Ralph E. Grabowski - marketingVP - fact-gathering, analytical Marketing to steer the enterprise

   

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Marketing is an investment
 

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

 
 

Contents

 

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.


<0.02 Luminus Devices, LED lighting 2010

"Facing shutdown ... fighting to keep the lights on."
Boston Globe, January 1, 2010


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 $1 million (2010 $) 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 $60 million, pumped another $100 million into it, but dropped the M/E Ratio™ from 4 back down to 0.01; resulting in bankruptcy in 18 months.  (2010 $)

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.  Wang peaked at $3 billion in revenue in 1988.

<0.001 VNCI, network video 1993 - 1999

zero Thinking Machines 1983 - 1993

Results through June 17, 2010

 

 
 
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