Bootstrapping Strategies Part 2: “Fatigue Makes Cowards of Us All” — Vince Lombardi

My fitness trainer often shouts this phrase to me whenever I am beginning to hit the wall during workouts (Terry Canon, respect).  The motivation of the phrase is simple – when we get tired or when we are faced with adversity; our mental strength and concentration are put to the test.  And those that have the resiliency to fight through adversity and stay focused on goals will have a significant competitive advantage over those that cannot.

In 2005, Ubiquiti would launch its first product called “SuperRange” – essentially a super-charged Wi-Fi module for long-distance outdoor wireless applications.

Because the product had incredible demand from a niche market of independent operators and distributors that served them, we were able to secure customer payment upfront to fund manufacturing and instantly became a profitable business with cash flow.  The appeal of our “SuperRange” module was that it performed better over long-distances compared with the standard commodity Wi-Fi modules being sold in volume.  Although we charged a cost premium for our module compared with the existing commodity one being used at the time, the operators had no problem paying the premium as they saw it had a great overall cost/performance improvement in their systems.

However, there were 2 disastrous variables working in the background that would inevitably be fatal to my initial business strategy:

  1. Our $35 manufacturing cost was representative of our economies of scale in 1,000’s of quantities.  In contrast, the popular commodity modules had a $20 resale price were coming from Asia in 1,000,000’s of quantities.  Interestingly, there was no significant intrinsic design or manufacturing cost premium in our enhanced design compared to the commonly sold commodity module.  We were just completely outmatched with our competitors from a manufacturing volume/cost leverage standpoint.
  2. Our improvements were simple HW design additions that could easily be copied

You can imagine what happened next.  The commodity Wi-Fi module manufactures soon noticed our growing business and gross margins and said “Hey, this is a great idea; we can manufacture a premium module design and take over their market”  Within months, they copied our HW design and clones started appearing in our sales channels at below our manufacturing costs.

Overnight, growth slowed, customers turned on us saying we had no business selling such over-priced hardware, and I found myself in an impossible position to compete; I was contemplating shutting the doors and moving on with my life.

The irony is that the majority of people who had chimed in with an educated business opinion on my initial strategy told me this would happen.  And it played out exactly like they said it would.  But, I didn’t listen; and I learned a very painful lesson that would cause me to question myself.  As it turns out, it would become the stage for the best opportunity I could wish for.

We shouldn’t look at being handed adversity in life as a bad thing; if you are up for it, then it really becomes an opportunity to find out what you are made of.  And if you can develop the ability to step up and conquer even the most hopeless of challenges, you certainly will gain an attribute that will give you a significant competitive advantage over your peers.  Instead of letting adversity get the best of me, this would mark the first inflection point in Ubiquiti’s growth.   I would quickly meet adversity head-on, recalibrate, and adopt a new strategy that would define an Industry.

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