hyper-competitive - jim plamondon
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How small companies can use globalisation to out-compete international giants by Jim Plamondon as part of a LAMP residential in Perth in 2006TRANSCRIPT
Hyper-Competitive
How small companies can use globalisation to out-compete
international giants
Executive Dean’s Lecture SeriesCurtin University23-Mar-2006
Who Is This Guy?Jim Plamondon
• Marketer, Silicon Valley & Microsoft– Established new technologies as dominant industry
standards (“Technical Evangelist”)– Retired to Australia in March of 2000
• Started researching a thesis/book:– How Microsoft practiced technical evangelism– Why it worked – the theory behind the practice
• Founded Thumtronics Ltd in 2003– Put the thesis/book on hold– No point educating my competition!
I’m Going to Say…• Specific aspects of globalisation strongly
benefit:– The commercialization of innovations– The inventors thereof– The early-stage investors therein
• Products and business models can be structured to maximize these benefits
• These benefits are strong enough to disrupt established competitors in mature markets (incumbents)
Agenda
Agenda
• The Bad Old Days• Globalisation• Dollar Signs
– The Characteristics of “Global-Ready”Innovations
• Case Study: Thumtronics Ltd• Incumbents• Questions
The Bad Old Days
(Before c.1995)
The Bad Old DaysAn Innovator Had To…
• Invent and patent something– Slow, single-nation, and expensive
• Acquire, equip, and staff a factory– High up-front & continuing fixed costs– An unexpected drop in sales, leading to idle
factory time, could kill the company• Make long-term deals with the Channel
– Often in return for start-up funding– Restricted the upside & long-term flexibility
• Spend a fortune on advertising
The Bad Old DaysHigh Start-up Costs Favoured Incumbents
• Because:– The cost of commercializing an innovation
was high…– And the Channel ate most of its upside…– So the risk to investors was also high.
• Therefore:– Few innovations were funded– Inventors retained little control
• Result:– Lone inventors rarely threatened incumbents
End of “The Bad Old Days”
Questions?
Globalisation
GlobalisationDefined by the IMF as:
• “the growing economic interdependence of countries worldwide
• through increasing volume and variety of cross-border transactions in goods and services,
• freer international capital flows,• and more rapid and widespread diffusion
of technology”.
GlobalisationAspects Relevant to This Seminar
• Services• Marketing & Sales• Diffusion
Global Services
Global Services“Outsourced Everything”
• Research & development– Grey Innovations, Titoma, etc.
• Manufacturing– Flextronics, Solectron, Sanmina, etc.
• Logistics– UPS, DHL, FedEx
• Customer Service– (Various – fragmented)
Global ServicesEfficient Asset Utilization
• Service providers:– Many clients => low down time– Many jobs => high expertise– Many competitors => low margins (e.g., 4%)
• Service consumers:– Low up-front capital costs– High quality– Low continuing costs
• Everybody wins
Global ServicesBenefits to Innovator
• Can commercialise a new product– Faster, cheaper, better
• Lower costs => less risk, higher ROI– More $$$ for inventors and investors
End of “Global Services”
Questions?
Global Marketing & Sales
Global Marketing & SalesThe Internet Changes Everything
• Everyone can see my web page– Everyone, everywhere, all the time
• Language & culture are no barrier– On-line affiliates can target specific groups
• Payment is no barrier– Credit cards, PayPal, etc. are global
• Shipping is no barrier– DHL, UPS, FedEx – all ship globally
Global Marketing & SalesAggregates Dispersed Demand
• Who was the Internet designed for?– Small, dispersed groups sharing an
uncommon interest– (Academic researchers on military projects,
specifically)• That’s an exact match with the needs of
new-product introduction– Allows those scattered individuals with a need
for your new product to find it, buy it, and build a community around it
Global Marketing & SalesAggregates Dispersed Demand
• A very important point!• Let’s say that:
– You can only sell 100 of your new widgets per year in WA
– But WA is just 1/500th of the world market• How do you reach the other 50,000
potential customers?– Without paying 500 times the marketing
cost?
By Being Self-Advertising
Which I Will Discuss in The Case Study
End of “Global Marketing & Sales”
Questions?
Diffusion of Technology
GlobalisationDefined by the IMF as:
• “the growing economic interdependence of countries worldwide
• through increasing volume and variety of cross-border transactions in goods and services,
• freer international capital flows,• and more rapid and widespread diffusion
of technology”.
Technology Diffuses FasterIf It Is…
– “Better” in some way– Compatible with current practices– Simple– Trial-able: can “try before you buy”– Easily seen when used by others
• Broadband makes it easier for info about new technology to diffuse– Especially through video downloads
End of“Diffusion of Technology”
Questions?
End of “Globalisation”
Questions?
Dollar Signs
The Characteristics of “Global-Ready” Innovations
Dollar SignsThe Characteristics of “Global-Ready”
Innovations• Price Maker• Cost Advantage• Self-Advertising• Easier to Learn & Use• Customer Lock-In• Billion-Dollar Niche
Dollar SignsPrice Maker
• Can set prices strategically– Not driven by competition’s pricing
• Requires monopoly power– Microsoft taught me to love monopolies
• Only legal source of monopolies:– Intellectual property
• To be a Price Maker– You must own market-dominating IP– …and defend it with patent insurance (to
deter infringement)
How Can One Identify Globally-Profitable
Innovations?
Sony CorporationQuote from Christensen, 2003
• “Between 1950 and 1982, Sony successfully built twelve different new-market growth businesses.
• How did Sony find these foothold applications that yielded such tremendous upside fruit?”
Sony CorporationQuote from Christensen, 2003
• Sony “looked for ways that electronics might
• help a larger population– of less-skilled and less-affluent people
• to accomplish,– more conveniently and at less expense,
• the jobs that they were already trying to accomplish– through awkward, unsatisfactory means.”
Dollar SignsPrice Maker
• Not just any innovation will be lucrative!• To scale up globally, it must:
– “help a larger population• of less-skilled and less-affluent people
– to accomplish,• more conveniently and at less expense,
– the jobs that they were already trying to accomplish
• through awkward, unsatisfactory means.”
Dollar SignsCost Advantage
• Need a strategic cost advantage– That is, not easily copied by competition
• Tactical advantages buy time– Supply-chain management– Moving production to China
• Strategic advantages buy markets– Dell, eBay, Wal*Mart
• Best source of strategic cost advantage:– Innovative business models
Dollar SignsEasier to Learn & Use
• No one has “spare time” anymore– The cost of time is high…and rising
• “Easier”:– Allows one to learn faster– Learning faster is cheaper– Enables access to features that are better– Better, Faster, Cheaper: the Holy Trinity
• Being “easier” is the single most valuable feature any product can have
Dollar SignsCustomer Lock-In
• Results from:– Low cost of adopting your innovation– High cost of adopting alternatives
• Works like a ratchet– Easy to gain market share– Hard to lose it, once gained
• “Ease of adoption” is the critical factor– Makes alternatives “harder” by definition
Dollar SignsBillion-Dollar Niche
• Product development is expensive & risky• The potential market must be large…
– Or the pay-off’s not worth the risk• But not too large!
– Else will attract big, smart competitors• Ideal: Billion-Dollar Niche
– Small enough that most competitors are “amateurish”
– Big enough to deliver massive ROI
Dollar SignsSelf-Advertising
• Traditional advertising is ineffective & expensive– Can cost much more than R&D
• Hard to “scale up” globally– Many language, cultural, & cost barriers
• Being “self-advertising” overcomes these problems– If the product is well-suited to it
• I’ll discuss “self-advertising” in a case study
Dollar SignsReview
• Price Maker• Cost Advantage• Easier to Learn & Use• Customer Lock-In• Billion-Dollar Niche• Self-Advertising• These are the “Dollar Signs” that signify
that an innovation is “Global-Ready”
End of“Dollar Signs”
Questions?
Case Study
Thumtronics Ltd
Case StudyAgenda
• Thumtronics’ product– The Thummer™-Brand Jammer– (all the good names were taken)
• Diffusion• Thumtronics’ business model• Thumtronics’ “Dollar Signs”
The Thummer™-Brand Jammer
Key Benefits
ExpressiveEasy to Learn
Expressive
Freedom Thummer™“Eaton”-Design Prototype
Patented!
ExpressiveSeven Independent Variables
• Two thumb-operated joysticks– Each measuring Up/Down & Left/Right– That’s four variables among the two
joysticks• Two expansion jacks
– Foot pedals, breath controllers, etc.– That’s two more variables
• Six independent variables so far
ExpressiveSeven Independent Variables
• 114 Pressure-sensitive buttons– On/Off, Key Velocity, Channel Pressure,
or Polyphonic After-touch• Counted as one more variable• That’s seven independent variables
Freedom Thummer™“Eaton”-Design Prototype
But – Wait!
There’s More!
eMotion Thummer™With Internal Motion Sensors
Patented!
eMotion Thummer™Six More Independent Variables
• Translation– Along X, Y, & Z axes
• Rotation– Around X, Y, and Z axes
• That’s six more degrees of freedom• Total: Thirteen degrees of freedom
eMotion Thummer™Thirteen Independent Variables
Patented!
Expert OpinionDr. Garth Paine, Uni. of Western Sydney
Expert OpinionDr. Camille Goudeseune, USA
• “The jammer is groundbreaking.• I have never before seen an
instrument with the expressive potential of the jammer,
• Despite extensive academic research in this field.”
End of“Expressive”
Questions?
Easy to Learn
Thummer™ KeyboardMajor Scale
Patented!
Thummer™ KeyboardMajor Scale
“Same Shape”Same: iso
Shape: morphIsomorphic
A Given Sequence of Intervals has the “Same Shape” on the
Thummer™ Keyboard.
How About Combinationsof Intervals?
Thummer™ KeyboardMajor Triad
Thummer™ KeyboardMajor Triad
“Same Shape”
“Isomorphic”
Expert OpinionDr. Bill Miles, Curriculum & Assessment,
Victorian Government Secondary Schools
Expert OpinionWhat Effect Could the ThumMusic™ System
Have on Music Education?
Expert OpinionWhat Effect Could the ThumMusic™ System
Have on Music Education?
Expert OpinionDr. Sam Leong
Director of Music Education, UWA
• “Throughout my work in music education for 30 years,
• I have not seen any innovation with as much potential to revolutionize music education.
• The ThumMusic™ System and the jammer could transform the musical landscape in the 21st century.”
In Other Words…The Jammer & ThumMusic™ System Will…
• help a larger population– of less-skilled and less-affluent people
• to accomplish,– more conveniently and at less expense,
• the music education and performance• that they were already trying to
accomplish– through awkward, unsatisfactory means.
End of“Easy to Learn”
Questions?
But, Wait A Minute…
Will It Sell?
Expert OpinionGraham Hoskins: Former President,
Australian Music Association
Expert Opinion30-Year Veteran of Musical Instrument
Retailing
Expert OpinionWill The Thummer™-Brand Jammer Sell?
Price: AU$497For the Freedom Thummer™
(Without motion sensors)
(That’s US$365, BTW.)
Expert OpinionDoes AU$49700 Sound Reasonable?
A Bit High is Perfect
Skim the Cream Then Go For Volume
“It’s a Very Exciting Instrument…
And It Could Be Huge”
Let’s See Another Demo!
DemoPercussion
Thumtronics’ Related InnovationsArising From Isomorphism
• Thum™ Theory– Isomorphic music theory– Simpler; unifies the music theories of many cultures
• Thum™ Synthesis– Isomorphic music synthesis algorithms– Unique sounds – only on the jammer
• Thum™ Tuning– Isomorphic tuning system– Enables new styles of music– The “next rock ‘n roll” – only on the jammer
End of“Thummer™-Brand
Jammer”
Questions?
Diffusion
of the Thummer™-Brand Jammer
Diffusion FactorsThe Jammer Is…
• “Better”– Easier to learn & use– More expressive, portable, etc.
• Compatible– MIDI (via USB)
• Simple– Much easier to learn & use
• Observable– “What the heck is THAT?”
QWERTY Thummer™ Keyboard“Try Before You Buy”
E F#
Tab Cb Db
A# BSGb Ab Bb C D G#
Eb F G A B C# D# E#Enter
Caps Lock Gb Ab Bb C D
Eb
G# A#
F G A
F#
E# ShiftB
E
[W] [M] CtrlCtrl [W] Alt Space
F7 F8
Alt
C# D#Shift
F3 F4 F5 F6Esc F1 F2
Cb Db
F9 F10 F11 F12
Thummer™ Should Diffuse Rapidly
(i.e., sales should grow quickly)
End of “Diffusion”
Questions?
Business Model
“Outsourced Everything”+
Direct Sales
Thumtronics’ Business ModelOutsourced Everything
• R&D– Grey Innovation (Melbourne)
• Manufacturing– Sanmina (Perth, at first)
• Logistics– UPS
• Customer Service– (Undecided)
Outsourced ManufacturingSanmina: Factories All Over the World
Direct SalesVia Internet
• Think “Dell Computer”– Doesn’t sell through stores– Only direct sales– Doesn’t pay “the channel” a dime
• Can sell a better product at a lower price– That’s a strategic cost advantage!
• Musician’s Friend: “mail-order” instruments– Internet sales zoomed from 50% to 70% in 2005– People clearly do buy musical instruments online
Globalised MarketingInternet
• Thumtronics’ website is globally accessible– By those with enough income to buy jammers
• On-line affiliates– Musicians’ guilds, “gear” magazines, etc.– Target languages & special-interest groups
• Demo & training videos– Google Video: free streaming
Globalised MarketingUsing the Internet to Stimulate PR & WoM
• This is what I do!– I did it for 8 years at Microsoft– Was considered to be the best at Microsoft– Microsoft’s success proves my skill
• We’re already on the way to success– Quotes, letters of support, demo videos– Hundreds of website hits per day
• Global media is already offering free PR– USA’s “I Want That!” TV show– Future Music magazine
Thumtronics’ Business ModelOptimized for Rapid Growth
• Outsourcing keeps fixed costs low– Allows rapid growth– Insulates profits against short-term sales fluctuations
• “Self-Advertising” keeps ad costs low– While promoting rapid spread of awareness
• Direct Sales keeps margins high– Allows instantaneous control over pricing– Establishes an intimate connection with customers– Can scale up rapidly
• Thumtronics is designed for growth
How Much Growth?U nit s Sales, 2 0 Y ears
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
That’s 12 Million Jammers and 1 Billion in ProfitsOver the Next 20 Years
(Your Mileage May Vary)
End of “Business Model”
Questions?
Dollar Signs
Is Thumtronics “Global-Ready”?
Dollar SignsIs Thumtronics “Global-Ready”?
• Price Maker– Yes: patents, trademarks, design
registrations• Cost Advantage
– Yes: “Outsourced Everything” + Direct Sales
• Self-Advertising– Yes: “What the Heck is That?” Effect
Dollar SignsIs Thumtronics “Global-Ready”?
• Easier to Learn & Use– Yes: Isomorphic keyboard
• Customer Lock-In– Yes: Ease & expressiveness
• Billion-Dollar Niche– Yes: $20 billion, actually
End of “Dollar Signs”
Questions?
Incumbents
Why Can’t They Do This, Too?
Barriers to IncumbentsYamaha, Roland, Kawai, Fender, Etc.
• Asset base– Own factories, equipment, warehouses– These are liabilities in the global era– “The soul of the company” – can’t sell them!
• Joint Venture distribution deals– Helped companies grow rapidly in the 1950’s
through 1980’s– Now, prevent direct sales
• These are structural problems– Not easily or rapidly changed
Barriers to IncumbentsYamaha, Roland, Kawai, Fender, Etc.
• Commoditization– Cause: Lack of innovation– Result: Intense price competition (from China)
limits cash-flow which could fund change• Aging senior management
– Lots of 70-year-old founders still in charge– Don’t understand these newfangled gadgets
• “Innovator’s Dilemma”– Incumbents don’t want to disrupt themselves
End of “Barriers to Incumbents”
Questions?
Conclusions
To Leverage Globalisation…• Innovate!
– IP is the only legal source of monopoly– Focus on making a hard job easier
• Implement using electronics & plastic– To facilitate outsourcing & rapid growth
• Outsource everything– To keep initial & fixed costs low– To accommodate rapid growth
• Sell direct– To keep prices low and margins high
Demo
Questions?
Thanks!www.thummer.com