The Story Behind the Secret History Part II. Getting B-52s through the Soviet Air Defense System

This is post II of how I came to write “The Secret History of Silicon Valley“.

1974. The Vietnam war was winding down. After been stationed at three fighter bases in Thailand (Ubon, Udorn and Korat) and working on Electronic Warfare suites on F-4’s, A-7’s, F-105’s and AC-130’s, I got orders to report to a Strategic Air Command (SAC) B-52 bomber base in Oscoda Michigan. 74HGZA3MZ6SV

Imagine how hot, humid and unbearable the weather was in Thailand. Now I was on an airbase that issued some very ‘cool’ gear – bunny boots and arctic parkas.  The downside was that the average winter temperature was about 10 degrees.  I remember the few times I had to go out to the flight line, it was usually 15 below zero (Fahrenheit.)

The B-52 – When it Absolutely Had to Get There the Next Day

During the Cold War, the B-52 bomber was one-third of what was called our strategic triad – meaning, it made up one-third  of the U.S.’s strategic weapons: ICBMs, nuclear submarines, and manned bombers.  The notion was that while the Soviets could knock any one or any two of those out, we still had a retaliatory capability.  (That was our strategic posture from the ’50s, ’60s, and ’70s, the ’80s, and I think maybe even through the ’90s. Now we have ditched the cold war triad in the 21st century since the Soviet Union became Russia again and discovered its own style of capitalism.)

Think of a plane the length of a 767 airliner (but with 30 foot longer wings and 8 engines rather than 2) whose only mission was to FedEx 70,000 pounds of nuclear weapons to the Soviet Union.

B-52

Soviet Air Defense – PVO Strany

The B-52s had to get through a massive Soviet air defense system that had been built and evolved over two decades and was designed to shoot down manned bombers.  Not only did Soviet Air Defense have the same SA-2 missiles the North Vietnamese had (since they had given it to them), but the Soviet air defense environment was much denser with a layered defensive system of radars, Surface to Air Missiles (old SA-1’s and newer SA-3s, SA-5s) and a huge manned 1000+ plane fighter interceptor fleet.  In fact, the Soviet Air Defense Forces, PVO Strany, was so important in the defense of the Motherland it was a separate branch of their military.

And just to make the problem harder, the North Vietnamese had shot down B-52s in December 1972 and given the Soviets the captured electronic countermeasures equipment.  Even though the bombers we lost over North Vietnam were older versions, called B-52 D-models, many of the systems were the same.  Now the Soviets had first hand knowledge of how their air defense systems would work against the nuclear armed B-52G and H models in an operational environment.

Ann Arbor to Alpena – 180 Miles and a Major Culture Gap

While I never got tired of looking at the planes, one my fondest memories of this base was driving down U.S. 23 to Ann Arbor when the leaves turned in the fall.  Late September to mid-October the riot of the colors was so intense I pulled the car off to the side of the road to just stare for awhile. Each week as I would head down south, I could track the progress of the trees putting on their electric reds and yellows fall colors as they also headed south.  I’d spend a weekend in a college town, without a uniform, in a world as far away from nuclear weapons and the Strategic Air Command in politics and culture as you could get. While it seemed a bit incongruous, it was fun listening to my friends in graduate school over dinner worrying about grades and jobs. Then I would return back north to the much drabber green palette of bombers and uniforms and continue to defend democracy.  I had plenty of time in those three hour drives to ponder the value of universal National Service.

The Electronic Warfare Officer (EWO) and the Nielsen Ratings

The largest payload next to the nuclear weapons on B-52s was the electronic warfare equipment, which was to designed to help the bomber jam its way through the radar environment in the Soviet Union.  The bombers had wideband panoramic receivers and displays, chaff, and kilowatts of jammers up and down the frequency band.  One of the six crew members was solely dedicated to get the plane to the target through the gauntlet of the Soviet air defense system: the EWO or Electronic Warfare Officer.

When I first got to this B-52 base, I started asking: “What are we working on?” Again, just like in Thailand, the answer was, “Just fix the damn boxes.” I’d always be the one in the shop going, well, “Why? What are we jamming, how many Soviet radar types are there what does each one of them they do, how do we know about them, how did someone know to build these jammers to these specifications, how do these bombers penetrate Soviet airspace, how, when and where did the EWO use his equipment?” People used to just look at me: why are you asking these questions?

But I was now running the part of the electronic warfare shop that repaired the receivers and could get some of my questions answered.  The receiver I worked on, the ALR-20, when turned off looked like nothing more than a big orange TV display. But it was the main display for the EWO on the B-52 for situational awareness.  When it was on, he could see every signal from one end of the electromagnetic spectrum to the other and for a long way out around the aircraft.  Think of the most amazing spectrum analyzer you could build with 1960s technology.  Then think some more.

In time of war, the B-52’s would be piloted into Soviet territory at 500mph at 500 feet above the ground (by eyeball and by using some pretty sophisticated  low-light TV and infrared cameras.) Sitting behind the pilots, the EWO was also steering the plane, but he was taking it through the hostile electromagnetic spectrum.  He was constantly looking at the multiple lines on the ALR-20 display and could see the Soviet radar order of battle: ground to air communications, what radars were around (search, acquisition, tracking, etc.), were they about to get locked on the bomber and whether they were going to get a SAM up their rear or was it going to be an air-to-air missile from a fighter.  And because of his training, an EWO could identify and prioritize the threats.

The signals displayed by the ALR-20 were used to control the jammers of the rest of electronic countermeasures systems – putting out enormous number of kilowatts using brute force noise jamming and later on some much more sophisticated jamming techniques. All of this designed to make the plane if not invisible to Soviet radar, at least really difficult to lock onto and shoot down.

Just to rank how difficult it was to protect a B-52 in a dense defensive radar environment, our current B-2 stealth bomber has a radar signature of about an aluminum marble, while the B-52 designed in 1950 has the radar signature of a 170-foot sphere.  It was like trying to fly a whale through a fish tank and not get noticed.

(I remember a few times when the bombers were flying practice missions over their test ranges. On the way home the Electronic Warfare Officer would “accidentally” turn on the communications jammers over populated parts of the U.S. and shut down television and FM radio stations for hundreds of miles. This stuff was so powerful it probably could affect the Nielsen ratings. When they landed, the EWOs would write it up as an “equipment malfunction.” I could never tell if they had a sense of humor or just wanted to see if the equipment would work in the real world.)

Peace Is Our Profession – Is It a Drill?

In front of the entrance to every Strategic Air Command air base was a sign that said, “Peace is our Profession.” No joke.  Really.  Yet every time I came back to base, I kept thinking about whether this was the day for the alert drills.

At this time in the cold war, several B-52s at every Strategic Air Command base were on ground alert – they were loaded with nuclear weapons, had their orders and targets and were cocked and ready to take off to execute their mission – to destroy some part of the Soviet Union with large nuclear weapons.  All as an integral part of the Strategic Integrated Operating Plan – our war-fighting plan to destroy the Soviet Union.  When the alert sirens sounded, the bomber crews and the ground crews raced for their planes and they and their KC-135 refueling tankers would take off − hoping to miss the incoming Soviet ICBMs and SLBMs intended to destroy the bombers, the base and a good chunk of Michigan.

The problem for the rest of us on the base was that when the alert sirens went off, you did not know it was a drill.  I would always look at my watch and count down 10 minutes to see if we would be vaporized by a submarine-launched attack, and then hold my breath for another 15 minutes to see if there were ICBMs coming across the pole to take us out.  I wondered if I would actually see the flash or feel anything.  At these times, you never forgot that peace was the last profession we were in.

I never got used to it.

Stay Hungry, Stay Curious

When these bombers got their first modern Electronic Countermeasures suite (the ALQ-117 with automatic wide-band receivers and jammers), I got sent back to school for three months (to scenic Biloxi Mississippi again) to learn how to repair it.  This equipment was modern in the sense that it used integrated circuits rather than transistors, and it responded to threats “automagically” rather than requiring the EWO to do something. Learning about integrated circuits in the mid 1970s was fun as it meant learning a whole new language of digital versus analog computing and learning how to use a logic analyzer instead of just an oscilloscope.  Little did I know that these integrated circuits were coming from a place I would one day call home, and I’d be working at the companies who were designing them.

But once again, learning about the new electronic warfare equipment meant learning more about the Soviet threat environment and what we knew about the latest Soviet radar order of battle.

So now with a bit more “need to know” and a lot more “I want to know,” I started reading all the technical manuals I could get my hands on.  One of the wonderful things about a classified location is once you are inside, you have access to everything and can read anything − and I did.  I not only knew about my equipment but everyone else’s in the shop.  And I began to understand a bit about the Soviet radar order of battle at the height of the cold war from reverse engineering what our jammers were designed to counter and what frequencies our receivers were looking at and how the EWOs were trained to use our equipment.

I was always kind of curious. I was always curious about, and asking about, the big picture.

I was 22.

steve-blank-at-22

Part III of the Secret History of Silicon Valley continues here.

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SuperMac War Story 4: Repositioning SuperMac – “Market Type” at Work

With insight into our customers, the first part of our strategy was to understand what kind of positioning problem we had.  Was SuperMac attempting to introduce radically new products and create a new market?  No, not really. 74HGZA3MZ6SV

Was the company attempting to be a low cost provider by introducing cheaper products to an existing market?  While we sometimes cut the price of graphics boards, it was only because we offered our customers no compelling reasons to buy one that was priced equivalently to the market share leaders.  And we lost money when we did so.  Therefore, no, we weren’t really equipped to be the low cost provider.

Was the company attempting to introduce faster and better products to an existing market?  On first glance this was exactly what we were trying to do. But with a little bit of thought it struck us that if we attempted to do that, our competitors had a pretty substantial advantage, since they held nearly 90% of combined market share.  If we tried to match them on their playing field we’d never catch up.  They had more than enough dollars to outspend and out market us.

We knew from back-of-the-envelope calculations that I would need 3 times the combined marketing and sales budgets of the incumbents for a head-on assault. (I had found that the numbers 1.7x and 3x kept coming up time and again in attacker/defender ratios when I gamed out our market entry strategies.  It wasn’t until I found the extremely obscure Lanchester Strategy for market share that I realized that these ratios had their basis in operations research and the Lanchester’s Laws.)

So if we couldn’t be new, cheaper or attack our competitors head-on, what was left?  The real answer seemed to lie in attempting something a bit more difficult.  We needed to redefine or resegment the playing field (the existing graphics board market) so it favored us.  We needed to negate our competitors’ existing advantages and hopefully turn their strengths into weaknesses.

market-type

When we looked at the color graphics board market, our competitors had defined the market as one measured by technical metrics: screen resolution, number of bits of color, screen refresh rates, acceleration, etc.  We had been attempting to compete by their rules with the same types of technology messages.  I had a marketing department spending $4m a year trying to do so against competitors spending $20M year. The 3:1 Lanchester Laws said I would need $60M in marketing and sales spending to win.  I didn’t have it, wasn’t going to get it, and we needed to stop thinking that our path to success was just to “try harder.”

We needed to come up with a playbook with completely new rules, then execute relentlessly and with urgency. Up until now all the graphics board companies supplied “technology”, and it was up to the customers to figure out which of these arcane specs was best for their business.  Our first radical move was to redefine the market from SuperMac a company that sold graphics boards, into SuperMac a company that provided desktop publishing professionals with better color publishing tools.  We were going to be the leading supplier of color publishing solutions for the Macintosh. Our strategy was to resegment a hardware business − the graphics board and monitor market − into a desktop color publishing market.

To say this was a radical notion at first was an understatement.  I lost several very good product marketing people who couldn’t/wouldn’t get it, or who couldn’t/wouldn’t move with the urgency I needed.  But an 11% market share company wasn’t one I wanted to work in.  We were gearing up to go from status quo to relentless and continuous execution, and everyone needed to be on the same team.

Next, we needed to focus our messages away from technology and onto what the customers told us they needed – performance solutions for four key publishing applications.  Our company’s graphics boards were designed to speed up a key part of the Macintosh graphics operating system called QuickDraw.  All the marketing materials, data sheets, advertising, press releases, trade shows, etc. focused on the technical fact that we accelerated (made much faster) this arcane piece of computer code.  Technically our positioning was correct, and with an infinite marketing budget (my back of the envelope calculations said $60M) and time, we might have made this technical fact (QuickDraw acceleration) something a customer understood and cared about.  But we didn’t have infinite cash; we had just emerged from bankruptcy, and unless we could get customers to quickly understand why our products were great, we were headed there again.  Yet the customers not only had told us who they were – color desktop publishers – but what they cared most about – graphics performance when running their four key applications.

It didn’t take much imagination to realize that what we had to do was to tell our story around one key metric performance − performance for color publishing, performance on the applications that mattered.  And paradoxically we had to raise our prices.  Why?  Because if we were going to be the high performance color graphics company, we were going to have to stop competing on price and start building a perception of a high-value, high performance color solutions company.  Customers had already given us permission to do this, when they said they were price insensitive.

Now we needed to act.

What did I learn so far?

  • Deep and detailed understanding of the customer is the only way you can understand your “Market Type” choices
  • Market Type choice drives Positioning/differentiation strategy
  • Positioning/differentiation drives communications strategy
  • If you are resgementing into a niche in an existing market make sure it’s into a space that customers care passionately about and will pay for

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If I Told You I’d Have to Kill You: The Story Behind “The Secret History of Silicon Valley”

About a month ago I had one of the strangest phones call of my life. “Steve my name is Donald xx, and I’m the head of external affairs of the CIA’s venture capital firm and we’d like you to keynote our conference.”  CIA?  “Do you mean the Culinary Institute of America?  And you’d like me to do my talk on Customer Development and startups?”   “No, we’re the other CIA.”  74HGZA3MZ6SV

So I gave my “The Secret History of Silicon Valley” talk as the keynote to the CIA’s venture capital conference.

Their VC firm, In-Q-Tel, has been in business for 10 years, and like most VC firms they have an annual event where they show off their new portfolio companies to their limited partners and other VC partners.  Except at this VC conference, 100 or so of the 300 attendees had badges that had their first name and only the last initial of their last name.  (And I could have sworn they all had the same badge.) They were all from somewhere in the intelligence community.

As I was leaving someone asked me, “You must have been working on this story for awhile.” Until then I had never thought about how long I had been thinking about this.  But as I got into my car I realized that this talk was the result of my never-ending asking “how come” for 36 years. So this post is how I came to write “The Secret History of Silicon Valley”.  (I’ll post more about the history itself later.)

So here it is in five parts.

Part I. Thailand: Bats, Moths and John Scoggins

I was 19 in 1973 and in Thailand in the Air Force working on electronic warfare equipment on fighter planes, gunships and Wild Weasels, at the tail end of the Vietnam War.  I remember asking out of the blue one day, “Where does our equipment come from, what is exactly that we’re doing?”

My sergeant looked at me like the dog just talked: “What do you mean, what are we doing?  We’re fixing this equipment; that’s your job. When the pilots say it doesn’t work we take the stuff out of the plane, bring it to the shop make sure it really is broken, you know, and unbreak it.”  And I went, “No, no, no, but why are we doing this?”

I wanted to understand more about the North Vietnamese and their surface to air missiles and radar guided AAA they got from the Russians, and how we were trying to out-smart them with receivers to pick up their radar and jammers to jam the acquisition radars and missile guidance uplink signals — a little of which I had learned in my one year of training at Keesler Air Force Base in Biloxi Mississippi.  Since it was the military and I was a lowly airman (I was outranked by the rest of the entire air force), the answer I got was, “Don’t you know there’s a war on? Shut up and keep fixing that equipment.”

But I kept on asking enough questions until finally I got the attention again of the guy who had brought me off of the very hot and humid flight line into the shop in the first place, John Scoggins.  John said, “You’re really interested in this stuff, aren’t you?”  I said, “Yeah, you know, like where did it come from, I mean, how long have the Russians had this stuff? Why did they build it? How did we figure out how to build jammers?” There was no public history about surface to air missiles, though I’m sure there were probably some good classified histories, which I didn’t have access to.

John said, “Well, Steve, it’s been going on for tens of millions of years.”  I said, “What are you talking about?  I’m asking about electronic warfare and countermeasures.”  He said, “Tens of millions of years.”  And I said, “What?”  And he said, “Meet me at the tennis courts tonight.”

John was a lifer, who I guess in hindsight was a nerd and was in his element as an enlisted guy, but a master sergeant.  He must have been in his 30s, so a real “old” guy to a 19 year old.

So, he said, tennis courts, 8:00 PM tonight.  You’re on an airbase with 180 fighter planes, but we had a tennis court and gym and all kinds of accoutrements to give thousands of airmen in the middle of a war zone an alternative to almost free drugs and women (note to military, nice try but it didn’t work.)

The tennis courts had these very bright lights, and they would attract all kinds of bizarre tropical insects, including these large flying water beetles. I don’t know their actual genus, but they were called “Baht Bugs” because the Thai locals would come and capture them and sell them for a nickel each since they were a delicacy, and the Thais would take the raw bugs and literally slurp out their insides in real time.  So, they would be running around the tennis courts collecting Baht Bugs.

Baht Bugs

Baht Bugs

There were also these large moths that would attract bats.

So, I go to the tennis court, and there’s John Scoggins, and there’s a pile of electronic equipment in the corner, and it’s night, and no one played tennis at night, even though they lit the tennis court.  But there’s a pile of electronic equipment under one of the lights with a parabolic dish antenna, kind of a miniature setup of stuff we had in the labs and our shop.

And I said, “What on earth is this?”  John put on headphones, and he gave me a set of headphones, and all of a sudden I could hear this chirping sound.  And I said, “What are we listening to?”  He said, “Bats.”  “What?”  “Bats.”

John explained that bats have the equivalent of radar.  Not radar in terms of microwave radar frequencies, but they use ultrasonic frequencies to locate their prey at night, and so it’s essentially radar to locate bugs.  And since they fly at night, they don’t use vision; their ultrasonics are essentially their eyes.  They’ve build up a mental map −– just like our vision −– with echolocation.  They send out these chirps, and when one bounces off an object, it comes back.  Then they would go after the moths. That’s what I was hearing was the radar signals of a bat.

We’re listening, and it’s very cool.  And John was recording all this stuff on a reel-to-reel tape recorder, recording the flight of the bats as they were going after bugs.  Every couple minutes he’d say, now listen to this one, and you’d hear the bat chirp, and then every once in a while you’d hear even a higher frequency but lower volume sound.

John said, “Listen, you can hear the jammer.”  The what?  “The jammer,” he said, “Watch the moths.”  It turns out the moths, through evolution, had developed their own electronic countermeasures to jam the bat radar. They had developed ultrasonic receivers and ultrasonic jammers and physical countermeasures. When they picked up the bat radar illuminating them by sensitive hairs on their antennas, they would send out their own little squirt of ultrasonics by rubbing their legs together, jam the bat radar, and then they would immediately take evasive action and dive to the left and right.

Through Darwinian selection over millions of years, these moths had developed an entire electronic warfare, electronic countermeasures, electronic countercounter-measures suite, and here was a guy in 1973 in Thailand who was figuring this stuff out.  To be honest, it was my first insight that there was really a bigger picture.

So, John’s point was, “I keep trying to tell officers way above me that there’s probably a ton we could learn from watching these natural systems.  What we’re doing in the air war over the North is just nothing more than something that’s been going on in nature for millions of years, but I can’t seem to get anybody’s attention.”  (Thirty years later MIT would develop the Insect Lab and work on swarm behaviors for UAV’s and robotics.)

Years later, I searched Google for anything written on moth/bat radar and countermeasures, and while now there are quite a few papers, John had never published anything on the subject.  If he did he would have been 20 years ahead of everyone else. But I always had thought the bat and moth thing was incredibly cool, and it answered a question I had never even asked: where is all this coming from?

In exchange for helping John with his bats and bugs, I learned about the big picture −– about the North Vietnamese air defense radar network and SAMs and what systems our equipment were trying to shut down, what the Wild Weasels were doing, and what John had heard from friends in Utapao and Guam on why we lost all those B-52’s in Linebacker II, what worked and didn’t over the north, almost all which was classified way past my pay level (and his.)

But I was always a sponge for new data and curious about where it came from, and what the history was, and what we were trying to do.  Most of it went in one ear and out the other.  But some of it was sticking.  And all of it was interesting.  It gave me a sense of purpose for the rest of the war.  Under John’s tutelage I ended up running a small shift and part a very large shop and was being sent to other bases in Thailand to train others how to repair the new equipment.

Thanks John, wherever you are.

I had just turned 20.

Steve at 19

Part II of the Secret History of Silicon Valley continues here.

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Watch This Space

I am going to post on Mondays and Thursdays – at least until I run out of war stories. Posts are going to be a mix of topics: entrepreneurship, secret history and conservation. I’ll try to mix the topics up during the week. BTW, keep the comments coming, they’re read and appreciated.

SuperMac War Story 3: Customer Insight Is Everyone’s Job

After my first month we knew a lot, we knew more about our customers than anyone in the company.  In this one month we had learned more about desktop publishing on the Mac than any one of our competitors.  Now the question was what to do with it.  First I need to make sure what we really learned was information we could base a company strategy on. 74HGZA3MZ6SV

Our first question was, did the total number of customers that had already bought products from our competitors and us represent a saturated market or the tip of the iceberg?  In other words what was the Total Available Market (TAM) and how much of the market had been already served?  Since our competitors were also small privately held companies, none of their data was readily available.

But we knew something they didn’t; the total available market for color graphics boards was measurable by looking at an adjacent market, the color desktop publishing software market.  As it happened there were quite a few industry analysts following software companies like Adobe, Aldus, and Quark, who happened to be the suppliers of the four key applications our customers said they used.  These analysts not only told us that the market had plenty of room to grow, they took an interest in us, since we were going to be a hardware company going after this growing market.

Since I was heading a marketing department, not acting as an individual contributor, I needed to teach all of marketing the importance of customer data.  First, I presented what I had learned.  You could sense the skepticism in my staff meeting as I described what I found.  But no one was prepared when I said, “These facts are now old, but since we are going to be changing customer perceptions we need to get new customer data weekly.  All of you are now part of the customer discovery collection team.”  Then I handed out the questionnaire to all of marketing and made two customer calls a week mandatory for everyone, including my secretary.  At first people couldn’t believe they were actually going to have to call a customer.  Some took cajoling to make the calls, other took me sitting by their elbow, but eventually everyone started dialing.  The first part of my weekly department staff meeting was dedicated to hearing everyone going around the room and talking about their customers.

Within a month the change inside the marketing department was palpable.  Customers were no longer some theoretical entities that existed only in data sheets, they were real people you talked to, understood, and connected with.  Soon marketing was talking about the needs of our customers with first-hand knowledge, passion, and conviction.  And without knowing it, the quality of marketing department’s work changed.  Instead of spec’s and technical features, our literature and interaction with customers shifted to how we could solve their problems.

Within a year we had called over 1,000 customers, and every year after that another 1,000.  Marketing, which had been unsure or unaware of what their jobs, were now had weekly reinforcement of who they were selling to and became a formidable force in the Macintosh graphics market.

Now we could execute a relentless come-from-behind strategy off of the information we had learned and discovered from our customers.  Now what was the strategy?

What did I learn so far?

  • Facts are the rock on which you build your strategy and tactics
  • In a startup second-hand facts are almost as useless as opinions.  Decision makers need to hear the facts first hand

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SuperMac War Story 2: Facts Exist Outside the Building, Opinions Reside Within – So Get the Hell Outside the Building

A week before I started I got inkling of really how deep I was in.  While I was waiting in the lobby to pick up my offer letter, the head of marketing communications (who was to be one of my direct reports) came up to me as I held my just signed employment agreement.  She said, “Oh I’m glad you’re coming, and I wanted to grab you before you started because we need to resolve the company’s biggest marketing problem.”  I was impressed; this was something so important that she couldn’t wait for my first day.  Was she going to propose a coherent communications strategy?  An in-depth reseller survey?  Or offer some real insights into our customers?   No.  “We need to decide immediately between which version of the new logo to use.”  Ignoring my dropping jaw, she pointed out the key differences in the Pantone colors between what appeared to me to be the two indistinguishable alternatives.

supermac-logoAs her description receded to background noise it dawned on me that the color of the logo seemed to be the size of the marketing communications department’s universe.  It wasn’t a lack of competence or skill in her job; it was just that as far as she was concerned, her job had no connection to the rest of marketing, our customers or our ultimate success as a company.  “We need your decision now because we are about to spend $50,000 on new collateral.”

Coming out of the fog at the sound of serious dollars about to be spent, I politely suggested that the new collateral was on-hold, and we were going to spend the first few weeks of my tenure trying to understand who our customers were, and what we wanted to say to them.  And I hadn’t even started work yet.

My first day at work I found myself staring at a set of marketing faces, mostly holdovers from the previous version of the company that had gone belly up, some were bright and eager, some clearly hostile.  “OK, let’s start with the basics, who does marketing think our customers are?”  We went around the room and every one of them had an opinion. Unfortunately, all their answers were different.

By now, nothing surprised me. This was a company that had sold 15,000 graphics boards and monitors to consumers.  A large number of these customers had mailed back their registration cards (this was pre-Internet) with their names, phone numbers, job titles, etc.  So I asked the fatal question, “Has anyone ever looked at the customer registration cards?  Has anyone ever spoken to a customer?”  Silence.  Most just stared at me like the question was incomprehensible.  The one or two product mangers who should have known better glanced down at their shoes.  Then someone asked, “Well, who do you think our customers are?”  Ah, a leading question.  I said, “I don’t know. And if I tell you what I think we’ll just have one more uninformed opinion.  But what we need right now is some facts.  Does anyone know where the registration cards that the customers sent back are?”

Why did I ask these questions?  As a company with a past history, the company had a massive advantage over a typical startup – it had customers.  Normally in a startup you spend an inordinate amount of time and energy in Customer Discovery and Customer Validation.  Yet here was a “restart” with over 15,000 customers who by putting their money on the table had personally validated the market.  Now I was cognizant I might find a customers that hated the products or company.  Or I might have found that the company was in a business that wasn’t profitable and no way to get profitable (which I had concluded was the case with their commodity disk drive business.)  But this was an opportunity that needed to start with customer facts, and I was going to get them.

Twenty minutes later a cart rolls into my office with 10,000 unprocessed, unlooked at, and untouched registration cards.  All with names, addresses, phone numbers, job titles; all wonderful data longing for human contact.

Customer survey

Three hours later I had made up a three-page customer questionnaire.  I wanted to know some simple and not so simple things about our customers.  The obvious one’s were who were they?  What did they do that they needed an expensive color graphics card?  If you believed the opinions in the marketing department, the customers were in science, engineering, color desktop publishing, and a variety of applications with no single industry or application dominating the list.  I wanted to know the facts.

Within these applications how did our customers spend their day?  Were our products a small part of their life or large? And since the card was useless without any application software, what other software products did they use on it?  How important was the card to them getting their own job done?  What was the most important attribute about our graphics cards and monitors that made them buy it?  And by the way since we sold both the graphics card and a big screen color monitor did they buy both from us?  Did their choice of the card affect the choice of who they bought the monitor from or vice versa?

I also wanted to know if the marketing our company had been doing to date was effective.  So I asked a set of questions about how customers had heard about our company.  Do they know anything about us?  What did they think we stood for?  What did they know about our products?  If they had they heard anything about us where did they hear it?

I also wanted to know who our existing customers thought we competed with.  While I could have told them, it was more valuable hearing their perspective. Had they heard about our competitors and their products?  If so, where?  Who did they think were the leaders in the color graphics board and monitor market?  Why?  What did they think the leaders most important attributes were?

Since this was the marketing department, I was going to be planning to spend some advertising and public relations dollars.  It would be great to know how they got news and information about new products and new companies.  What magazines did they read?  What reviews did they trust?  Did they attend trade shows?  Which ones?   Had they seen any our ads?  Did they understand them?  Had they read any stories about us?  I wanted to know if marketing was getting any bang-for-the-buck in spending its demand creation dollars.

I wanted to understand how customers bought our products.  I knew we were selling through a multi-level indirect sales channel.  That’s a mouthful to say that our sales people didn’t sell our products directly to a customer.  Instead they managed rep firms (independent sales companies that carried multiple, non-competing products) that called on computer resellers that sold to the customers.  Since we weren’t talking to our customers directly I wanted to know if the message we were giving our sales people were coming out the other end. Kind of like the game of telephone you played as a kid.  You started a message on one side of a long line of people and passed it on, one-to-another until it came out the other end.  The result is usually hilarious.  The ending message sounds nothing like the one you started.  Market messages to indirect sales channels are just like that.  What I wanted to know is what kind of reseller did they buy from?  What product did they go into the store thinking they were going to buy?  Was it the same one they left with?

Finally, I also wanted to understand the resellers themselves.  These were the people who had the face-to-face interaction with our customers.  What did they think about our company?  Our products?  Was our compensation program good, great?  Were they making enough money with us?  Who did they think were buying our products?  Who did they think our competitors were?

Hypothesis to test

After writing up the questionnaire, and before I called the customers, I wrote a one page summary of who I thought the customers were, what markets they were in, how and why they bought, etc.  I was curious to see how close to my hypothesis the actual customer answers would be.

At the end I had a three-page questionnaire that I timed in a practice session with one of my marketing people.  I could get it done in twenty minutes.  Now the question was would anyone care to give me those twenty minutes.

With the questionnaire written I turned and stared at the cart full of registration cards.  They were in shoeboxes arranged by month and year they were received.  I figured that the newer ones were more relevant than those sent in years ago.  I took a deep breath and plunged in.  I grabbed 500 of the most recent cards, which were from the last four months, and I started calling.  Quite honestly since few customers ever get “hi, how are you doing calls” directly from an executive at the company who sold them a product, I didn’t know what to expect.  Would anyone take my call, would I get hung up on, would they answer this long list of questions?

Three hours and ten customers later I was beginning to feel like this would work.  It had taken about two registration cards to get one customer on the line.  And out of those, 9 out of 10 were happy to talk to me.  Actually happy is the wrong word.  Stunned was more like it.  They had never had anyone from any company, let alone a computer company call and ask them anything.  Then when I told them I was actually the VP of Marketing they were flabbergasted.   They were happy to give me everything I asked for and more.  And then to their surprise I offered them either a SuperMac coffee cup or T-shirt for their troubles. Now I had happy and surprised customers walking around with paid advertising for my company.

For the next three weeks I spent 8 hours a day calling customers and another 6 hours a day managing my new department.  I’m sure the CEO thought I was crazy.  But after three weeks and three hundred customer calls I was done.  I had been to the mountaintop and had gotten the message.

 Here’s what I found.

  1. Market segment: While the company did have customers in a wide range of industries and businesses, the actual users were in a (then) new and emerging segment called color desktop publishing.
  2. 80%: In fact, over 80% of the customers who turned in their reg cards were in this group.  This was a real eye-opener.  No one in our company knew this.  Now we could stop guessing about who our customers were.  We could even go further and talk about how they worked and what they needed to be successful in their jobs.
  3. Key applications: At the time color desktop publishing customers used only four key applications: Page layout programs called Quark and PageMaker, a photo manipulation package called Photoshop, and a drawing program called Illustrator.  These were big ungainly applications and on the computers of the day, very slow in manipulating large color files.  (The dependence on these applications was another new and important fact for our company.)
  4. Performance: What these customers cared about more than anything was graphics performance in these four key applications.  And by more than anything, I mean that the word performance came up time and again from these professionals.  Waiting for images to move around the screen were not only driving them crazy, but costing them money.
  5. Performance over price: In fact, for over half of these customers performance was even more important than price!  (If you haven’t stopped reading, please do so.  To find a customer who says anything is more important than price is the Holy Grail for a marketer.  Few times in his/her life will they find such a market.)
  6. Purchase driver: The color publishing customers were making their purchase based on the features of the graphics board, but they were buying the color monitor from whoever sold them the board.  That is none of the features of the monitor seemed to matter, it was the board that drove the monitor sale.  So much for all our efforts to promote our monitor features.  (What it meant is that instead of dividing our marketing budget, dollars and resources, we could focus all our energy in promoting the graphics board and let its sale pull the monitor with it.)
  7. Three publications: In our market there were a myriad of magazines to read.  Yet our customers said they got their company and product information from only three publications: MacWorld, MacUser and MacWeek.  They said the product reviews in these publications were by far the biggest influence on which card to buy.   (This made our PR problem manageable and focused.  Now we knew what was a make-or-break publication and review and what we could pass on if we didn’t have the time or resources.)
  8. Two trade shows: Customers who had bought our products only went to two trade shows (if they went to any at all): MacWorld, the general Mac trade show, and if they were true publishing professionals, perhaps the Seybold Publishing conference.  (Learning this meant that instead of attending every possible Macintosh tradeshow we now knew we only had to look like the biggest and best in two.)
  9. The bad news: That was the good news.  The bad news is when I asked what had they heard about SuperMac, I got a litany of stories about the company going out of business, about how their dealers complained that they owed lots of money and that our ads were incomprehensible.  More importantly, no one knew what business the company was in.  “Aren’t you the cheap disk drive company?” This information coming from someone who had already bought our graphics boards.  Gulp.
  10. Worse news: The worst news was that more than half of our customers had gone into their dealers to buy another brand of graphics board.  And it had been the dealers who had convinced them to buy ours.  (As we found out when we interviewed our dealers, our sales department was using extra commission payments – called Spif’s – to incentivize the channel to move our product.)  The good news was that the Spif strategy was working; the bad news is that it was costing the company our entire profit.  We were losing money on every board we sold.
  11. The worst news: The worse news was what wasn’t said, less than 10% of our existing customers bought because of some proactive marketing campaign.  No one remembered our ads, saw our reviews or had read a positive article about us.  Yet outside my office door was a mass of people who thought they were in the marketing department and had honestly believed they were contributing to the success of the company.  Spending $4 million/year on marketing

After three weeks I stopped the customer survey when I started hearing the same stories again and again.  Looking at the customer data I realized there were some potential “gotchas”:

  • This was a survey of those who had already bought product from us.  Those who didn’t buy from us might have completely different characteristics
  • This survey could only reach those who sent back their registration cards.  Those who didn’t might be different.

As it turned out, large companies that bought graphics card for their publishing departments didn’t always send registration cards back, so my survey was skewed to smaller groups.

What did I learn so far?

  • Organize questions about customers, channel and market
  • Build a series of your own hypothesis about each area
  • Test the hypothesis with real customers

Listen to the podcast here
Download the podcast here

SuperMac War Story 1: Joining SuperMac

After leaving Ardent (a supercomputer company I’ll blog about later) in 1988, I consulted for Pixar when they were still in San Rafael and were a hardware company trying to make software and commercials. While I was consulting for them, I got a call from a recruiter for a company called SuperMac, which made add-on products for the Macintosh.  They were one of the first companies to sell an external disk drive for the original Mac; they had the first “color paint programs” for the Mac; and when the Mac was just black and white they had the first color graphics boards and large screen color monitors for the Mac.  And with all of that they had gone broke, out of business and into Chapter 11.

Yet two smart VC firms, Sigma and Matrix Partners, realized that somewhere in this mess there was value. Their guess was that they would find value in the high margin graphics business.  Now with a new infusion of $8 million dollars of venture capital, SuperMac had been resurrected from the dead and was attempting to restart.  The first step was to recruit a new management team.

Why they were looking to me to run marketing wasn’t clear.  They sold their product through the computer retail channel, something I knew nothing about.  They sold to a set of customers I knew nothing about.  Yet somehow they thought that my prior experience in high-end computer graphics might be relevant.  Why I was interested was equally obscure.  The company was the laughing stock of the Mac market.  The two other players in the add-on graphics business, Radius and RasterOps, had a combined 90% market share.  After talking to its resellers and customers I realized that SuperMac was the only company that could be described as “fifth in a group of three.”

In essence it was a restart with a mixed bag of assets and liabilities.  The assets were a series of products already developed and on the market or in the development pipeline.  So perhaps a more accurate description was that the company was a “restart.”  The new products potentially looked to be industry leaders if and when they came to market. When I went through their financials as part of my due diligence I realized that if they ditched their low margin disk drive products, it wouldn’t take much to make them a profitable company.  They had an existing distribution channel and their dealers and customers thought they knew who the company was and what it stood for.

The liabilities were equally clear: the existing distribution channel and their dealers and customers thought they knew who the company was – a failure – and what it stood for – a mixed bag of commodity products with low margin, no compelling reason to sell and a set of competitors with much better products.  Worse, no one inside the company had a profound belief in who the company was and why they existed.  They had no model of who their own customers were and what it would take to make those customers bang down their doors to buy their products.

Nothing I couldn’t fix.   I took the job.

Listen to the podcast here
Download the podcast here

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