SuperMac War Story 9: Sales, Not Awards

While this story is about my experience in packaging for computer retail channels, if you substitute the word “web site” for retail, you’ll get the idea why these lessons were timeless for me. 74HGZA3MZ6SV

SuperMac sold our graphic boards for the Macintosh through multiple distribution channels: direct sales to major accounts, national chains, independent rep firms, etc.  But the computer retail channel was a large part of our sales.  That meant that our boards were packaged in boxes sold to retailers and were displayed on shelves in their computer stores. Customers went into the store either looking for the SuperMac product by name (if our demand creation activities had been effective) or went in unsure of which brand of board to buy.  If they were in the store but teetering on the edge of a purchasing decision, there were only two ways to influence them: incent the sales staff (give the salespeople a special bonus to sell your product) and/or have box packaging sell itself by screaming “buy me.”

Maybe It’s Me
When I got to the SuperMac, our Marketing Communications group told me about our “award-winning” retail packaging for our graphics boards.  Yet when I saw our retail package, I was confused.  Confused because while I knew absolutely nothing about retail packaging, as a consumer I knew this box was not something I would pay attention to. It was black with absolutely no compelling reason to buy – no awards, no why-to-buy message, nothing.

black-supermac-box

While I wasn’t an expert in retail packaging, even as a consumer I knew that when I was in a store, I scanned four or five products on a shelf, grabbed the most interesting one, read what was on the box, and picked one.  And the product that “talked to me”, the loudest and most seductively, was the one that went home with me.

“Black Hole of Packaging” Strategy
Since we had no facts, other than my opinion that something wasn’t right, I took our staff on a field trip.  (You can’t do marketing from inside the building.)  We visited a couple of retail stores to look at how other companies were packaging their products and how ours looked next to theirs.  Standing in the aisles we collectively got a sinking feeling.  Our choice of black had made our retail box invisible on the shelf.

But worse, we had been relegated to the bottom shelf (death valley, since very few people look at their feet when shopping.)  We were down on the bottom because no one had done any “shelf merchandizing” – that is we did not employ “rack jobbers” or the retail stores themselves to put our boxes at eye level in the right place on the shelf.  (These are basic practices for companies selling through retail stores.)

We were on the bottom row – with an invisible box.  We labeled this our “Black Hole of Packaging” strategy. The package had won awards all right – for the ad agency.  The design was actually a negative drag on selling anything off a retail shelf.

Getting Smarter
While we all had opinions about what we should do, we realized we needed some facts from someone with retail packaging expertise.  Luckily (or maybe because we were in Silicon Valley where there was a domain expert for everything) there was a very smart consultant in the retail computer space, Seymour Merrin, who preached about the importance of packaging. He had teamed up with a former product manager at P&G to deliver seminars on just this subject. We learned the basics of retail packaging: make the box eye-catching, ensure there was a “why-to-buy” message, include just enough information to close the sale, fight and pay for eye-level shelf space, etc. Her packaging class was so good that we sent every new marketer at SuperMac to take it. From grumbling skeptics, they all became packaging design converts.

We realized that we needed to take all these lessons and redesign our packaging.

You May Hate It, But You Won’t Ignore It
The results of our package redesigns were packages like “SuperMac Thunder II”.  They were bright, they were loud, and they had lots of reasons to buy front and back.  And for sure they were never going to win any design awards.

colorful-supermac-box

To check how effective our new packaging was, we ran tests at our local computer retailer. We would run in and put test versions of dummy boxes on the shelf and just watch what happened – we wanted to see if people picked up the box, and when they did what they looked at and what they read.  (We would interview them after they put the box back on the shelf.  And we had to convince a few of them the box was really empty.)  The most interesting thing we learned was that people felt more comfortable about a product when there were words of encouragement on the package.  So we started putting stickers on the packaging every time we’d win an award. People would go, “Oh, this one won the “best of MacUser Magazine benchmark” award,” and it would confirm that this was a safe purchasing choice.

Owning Marketing for our Entire Channel
 In thinking about the packaging story, it would have been easy to blame the agency who designed the box for poor package design.  Or blame my MarCom department who approved it.  But that wasn’t the root cause of the problem. It was a management problem.  We had been outsourcing an important part of our demand creation strategy – packaging – to an outside agency without having the expertise to judge or manage the results. We hadn’t taken the time to learn the basics of packaging ourselves. And the final lesson was that we were keeping score on our packaging with the wrong metrics – it wasn’t about awards, it was about sales in the retail channel.

So we not only sent everyone through packaging school, we also brought the packaging design in-house. From now on we would design the retail boxes ourselves, not because we could do a better design job, but because this was a critical skill that our company and department needed to learn – using packaging to increase retail sales.  When we had mastered the art, then I was ready to outsource it again, but not before this became a core competency of my department.

Oh yes, and retail sales doubled with the new product packaging.

New Century, New Channels
For many of you reading this, boxes sitting on a retail shelf may seem hopelessly outdated, but the same marketing lessons hold for “award winning” web sites or social media.  Your design or ad agencies can impress you with their awards, but if you’re not moving product or creating demand, you’ve missed the point.

Worry about the sales results.

What did we learn?

  • The only “award” in marketing that matters is sales revenue
  • Marketing needs to own all the marketing in a channel
  • Core competencies cannot be outsourced until they’re learned

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Preparing for Chaos – the Life of a Startup

I just finished reading Donovan Campbell’s eye-opening book, “Joker One“, about his harrowing combat tour in Iraq leading a Marine platoon. This book may be the Iraq war equivalent of “Dispatches” which defined Vietnam for my generation.  (Both reminded me why National Service would be a very good idea.)

Campbell describes how he tried to instill in his troops the proper combat mentality.

I’ve paraphrased his speech into the language of a startup.  It’s eerily similar.

Startups are inherently chaos. As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.

If you can’t manage chaos and uncertainty, if you can’t bias yourself for action and if you wait around for someone else to tell you what to do, then your investors and competitors will make your decisions for you and you will run out of money and your company will die.  74HGZA3MZ6SV

Therefore the best way to keep your company alive is to instill in every employee a decisive mindset that can quickly separate the crucial from the irrelevant, synthesize the output, and use this intelligence to create islands of order in the all-out chaos of a startup.

Every potential startup founder should think about their level of comfort operating in chaos and uncertainty.  It may not be for you.

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The Secret History of Silicon Valley Part VI: Every World War II Movie was Wrong

This is Part VI of how I came to write “The Secret History of Silicon Valley“. This post makes a lot more sense if you look at the earlier posts as well as the video and slides.

—————-

The next piece of the Secret History of Silicon Valley puzzle came together when Tom Byers, Tina Selig and Mark Leslie invited me to teach entrepreneurship in the Stanford Technology Ventures Program (STVP) in Stanford’s School of Engineering.  My office is in the Terman Engineering Building.

Fred Terman – the Cover Story
I’d heard of Terman but I didn’t really know what he did – his biography said that he was one of the preeminent radio engineers in the 1930’s literally writing the textbooks. He was the professor who helped his students Bill Hewlett and David Packard start a company in 1939.  In World War II he headed up something called the Harvard Radio Research Lab. There was plenty in his biography about his post WWII activities: chair of electrical engineering in 1937, dean of engineering in 1946, provost in 1955. He started the Stanford Honors Co-op in 1954 which allowed companies in the valley to send their engineers to Stanford graduate engineering programs.  74HGZA3MZ6SV

Since I was interested in the history of Silicon Valley, Entrepreneurship, and now Terman, I began to understand that Terman had a lot to do with the proliferation of microwave companies in Silicon Valley in the 1950’s and ’60’s. But how? And why? So I started to read all I could find on the development of microwaves. That led me back to the history of radar in World War II – and a story you may not know.

What Does WWII Have to Do with Silicon Valley?
Just a quick history refresher. In December 1941, the Japanese attack Pearl Harbor, and Germany declares war on the United States. And while the Soviets are fighting the Germans in massive land battles in eastern Europe, until the allies invade Western Europe in June 1944, the only way the U.S. and Britian can affect German war-fighting capability is by mounting a Strategic Bombing campaign, from England. Their goal was to destroy the German capability to wage war by aerial bombing the critical infrastructure of the German war machine. 

The allies bombed the German petroleum infrastructure, aircraft manufacturing infrastructure, chemical infrastructure, and transportation infrastructure. The Americans and British split up the air campaign: the British bombed at night, the Americans during the day.

lancaster

b-17The Odds Weren’t Good
These bombers flew for 7+ hours from England and over occupied Europe, through a gauntlet of intense antiaircraft fire and continuous attack by German fighter planes. And they got it coming and going to the target.

But what the bomber crews didn’t know was that the antiaircraft fire and German fighters they encountered were controlled via a sophisticated radar-guided electronic air defense system covering all of occupied Europe and Germany.

The German electronic air defense system was designed to detect the allied bomber raids, target and aim the German radar-guided weapons, and destroy the American and British bombers. The German air defense system had 100’s of early warning radars, and thousands of radar controlled anti-aircraft guns, and Ground Controlled Intercept radars to guide the fighters into the bombers.

wurzburg-reise-radar

And the German night fighters had their own on-board radar. In all the Germans had over 7,500 radars dedicated to tracking and killing the allied bombers.

german-nightfighter

Each allied bombing mission lost 2-20% of their planes. Bomber crews had to fly 25 missions to go home. The German objective was to make strategic bombing too costly for the Allies to continue.  

By 1942 the Allied Air Command recognized they needed to reduce allied losses to fighters and flak. We needed a way to shut down the German Air Defense system. (Bear with me as this history takes you from the skies of Europe to Fred Terman.)

The Electronic Shield
To shut it down we first needed to understand the German “Radar Order of Battle.” What radars did the Germans have and what were their technical characteristics? How effective they were? What weapons were they associated with? We needed to find out all this stuff and then we needed to figure out how to confuse it and make it ineffective. 

So the U.S. set up a top secret, 800-person lab to do just that, first, to gather signals intelligence to understand the “Radar Order of Battle” and then, to wage “electronic warfare” by building mechanical and electronic devices to severely hamper the Germans’ ability to target and aim their weapons.

Ferrets and Crows  Signals Intelligence
The first job of the secret lab was to find and understand the German air defense system. So we invented the U.S. Signals Intelligence industry in about 12 months (with help from their British counterparts at the Telecommunications Research Establishment.) These mission of the planes called Ferrets, manned by crews called Crows, was to find and understand the German electronic air defense system.  We stripped out B-24 bombers, took out all the bomb racks, took out all the bombs and even took out all the guns.  And we filled it with racks of receivers and displays, wire and strip recorders and communications intercept equipment that could search the electromagnetic spectrum from 50 megahertz to 3 gigahertz, and this is 1943. 

We flew these unarmed planes in and out of Germany alongside our bombers and basically built up the “radar order of battle.” We now understood where the German radars were, their technical details and what weapons they controlled.

Tin Foil Rain – Chaff
We first decided to shut down the German radars that were directing the anti-aircraft guns and the fighter planes. And to do that we dropped tin foil on the Germans. No kidding. Radar engineers had observed if you cut a strip of aluminum foil to 1/2 the wavelength of a radar transmitter and throw it in front of the radars antenna, the radar signal would reflect perfectly. All the radar operator would see was noise, rather than airplanes. 

Well, you couldn’t stand in front of the German radars and throw out tin foil, but you could if you had a fleet of airplanes. Each plane threw out packets of aluminum foil (called “chaff”.) The raid on Hamburg in July, 1943 was the first use of chaff in World War II.  It completely shut down the German air defense system in and around Hamburg.  The British and then the Americans firebombed the city with minimal air losses.

Chaff used 3/4’s of all the aluminum foil in the U.S. in World War II, because by the end of the war, every bomber stream was dumping chaff on every mission.

Jam It and Shut it Down – Electronic Warfare
But this secret lab was focused on electronic warfare. So they systematically designed electronic devices called “jammers” to shut down each part of the German air defense system.  Think of a “jammer” as a radio transmitter broadcasting noise on the same frequency of the enemy radar set. The goal is to overwhelm the enemy radar with noise so they couldn’t see the bombers. We built electronic jammers to target each part of the German air defense system: their early warning radars, the short range radars, the antiaircraft gun radars, the Ground Control Intercept Radars, the air to ground radio links and even the radars onboard the German night fighters. By the end of the war we had put multiple jammers on every one of our bombers, and while their power output was ridiculously low, these jammers were flying in formation with 1,000 other planes with their jammers on, and the combined power was enough to confuse the radar operators.

Just to give you a sense of scale of how big this electronic warfare effort was, we built over 30,000 jammers, with entire factories running 24/7 in the U.S. making nothing but jammers to put on our bombers.

By the end of World War II, over Europe, a bomber stream no longer consisted of just planes with bombs.  Now the bombers were accompanied by electronics intelligence planes looking for new radar signals, escort bombers just full of jammers and others full of chaff, as well as P-51 fighter planes patrolling alongside our bomber stream.

radarj1

Every WWII Movie and Book with a Bomber was Wrong
While there were lots of stories about how the British early warning radar system, called “Chain Home” saved England during the Battle of Britain by giving the Spitfire pilots time to scramble to intercept German bombers, there wasn’t a coherent story about American and British bombers encountering the German radar-guided air defense system.

This lack of information meant that every World War II movie or book that had airplanes on bombing missions in it was wrong.  Every one of them. (To someone who had grown up with reruns of WWII war movies on TV, this was a shock.) Every movie I had seen – 12 O’clock High, Memphis Belle, etc. –  assumed that there were no electronics other than radios on these bombers. Wrong. Not only didn’t the movie makers know, but the pilots and crews didn’t know about the German radar guided system trying to kill them. Nor did they know about the electronic shield being assembled to try to protect them.

But while this may be a great story what the does this have to do with the history of Silicon Valley?

The answer lies with who ran this lab and became the father of electronic warfare and Signals Intelligence in the Cold War for the next 20 years.

Who Ran the Most Secret Lab You Never Heard of?
It was Fred Terman of Stanford.  The Harvard Radio Research Lab was his creation. A Stanford professor was at Harvard in World War II because the head of the Office of Scientific Research and Development thought Terman was the best radio engineer in the country. (Why couldn’t he have set up a lab at Stanford?  Apparently, the Office of Scientific Research thought that Stanford’s engineering department was second rate.)

Finally, I had an answer to the question I had asked 35 years earlier when I was in Thailand: “How did electronic warfare get started?” Now I knew that it began in the early days of World War II as a crash program to reduce the losses of bombers to the German air defense network.  Electronic warfare and signals intelligence in the U.S. started with Fred Terman and the Harvard Radio Research Lab.

Spooky Music
Reading about Terman was like finding the missing link in my career.  Here was the guy who invented the field I had spent the first five years of my adult life working on. And 30 years later I was teaching in a building named after him and never knew a thing about him.  Play spooky music here.

I began to realize a few things: First, everything we had done in electronic warfare in the Vietnam War was just a slightly more modern version of what we had done over occupied Europe in World War II.  (And in hindsight, we seemed a bit more agile and innovative in WWII.)

Unbelievably, in less than two years, Terman’s Radio Research lab invented an industry and had turned out a flurry of new electronic devices the likes of which had never been seen.  Yet decades later the military lacked the agility to write a spec in two years, let alone get 10’s of thousands of new systems deployed on aircraft as Terman had done.  How was this possible?  In 21st century terminology we’d say that Terman built the Radio Research lab into a customer-centric organization doing agile development.

Just the Beginning
The public history of Terman’s involvement with the military ends when he returns back to Stanford at the end of the war. Nothing in his biography or any Stanford history mentions anything as exciting as his work in World War II. The public story of his last 20 years at Stanford, in the 1950’s and ’60’s, seems to have him settle into the role of the kindly dean and innovative provost.

Nothing could be further from the truth.

The Secret Life of Fred Terman in a War you never heard of in Part VII of the Secret History of Silicon Valley.

Supermac War Story 8: Cats and Dogs – Admitting a Mistake

At SuperMac, I thought I was good VP of marketing; aggressive, relentless and would take no prisoners – even with my peers inside the company.  But a series of Zen-like moments helped me move to a different level that changed how I operated.  It didn’t make my marketing skills any worse or better, but moved me to play forever on a different field. 74HGZA3MZ6SV

Zen moment #1- Admitting a mistake and asking for help

Up until this point in my career I had one response anytime I screwed something up: blame someone else. The only variable was how big the screw-up was – that made a difference in whom I blamed.  If it was a very big mistake, I blamed the VP of Sales.  “This marketing campaign didn’t work? It was a brilliant strategy but Sales screwed it up.”  (My own lame defense here for this behavior is that sales and marketing are always cats and dogs in startups. Historically, these were two guys with high testosterone. They hit each other with baseball bats until one of them dropped.)

This first Zen moment happened at a SuperMac exec staff meeting. I was asked to explain why a marketing program that cost $150,000 bucks literally generated nothing in revenue for the company.  I still remember that I was gearing up to go into my ‘I’m going to blame the sales guy’ routine. Since our sales guy was a good street fighter, I knew the ensuing melee would create enough of a distraction that no one would talk about my marketing debacle.  My brain had queued up the standard, “It’s all Sales’s fault,” but instead, what came out of my mouth was, “You know, I really screwed this marketing campaign up, making it successful is important for the company, and I need all your help to fix it.”   You could have heard a pin drop.  It was so out of character, people were shocked.  Some stammered out, “can you say that again?”

Our president picked up on the momentum and asked me what I needed from the rest of the exec team to fix this debacle. I replied:  “This is really important for our success as company and I’m really at a loss why customers didn’t respond the way we expected.  Anybody else got some other ideas?”

From there, the conversation took a different trajectory. It was uncomfortable for some people, because it was new ground  – I was asking for help – wanting to do what was right for the company.

It was definitely a “Zen moment” for me in terms of my career.  From then on when I screwed up, not only did I own up to it, I asked for help.  This behavior had an unintended consequence I couldn’t have predicted: when others started volunteering to help me solve a problem, finding a solution became their goal as well.

Soon one or two others execs tested the waters by making a small tentative “ask” as well.  When they discovered that the sky didn’t fall and they still had their jobs, our corporate culture took one more step toward a more effective and cohesive company.

Ownership and Teamwork not turf.

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Killing Innovation with Corner Cases and Consensus

I was visiting a friend whose company teaches executives how to communicate effectively. He had just filmed the second of a series of videos called, Speaking to the Big Dogs: How mid-level managers can communicate effectively with C-level executives  (CEO, VP’s, General Managers, etc.)  As we were plotting marketing strategy, I mentioned that the phrase “Speaking to the Big Dogs” might end up as his corporate brand.  And that he might want to think about aligning all his video and Internet products under that name. 74HGZA3MZ6SV

We were happily brainstorming when one of his managers spoke up and said, “Well, the phrase ‘Big Dogs’ might not work because it might not translate well in our Mexican and Spanish markets.”  Hmm, that’s a fair comment, I thought, surprised they even had international locations. “How big are your Mexican and Spanish markets,” I asked? “Well, we’re not in those markets today… but we might be some day.”  I took a deep breath and asked, “Ok, if you were, what percentage of your sales do you think these markets would be in 5 years?”   “I guess less than 5%,” was the answer.

Now I mention this conversation not because the objection was dumb, but because objections like these happen all the time when you’re brainstorming.  And when you are brainstorming you really do want to hear all ideas and all possible pitfalls.  But entrepreneurial leaders sometimes forget that in startups, you can’t allow a “corner case” to derail fearless decision making.

Corner Cases
A corner case is an objection that may be:

  1. technically reasonable
  2. may have a probability of occurring
  3. its probability of occurring is lower than your probability of running out of money.

I’ve noticed that corner case comments are directly proportional to the intelligence of the people in the room.  The smarter the team the more objections you’ll have – and they’ll all be technically and theoretically possible.

Corner Cases and Consensus are For Large Companies
Carefully considering each and every possible outcome before you proceed with a decision is something large companies with large revenues, shareholders and employees need to do.  

Achieving consensus about every corner case from each stakeholder in the room  is something large companies with large revenues, shareholders and employees need to do.  

Unlike large corporations, startup meetings are not about achieving consensus for every objection raised.  They are about forward motion, momentum and feedback loops (i.e. Customer Development.)

Calculate the Odds
The heuristic I suggest is: hear the corner case objections, make the objector calculate the odds, if the potential damage estimate is low (probability of the event occurring multiplied by its ability to put you out of business) keep the meeting focussed and move on.  If you do this consistently your team will catch on.

You’ll be spending your time on what matters, rather what’s theoretically possible. For a startup “No Corner Cases” needs to be an integral part of your corporate DNA.

Any startup that’s striving for consensus on corner cases instead of speed and tempo will be out of business.

Focus on Speed and Tempo

The Secret History of Silicon Valley Part V: Happy 100th Birthday Silicon Valley

When the legend becomes fact, print the legend.
- The Man Who Shot Liberty Valance

I always had been curious about how Silicon Valley, a place I had lived and worked in, came to be.  And throughout my career as an entrepreneur I kept asking questions of my VC investors and friends; Where did entrepreneurship come from?  How did Silicon Valley start? Why here?  Why now? How did this culture of “make it happen” emerge, etc.  And the answer came back much as it did in my past jobs; Who cares, get back to work.

After I retired, Jerry Engel, director of the Lester Center on Entrepreneurship, at U.C. Berkeley Haas Business School was courageous enough to give me a forum teach the Customer Development Methodology. As I was researching my class text, I thought it would be simple enough to read up on a few histories of the valley and finally get my questions about the genesis of entrepreneurship answered.

The Legend: HP, Intel and Apple
I read all the popular books about the valley and they all told a variant of the same story; entrepreneurs as heroes building the Semiconductor and Personal Computer companies: Bill Hewlett and David Packard at HP, Bob Taylor and the team at Xerox PARC, Steve Jobs and Wozniak at Apple, Gordon Moore and Bob Noyce at Intel, etc.  These were inspiring stories, but I realized that, no surprise, the popular press were writing books that had mass appeal.  They were all fun reads about plucky entrepreneurs who start from nothing and against all odds, build a successful company.  74HGZA3MZ6SV

popular-view-of-silicon-valley-history1

But no one was writing about where the entrepreneurial culture had come from.  Where were the books explaining why were all these chip and computer companies started here?  Why not elsewhere in the country or the world?  With the exception of one great book, no one was writing about our regional advantage. Was it because entrepreneurs keep moving forward and rarely look back?  I needed to dig deeper.

The Facts: Vacuum Tube Valley – Our 100th Anniversary
To my surprise, I discovered that yes, Silicon Valley did start in a garage in Palo Alto, but it didn’t start in the Hewlett Packard garage.  The first electronics company in Silicon Valley was Federal Telegraph, a tube company started in 1909 in Palo Alto as Poulsen Wireless.  (This October is the 100th anniversary of Silicon Valley, unnoticed and unmentioned by anyone.)  By 1912, Lee Deforest working at Federal Telegraph would invent the Triode, (a tube amplifier) and would go on to become the Steve Jobs of his day – visionary, charismatic and controversial.

* Federal Telegraph and Lee Deforest in Palo Alto are the first major events in what would become Silicon Valley.  We need to reset our Silicon Valley birthday calendars to here.

By 1937, when Bill Hewlett and David Packard left Stanford to start HP, the agricultural fields outside of Stanford had already become “Vacuum Tube Valley.” HP was a supplier of electronic test equipment and joined a small but  thriving valley electronics industry with companies like Litton and Eitel and McCollough.

* By the late 1930’s when HP started, a small group (measured in hundreds) of engineers who made radio tubes were building the valleys’ ecosystem for electronics manufacturing, product engineering and technology management.

Who would have known?

Microwave Valley – the 1950’s and ’60’s
There isn’t much written about Silicon Valley during and after World War II.  The story of the valley post war, through the 1950’s, is mostly about the growth of the tube companies and the rise of Hewlett Packard.  The popular literature has the valley springing to life in the 1960’s with the semiconductor revolution started by Shockley, Fairchild, Signetics, National and Intel, followed by the emergence of the personal computer in the mid 1970’s.

But the more I read, the more I realized that the public history’s of the valley in the 1950’s and ’60’s were incomplete and just plain wrong. The truth was that huge dollars were spent on a large number of companies that never made the press or into the history books. Companies specializing in components and systems that operated in the microwave portion of the electromagnetic spectrum sprouted faster than fruit trees in the valley orchards. In ten years, from the early 1950’s to the early 1960’s, the valley went through a hiring frenzy as jobs in microwave companies went from 700 to 7,000.

This wave of 1950’s/’60’s startups (Watkins-Johnson, Varian, Huggins Labs, MEC, Stewart Engineering, etc.) were making  dizzying array of new microwave componentspower grid tubesklystrons, magnetrons,  backward wave oscillators, traveling wave tubes (TWT’s), cross-field amplifiers, gyrotrons, and on, on…  And literally across the valley, these microwave devices were being built into complete systems for the U.S. military by other new startups;  Sylvania Electronics Defense Laboratory, Granger Associates, Philco, Dalmo Victor, ESL and Argosystems. In the 1950’s and ’60’s more money was pouring into these companies than on the fledgling chip and computer companies.

* The 10x expansion in the number of engineers in the valley in the 1950’s came from the military and microwaves – before the semiconductor boom. And these microwave engineers were working at startups – not large companies. You never heard of them because their work was secret.

When I read the funny names of these microwaves devices… Backward wave oscillators, TWT’s, Magnetrons…long silent memories came back. These components were the heart of the electronic warfare equipment I have worked on; including fighters in Thailand and on B-52 bombers.  After 20 years, the story started coming home for me.

The Revolution Wasn’t Televised
What the heck happened here to create this burst of innovation?  What created this microwave startup culture in the 1950’s? And since there was no Venture Capital in the 1950’s/’60’s where was the money coming from?  This startup boom seemed to come out of nowhere.  Why was it occurring here?  And why on earth the sudden military interest in microwaves?

the-real-story-of-silicon-valley1

Part of the answer was that these companies and the military had forged some type of relationship.  And it appeared that Stanford University’s engineering department was in middle of all this. The formation of the military/industrial/university relationships during the Cold War and the relationship between Stanford and the intelligence community in particular, went on untold and out of sight.

While nothing I read described the specific products being worked on, or what specifically was Stanford’s contribution, there were some really tantalizing pointers to who the real customers were (hint, it wasn’t just the “military,”) or why was this work was being done at Stanford.

No one knew that it all pointed to just one guy at the center of it all –  Fred Terman of Stanford University.

* Stanford, the military and our intelligence agencies started the wave of entrepreneurial culture that today’s Silicon Valley takes for granted.

The “Secret Life of Fred Terman” and “Stanford Fights the Cold War” on the Part VI of the “Secret History” posts here.

SuperMac War Story 7: Rabbits Out of the Hat – Product Line Extensions

A year after we started repositioning the company, Engineering, which had been working on a family of new products literally for years, came to deliver some good news and bad news.  74HGZA3MZ6SV

First the bad news:  the new family of eight high performance graphics cards we were counting on couldn’t be delivered.  The plug-in co-processor architecture was too complex and couldn’t be made to work reliably.  Instead of the family of eight products we were expecting, only one could be delivered.  Nothing else was in the development pipeline for the next 12 months.

I couldn’t believe what I was hearing.  One of the reasons I had joined the company was seeing these boards as hope for the future.  Now we were faced with the fact that even though we were gaining market share daily, there was nothing coming out of Engineering.

Well not quite nothing: there was the good news. Instead of eight boards, Engineering was going to be able to deliver one new graphics board.  Just one.  But it was going to be the fastest graphics board ever made.  In fact, according to our Potrero benchmark suite this new board ran our customer applications ten times faster than our current products.

I went home to think about this.  Instead of a product family, we had a single point product.  Each of my competitors each had 5-10 graphics boards covering a range of prices with performance to match.  Even our current product line had four graphics boards in it.  Now our new product line would only have one board?!.  What could we do?

Marketing Gets into the Engineering Business
The next day I walked in uninvited to the VP of Engineering’s office and asked if he had a minute. I said, “I realize you’re trying to get the one board out to market, but I have a question – can you slow our new board down?”   It doesn’t take much imagination to see the look he gave me when I asked that question.  “Steve, this hasn’t been a good week. What do you really want?”  I felt sorry for him, he was working really hard to dig out of this mess.  I replied, “No joke.  Can you make it slower?  I think he wanted to strangle me as he barely got out, “We worked for years to deliver a product that’s ten times faster than anything that exists and you want to make it slower?”  Well, not exactly, “What I want to know is if the board would work if you slowed it down by 10%?”  Yes, was the answer.  “How about if you slowed it down 20%?” Yes, was still the answer.  “By 30%?”  The change in his demeanor – from trying to kill me – to laughing, as it dawned on him where I was going, could only be described as hysterical relief. “40%?”  Yes, yes and yes.

We were about to be partners in building a new product family.

Rabbits Out of the Hat – Branding and Line Extensions
First, what we proposed is that we take our world class, ten-times-faster-than-anyone board and build an entire product family around it, by slowing it down.  We wanted nine boards, each differing in performance by 10%.  The only real difference between them would be the addition of “wait states” or “slow down” instructions on a chip.  Our entire new product family would be an identical board. 

Next, we were going to create three separate product families, each its own unique brand.  And within each brand we would have a “good”, “better”, and “best” graphic board.  All tailored to our color publishing market. 

Finally, these product families would be priced to bracket (box in) everyone of our competitors’ products with better price and performance. We were going to price the products from $699 to $3,999.  Our calculations had us losing money on the two lowest cost boards, breaking even on the third and making great margins on the other six.  We calculated our blended gross margin for the company by estimating the number of units we would sell of each board times the gross margin of each individual board (then I crossed my fingers and prayed we were right.)

In essence we were proposing that we ship the same board in 9 different colored boxes and charge from $699 to $3,999 depending on the color of the box and the speed of the board. (This turned out to give our customers immense value.  We would have charged $3,999 for the high-end board.  Now we could give customers lower price boards without Engineering spending 12 months to design new ones.)

You’re Going to Do What?!
The reaction inside our company could not be described as polite.  At first most people thought we were joking.  No one believed it would work.  Some engineers were insulted that we were going to slow down their board and sales was convinced that within days of the board hitting the street we would have a black market in chips to speed up the $699 boards and turn them into $3,999 ones.  My own marketing department was convinced that the same industry magazines, which we had managed so well, would turn on us when they saw that the boards were physically identical. 

Yet I believed that this was the only alternative to slowly going out of business. (While our engineering department was close to the customer, seven of those eight products they were going to ship to those customers weren’t going to see the light of day.)  Now it was up to Marketing is to take the technology as delivered by Engineering and shape it to the needs of the customers and market.  By creating these new families of products we could provide real value to our color desktop publishing customers by giving them performance at a price they couldn’t get anywhere else.

A Big Idea – Marketing Adds Value. This notion of Marketing taking what Engineering builds as a starting point, not an end point, is the difference between just being a marcom department and a value-added Marketing department.  If all you’re doing is shipping and launching the product as spec’d by Engineering, you’re not adding value. The job of Marketing is to help Engineering figure out how to deliver product(s) that customers need and want.  It starts with a deep understanding of what customers need (and making sure Engineering is getting continuous customer feedback and interaction.)  We did that when we surveyed our customers. Next, we had a good understanding of the capabilities of the product that Engineering was building.  And in this very unique case, we figured out how to maximize revenue and profit by branding and product line extensions.

We would use this same idea 10 years later at E.piphany.

SuperMac product line - built on a single graphics card
SuperMac product line – built on a single graphics card

Relentless Execution
If we were right, this line extension and branding strategy would allow us to catch up to our competitors and overtake them. 

Luckily marketing had built a reservoir of credibility with our peers and CEO.  After the VP of Engineering described the alternatives (no new products for a year), desperation became the mother of innovation and we launched our new family of nine new graphics boards.  As far as manufacturing was concerned, they were the identical graphics board.  As customers saw them, they were a new family of products aimed directly at the color desktop publishing market with astonishing performance and a low-cost entry price.

The results spoke for themselves: Not one black-market board ever appeared, and the press was satisfied with our “customer value and product family” explanation. Our new graphics boards became the market leader of the industry. In three and a half years SuperMac’s market share went from 11% to 68%, as we went from bankruptcy to $150 million in sales.

Years later, I was having coffee with the VP of Sales and Marketing from one our competitors and he said, “We would have beat you guys, but we just couldn’t keep up with the tidal wave of products coming from your engineering department. They came up with exactly the right products at the right price.”  I took a long sip of coffee as I thought of all the things I could say. Instead I smiled, nodded and said, “Yep, it was amazing, they just kept pulling rabbits out of the hat.”

What did I learn so far?

  • At times, what Engineering delivers is the raw material.
  • Marketings job is to take engineering products and use them to maximize revenue and profit.
  • In an existing or resegmented market, this may include branding and product line extensions.
  • This requires deep customer and competitive knowledge.
  • In most markets, “first mover advantage” is illusorily; fast followers often win.
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