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Who Is Going To Buy The Darn Thing?
 

Who Is Going To Buy The Darn Thing?
Invest More In Marketing Than In Engineering To Find Out!

Institute of Electrical and Electronic Engineers (IEEE)
Proceedings of the IEEE Electro International
By Ralph E. Grabowski

 
Table of Contents

   Abstract
1 The evidence is in
2 Who needs Marketing?
3 Exactly how much is "more" Marketing?
4 Avoid the pitfalls of the flaming failures
5 Do what the super successes do
6 Go for it!
7 Implications for technology-based enterprises
8 Summary
9 References
   Figures
   About the author

   PDF reprint -  28 pages, 0.7 MB
   PDF 2-page abstract with summary of the data - 0.3 MB

 

invest more in market research than in engineering
  4 - Avoid the pitfalls of the flaming failures.
All the failures in this survey suffer from a Marketing/Engineering Investment Ratio™ of 0.1 or lower.  The average failure invests only two cents in marketing for every dollar in engineering.
 

Hampshire Instruments

Although Hampshire Instruments consumed $75 million in capital, only one customer put down a tentative deposit on one of their X-ray steppers.  Nobody would buy the darn thing.  Robert Kern, their former CFO, accounts: "Hampshire's M/E Ratio™ was 0.05 from 1984-1990.  In 1991 and 1992, Moshe tried desperately to find out what customers really wanted, doubling their Marketing/Engineering Ratio™ to 0.1, for a cumulative ratio of 0.07; it wasn't enough.  They closed the doors in 1993."(28)  This resulted in not only a business tragedy, but also in a personal tragedy for the founder, Dr. Moshe Lubin.

Varian Associates IMPATT Oscillator

Another such personal tragedy occurred for Frank Sterner shortly after Varian Associates abandoned his technology and shut down his group in 1969.  Tom Leonard of their marketing team remembers, "The M/E Ratio™ was, at best, 0.05.  I would be surprised if we spent as much as one dollar in marketing for twenty in engineering."(29)

Frank directed the IMPATT Oscillator section at Varian Associates in Beverly, MA.  Their technology was 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.  In spite of the advanced technology, they could manufacture hundreds of units a day for a cost of $8.  With the know-how and designs to produce microwave sources from the milliwatt level to the one-Watt level, Varian enjoyed a four-year technological lead on the competition, GUNN diode oscillators.

It was a marketing failure.  It was not a failure of good engineering, insufficient investment capital, or lack of sales promotion.  Varian's sales staff sold (limited) quantities into the few market segments that their marketing identified.  However, there were not enough market segments identified, at not enough volume, to keep the business going.  They could not find enough customers to buy the darn things.

This author was a solid-state microwave circuit designer in Frank's group.  In frustration, without marketing training and on his own, the writer performed market research identifying five new market segments and obtaining signed letters from customers saying that they would spend $1,500 for that IMPATT oscillator, which Varian was manufacturing for $8.  Four of those five market segments became multi-million dollar businesses for others over the next ten years.  Varian still abandoned the technology and laid everyone off.  The author entered marketing.

This paper is dedicated to the memory of Frank Sterner.  The author is gathering data from these personal, professional, and financial tragedies and successes so that we might learn.

GCA

GCA created the step-and-repeat system of optical lithography, christened "steppers," for semiconductor manufacturing in the 1970s.

If there is an example of how technology alone might be sufficient for a temporary advantage, not sustainable, it could be GCA.  They had no viable competition as late as 1982, enjoying over 95% market share in Japan and 100% everywhere else.  Even at the end, it was widely agreed that GCA had good technology.

GCA grew to more than $400 million in sales in 1984 with over 3,000 employees, becoming #1 in the world in semiconductor fab equipment.  GCA was not a failure from a lack of good engineering or sufficient finances.  Moreover, GCA could sell; for example, closing $10 million on a single purchase order after successfully tracking it through thirteen approval levels.(30)

GCA's M/E Ratio™ was 0.07 in 1981.(31)  As a consequence, they had neither enough marketing horsepower to understand the customer dynamics or the competitive situation, nor the marketing strength to guide the corporation.  GCA lost $145 million in 1985,(32) going $110 million in debt in 1986.(33)  (34)

Just before closing their doors, GCA's 1992 Marketing/Engineering Ratio™ was 0.06.  Bill Tobey, a former GCA executive, 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!"(35)

Thinking Machines

Thinking Machines declared Chapter 11 in 1994.  After blowing through $120 million of capital, and peaking at $92 million in sales, they then began laying off 200.  "They had excellent technology, but they did not have vision from a market stand-point," said Howard Richmond, an industry analyst with the Gartner Group.(36)

Clearly, Thinking Machines did not lack from technology, access to capital, or sales.

From their startup in 1983, through 1989, Thinking Machines invested nothing in marketing.(37)  From 1990 through 1994, they began investing in marketing, raising their Marketing/Engineering Ratio™ to 0.008.(38)  On a positive note, read of their new President's commitment to significantly increased investment in marketing at section 6, "Go for it!"

Kendall Square Research (KSR)

Kendall Square Research (KSR), another supercomputer startup, also went bankrupt in 1994 after consuming $170 million in capital.  KSR's M/E Ratio™ was 0.03, or lower, from 1986-1995.(39)

Essential Research

Dr. Linda Garverick's startup consumed $300K of her own money while selling no product.  After receiving a Ph.D. in Physics from MIT, she developed an AutoCAD add-on package, CreaTorr, for vacuum system design.  Essential Research software would 'snap' vacuum flanges together while its mathematical technology would calculate pumpdown curves.

CreaTorr impressed everybody who saw it.  Nevertheless, Dr. Garverick could not find anybody to buy the darn thing.  "The M/E Ratio™ at Essential Research was 0.1.  I would bet that we did not invest a dime in marketing for each dollar that we invested in engineering."(40)

 

Established enterprises, too

Becton Dickinson Medical Systems (BDMS)

Becton Dickinson Medical Systems invested $300K in engineering over five years, developing new patient location technology for the Coronary Care Unit.  By 1978, BD had received five US Patents, with fifteen more pending.

While marketing could have been performed before this project was started, BD initiated primary market research only after engineering was complete.  That $3K (internal labor plus external fee) market survey to understand customer needs established that BD had developed a technology for which there was no need!  BD abandoned their $300K investment.(41)

BD's Marketing/Engineering Investment Ratio™ was 0.01 in the 1970s.  After pioneering their field in the 1950s, they found themselves with no growth, with losses, and reduced to seventh out of ten in the market, with a declining share.

Keithley Instruments

"After 40 years in the business, and 13% per year growth rate in the mid-1980s,"(42) Keithley Instruments identified themselves as a failure!  Joe Keithley, Chairman of the Board, laments in his 1992 Annual Report, "Our introduction of new products ... has not produced growth ... Fiscal 1992 was the first time in forty years that Keithley Instruments posted a loss of any kind, and we are not pleased."(43)

Other Keithley Instruments executives echo the failure, "Our marketing execution is an abysmal failure.  We are struggling with our marketing strategy.  We don't know what we want to be.  We are struggling to develop a new product definition process that can achieve success."(44)

Keithley Instruments used to be a $100 million per year company.  By 1995, they had become about a $90 million company, having been flat to down for the prior four years. Keithley had a M/E Ratio™ of 0.07 - 0.1.  They are re-organizing, trying to return to a pattern of growth, with new business development teams, which are conducting simultaneous marketing and engineering.  Keithley's pilot groups have a higher M/E Ratio™, in the 0.5 - 1 range.(45)

 

SBIR companies

Physical Sciences, Inc. (PSI)

Physical Sciences, Inc. (PSI) of Andover, MA, has been awarded over 200 SBIR grants since 1984, totaling more than $40 million.

They have received, have pending, or have disclosures on more than 40 US Patents.  PSI has only one commercial product, in a small spinout (see the success stories, below).  With all that technology, and all that funding, the balance of PSI has a M/E Ratio™ of 0.01 and no commercial products.(46)  (47)

Optra

From 1984 to 1995, Optra of Topsfield, MA received 88 SBIR grants totaling more than $14 million, resulting in over 20 Patents granted or pending.  They have no commercial products (as of 1995), although they have tried.  Optra's Marketing/Engineering Ratio™ is 0.1 where they consider themselves a commercial failure, and 0.4 -0.7 where they had limited commercial success for a time.  Clearly, Optra is not lacking for technology, for funding, or desire to commercialize.

Jim Engel, their President, explains, "We have achieved only limited commercial success; with our laser extensometer.  Overall, Optra is a failure.  We should have spent more money on marketing!  We got what we deserved.  We might have achieved more success if we had spent more money on marketing.

"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 Marketing/Engineering 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!"(48)

 

 
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