In every organization there is a shortage of resources: personnel, skills, time, and money. As professionals, we owe it to ourselves and our employers to make the best use of those resources.
Product managers must choose which products to develop and bring to market; engineering managers must prioritize research and development activities; sales managers must choose whether to expand geographically or within a targeted market segment.
We all know that we need to do this, yet sometimes we don’t. We get distracted by the tactics, the newness of the technology, or the difficulties in trying to get the data to make a decision. Or we build something in the lab because it is fun or feels like we are doing something – before fully researching the market space or really thinking about it. The resources are not focused.
As one of my graduate school advisers facetiously reminded us daily: “Two weeks in the lab will save you two hours in the library.” Granted, in those days, researching the literature was very time-intensive because you had to physically go to the library, find the journals on the shelf, copy the papers, and find out that no one had worked the issue before.
Sizing a new potential market that does not exist is daunting. However, research and planning will nearly always pay off in the end.
Recently, I have had the pleasure of working with several companies trying to pick markets and products.
These are the three top lessons that kept repeating (or were we re-discovering?) as we analyzed and tried to choose where to focus.
Follow the money
One of the best places to start is to determine which product or market is most profitable. This is particularly important if the sales channels or pricing are radically different between available choices.
For example, I recently helped a company, ProCog, work through a software product launch plan. Essentially, the development time for an enterprise product was the same as for a single-end-user product. However, the sales channels are radically different.
Sales people would be required to close sales on the enterprise solution, and the single-end-user product would be self-serve (i.e., downloaded off their website) without much human intervention.
The decision was particularly hard because the company’s primary experience was with sales of end-user products and it had almost no experience with enterprise sales. The price of the product for each market was also considerably different.
We built a simple profit and loss (P&L) statement for each of the two products, estimating how many accounts needed to be booked each day to hit the revenue targets for profitability. The number of closed accounts (sales) determined the number of sales professionals, which was the biggest variable cost in the model.
We did not stop at margin; we also included the sales, marketing, and general administration expenses. You may find out that the product is too expensive to support because it requires too much sales effort and so on.
I particularly like modeling how many items need to be manufactured and sold and at what price. If it turns out that your plan only works if you sell twice as many items as 100% of current demand, then I would suggest you probably have not identified a good market.
This is an easy step that is often overlooked. It is a great sanity check for production, for staffing your sales team, and for sizing the market. See tables below for some of these modeling examples.
How big is the hill to climb? When you need to choose a market, determine staffing requirements, or just to know whether your plan is even feasible, start with a spreadsheet or two.
Calculate risk; take one
Another company, Nitride Solutions, has a product that can serve four different applications.
The product could 1) displace existing technology in the deep-UV LED market where the current solutions are not adequate and have many yield problems; 2) displace existing technology in the ultraviolet to visible LED market as the E-O (Electrical to Optical Efficiency) conversions are better; 3) enable key components for power electronics equipment; or 4) enable new laser lines for UV laser diodes.
The discriminating variable in this example is risk. Option 1 is the least risky because there is an apparent need with no good solution.
Option 2 is risky because there is an incumbent technology that might engage in a price war.
Option 3 is fairly risky because the entire plan depends upon the end customer developing his products for markets (which may not exist either).
Option 4 is the most risky because no one in the company has worked in that industry. In other words, they don’t know what they don’t know.
In this case, I recommended a staggered approach, starting with the existing applications and working to displace the incumbent (silicon substrate) technology. Later, when the company is established and has a good track record of delivering product into a market it knows and understands, Nitride Solutions could hire knowledgeable people from the laser-diode market to develop new products and sales channels. (A different team, with different strengths and connections, would actually do option 4 before option 3.)
The fiber-laser adoption path is a great example of the newer technology (being more power efficient and/or having better beam quality) gradually, and then more quickly, displacing flash-pumped and diode-pumped laser lines. As the laser industry gained more experience, new applications were developed that are only possible with the fiber-laser capabilities.
Play the game you got
That brings us to the third theme, play to your strengths.
“Play the game you got.” My father-in-law said this to my husband one day on the golf course after my husband had one of the worst slices imaginable.
So my husband bravely lined up 45 degrees from the fairway and gave the ball a great whack. It flew out and over a lake, took a right hand turn, and landed neatly in the middle of the fairway. He was lucky, but the situation reminds us that it is best to practice and improve at the driving range – not in the heat of battle.
In his 2011 book, Toward Entrepreneurship: Establishing a Successful Technology Business, Milton Chang says the same thing: “Start with what you know.”
When Newport Corp. was started, the founders knew about accessories for laser research, so they started making opto-mechanical components for the laser-research applications they were personally familiar with. The company was built from there.
If you can name the customers and even the person you would sell the product to, then you are close to the market. If you cannot name the companies that are your targets, then you are probably not close enough to the market.
If your team is made up of forward-looking infrared-component designers, you should start in the infrared world. You have an advantage when competing with people who work in the UV and visible parts of the spectrum because you know things they do not. The reverse holds true for them; they have experience with all the nasty things UV light does to materials over time.
If you stick to what you know, you can evaluate the risks better and develop a more profitable plan. It is easier to evaluate the plan’s profitability and it will be easier to identify and, therefore, mitigate the risks. It will be more fun because you know the who, what, and why of what you are developing, marketing, and selling.
Examine what you are working on. Is it busy work “in the lab” or is it execution of a researched plan?
You’ll find that planning and fully evaluating your choices before you start your lab work isn’t wasted time, but will save you time and money while increasing your chances for success.
SPIE member Lynore M. Abbott has more than 20 years’ experience developing and launching new products, penetrating new markets, and building international teams for companies such as CVI Laser, Southampton Photonics, and Polaroid. She recently formed Logical Marketing to facilitate small-company access to big-company processes and success. She holds an SB in material science and engineering from the Massachusetts Institute of Technology; an Executive MBA from University of New Mexico; and an MS in polymer science and engineering from University of Massachusetts, Amherst. She is an active member of the SPIE Corporate and Exhibitor Committee and the board of the New Mexico Optics Industry Association.
Find the market before inventing that new product
Technology companies sometimes will go off and invent new products that no one wants because someone said, “I figured out how to make this.”
But companies should first ask themselves: “Is there a market for it?”
Why don’t we first work on our current operations and improve our delivery time?
In the meantime, the marketing department or a consultant can help size the market to see if there’s a need and if it’s worth pursuing.
A good VP of engineering understands that spending two weeks in the lab building things might feel like progress, but it doesn’t make sense if you haven’t first fully researched the market opportunities.