“55,000 TVs have been sold within a year since its foundation. It was a 14-fold leap.” Big interview with the Vice President of the Ukrainian brand KIVI
Today KIVI is one of the competitive TV brands in the markets of Ukraine, Russia, and many other countries of Eastern Europe. Moreover, the company is only four years old. Its story began in 2016 with 4,000 TVs of an unknown brand, KIVI. Already in 2020, KIVI sold 380,000 TVs, and in 2021, raised $13 million from the Chinese behemoth Shenzhen MTC.
“In my opinion, our story is unique: 4 years is a very short period in terms of industry development. World behemoths that occupy the top positions in TV production are companies with almost a century-long history. But, today, we are regarded as a serious competitor and have made our presence felt from time to time that makes those big businesses nervous,” says Sergey Wenger, partner and Vice President of KIVI.
In an interview with AIN.UA, he told how the company was created, what it is today, and what the TVs of the future will be like.
How did it all start? Who, when, and why decided to found a new TV brand?
I cannot tell you about all the owners of the company. They are not public people, and this is their right. The co-founders came from the world of electronics, and they know this business well, the business of TVs first of all. There are Ukrainians among them. Kirill Khilko is one of the Ukrainian owners who took charge of the company last year.
There was a big gap in the market between the TVs of famous brands and the economy segment: the former were quite expensive, the latter were low cost but also low quality. We got excited about the idea of creating a distinct alternative – a high-quality smart TV an average user could afford.
We chose a niche strategy, defined a clear price segment, and so we started. First, the team was very small and consisted of only nine people. In the beginning, people practically lived in the office.
Everything happened very quickly: we opened our office in July 2016, and in November, the first TVs were already on the shelves. It took less than six months, from a business idea to the first commercial batch and the first sales.
In 2016, we brought a new TV set to Ukraine, and this is where KIVI began.
Ukraine is a favorable territory for testing startups. Especially startups that plan to move towards Europe and the CIS countries as Ukrainians have a similar mentality and are across cultures. It is possible to work out various hypotheses in the Ukrainian market and then easily develop them in other countries’ markets.
Ukraine is full of talents, and Kyiv is such a unique place where you can get a very professional and high-level team for reasonable money, thereby, optimizing costs and creating a high-quality business model.
Where is KIVI registered?
The brand is registered in Hungary because part of the company belongs to a European holding.
And what about the head office in Kyiv?
We have a head office located in Kyiv. Also, we have a regional hub, which is not related to business in Europe and is responsible for business in the CIS. Now we are considering opening another regional hub to work with the Central Asian and Caucasian markets.
We considered six countries for our head office and realized that if we opened it in Amsterdam or Budapest, for example, our customers would have to pay extra money for our products because we would incur substantial additional costs. This was contrary to the concept of lean production. We don’t want our customers to pay for something that is of no value to them.
As a result, we chose Kyiv, where we have the optimal ratio of quality of personnel, services, and their cost.
What was your initial capital?
It wasn’t very big for such a business. Of course, we had loans from various banks, including international banks. But we started with our own money, and it was a small amount, up to one million dollars.
Today the business has become global and at the end of 2020, we had a positive financial result.
What was the first TV like? How many pieces were there in the first batch?
The first TV was available in bronze – it was a very unusual solution for the market. We showed it to Ukrainian retailers; some of them laughed at it but agreed to give it a try. And, just imagine, TVs were sold out in a matter of weeks! Nobody expected such a result.
At the end of 2016, we sold 4,000 of them. You can say it’s a drop in the ocean, but it was a very significant result for the new brand.
The retailers realized that we knew the needs of the market so they went on supporting our experimentation. Then we offered white TVs.
Why did you start with those colors?
My wife and I travel a lot, and one day in another apartment we were staying in, she saw the TV and said, “Oh, what a nice white one.” She was not much interested either in technical characteristics or the brand – it needed to be “white.” So, once we arrived home, we bought the white one. It was Toshiba, as it was the only white TV in the store.
As I already said, in the beginning, we decided to implement a niche strategy. That’s how we found buyers in places where the behemoths were not interested in looking for them. We clearly understood what guides our target audience and how the people make their choice. Big brands didn’t focus on them, as it was a very small niche. But we took a risk – we launched this batch and received positive feedback from the market. Then we realized that we had hit the right target audience.
I’m curious how much it might cost to develop a TV from scratch and produce a batch of 4,000 TVs.
The most important thing was to overcome the fear and believe in what we were doing. Nothing else mattered. Today it is not a problem to raise money for a good idea if you can present it correctly. And we have found the way.
When someone says that they cannot raise investments, I always smile. It means that you do not know how to sell your idea in the right way, or you have a product that is not relevant to your target audience.
We went straight into retail – we found out that the key sales in the TV market are made by five players, and we turned to them.
How did you get there – you can’t just come and supply a major retail chain store with a brand new product? Did you have any useful contacts?
There were some people we knew, but even with them, it is not so easy to get through, because this is a business, not a place, where you can get just using some contacts. Business is about money, so we came up with an offer: we showed possibilities to access the market and what we had implemented.
Our pitch was convincing – we immediately recruited people with a reputation in the market. Most of our top employees are people from the electronics industry. And if people from this industry leave a company, they simply go to another one in the same industry. Because working in this sector requires very in-depth knowledge.
How fast was the company growing? What did you do for this?
Having sold the first batch successfully, we built an R&D team, began to develop our launchers (TV user interface). We proceed with studying what the consumer does not like in modern TVs and began to offer more interesting and convenient solutions. Every year we updated the KIVI launcher, adding the necessary features there. Thanks to this solution, you can customize your TV for yourself. And buyers love it.
In 2017, we sold 55,000 TVs. It was a 14-fold leap.
From the very beginning, we decided to focus only on TVs and agreed that not to make other home appliances like the major global brands do: washing machines, vacuum cleaners, refrigerators, etc. It was the right decision, as the market is very competitive. We quickly got into the top three players in the Ukrainian market, and we understood that the only way for us to hold our positions and move forward was to be very focused. Televisions are the most promising category in the home appliance industry, and we were good at it.
Currently, KIVI is the only company among the key players specializing exclusively in the production of TVs and TV services. We know all about it, and we can feel the market.
Later, we entered other markets. Now we sell our TVs in 4 markets, in each of them KIVI has top positions. These are Ukraine, Belarus, Kazakhstan, the Russian Federation (In Kazakhstan, Belarus, Ukraine – KIVI is among the top 5 brands, in the Russian Federation – the top 10).
How did you set up the production of the first batch? Were there any serious mistakes due to which you had to withdraw the batch?
Our main manufacturing partner is the Chinese company MTC. We entered into a strategic partnership agreement with this global industrial giant earlier this year. MTC works with many well-known brands: JVC, Xiaomi, KIVI, of course.
Fortunately, we didn’t have any cases where we had to recall the entire batch. We started with building a quality control system in production but then we realized it wasn’t efficient. It is expensive and not good for a business to make any changes to an already produced product. It would affect the supply chain system, cause violations of contractual obligations with partners, losses in sales, penalties, etc.
Of course, our first batches were far from perfect. We quickly realized that what we needed was to build our production service that would efficiently manage the product quality. And we made it happen: we built an effective quality management system together with our manufacturing partners. As a result, now we are a reliable supplier in all markets and do not violate our obligations.
How did you manag to get investments from MTC?
We placed orders and worked very closely on product development issues. They saw real dynamics in both our sales and our products in all markets. They noticed that we didn’t cut production during quarantine – we implemented all our obligations. So they offered cooperation which resulted in the memorandum and investment.
We signed a 5-year strategic partnership agreement, according to which, in 2021, they will invest in our company $13 million. This money will be used to develop the product. Unfortunately, we can’t tell you about the next steps within the framework of our partnership until 2022.
Did they buy a stake in KIVI?
Not really. We will just create new products together. They have invested in our technological solutions, and they will be able to use them in other production projects.
So you mean they own your intellectual property rights?
Yes, it’s something like that.
Do you use any Ukrainian spare parts or materials in KIVI TVs?
The intellectual property is Ukrainian, but spare parts we use are from Japan, China, and Taiwan. Some of the software is made in Ukraine. Our R&D team is international and consists of both Ukrainians and citizens of other countries. A significant part of the software is made in Kyiv, and of course, the KIVI launcher is 100% made in Ukraine.
How many people work for you today? How many people did you hire in 2020?
The companies that make up our holding company employ about 300 people. In 2020, we hired more than 20 people, speaking of office positions. This year, we posted many other openings both in the head office and in regional ones.
This year was challenging for all of us. Many companies had to make staff cuts, cut salaries, or made people receive just 50-75% of their salary. We didn’t make any major cuts during the lockdown. There were layoffs that we had planned even before the first lockdown – the lockdown just pushed us to make the decisions we had postponed faster.
We opened a lot of new positions and hired a lot of people in 2020. At the same time, we launched many social programs:
- KIVI to every home: an employee can use the KIVI TV for free getting a new model every year.
- KIVI for loved ones: employees can buy TV sets for their friends at a special price.
- Long-Living one: each employee of the company receives a virtual bonus of 10% of his salary and can cash it out after having worked in the company after a certain period.
- The employees have two-level insurance – some expenses are covered by insurance funds, some – by the company’s funds.
- Corporate university – experts from the market come and teach our employees free of charge. They can learn how to negotiate, give expertise in marketing and sales, etc.
- We allowed our employees to work remotely twice a week. And we don’t do all-hands meetings on Fridays. In our company, this is a day for self-development and independent work. We know that often there is not enough time to reflect, so every employee can spend this time just thinking about the development of his projects or his professional skills and reflect.
Another thing about us is that we make decisions very quickly. We do not have a bureaucracy that expects 150 approvals. As soon as the R&D team has a new idea, it comes to the Vice President and then directly to our management board.
We have a weekly board to solve all important issues quickly. It usually takes a week. As a rule, if people come to the meeting, they don’t leave until the issue is resolved.
We want to create a dream company with a waiting list of people who want to join it.
What about negative reviews and comments about KIVI TVs? Where should consumers in Ukraine contact if they are dissatisfied with the quality of the products?
We agree that the first TVs were not perfect. We have a hotline and service centers in all markets in which we sell televisions. The average response time of our hotline is 25 seconds, you will not have to wait longer on the line. We have a bunch of chatbots, instant messengers. The client can choose any convenient way to contact us, and we will do our best to provide the best service.
Actually, there were negative comments. Some people complained about the quality of our products, mainly from the first batches. We admitted these mistakes, resolved them, and we have already implemented all fixes in the 2020 line. The new 2021 will be even cooler.
At the same time, we realized that a considerable part of the comments is fake. Often it is just a tool of competition, not the real people’s opinion. You can distinguish them easily – those users have no avatar, comments are emotional, no problem described, something like “the product is shit” or “never buy it, you better go spend the money.”
We noticed that we get much fewer negative comments on the resources where only real authorized buyers can leave comments, and even significantly lower than other brands have. Unfortunately, in Ukraine, big companies can be engaged in this. There are still no laws that would allow to bring them to justice. Once, they even contacted us and offered money if we would attack our competitors. We refused and did not spend a cent on it.
I believe that karma works in business too, and I guarantee that we will never say a single bad word about our competitors. Just fair competition allows us to enjoy running the business. The formula is very simple: business is about money and pleasure. If your business doesn’t make you happy, then you are a miserable person. If it makes you happy, but you can’t make money, then it is a hobby.
We welcome constructive criticism. We have a group of experts who test our TVs and they write all their opinions to me. We know all our weaknesses – every product has them. For example, I am a die-hard fan of Apple products, and believe me, I have something to say to the Apple developers. You know, only those who do nothing do not make mistakes.
How does the company develop today?
If we talk about the Ukrainian market, we are now in the second stage in terms of the commercial life cycle. We have passed the stage of rapid quantitative growth – it was a race for a stake. Now we focus on sustainable development and financial results. However, this strategy does not prevent us from growing in the market. Last year, we started a partnership with Google – our TVs of 2020 line were powered by Google’s Android software. That has greatly improved the stability of the operation.
How has the coronavirus affected your business and the market in general?
2020 was a very interesting year for the Ukrainian TV market. The market in Ukraine grew even though there were a lockdown and drops in incomes. That was influenced by devaluation expectations in the country at the time and the change in the model of content consumption.
The panel is a key component in the cost composition of the product. Prices for panels have fallen very much because of the coronavirus what allowed us to get a pretty good production cost.
At that time, competition between Chinese and Korean brands in the Ukrainian market also increased. Companies were giving unprecedented discounts, higher than on Black Friday. That spurred demand: the market grew in physical volumes, but not in money.
The market grew from 25-30% to 70% per month over the previous year. In May, it grew by almost 72%, but in November, it sank a lot when the government announced a weekend lockdown. That was the only month of the year when the market fell by 2.6%.
Nevertheless, that slump at the end of the year has only corrected the final growth figure. If the 2019 market in pieces had just over a million TVs, then in 2020, it was 1.4 million. The market grew in physical volume by more than 45%; in money – by 26%.
We are currently witnessing a chip crisis in the global market, and it is affecting our industry. The chip is one of the main components of TVs. It has already led to a shortage in the market, and now we see that even the major players have shortages of certain items. In this regard, we forecast a significant increase in prices for end consumers.
We forecast a price growth of 20%. Therefore, in 2021, the market’s increase in numbers is going to be insignificant – 5-10%; it is, however, going to increase in value by 15-20% as the average price per item is going to rise. We predicted this situation earlier, so KIVI is ready to fulfill all our obligations to the partners.
There is the term Average Selling Price (ASP). In 2020, the average price for a TV was 9,400 UAH (approx. $340), our forecasted price for 2021 is 10,400-11,000 UAH (approx. $370-395). The only thing that could affect it is the component prices fall at the end of the first and second quarters. In this case, there may be TVs at a reduced price by the end of Q3 or Q4. But the probability of this is very low.
Will your prices go up too?
No one player will be able to avoid raising prices. Now there is actually the last opportunity to buy a TV at low prices because there are leftover stocks from previous periods.
How is the TV industry evolving globally? Will there be any global changes?
A TV, as a broadcasting device, is a thing of the past. Smart features of TVs have changed their role in people’s lives and will continue to change. We see how our customers are using their TVs, and we see that TV in the classic sense is no longer in the first place. There are various video services in the first place, watching video content, but not television.
In fact, the TV goes the same way as the phone. From “Hello, could you please put me through to…” to the point where the phone has actually stopped performing its original function, which is to make calls. People don’t call – they watch content, text, play games, etc. The phone has been moving toward this for more than a century, and the television will go the same way, but faster. Because technology is advancing faster nowadays.
A TV now serves as a smart screen. That is no longer a fantasy but a real project. Humans are visual by nature: when you hear some words or music, feel something by touch, images arise in your head. Therefore, for us, a TV is a natural and understandable device, convenient for controlling anything.
The lockdown changed the profile of usage: people had to spend more time at home, and they realized that watching content on a handheld device is not as convenient as watching it on a big screen. That’s why so many TVs were sold.
That’s the main point of KIVI: We don’t make TVs – nobody needs a TV as it is. We create a convenient way to access content and new emotions.
The TV will eventually become a kind of communicator. If we now use a smartphone to make calls, then literally in the near future, we will use the TVs for that. But it will be a smart screen. People will come home, put their phones on charges, and all communication with the world will be through the TVs.
If to look at the history of the development of televisions, at first it was about the screen or the design. Today, there is a race to develop software solutions. Google has entered the market with its product, Google TV, and this shows that the big players have started to pay attention to this market and see its prospects. It gives hope that the changes that I am talking about will come fairly quickly.