no reason to check the company's website. More importantly, "in the United States, no one buys smartphones this way. It seems to be just a sales strategy borrowed from Chinese smartphone manufacturers without making reasonable adjustments for the U.S. market."

Many former employees are aware of this problem in the LeEco ecosystem. “They seem to think that if this strategy works in China, it should work in the U.S. as well.”

“It was the ego,” one former employee said, which led the company to believe it would quickly reach its goals in the U.S. “They wanted to say, ‘Look, we’re not just a Chinese brand,’ but didn’t realize it takes time to build your brand in another market.” One employee put it bluntly: “These Chinese leaders are not the smartest people in the company.” The company’s strategy ultimately failed, and LeEco reportedly lost a lot of profit on its 2016 sales program.

Follow-up

It’s worth noting that LeEco’s rocky start in the US was not in large part accidental. We note that LeEco’s US Chinese conglomerate exited immediately after LeEco ran into funding and other issues. If LeEco US had sold a lot of devices and brought in revenue, funding wouldn’t be a problem. But according to Bloomberg, LeEco US sales have not met expectations. Low sales and recent regulatory changes in China that limit companies’ outbound investment have had a disastrous impact on it.

The reality is that LeEco's ecosystem may still have a long way to go in terms of financial issues, and unfortunate external conditions have indirectly led to a waste of talent and missed opportunities. "I think it would be great to work in a company full of talented people who are a million times smarter than me. I love that feeling."

While the company's expanding retail business may bring more sustained revenue, morale among LeEco's American employees is understandably low these days. Some managers even encourage employees to find other jobs and provide references for them. They pretend to hold meetings in the office while actively looking for new jobs. Even before the massive layoffs in early 2017, they occasionally skipped work or were late.

Former employees said that those who remain in the LeEco ecosystem actually have a gut feeling that they will be fired sooner or later, and they just hope that the company can afford their severance pay by then.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.