The Saga of FizzBin Tech, Part 2: The Caissons Go Rolling Along

Editor’s note: Jim Vorhaus is President of Product Connection (located in Chapel Hill, NC) a consulting practice focused on helping companies take the great idea that's the kernel of any new start-up and turn it into the great product that will make that business a success. This article is the latest in the Entrepreneurial Spirit series produced in partnership through the Council for Entrepreneurial Development and WRAL Local Tech Wire.

RESEARCH TRIANGLE PARK, N.C. - 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.

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 SBIR and DARPA 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 percent.

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 percent of the available market for the FUBaR device. The problem, of course, is that 100 percent 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.”


Jim Vorhaus is President of Product Connection (located in Chapel Hill, NC) a consulting practice focused on helping companies take the great idea that's the kernel of any new start-up and turn it into the great product business a success. Jim can be reached at vorhaus@productconnection.biz.

Previous installments of the saga can be found on the Product Connection web site (www.productconnection.biz).