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



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They said it!



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




the Super Successes

The graphic which visualizes this research is there for a reason.  Let’s take a closer look.


Figure 3, 
the "Money Rocket"

the "Money Rocket"
Across the broad landscape of technology-based enterprises are “super successes” like Dell Computer and Cytyc.

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.

Above an M/E Ratio™ of 1, the enterprise is investing more in Market Research than in engineering.  In the right column are super successes.  I have called the symbol in the upper right corner the “money rocket,” because it represents the way successful entrepreneurs like Michael Dell rocket to revenue; to strategic and financial success.


Success data

The Evidence shows that super successful technology-based enterprises invest more in marketing (exclusive of promoting or selling) than in engineering.

Super successes invest, on average, more than $2.50 in market research for every $1 in engineering.

"I wish we would have followed your advice a long time ago and invested more in marketing.  I wish we'd been more receptive to your input, Ralph.  I believe in the M/E Ratio™, investing at least $1 in Marketing for every $1 in engineering.  I believe that even more than $1 in Marketing is required for success!"  Jim Engel, President, Optra


M/E the Successes

infinity Helicos BioSciences, single-molecule DNA sequencing 2003
Invested $400K and nearly one man-year in front-end market research and market validation before commencing any engineering development.  Armed with a validated business opportunity, Helicos raised $27 million in Venture Capital in six weeks.  Then they raised another $40 million, for $67 million total, in another two years.  Helicos went public with an IPO in 2007.

infinity Balico, balance aid medical device
MIT $50K Entrepreneurship Competition Grand Prize Winner 2005

infinity Angstrom Medica, synthetic bone from nanomaterials
MIT $50K Entrepreneurship Competition Grand Prize Winner 2001

9 Litton Medical, mid 1990s (ex-Becton Dickinson Division, ex-DataMedix).  Litton's President Jack Derby learned as one of the middle managers during Becton Dickinson’s turnaround, "Very avant-garde, wonderful stuff!  I remember a very high [4] M/E Ratio™.   I learned the value of marketing from that success.  When I became President of the successor operation, Litton Medical Systems, I raised the Marketing/Engineering Ratio™ even higher, to 9."

6.25 MolecularWare, Inc., life science software
MIT $50K Entrepreneurship Competition Grand Prize Winner 1999
Time period: company inception in August of 1998; through winning the $50K, a working product, and the first customer in May 1999.

Seth Taylor, Ph.D., Founder and President, observed, "We have spent a tremendous amount of time traveling around the country talking to potential customers and learning what their needs are; before committing engineering effort to software code.  WHEN you make the market research investment is key.  There is no point in doing market research after the product is developed.  Market research must be done up front!  I think that marketing is key.  Clearly, a good management team should place substantial resources in the area of market research."

5 ZippyCool, Inc.
"Cool-On-Demand" beverage coolers for recreational power boaters
MIT $50K Entrepreneurship Competition Semifinalist 1999

Newsweek featured ZippyCool in "Show Us the Money!"

Patrick C. Chou, founder and team leader, noted, "We spent five times as many person-hours on market research [as on engineering].  That consisted of talking to people on the phone, designing and taking surveys, and interpreting the data.  The ratio would surely have been greater, except that we had to spend a fair amount of time on the engineering."

5 Invent Resources, inventions upon demand 1993

Headed by three Ph.D.'s granted more than 80 US patents and twelve R&D 100 Awards among them.  Yet Dr. Sol Aisenberg of their management team believes that, "The technology is easy.  It's the people side, the market research, that is hard.  We try to establish that there is a market and that there are customers before initiating engineering."

4 Becton Dickinson, Clinical Monitoring System (CMS) with Arrhythmia Recall (A/R) 1978.  http://www.bd.com

A new management team raised this Division's M/E Ratio™ from 0.01 to 4; resulting in tripling of market share, and climbing from #7 to #2 in 18 months, in a zero-growth market.

4 LiquidPiston, internal combustion engine
MIT $50K Entrepreneurship Competition Runner-Up 2004

4 Varian Associates, Component Leak Detector 1993

Varian launched its 990-CLD Component Leak Detector in 1993 with an M/E Ratio™ of 4, investing in nine months of marketing before committing engineering.  Although the helium leak detector is a half-century-old instrument, Varian's marketing effort surfaced the "voice of the customer" to define and create an entirely new market segment, the component leak detector.  Marketing developed explicit lists of what engineering should design, and what engineering should not design.  Armed with definitive guidance from marketing, engineering completed the product in 19 days.

Varian Vacuum Products' General Manager Peter Frasso proclaimed, "This is a super success!  We created a whole new product category, and dominate that market to this day.  The component leak detector business never existed before 1993, but now represents a significant and growing fraction of all our leak detector revenue.  Marketing is very cost-effective."

Industry Week's 1997 "10 Best."

4 DIVA, video editing software 1993.  Started for $385K and acquired for $4.5 million 2-1/2 years later by AVID.  

4 Adaptive Optics, machine vision system #2 - 1995

3.2 Adaptive Optics, machine vision system #1 - 1994

4 AFC Cable, wiring systems, armored cable, and associated products to distribute data, voice and power, 1997

Named among The Boston Globe's 50 fastest growing Massachusetts public companies for 1997 and 1998.  One of  Electronic Business Magazine's Top 20 Small Companies (<$250 million) for 1998.

AFC Cable was acquired by Tyco in 1999 for $588 Million.

2.33 Exact Laboratories, colorectal cancer diagnostics 1995 - 1997.
Read "How To Raise $100 Million."

Raised $15.6 million in venture capital during 1997 and 1998, and an additional $32.3 million in 2000 for $47.9 million total.  Exact went public with an IPO, and attained a market value of more than $300 million.

After his success founding Cytyc (see below), Stan Lapidus launched Exact Sciences.  In MIT's annual entrepreneurship course, Stan taught, "We didn’t plan it that way.  We just did what we had to do  In retrospect, it would have been helpful to have such a planning tool.  We didn’t think in those terms [of the Marketing/Engineering Investment Ratio™] at the time.  We just did what was necessary to launch Cytyc successfully.  Now, we have a budgeting tool in the M/E Ratio™."

>2 MarketSoft, enterprise software 1998 - 2002

>1.5 Dell Computer, PC's 1998.  http://www.dell.com

Climbed from startup to an $18 Billion annualized sales rate and a $93 Billion market capitalization in 14 years.  Dell maintains this high M/E Ratio™ in spite of investing $250 million in 1998 in R&D. 

"Your evidence, Ralph, of the relationship between market research and success is right on!

"We are absolutely customer-data driven at Dell Computer.  We invest in understanding the customer, the industry economics, and the market segmentation; to help us developing the business model.  My time is spent on the customer, on strategy, and on product direction."  Michael S. Dell, Founder, Chairman, and CEO of Dell Computer.

1.53 ThingWorld Corporation, Internet Media, 1998.  Raised two rounds of venture capital.  Successfully set up partnership deals with Lycos, Tripod, Comedy Central, and Houghton Mifflin Interactive.  Known to Web publishers for "ThingMaker" software to create tamper-proof Internet images - Web "Things" - characters, pictures, and objects that can interact with its users.

1-2 Juno Online Services®, free e-mail 1996.  http://www.juno.com

Launch to 400,000 subscribers in 140 days!  Since 1996, more than 6 million people have subscribed to Juno, making it one of the two largest Internet online services in the world.

1.5 Cytyc, PAP smear screening 1988 - 1989.

Read "How To Raise $100 Million."
Examine Cytyc's payback from market research.

Startup to IPO in 8½ years, worth $6.2 Billion in a 2007 acquisition by Hologic.  With $43.6 million of venture capital investment, one of the largest VC financed startups on the East Coast in the prior ten years.  

Early market research, in advance of engineering, identified profound changes from the initial product concept.  Market research guided engineering to develop the right technology, the patented ThinPrep slide prep system.

In May 1996, the United States Food and Drug Administration (FDA) approved the ThinPrep PapTest as a replacement for the conventional PAP smear for cervical cancer screening.   In November 1996, the labeling was approved, with the FDA concluding that the ThinPrep PapTest was "significantly more effective" than the traditional PAP smear, improving detection ... by 65%."

"The biggest advance in 50 years in preparation of PAP smears," according to Mark Schiffman of the National Cancer Institute.

1.5 Intuit, Quicken financial software 1990 - 1993

A 12-year old startup in 1995, worth $2.1 Billion to Microsoft in its attempted acquisition.  Generated $600 million annual revenues (fiscal year ending July 31, 1997).

1.5 Z2 Corporation, injection molding system 1997-1999
MIT $50K Entrepreneurship Competition Finalist 1999

Z2's novel material flow improvement technology (patent pending) for plastic injection molders is delivering increased productivity and decreasing scrap,  While Z2 invested $200K and 18 months developing and testing a prototype, they invested $300K in market research.

1.5 PSI Environmental, boiler temperature gauge 1993 - 1995 

President Dr. Art Boni remarked, "I certainly consider this a resounding commercial success, especially considering that selling to electric utilities must be one of the toughest sells that there is."

1.25 Phoenix Controls, VAV building controls 1983
View their payback from market research.

Phoenix Controls launched a new field in the 1980’s, variable air volume (VAV) building controls, with a prototype electronic air control system for chemical fume hoods.   They invested in up-front market research which proposed simple product changes that resulted in decisive market viability, and a US Patent for a sustainable competitive advantage.

The MIT Enterprise Forum in 1992 spotlighted Phoenix Controls’ successful financing, continuous growth through $20 million in annual sales, and world domination of their market niche.  INC Magazine honored Phoenix as one of the "500 fastest growing privately held companies" three years running, in 1991, 1992, and 1993.   Only 10% of the 500 ever appear three times.  Gordon Sharp, the Founder and President, summed up the key to their success, "Market research gave us a handle on where to go."

Acquired by Honeywell in February, 1998.

1.25 Molten Metal, elemental recycling 1991, startup to IPO worth $500 million in 5 years.  Climbed to $1 Billion market capitalization.

Author's note - their M/E Ratio™ dropped to 0.1 by 1997, and they filed for Chapter 11 bankruptcy on December 3, 1997.  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.

1.2 Monster Board, employment via the Internet, 1998

World's largest job web site; for employers and for job seekers, with over 45,000 job listings and more than 430,000 resumes on-line.  One of the first 500 commercial web sites, and one of the few profitable ones.  

1.2 Aurora Systems, Computer-Telephone-Integration (CTI) software 1990 - 1994 and precursor

1.1 Brooks Automation, semiconductor wafer robots 1988 - 1989
Read about Brooks' payback.

Although Brooks Automation had pioneered robot wafer handlers and cluster tooling, by 1989 the order rate was stagnant, hovering around $3.5 million.  The company was performing essentially no market research.  The management team purchased Brooks for $2.1 million and brought in a new CEO, Bob Therrien, who began investing heavily in marketing, raising the M/E Ratio™ to 1.1.

"Dynamite!" said Bob Therrien of the results.  

  • from 35 employees to 3,500
  • from $3.5 million revenue to more than $.5 Billion
  • from a $2.1 million investment to a publicly traded company with a market capitalization of $1.6 Billion.

Their 50 percent CAGR (1991-95) was double that of wafer fab equipment.  Brooks' 77.5 percent growth in 1996 out-performed the industry's 11.8 percent rate.

1.1 Evidian USA, enterprise software 1997 - 1999
Read "Market Research Drives Revenue"

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.

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 within 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.

1.05 Reflective Technologies Inc. (RTI), reflective sportswear, t-shirts, sneakers, backpacks 1994 - 1995.   Popular Science "100 Best" for 1996.  Spotlighted by the MIT Enterprise Forum in December, 1997 in "The Adoption Of Innovative Technology In Consumer Markets."

1 Amana (Raytheon), RadaRange microwave oven 1966 - 1975

See Raytheon's largest commercial failure, below, in the failure column.  Amana raised the M/E Ratio™ from 0.033 to 1.0, whereupon the microwave oven became a success.  

By 1975, sales of microwave ovens would exceed that of gas ranges.  In 1976, the microwave oven became a more commonly owned kitchen appliance than the dishwasher.

The microwave oven is now the largest selling kitchen appliance in the world, with over 200 million in use.

1 Acugen Software - semiconductor test software 1986 - present
Click for their web site.

See their payback vignette.

Startup to world market dominance in 18 months with no capital and no sales force.  Forced the entrenched competitor, Data I/O with a 50 person field sales staff, to withdraw.

1 Lycos, Internet directory, 1997.  http://www.lycos.com   

"I increased my market research investment to equal the engineering investment."  Robert J. Davis; Founder, President, and CEO of Lycos.

  • Startup to IPO in 9 months - fastest IPO in US history
  • Zero to $450 market capitalization in 28 months
  • One of the top 5 Internet sites in the world
  • 700 advertising partners
  • Passed $1 Billion in market capitalization 4/3/98
  • Approached $1.3 Billion in market capitalization 6/23/98

"The stock has been on a tear to get there: up 66 percent this year and a staggering 504 percent over the last 12 months."  Reported by The Boston Globe on 6/24/98.

  • Approached $1.6 Billion in market capitalization 7/6/98, for a gain of 894 percent in the last 52 weeks.
  • Reaches 44.5% of the Internet audience in October 1998, only 3
  • percentage points shy of Yahoo, the No. 1 Internet hub
  • Stock soars 24% on 11/16/98

1 EMC, enterprise storage 1990s.  http://emc.com
Former upstart surpasses IBM in market value.  

0.9 Open Market, Internet commerce software, 1998.  Startup to IPO worth $1.2 Billion in 24 months!

"The technology is available. The only question is - what is the business model?  We are doubling our Marketing/Engineering Investment Ratio™ [to develop the business models]," said Shikkar Ghosh, founder and Chairman of the Board. 

"World's fastest growing software company," according to Software Magazine's 1996 annual ranking.  Open Market grew 3,620% in contrast to the 34% average revenue growth for software companies of similar size (under $30 million).

Open Market is the number-one market share leader for Internet commerce software, according to Dataquest's 1997 Digital Commerce Software and Services Market Share report.   Open Market is listed with 30% market share.  This figure is three times that of the nearest competitor and more than the next five competitors combined.

Results through June 17, 2010


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