Table of Contents
BIG WAVE SURFING …EXCERPTS FROM THE BOOK
© copyright 2011 by Kenneth J. Thurber
Technology Disruption
Early Adopters/Early Stage Developers … pg 51
…Further if we have a new concept and want to get it off the ground fast, we will need to find a category of people who are receptive to advanced technologies. These people are known as early adopters. They are the type of people who must have the latest gadget and are willing to take risks. One of the best types of users is to have early adopters who control large systems and need to stay competitive through the constant upgrading and introduction of new technology.
Trade-off Issues
Great Pyramid of Personnel – Synthesis, Analysis, Encyclopedia … pgs 68- 69
…The technology world seems to be divided into three classes of people: the synthesizers, analysts and encyclopedists. Even though the workers in the industry tend to be similarly educated, they still fall into these three simple classes of capabilities and attitudes.
It is necessary that big wave surfers be synthesizers. Synthesizers are people who can think about ideas and develop new concepts or variations of concepts. They develop new ways to apply, develop, modify or build new technologies and applications on top of existing technologies. The ideas can be simple, like taking advances in semiconductor technology to make calculators the size of cigarette packs. Alternatively, they might develop a new paradigm of communications like packet switching, which enables the Internet.
Trade-off Issues
Government Research to University/Industry Research to Business Product to Consumer… pg 77
…Some of our greatest inventions were initially developed off of a government vision! The group in the government that has the greatest need for advanced technologies is the military. The military has the incentive to take risks and the need to develop technology that will give it an advantage on the battlefield. Consider the development of global positioning systems. They were not developed to allow you to wander around the countryside; they were originally developed by the U.S. military to develop guided weapons systems or to locate its own troops. There are tons of such examples ranging from lasers to communications satellites.
Big Wave Surfing
Elevator Speech … pg 135
…It is easy to build a presentation that is long, but it is another trick to build small, self-contained nuggets of information about technology.
In many cases, and in business books, these small nuggets are known as elevator speeches – the type of speech you might give on a short elevator ride when you have an important person captive for a very short period of time.
This concept is really an old concept. For years there were contests that required the entrant to describe, comment on, and explain the advantages of a product in twenty-five words or less. That is the key to the elevator speech. Can you explain your concept and its advantages in twenty five words or less?
Try explaining your product in twenty-five words or less, and you will soon find that you can describe the key features of your product simply and succinctly. Another trick is to see if you can describe your concept on a single 3” x 5” note card or on a cocktail napkin. There are large numbers of new products or product improvements not withstanding entire companies that have been founded on the basis of a diagram put onto a cocktail napkin.
Big Wave Future
Massive Excess … pg 14 3
…Once the money guys sense blood in the water, they rapidly converge just like sharks. Money flows, and the companies move forward. But excess is in the air. Once a company is seen as successful, the wave becomes crowded, but investors must be wary because the market will take it up as far as possible. The price of a perceived successful and emerging wave of new products becomes expensive fast just before it hits the commodity graveyard.
Big Wave Future
Gluttony Innovation … pg 143
…There’s an old joke about how a project or product development will progress. This is known as the six stages of a project. There are a number of variations on this theme, but a common variation goes like this: The six stages of a successful project are enthusiasm, confusion, disillusionment, search for the guilty, punishment of the innocent and promotion of the nonparticipants.
Extreme Technology Development
Big Company Innovation … pgs 172-173
…The dual problems of difficult people and the lack of predictability cause the management of big companies to avoid any risk in development.
The solution to this problem from a big company’s point of view is to minimize the number of difficult people to deal with by cutting the size of any R&D department to a bare minimum. The current standard for a company that wants an image as an industry leader is to have a small advanced technology lab that spends half of its time trying to monitor or incrementally advance technologies. The other half of its time is spent trying to help the product division transition its existing technology into new products. This fixes the problem of dealing with very difficult and unusual people.
Extreme Technology Development
Low Bidders … pg 206
…Although I do not like price shootouts, sometimes they are inevitable, and engineering has to have the product positioned so that sales can do what is necessary to win. Low bidders seldom lose. We do need to be a little careful here because the tendency of a sales guy will be to go to the lowest common denominator of sales, and that is price. So we must give them a good value-added story and an incentive plan that really does not incentivize the sales guy to start this nonsense of price cutting.
Extreme Technology Development
Low Cost … pg 207
…No matter what the sales department gets for the product on the street or what type of convoluted deals it cuts with resellers, it is in everybody’s business interest that the product be designed so that it is easy and cheap to manufacture. Further it is important that the design team stay on top of the design and modifications. That is to ensure that the product does not evolve in a manner that makes it more difficult to manufacture or in a manner that lets production costs rise.
Extreme Technology Management
Opportunity Windows … Pg 227
…Many technologies look good on paper but are never able to be viably produced because you are not able to develop viable production processes. It is one problem to build a couple of prototypes and another problem to actually produce the technology in high volume.
Extreme Technology Management
Seven Numbers … pgs 248-249- 250
…There are many schools that teach presentation techniques. When developing a presentation, many strategies talk about how to limit the content of a slide to ensure that the people receiving the information can adequately understand and process the information. Most strategies try to limit the number of points that are going to be made on a slide to between four and six. These numbers were derived from experience or studies that measured how to make sure that the receiver understands and remembers your points.
If you are creating an entirely new area of technology, you may want to concentrate on four or five key issues, but it seems to be a stretch to expect sales and customers to make sense of a large series of new capabilities. If you talk about large numbers of new capabilities, the end user will not have the ability to discern what is important. You must be able to guide the product development and set up the message for sales and marketing. To do this, you need to be focused.
Based upon the ideas of the phone company and people who design effective presentations, you should at most have seven new capabilities that you try to implement, explain and sell. Four seems to be the number that works best in my experience.
Extreme Technology Marketing
The Golden Rule … pg 274
…The sales cycle is the same. You can discuss and discuss, but in the end the customer’s wishes always will prevail because the customer controls the gold. The easiest way to extract the gold is to create a unique and compelling product. Technology allows you to do this in the event of a disruption. But you must convince the customers that they cannot live without your new product. You must have a compelling argument or product and then convince them that it is their idea.
Another variation in the same vein is the process of managing children. This one is the rule of Two. When faced with a difficult problem child, an easy strategy is to give the child a choice of two alternatives, both of which are acceptable to you. The number of sales situations that boil down to needing this strategy is unbelievable. Many sales guys view this as providing the customer options, but the reality is just like a child this gets the customer into a position that they can make their choice which is acceptable to the sales person.
Extreme Technology Marketing
Value Proposition … pg 289
…The value proposition that I like best goes something like this: Our company has product XYZ that performs a completely new set of functions that will improve the productivity of your organization. The product is used in the following manner…. Based on our life cycle cost model, this product will save your organization substantially more money than it will cost to buy and deploy. Because there is no other product like this on the market, you can get a jump on your competition and increase your profits.
Extreme Technology Marketing
Happy Calls and Happy Meetings … pg 303
…Meetings where everyone sits around and talks about the decision and , at the end of the meeting, agrees to another meeting by the same cast of characters are called happy meetings. Everyone is working to resolve all of the issues. People discuss how well the meeting went. Everyone is happy, but nothing ever happens.
Extreme Technology Marketing
Kiss of death … pg 305
…And then there is the kiss of death comment, “I would buy it if it just had XYZ.”
That sentence is the bane of all technology sales people. The usual salesperson starts to slobber as that sentence comes to mind. They have a sale. All they have to do is get the development department to make one little addition to the product, and it is a vacation in Tahiti, a new BMW roadster, and easy street. The only problem is that the buyers have no intention of buying. If you press them, they will claim that they are going to buy, but the reality is that either they don’t want the product or they are not the decision makers.
Extreme Technology Investing
Stopped Clocks … pg 323-324
…The issue is whether you have the stomach and the guts to go for it early. If you mess it up, you will always have time to recover. Because I have your attention with this unconventional approach, let’s go for it. How many stocks should you buy. How about one! Many of the financial advisors in the world have been taught that you need a diversified portfolio with an asset allocation that reflects your age. In my opinion, one stock is an appropriate asset allocation for a young person. It is also appropriate for older people with risk capital. Diversification just kills the return on your aggressive and successful investments. Diversification is the bane of portfolio performance.
If you are under thirty, your asset allocation should be one stock. If it’s possible and you are winning, put that stock on full margin. We just killed thirty percent of the world’s financial advisors – even the mad man Jim Cramer just had heart failure. But when I am right, I want to capitalize and make a big run. If I am right, I want to go for all the marbles right there and not hold back. I want to get it done at the exact moment of being right!
Extreme Technology Investing..
Channel Stuffing – Better to ask forgiveness than permission … pg 350
…A couple of weeks later, we were talking and it was a disaster. The previous year’s sales were $3 million, and for this year (with three months left), he needed to do over $7.5 million. Not a big problem, except, the customer had not moved any of the $3 million product. It had not sold one unit. And in fact, it had no intention of buying any new product under any circumstances until the $3 million was moved. This was a real problem! My friend thought about this problem over the weekend, and early in the next week he had a potential solution. He got his boss to agree to give him about $70,000 in extra incentive money. His big problem was to move that inventory, get the next big order, and collect his bonus. The solution was simple. It was based upon the premise that it is better to ask forgiveness than ask permission.
The next weekend he went to an upscale jeweler and a Chevrolet dealer. At the Chevrolet dealer he located a red Corvette convertible. At the jeweler, he located four Rolex watches of appropriate value. Then he had flyers printed. The flyer simply said, “Who’ll drive the Vette?” The flyer went on to say that the first salesperson who sold a certain amount by a certain date got the Vette as a gift. The next four salespeople who sold a certain amount within a certain time frame got the Rolex watches. On Monday morning when the salespeople came to work, flyers were on their desks. The Vette was parked by the entrance where everybody could see the big sign on it – Who’ll drive the Vette? A couple of weeks earlier, none of the salespeople were interested in selling his product. Suddenly they were interested. Within six weeks, the product was cleared out and he got the big order he was looking for.
When he got his new job, he discovered that his predecessor had stuffed the channel and then ducked out. He solved the problem by figuring out how to move a bad product, stuff the channel, and move on himself.
What is the earnings reality behind this sale? Were these real sales, or were they simply a fiction of a clever salesperson? What was just described is commonplace, and it gets even more complex and bizarre.
Extreme Technology Investing
Margin Increase … pg 357
…This is the type of company we want to find. A company that has profit leverage. That is, if sales accelerate, then profits accelerate even more.
I do not care what the PE ratio is. There are a lot of other measures to look at. Forget them all. I want you to find a company that has earnings growing much faster than sales. This is not hard to do. There are many companies that get into this situation. They are new companies or existing companies that have brought out new products. I do not care how they got there. What I care about is, “Are their earnings growing faster that their sales?” If so, this is a company worth looking at.
Extreme Technology Investing
Margin Decreases … pg 359
…The type of company I do not like is where margins are decreasing or have decreased. That is, I do not like companies whose earnings growth rate is less than the sales growth rate.
There are really two types of margin decreases: increasing overhead and price cutting.
Such companies have a fundamental problem. Whatever they are doing, they are not getting their earnings down to the bottom line and their profit margins are decreasing. I do not care what the problem is. I do not care what the management’s explanation is. I do not like this type of company under any circumstances. It is on the road to disaster.
Extreme Technology Investing
Eternal Hope … pg 360
…I find this an interesting view. If the stock were really worth more than it is selling for on a per share basis, someone would buy the company and operate it as a business. Warren Buffet does just that. He buys companies he believes are good values in a business sense. But in general, a company sells for what it is worth.
What really changes that value is someone’s perception of what change could be made to the company that would allow it to change its characteristics. In particular, is there something that can be done to correct its product mix or its overstaffing due to a change in the marketplace, etc.?
This is all fine and good, and there are successful value investors and turnaround stories that are the stuff of legends.
But I am lazy. Why would I want to risk my money trying to divine when a company will get its act together and get its products turned around?
Extreme Technology Investing
Dilution Effect … pg 369
…Dilution is one of the big secrets of the investing world. It is really a dirty little secret and strategy. It is the type of strategy that unless you have been through the drill, you would not understand the potential effect.
Extreme Technology Investing
Stock Strategy … pg 373
…It is impossible to buy a stock at the bottom and sell it at the top for any given period of time. Scale in and scale out. Get long and strong. Concentrate. You must manage your risk. When you are right, go to margin. Keep your stops close.
