In 2016, rising Chinese tech star LeEco made an aggressive move to conquer the unfamiliar US market with cheap gadgets. But just months after a blingy launch event in October, the company’s American operation is in shambles. From missed payrolls to disappearing employees, former employees of the once-hyped startup tell us how it all went wrong.
When LeEco abruptly blitzed its way into the American market with a barrage of budget gadgets and services last October, it had all the trappings of a booming tech giant that could realistically succeed in the US. LeEco is part of a complex business empire run and funded by its founder, Yueting Jia. Jia’s businesses include the publicly traded (in China) Leshi Internet & Technology, which was founded in 2004 and is best known as the “Netflix of China,” thanks to its LeTV streaming service, which the company claims has hundreds of millions of users. Jia’s other ventures, which are all colloquially known as LeEco (“Happy Ecosystem” in Chinese), have expanded to sell cheap TVs and smartphones with top specs, electric bikes, and even an electric car project. Separately, Jia is also the main investor in the US electric car startup Faraday Future. (For more information about the convoluted web of companies, read this excellent article from The Information.)
In an October blog post describing the company’s ambitions in America, Jia, who goes by YT, said he’d been eyeing the United States market for years. LeEco would hardly be the first tech brand to try to elbow its way into the US market, in which established players like Apple and Samsung reign supreme, but perhaps it could be the first to succeed. Americans have proven an elusive target for many Chinese tech upstarts, like Xiaomi and Huawei, who can’t get their smartphones to catch on in a meaningful way. Even TCL and HiSense, which have gotten traction selling cheap TVs, still haven’t managed to establish brand recognition.
A former employee of the company told Gizmodo that the company’s plan in the US was to use its success in China to “buy its way into marketshare.” And buy it did.
In June last year LeEco spent $250 million acquiring 49 acres of land in Santa Clara from Yahoo. YT claimed that LeEco, which had more than 500 employees in the United States at the time, would eventually employ 12,000 at its new “EcoCity” headquarters in Silicon Valley. In July, it announced its plans to buy budget TV maker Vizio for $2 billion, a move that was characterized by executives as a way to crawl into the US hardware and content markets on the back of an established brand that accounts for an estimated 20 percent of US TV sales.
Former employees also said that the company aggressively pursued talent, often with over-market salary offers that came with the promise of big bonuses. The company went on a hiring spree of high profile executives, including Todd Pendleton (hired as Chief Marketing Officer), Shawn Williams (hired as Chief Administrative Officer), and Danny Bowman (hired as Chief Revenue Officer), all of whom were poached from Samsung. Josh McGuire, formerly of Google, was hired as General Counsel.
The idea, as pitched to investors and new American employees, was that LeEco would be the fusion of Apple and Netflix. The company strategy was to not just make high-spec, reasonably priced devices, but to pair those devices with a content ecosystem.
In recent months, a cascade of events has shown that LeEco wasn’t prepared to deliver on its plans, or to confront the challenges of entering the US market. The $250 million land purchased for EcoCity was put up for sale in March. The company has publicly acknowledged over-expanding, and has reportedly missed payroll several times. Former employees detail brutal layoffs, which by April 2017 significantly hobbled teams across legal, finance, sales, and recruiting. Earlier this month, LeEco’s planned acquisition of Vizio fell through, with the company blaming “regulatory headwinds” in China on its inability to complete the purchase.
Last week, Bloomberg reported that LeEco in the US had missed its sales goals for 2016 by a significant margin. And as we speak, trading of shares in YT’s public Chinese company (Leshi Internet Information & Technology Group) have been halted in advance of a restructuring plan with “major adjustments,” as well as its 2016 financial results.
Many feel that LeEcco’s American experiment won’t survive much longer. “It’s all over now but the screaming,” a former employee told Gizmodo.
Prominently staged at San Francisco’s swanky “Innovation Hanger,” LeEco’s American launch event on October 19th, 2016 was truly a spectacle. Even watching the livestream from New York City, I was struck by the bombastic presentation, which was soaked in buzzwords and promises that the company was “breaking boundaries to ignite the Eco world.” Well-produced interstitials showed off how LeEco phones would help users’ lives “shaping the future of tech, entertainment, and lifestyle” through one connected ecosystem.
Unbeknownst to the journalists and invited “influencers” in the audience—many of whom attended on LeEco’s dime—the flashy launch had been delayed twice. Sources say that a tentative launch date was planned for August, although no one thought that would actually happen. A launch date for September was then set, but it was also pushed back because, as one former employee said, “it’s a little hard to launch a product when the product isn’t ready.” Apparently, phones weren’t manufactured in the quantities needed to actually ship to customers, retailers, or even be shown off at a launch event.
Even after the delays, not everything was ready to go when October 19th rolled around. In addition to showcasing LeEco’s TVs, smartphones, and electric bikes, the launch event was supposed to be the debut of the LeSEE electric car, a would-be competitor to Tesla’s Model S. But just hours before the press conference, LeEco claimed the car was involved in a mysterious accident en route to the venue, and the non-working replacement shown on stage couldn’t drive itself as originally planned. YT reportedly called the failure “a real bummer.”
Former employees watching the event say that something else was amiss about the launch: Todd Pendleton, who you’ll recall was hired from Samsung to run marketing, wasn’t present. At town hall meetings—which the company has periodically held to give updates on big picture goals—employees were told Pendleton was still with the company, and it wasn’t until weeks later, in late November, that staffers were finally told that Pendleton left the company. A former employee says they were told Pendleton left because he didn’t believe in the vision of the company or in what it was trying to accomplish. Another source said that Pendleton clashed with the Chinese leadership team over selling and marketing strategies related to the launch. We reached out to Pendleton via LinkedIn, and sent messages to publicly listed email addresses, but we received no response.
Pendleton wasn’t the only prominent departure from LeEco’s hiring spree. McGuire, the general counsel hired from Google, left in late July, after roughly five months on the job. Williams, who ran human resources for LeEco, left in March. Bloomberg reports that Winston Cheng, the global head of finance at LeEco, left the company in April. In an email, McGuire confirmed his departure from the company to Gizmodo. Cheng and Williams did not respond to LinkedIn messages.
Contacted for comment on this story, LeEco provided the following statement:
“As a matter of policy we do not comment on individual personnel matters. Our leadership is available here if you would like to confirm anyone. Like every company, we continually evaluate our organization to ensure we have the right people, are right-sized and are focused on the right market opportunities. We comply with all state and federal requirements.”
The company also provided information about retail availability of its products from publicly available press releases and marketing materials, which we won’t paste here.
Looking back on the launch, a former employee said that in hindsight, “it was clear the wheels came off before the launch. The wheels came off when the car stopped working.”
Just two weeks after the grandiose event, with its flashy electronics and non-existent car, more pressing problems became apparent. YT, the CEO, sent a memo to employees in China, explaining that the company had grown too quickly. The memo, which was known internally as the “YT letter” said in part:
“No company has had such an experience, a simultaneous time in ice and fire. We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”
US management immediately tried to calm employee nerves. At a town hall held in the wake of the memo, employees were told that everything was fine. This was just YT being YT and that the media was misreporting and misunderstanding the story. “We were told that the media didn’t understand China and wanted to paint a picture of a company doing poorly,” a former employee says. Employees were assured that layoffs wouldn’t be happening and that everyone would get promised raises and year-end bonuses.
But by December, layoffs started. At first, they were explained to employees as a correction for over-hiring in the lead-up to the launch event. Staff had been hired for duplicate roles, and now things just needed to be adjusted accordingly, another former employee explained. Within few weeks, in January, it became apparent that the layoffs were actually larger than what was let on. There was never any direct communication from LeEco about the layoffs at town hall meetings or via email. “It took me a few weeks to figure out what was going on,” said a former employee.
Some employees were given a heads-up that cuts were planned, while others were caught completely off-guard. At the end of a work day, one employee told another, “goodbye forever,” explaining that they’d lost their job. Town hall meetings were frequently canceled and employees were left in the dark about what was happening. A former employee said that “people would just disappear.” After being called into a room and let go, another employee didn’t even tell co-workers they had been laid off because they didn’t want to add to the perpetual depression, and instead, they told friends their computer was going to IT for repairs.
A different employee described walking into the office after a particularly large group of layoffs, seeing empty desks, without computers or peripherals attached: “It was like a ghost town.”
The layoffs weren’t enough to assuage the cash crunch YT described in his letter. Bills went unpaid or were paid late, according to former employees. Content providers for the EcoPass video subscription service had payments delayed from the onset. LeEco confirmed to Variety that it ended its EcoPass subscription service on April 1.
Worst of all, payroll was repeatedly late. Bloomberg reported that LeEco missed payroll on March 31, but it was able to make payment to employees on April 4. This wasn’t the first time LeEco missed payroll. Former employees said that LeEco first missed payroll in mid-January, with the company blaming a four-day delay on Martin Luther King, Jr. Day.
One former employee says that they didn’t think much of the missed payroll at first, “it wasn’t really a big deal,” they said. Another, however, had a different perspective. “There was a very palpable sigh of relief from senior people when the money came through.”
Former employees said that the process for getting reimbursements from the company was constantly slow. Employees had to pay their own travel expenses and then request that the company pay them back. Repayment was often significantly delayed. A different employee claims they are still owed thousands of dollars in reimbursements.
Former employees say that one of the central reasons for the immediate drain of top-tier talent from LeEco happened because the senior executives hired to run the North American business weren’t actually given the opportunity to run the company. Instead, the company was “shadow run” by Chinese executives who former employees say do not understand the US market or business strategies that work here.
For instance, the Chinese leadership was keen on selling smartphones and TVs online via “flash sales”—whereby products are sold at discounts for specific periods of time. Jan Dawson, the founder and chief analyst of Jackdaw Research, says that the problems with an online sales strategy were two-fold. First of all, no one had heard of LeEco and had no reason to be checking out the company’s website. But more importantly, “no one buys smartphones that way here in the US,” he said “so this seemed to be borrowing a strategy that’s worked well for smartphone vendors in China instead of doing something more suited to the US market.”
“The strategy seemed to be, if it worked in China, it will work here,” a former employee said. This sentiment was shared by multiple former employees, and is something many see as being partially responsible for LeEco’s current problems.
“It was ego,” a former employee said, that led the company to think it could accomplish so much in the US so quickly. “They wanted to say, ‘hey we’re not just a Chinese brand’ but didn’t realize it takes time to build a brand presence.”
Of the Chinese leadership imported to oversee LeEco’s entrance to the United States, one employee put it bluntly: “They were not the smartest people in the room.”
Ultimately, the company’s strategy failed and LeEco reportedly missed its 2016 sales projections by a huge margin. One former employee described the online sales for the first few months of availability as “dismal.”
It’s worth noting that LeEco’s rocky start in the Americas might have been partially circumstantial. As we noted, the Chinese conglomerate funding LeEco’s American investment ran into cash problems almost immediately after LeEco’s US launch. If LeEco US was selling a large number of devices and bringing in revenue, that cash problem might have not have been an issue. But as Bloomberg reported, sales have not met expectations. Couple low sales and the possible impact of recent regulation changes in China, which have put restrictions on the types of outside investments Chinese companies can make, and you have a recipe for disaster.
The reality is that LeEco probably needed a much longer financial runway to get going, and the unfortunate circumstances were characterized by one employee as a missed opportunity because of the great talent that the company had acquired. “I thought, man it’s great to be in a room of people a million times smarter than me. I loved that feeling.”
Even as the company continues to expand the retail footprint that might generate a more sustainable revenue stream, morale is understandably low amongst LeEco’s American workers these days. Some managers have encouraged employees to look for jobs and have offered to serve as references. A former employee described the situation in the office as staffers going to fake meetings and actively looking for jobs. Even before the layoffs began in earnest in early 2017, people would occasionally not show up for work, or would just come in late.
For those left, former employees say that there is very much a sense that everyone knows they are about to be fired. They’re just hoping that the company will be able to afford severance.
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