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Semiconductor Marketing, Part 2

bob.bridge at zilkerlabs.comPhD, EE, UT, 1976CEO Zilker Labs

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Guide to Understanding the Material

Concept is important to success in this class!

Concept is important to success in a real business!

On later slides, the size of the icon shows relative significance.

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Agenda for Lecture 7

Important Questions About the MarketDoing Competitive AnalysisAdvanced Marketing ConceptsClosing Note

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Important Questions about

the Market

Pick your markets wisely!

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Pick Your Market Wisely

What markets are Austin semiconductor marketing and design folks experienced in?

It’s hard to recruit (or relocate) founder-

quality, team members until you

have series A funds

To get series A funding, your founding team must have enough

credible experience in your target market

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How Heavily-invested is the Market Segment?

If there are many competitors, you can’t prove to a VC that you have a differentiated technology– 60 start-ups chasing various aspects of 802.11– You can’t research the plans of 60 startup who are all in

“stealth” mode.– What’s the chance that YOUR company will be THE winner?

See who’s getting funded by subscribing to Venture Wire Alert, http://www.venturewire.com/register.asp

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Have Other Start-ups been Successful in this Segment?

Success is measured by a Merger & Acquisition [M&A] or Initial Public Offering [IPO] Looking at the last 10 startups in this general category, how successful have they been?– “If restaurants at this location always fail, …”

If no one in this segment has ever been successful, then why should your company…

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Is this Market Hot or Dead?

Is the market no longer attractive?– E.g., telecom/datacom intra-structure is in a major slump

• No one needs another Network Processor

– Goods news: Fewer competitors– Bad news: Funding bar is very high

• Need a really strong story; a compelling value proposition

Is the market hot?– Good news: funding may come more easily– Bad news: maybe too late to gain market share; hard to

differentiate; major VCs may have all placed their bets

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How Risky is this Market?

AnticipatedRevenue

The big risk• Big, well-known, competitive markets• You either win big or lose big• Hard to maintain competitive leadership

The smaller risk• Larger number of potential customers• Long time to build a big company• But will there ever be a profitable

company?

Years after funding

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The Easy Part of Market Analysis

Quantitative, top-down analysis

Goal of top-down analysis: minimize market risk– It doesn’t usually identify specific opportunities

Uses existing market reports and data– Investment bank reports– Market research firm reports

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Minimizing Market Risk

Look for: – Large, existing markets

• Don’t plan to create a new market• Market growth is nice, but not a requirement in a very large

market– Markets with no dominant competitor

• Don’t plan to displace Intel from PCs– Markets with no dominant customer

• Don’t make business success dependent upon ONE must-have design win (from SONY, Cisco, or DELL)

– Beware the big, obvious, hot, new segment• By the time Dataquest identifies a hot market, it is usually too

late to enter

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Analyze the Revenue Potential

Revenue = market size times share%– The more narrow the segment is defined, the higher your

share but smaller the market– Market share definitions are more credible when you can

describe it in terms of projected design-wins at specific customers

Ideally, your company generates tens of millions of revenue in third or fourth year– $10M = 10M units at $1 each (tough to get those volumes)– $10M = 100k units at $100 each (tough to get that average

selling price)

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The Hard Part of Market AnalysisMicro-level, opportunity identification– Identifying specific opportunities

Get direct customer feedback about their pain– Spend lots of the company’s energy talking to customers

Developing unique insights into solutions for the pain– Define defensible technology that solves the pain– Look for problems more fundamental than the customers

describe– Synthesize higher-level solutions (think outside the box)– This is how you build company value!

How many times does this slide refer to customer’s pain?

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Weak Approaches to Understanding Customer Needs

Survey customers to find out what they don’t like about a current data sheet– Looking for incremental pain– Tactical thinking– No imagination

No systems insights or perspective– Former systems-company employees can make great

semiconductor marketers– Using fresh-out college graduates to do marketing

Typical of large semiconductor companies

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Powerful Approach to Understanding Customer Needs

What is the most significant pain that a specific design manager faces?

What are the design manager’s or company’s fundamental challenges in getting their system to a leading market-share position?

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The Big Win

Make an emotional connection– What keeps the design manager from sleeping well at

night?– What would get the design manager promoted or a big

raise?– What would get the General Manager promoted to Chief

Operating Officer?

Solve these problems and you have a winning product strategy– Manager may actually take the risk of betting on a start-up

Defining product strategy isn’t just about technology!

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Doing Competitive Analysis

Pick your competitors wisely!

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Who is the Competitor?

Directly Competitive

Solutions

Same customer problemSame market segmentSame product category

Evolutionary Product

“A better train system”

Alternative Solutions

Same customer problemSame market or customer segmentDifferent product category

Revolutionary Product

“Airplanes replacing trains”

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The Goal - Unique Sustainable Advantage

Is there a fundamental innovation that makes it difficult for competitors to duplicate your offering?

Sustainable Architectural Advantage– Does a competitor have to replace his architecture with

yours in order to complete?

Time-to-market isn’t good enough!!!

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The Goal - Unique Sustainable Advantage

Potential barriers to entry– Competitors’ heritage prevents them from quickly moving to

your approach• Heritage can be, e.g., type of staff, type of fab process, their

business model, approach to risk taking, etc.

– IP protection• Patents are nice, but do you really want to fight a legal battle with

TI? • The company with the biggest legal budget and biggest patent

portfolio often wins

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Basic Skills

Determine what your competitor has to do to be successful in its own core business

Determine which of the competencies it has that are transferable to your business

Determine whether it has a strong competency in those particular areas relative to your own company

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Business Flexibility

How creative or flexible is the competitor in how they run their business?– Willingness to re-invent themselves to match your strategy

• Successful business units are slow to change

– Aggressiveness in marketplace– Ability to do creative marketing

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Business Strength

Market share– Any dominant competitors?– Large number of competitors with small share is best– No one with strangle-hold on the channel

Distribution strength– How strong a sales force– How tight a relationship to key customers

Geographic strength– Asian vs rest of world– Vertical vs horizontal market focus

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Engineering & Financial Strength

Designs skills– Can competitors easily duplicate your designers skill set?– What quality of folks do they have on staff?

• Don’t expect as powerful a response from a company with ‘B’players

• Big companies on average have average engineers

Financial – Margin model goals or constraints– Enough cash to be able to move aggressively into your

space– Cost competitiveness

• Internal/external fab• On-shore/off-shore R&D

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Advanced Marketing Concepts

How the Best Marketing Folks

Think!

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Keys to Gaining Market Share

Define the customer problem as VERY CRITICAL

Overcome all customer barriers to adoption

Look as big and as credible as possible as soon as possible

Be perceived as having market momentum

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Another key: De-position the Competitors!

A positioning strategy spotlights benefits most related to customer segment’s critical need– A need unmet by competitors

Keep changing the problem statement until you have the only solution for this problemLet the world know that the competitors are solving the wrong problem, and that only you are solving the real problem

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Market Leadership Behavior

Your company defines the market vision (for you and everyone else...)– Does Intel or AMD get to define where the industry needs to

go?

Your company defines the problem that the industry needs to solve, and name the product category– Palm established the PDA as a significant product category

Your company defines the vocabulary for market participants– What are the specific words used to describe next year’s hot

technologies?

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Market Leadership Behavior

Your company partners with other leaders (even if it costs more and takes longer…)Your company executes ‘everything’ with quality (within budget constraints…)Your company drives market leadership position (and brand)Your company defines the competitive parameters, then de-positions the competitors (next slide)

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Closing Note

Continual Refinement of Your Ideas

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Continual Business Plan ImprovementStart by defining a business strategy– Founders, unique technology, market, competition,

financial model

Identify weakest element (be intellectually brutal)Make that element stronger (be intellectually brutal)– Replace/demote marginal team members– Change the technology until potential customers start

grinning at you– Change the market/product to minimize competition– Find a larger or more open market– Keep searching for sustainable architectural

advantages

Iterate!

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Discussion