Situation: A company is introducing a new technology. They are evaluating an OEM licensing model. They have been advised that if they go forward independently they will be perceived as a threat by OEMs, and this may inhibit their ability to form key OEM partnerships. How do you reduce risk in OEM agreements?
Advice from the CEOs:
Consider moving forward with a mixed model – both seeking OEM relationships and also selling direct to the market. Because you will be actively entertaining OEM relationships the risk of threatening them will be reduced. In addition, this will help you convince OEMs that your market opportunity is real.
A purchaser of intellectual property (IP) will always try to go around your only offer is an IP license. They would rather own the IP than pay licensing fees. Therefore pursuing your own product applications makes sense to convince the market that you are more than just IP.
There is a risk to this strategy – being caught in the middle. You can end up seeking two clients, your own end users and the OEMs. They aren’t the same and don’t necessarily share common interests. Just be aware of this.
You must be able to succinctly explain your value proposition to client audiences, whether these are OEMS, end users or potential funding sources. In the case of the latter two, they also need to easily understand the critical value proposition to the end user, as well. This value proposition will be your 30 second elevator speech.
Situation: A company has developed a disrupting technology that will allow OEMs to produce high-end circuits at a fraction of their current cost. A non-exclusive OEM partner is using this technology but doesn’t have a channel to high-end users, and the company is too small to reach these customers themselves. How do you reach high-end users?
Advice from the CEOs:
Your dilemma is having a disrupting technology in a market with a strong division between OEMs servicing the low/medium-end market and those servicing the high-end market.
Your technology collapses the division between the low/medium and the high-end markets and OEMs and proposes a full-scale technical shift.
This shift disrupts the current business models of either group of OEMs, as well as their technology development plans. This is why you are finding resistance.
Therefore, you need a channel partner that is either:
A low/medium-end OEM who is just as much a disrupter as you are – highly promising but not yet well-established – and who is capability of developing a high-end sales and marketing effort; or
A high-end OEM that knows the market but is collapsing under their current strategy and needs an entirely different solution to revive their prospects.
Your near-term task is to simply gain market capability – both manufacturing and marketing/sales – and to use this capability to gain early market acceptance.
Your investors want to see early “Blue Chip” partners, but given market realities, this may not be the wisest strategy.
If, over the next 12 months, you can begin to impact the market shares of the high-end OEMs, this is the surest way to gain their attention. Once you start to gain share, a likely outcome is that one of the high-end OEMs will buy you to lock up your IP.
Another company recently used a similar strategy entering a new market by collaborating with a high-visibility partner.
In one year, they took 30% market share from the market leader.
The next year the market leader bought them because “it was less expensive to buy you than to spend the marketing dollars that we would have had to spend to compete against you.”
Situation: A well-established B2B company is starting to work with B2C retailers. It is finding that both the internal and external perspectives of B2C companies are very different. How does a B2B company work differently with B2C companies?
Advice from Ross Johnston:
In the OEM market, manufacturers control all warranty obligations, have tightly controlled procedures for handling and tracking returned goods and are very focused on product quality and operational efficiency.
Leading B2C retailers have a very different perspective. Their focus is on the customer: on encouraging great customer experience and repeat customer visits. Products are sold to big box retailers without warranty, and the retailers provide their own warranty programs. This results in far more returns than for OEMs. Further, product is returned for a wide variety of reasons from failure to work as advertised to the customer simply changing their mind. There is also a wide range in how returned products are handled – from throwing them in the dumpster to returning undamaged items to stock, and few records are kept.
Our challenge is to help retailer and big box customers design, develop and implement recycling and cost recovery systems in our market. This means both developing procedures for the retailers and new channels to cost recovery markets.
First, they need processes to triage returned goods into broad categories: new or near new goods condition for resale; goods which require refurbishing or recycling; and goods for environmentally appropriate disposal.
Second, we have created a software tracking solution – a reverse logistics program – to track returned goods from receipt to their eventual disposition with full end-to-end P&L analysis. This can yield up to a 45% gross margin on returned goods which is shared with the retailer.
We develop additional processes that vary by retailer to help them handle the flow of returned goods.
We want to provide the retailer with an end-to-end operational platform that turns a cost center into a profit center and reduces long-term liability exposure that accompanies landfill disposal.