|
|
Home
Potential
Clients
My
Work
Client
Results
Research
Published Papers
Guest Lectures
They
said it!
Resources
Contact
|
|
 |
|
|
|
|
Investment
evidence
the
Marketing/Engineering Investment Ratio™ (M/E Ratio™)
"Your
evidence of the relationship between Market Research and success is right
on! Dell's M/E Ratio™ is North of 1.5." Michael S. Dell, Founder, Chairman, and CEO of Dell Computer Corporation
|
|
the
Flaming Failures
The
graphic which visualizes this research is there for a reason. Let’s take
a closer look.
| |
|
|
Figure 5,
the "Flaming Failures"
|
|
the
"Flaming
Failures"
Across the broad landscape of technology-based enterprises are business
basket cases such as Thinking Machines, Polaroid, and Genuity who have
failed and/or entered bankruptcy. I would call them “flaming
failures.”
Here
is a graphical way to summarize what we might learn from these
outcomes. We can picture the relationship between investment in up
front Market Research and success or failure. The axis on the left
is the ratio of Market Research investment to engineering investment,
called the Marketing-to-Engineering Investment Ratio™ (M/E Ratio™), on a
logarithmic scale.
Below
an M/E Ratio™ of 0.1, there is essentially no investment in Market
Research. In the left column are the failures. The flickering
flame in the lower left corner symbolizes the high-flyer "going down
in flames, crashing, and burning.” |
Failure
data
Technology-based
enterprises which invest substantially less in marketing (exclusive of promoting
or selling) than in engineering become flaming failures.
Flaming
failures invest, on average, less than 2˘ in market research for every $1 in
engineering
"The
'warning warning warning flaming failure' zone is well presented."
Michael R. D'Angelo, President of Lexent.
|
|
|
| M/E |
|
the
Failures
|
|
|
|
| 0.1 |
|
Molten
Metal, elemental recycling 1997
Lost $1 Billion in market
capitalization during 1997, 99.2% of the value, the biggest loser in
Bloomberg's yearly Massachusetts index. Filed for Chapter 11
bankruptcy on December 3, 1997 and delisted by Nasdaq on February 10,
1998. Assets sold for $10.5 million on November 25, 1998 while its
market capitalization plunges from $1 Billion to $2.13 million.
Molten
Metal is a case of a company being a success at one time in their
history (with a high M/E Ratio™), and being a failure at another time
(with a low M/E Ratio™). Other similar cases in this research
include Varian Associates with certain products, and a Becton Dickinson
division which passed through several owners. |
|
|
|
| 0.1 |
|
Optra,
88 SBIR awards totaling >$14 million 1984 - 1995
President Jim
Engel explains, "Optra is a failure. We got what we
deserved. We should have spent more money on marketing!"
|
|
|
|
| 0.1 |
|
Keithley
MetraByte, data acquisition systems 1993
http://www.keithley.com
Keithley Instruments acquired Data Acquisition Systems (DAS) for $1.05
million in 1984, acquired Asyst Software for $9.1 million in 1987, and
folded both into MetraByte of Taunton, Massachusetts which was acquired for $23.4 million in
1989. Keithley closed the combined ($33.55 million acquisition
price) operation in 1996.
|
|
|
|
| 0.1 |
|
MRS
Technology, large area lithography for flat panel display (FPD)
production, 1986-1997.
"Before
I started MRS twelve years ago, I worked at one of the major failures
cited in your research, GCA. At the time, I didn't see the low
ratio of marketing to R&D as a risk, so I incorporated the same
weakness into MRS's structure. Recently, I saw the lack of
detailed market research and careful product positioning as real
weaknesses.
"Your
article, 'An
Approach for Semiconductor Equipment Firms,' precipitated a major
change at MRS Technology. I tore your story out of Channel
Magazine and passed it out to my management team and to our Board of
Directors. I hired a new Product Manager immediately. MRS
will now drive towards the 1:1 Marketing/Engineering Investment Ratio™
that you champion." Griffith (Griff) L. Resor,
founder, President, and CEO of MRS Technology In Chelmsford, MA.
It
was too late and too little; MRS declared bankruptcy on July 1, 1998. |
|
|
|
| 0.1 |
|
Hampshire
Instruments consumed $75 million developing an X-ray stepper, but nobody
would buy the darn thing.
Former CFO Robert Kern recounts,
"Hampshire's
M/E Ratio™ was 0.05 from 1984 - 1990. In 1991 and 1992, our
President Moshe Lubin tried desperately to find out what customers
really wanted, doubling the M/E Ratio™ to 0.1. It wasn't
enough! They closed the doors in 1993."
Moshe
Lubin committed suicide.
|
|
|
|
| < 0.1 |
|
Essential
Research, vacuum CAD software 1990 - 1993, lost $300K (personal money)
and sold nothing. Abandoned. |
|
|
|
| 0.09 |
|
RVA
Technology, software 1982 - 1985, lost $900 K (personal money).
Closed. |
|
|
|
| 0.07 |
|
StarGen,
fabless semiconductor startup, 1999-2006
StarGen
squandered $56 million in Venture Capital. After seven years, they
barely rose to $5 Million revenue and needed $20 million more to burn
for the next two years until they maybe broke even.
The VCs gave up and began shutting the
doors in August, 2006.
|
|
|
|
| 0.07 |
|
Orchid
BioSciences, genotyping 1998
http://www.orchid.com/overview/index.asp
In
the early 2000s, as Cytyc's market capitalization was soaring to $3.65
Billion, Orchid BioSciences' market capitalization was plummeting
from $3.3 Billion to $19 million.
|
|
|
|
| 0.07 |
|
Veeco,
wafer particulate detector 1985
http://www.veeco.com
Veeco had already invested $.3 million when primary market research
discovered that customers were going in a different direction.
Abandoned. Read how Veeco saved
$1,000,000 with market research.
|
|
|
|
| 0.07 |
|
Keithley
Instruments, measurement systems 1993
http://www.keithley.com
Chairman of the Board Joe Keithley declared his Cleveland, Ohio company a failure in its
1992 annual report, "Our introduction of new products . . .
has not produced growth . . . and we are not pleased."
|
|
|
|
| 0.07 |
|
GCA
created semiconductor steppers in the 1970s, grew to more than $480
million in sales in 1984 with over 5,000 employees, and became the world
leader in semiconductor fab equipment. GCA's 1981 M/E Ratio™ was
0.07. Consequently, it did not have enough marketing horsepower to
understand the customer dynamics or the competitive situation, nor the
marketing strength to guide the corporation.
Former
GCA executive Bill Tobey observed, "Absolute arrogance on the
part of our technical people, especially engineering. They thought
that no one could possibly equal their engineering feats. We
just blew it!" |
|
|
|
| 0.06 |
|
GCA
1992. Closed their doors in 1993. |
|
|
|
| 0.05 |
|
Brooks
Automation, semiconductor wafer robots 1977 - 1985
See Brooks' revival and dynamic growth
after raising the M/E Ratio™ to 1.1 |
|
|
|
| 0.05 |
|
Hampshire
Instruments 1984 - 1990 |
|
|
|
| 0.05 |
|
ITRAN,
machine vision 1979 - 1993
One entrepreneur, one CEO, three companies. After the utter
failure of ITRAN, Stan Lapidus rose to a M/E Ratio™ of 1.5 at Cytyc
which achieved a market capitalization of $6.2 Billion and, still
learning, raised his M/E Ratio™ even higher to 2.33 with Exact
Sciences which achieved a market cap of more than $.3 Billion. |
|
|
|
| < 0.05 |
|
Varian
Associates, IMPATT oscillators 1969
Created the solid state replacement for the microwave klystron tube;
probably as significant a development for the radar and
telecommunication fields as the transistor was for general electronics.
Varian abandoned the technology, in spite of a four-year technological
lead on the competition,
and laid the entire group off in a marketing failure.
Varian's
group
leader committed suicide.
http://www.cpii.com/bmd -
Communications and Power Industries (CPII) is the successor company to
the Electron Device Business of Varian Associates.
|
|
|
|
| 0.04 |
|
Object
Databases (ODB), object oriented database software 1992. Lost more
than $35 million. Taken over by investors and moved to another
country. |
|
|
|
| < 0.04 |
|
Polaroid,
instant film 1990s. Declared bankruptcy in 2001, walking away from
their retirement program, terminating both health and life insurance
benefits for retirees, and trashing life savings in the mandatory
employee stock option plan under which a percentage of pay was deducted
from their checks and awarded in Polaroid shares.
Once
21,400 employees including 5,350 technologists, Polaroid was an,
"American business icon of another day, charter member of the 1970s
Nifty Fifty stock market phenomenon ..." Business lessons
from the abyss, Boston Globe June 17, 2001
|
|
|
|
| 0.037 |
|
Machine
Technology, Inc. (MTI), semiconductor photoresist processing
equipment 1993. Declared bankruptcy. |
|
|
|
| 0.033 |
|
Raytheon,
RadaRange microwave oven 1944 - 1965. Raytheon's largest
commercial failure. See Amana, above, in the success column.
Amana raised the M/E Ratio™ to 1.0, whereupon the microwave oven became a
success. |
|
|
|
| 0.033 |
|
Micronix,
X-ray stepper 1981 - 1987. Consumed $26 million in venture capital
and folded before completing the product. |
|
|
|
| 0.03 |
|
Evidian
USA, enterprise software 1992 - 1996.
This
startup struggled mightily, spending somewhere between $40 and $50
million total over five years, including $2 million per year on
promoting and selling, yet only achieved $500 K per year in sales. |
|
|
|
| 0.03 |
|
Evidian
USA, enterprise software 2000 - 2002.
A
new CEO, Mr. Richard Langevin, raised their M/E Ratio™ to 1.1 in 1997
whereupon sales took off like a rocket from $.5 million per year to #14
million per year.
Incredibly,
Evidian USA dropped the M/E Ratio™ back down to 0.03 in 2000 after Mr.
Langevin was promoted elsewhere in their parent company. Sales
ceased. Literally, Evidian never made another sale. After
they had shipped all the units on backlog, revenues ceased. They
shut the doors in 2002 after three years of no sales and no revenue.
Read
"Market Research
Drives Revenue" |
|
|
|
| < 0.03 |
|
Kendall
Square Research (KSR), supercomputers 1986 - 1995. Squandered $175
million and declared Chapter 11 bankruptcy in June of 1996. |
|
|
|
| 0.02 |
|
Cisco,
Internet routers 2000
http://www.cisco.com
While
losing more than $1/2 Trillion in market value, the CEO was clueless.
"I
was surprised to go from a 70% annual growth rate in one quarter, to
zero growth in the next quarter, and to be facing a drop in the
coming quarter." John Chambers, President and Chief Executive
Officer, CEO Exchange September, 2001 by the Public Broadcasting
System (PBS)
http://www.pbs.org/wttw/ceoexchange/episode_205/index.html
Excuse
me, but where was your Marketing department to tell you what was
happening in the market? How come you were surprised? It
seems that a multi-Billion dollar company could readily afford to have a
competent Marketing organization and, furthermore, that Billions of
dollars were at stake.
"Cisco
... clearly misread the market ... because they weren't analyzing their
customers' businesses." Management Lessons from the Bust,
Business Week Magazine August 27, 2001
|
|
|
|
| 0.02 |
|
Quarterdeck,
PC Operating Systems (OS), Internet software, and utilities
- late 1990s
Years
ahead of Microsoft, their heavy engineering investments lead to a
preemptive multitasking, windowed user interface (DESQview), to a memory manager (QEMM), to an
Internet browser, to Web authoring tools, and
to other industry firsts.
"We
don't invest in market research. We invest in technology," said
Gary Ulaner, Director of Product Management. Quarterdeck lost
nearly $1 Billion in market capitalization from 1995 to 1998, and was
acquired for $65 million by Symantec
in November, 1998. |
|
|
|
| 0.015 |
|
Cetacean
Networks, real-time Internet & VoIP 2000 - 2004
Squandered
$50 million in VC funds developing neat technology but never found a
customer who would buy it. Closed their doors April 15, 2004. |
|
|
|
| 0.014 |
|
Fusion
Lighting, microwave-activated high-efficiency lighting 1991 - 2002
Blew through $90 million and shut
their doors on December 31, 2002. |
|
|
|
| 0.013 |
|
Genuity,
Internet 1998 - 2000. Lost nearly $11 Billion in market
capitalization in the two years since their IPO, 99.9% of their
value. Genuity declared bankruptcy on November 27, 2002 affecting
6,462 employees and 3,877 engineers. |
|
|
|
| 0.013 |
|
electronics
and instrumentation, AMA 1953
Crisp, "Company Practices in Marketing Research," American
Management Association (AMA) (New York: 1953) |
|
|
|
| 0.012 |
|
HyperDesk,
Internet/Intranet groupware 1992 - 1995, http://www.ftp.com.
Faltered and were sold to FTP Software in 1995. |
|
|
|
| 0.010 |
|
Becton
Dickinson, Telocate patient location system 1973 - 1978
http://www.bd.com
Invested $.3 million with 5 U.S. patents granted and 15 pending, only to
discover that they had developed a technology for which there was no
need. Abandoned.
|
|
|
|
| 0.010 |
|
DataMedix
early 1980s
Purchased the now successful Becton Dickinson Division (see
BD at an M/E Ratio™ of 4) for $18 million, pumped another $27 million into it, but
dropped the M/E Ratio™ from 4 back down to 0.01; resulting in bankruptcy
in 18 months. |
|
|
|
| 0.010 |
|
Physical
Sciences (PSI), >200 SBIR 1984 - 1995 |
|
|
|
| <0.010 |
|
Xerox,
copiers 1994 - 2002. Stagnated, lost $45 Billion in market
capitalization, and eliminated 34,000 jobs. http://www.xerox.com/.
"Without
Marketing guidance, more than 70% of Xerox' $8+ Billion technology
investment was wasted!" Nancy K.M. Rees, Director,
Corporate Engineering |
|
|
|
| 0.008 |
|
Thinking
Machines, supercomputers 1990 - 1994. Blew through $120 million
and declared bankruptcy. |
|
|
|
| 0.007 |
|
Lotus,
office software 1990s
http://www.lotus.com
Pioneered office PC software with the purchase of
VisiCalc and with the
development of Lotus 1-2-3. Lost
dominate position to Microsoft.
|
|
|
|
| 0.007 |
|
Nortel,
telecom 1984 - 2002 |
|
|
|
| 0.004 |
|
Digital
Equipment (DEC), PCs & mini-computers 1990s. Pioneered
minicomputers, and had two lines of PC products developed and in the
market several years before Michael Dell started Dell Computer.
$17.2 Billion value lost. 145,000 people and 45,000 engineers no
longer work for DEC. |
|
|
|
| 0.003 |
|
Applicon,
Computer-Aided-Design (CAD) 1972 - 1982. Pioneered both the
Computer-Aided Design (CAD) and Electronic Design Automation (EDA)
fields in 1970, achieving world-wide distribution and #1 world market
share in 1970 and 1971. Hired a sales manager (maybe he had sales
skills, but he surely had no Marketing skills) as the VP of
Marketing in 1972, and the M/E Ratio™ dropped to 0.003.
Applicon fell to #10 in market share, was acquired by Schlumberger, and
disappeared. 2,000 people and 500 engineers lost their jobs. |
|
|
|
| 0.002 |
|
Lucent,
telecom 1967 - 2003 |
|
|
|
| 0.002 |
|
SAL,
X-ray stepper 1981 - 2000s. Kept reengineering through multiple
cycles, yet missed ten generations of the market. They and their
customers poured more than $500 million into the technology. |
|
|
|
| <0.001 |
|
WANG
Laboratories, PCs & minicomputers 1984 - 1991. Bankrupt in
1992 with 32,000 employees and 11,000 technologists. |
|
|
|
| <0.001 |
|
VNCI,
network video 1993 - 1999 |
|
|
|
| zero |
|
Thinking
Machines 1983 - 1993 |
|
|
|
|
|
Results
through December 5, 2006 |
|
|
|
|
|
