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.

10 Responses

  1. Hi Steve,

    As much as I adore the story and admire your creativity in unleashing the magical power of marketing, I couldn’t help concerning if the pros of the same trick still outweigh its potential cons today as they did 17 years ago, i.e., before the ubiquitous tentacles of a beast named the Internet lives to dig up the deepest secret and bring us the term sheet of Facebook from its closed conference room every morning.

    • Jerry,
      As Domino’s and Amazon found out this week, social networks can quickly disseminate information faster than most traditional marketing organizations can react.

      However, the mistake would be to confuse the interest in consumer facing companies with mass interest in the rest of corporate America. It may happen, but its not there yet. (As a test search twitter for tweets about non-consumer companies on the Fortune 500.)

      steve

  2. Hi Steve,

    Really enjoying this series, thanks for sharing. My question is about the risk of a black market developing, like what happened to Garmin (they resold their avionics GPS as a marine GPS at a lower cost with speed limits built in, hackers promptly figured out how to remove the limits). Why do you think you were able to avoid this?

    • Bill,
      In hindsight, my guess is were able to avoid hacking because, 1) we were selling to a non-technical community that didn’t understand the concept or have the skill, 2) we were selling to businesses (color DTP users in-large corporations or had their own small businesses) where hacking wasn’t considered ethical, 3) we were selling to a market was relatively price-insensitive where the motivation was low, and 4) we never shared that the boards were the same.

      steve

  3. Sounds interesting. We are currently developing a hardware board for an application and have been focused on completing the development for almost a year now. The solution we have been working on is on higher end of the spectrum that the market can absorb. But there are several other categories of requirements which are at the lower end. Your suggestion makes perfect sense.

    Although similar ideas were running in my mind, reading this reinforced my view that we should focus on developing multiple applications of the same hardware. Saves time, reduces risk and hopefully will impact topline growth.

    Thanks.
    Siddharth

  4. Steve, I think this was a great story and a very good illustration of the important relationship that marketing has with engineering and vice versa. As a young engineer, I didn’t think too highly of “marketecture.”

    (It reminds me of that story about the old and young bull on the hill!)

    It appears that an unintended consequence of deep engineering, combined with a significant amount of creativity unleashed something better than you had originally intended.

    Out of all of the brands out there these days, I look to Apple to do this on a fairly regular basis. The 3.0 SDK is the most current example that comes ot mind. I’m not aware of too many other current examples.

    This form of “rope a dope” is an excellent strategy if you can execute on it while being confident of your competitive intelligence and position.

    Best Wishes, jws

  5. Dear Steve,

    I heard about a second edition of the 4 steps to epiphany. Is it true? I can give my copy as a gift fot someone?

    Camilo

  6. [...] satisfy different sections of a market you do so (thanks to Steve Blank for teaching me this one in SuperMac War Story 7: Rabbits Out of the Hat – Product Line Extensions).  Finally grow when it makes rational sense to, not just to satisfy investors.  In fact leashing [...]

  7. Steve, my memory of this situation is different from yours.

    I’m assuming the high-end product you’re talking about is the Thunder/24, but the low-end products that were derived from the Thunder/24 weren’t all the same board. The plan from the beginning of that development process was to offer at least three different boards (which you may recall were called Snap, Crackle, and Pop) with physically different memory and feature sets. There were also speed variations on each board, as you say. We also did deliver plug-in accelerator options on the high-end configuration.

    Now, I’m not saying that all this work went smoothly according to the original plan– it certainly didn’t– but the development of this product line wasn’t just a marketing miracle created entirely after the fact.

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    • heh – just found Steve;s site – I was the architect of the graphics accelerators and worked on the Thunder silicon – we did indeed design for a range of 3 cards from day one (mostly because vram was so expensive that we needed a low end card with just 1Mb to compete with Rasterops) – so we did have 3 different price points from the same silicon to start with. I also designed in wait states to support cheaper/slower vram (mostly as a fall back in case the vram manufacturers didn’t deliver) which as Steve mentions we did use

      The whole silicon design was a wonderful gamble – since we could only afford to build one set of silicon at a time we were really pushing the technology of the day and in essence bet the company on a semiconductor packaging technology, 208 pins in a plastic package (and won gloriously!) – I still have a framed die photo on my wall …. it paid for much of the house

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