September 2007 Archives

In this 11 minute segment (download Quicktime and iPod compatible, 59MB), Michael Hetherington describes how PI Engineering moved from making the RailDriver consumer product to developing training simulators for major railroads. Part of it is pull. Professional trainers see that they can get something that is not that far from what they need for around $200 ($40 software plus $160 controller). Further, the high cost of custom built simulators adapted from the airline industry is prohibitive, frequently costing millions of dollars or about the price of a locomotive.

The opportunity for PI Engineering has been to use their interface hardware design expertise to develop simulators that come in at a tenth the price or less of custom built simulators. That price point makes it worthwhile for railroads to buy simulators for training vs. just doing on the job training with actual locomotives. With simulators, training can also include simulated problem scenarios, something that is not possible in on-the-job training. As Michael remarks, with a simulator, all you have to do is stop a virtual train.

Highlights in this segment include:

• One of PI Engineering's customers is Union Pacific, the nation's largest railway. Union Pacific has 20 custom built simulators but need to train 5,000 people per year.
• Rail equipment lasts for many decades, meaning you have to develop a number of physical layouts to cover it all.
• PI Engineering and our first interview subject, Accuri Cytometers, are following similar strategies: develop low cost alternatives for high cost equipment and dramatically expand the market.

In this 10 minute segment (download iPod compatible, 54MB), Paul Wright begins to describe how he intends to expand into the Michigan gym market. The strategy is essentially an extension of how he penetrated Ann Arbor: offer a a premium facility that meets users needs at an affordable price. He offers more than pure store front facilities at a slightly higher price but less than mega-facilities but also at a substantial savings. Essentially, he is hitting a spot in the market that neither one of these other players can reach.

Paul discusses two new facilities in this segment:

• Saline, MI: This is a store front operation in the 10K square foot range that will open later this year. Paul will orient it toward the quick cardio and weights workout, again with high quality equipment. There will be no child care or class exercise rooms.
• Novi, MI: This facility will be more than three times the size of the current Ann Arbor location with basketball and swimming. He expects that that facility will draw over 1000 workouts per day compared with 400 for the Ann Arbor location.

An interesting feature to the Novi location is that the landlord will build out the facility for him. In addition to the increased rent this service offers, landlords want the kind of high traffic a gym can bring.

The following map illustrates Paul's current location and expansion plans as he lays them out in this segment. In future segments, Paul will talk about longer range plans that include further expansion.

In this jam-packed 13 minute segment (download iPod compatible, 67MB), Lou Rosenfeld discusses two seemingly contradictory features of Rosenfeld Media: its open, social networking marketing model and its revenue model based on proprietary book sales. The two ideas seem contradictory because much of the work developing the books relies on open communication on the network. However, when it comes time to purchase the book, Lou might appear to be effectively asking people to pay for what was so freely communicated.

Lou answers this dilemma with the value of packaging, an idea he brought up in the very first segment of this interview that we published. Rosenfeld Media is using the network to establish an authoritative brand and providing the books in a format where people will find the information most useful. In essence, people are paying for presentation and editorial insight, not the reams of information that are freely available on the Internet.

Some additional highlights from this conversation:

• Lou uses a home-brewed analytic system to figure out how people are networked together based on how they pass discount codes along.
• Much like Linda Girard, he views networking on the Internet as just an extension of networking in the physical world. Google's algorithms for determining relevance are in fact based on analytic techniques long used to discern the structure of social networks.
• Packt Publishing may be attempting to use a strategy similar to Lou's but in the open source software arena.
• Lou would be interested in going to a subscription model like that used by Lynda.com, but feels he needs to build up inventory first.

In this 8 minute segment (download iPod compatible, 47MB), Linda explains how Pure Visibility uses consulting, training, and social media to help client achieve better Internet visibility.

Pure Visibility targets training classes at smaller companies. Clients can come in and takes these classes and then call with questions. Over time, Pure Visibility hopes that training can lead to more extensive relationships.

Social media (blogs and wikis) can serve both small and large clients by helping them manage word of mouth. One area where blogs and wikis can help is in mitigating negative word of mouth. Negative word of mouth from one dissatisfied customer may cost a business between 32 to 36 other customers. Pure Visibility has been in social media since January, 2006, and recently brought on Ed Vielmetti to help grow that practice.

In this 11 minute segment (download iPod compatible, 57MB), Carrie describes how she and Catherine Hayes founded Inner Circle Media, a web design and marketing firm, in 2001 when it was abundantly clear that the dot-com bubble had burst. It was a process of finding their place in the market. They originally thought they would target bioscience startups but soon found that that market was not going to sustain them, and traditional ecommerce jobs (install a web site to sell things) was already dominated by larger players. However, they found themselves frequently matching well with foundations and non-profits which still had budget, and this is the segment Inner Circle Media focuses on today.

Other highlights from the interview:

• Carrie has undergraduate degrees in both biology and fine arts.
• After undergrad, she cut her teeth in the corporate world at Parke-Davis, in part to build a nest egg.
• She financed the firm with savings and a home refinancing. It was imperative that she sell from the start.

In this nearly 6 minute segment (download iPod compatible, 28MB), Bruce McCully describes how he formally started Dynamic Edge as Junior at University of Michigan in the late 1990's. He was effectively the family member that a number of business associates were using to fulfill their IT needs, in other words, one of the resources Dynamic Edge tries to substitute for now. He had a summer internship all set with IBM but was convinced that he could make a business of helping out small companies.

He wound up spending the summer cold calling and roller blading. Then, in the midst of the dot-com downturn, he decided to conduct a two year experiment to see if he could actually get the business up and running. While success might have seemed improbable, Bruce remarks that Dynamic Edge's IT service business works in up and down economic cycles. In down cycles, companies tend to cut too much. In up cycles, they cannot hire fast enough.

In this twelve minute segment (download iPod compatible, 59MB), Alyssa Martina, CEO of Metro Parent, describes how she started Metro Parent 21 years ago to help parents raise kids. At the time, there were only four parenting publications in the country (there is now a whole organization of parenting magazine publishers across North America). Alyssa's research consisted of determining if there was another competitor in the Detroit area and trying to figure out how the other publications did it. Initially, the operation was self-funded with generous support from her parents. She describes the following significant features of the early years:

• She started in her dining room, but needed office space by the end of the first year.
• She preferred to move forward in little steps so that she would not be forced to back slide.
• It became clear early on that she would have to differentiate the publication based on high content quality.
• Events where she got to interact with readers really fueled her at times when her energy started to flag. Events have and will continue to be a major activity and profit center at Metro Parent.

In this six minute segment (download iPod compatible, 32MB), Dennis Blanchette outlines Ensure's 10 year history to date. Ensure spent the first few years working out the kinks in its RFID technology and determining potential markets. It then rolled out to beta customers. For the past 3 to 4 years, the company has been focused on commercializing its products.

One area that Dennis is trying to emphasize is enterprise sales. They are willing to spend more money and purchase at much larger volumes. Some important points:

• Penetrating the enterprise frequently requires partnerships with other vendors, so that Ensure is part of a complete solution. Enterprise buyers buy complete solutions, not just components.
• Partnerships now account for 40% of Ensure's business, and Dennis expects to see that number move to 60% over the next couple of years.
• Ensure now has around 500 customers with thousands of users. One Enterprise customer alone could add 50,000 users to that total and increase revenue substantially, a not too different experience from that described by Dave Henderson at Autowatch.

In this two minute segment (download iPod compatible, 11MB), Dennis Blanchette of Ensure Technologies turns the issue of privacy around. Shouldn't access to sensitive data be controlled to protect the people who own the data? Federal mandates such as HIPAA privacy standards would seem to agree.

In this three and a half minute podcast (download iPod compatible, 19MB), Bill outlines four lines of business that ADR, North America, intends to grow in the coming twelve months. Currently, ADR North America is experiencing 20% growth and seeing a whole new category, interim management, emerge based on customer demand. Interim management is a service where ADR provides clients with short term executives to fill a temporary skills gap. Bill believes that he can tap into a ready supply of high quality human capital that will allow him to provide these services.

He also believes that there will be more work in low cost country sourcing. Right now, the focus is on Asia, but that focus will shift as Asian suppliers move more into the middle class and other regions supplant them in cost leadership.

In this one minute segment (download iPod compatible, 5MB) Bob tells us where he would like to be in twelve months from when we first taped the interview. Basically, Bob has always liked developing new ideas, and then, once he has proven them handing them to others to continue. One of his great pleasures in TEC has been helping others do the same. Over the next twelve months, he would like to help all of his companies grow.

In this 10 minute segment (download iPod compatible, 54MB), Michael Hetherington, CEO of PI Engineering, describes how he launched the RailDriver product. In 2000, Microsoft launched Train Simulator, similar in concept to the hit Flight Simulator but focused on trains. Michael had been a long time train aficionado and began tinkering with input devices to get something that was more train like than a plain old keyboard. Among the highlights:

• Michael began prototyping first to see if he could find something workable. Then his business partner suggested he set up a budget and a plan.
• At any point in time, PI Engineering has multiple products in prototyping phases. Michael bets further on the horses that seem to be winning.
• RailDriver retails for about $160, and he sells 2,000 to 3,000 units per year.
• Unlike most games that decline after a couple of years, Rail Driver sales have been steady since the outset.

In future segments, we'll discuss how RailDriver has led to a training simulation business.

In this 10 minute segment (download iPod compatible, 53MB), Lou Rosenfeld describes the vision of the book he has for Rosenfeld Media. Books are convenient information packets focused on a topic that people can read anywhere. Where Lou differs from traditional publishers is in his approach to marketing. It consists almost entirely of networking, be it traditional or on the Internet. Here are some highlights of his Internet approaches:

• Within a short time of signing an author, Lou creates a blog for the book.
• These blogs gain very high search engine visibility for their topics, well before the book is published.
• Lou also does push marketing through social media where invites people to invite their friends to surveys they have completed. In this way, he is actually able to develop a network map of influence in his target markets.

In our next segment with Lou, we will continue to focus on how he is using social media.

In this 6 minute segment (download iPod compatible, 31MB), Linda Girard describes Pure Visibility's hiring model. They hire an eclectic staff from a number of disciplinary backgrounds. You might thing of it as scientists and engineers who can communicate. Analytic creativity and close client contact are both important. Among the highlights:

• Staff spend 60% of their time in client meetings.
• Google has told them that they have produced unique never seen before search engine marketing campaigns.
• There may be a west coast office in Pure Visibility's future.

In this segment (download iPod compatible, xMB) Carrie describes Inner Circle Media's reasons for creating a content management system (CMS). CMS's allow people to manage websites without having to know the many detailed technologies involved in making them work. The CMS acts a sort of semi-finished product that Inner Circle can then customize for its customers. Some highlights:

• Inner Circle will lease the software or sell it to their clients.
• Leasing software in this way is often referred to as "software as a service", and Inner Circle got the idea from one of the pioneers in the field, 37 Signals.
• Clients have generally warmed to the leasing option.
• However, some have the sophistication to manage the required infrastructure and want the rights of outright ownership.

In this 8 minute segment (download iPod compatible, 46MB), Paul Wright lays out the strategy he has pursued at Gold's Gym, Ann Arbor after bootstrapping it in January, 2006 and growing the membership to 1800 currently. It has been a period of constant adaptation as Paul has figured out different segments to target and different services to offer. Significant factors include:

• Determining what the gym's capacity truly is. Currently, there are not lines for workout equipment, and there might not be with even double the membership.
• Targeting and attracting segments. Paul has managed to attract the 20% of the population that actively workout. He would like to broaden his appeal to the sedentary population.
• He may change the branding of his gyms to his own brand to better position himself to attract different populations.

In future segments, Paul will describe in more detail how he is seeking to expand the business under his own brand and the packages of services he intends to offer.

Additional Links

• Paul himself is an elite athlete.
• I first interviewed Paul almost a year ago when he was first opening his gym.

Disclaimer: Paul is a sponsor of the Muscle Ventures web site owned by the author.

This 8 minute segment (download iPod compatible, 43MB) follows our discussion of how Dynamic Edge maintains internal communications while staying close to the customer. In this discussion, we turn to the question of substitutes. Dynamic Edge substitutes for three types of internal company resources:

• The employee with some IT background who has come to play a vital role in a small company's operations. Usually, Dynamic Edge is called in when the employee runs into an unsolvable problem and needs some help.
• The skilled relative who helps out in a company's early days. Dynamic Edge is usually called in when the owner realizes he or she has outstripped the relative's capacity.
• The IT staffer who does not have rare skill sets. Networking is a big seller here.

In this segment (download iPod compatible, 42MB), Bruce McCully and I discuss Dynamic Edge's knowledge and customer management and how the two help them resist the commoditizing force of globalization. A central component of Dynamic Edge's business is to stay close to the customer and simultaneously provide them a level of expertise that is not available within their company. A difficult trick in this type of business then is to have good internal communication while maintaining a high degree of client contact. Dynamic edge uses a number of tools to this end:

• A wiki acts as a sort of note board for what is going on in the company.
• A Google Mini search appliance allows Dynamic Edge to quickly find relevant information in documents stored on the network.
• IM and voice over IP allows team members to stay in touch and communicate about undocumented items.
• Finally, Dynamic Edge assigns one person as the principal contact for each customer so that a coherent interface is maintained.

This three minute segment is also available as an iPod compatible download (16MB). In it Jimmy lays out his goal of obtaining more Chines based business and eventually expanding to all of Eastern Asia.

Jimmy's interview is part of a whole series of segments on the site where we have dealt with the topic of globalization. Victor Naidu discussed India's evolving software offshoring industry. Bill Michels provided an analytic perspective on the decision to offshore or not.

In this final 2 minute segment (download iPod compatible, 10MB), Peter tells us what he hopes to accomplish in the next twelve months. As might be suggested from the rest of the conversation, he continues to consider the future evolution of user experience and is targeting a book at the nexus of user experience and strategy.

We hope to speak to Peter again in the future. For those of you interested in finding out more about user experience, our new series with Lou Rosenfeld provides some insight into another leader's attempts to move the field forward. Our search engine optimization series with Linda Girard provides insights into how a whole industry has sprung up around Google's domination of the search space.

In this 6 minute segment (download iPod compatible, 29MB), Dennis Blanchette details the benefits of staying close to your customers. Recently, Ensure moved its offices from Ann Arbor to Ypsilanti to be closer to its flagship customer and investor, Forest Health Services. Dennis uses Forrest Health to help trouble shoot current usage of Ensure's products as well as a beta customer for new product ideas. Among the takeaways from this conversation:

• Enterprise customers are looking for infrastructure on which they can base many applications.
• An important component of any enterprise product is reporting. This has clearly been borne out with Forrest Health.
• Likely extensions to Ensure's product line focus on leveraging the company's expertise in tracking infrastructure and taking it to new application domains via new form factors for their RFID cards.
• One key potential application of Ensure's technology is to help company's find lost equipment. It's estimated that workers in knowledge industries spend 15% to 30% of their time looking for things, making the savings potentially large.

In this 10 minute podcast (download iPod compatible, 51MB), Victor Naidu describes the dynamics of offshoring software development to India. Victor originated in India and still has deep roots there. He has competed in providing offshoring services, but has pulled back from that market for the following reasons:

• It's dominated by large firms managed from India. Located in India, firms can better manage and find talent.
• Victor does not compete on a cost basis, so billing his services as cheaper does not fit with his overalll business model.

In addition, Victor notes that the cost advantage of India is less than it once was, pegging total cost of services from India at 60% to 70%, corresponding with observations by other knowledgeable sources.

One area where Victor continues to compete is in business process outsourcing which includes a major service component where his firm might have an advantage.

In this 6 minute segment (download iPod compatible, 28MB), Bill Michels of ADR applies an analytic perspective to global sourcing. There are really two benefits to offshoring: (1) Gaining expertise unavailable in your home country, for instance, outsourcing tooling from the United States; (2) Gaining an advantage in labor.

Material and capital investment are essentially the same across countries. However, you are adding coordination and travel costs. You are also adding risk of falling afoul of regulatory requirements since the offshore company may be under a different regulatory regimen than you experience in your home country. Finally, the benefits of offshoring might be superseded by simply automating the process.

In this 12 minute podcast (download iPod compatible, 60MB), Lou Rosenfeld and I discuss how he first learned about the Internet and the helped found the field of Information Architecture (IA) before turning to his latest venture, Rosenfeld Media. Rosenfeld Media is a publishing house focused on the user experience (UX), a field that encompasses IA as one of its elements. Lou believes Rosenfeld Media can break even if it can sell as little as 1000 copies of each title. Here's his strategy:

• Rosenfeld Media will not distribute through major book retailers which require a margin of 55% to 70% of the cover price just to carry a title and can return books for full refunds at any time.
• He will not even use Amazon as it still requires 55% of the cover price as margin.
• Instead, he will sell as an independent seller in the Amazon network, paying them only a margin of 18% on each sale, and he will ship through a company for a lesser total cost.
• Although, he will do some test publications with on-demand printer lulu.com, their cost of $30 to $40 per book is substantially higher than the $6 per book he will pay for a run of 3000 with a traditional printer.

In later segments, Lou will reveal how he intends to use the Internet to magnify his marketing efforts and how he has focused his career on creating infrastructure for others to participate. This conversation can be thought of as complementing the series we have just started with Linda Girard and are in the process of completing with Peter Morville.

update: Corrected the stated relationship between IA and UX per a clarification from Lou Rosenfeld. Also added a link to the series by Linda Girard.

In this seven minute podcast (download iPod compatible, 35MB), Linda Girard, Chief Visionary and Co-Founder of SEO firm Pure Visibility discuss how her company helps companies attract potential customers over the web and convert them. Without realizing it, Linda prepared herself for the era of Internet marketing in the early 1990s by majoring in telecommunications and psychology. She then moved through a succession of firms until founding her first SEO firm and then evolving that concept into Pure Visibility.

Here's how Pure Visibility addresses the current Internet marketing challenge:

• It helps firms improve their positioning in "organic" (non-advertising) search results. This activity requires analyzing how the search engine indexes the site in light of the site owner's intent.
• It helps firms figure out which paid search terms (for example, adwords) to bid on based on expected ROI.
• It helps firms organize their sites and content so that visitors are more likely to convert into customers.

Obviously, this range of services requires a broad range of talent. In later segments, Linda and I will discuss how she hires people, the types of budgets bring to bear on these types of services, and directions in which she would like to use social media like blogs and wikis.