Xiaomi made its mark by selling cheap smartphones directly to consumers online. It set a Guinness World Record in 2015 for the most mobile phones sold in a 24-hour period.

Lei Jun wrote in a note to employees that they did create a “miracle” company but now things will not be as spectacular.

Huawei, Oppo and Vivo surpassed Xiaomi in smartphone sales, and by early last year analysts were starting to get worried about the company's decline.

Lei said that Xiaomi faced "unforgettable" challenges, including four months of supply chain "issues" last year.

Part of the problem was that Xiaomi’s success was based on millions of inexpensive phones yielded low profits. This meant the brand was associated with being cheap so rich people who have more money than sense wouldn’t touch it.

Lei admitted that selling cheap phones online isn't enough. He said the company will now focus on "innovative technologies and products that speak for themselves".

Last year though the company did release the rather cool high end phone the bevel-free Mi Max and that heralded a chance in direction for the company.

The company will also beef up its offline retail presence, more than tripling the number of its brick and mortar Mi Home stores in the next year. Xiaomi currently has 54 Mi Home outlets, three of which topped 100 million yuan ($14.4 million) in sales last year, according to Lei.

The stores sell Xiaomi-branded devices like air purifiers, smart televisions, fitness trackers and even body weight scales.