SeventyFourFew phrases in business are more seductive than the one attributed to Ralph Waldo Emerson in the 19th century: “Build a better mousetrap and the world will beat a path to your door.”
Unless, of course, what you are selling is something totally new, like 3-D printers were a few years ago. Or the first Newton, Tang, or Roomba. Everyone knows and understands a better mousetrap when they see one—no selling skills really required. But a 3-D printer? Why would I want that? How much does it cost to maintain? What’s wrong with my current method for making spare parts? It costs how much?
“Nothing sells itself,” says Frank Cespedes, senior lecturer in the Entrepreneurial Management Unit at Harvard Business School. “When companies introduce new products, they are offering something that by definition is going to replace something else—whether that’s a competing product, or a different way of getting the job done.” Because of that, companies must always overcome customers’ “status quo” bias.
That’s especially true, says Cespedes, when a company is introducing not just a new product but an entirely new product genre. His 2017 HBS case study, Formlabs, looks at a four-year-old startup figuring out how to market a 3-D printer.
“You should approach a product launch as an organizational process, and start with the buyers, not the product”
Although 3-D printers have been around since the 1980s, they didn’t find much of a market until around 2000, when they started to be used for things like making machine parts and medical implantations. Still, the printers were large, unreliable, and expensive.
Starting around 2011 the revolution began. 3-D printers began to shrink, grow in quality, and become considerably less expensive. Product designers used them to create design prototypes, artists made jewelry, and developers punched out low-cost housing. Machines that had cost upwards of $50,000 now cost a few thousand and could fit on a desktop.
Formlabs brings 3-D printing home
Formlabs developed a second-generation product costing just $3,499—a price accessible to a wide range of home and small-business users. The question the company faced was how to convince potential customers to buy it. The key ingredient: the product launch.
“Product launches are always crucial for early-stage ventures,” says Cespedes. “Repeated surveys indicate that companies are not good at this: most new products don’t succeed in getting market traction or don’t meet forecasts.”
One reason for these poor results, he notes, is that most companies—and especially tech firms—approach a product launch as a series of events started by the product management team, which does product and collateral design, launches the product, and then “throws it over the wall” to sales and marketing.
“This process is product-centric and a bucket-brigade approach where the groups work serially and in silos in a rapidly changing tech environment,” Cespedes says. “Instead, as the Formlabs case illustrates, you should approach a product launch as an organizational process, and start with the buyers, not the product.”
The good news is that there are now a multiplicity of ways for new companies to contact customers through the web, social media, or through third-party partnerships. Early-stage ventures, however, face resource constraints and can’t pursue all of them at once. “Look at all of the markets that are out there,” says Cespedes. “But, you’ve got to choose.”
In Formlabs’ case, the company had a number of potential buyers, including architects, engineers, jewelry designers, and dentists, all of whom could benefit from using 3-D printing technology in different ways. In order to reach them, the company faced three options, which Cespedes spells out in a Teaching Note accompanying the case: (1) developing an outbound sales force to sell directly to clients; (2) increasing its number of third-party distributors in Europe and Asia; and (3) selling directly on Amazon.
The direct salesforce offered the most control, but was also the costliest option and the one that would take the most time to put in place.
Developing more third-party partnerships was a faster and less costly route, but ran the risk of losing control over how the products were sold. In addition, the company faced a wide array of third-party channels to pursue, including those selling CAD software, dental goods, and office supplies, all of which had their own agendas with customers. CAD resellers, for example, were focused on selling software to engineers and designers and might not be as committed to selling hardware, which cost less and offered a lower commission.
Selling on Amazon was the easiest option of all, but meant sacrificing 12 to 18 percent of the sales revenue—a significant cut into the young company’s profits and cash flow. In addition, the founders worried that Amazon might cannibalize sales from its own website.
In the end, Formlabs co-founder Max Lobovsky decided that control was more important than speed or ease. The first generation of Formlabs’ desktop printer had had quality issues that Lobovsky was able to deal with through the company’s direct relationship with clients. Anxious that such issues might crop again, he decided to invest in direct sales, creating a team to market to engineering clients who were already familiar with 3-D printing technology, and with whom the company would be able to retain its direct connection.
Ironically, much of the work of the salesforce lay in convincing buyers that the desktop printers weren’t “too good to be true,” and that a reliable printer could be produced at such a lower price. Once sales were underway and the quality of the new printers was proven, Formlabs started expanding its channel partnerships.
The progression from direct control to branching out to more third-party sellers is a typical path for startups selling new technology, Cespedes says. The exact path a company pursues, however, depends on its unique mix of products and buyers, and which channels it thinks will yield the highest returns. “Despite what you now read on many blogs, there is no one right solution,” Cespedes says. “You can’t let the ideal be the enemy of the real.”
‘A market has never bought anything’
The only wrong answer is not to choose. Once a company grows large enough to scale, says Cespedes, it’s important that managers think strategically about segmenting its market, not just “partitioning” it into broad categories such as health care or financial services. Cespedes quotes his mentor, legendary HBS marketing professor Ted Levitt, who said, “If you are not segmenting, you are not thinking.”
He takes it one step further. “In the history of business since the Phoenicians, a market has never bought anything,” Cespedes says. “Only specific customers buy things. Segmentation begins with the buyer, and the problem the buyer is trying to solve. If your way of thinking about potential customers doesn’t uncover information about who buys and why in each segment, all you have is a power point, not an actionable basis for product, pricing, and sales decisions.”
Only by considering the specific needs of the customer can a company properly beat the path that will lead them to its door, and all the mousetraps inside.
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