Rabbits Out of the Hat

Sunday, May 24th, 2009

Steve Blank (The Four Steps to the Epiphany) explains how they were able to pull so many rabbits out of the hat at SuperMac. It all starts with some good news and some bad news from Engineering:

The bad news: The new family of eight high performance graphics cards we were counting on couldn’t be delivered. The plug-in co-processor architecture was too complex and couldn’t be made to work reliably. Instead of the family of eight products we were expecting, only one could be delivered. Nothing else was in the development pipeline for the next 12 months.

The good news: Instead of eight boards, Engineering was going to be able to deliver one new graphics board. Just one. But it was going to be the fastest graphics board ever made. In fact, according to our Potrero benchmark suite this new board ran our customer applications ten times faster than our current products.

So, instead of a product family, like their competitors had, they had just one product. What to do?

The next day I walked in uninvited to the VP of Engineering’s office and asked if he had a minute. I said, “I realize you’re trying to get the one board out to market, but I have a question — can you slow our new board down?” It doesn’t take much imagination to see the look he gave me when I asked that question. “Steve, this hasn’t been a good week. What do you really want?” I felt sorry for him, he was working really hard to dig out of this mess. I replied, “No joke. Can you make it slower? I think he wanted to strangle me as he barely got out, “We worked for years to deliver a product that’s ten times faster than anything that exists and you want to make it slower?” Well, not exactly, “What I want to know is if the board would work if you slowed it down by 10%?” Yes, was the answer. “How about if you slowed it down 20%?” Yes, was still the answer. “By 30%?” The change in his demeanor — from trying to kill me — to laughing, as it dawned on him where I was going, could only be described as hysterical relief. “40%?” Yes, yes and yes.

We were about to be partners in building a new product family.

First, what we proposed is that we take our world class, ten-times-faster-than-anyone board and build an entire product family around it, by slowing it down. We wanted nine boards, each differing in performance by 10%. The only real difference between them would be the addition of “wait states” or “slow down” instructions on a chip. Our entire new product family would be an identical board.
Next, we were going to create three separate product families, each its own unique brand. And within each brand we would have a “good”, “better”, and “best” graphic board. All tailored to our color publishing market.

Finally, these product families would be priced to bracket (box in) everyone of our competitors’ products with better price and performance. We were going to price the products from $699 to $3,999. Our calculations had us losing money on the two lowest cost boards, breaking even on the third and making great margins on the other six. We calculated our blended gross margin for the company by estimating the number of units we would sell of each board times the gross margin of each individual board (then I crossed my fingers and prayed we were right.)

In essence we were proposing that we ship the same board in 9 different colored boxes and charge from $699 to $3,999 depending on the color of the box and the speed of the board. (This turned out to give our customers immense value. We would have charged $3,999 for the high-end board. Now we could give customers lower price boards without Engineering spending 12 months to design new ones.)

This was not a popular strategy within the company — but it worked:

Our new graphics boards became the market leader of the industry. In three and a half years SuperMac’s market share went from 11% to 68%, as we went from bankruptcy to $150 million in sales.

Years later, I was having coffee with the VP of Sales and Marketing from one our competitors and he said, “We would have beat you guys, but we just couldn’t keep up with the tidal wave of products coming from your engineering department. They came up with exactly the right products at the right price.” I took a long sip of coffee as I thought of all the things I could say. Instead I smiled, nodded and said, “Yep, it was amazing, they just kept pulling rabbits out of the hat.”

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