Involve customers in new product development.

A 1989 McKinsey study showed that products that got to market on time and 50% over budget eventually earned only 4% less than those that were on time and on budget. Products that got to market six months late and on budget earned 33% less than those that were on time and on budget. In a fast changing world, it’s especially important to get new products and services into the marketplace as early as possible rather than waiting to perfect them. Once they hit the market, no one can anticipate where that will lead or whether they’ll succeed or not. Sanctioning experiments with uncertain outcomes is the best way to make progress quickly. The penalties in being late to market in a growing business far outweigh overruns in development costs or the potential waste of having to shut down a development team. Strategies that move organizations in the right direction can be quickly refined through rapid experimentation and adjustment when managers concentrate on failing and learning faster than the competition. Every new product decision has two parts. First you make it, and then you decide to continue it or change it.

As the president of a hi-tech company explained to me recently, “We’re making products daily that are still evolving, delivered to a market that’s still emerging, using a technology that’s still changing on a daily basis.” In uncertain times, much of the route forward may be invisible from the starting point. The only way to see the road ahead is to start moving because clarity emerges more readily from error than from confusion. In a business environment where progress depends on serendipity and spontaneity, high risk and high rewards go hand-in-hand. In many organizations, however, the quest for efficiency drives out opportunities for experimentation. This is a mistake. The quick rise of Casio and Sharp in hand-held calculators and of Ricoh, Canon and Sharp in plain-paper copiers came largely from launching more new high-quality products that the competition did. Time-to-market is as important for success as proprietary technologies and processes. If you wait to move until everything is certain, you can be sure your competition will get to market before you.

Business and product development strategy should be driven primarily by customer needs, values and priorities. Ask, “How do the customers we’re targeting want to deal with us?” Then design the product from the outside in. Make the customer’s use of the product, not the technology, central to all product development. Employees need to develop an instinctive understanding of target customers. Don’t launch a product just because engineering loves a new technology. Consult target users at every step of the way, from the initial idea stage to the actual rollout. Customers don’t want drills; they want holes. Strive to move customers into the design arena, making them part of the design process, developing them into “prosumers” rather than just accepting them as consumers. Success comes not from satisfying customers, but from keeping customers reasonably dissatisfied with what they have so they’ll welcome new products.

In high technology companies, the products are complicated and the people who use them often know as much about how the products work as the people who develop them. Researchers at MIT found that 77% of the innovations in equipment used to make semiconductors and circuit boards came from customers. As technologies become more complicated and users more sophisticated, customers are no longer the passive recipients of a company’s products but the engines of innovation instead.

Passers-by, a poem by Carl Sandburg.

I normally like Elizabeth Alexander's poetry. However, I wasn’t particularly taken by her inauguration day poem, "Praise Song for the Day." So I asked myself who would I have picked if the president had asked me to make the choice. I would probably have recommended Passers-by by Carl Sandburg from his Chicago Poems (1916) both for the relevance of the poem and the poet.

Carl Sandburg (January, 1878 – July, 1967) was an American writer and editor, best known for his poetry. He won two Pulitzer Prizes, one for his poetry and another for a biography of Abraham Lincoln. Sandburg was born in Galesburg, Illinois to Swedish immigrants. At the age of thirteen he left school and began driving a milk wagon. He subsequently became a bricklayer and a farm laborer on the wheat plains of Kansas. After an interval spent at Lombard College in Galesburg, he became a hotel servant in Denver, then a coal-heaver in Omaha. He began his writing career as a journalist for the Chicago Daily News. Later he wrote poetry, history, biography, novels, children's literature, and film reviews. Sandburg also collected and edited books of ballads and folklore. He spent most of his life in the Midwest before moving to North Carolina. He once said, “All politicians should have three hats - one to throw into the ring, one to talk through, and one to pull rabbits out of if elected.” He also believed that, “Ordering a man to write a poem is like commanding a pregnant woman to give birth to a red-headed child.”


Passers-by by Carl Sandburg.

Out of your many faces
Flash memories to me
Now at the day end
Away from the sidewalks
Where your shoe soles traveled
And your voices rose and blent
To form the city’s afternoon roar
Hindering an old silence.

Passers-by,
I remember lean ones among you,
Throats in the clutch of a hope,
Lips written over with strivings,
Mouths that kiss only for love.
Records of great wishes slept with,
Held long
And prayed and toiled for. . .

Yes,
Written on
Your mouths
And your throats
I read them
When you passed by.

Managing mergers & acquisitions.

Startups are often tempted to grow quickly by combining their efforts with those of other companies. However, there’s more to managing successful mergers and acquisitions than just looking at the numbers. According to the worldwide managing director of Bain & Company, 60 to 70% of corporate acquisitions don’t create shareholder value. That means for every ten deals, seven don’t work out as planned. It seems that the road to successful acquisitions is fraught with danger. Mergers today differ from marriages in that there’s seldom a honeymoon period.

Mergers are only a winning proposition if:
- the underlying business strategies are sound,
- the integration plans are well carried out,
- the cultures of the companies involved can be consolidated successfully.

Experienced practitioners use the following guidelines:

• Be clear about the logic of a potential acquisition. Don’t rely on “synergy.” Clearly understand how the new combination will leverage its assets and abilities to create value.

• Use due diligence beforehand to examine a prospective partner’s organizational health, leadership talent, and managerial abilities. While some differences can be worked out, others are insurmountable and should be avoided.

• Design the integration as carefully as the initial deal. If you’re Quaker Oats, don’t buy Snapple and then dismantle the distribution system that made it successful.

• Apply the guiding principles that were important to the success of the acquiring company to the acquired business as well.

• Specify roles for each of the partners and their top executives in advance. Working it out as you go is usually a recipe for disaster.

• Standardize transferable practices and apply what’s worked well in the past. If the acquired company insists on doing things its own way, verify it’s essential to achieve strategic leverage rather than just a way to resist changing.

• Don’t make additional acquisitions to fix, justify, or further leverage the original deal. If it doesn’t provide the value you expected, fix what can be fixed and cut your losses.

• Define the "where you want to be" before you define the "as is." Identify issues of common concern and rally everyone around these issues.

• Get the leadership established as quickly as possible. Promote a few smart people and give them responsibility for managing the integration process.

• Control the executive compensation system to reward the behaviors that support the culture you want.

• Get the transition over with as quickly as possible by making it painful to hold on to the old.

• Always bear in mind that you get big because you get better; you don't get better just because you get big.

The demographics of selling online.

Newegg had experienced management, a clear market segment to focus on (gamers), and a successful model to copy (Amazon). So, I wondered who are some of the people who buy other products online?

The global Internet user population grew 265% from 2000 to 2007 to 1.3 billion consumers, more than 1 billion of them outside of North America, according to Internet market research firm Miniwatts Marketing Group.

• Among U.S. Baby Boomers, born between 1946 and 1964, 42 million shop online.

• Among consumers born before 1946, 12 million shop online, according to Focalyst LLC. Among older consumers with above-average incomes, online shopping is growing. 65.6% of those over 50 with income of $50,000 or more said they had made at least one Internet purchase in the past year in a 2007 survey by research firm The Media Audit, up from 50.2% in a 2004 survey.

• 82% of those 65 and older agree or strongly agree that they don’t like to give their credit card or personal information to web sites, compared with 79% in the 50-64 age range, 74% of those 30-49 and 71% of consumers 18-29, according to the Pew survey.

Who’s not online?

110 million U.S. adults do not shop online. They are:

* 55 million U.S. adults who do not use the Internet.

* Nearly 36 million (74%) adults 62 and older don't shop online.

* About 12 million Internet users don't shop online for fear of providing personal or payment information to web sites.

* Consumers with dial-up Internet connections at home are less likely to shop online than those with broadband connections (59% versus 74%). That means 34 million dial-up users as well as 21 million consumers with broadband don't shop online.
* Minorities are less likely to shop online:
* 17 million African-American adults (59%) don't shop online
* 19 million Hispanics (58%) don't shop online.

Among Hispanics, language proficiency is a key indicator of Internet use. Only 32% of Spanish-dominant Hispanics use the Internet, versus 78% who are English-dominant and 76% who are bilingual.

Even with the proliferation of comparison shopping sites, search engines and new online competitors, e-retailers that meet consumers’ expectations can keep them coming back. In March '08, 48% of traffic to e-commerce sites and 67% of sales came from consumers who typed in a retailer’s URL or clicked on a bookmark, says web analytics firm Coremetrics Inc.

Reliable delivery leads to more sales. When consumers are confident they’ll get their product, they keep coming back. And that leads to business growth. Consumer loyalty isn't dead, however online retailers have to do more today to earn it.

How to grow quickly on the web.

In recent years, sales growth at online computer retailer Newegg.com has been explosive – the site posted $1.5 billion in annual sales in its first 6 years of operation after it launched in 2001. In 2004 and in 2005, annual e-commerce sales rose by 30% and 40%, respectively. "Our actual sales versus our projection was slightly below our expectation, but we are quite pleased with our improved product margin growth and this was largely due to our continued focus on product selection, customer support and logistics," the company says.

Inc. Magazine recently distinguished Newegg in its list of America’s 500 Fastest-Growing Private Companies. It’s one of four companies in the list’s 25-year history to qualify on growth merits while also recording $1+ billion in annual sales. Newegg.com is the second-largest online-only retailer in the United States (after Amazon) with more than 10-million registered users. At its award-winning web site, www.newegg.com, customers can shop for a comprehensive selection of the latest high-tech products, view detailed product descriptions, pictures, how-to information and customer reviews, and interact with members of the technology enthusiast community.

The online retailer’s core demographic are younger gamers and IT do-it-yourselfers who grew up with computers and the Internet, like the latest in computers and computer games, and are often employed as information technology workers. “We recognized an emerging segment early on,” says Howard Tong, Newegg vice president of marketing. “We sell to the individual who would rather install more memory on their own computer than always buy a new one or have someone else do the installation.”

Newegg launched as a site primarily selling computer components to video game players. Informational content on the site comes largely from customers themselves who post product reviews and ask and answer questions on the site’s community forum. “People will ask, ‘What’s in your system? What graphics card did you use? What power supply?’ These guys love to talk to each other,” says Bernard Luthi, vice president of merchandising at Newegg.

As evidence, he points to the more than 1,000,000 reviews posted to the site since its launch, including more than 250,000 in the past year. Newegg's customers can video their reviews and upload them to the site. While Newegg employees participate in forum discussions, they don’t recommend products. And the company doesn’t measure the value of the forums and reviews by whether they directly drive purchases.

“It’s about getting closer to that customer, making sure we’re giving them every opportunity to give us feedback. That’s what drives our business,” Luthi says. He’s convinced the strategy is working because more than half of new customers are referred by other customers and because the company grew again by more than 25% last year to $1.9 billion in online sales.

Newegg created pages on both MySpace and Facebook because “we heard from our customers that’s an area where they live on a daily basis,” Luthi says. Sales from those sites remain small, though growing, and the conversion rate of clicks from MySpace and Facebook is slightly higher than average, he says. “You have a community of like-minded people that have self-identified as interested in certain things and you have an opportunity to be in front of them in ways that have meaning for them.”

Learning from failure.

Failure usually comes when the startup team doesn’t get along, the market doesn’t materialize, or the company runs out of money. Running out of money happens when the team either doesn’t make enough progress to generate investor interest or spends its initial money unwisely. When either of these happen, investors lose interest.

The following four patterns of failure were described by Geoffrey Moore in Red Herring:

The first kind of failure is the slow fail - not failing fast enough or explicitly enough. You can waste a lot of time this way.

The second kind of failure is failing to transition into the mainstream market. Technology markets begin with disruptive innovations promising unheard-of benefits wholly unavailable with the current market offerings. To transition to mainstream markets, vendors must win over pragmatic buyers who look at each other during the early introduction phase and hold back until they see others like them adopting. They also wait to see if a whole product is available. So the vendor sponsoring the new technology must recruit other companies from the industry to complete the whole product. They must, in effect, bring into existence a new value chain. But value chains don’t readily form in unbounded spaces. To get going, new technologies need to be incubated in confined markets where problems are manageable and the competition is modest. This permits smaller, more vertically focused players to pitch in like Aldus and Adobe did with the Macintosh in desktop publishing.

The third kind of failure occurs when managers and investors agree they don’t need a niche market to get started and dive right in. This is the hypergrowth phase of high-tech market development where markets grow at triple-digit rates for several years at a time. Two key ingredients are needed to start this kind of tornado. The first is a killer app - a universally compelling application that creates mass-market adoption across multiple sectors simultaneously (word processing was the killer app for the PC). The second ingredient is timing. The killer app must intersect with an emerging infrastructure at exactly the right time so that the two of them can race forward together. To get first mover advantage, managers target the missing pieces of the value chain to support the killer app in an all-out assault on the mass market. This usually involves a high level of risk as it’s very unlikely that all these conditions will come together at exactly the right time.

The fourth mode of failure is ending up in the dead zone.
Dead zone products offer good but not fantastic gains that can be adopted with discomfort but not excruciating pain - such as applications compromised by too much complexity or a nice-to-have item where the customer has to endure some pain in learning how to use it.

Failing means getting blocked on an intended course, backing out and restarting. Losing means persisting in failing ways, refusing to change the current course.

In high-tech ventures, expect to fail many, many times and get back in the game. But if you lose just once, you may never have another chance.

Country Fair, a poem by Charles Simic.

Charles Simic was born in Belgrade, which was then in Yugoslavia. Growing up as a child in war-torn Europe shaped much of his world-view. He immigrated to the United States with his family in 1954 when he was sixteen. He grew up in Chicago and received his B.A. from New York University. He is currently professor emeritus of American literature and creative writing at the University of New Hampshire. He’s been awarded a MacArthur Fellowship (1984-1989), and he’s won the Pulitzer Prize for Poetry (1990). Most recently, he was given the Wallace Stevens Award (2007), a major annual American literary award for mastery of poetry in the English language awarded by the Academy of American Poets. Simic was selected to be the fifteenth Poet Laureate Consultant in Poetry to the Library of Congress in 2007. When asked to comment on his poetry, he once said, " A poem is an invitation to a voyage. As in life, we travel to see fresh sights … Words make love on the page like flies in the summer heat and the poet is only the bemused spectator."


Country Fair by Charles Simic

If you didn't see the six-legged dog,
It doesn't matter.
We did, and he mostly lay in the corner.
As for the extra legs,

One got used to them quickly
And thought of other things.
Like, what a cold, dark night
To be out at the fair.

Then the keeper threw a stick
And the dog went after it
On four legs, the other two flapping behind,
Which made one girl shriek with laughter.

She was drunk and so was the man
Who kept kissing her neck.
The dog got the stick and looked back at us.
And that was the whole show.

.......and that's the whole poem as well! I'll be back to business on Monday writing about learning from failure.