BootStrapping Strategies Part 3: Product Development Models: Predictive vs. Reactive

In Part 2, I talked about Ubiquiti Networks’ beginnings that started with a flawed business strategy and eventually evolved to define a market.  Before I tell the follow-on story, I would like to preface it with a discussion of how I see two kinds of product development models:  “predictive” and “reactive.”

A predictive development model requires a mastery of market understanding combined with a team that has a demonstrated history of applicable market execution.  The gold standard for the predictive development model is Apple, Inc.  The iPhone for example combined a mastery of user experience understanding with a world-class development team that knew exactly how to bring the polished technology platform to market.  Apple invested in a very specific direction and they bet big.

Using vessels as an analogy, predictive strategies are like “super tankers” with destinations locked in place.  They are backed by a strong commitment to a pre-determined plan, with significant investment, and large, focused teams. And once the ship is set in motion, it is difficult to change direction.  But, when done right, they pack a giant punch and can fundamentally change markets like Apple did when they redefined the mobile industry overnight with iPhone.

The predictive model is also the basis of the venture capital world.  However, there is a difference between Apple and startup companies.  Where Apple has accumulated years of empirical experience (including many failures) in achieving a mastery of market understanding and development execution, new companies by definition do not have market experience.

From this point of view, the lack of funding or VC influence is actually one of the great advantages of bootstrapping.  Their absence forces the adoption of a “reactive” model with the goal to get something to market as quickly as possible to generate cash flow first and then react to the market challenges and feedback in refining the product strategy.  If a predictive model is analogous to a super-tanker, a reactive model is more like a speed-boat with agility to change directions quickly.

A reactive model will succeed when it is lead by an effective entrepreneur. At the core, this individual must be a tireless, disciplined, and creative problem-solver who is adaptable to market challenges and who can become incrementally more skilled with experience.

When Ubiquiti was faced with instant commoditization from lower-cost Asia competitor clones shortly after our initial radio module release, I quickly was forced to change development directions.  I knew we could never compete with Asia competitors in a hardware only module business; if we were to survive, we had to go upstream and compete with our system customers.  This would mean pulling together development resources that could deliver a complete solution to market that included investment into system hardware design, mechanical design, antenna design, and firmware development.  It would also mean offending a lot of our existing system solution customer base.

At that time (2006), the outdoor hi-power WiFi radio module market we helped to create was an integral part of the Wireless Internet Service Provider (WISP) industry.  WISP’s used these modules inside BaseStations and Customer Premise Equipment (CPE) to deliver broadband Internet access over many miles in rural and underserved communities throughout the world.   The CPE’s when placed on the roofs of homes and offices would receive the wireless signal from the Basestations many miles away.  It was the CPE cost that largely determined how fast the operator could realize a return on investment from adding a new subscriber.  Consequently, WISP’s were very interested in reducing their CPE costs to become more profitable.  At that time, Asia competitor cloned hi-power radio modules were selling for about $30 and when included into a complete CPE system, the system cost was roughly $150.  Our new goal was to transition from the module business and compete in the CPE market by introducing a purpose-built integrated CPE for under $150.

After 15 months of challenging development, we finally launched the PowerStation in May of 2007 and it was a miserable failure.  Although it was cost compelling for the U.S. market, we soon discovered it was not competitive in the international market.  Furthermore, it was too heavy for economical shipment, had several hardware issues affecting field performance, was missing key fundamental software features, had a poor installation experience, and it was poorly designed for volume manufacturing.

Two months after PowerStation launch (July of 2007), we learned our lessons, regrouped, and changed directions quickly again.  Only six months later (January of 2008) we would launch an entirely revamped CPE solution called NanoStation.  Unlike the fatal flaws of PowerStation, NanoStation was compact, with a clever cost-effective design, higher performance, optimized for volume manufacturing, and came with a much richer user experience.  Most
importantly, at a sub $60 price point, it stood to change the economics of the WISP industry and became a smash hit. Ubiquiti would finish the 2008 calendar year with $50mm in revenue lead by NanoStation.

The story of how Ubiquiti’s product strategy would evolve into the NanoStation design is an example of a “reactive” development model.  We were not experts when we entered the market, but after surviving long enough to accumulate experience, we were able to adapt to the market challenges and find success.

Fast-forward four years later to today, Ubiquiti is now completing its first predictive development effort in AirFiber.  Whereas the predictive model would not have been possible for us before, it now has become a viable model after several years of experience competing in our market.  The AirFiber story is one that combines a mastery of market understanding with a radio engineering dream team who has a history of development execution.

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