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