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A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.

Something Ventured:
June 24th, 2005

By Brent Holliday
Greenstone Venture Partners


Be Ready For Battle


"Throw down your plow and hoe,
Rest not to lock your homes.
Side by side we wait the might,
Of the darkest of them all." - Led Zeppelin, The Battle Of Evermore

I had a chance to help out my friends at Rocket Builders this week in their ongoing program to help early stage companies be "market ready". The topic was Competitive Strategy. It is an area that is usually not well thought out in technology-centric start-ups and I wish you all could have been there for the discussion.

If I had a nickel for every time I heard, "We don't have direct competition" from an entrepreneur making a pitch for money, my wife's shopping habits would be paid for. It is one of the cardinal sins of presenting to investors to say that you are "competition-free". It is also plain foolish. Competition for your customer (or customer-to-be) wallet is out there, even if you don't see it in the form of another company with a web site describing a product or service like yours. A proper competitive analysis is critical to understanding your market and forming a strategy to win.

Competitive analysis is not just your product feature list versus other product feature lists (popularly known as "specmanship"). Although the value proposition of your product versus others in the market is part of the overall analysis, many entrepreneurs think that a feature list with lots of checkmarks beside their product and very few checkmarks beside Microsoft's product means that their product will win. Ummm, no. If it were only that easy. Sophisticated presentations I have seen have evolved the "specmanship" analysis to the famous Boston Consulting Group quadrant where your company is always in the upper right. This is certainly better analysis as it looks at two dimensions of product desirability (price and performance usually). I have even seen 3 dimensions in a BCG plot which was quite clever. But, the analysis is not complete in describing your advantage versus other offerings.

Before you jump to a product's competitive advantage, you need to do an honest audit of your company and your product with the age-old SWOT analysis. Strengths and Weaknesses are internal company lists of your competencies and your needs. Opportunities and Threats are external lists of what your proposed market looks like. Once you have an honest SWOT analysis, you have the beginning of a competitive strategy because you know where you fit in the market. For instance, if one of your weaknesses is that you lack capital, a strategy to go head to head with the biggest company in your market is probably suicide.

The next step is the crucial and thoughtful analysis of your real competition. Michael Porter has made a fortune in the stale bun speaker tour for his "invention" of Porter's Five Forces of competition. Any MBA student has studied these. In case one isn't handy (probably using their considerable skills sending Fed Ex packages in the mail room), here is what Porter said:

1) Threat of new entrants - Who might step in if the market growth and size are attractive? Don't underestimate this. First to market is not a guarantee of success.
2) Substitute products or processes - My favourite and THE ONE THAT EVERYONE MISSES in their analysis. A substitute for your product might be a completely different method of getting the job done or it might even be to do nothing. A substitute for you product could in fact be complacency because the pain is not big enough to buy anyone's product.
3) Rivalry among existing firms - Does internal competition drive down price? Drive down quality? Drive up noise? If it is a bloody war by large competitors, you might get lost in the dust.
4) Buyer power - Everyone could be beholden to the power of the buyer. Exhibit A - Wal-Mart. They have all the power and squeeze their suppliers like nobody can.
5) Supplier power - Scarcity of suppliers in number of different firms or in available components creates a huge headache for an industry relying on them. Would you want a single source of supply? Ever?

The five forces and SWOT need careful analysis and access to information. I hear grumbling among you that have bothered to read this far… It takes time and money and it is inherently obvious in my space, so I don't need to do this. Or, perhaps the grumbling is more about where to find this information about your market. It could be so esoteric that there is not a Gartner or 451 person covering it. Well, gosh, here's some common sense for you: Ask your customers! If the pundits aren't around to ask, talk to your customers. Hell, talk to your competitors! You can find out where you stand (or where you might stand if you are early in development) by talking it up. And talking to two people in the industry is not enough. You should talk to tens or hundreds. If you are building or selling product in a vacuum, you are doomed.

If a start-up, by definition, is innovating and commercializing something that the market does not yet have, then how can you assess competition in a market that is a year or more away? The answer is that you can't, any more than you can accurately predict the total addressable market or TAM for a product in the future. In the TAM example, you still take and educated guess by looking at market research and assessing trends to get your market size. Similarly, a thoughtful analysis of who has the core competency to enter you market or make a similar product is akin to an educated guess for who will compete with you down the road.

Armed with your SWOT and your five forces, you can now look at your market more intelligently and decide on a strategy to win customers. Far too many of us choose strategies based on what worked before in another company or situation without doing the necessary groundwork. We also don't keep up with the analysis. Once you choose a strategy, keep analyzing to see what is changing in your SWOT and in your market's forces. You will likely shift strategy to accommodate new twists and turns. One of the best current books on strategy is "The Marketing Playbook" by Zagula and Tong where they use the football playbook analogy to show five different strategies to conquer a market. An old favourite of mine is Guy Kawasaki's "Drive Your Competition Crazy" for the more guerilla marketing that ambitious start-ups or new entrants need to employ.

Common sense says that you won't make your equity valuable without sweat. So before you kill yourself building and selling your product, sweat out the details on the market and make a good, customer-informed decision on how and where to attack. Then remember to constantly check for winds of change and adapt accordingly. It's not hard, it's just work.

Letters From Last Time –

From Top Ten Percent Or Bust:

Hi Brent

Points well taken, but to make this actionable we need to understand who are the big ten tech centers, how this is measured (and that the measurements include leading measures), and how we get there. I hope you will pick up on this in your next column.

Steven Forth

Steven: Yes, outcomes are easier to reach when you understand what you are trying to reach. I think notionally it just means to increase employment, revenue and image. I'm not sure by how much and whether this is merely a qualitative exercise. I will find out more and get back to all of you…

From Learning Latin With Creo: (Editor's note - this is a long note from a Kodak employee who read my column from 4 months ago and wanted to set the record straight on the founding of thermal CTP technology after I suggested, as had been told to me, that Creo invented the process. The sheer irony that Kodak was there in the beginning is reason enough to print this letter. As you will see, it is timely given the anniversary of arguably the most successful product launch by a BC technology company to this point.)


Thanks for your response. You are certainly correct when you say that success has many fathers. I do understand how you came to know the version presented by Creo. And my sense is that this version is mostly correct. But I also sense that the Creo version of the story often omits the Eastman Kodak contribution to their success.

Here's my view from the KPG / Kodak side...

I am intimately familiar with the success of Creo and thermal CTP media technology. In 1993 I was assigned the task of commercializing the Kodak thermal plate. Since that time, I have lead the program teams responsible for bringing to market Kodak and KPG thermal plates in around the world.

The origins of the thermal plate date back to the mid 1980s when Kodak began work on infra red laser imaging systems. This work culminated in the Approval color proofing system, introduced at DRUPA 1990. Approval was the first commercial system to use high-power infra red lasers for graphic arts imaging applications.

The success of Approval led a senior research chemist at Kodak, Dr. Neil Haley, to postulate that it might be possible to create an IR-sensitive coating for application to an aluminum substrate for the purpose of direct, digital imaging of offset lithographic plates. Neil began lab work on such coatings and this work culminated in invention of the digital thermal printing plate, and IR thermal imaging for said plate, covered by the following U. S. patents:

1. 5,663,037 Radiation-sensitive composition containing a resole resin, a novolac resin an infrared absorber and a triazine and use thereof in lithographic printing plates
2. 5,491,046 Method of imaging a lithographic printing plate
3. 5,466,557 Radiation-sensitive composition containing a resole resin, a novolac resin, a latent bronsted acid, an infrared absorber and terephthalaldehyde and use thereof in lithographic printing plates
4. 5,403,686 Electrophotographic element and imaging method exhibiting reduced incidence of laser interference patterns
5. 5,372,915 Method of making a lithographic printing plate containing a resole resin and a novolac resin in the radiation sensitive layer
6. 5,372,907 Radiation-sensitive composition containing a resole resin and a novolac resin and use thereof in lithographic printing plates
7. 5,340,699 Radiation-sensitive composition containing a resole resin and a novolac resin and use thereof in lithographic printing plates

Though the plate worked well, there was a problem. Aside from Approval, which was a small-format device (2-pages), there were no IR thermal imaging devices on the market...and certainly no devices configured to thermally- image large format, aluminum offset plates. Neil Haley was aware of Dan Gelbart's engineering work with high powered IR lasers and he (Neil) thought Creo would thus be a good bet for an organization to construct an IR laser plate writing engine. In late 1992 or early 1993, Neil took a crude, prototype version of his thermal plate invention up to Vancouver and showed it to Dan.

Dan expressed interest, but from a purely business perspective, Creo's managers told Kodak that they had set their course for computer to plate, and that course was green (visible light) lasers. Creo did tell us that they would be willing to construct a proof-of-concept device for IR thermal plate imaging...for a fee.

It was pretty obvious that, one way or another, we needed to try thermal plate technology in a real-world environment. Creo's offer was intriguing, but it turned out that we had the resources within Kodak to construct our own proof-of-concept thermal plate writer...and we did just that. Using a Kodak Ektron large-format film imager (which had been built for the U. S. Government Defense Mapping Agency) as the platform, we stripped the Ektron of its red laser diode printhead and retrofitted it with an Approval thermal printhead. Kodak engineers then cobbled together a system of control electronics and RIP from Sun workstations and NT PCs and a handful of custom circuit boards. It really was a bubble-gum and bailing wire contraption, but it got the job done. We could image large format thermal plates with actual imposed page files...although quite slowly as the Approval printhead had only 12 channels. But, this meant that we could get thermal plates on press and see how they performed in a real-world press environment.

We built three of these breadboard thermal CTP imagers, and they were christened Huey, Dewey, and Louie. One of the units was sent to Neil's lab in our plate factory in Windsor, Colorado. The other units we sought to place at customer sites. Working with Quad Graphics and Rand McNally, we installed these devices in Hartford, Wisconsin and Versailles, Kentucky respectively, in 1994. This permitted us to get live jobs on press using Neil's thermal plate. The plate performed flawlessly. The imagers however were another story. The Approval printhead worked fine, since it originated from a production device, as did the Ektron engine. But the machine control software that we had cobbled together was a nightmare. One could get these machines to make plates, but only if you had a team of electrical and software engineers doing it!

Clearly, we needed a proper thermal CTP device to enable us to commercialize the thermal plate.

Creo meanwhile were busy installing their green laser devices at RR Donnelley plants around the U. S. and these units were working exceptionally well. The problem was the green-sensitive photopolymer plates. The emulsions were unstable. Silver emulsions were available, and they were quite stable. But most printers, Donnelley included, did not want to introduce a silver waste stream into their plate processing rooms. So things weren't looking too good for mainstream CTP.

What happened next was one of those fortuitous confluence of events that marks many successes: Creo needed a stable, robust digital plate in order for their imaging apparatus to succeed in the market. Kodak needed a stable, robust thermal CTP device in order for their plate to succeed in the market. In mid-1994, Creo told Kodak that they would build a thermal printhead for their CTP units, and that they wanted to introduce thermal CTP to the world at Drupa in May of 1995. Kodak provided Creo with funding for this effort...and that funding was quickly repaid by Creo within a few years of the introduction of thermal CTP.

A tremendous amount of hard work on the part of both Kodak and Creo went into the DRUPA 95 introduction of thermal CTP. I was there in Dusseldorf, manning the Kodak stand for the entire 10 days. It was an AMAZING time. We were literally swamped from morning until the exhibition closed in the evening. Thermal CTP was THE hit of DRUPA 95. Here was a technology that marked a complete change from all previous digital plate imaging approaches...and it's success was perhaps best illustrated by the fact that nearly every major competitor of Creo and Kodak announced at the exhibition that they too would have thermal plates and thermal imagers available!

Finally, the exhibition ended. Now Kodak and Creo had to deliver. In October of 1995 we installed the first beta thermal system in the RRD Donnelley plant in Mattoon, IL. The second beta system was installed shortly afterwards in the Rand McNally plant mentioned previously. There were a few bumps along the road, but no catastrophic failures, and certainly no show stoppers. By the end of 1995, we knew we had a robust system...plates and imaging unit. In January of 1996, Kodak and Creo began installing the first commercial systems, and by the end of 1997, 200 thermal CTP units were in operation around the world. Today, thermal CTP represents just under 60% of all digital plate installations worldwide. From 0% to 60% in exactly a decade! What a story!

And this brings up another point, 2005 is the 10th anniversary of the introduction of thermal CTP. Exactly ten years ago Kodak and Creo were just getting ready to commence beta testing of the technology. Today, we are one company, the world leader in graphic arts prepress materials and equipment. It's been an interesting 10 years. From my perspective at Kodak and later, KPG, I'm pretty sure that we would not have been successful without Creo's expertise. These guys are great engineers. They always delivered what they said, when they said, for the cost they quoted. I hope my new colleagues from Creo feel the same about those of us from the KPG/Kodak side.

Mike Rundle

What Do You Think? Talk Back To Brent Holliday


Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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