In This Issue:

• Surviving the Market Recovery: Part II - Adapting to the New Environment
• Marketing Strategies for IP Companies: Part I - To Co-Brand or Not to Co-Brand
• Tobak's Great Wine for Techies:

Surviving the Market Recovery
Part II - Adapting to the New Environment

In Surviving the Market Recovery, Part I – Reading the Warning Signs, we talked about how many companies that survived the downturn will not survive the recovery.  We also looked at some of the warning signs that may indicate that a company is not well-positioned to survive the recovery, let alone benefit from it.  In this installment, I’d like to explore some of the more common root causes of those warning signs and describe key strategies for helping companies to recover from them.

The Darwin Awards

The Darwin Awards is a book that’s printed annually.  The book honors people who manage to kill themselves by doing really dumb things, thus taking themselves out of the gene pool and ultimately strengthening the human race.  It seems that, in any distribution curve, there are entities at the far end of the curve that are as adept at making fatal mistakes as successful entities are at capitalizing on opportunities.  Well, I’m afraid that technology companies are no exception.  As a result, I would be remiss if I didn’t provide examples of some of the more obvious root causes of the warning signs before we get into the stickier ones that are more subtle and harder to eradicate.

For example, today’s market will not tolerate organizational fat or excess spending of any kind.  If you think that’s obvious, great, but don’t laugh.  You would be amazed at how many companies don’t have what it takes to cut and cut deep enough.  Look at Lucent.  Their SG&A expense in 2002 was a staggering 32% of revenue … two years into the telecom collapse!  They finally cut deep enough last quarter, bringing SG&A way down to 10% of revenue.  In stark contrast, Cisco – of similar size – bit the bullet and executed a complete operational restructuring almost two years earlier.  Check out which company suffered more in the downturn.

Another favorite example is companies whose expense structure is completely out of line with their product portfolio.  For example, they have a commodity product line and spend like a proprietary product company.  Take Sun Microsystems, for example.  Their once proprietary product line is becoming more and more commoditized due to intense competition and pricing pressure from the Dell/Intel/Microsoft troika, putting severe pressure on profit margins.  With R&D expense at a lofty 18% of revenue versus HP’s 5%, IBM’s 6% or Dell’s 1%, Sun’s betting the company that they can reverse this fundamental trend.

Bad Marketing

If you can rule out the more obvious causes of your warning signs, then the causes may very well be related to poor marketing, which implies that you can eradicate them with good marketing.  Bill Davidow wrote the first book on high technology marketing back in 1986 and, IMHO, nobody’s written a second one.  That’s a pretty big gap.  A lot’s changed since then.  What hasn’t changed is that most technology companies are as in the dark about marketing today as they were back then.  Let me boil it down a bit to something we can all understand:

Good marketing to a technology company is like good sex to a marriage:

• When it’s working, you take it for granted and all is well;
• If you’ve never experienced it, you don’t know what the big deal is;
• You can even get by without it … for a while;
• But when it’s not working, it’s a real mess and it screws up everything.

The bottom line is that marketing is becoming more critical to the success of high-tech companies every day.  And believe it or not, bad marketing can kill a company.  But how do you know if you have bad marketing?  Well, remember the nine warning signs?  Bad marketing can cause every single one of those warning signs … every single one.  You know the expression, “what doesn’t kill you makes you stronger.”  Well, that only works in biology where you build up immunities.  You don’t build up immunities to bad marketing.  What didn’t kill you in the downturn may still be plaguing your company and can kill you in the recovery, especially considering the more competitive post-downturn environment.  So if your company is experiencing one or more of the warning signs, try the following five-step process.  It will help you troubleshoot your company’s marketing issues and, ultimately, reverse your warning signs.

Five Steps to Great Marketing

Know what your customers really think about your company and its products.  The scientific method essentially says to start from current knowledge, then make assumptions and test them.  If your test works, your assumptions are valid.  If your test fails, then they aren’t.  Why should the corporate world be any different?  How do you expect to know if your marketing and sales efforts are effective if you don’t have a clear baseline of what customers think of your company and its products today?  Now, you have to be objective about it, but I guarantee the results will surprise you.

Know where your company is going.  Yogi Bera said, “If you don’t know where you’re going, you may not get there?”  Seriously, how do you expect your company to be successful if you don’t have a well articulated vision of where you want to be in, say three years?  And if you do have a vision or mission, is it credible, unique and achievable?  Is your executive management team 100% behind it and is your entire company on board?  If not, your chances of achieving long term growth and profitability are slim.

Develop your company’s or product’s distinct value proposition.  This is such a fundamental concept I can’t think of a way to become a market leader without it.  Every company and product line must offer customers a credible, compelling proposition that explains how your solution uniquely solves a critical problem of theirs.  The key words are underlined and are what makes this so hard to do.  If you can’t come up with it, you’re pretty much doomed to being a market follower, which brings us to the next point.

Position your company or product for market leadership.  I am relatively inflexible on this point.  If you can’t come up with a value proposition that credibly positions you for market leadership, then you need to come up with a way to creatively segment your target market until you can.  Better to be a big fish in a small pond than to get eaten in any pond.  Big fish command premium pricing and have fat profit margins and high P/E ratios.  Little fish – if they don’t get eaten first – are doomed to perpetual margin pressure.

Have a clear plan for achieving your strategic goals.  Once upon a time, cool technology and good looks were all you needed to be successful in high-tech.  For better or worse, the tech markets have matured and now – if you just blink and miss a step – there are plenty of competitors just waiting to pounce and steal your market share.  The answer is to have a strategic plan.  I’m not talking about an annual operating plan with revenue and profit goals; I’m talking about shooting higher on the horizon than that. 

What, you don’t have a strategic plan and don’t know where to start?  Then tune in for the last installment of "Surviving the Market Recovery, Part III – Evolving into a Stronger Species."

Back to top

Invisor Insights – a monthly letter – provides direct perspective and analysis on issues critical to high-tech industry leaders.

In the February issue of Invisor Insights:

• Surviving the Market Recovery: Part III - Evolving Into a Stronger Species
• Marketing for IP Companies:  Part II - The Positioning Dilemma
• Tobak's Great Wine for Techies: Understanding Italian Reds, US White Picks, and the Ins and Outs of Aging Wines

Marketing Strategies for IP Companies
Part I - To Co-Brand or Not to Co-Brand

The Mother of all IP Marketing Questions

Let’s start with the mother of all IP marketing issues.   It’s hard enough to communicate the benefits of semiconductor and other technology inside of an end-user product – like a PC or cell phone – to a non-technical audience.  But with IP companies the challenge is exacerbated by the fact that the technology is often-times an ingredient inside of the chip and the end-user never gets to see the IP company’s brand name.  Most IP companies struggle with this issue.  They seem to believe that branding on the chip or box is critical, a la Intel Inside or Dolby.  As it turns out, this is not so much an issue as it is the mother of all IP marketing myths which I would like to dispel once and for all.

First of all, if you could successfully pull off an Intel Inside or a Dolby play without breaking the bank, you should do it.  But let me explain the drivers for something like that.   The first is technology indispensable to the end-user application where it is also advantageous for the box and/or media maker to identify that technology – either as a marketing check box or for compatibility reasons – on the outside of the box or media.  This is certainly the case with Dolby and to a lesser extent, Intel.  I’m sure you’ll agree that these are special cases that don’t come along too often in a lifetime.   Now let’s talk about Intel Inside. 

Dennis Carter – Intel’s marketing chief at the time – saw an ad for Pop Tarts that had Smucker’s fruit preserves inside.  This gave him the idea for co-branding that was the genesis of Intel Inside, a brilliant end-user corporate advertising campaign that essentially branded Intel as the “computer inside.”  This campaign alone costs Intel megabucks.  But Intel Inside became much more than that.  The bigger program was the co-op marketing program that provided advertising dollars to PC companies for placing Intel’s brand on their box and in their ads.  In so doing, they “hooked” customers on their considerable marketing dollars and created an addiction that lasts to this day.  But it costs Intel even more megabucks than the original corporate ad campaign.  We’re talking perhaps hundreds of millions of dollars per year. 

To summarize, even if you can convince your customers that your technology is indispensable and it’s beneficial for them to promote it for you, you still may have to put up huge amounts of money to get them to dilute their own brand.

Brand Identification on End-User Products

And while Intel Inside was a big strategy whose effects were dramatic and far reaching, the real question is, “Does an IP company really need to represent their brand on their customer’s products to get the recognition they need to create long-term shareholder value?”  The surprising answer is no.  These days, if you’re a public company and the “design win” is “material,” you’re pretty much required to tell the investment community.  And once you’ve done that, your salespeople and marketing folks can refer to it in press releases, presentations, ads and on the web.  So whether you’re public or private, the most important thing to do is ensure that a key term in your licensing agreement is the right to publicly announce that your technology is inside of the customer’s product, worst case, once the product is launched.  At that point the information should be public and you can do with it as you please.  Of course it would also be nice if your customer participated in a press release and provided a quote from a prominent executive, but that’s just gravy. 

If you’re still not convinced that co-branding with your customer is mostly irrelevant, let’s look at a few examples of today’s P/E ratios: Intel - 49, Analog Devices - 64, Qualcomm - 59, SanDisk - 54, ARM - 77, Artisan - 62 and Rambus - 177.  Do you think Qualcomm’s P/E is what it is because their name is on a few cell phones, or is it because the Wall Street analysts know how much they get in royalties for each phone sold, including the vast majority of CDMA phones that don’t have Qualcomm’s brand on them?  Likewise for ARM and Artisan.  I might even argue that SanDisk’s P/E would be higher without their retail Flash card business, since the profit margins of their IP business are much higher than that of their Flash card business.  And Rambus’ brand is nowhere to be found on chips or end-user products, yet power users, industry insiders and investors know why this $100M company has a market cap of $3.4B.  To summarize, there appears to be relatively no correlation between shareholder value and brand identification on end-user products, among these companies.

On the other hand, most of these companies have faced positioning issues at one time or another.  For one thing, it’s difficult to pitch a story as an ingredient inside a chip inside a consumer product.  And then there’s the negative perception of companies that “collect” royalties on IP and are viewed as aggressive or “litigious” for protecting their IP and attempting to be fairly compensated for their investment.  We’ll discuss the challenges of positioning intellectual property companies and strategies for developing a strong, positive brand identity in the next installment of Marketing Strategies for IP Companies, coming in February.

Back to top

Tobak's Great Wine for Techies

One day I got to thinking, why is it that folks are always asking me to recommend wines and wineries to them and asking me stuff like, “what was that Chardonnay we had the other night?” after a business dinner?  Well, I know that wine is hot, that Silicon Valley is close to the wine country, and that lots of folks want to be at least knowledgeable enough to order wine at a dinner meeting or a dinner party.  I also know that wine is pretty complicated stuff for beginners, and that most folks don’t even know where to start.

So, whether you’re into wine and are looking for some excellent recommendations or you’re a beginner looking for a place to start, welcome to my column.  My focus is to boil things down for you and try to simplify a very complex subject.  So don’t expect to get every last detail, just what I think are the most important things to know to help you to be somewhat conversant and capable of ordering and buying some really great wine at reasonable prices.  And just like in my consulting business, I share your perspective, being one of you – a techie, as opposed to one of them – a wine industry person.  So what qualifies me to write this column?  Well, I just happen to have a wife who studied culinary arts and turned me on to the wonderful world of wine.  After that, it just bit me like a bug.  Now I just do what I love to do, collect and drink great wine.  I hope my passion with wine helps to enrich your life, but most importantly, remember to have fun with it.  And, of course, let me know what you think.  I’d love to hear what you like and what you’d like to see in the future and we’ll see where this thing goes.  So, let’s get started.

Making Sense out of Wine Naming Conventions

One of the great mysteries of wine – adding to the overall complexity of the genre – is the lack of a worldwide naming convention.  It’s bad enough that French, Italian and English are different languages, but these three major wine-producing nations don’t even name their wines the same way.  We’ll start with a quick overview that will hopefully simplify the whole mess and at least help you begin to make sense of it all.  Then we’ll discuss the relation between the names of wines made in France and those made in the US.  We’ll get to Italy next month.

Okay, first let’s split the wine world in half; there are old world wines and new world wines.  Old world wines include those made in Europe, while new world wines include those produced in the US, Australia and South America.  Now, this is important.  In general, old world wines are named after places – like wine growing regions – and new world wines are named after grape varietals – like Chardonnay and Cabernet Sauvignon.  For example, French Burgundy wines are typically only made from two grapes: the whites are primarily Chardonnay and the reds are made from Pinot Noir grapes.  Very simple.  You can travel through the entire Burgundy region of France and those are pretty much the only two varietals the wineries make.  But the one thing you’ll almost never find on a bottle of old world wine is the name of the grape.  What you will find – in Burgundy for example – is the actual appellation or place where the wine is grown, such as Nuits-St-Georges or Morey-St-Denise.  So if you buy an American Pinot Noir, it’s the same grape as a red Burgundy.  Same goes for Chardonnay and white Burgundy.  Different styles, perhaps, but the same grape. 

Now to finish off the grapes of France so you can relate them to their new world or US counterparts: Bordeaux are the most widely produced wines in the world.  Red Bordeaux wines are primarily made of Cabernet Sauvignon, Merlot and Cabernet Franc grapes, and to a lesser extent Malbec and Petit Verdot.  White Bordeaux wines are principally made of Semillon and Sauvignon Blanc.  So if you grow up in Burgundy, you’re not really exposed to Cabernet Sauvignon, and if you grow up in Bordeaux, there’s little Chardonnay to be found.  Much different than in the US. 

In the vast Rhone region of France, where blending of grapes is the rule, many different grapes are used.  Red Rhone wines are principally made of Grenache, Syrah ( sometimes called Shiraz, especially in Australia), Mourvedre and Cinsaut, although at least eight other varietals may be used in small amounts.  The Rhone whites are typically made of Viognier, Marsanne and Roussanne.  The Alsace region – where white wines are predominant – uses Riesling, Gewurztraminer, Muscat, Pinot Gris (also called Pinot Grigio in Italy) and Pinot Blanc grapes.  Alsace’s only major red grape is Pinot Noir, which is used primarily in Rosé wines.  In addition to the grape varietals already mentioned, Gamay and Chenin Blanc are used along with Sauvignon Blanc extensively in the Loire Valley, a kind of melting pot, like California.

Focus on American Whites

Red wine bigots, listen up.  White wine goes better with lots of foods, is cooler in the summer, and – for the most part – does as much good for your heart as red wine.  In fact, a business associate who grew up in a town in Bordeaux told me they typically ate heavier foods and drank red wines in the cold months, consuming lighter foods and chilled whites and Rosés in the summer months.  So try to open up your mind to something new and, the next time you’re eating fish, chicken, spicy Asian cuisine, salad, vegetarian food, or pasta in a light sauce, go white.  There is such a thing as certain wines pairing well with certain foods.  After all, you wouldn’t drink a coke with a peanut butter and jelly sandwich, would you? 

Here’s a brief overview of whites you’re likely to see in the US:

Chardonnay: the king of white wines. Robust, long-lived, fruity and versatile.  Pair with shellfish, fish steaks and white meats or pastas in white sauces, or drink alone.  Can benefit from 2 – 3 years aging and some can last much longer.

Fine examples: Kistler makes the best (but expensive and hard to find), Ridge (see winery focus below), Newton unfiltered, Saintsbury, Au Bon Climat, Merryvale, Matanzas Creek, Ferrari-Carano.

Sauvignon Blanc: sharp and citrusy, drink young or age 4 or 5 years (I know it sounds strange, but it works). Drink with light appetizers, seafood, cheese.

Fine examples: Matanzas Creek, Rochioli, Simi Sendal (blend with Semillon), Flora Springs Soliloquy.

Pinot Gris or Grigio: rich, mineraly and acidic.  Drink with pasta, pizza, pork.

Fine examples: Etude Pinot Gris, Archery Summit Vireton (Pinot Gris blend). Lots of good Pinot Gris’ come from Oregon.

Pinot Blanc or Chenin Blanc: Light and versatile, a good alternative to Chardonnay. Drink with salads, light vegetarian, fish, or pasta dishes. 

Fine examples: Chalone Pinot Blanc and Chenin Blanc, Qupe Pinot Blanc / Pinot Gris blend.

Gewurztraminer or Riesling: even the dry ones are a little on the sweet side and Gewurzt is also spicy.  Pairs great with spicy Asian food or drink Riesling as an aperitif.

Fine examples: Lazy Creek makes the best Gewurztraminer, also Navarro Gewurzt and Rieslings, Bonny Doon Rieslings.  The best examples come from the Anderson Valley.

Vionier, Marsannne or Rousanne: great alternative to chardonnay.  The best examples are rich and floral.  Drink young, as an aperitif or with light French food.

Fine examples: Calera makes the best Viognier, also Treanna white (it’s a blend), Jade Mountain Viognier, Qupe makes a good Marsanne blend.

Tobak’s Monthly Picks

Wines (all US reds, this time)

Simi Reserve Cabernet Sauvignon.  A great, classic cab from the Alexander Valley.  There are awesome bargains available on both the ’99 and ’98 vintages.  They list at $70, but you can find them as low as the upper $30s, if you know where to look.  If you want to pay a little less, try Stonestreet’s Cab in the $20s.

Matanzas Creek Merlot. Perennially one of the best Merlots around, available in the mid-$20s.

Archery Summit Pinot Noir – Premier Cuvee.  One of Oregon’s premier pinot houses – all their pinots are great – but the Cuvee is also reasonably priced in the mid-$30s.  Their estate wines are in the $60s and $70s if you really want to go for it.  Also great but more reasonably priced, try Saintsbury’s Carneros Pinot, available in the $20s, or their Garnet Pinot – in the teens, or their awesome reserve in the upper $30s.

 Jade Mountain Syrah.  Hard to find but worth it and a great alternative to Cabs and Merlots.  Buy the Napa version in the mid-$20s, the Paras Vineyard at twice the price, but worth it.

Winery

Ridge Winery, Cuptertino, California.  Okay, here’s a quiz question: what was the first wine appellation in California?  If you said Napa or Sonoma, you’d be wrong.  The answer is the Santa Cruz Mountains.  Guess those loggers had to drink something besides beer.  Anyway, to those in the know, Ridge is one of the greatest wineries in California.  Just as important, they make a lot of wine, so you can actually find it if you know where to look.  And their prices are reasonable.  They make arguably the finest Cabernet Sauvignon in California and certainly some of the best Zinfandels and Chardonnays, as well.  They have an excellent website, two great wine clubs (check out the ATP club … very cool concept) and you can visit and taste their wines at either their Santa Cruz Mountains location off the 280 in Cupertino or at their beautiful knew tasting room in Healdsburg in Sonoma County. www.ridgewine.com

Merchant

K&L Wine Merchants .  Absolutely the best place to buy great wines at the best prices on-line.  Also, if it’s convenient, one of the more fun brick and mortar places to shop. The staff is actually knowledgeable and helpful. www.klwines.com

Resources

Clarke & Spurrier’s Fine Wine Guide – A Connoisseur’s Bible, Oz Clarke and Steven Spurrier, Harcourt Brace & Company, 1998.  This wonderful book has been one of my primary resources since its printing in 1998.  It’s a little dated, but as a starting point for someone who wants to drink only good wine and is willing to spend a little to do it, it will help you filter out 95% of the pack and just focus on the good stuff.  The book’s relatively small and therefore usable, and it doesn’t try to rate every single wine / vintage ever made … only the good ones.

Wine-searcher.com.  The best search engine for the best prices on hard-to-find wines.

Back to top

Steve Tobak
Partner, Invisor Consulting
Steve Tobak is a twenty-three year veteran of the tech industry and a founding partner of Invisor Consulting. His commentary is direct and he appreciates your equally direct feedback. He can be reached at stobak@invisor.net.

Subscribe
If you would like to receive Invisor Insights, click subscribe.

Unsubscribe
If you would like to stop receiving Invisor Insights, please reply to this email with the word Unsubscribe in the subject line.

Feedback
We welcome your comments and feedback. Please email us at feedback.

Privacy Policy
The Invisor Insights email list is strictly private and is never shared with anyone.