PRODUCT CONNECTION

             The Saga of FizzBin Tech
                                               
                                              Part 2


When we left FizzBin Tech (www.fizzbintech.com) the situation looked bleak.  
Having misread the customers’ requirements, hopes for the Hindenburg product’s
success had burst like a balloon.  FBT was nearly out of cash and without
customer endorsements the prospects for raising a second round were grim.  And
it was far from clear that they could find a solution to making the TiTaNiC material
highly efficient while at the same time being able to maintain good oobleck
performance.

The Caissons Go Rolling Along
It was FBT’s crack sales and marketing VP, Willy Lohman, who hit upon the
solution.  He found a customer tailor-made for the Hindenburg device; one which
needed as many fizzbins per watt as they could get but didn’t care at all about the
oobleck level.  Best of all, they were more than willing to pay FBT to redesign the
product specifically for their applications.  This eager customer:  The Department
of Defense.  

The FBT board of directors swung into action and realigned the management team
to address this new, more promising opportunity.  They dumped I. Kahn Singh in
favor of a new CEO with extensive military contacts: General Tony “The Tiger” Mills
(USA-ret).  In short order, General Mills had secured DARPA, DOE and ECOMCON
funding for product development and FBT had a new life.

Within a year, the new product, dubbed the FUBaR (Fizzbin Universal Battlefield
Ready) device, was released.  It was everything the customer had hoped for.  
Performance was superb, it was reliable under combat conditions and it was even
painted a lovely camouflage green.  The Army, Navy, Air Force and Marines all
wanted to get their hands on sample devices.  Even the SeaBees had expressed
interest.

With something the services badly wanted, FBT would be able to charge top dollar:
pleasant news to the company and the investors.  FBT expected to get upwards of
$100 per unit for the FUBaR vs. the $10 they had originally thought to be able to
charge for the Hindenburg device.  Even with the extra costs associated with
military grade testing and qualification, FBT was looking at making a gross margin
of at least 60%.

But once again FBT had overlooked a key element needed for success.  The
problem was pointed out by the company’s new CFO, Milton Friedman.  After
crunching the forecast numbers, Friedman found that the total demand for the
FUBaR product across all DoD customers was only an average of about 5,000
units per year for at least the next four years.  That was how long it would take for
the services to do their own system level testing and qualification, then train
personnel and set up the logistical support necessary before large-scale
deployment could begin.  While this was normal in the military market, FBT had not
paid close enough attention to this ramp-up timing.

As Friedman pointed out, surviving, much less growing, on only $500K in revenue
a year was not practical.  The near term market for the FUBaR was simply not
going to be big enough to allow FBT to be successful.  

Once again, FBT had made a potentially fatal error by overlooking a key element
of successful product development.  For a start-up, the success of its first product
depends, among other things, on the ability of that product to generate sufficient
revenue to sustain the company while it develops more products and grows.  For
that to happen, the first product must be able to capture a large enough fraction of
a large enough market.  

FBT looked to capture something close to 100% of the available market for the
FUBaR device.  The problem, of course, is that 100% of a small number is still a
small number.  FBT figured out too late that the DoD market, while quite attractive,
could not be the first one they addressed.  Once they had established revenue
from other sources, military applications would have proven to be quite a profitable
niche for additional business.  But targeting an initial market that is not big enough
to sustain the enterprise is a recipe for disaster, as FBT learned the hard way.

Is FBT doomed?  Find out in the next installment of “The Saga of FizzBin Tech.”