Apple’s Watch – Offense or Defense?

Amazon is loaded with hundreds of inexpensive fitness trackers.

Apple’s watch is the future of the company.  The watch will shrink in size, radio quality will improve, capabilities will grow and eventually watch revenues will pass the iPhone.

No, no, no.

Apple’s watch is a defensive play. Look for fitness trackers on Amazon. There are a slew of well built Asian knock-offs following designs that have challenged FitBit, but bring 80% of the Apple Watch functionality for $30. Selling the Watch keeps the most loyal iOS users from defecting – this is a defensive play.

Zone to Win is the latest book from Geoffrey Moore, author of Crossing the Chasm.  Crossing the Chasm is a landmark in product development, laying out the Product Lifecycle Model and showing how different customer populations change the role of product development.  ZtW outlines how product development can work outside of a pure startup in the walls of an established business.  A simple 2 x 2 grid lays out the four zones and establishes how companies can prioritize, set boundaries, and use product development to win new markets while defending existing ones.

More established business strategy analysts view the Apple Watch as an offensive play – I disagree. Moore discusses in the book that very rarely do companies cannibalize their own best products.  Apple would love to watch the Watch win – but it is too big of a commitment to say goodbye to the iPhone.  As Apple missed the Alexa trend with Siri, and like Microsoft’s miss of the shift to mobile, Apple won’t win against a host of low cost watch competitors, all of whom don’t pay Android licensing fees and build devices that can pair with the iPhone at a fraction of the cost.

The iPhone is defense – so we would expect that it eventually loses to the low cost, disruptive competitors.

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$TSLA’s Race Against Constraints

Bo knows $TSLA.

GP’s with a name portfolio company are coy with their humblebrag as they pitch new limited partners.  This isn’t the kid down the street who puts his Bo Jackson rookie card at the front of his card collection.  This is the clever neighbor who would only lead with Bo if there was a host of treasures to find deeper in the collection.  If that name portfolio company was $TSLA, then the story was simple, “The batteries are impossible to develop.  Once you have the battery, electric motors are much easier – which will allow the winner to dominate other lines of transportation. Existing auto makers can’t catch up to Tesla.”

The investment thesis was that $TSLA would solve the battery constraint before auto makers could make the cultural change to a new energy system.  That was it – there was no secondary thesis around automated vehicles.  Everyone assumed $TSLA would then win the “learn-to-make-automobiles” constraint.

The constraint in a system is the rate limiter.  In a hydraulic system it is the narrowest pipe.  In a chemical reaction the constraint is the lowest available catalyst.  In Goldratt’s classic The Goal, his son’s scout troop is constrained by Herbie.  Herbie is the slowest on a hike.  The troop doesn’t finish until Herbie finishes.  No one goes faster than the constraint.

$TSLA looks to be losing the constraint race against traditional auto makers.  Model 3s aren’t shipping.  $TSLA’s constraint is becoming a legitimate manufacturer, which now appears to be harder for a new entrant than it is for an automotive maker to develop EV capabilities.

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Five criteria for picking winning industrial / manufacturing technologies

Framework_IndustrialInnovation and technology development in manufacturing and industrial businesses can occur on many dimensions – because of the long development times one of the most important criteria to pursue is the ability to iterate quickly and create feedback loops with customers.  Jenny Lawton, COO of Techstars and previously with Makerbot, highlighted this development cycle risk on her November 28, 2016 appearance on Jenny Fielding’s IoT Podcast.

Businesses, products and technologies that help customers go faster will win compared to slower moving peers.

Creating speed and customer interest requires a new business to score high in some combination of the following areas:

1/ Vertical

It’s hard to ignore a new technology that has specific customer pull or that addresses a large known need within society. Product market fit is long sought after, and sometimes with industrial technologies it can be clear that there are only so many possible solutions, and that one method / process / technology is going to win out if the cards are played right. Moore’s Crossing the Chasm is all about creating as many winning scenarios as possible by getting to large market adoption.

Innovation in advanced manufacturing requires an end customer that exists in a vertical. Knowing how to deploy a new production technology to the benefit of a specific vertical is extremely valuable. This knowledge must be confirmed by an existing supply chain partner, or by team members recently just out of industry.  This is not a problem to validate in .xls or with some $5,000 market report – it must be spoken directly from the mouth of customers willing to spend money.

Many problems of this nature in heavy industry are addressed within large organizations and are not trusted to external providers.

2/ New Materials

New materials change how things get done.  DuPont rebuilt itself on Nylon, Gore was created on PTFE – many modern industrial giants exist on the back of finding new niches for their core material. This trend exists in additive manufacturing – Carbon has charged into footwear with the use of new polymers. Desktop Metal, Form Alloy, Trio Labs and many others show the interest in use of metals, ceramics and other inorganic materials. In industry many decisions are made starting with a known good material, and then accepting the form factor in which it is available. Taking a material and making it workable with a new technology so it can be used in new areas can open new, large markets.  As a corollary – expecting a customer base to change materials is often a trap.  Material qualification can be costly, many enabling characteristics aren’t fully documented, and the time to complete these activities is very long.

Enabling materials to be produced in new ways, while conserving their bulk properties in the new form is a tried and true method of creating new markets and growth.

3/ Performance (Resolution, Speed, Uniformity, etc.)

With electrospinning Elmarco changed fiber production by making sub micron fibers easily produce-able.  The speed of the fundamental process was notoriously slow, but we changed customers perception of that speed by dramatically improving uptime – thereby leading to an overall increase in speed.  Other processes had long produced tiny fibers, but they did so by occasionally producing large fibers.  That single large fiber ruined the uniformity of a web (or membrane) – thus creating a premium value for uniformity.  As we continued to scale up the process, this uniformity and precision allowed customers to use even less of the process (bad for us), and use more of cheaper processes (good for them) to produce high value materials.

Additive manufacturing sees parallels in voxel resolution, speed of part assembly and uniformity of build quality.

4a/ Total Systems – Front end

Very few things exist in isolation.  At Unitive, our chip scale packaging required customer education, new thought processes and a great deal of supply chain integration. With Elmarco, the lab tools were (and continue to be) a crucial tool in educating the work force in how to use the process.  Front end processing and preparation of a process matters a lot. In additive manufacturing this can take many forms – analysis of a piece to be replicated, scanning of materials, computer modeling and simulation and such simple things as design rules and educational courses.

4b/ Total Systems – Back end

Beth Macy’s Factory Man dedicates multiple segments to the value of the finishing rooms in defending the US furniture industry from Asian competition.  Additive manufacturing can currently require several finishing steps depending on the part’s end use and base material.

4c/ Total Systems – Rising tide

In some markets, the best way to monetize a new technology is to internalize it for self use (see SaaS for Tow Trucks). Sometimes it is better to sell the tools to others. Many universities and government consortia aided the boom in nanofiber interest by selling courses and analytical services to new market entrants. Low cost sensors enabled better production tools.

A method, tool, system or technology that accelerated the adoption of additive manufacturing / 3d printing accelerate would prove a major benefit to the industry.  It could be packaged and sold, or it could be used to create an internal advantage.

This type of innovation can take many forms – it could be a web-based image assessment of a customer’s inventory seeing how many items could benefit from new production methods.

5/ Cost

Cost can be a valid reason to innovate and help customers adopt a new technology, but most often it is a trap.  Costs best use is often to rule out an approach, rather than to rule it in. Many things can look cheaper in a .xls spreadsheet or google doc – but when exploring the political decision making within a large customer, the difficult in creating the change makes it hard to capture all of the costs.

Costs should be evaluated at the individual operation / production step – but also at the system level.  It is important to understand system level decision criteria and finances in manufacturing – as most target customers have sophisticated accounting methods and substantial corporate overhead (which can erase potential savings).

Making something easy to do, and thereby making it faster, is usually a better area of technology disruption than making it cheaper.

Cost, like materials above, create a corollary – if your costs are way out of line with current methods, then you face an uphill battle.  If your per unit costs will be cheaper, but it requires a multi-million dollar completely speculative investment to create a proof of concept – then that will be more challenging than the status quo (do nothing), or a similar method that only costs a few thousand dollars to qualify.


6/ Other

There’s always some other dimension in which new teams, technologies and people can provide value. Keeping an empty space on the paper to reflect on those surprises is important.

Warning sign: Supply chain ‘turns’

One ‘Other’ that often pops up in manufacturing technologies is where supply chains ‘take a turn’.  This may be when a product leaves a multi-billion dollar plant to go to a low cost finishing operation, or when a product’s supply chain goes from few, to many competitors.  These changes in market dynamics are a signal to pay attention and vet the lay of the land with customers very thoroughly.

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New or Better?

When new technologies arise there is a real desire to create a Disruptive Product(TM), to focus on the new and to avoid simply making a better version of the current market leader. Don’t fall into that trap. It is almost always the right approach to first create something ‘better’, before advancing on something new.

  • Customers buy Better faster than New (unless New is very disruptive).
  • Better has more opportunities for insertion.
  • Customers spend less money to evaluate Better than New – New requires time to think and create methods.
  • Better has a line item in your customer’s budget.
  • Better has metrics that can be measured and proven.
  • Customers know their ROI for the current product – this is the start of knowing ROI on your better product.
  • ‘New and improved’ can sell in retail, where buyers can easily replace an item. In industrial technologies, where long qualifications are common – new comes with risk. Risk is bad.
  • Better, if positioned correctly, can transition to New.
  • New creates lofty visions in the minds of customers and investors. This creates fractures, fractures shorten the life of a business.
  • Better can be benchmarked. If the product is x% better here, y% faster there, and enables z% savings – then you can know exactly if the customer is wiling to pay x*y*z*(discount)*(life).
  • New is a Swiss Army knife – adding a can opener to an uncomfortable cork screw. The product strategy is to win with an avalanche of average.
  • Better often has an owner in your current buyer. New often requires coordination within your customer, increasing the cost of evaluation.

The timeline between Better and New may be very short – but skipping Better is almost always a mistake.

If New is so easy, why not just do Better first?

Most businesses that pursue New, without doing Better first (or at least having Better in their back pocket) are scaring their potential customers. There is often a desire for a grandiose supply chain maneuver. Sometimes these things happen – but they are rare. New conveys greed. It demeans the efforts of the current performance leading product – whereas Better is a salute that builds off what came before.

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Startups or Big Co?

Born between May 20 and June 20 – the astrological sign of Gemini, defined by the duality of the twins Castor and Pollux, lurks around every corner. While at UVA for undergraduate studies – this was captured in two different majors – biology and economics.

After moving on from an advanced industrial process company where I ultimately served as CEO for two years, interviews prompted another duality;

“Are you a startup guy or a big company guy?”

Questions like this are reasons to always be interviewing.  I didn’t have a clear answer. With some reflection:

The Entrepreneur’s Journey (out of Techstars) is a great framework.

  • I’m a 60/40 startup guy vs BigCo guy.
  • What matters most to me is being effective and getting things done. The best way to predict this is knowledge and appreciation of the needs of a vertical / end industry.
  • I’m a data driven industrial guy.
  • Different settings ask for different skills.  Sometimes the way of the startup is right, sometimes the resources of the big company are right.
  • Some customer problems in the world of data driven industry are best solved by startups, but the constraints occur in the asset base of a large customer.  The major reason startups have failed in heavy industry is the constraints in the customer base.
  • There are lots of people who are drawn to entrepreneurship because they are sold on the fast paced environment and ability to have a big impact.  Industrial customers tend to chew up those living for this part of the Entrepreneur’s Journey.

Being a “startup person” or a “big company person” is as much about your personal commitment to what you are doing.  Sometimes a startup mentality is essential, and sometimes new technologies can only win in a startup.  In industrial technologies, the  constraint is the asset base and it sits in a big company. To win in industry, you’ve got to have an entrepreneurial mindset balanced with political patience.

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Industrial Business Models – Customer ROI

Your technology is great.  It makes the world a better place.  Benchtop results were good – but yields actually went up as you’ve scaled results.  You’ve also made your first big decision and you’re going to sell the technology to others to help them sell into their end markets.  Your customers will learn the end markets, the minutiae of what drives value and how to apply your latest / greatest technology.

All you have to do is sit back and sell to them.

Have a model of customer ROI in at least one market.

This is a trap.

Even with all of the great startup guidance, literature, mentors and coaches available – a startling number of new businesses continue to believe that they can leave the heavy lifting to their future customers.  The technology is so good, they don’t even attempt to understand customer ROI.  Many established companies make this case too – but the pain of failure is much worse when you only have one product.

Visionary customers are explained in Moore’s classic on tech marketing.

There are always a few visionary customers who will do the work to find out ROI for you. Most customers will not. To get feedback, a new product must be surrounded by a body of work that supports its value to new customers. Customers don’t expect you to be an expert in their field, but they will get frustrated and share less with you if you waste their time. The effort to develop ROI and to understand your customer’s end business always pays back.

[Sometimes the payback is finding out sooner that it doesn’t work and that you should stop / pivot / change.  That’s okay too.]

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Industrial Business Models – Choice #1

Hardware is dead. Hardware is booming. Hardware is hard and no one should do it. Hardware is different. Hardware is the same.

Industrial businesses manufacture and sell to supply chains, as opposed to individual consumers.

IoT, IIoT and additive manufacturing attract attention to heavy industry – where a thing is being produced and is being sold into a supply chain, rather than to an end consumer. [1] If you’ve got a new technology and are trying to figure out the right business model, then there is one major decision to make early on in regards to the business model.

  • Option 1: Use your advantage (the new technology) to make a thing and sell it.
  • Option 2: Sell others the ability to make use of your technology.  Enable others.

I would choose between the two based on; (i) ease of access, and (ii) the ability to create cadence, speed and iteration.

Option 1 is the route if you know a target vertical and if the technology gives a big advantage in a vertical.  It’s also a good option if the technology is hard.  You aren’t forcing people to digest the technology – you’re instead using it to sell a ‘new and improved’ version of something they already buy.

Option 2 requires distribution.  It also requires that the technology be a big enough improvement over what the market currently uses that everyone is drawn to it, but that the technology be easy enough (or similar enough to current processes) for customers to be easily educated.

Pick a business model.

There are plenty of other things to consider between these two options – but most of the flavors are really minor variations in how a business aligns with customers, finances the customer’s purchase decision and constructs the right channel.  Supply chain structure matters a great deal and can easily push the decision one way or another.

[1] – I reserve the right to modify this definition.

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