previous | contents | next

236 Marketing and Sales

Building a "Just Another Product" of an Existing Type

Predicating a company on capturing a small part of a newly established market with a product that is "just another X" (JAX) when a new technology becomes available is a flawed approach. Virtually all new computer classes initially attracted hundreds of entrants (see Chapters 8 and 12). Only a few of those ventures were successful in the beginning, and only two or three survived for as long as ten years.

Failing to Find an Adequate Market Niche

A company may attempt to carve out a suitable market niche with a product whose cost is either too high (not enough buyers are available) or too low (selling expenses cannot be covered). In either case, it will be unable to develop a business.

As indicated in the previous chapter, niches provide a protected space in which a new venture can conduct its business, free of competition, until it becomes established. A niche is often the only way a fledgling company can develop a product that will return high margins and, hence, be profitable enough to fuel growth. However, if the niche is too tiny, the firm won't be able to find buyers and will therefore have no market. If the niche is too large, there will probably be many competitors, and prices will be too low to obtain adequate margins. A strategy whose objective is to claim a niche from other niche players or from newly established, aggressive start-ups is almost certain to be fatal.

The elusive graphics supercomputer and the risks of nichemanship. Ardent and Stellar attempted to define a new niche that they believed would be profitable and unique. It was to be carved from two nearby niches: minisupercomputers and high-performance 3-D workstations used for visualization. However, these niches were owned by aggressive competitors (Silicon Graphics and Convex), which fought to maintain their market positions. Trying to carve a niche from the Silicon Graphics market position was essentially an attack on a "walled city," a flaw just discussed. Trying to carve a niche from the Convex market position was essentially an attack over a desert. The desert existed because the cost of the graphics supercomputer was so low as to make it infeasible to sell a low-priced minisupercomputer. In addition to the time-consuming problem of defining a new niche for a visualization supercomputer, the selling costs were higher than anticipated, resulting in an impracticable business plan.

Relying on a Single Customer to Distribute the Product

Virtually all the systems companies that have experienced sudden death have done so because they depended on a single customer that would relabel and sell their product and the customer then decided not to continue the relationship and

previous | contents | next