Session 2, Part 1: Marketing and Sales
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visit MIT OpenCourseWare at ocw.mit.edu PROFESSOR: Recap last night
and give you– remember what we had for an overview. The first part was that it's
not about the business plan, it's about planning. That was the first
point I hope you got. The second one is that planning
is not a static process. It's dynamic.
And therefore, your plan
is going to be dynamic. However you write it
down, or put it in slides. That's the first set of points. The second is the
three Ys– or sorry, the second is your goals and
tasks in this whole process. It's to create value. And the second goal is to
harvest some of the value. And as we pointed out,
those are easy to say and it's increasingly
hard to do.
The rest of the course
will be telling you try to how to do those things. The questions that investors
are going to be asking are the 3 Whys. Why this? Why is this something important? Why now? Why is now the
right time to do it? And why this team? Why is this group of
people the right people? And if they get through
those, the fourth one is why won't it work? Now, I said that that's
what investors ask, and that's probably what
you ought to be asking.
Because the final point is,
the most scarce resource is not money, it's your time. So if you're not happy
with those answers to those questions,
then you ought to iterate and find some new
questions– a new approach to those. In fact, tonight our
speaker Bob is probably going to talk about how you've
iterated [INAUDIBLE] things on that score. OK, so tonight
we're starting down the path of filling
in the business plan. The first thing we said if
you've got to create value. And one of the ways
you can create value is to find a customer. And Bob Jones, who's one of
our highly paid volunteers, once again tripling your income. Bob is– was a classmate
of mine at Sloan. People in the
audience from Sloan, do you know about
the C-function? Still going on? You like that? That's Bob. He's the guy that organized
the first C-function.
In addition to being a serial
entrepreneur– for those of you who are not from the
Sloan side of campus, the C-Function is consumption
function in economics. And you can picture what might
be consumed at a Friday night consumption function. So we'll leave it with that. Bob's a serial
entrepreneur, still at it. Like a lot of the speakers
that we're going to hear from, they're actually
doing the very things they're talking to you about. So this isn't just an
academic exercise for them.
Bob's other claim to fame is he
plays pretty good blues guitar and he has a blues band. But I'll let him
decide whether he wants to say anything
more about that. And with that, Bob, the
clicker is yours, sir. BOB JONES: Thanks, Joe. So good evening, everybody. I'd like to congratulate you
on the good sense required to sign up for one
of the best courses that the Institute offers. It's not the first
course here you'll take here that has you
drinking from a fire hose.
But this one's pretty
valuable stuff. How many of you are
in this because you're thinking of competing
in the 100K competition? Good. How many of you
are contemplating making your living
in entrepreneurship when you get out of here? Oh dear, you poor things. How many of you actually have
something going right now? Wow. Well there's therapy available
for you guys, and medication. This is a little bit
like chronic illness, you might be able to
tamp it down for a while and then it'll pop up again.
You won't be able
to get rid of it once you're infected
and afflicted. I'd love some sense of what
you guys are working on, just some sense of the spectrum
of who's doing what here. Do you have a dog
walking service for two-income
families, or do you have something that detects
the need for insulin in a patient with diabetes? So somebody raise
your hand and give me some sense of what it is
you're working on, please. Yes, sir. AUDIENCE: Business systems
for small- and medium-sized BOB JONES: I'm
sorry, business what? AUDIENCE: Business
systems, IT systems, for small- and medium-sized
businesses [INAUDIBLE] BOB JONES: OK. What's broke that you fix? AUDIENCE: They don't have
large enough IT organizations. They can't afford to have
[INAUDIBLE] like more large organizations do. [INAUDIBLE] BOB JONES: All right so you're
sort of an outsourcing service.
AUDIENCE: Correct. BOB JONES: Rent an expert. Good. Who else? Who else is working
on something? You can't all be IT people. Yes, sir. AUDIENCE: Personalized
cancer treatment. BOB JONES: I'm sorry,
say that again. AUDIENCE: Personalized
cancer treatment. BOB JONES: Personalized– AUDIENCE: Cancer treatment. BOB JONES: Oh. Well, tell us a little
more about that. AUDIENCE: [INAUDIBLE] BOB JONES: I know that cancer is
actually a family of disorders it's not– AUDIENCE: For one cancer, there
are about 20 [INAUDIBLE] drugs. [INAUDIBLE] And they
are not the same. You have to choose
the right one. BOB JONES: So do you have a set
of molecular diagnostic tests which help determine
which form they have and therefore which
therapy they should get? AUDIENCE: [INAUDIBLE]
–personalized drugs. BOB JONES: And who
will be your customer? Who will write you a check,
the patient, the hospital, the insurance company? AUDIENCE: [INAUDIBLE] the
insurance company [INAUDIBLE] the patient [INAUDIBLE] BOB JONES: How many of you
are thinking about working in the medical arena? Yeah, OK.
You know then that there's a
sort of a cluster of customers that you have to work with. The doctor has to
request it, then you have to go arm wrestle
with the purchasing agent, or the formulary
committee, or whatever. It's really quite convoluted. OK, well that gives me at
least some idea of how eclectic you guys are. So what I'm going
to try to do– Joe, tell me how to make
this gizmo work. PROFESSOR: Turn the
switch on the side. BOB JONES: Oh, God, turn it on? Really demanding. OK. I like to learn a
little bit about you. I think we've covered that. I'm going to try and
provide you with a couple of hot tips in the course
of this 90 minutes. I have the sort of
quaint notion that if I'm going to ask you
to pay attention to me for an hour
and a half I ought to try to give you something
of value in return.
I realize that's
sort of old school, but I hope to help you
find some customers and succeed with
your businesses. And I'm going to do that
using a couple of product launches that I
was involved with. There are times when
people speak to you and they say, well, there's
been 20 clinical trials done and the results are
almost indisputable. This is not one of those. This is anecdotal. You're not going to be
hearing the voice of God. You're hearing my opinions, and
they may be wrong, disclaimer. But I'm going to walk you
through a couple of product launches and some lessons
that maybe you'll learn.
And there may be an opportunity
for equal opportunity embarrassment in the
course of this evening. I will fulfill the
responsibilities of leadership by embarrassing myself
first, and then I'll offer you the
chance to follow on. So I went to a couple schools,
I had a couple normal jobs, and then I realized there
was something wrong with me. And left and went
off and started up three different medical
companies in a row.
And took a break
from entrepreneurship to serve as CEO of
a soy foods company. It was turnaround. The company was a dreadful
mess and took a couple years to fix it. Had to fire 75 people
in the process, so it was a lot of, sort
of, block and tackle work. And I thought it
would be kind of fun and relaxing to join a
boutique consulting firm, helping people do what I did.
And it was fun
for a couple years and then it got bored–
boring, and I left and started another company. Which I'll tell you
about, maybe a little bit, in the course of the evening. So a couple years ago,
The Wall Street Journal did a study, during the last
recession, of who succeeded and who failed. And did the people who
succeeded aggregate around any particular plans? And they did.
One group turned out
to be cost leaders. They aggressively
cut their costs. And that was their
differentiator. That's not you. The other group were
innovators and they focused on building brands. That might be you. But there was a
fundamental question that the successful
ones asked, which is how is your end
user dissatisfied? Because that's where
the opportunity lies. And at an august
institution like this one, it's often thought that
the answer is technology, but it doesn't have to be. If there's 50 kids in
town that want a bicycle, and there's no bicycle shop,
that could be your opportunity.
So I'm going to make an
assertion right up front, which is your business
might survive, but it won't prosper until you know
what are you really selling. And there'll be a
couple times tonight when I may interrogate you
ruthlessly on this point. Who wants it? So, literally, who cares? And how do you find them? And I know that our friend
Steve talked to you a little bit last night about
raising capital, but it's kind of a dirty
secret amongst investors that most of them
really live in terror. Because they know that if
they invest and 10 of you guys– eight of you
are going to fail. You're all smart, good
looking, charming. I'm sure you're good to your
parents and all of that, but you are going to fail. Which means their investment
is gonna evaporate. And investors, venture
capitalists in particular, raise money themselves.
They go around to pension
funds and say, please contribute to our fund. And if you lose
their money they are unable to raise a fund next time
and find themselves unemployed. So, oops, the emperor is
not wearing any clothes. So when they look at
you, they want to try and figure out do you have
a chance of succeeding with your business.
And the experienced ones
know, there's really one non-negotiable requirement. And that's you have
to have customers. You don't need to be smart. You don't need to
be good looking. You don't need to get rich. If you have customers, people
will think you're smart, you will make money, and
if you make enough money, they'll think
you're good looking. So they want to know, do
you have any customers? Will you have any? Do you even know you need them? And by the way, have
you done some homework? How are you gonna find them? And how much are they worth? Are you going to spend $5
to acquire a customer whose lifetime value is $3? Whoops, probably
not a good idea. How long is it going to
take you to get there? How many do you need in
order to reach prosperity? I think there's two
descriptors that you want. You'd like to be important
and you'd like to be unique. And, of course, the sweet
spot is when you're both. So I think you can make pretty
good argument that air is important arguably, not unique.
And I don't want to
traumatize any of you, but some would argue that MIT
decals are unique but possibly not important, possibly. So can you make
a decent business selling either of these? Well, yes, no? AUDIENCE: People do. BOB JONES: People do. People do. Give me an example of an
opportunity to sell air. AUDIENCE: Chem labs. BOB JONES: Chem labs,
OK, that's a bit exotic.
You guys scuba dive? I did my check out dive off
Catalina Island in California. I was about 100 feet down
in the kelp beds, ooh, I've got about 15 minutes left. I would have paid
a lot for some air. You know those packages that
have all those little bubbles in them and you get really
neurotic and pop them all? You know what that
companies called? Sealed Air Corporation,
six billion. And of course the
opportunity for– to take $0.15 worth of material
and sell it for $4 or $5, obviously, is picking
the right positioning and the right opportunity.
So I'm being a little tongue
in cheek here, obviously, but the point is
to figure out who is going to find your
offering unique and important. So rather than start
with how fabulous your product is, who cares? Who actually thinks it's unique? Who's important? Figure out how you're going
to find them and tell them about what you've got,
and then take their money. Now, simple is not
the same as easy. This is simple, it's
not necessarily easy. But what happens if you can't
meet those two requirements? I'll give you a hint,
what kind of fish is that? Right, that's what's
going to happen to you.
You will flounder. So let me give you an example. This was back in the day. I joined a company
in California. It had been 200 million
in annual revenue for 12 straight years,
arguably a sleepy business. And they got bought
by an entrepreneur, took them private,
leveraged buyout. So I want to kick up the
sales of this outfit 50% in three years and
take it public. So we fired the senior
management team, brought in a bunch of ostensibly
energetic entrepreneurs, and gave everybody some stock. So here's some stock for you,
and here's some stock for you, and here's some stock for
you, and let's not argue. Let's make this worth something. Really, very good idea. It was highly motivating. I was running the
clinical nutrition division, really profitable. We would make a liter of
solution, IV fluid, for $3, sell it for 70.
Nice margins. But I had a bad habit of
going out in the marketplace. And I did, and I discovered
that this business was going to go away. Managed care was coming,
changes in reimbursement structures, et cetera. And it was going to
go away before we had a chance to go public. This was bad news. I needed to find
a new opportunity. So I thought about it. And I thought, well, if
this science of nutrition is so awesome for people who
are in the intensive care unit it ought to be pretty
good for people who are just out walking on the street.
Maybe we could reposition this,
go for a much broader market. Nobody had done it. Power bar didn't exist, none
of those things happened. But, like most entrepreneurs,
it was a triumph of energy over good sense. I said, let's try that, even
though no model for success existed. I had spent some time at
Baxter and I knew something about the market for people
who have kidney failure. At the time, there were
400,000, the market was growing like crazy. And every one of the
patients who was on dialysis went three times a week to
one of 300 dialysis centers in the country, all of
which are identified in a federal document. So I knew where to find them. I knew literally where they
would be on Tuesday, Thursday, Saturday. Now, when your kidneys fail
you can't casually do something that so many of us do,
which is have a drink, because you're unable
to eliminate the fluids. So it's not uncommon
for a dialysis patient to gain eight to ten pounds
between Monday and Wednesday.
Part of what dialysis does is
it wrings out that extra fluid. So these patients
are fluid restricted. For– due to other things
that your kidneys do for you, many of them are
clinically malnourished. And the only nutrition
supplements that were available were liquids, Ensure,
things like that. I said, well, duh. What's wrong with that? Why don't we make a supplement
that's high in the stuff they need, doesn't have
the stuff they don't need, doesn't have any fluids. Let's make a nutrition bar. We had the technology to do it. We created something
we called Regain. We weren't required to
do a clinical trial, it was just food, but we did. Kaiser Permanente, for those
of you who live in California. Stuff worked. Got the results
published in the Archives of the National
Kidney Foundation, peer-reviewed journal. Good scientific support,
all the biomarkers improved, patients got better. We said, well, we
know how to do this. We know where to find them. We know how to find
the market leaders. Let's call the renal physicians.
Let's call the
dietitians, say we've developed something that's high
in what your kidney failure patients ought to have and
doesn't have any fluids in it. And, what do you think? The typical reaction was I
wish I had thought of that. So, well, how many
of your patients do you think this
would be suitable for? They'd say, well, all of them. How many days a week
would you recommend this? Seven. Say what, how do you
feel about $3 a bar? Sounds right to us. We said, this is a pretty
good little business here.
Let's do it. We said, how do you feel
about the competition? They said, well, yours
is the only one that doesn't have any liquid in it. It's obviously going to have
a stranglehold on this market. It's perfect. So we said, well, that's
a pretty good opportunity for the corporation,
it's going to replace some of the revenues. Let's make a whole bunch of it. Let's take the beauty shots
and make the brochures. Let's haul in the sales force,
set up a commission plan, train them on how to do it,
give them some incentives to go out there and sell it. And let's launch, which we did. It was a complete disaster,
just an absolute failure. Revenues came in at less than
10% of what we forecasted. And, to make matters
worse, I was part of the senior management team. And we would meet once a
week, conference room– once a month we would go over
how our business was doing.
So I'd have to stand up in
front of my peers and say, well our forecast for
this month was $400,000 and we came in at 32. They'd say, Bob, didn't
quite understand you. What was that number? 32. So what did I do wrong? Tell me why. Yes, sir. AUDIENCE: Your customers
didn't like it. BOB JONES: My customers
didn't like it. Tell me more about that. What didn't they like? AUDIENCE: They didn't
like the Regain. They were happy with
the liquid product. BOB JONES: They were happy
with the liquid supplement. That's a perfectly
plausible answer, but it's not the right one. It's a very good speculation,
happens not to be the problem. Go ahead, sir. AUDIENCE: Taste? BOB JONES: Taste, well
that was a factor. We thought it
tasted pretty good.
But it turns out when your
kidneys fail, something shifts in your palate and protein
tastes like spoiled meat. Oops, that was an issue. What was the big issue? What was the fundamental flaw,
the most obvious thing that I did wrong, in retrospect? Go ahead, sir. AUDIENCE: I have a question,
who paid for the product? BOB JONES: OK, that's
a pretty good question, who paid for the product? We're closing in on the issue. OK, here's a hint, what's
the title of my talk tonight? That was a clue.
OK, so what did I do wrong? Yes, sir. AUDIENCE: You
misidentified the customer. BOB JONES: I
misidentified my customer. You may be exempted from the
rest of the course, that's exactly right. Who did I survey? I surveyed the clinicians. But they don't buy it, and they
don't put it in their mouth and eat it. Oops. Perfectly logical, in
the pharmaceutical world you call in the doc, the
doc writes a prescription. Doesn't matter whether
you like it or not. You got an ear ache. Take this stuff for five
days, your ear ache goes away. Too bad for you if it
doesn't taste good. If I get her to write the
prescription I'm done. Not in this business. In this business, they have
to go to the store themselves, pay for it with their
own money, but it, eat it, like it,
and buy it again.
Well, when we finally talked
to them, they didn't want it. And they couldn't afford it. OK, who gets end-stage
renal disease? Well, it turns out
that 33% of them get there from a lifetime of
mismanaging their diabetes, and 44% of them get there
from a lifetime of mismanaging their high blood pressure. So 3/4 of my target
customers have not taken care of themselves
for their entire life. Why would they start now? Furthermore, once
your kidneys fail and you end up on dialysis,
a well-intended social worker sort will say,
well, Bob, you got to be in here tethered to this
machine three days a week. Obviously you can't work, so
I'll put you on public aid. Well, now you don't
have any money. If you do have $5,
you're going to spend it on beer and cigarettes,
not on my product.
There's one final issue. What was our sales channel
at the IV nutrition company? We sold to hospitals. With this business, we had
to sell to retail pharmacies and they wouldn't carry it. Well, let's talk about
that for a minute, because that's kind
of fundamental. If you ever want to have a
laugh on a Saturday afternoon, walk up to the pharmacist
in your local Walgreens or CVS and say, I've got
a product you've never heard of from a company you've
never done business with, and I'd like you carry it. And watch as he falls on
the floor and hysterics.
Why? Well I wasn't
familiar with this. I'd never had any
exposure to this world and finally, one
day, one of them kinda put his arm around me
and said, Bob, come here. See this foot of shelf space? It's a linear foot, right? I have Crest toothpaste on
that foot of shelf space. I have all these
complex algorithms that are going to tell
me, within a couple of dollars, how much revenue
this for a shelf space is going to generate
for me each month. Now, if I make room
for your product and push Crest off there,
put your product on. I don't want to lose any money. So, don't go to any trouble,
just write me a check.
They call it slotting fees,
you might call it extortion. With most of the major pharmacy
chains this tab is $1 million a quarter, plus 6%
of your top line revenues, plus
guaranteed resale, so if it doesn't sell to ship
it back to you for full credit, and you put one SKU in
each of their stores and fill the entire
pipeline for free. They'll pay you, if
anybody reorders. It's pretty expensive.
Well, we couldn't afford that. So, we had a few problems
with this business model that we'd put together. And we were trying
to show Wall Street we were good candidate
for a public offering. And if we had our
public offering the stock that we handed out
was going to be worth something. My failure was jeopardizing
our ability to do that. Which meant not only was I'm
the doghouse with my boss but also with my peers. And each month I
would say, well, you know it's taken a
little longer to take off than we thought. Give us a while to keep
moving with the sales force. And each month it continued
to be a train wreck and it went on for
an entire year. It ruined a year
of my life because, as this gentleman
said over here, I misidentified my customer.
So, what did we do about it? Well, we learned
about inside sales. We said, 25% of these people
take care of themselves. We ought to be
able to find them. Furthermore, somebody
ought to pay for this. Let's try Medicaid. Now, you may or may not know
that Medicare covers you if you're old, it's
a federal program. Medicaid covers you if you're
broke, it's a state program. What do you think
are the chances that Illinois and Indiana
have the same program? Real slim. We got it reimbursed
in 40 states. It was almost as fun as 40
consecutive dental extractions. I said, this is
just a god-awful way to make a living,
sold the business. Parenthetically, yes,
we did well enough in our group with
our other products that we compensated for
the shortfall with this. And when we sold the business,
we didn't make any money but we recouped our investment.
So I escaped financially
intact, spiritually battered and abused, much
wiser, but considerably sadder. But let's fast-forward
a couple years. I did two more of these
things and got better at it and after a while got
recruited by a group of docs at Harvard Med School. And they hauled me
in from California, tough sales pitch to my family. Because we were in
Southern California. They said, it snows
in New England, right? It does. So we launched a new
company with these guys. We looked over all the stuff
that they were working on, figured out none of
it was going to come to market before we
ran out of money, said well how you guys
feel about diabetes? The answer was, well,
we like diabetes. OK, well, we need to be in
a field that's big enough to get us noticed
and a need that's small enough that we can handle
it with one poor underpaid employee. So I had tuition that
there was something they needed and weren't getting.
Statistics, at the time
there were 10 million people diagnosed with diabetes, 4
million of them used insulin. You have diabetes and
you eat something, your blood glucose goes
up and it stays up, because insulin incorporates
it into the cells and brings it back down. And if your body stops
generating insulin, or if you stop being
sensitive to insulin, then it stays up and causes
all manner of problems.
4 million of these
10 million people injected insulin to
lower their blood sugar. And if you get it wrong your
blood sugar goes too low. Well, most of the publicity
for the damage that's done from diabetes comes
from it being too high. It's a leading cause of
blindness, kidney failure, and peripheral amputations. So it's catastrophic. Introducing tight control–
that's three meals a day, three small snacks a day,
regular injections of insulin, restricts the
bandwidth, good thing to do– triples the incidence
of low blood glucose. And it must be treated right
away, because you faint, which is bad if you're
stuck in a traffic jam. And it's particularly bad if it
hits you while you're asleep.
If you're awake, you start
feeling clammy and tremulous, and you know you've
got a couple minutes to go drink some orange juice,
or eat a candy, or whatever, and elevate your
blood glucose again. But if you're asleep
you may not wake up. OK so what do they do about it? Well, typically, big injection
of insulin, big nighttime snack, the hope, that the
two will balance each other in the course of the evening. Unfortunately it doesn't
work because everything in the nighttime snack turns
into glucose at the same time. So the spike is higher,
but the duration no longer. Translation, grossly
oversimplified, is that the food runs out at
about 2:00 in the morning, and the insulin
is still working, and from 2:00 am until you
get up is the danger zone. We had a bunch of focus groups. I lost control of myself, threw
the moderator out of the room, walked in, and said,
well, now that we've explained this stuff
to you, tell me what your greatest
fear really is. What do you actually
worry about? And they all sort
of said, well, I'm afraid I'll die in my sleep.
I sleep in that La-Z-Boy
in my living room, or I have alarm clock goes
off every hour or two, just to make sure I don't have
a good night's sleep, ever. I thought, well,
that's gripping. And the parents of
kids who had diabetes say, every night I
worry about my daughter. I go and I check on Jessica
at 2:00 in the morning. My wife and I stand there
and say, is she awake? I mean, is she asleep,
or is she in a coma? Well I don't know. We say, Jessica, wake up. What, what? You all right? Yeah, I was asleep. Good, go back to sleep. It sounds comical but
it's quite gripping. We said, well, we've identified
something emotional here. So we put together a
combination of nutrients that turned into
glucose consecutively, sucrose, protein,
uncooked cornstarch.
Being fundamentally a
marketing guy, of course I dubbed it
timed-release glucose. And those ingredients
are in a birthday cake. But we managed to get
a patent on it anyway. Because if you use those
ingredients in conjunction with materials
that say diabetes, you're violating my patent. How about that? Novel and non-obvious to
a person of ordinary skill in the art, and you have one
of the great experts as one of your resources, that's
your host, Joe Hadzima. I hope you'll talk
about this a bit later. So we did make it taste good,
tasted sort of like fudge. And we gave it a
non-medical name. Would anybody care to guess why? I heard a murmur, but
I don't see a hand. Yes ma'am. AUDIENCE: [INAUDIBLE] BOB JONES: That is true but
that was not the explanation.
Sir? AUDIENCE: Bypass FDA? BOB JONES: Again? AUDIENCE: Does that mean you
do not have to go through FDA? BOB JONES: Well, we
didn't have to go to FDA but that's not why we gave
it a non-medical name. Sir? AUDIENCE: Because you're
trying to reduce fear? BOB JONES: Yes, but
perhaps not the fear that our audience would think. We talked to our
patients, our customers, something I'm going to
encourage you to do. And they said, Bob,
I'm not a diabetic. I'm a person who has diabetes. I'm a lawyer. I'm a banker. I'm a professional. I have a condition,
but I manage it, just like you might have a
headache, but you manage it.
It's nobody's damn business
whether or not I have diabetes. And if I end up in a meeting
that lasts half the night, and I have to
consume your product, I don't want the other people
around the conference table knowing I'm medicating. It's none of their business. Thank you. Furthermore, I had been
arm wrestling with the FDA because I wanted to put "for
diabetes" on the package. And what our customers told
me was, if you do that, I won't buy the product. So I was trying very hard to
do the one thing that would have scuttled the business. Fortunately, our customers
advised us and we listened. And they said, our
kids have sleepovers, and they have to do
one of these at night. And they would rather
eat worms than be different from their peers.
So make it look
like something they can offer their friends,
like an energy bar. Timed-release glucose, ooh. Hey, guys, you want one? So I said, OK, we're bringing
some consumer marketing in to all this science. So this time around instead
of just talking to clinicians, they were important but
they were not sufficient, we talked to parents,
we talked to patients. We went to all these things
at elementary schools that parents of kids with
diabetes would attend. And you know those
little, bitty chairs? Sat there with our knees
banging against things and took lots of moms to lunch. We learned an awful
lot about this. How many of you know
someone who has diabetes? It's really important to go
have these conversations. And finally, I said, well,
what kind of advertising do these people see? There are all sorts of
diabetes magazines out there. So I bought a half
a dozen of them. And the typical ad was on the
back cover, a full page blow up, of a hypodermic needle.
Just the thing to make you
feel warm and resonant, right? I mean the copy
would say, my needle is sharper than his needle. It doesn't hurt
as much, buy mine. I said, ew! So we put together an
ad with this agency that had flying pigs. It was just so ludicrously
out of place in this magazine, nobody turned the page. And there was some kind of
lame copy about sleep perchance to dream, et cetera, right? Everybody read it. We ran a little violator
across the corner of the ad. It says, for a free sample
call 1-800 and our number.
Stuff started happening. We were at 238 Main
Street, up above what was, at the time, a barber
shop, in a little ratty office. When we started getting
100 calls a day, we needed more phones. 200 calls a day, we
said, jeez, we better get some people to
answer the phone. Kendall Square, of
course, has more geniuses per square foot
than most places. So we basically just went
downstairs with a mirror, and we held it under
people's noses, and if it fogged up we
said, would like a job? And filled the office. 300 calls a day,
we said, God, we can't keep track of these
people on index cards, we better install a database.
500 calls a day. 500 calls a day, we went off
and rented some of these tables and stuck like three
computers on the table. And we got all these people
sitting there, elbow to elbow. We said, I think
we're onto something. I'm going to fast-forward
to something here. We ended up in all of
the major pharmacy chains and all of the
major wholesalers, I'll tell you about
that, and the amount we paid for slotting
fees was zero. Unprecedented, in our field. I think the lesson is that
understanding our customer, as opposed to with Regain– thank
you for your observation– helped us build a better product
and a successful business. So how did we reach them? Well, we said, who
influences them? Who's our customer? Who's their influencer? How do we reach the influencer? Where do they spend their money? And we discovered–
all right back up. I hate to be crude but
there are some people who have diabetes who
are just determined not to take care of themselves. So should we spend time and
effort trying to reach them? So how do we find the ones
who do take care of themselves and, furthermore,
are willing to spend a little money on their care? Answer, they're
seeing a clinician.
The clinician is called a
Certified Diabetes Educator. And their association, I
know this will astonish you, is the American Association
of Diabetes Educators. And if you go on
their website, there's little tab, locate an educator. You put in 02142 out
comes a list, names, contact information, et cetera. We said, well, what do
the educators worry about? We know what the
patients worry about. Patients worry they're
going to die in their sleep. They go see an educator, what
does the educator worry about? Who would care to speculate? What do the diabetes
educators worry about that we could hook
onto in a phone call? AUDIENCE: That their patients
are gonna die in their sleep? BOB JONES: Well
that's one, they'd like to know that
what you have works. Thank you. What else? When I ask them,
what's your greatest professional frustration? Anybody care to guess
what their answer was? Yes, sir. AUDIENCE: People weren't
following the advice? BOB JONES: Oh my god,
that's absolutely right.
I tell them what to do,
and they don't do it! Drives me crazy. We hear it over and over
again, single greatest professional frustration,
the medical term, of course, is compliance. They don't comply. So we said, well, we need to
figure out how to address that. So we'd call them up, having
located and– by the way, I know these days an
increasing number of people are terribly uncomfortable
picking up the phone and calling someone
without five emails to set up the appointment first. So this may strike you as
emotionally difficult to just make cold calls, but we did. And when they'd answer
the phone, we'd say, our company's worked with a
group of docs out of Harvard Med School and
we've invented what looks like a candy
bar for addressing nocturnal hypoglycemia. And the patients love it. Do you have 30 seconds? Say again? And we'd talk to them. The last thing we would
say in the conversation is, who else that you
know should we call? Oh, you've got to call my
friend, Susie Cream-cheese, she would absolutely love this.
So we'd call Susie
Cream-cheese and we'd say, Susie, Janet says we
ought to call you. Oh, well, how's Janet? Well, you know, her
dog's got a hip problem, going to go in for surgery,
but other than that Jan– Oh, she loves that dog. Yeah, she does. Anyway, she said we should call. Building relationships, right? So we started doing this stuff. Pretty soon we ended up
with several thousand, highly trained clinicians
talking about our product on our behalf.
And their reward
was not financial. Their reward was that their
patients came back to see them and said this stuff's awesome. And they complied. So we built a little flowchart. We said, we have a
sales force, and we're calling on the educators. The educators, if
we do this right, will tell their patients. The patients will call
us and buy the product. Well that's attractive,
but it's not the path to financial heaven,
because there's this group out there called retailers.
How do we get into
the retailers? Maybe we could have the
educators call the retailers. Maybe we could have the
patients call the retailers. Maybe then we could
call the retailers and we'd make more money. Well, this weekend, if
you have the opportunity, stand in a pharmacy and
watch the pharmacist when they answer the phone. They've got this phone tucked
in their ear, pharmacy? You got 12 seconds. So how did we address this? Well people would call, we'd
send them a free sample. By the way, we had to
put in some questions, because we made it under
one of these web pages that said this outfit's
giving away free fudge. So we got plenty of phone calls
from people who were never going to be our customer.
So once we figured
that out we had start asking some
qualified questions, tell us what brand of insulin
you're typically using. If we heard, uh,
oh, I'm sorry, we don't have anything
for you, next. Right? But we'd send them a
sample, we'd follow it up. Did you get our product? Yes. Did you wake up dead? No. Must have worked. Guys, that was a joke. We're providing free shipping
if you care to order. OK, love it. We'd take their order,
we'd track it carefully, we'd call back and say,
aren't you about out? Don't you need some more? Why, yes. Then one day, we'd
say, you know, this free shipping
is coming to a close. And we're going to have to
start charging you for it. And I know you go someplace
to buy your insulin, wouldn't it be more
convenient to buy the stuff at the same
place you buy your insulin? Well, yeah it would.
OK, we did some homework. There was about 3% of the
people in the country, at the time, that had diabetes. And they were worth about 24%
of retail pharmacy purchases. Because you go in and buy
toothpaste and a greeting card, they go in and buy a blood
glucose monitor, strips, right? And they're worth
a lot of money. So we'd say, well,
why don't we set up so you can pick it up wherever
it is you buy your insulin? Where is that? And they'd say, oh,
Jost's Pharmacy. We'd say, would you
mind if we call Jost? No, no, no. You tell that turkey that
Mabel wants to buy this stuff. I've been buying
from him for years. Well hold on a second, let
me get you his phone number. Right, so, Jost would answer
the phone, we'd say, Jost, we've just been
selling our product to five of your customers
that have diabetes.
They want to buy it from
you, and you don't have it. What? Who is this? OK, let me back up, Jost. And I'd walk him through,
here's the five customers. So what can we do about that? Jost would say, well, you know,
we probably ought to have it but I can't possibly buy this
without corporate approval. I mean, we're just
one Walgreens, right? I mean, you've got
to go to Deerfield, to corporate headquarters. Jost, we know that. But we also know that there's
a level below which you can buy without corporate approval. That number's probably $100. Well, yes, it is. Well, you'll be pleased to know
that our initial starter pack costs $99.95. And I can take your
purchase order right now. And by the way, if
it doesn't sell, you don't need to ship it
back to us for a refund. We'll take your word for it. Throw it in the trash. We'll send you back the money. OK, nobody ever
mentioned slotting fees.
Why not? What did we have that
gave us the ability to trample all over
that convention? AUDIENCE: Customers? BOB JONES: Who said customers? Excuse me. While my heart beats. That's exactly right. So, we've talked
about this a bit Oh, you know, there was
a neat thing we did. A lot of these educators
would have a class on Saturdays, one
Saturday a month, they'd bring in all
of their people, talk about new developments
in diabetes care. And like everybody
who's got to write a monthly column, or
a blog, or whatever, it's hard to come
up with content. So we'd say, well, when's
your next one of these? Oh, it's a week and a half.
Do you have your whole
agenda set up yet? No. If you like this, would
this be something worth talking about to your
patient population? Well, yeah, actually. Well we'll send you the stuff,
we'll send you the literature, but let's suppose
they do like it. They're going to ask you
three questions, how's it taste, how much does it
cost, where can I get it? It tastes like
chocolate fudge, you'll figure that out for yourself. It's $1 a bar. How do we answer
the third question? Oh, man, there's a ShopRite
I send all of my people to. Well, can we call him and
tell him that a week from now you're going– or a week
and a half from now, you're going to be
sending some people? No, we can do better than that.
Tell that bone head to get
in here on Saturday morning, he can stand up and
talk to them him self. And he can see what we're doing,
and he'll stock the product. Very cool. Pharmacists would agree, nobody
ever mentioned slotting fees. And I bet, you know why not. So this was good, now we
were in with the retailers. But, one day, we
discovered retailers really didn't want to deal with us. They want to deal
with wholesalers. Why not? Well, there's about
5,000 different items in even a small
drugstore, and they don't want to be
sending out 5,000– taking in 5,000 invoices and
sending out 5,000 checks. So the wholesaler
consolidates all that, the truck comes,
brings them a bin, sends them one bill. Now if you think getting
into a retailer is difficult, try the wholesaler. So we said, well, if we could
do this, oh my goodness, we'd just need wheelbarrows to
carry out all the money.
How do we do it? We said, well, what do the
wholesalers care about? The wholesalers want
to know that there's an order already there, this
is going to be painless. They're fundamentally lazy,
make it easy for them. We said, OK, what can we do? We looked about and
realized there was a trade show coming up in New Orleans. We hadn't planned to go,
but we said we ought to go. And let's find
the 25 drugstores, I think it was Walgreen's,
that are surrounding the area. And let's tell them that
we're going to be at the show, we're going to be meeting
with the educators, and we're going to be pimping,
excuse me, selling our product, and that they should stock it.
And, in fact, they
should pre-order it. Which we did. They took the orders, or, pardon
me, they gave us their orders. And then we called
the wholesaler that Walgreen's used and
said, you don't know me, but I've sold a
bunch of this product and I've built in
a margin for you. You don't have to do anything. I'm going to take
their order, I'm going to ship their
product, I'm going to send you the money that you
would have earned if you've done this, even though
you haven't earned it, and you haven't done anything.
What I want is for you
to put us in your system. Just key us in the system. So if they reorder,
they can call you. And I've built a
business for you. Tell me that again. But I want to be able to say to
the Walgreens when they said, jeez we've sold all that
stuff, we could say, great call your wholesaler. He's got it. Of course, he didn't,
but he was in the system. Wholesaler called us, poof. Off it went. One last example, we
got a letter one day, sitting in the office, from
a major retail pharmacy chain headquartered in
Clearwater, Florida. We're drawing up our
planogram for the coming year. Who can tell us
what a planogram is? Sir. AUDIENCE: Layout of the store. [INAUDIBLE] BOB JONES: That's exactly right. When you walk in, and you
see all these products in different places, they've got
that laid out like a blueprint. And many places, in
fact, have a room somewhere near their corporate
headquarters with shelves. And they put stuff on it, and
they step back, look at it, and they photograph it. There's a lot of analysis.
We're putting together our
planogram for the coming year. If you'd like to
be a part of it, you have to come to
Clearwater, Florida, for a 15-minute meeting. We didn't solicit this letter,
it just, sort of, washed in. They, evidently,
had heard about us. So I said, who
runs this meeting? Well, it's a guy named Jeff. I called a few people
I knew in the industry and said, how is Jeff
rewarded for this? And they said, Jeff
spends a whole week having one 15-minute
conversation after another, all day
long, five straight days.
Oh my god, this
sounds like something out of Dante's
Inferno or something. This is terrible. But he's rewarded by the
amount of slotting fees but he can extort from
these eager vendors. I said, well, we don't have any
money, but let's do it anyway. So we went down there, and we're
sitting in this huge lobby. And there are all these people
with these poster boards, that look like in end caps and
briefcases that open out to be these fabulous displays. And they're all like,
god, can I walk your dog? Can I pick up your dry cleaning? Please put me on your shelves.
There were two of us there,
and we were empty handed other than one little portfolio. We came in and we
said, Jeff, this isn't going to be like your
other 15-minute meetings this week, because we're a start
up, we don't have any money, we're not going to
give you a nickel. But we propose to spend five
minutes telling you who we are, five minutes telling
you what our product is, and five minutes telling you
why you want us on your shelves anyway.
And he sort of kicked
back in his chair and he said, well, it's
your fifteen minutes, sport, whatever you want to do. So we've spent the
first ten minutes saying, we're so fabulous,
as you would expect. And the last five minutes,
we said, Jeff, this printout is of the people
with diabetes that have contacted us in the
states where you have stores. There's 10,000 of them. All of us are asking
us the same question, where can I go to
buy your product? How would you like us to
answer their question? He sat there, and he looked
at us for almost a minute. Which is like, hold your
breath for a minute sometime, it's agonizing. And then he started grinning,
and he said, OK, you're in. So we said, well, we
want to stage this. We'll go in where
we built the demand, I hate returns, and et cetera. But nary a word
about slotting fees. I bet you can guess the next
thing that's going to pop up.
Why no? What gave us that
negotiating power? We had– AUDIENCE: Customers. BOB JONES: Thank you. It wasn't for being smart, or
charming, or anything else. It was just good,
old, hard work. But we came in there
and essentially said, you're not generating
the demand, we are. So we're not paying you for it,
we're bringing you business. So, impressive growth in
sales, real high reorder rate, a lot of good publicity. Ended up selling the business to
a billion-dollar pharmaceutical firm. Everybody was happy. So, I was 10 years older
at the end of two years, but I learned a lot. So tell me, what should
I have learned from this? What might you have learned,
given that many of you raised your hands
when you said you were in the process of
doing all this stuff? What should I have learned? What should you have
learned that will help facilitate your
progress with your business and my current venture? So let's have some hands. Tell me what I should
have learned from this, and which, maybe,
can have gleaned. What mistakes should
I avoid going forward? What things should I
do that were right? Help me out.
In the back, yes. AUDIENCE: [INAUDIBLE] BOB JONES: Did
everybody hear that? OK, let me paraphrase. With the first
one, the disaster, I did focus on some
of the stakeholders, but not the key ones,
not the customers who are actually going to buy it. It's important to
know, and I think I asked this question
of one of you, who's going to write the check. Who's actually going
to put their money on the table for this? And then who influences them? So that's certainly one of
the more painful, but crucial, lessons. Anything else? That's fundamentally
it, by the way, but if you've got nothing
else, listen to that. Yes, sir. AUDIENCE: [INAUDIBLE] BOB JONES: Well,
we certainly tried. This gentleman said we made it
almost impossible for everyone we contacted to say no. How did we do that? Go ahead, sir. AUDIENCE: You built up demand. BOB JONES: That was part
of it, but each time I called somebody
that didn't know me, what homework did I do first? AUDIENCE: [INAUDIBLE] BOB JONES: Pardon me? AUDIENCE: [INAUDIBLE] BOB JONES: Finding out
what motivates them.
What do they care about? People think of selling as
this, sort of, tainted activity, and it can be. But a hugely important
component of it is just finding out
what people want. OK, I think you need to know
what they're really buying. And I think you have to
have some positioning. I think if you have a
product that's for everyone, I'm sorry to tell
you this, but it's my opinion that it's
not actually for anyone, you need some focus.
And I am also sorry to
tell you, nobody actually needs you product. They might need the benefits. I actually don't
need these glasses, what I need is to see better. So I hired, in the
consumer sense of the term, I hired glasses. Some of you hired
contact lenses. Some of you I'm willing
to bet, hired the surgeon to do the little
laser procedure. But all of us had the
same fundamental need, we wanted to see better, we
just took different routes to get there. So sell the benefits first. And I'm a huge believer
in market segmentation. I don't think everybody
on the market is equal, and I think there's
a lot of them who aren't going to
be your customer, and I like to segment them by
motivation to buy what I have. I think there's a small group at
the top feeling the pain right now. Underneath that, I
don't know, let's say I have something that reduces
the likelihood of heart attacks. So if you had a heart
attack yesterday, and you're still
alive, you could be a good customer for me.
If you're not
alive, I'm sorry, we won't do any business together. His immediate family,
they're in the second tier. They're worried. Sheesh, maybe we should
pay attention to this. Down below that, people
who are kind of vigilant. And then there's a huge
bunch of people that's just a graveyard for you. Don't go there. Start at the top. Couple reasons, if you can't
build a business there, time for your next idea. Think of yourself as a jockey. Not as a horse. If you start at the
top and you fail, you might be a very
good jockey you just picked the wrong horse.
Pick another horse. Also, by the way,
if you're thinking one day you might
sell your venture, you can go to big company
X, Johnson & Johnson, and say, guys I spent
$1.98 and penetrated that block at the top. You have a million dollars,
you can take it further down, you can do the math, let's talk
about the discounted value, future earnings, and pull
together a little purchase package. Right? If you can't succeed at the
top, you don't have a story. But if you want to
change your buying habits it requires a lot of motivation. And I'm sorry if this sounds
manipulative, it's just blunt. I think pain is
very motivational. Fear, greed, vanity,
these are– I'm not trying to list the
seven deadly sins here.
But ask yourself,
what would cause people to stop doing
what they're doing now and buy what you have. Are they dissatisfied with
their current cancer care? Are they dissatisfied with
something that you've got? What's going to motivate them
to change their buying habits? And, I gotta tell you,
virtue is a tough sell. Buy my vitamins because 20
years from now the antioxidants will have caused you
to have fewer mutations at the end of your chromosomes. [WHISTLES] I don't think so. So, with that as a context,
what was I really selling with the one that failed? I was selling virtue. Take this stuff and your
bio markers will improve.
What was I really selling
with NiteBite By the way, answer that question for me. What was I really
selling with NiteBite? Sir? AUDIENCE: Peace of mind. BOB JONES: Peace of mind. That's exactly right. In fact, once we figured that
out, all the lights went on and the ad copy wrote itself. It was corny, one bite
and the rest is easy. But we got it, that's
exactly what we were selling. So with no disrespect
whatsoever, you have a question? AUDIENCE: Going back to
dealing with the wholesalers, how do you know that
the slotting fees wasn't a big part of their
revenue and not having them would be a no-go? BOB JONES: Well I knew, in
fact, that slotting fees were a big part of the revenue,
and not having them, normally, would
make for a no-go. But what I produced for them
was a pretty, nearly guaranteed income stream which exceeded
the value of the slotting fees. I also introduced the
topic of competition. I said, our customers
have mentioned you as their favorite pharmacy, or
our customers, the pharmacists, have mentioned that the
wholesaler they most like to do business with is you.
They have, of course,
other wholesalers. They don't concentrate all
of their eggs in one basket. I'm hopeful that we can do
business, because otherwise I will have to go to number two. So how would you like me to
handle their need, can we work together? Don't get me wrong, we did
get told no from time to time. And, in fact, if you're
going to be an entrepreneur, I hate to tell you this, you
will kiss a few frogs out there. Nature of the beast, right? OK as I started to
say, some of you are taking MBA courses that
are focused on marketing. I'm going to give
you an entire year of business-school-level
marketing in two bullet points. Find out what your customers
want give it to them. End of lecture. Now, there's all manner of
sophisticated regression analyses, et cetera,
et cetera, that can be employed to do this. But if you lose track of
these two fundamental points, you've missed the point. So, focus. And I hated the boss I had,
that said this to me, because I could never get it out of
my head, drove me nuts, it was so corny.
He'd say, Jones, there
is no hocus-pocus that takes the place of focus. I'd think, you're killing me. But it's true. So a different way of looking
at this, it's not sales, it's detective work. If you are to succeed,
do some detective work. Find your customer rather
than promote your product, because your customers
hire these things to do a specific job. Design your product
to do the job they want for a
specific customer. Go find them, and if
you've done this right, the selling will be easy. How do you do it? Talk with them. Cold calls, oh god. Literally, phone calls. Emails are helpful, but
they're not adequate. Talk to them. Surveys are helpful,
they are not adequate. Talk to them. Some years ago, I
wanted to do a deal with a group in Finland that
had invented a margarine that lowered cholesterol.
And I was intrigued. Johnson & Johnson offered them
a huge sack full of money, our startup couldn't
compete, we lost. But I watched what
J&J did, and I went into a number of supermarkets. It actually didn't take long. I stood off to the side near
where people had the margarine, and I would watch
customers come in. The stuff that J&J had
was about eight times as expensive as
traditional margarine.
Margarine shoppers
would come in, and they'd look and
say, $1.19, $1.39, $8, $1.4– $1.4– I'll
take the $1.39. So I would stop these
people and say, excuse me, I was thinking of
buying this $8 stuff, and I noticed you didn't. How come you didn't? Oh man, I got all
manner of other ways to take care of my cholesterol,
and besides I don't feel bad. So talk to them. Know them. How do they view their problem? And think about your
service and ask yourself, how are they solving
the problem now. More importantly, what are they
spending their money on now to solve this problem? And there's a great quote
attributed to Henry Ford.
We said, Henry, do you ever ask
your customers what they want? And Henry said, oh
hell, if I'd asked them what they wanted they'd
have said faster horses. So understanding
what's behind that was part of Henry's genius. You do have competition. OK, my Regain customers
needed my product. They didn't want it,
I couldn't sell it. So what matters is
finding people who want it and figuring out how to
communicate the benefits in just 30 seconds. And this is harder
than you think, because if you don't
really understand the benefits good
luck trying to put it into collateral material,
put it on your website, any of that stuff.
And, of course, as Steve
probably told you yesterday, you are unlikely to raise money. Customers buy benefits. So, some of the questions,
what's broken we fix? Who cares? Do they have any money? As a working musician
I know that it's just futile try to make
something for that market. Guitar players are all starving. How do you find them? How are they solving it? Why is what we have better? I'm going to zap through
a couple of these. I want to spend a
second on this, though, is this all right? All right, something that we're
doing with our little outfit, we said– we're not the only
ones doing this, mind you, but we are applying this.
Start with the ideas, identify
some unmet needs, et cetera, go interview people who
might want it, and then make a bare bones
version of the product. We're making a
2.5 ounce beverage that helps you sleep at night. And we made a little
prototype, and it looks bad, it tastes bad, and you
can't get the cap off. Arguably, this is not a good
profile for a retail product. But we had one primary
concern, does it work? We give it to 30 people
and nobody goes to sleep, well then we stop right there. Silly to have spent any
time making it look good. So go out there
and see if you can identify customers for launch.
And, in fact, the first group
of customers that we thought would be suitable for
our business turned out to be wrong. I had a really bad five
or six weeks where I got told no, all day, every day,
for five or six straight weeks. Finally figured out,
they don't want it. They might need it,
but, time to iterate. Once you get it
right, then you can get about the business
of doing your branding and packaging more formally.
And then you can get
about the business of growing the company. And, by the way, you might be
able to raise a little money at a couple of those points. A little money to
build your prototype, and then, once you figure
out what you're doing, a little money to actually take
something to the marketplace, because you have
reduced the risk. But that stage of the
game is hugely useful. And I submit that that's
what Aleem and his team have done already. They've made a minimum
viable product, they're circulating
a pancake mix, and they're getting
valuable customer feedback. Aleem, your recipe calls
for sparkling water. I don't keep sparkling
water at home. How can I make pancakes
without sparkling water? Oh, well, useful, right? OK, so we're going to
skip what I'm doing now. Though, of course,
it's fascinating. We're out of time. So, I have one set
of final questions.
Where do customers go for help? How are you going to reach them? Paint a picture of who's going
to write you that first check. What evidence do you have that
they will pay for your product? This was crucial to
me for the gentleman talking about calling
on IBM and calling on people who would want
his augmentation of Google. What evidence do you have that
somebody's going to pay for it? How much? And then, it calls
for someone who's a kind of a pervert to actually
be responsible for sales, although some of us like it.
Who's going to do it? I don't think we have time
for anymore of your questions, with regret, so
let me summarize. The only non-negotiable
requirement for successful business
is your customers. And if you're going
to succeed, you have to have something
that's unique and important for someone. You gave us a great
example of pivoting that from the head of IBM
to college students. It's got to be
important to someone. So figure out who can't live
without it, go find them and tell them about it,
and take their money. Thank you very much. [APPLAUSE].
