Archive for January, 2010

A Happening in Massachusetts – and How a State Senator may have saved the Medical Device Industry

Vote

 

The State of Massachusetts had a special election to fill the seat held by the late Senator Ted Kennedy. Perhaps you heard of it.

Be warned – this is my first (and probably last) political blog. But I wanted to share with you what was the amazing response of our citizens – it wasn’t an election. It was a happening.

The Democratic primary was won in a landslide by Martha Coakley our Attorney General who promised, among other matters, to tax the medical devices industry (she didn’t say why – and didn’t think it was necessary to do so). In Massachusetts, Democratic registration is triple that of Republicans and our senators and representatives have all been Democrats for decades.

 

Notwithstanding my concern for my beloved medical device industry, it was going to be the scapegoat of the current administration and be severely taxed for no other reason than its name sounded a lot like the pharmaceutical industry. I was used to accepting the inevitable.

 

Confession is good for the soul – so let me share my long hidden shame. I have lived in Massachusetts 44 years. I came to work at MIT and attend medical school at Boston University. During that time I remained a fiscal conservative and registered Republican (who once had a Nixon sticker on my car) living in what we fondly call the People’s Republic of Massachusetts.

 

Moreover, I built 4 medical device companies (helping take two public) while living in Massachusetts rather than moving to tax-free New Hampshire and paid the confiscatory taxes. Somehow, for a guy with 5 college degrees, I just didn’t get it.

 

My experience in politics was minimal. I once (as a university professor) ran for the local school committee (as a Republican) and lost to a soda jerk (Democrat) working at a local luncheonette who admitted to being virtually illiterate. I lost by only 2000 votes (unfortunately out of 4000 cast). I voted in national elections only for the fact that I wanted to see my neighbors at the local high school.

 

There didn’t seem to be a reason to go out in the cold to vote against the political machine for a state senator who was one of only a few Republican members of the Massachusetts legislature.

 

But then I noticed that the polls that once gave Coakley a 31% lead showed that Brown had drawn within 2 percentage points – and an amazing thing happened. People everywhere were cautiously asking “what do you think of Scott Brown?” When I answered that we were going to vote for him, we experienced an unusual outpouring – like a confessional (being Jewish – but having a Catholic wife – I can only assume that it’s this way). Registered Democrats and Independents were confessing that they saw a way out of this mess. Some were engineers, others teachers, others just working folks but they each understood that we can’t tax innovation and small businesses out of existence. And they were encouraged to participate and help get out the vote (Brown won by 5 percentage points).

 

Americans are resourceful and the emergence of and growth in medical, computer and embedded businesses are what gave us the greatest standard of living the world has ever seen. Small businesses contribute 80% of job growth. We have been tracking local and out of state technology (and energy) companies to get the pulse of future employment. I have spoken with engineers that are getting a lot of interviews (for when the crunch comes) but no offers. I’m told that companies are waiting to understand the financial risks they will have for funding employee health care under the proposed Senate and House bills. Also there is a fear as to which markets will be arbitrarily taxed (currently banks and healthcare – but potentially telecom) that need to be resolved before small and medium sized businesses will increase hiring.

 

So, for my friends, colleagues and neighbors this was not merely an election – this was a happening! I have received emails from colleagues around the USA expressing their joy and relief.

 

Even though the Senate will only have 41 Republican members, what happened January 19, 2010 in Massachusetts (known as the Scott heard around the world) may well be the dynamite that opens up the logjam that will help embedded vendors and developers get the loans and financing that they need to support growth.

 

Dolores, a lifelong Democrat who is equally frustrated about state politics, is now changing her registration to Independent. It’s hard to break an addiction.

 

Post Script: The Power of a Single potential vote

 Today, one day after the Massachusetts election, President Obama requested that his healthcare legislation be significantly scaled back to a less comprehensive but more affordable bill. This will reduce the need to tax the medical devices industry to pay for the larger proposed program.

Thanks Scott

 

Where do those Embedded Forecasts come from – and why this question should make you nervous – Part I

The market, like the Lord, helps those that help themselves. But unlike the Lord, the market does not forgive those who know not what they do – Warren Buffett

Girlinroad 

The embedded marketplace is facing a financial tsunami that will have severe consequences for the largest consumers of embedded technology – the Tier 1 contractors. This in turn will significantly impact the lower tiers and cause a major upheaval for Tier 3 vendors – the embedded suppliers.

Steve Roemerman, CEO of Lone Star Aerospace a highly respected technology consultant to military and government agencies has written “The Aerospace and Defense Industries of the United States are poised to undergo one of the most significant changes since the end of the Cold War, perhaps the most significant since World War II. We believe observers who expect small changes are mistaken, fostering a false and dangerous sense of security across much of the industry and government”

 

This forecast and view is also strongly held by Ken Krieg, former deputy undersecretary for defense acquisition, and in publications from Booze Allen.

 

So you might be asking “Why haven’t we heard of this, Jerry and why are other analysts forecasting a very good year for 2010?” Being long in the tooth and having been here before when CompactPCI was being touted as the VME slayer and industry hopefuls along with participating analysts were forecasting a $2 billion merchant computer board marketplace (which EMF called a $zero billion market). Why were we correct and others in error? Because markets behave in predictable manners – even when disruptive technologies disturb the playing field. 96% of CompactPCI offerings were controlled by 3 companies – this represented a classic commodity market and there was little room for growth. It took 24 VME vendors to account for 75% of the VME market, by comparison – which made it a dynamic and growing market. VME is still around and holding market share. CompactPCI is now a custom product (not a COTS product) and is being abandoned by PICMG for PCIExpress.

The outcome was predictable. Today the Board marketplace is dominated by Kontron, GE, Curtis Wright and RadiSys. Gone are Motorola Computer Group, Force Computers and a litany of others.

The embedded world is characterized by a growing and vital marketplace that is forcing certain segments into commoditization while creating huge opportunities for those that take the time and invest the effort into understanding their market dynamics.

I love the following story – because for me it holds more than a kernel of truth.
 

Its late fall and the Indians on a remote reservation in South Dakota asked their new chief if the coming winter was going to be cold or mild. Since he was a chief in a modern society, he had never been taught the old secrets. When he looked at the sky, he couldn’t tell what the winter was going to be like. Nevertheless, to be on the safe side, he told his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared.

But, being a practical leader, after several days, he got an idea. He went to the phone booth, called the National Weather Service and asked,’ Is the coming winter going to be cold?’ ‘It looks like this winter is going to be quite cold,’ the meteorologist at the weather service responded. So the chief went back to his people and told them to collect even more firewood in order to be prepared.

A week later, he called the National Weather Service again. ‘Does it still look like it is going to be a very cold winter?’ When told it would be severe he sent his people to pick even more firewood.

Two weeks later, the chief called the National Weather Service again. ‘Are you absolutely sure that the winter is going to be very cold?’ ‘Absolutely, ‘ the man replied. ‘It’s looking more and more like it is going to be one of the coldest winters we’ve ever seen..’ ‘How can you be so sure?’ the chief asked.

The weatherman replied…

 ‘The Indians are collecting firewood like crazy’ 

So how much does our industry influence itself? Is the embedded industry too small to understand its dependencies?

Continued in Part II

Part 2: Where do those Embedded Forecasts come from – and why this question should make you nervous

roadsigns

 

 

 

 

 

Forecasting involves two distinct activities;

 

 

 

 

  • Measuring the pulse of embedded developers to understand what they are doing, what success they are having, what are their deepest concerns and how do the use of different technologies (e.g., comparative RTOSes, development tools, communication middleware, testing processes, etc.) affect design outcomes (ROI, time to market, percent of designs completed ahead or behind schedule – or cancelled). Also it is helpful to compare final design outcomes to pre-design expectations.
  • Following purchasing trends, funding sources and levels, and whether purchasers are bringing developments and tools in-house or by purchasing.

It is important for embedded vendors to use available data and information and to be able to cross-correlate findings to search out relationships that help define market directions as well as to provide sales support materials to better pursue qualified leads.

EMF published research has used developer-based user surveys and collaborative industry/government based usage and funding insights to forecast market segments that are growing and those that are contracting (at least in the short term). Given these insights there are steps that vendors can take to minimize risk while maintaining a positive positioning.

These include:

  • A serious analysis of your competitive position is essential to not only getting qualified leads but also to having a competitive sales support program with which to follow up these leads. Customers are buying your competitor’s products. Do you know why? Do you know how best and affordably to find this information (talking to a few customers won’t get you there)? Can you prove that your products help your customers get to market faster?
  • You really need to know what your customers really need – how do you find out? In our surveys we discover what issues are most troubling to them and what would motivate them to move towards you (or away from you).
  • If your products and those of your competitors exceed the needs of current and prospective customers (notwithstanding how truly cool your products may be) mitigating factors will affect their purchasing decision – even if your product isn’t as cool as those of your competitors.
  • Be able to demonstrate your value (they won’t do it for you). Be able to provide factual information – ROI if you can.
  • Promote yourself. Is your marketing targeting the right customers and do they have compelling information to state your case? Be proactive – your competitors might have access to information that makes their case – and you wouldn’t know about it.

Be exceedingly careful as you look to expand your marketplace – either offensively or defensively. Vendors realizing the impending shortfall in mil/aero are looking to alternative markets without understanding the dynamics and true needs of those markets. Medical, for example, has been targeted by some of the larger mil/aero vendors stressing their DO 178-B and Common Criteria certifications. For the most part this is laughable given that the highest frequency response for monitoring a non-attended patient is 100 HZ.

We are seeing companies that have been successful in EDA (e.g., Synopsys) and IT communication systems (e.g., IBM) bringing their proven technologies to enhance systems development and deployment – which in turn change development paradigms by offering OEMs and systems integrators better long term solutions.

Smaller vendors need to be able to show their value and the ability to integrate their solutions with these more advanced solutions. IBM Rational’s Rhapsody is an example of a very powerful model driven development (MDD) tool that allows for competitor’s requirements management, RTOS, static and dynamic analysis technologies to be comfortably integrated.

Be careful where you get your information – and before you pay for it make sure you understand where it came from and how it was obtained.

Warren Buffett offers the following timely advice: “For some reason people take their cues from price action rather than from values. Price is what you pay. Value is what you get.”