Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues
Think Inc.
A forum for Hawaii's
business community to discuss
current events and issues
Of varying quality | Capital critical for high tech
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DAVID SWANN / DSWANN@STARBULLETIN.COM Of varying quality 'They don't make them like they used to." Do customers always want the best quality? Do businesses provide the best quality that they can?
By David Lohmann
Should businesses deliver the highest quality that they can? Do customers know what quality is?
The answer to all of these questions is NO and as a result quality can be exceedingly difficult to manage.
Do customers always want the best quality?
Consider the single head of household low wage earner preparing her daughter for the first day of school. It is the end of the pay period and there is only a little money left. She wants her daughter to have a new dress to wear and the choice she sees is food or the dress. To her, the option of buying a dress for $6.95 at a discount outlet is a welcomed solution. The dress will last the three months it takes to outgrow it and that is all. Impeccably sewn designer children's wear that can be passed down from generation to generation is not for her.The dress manufacturer that has figured out how to deliver a dress of minimal acceptable quality at a low price has done well.
There are times when quality cannot be compromised. The best is the only option. No one wants to fly on an airplane with parts supplied by the lowest bidder. High performance organizations such as police, fire, and military combat units need equipment of uncompromising quality. Sometimes customers need only the best. Woe to the suitor who gives his beloved anything less than the best diamond ring that he can afford.
And there are some shoppers that demand the best just to have it. When price is no object, quality becomes the object.
Quality-conscious buyers will seek out quality and will pay the premium price.
Value-oriented buyers want the most they can get for their money.
Quality and price can vary as long as the ratio is good.
Cost-oriented buyers want the least expensive they can get within acceptable but low quality standards.
Businesses should adapt their product lines to appeal to all three types of shoppers. In a recession, expect more shoppers to emphasize cost and value. Adjust accordingly.
Do businesses provide the best quality that they can?
Impeccable functional quality in terms of reliability, durability, craftsmanship, and features raises the manufacturing cost. Quality has its price and sometimes the tradeoff between quality and the cost to the business is not a good one. Poorly trained staff members give poor service. Shoddy raw materials result in products that do not last. A lack of attention to quality management, particularly when using labor intensive third world country suppliers, lets unacceptable products get to the store shelves.Sometimes the company will consciously ship products with known defects. The schedule for shipment of a new computer operating system will often require a design freeze date after which all bugs discovered, no matter how serious, will remain in the product. Planned obsolescence is also a reason to ship less than perfect products.
Businesses should have an aggressive quality management program.
Shipping less than adequate quality because of inattention, poor training or weak procedures is simply not within the range of acceptable business practice. Inadequate quality will destroy reputation and future sales. Shewhart, Deming should be familiar names and six sigma limits a familiar concept.
Should businesses deliver the highest quality that they can?
Quality engineered and designed product and services are superior to those not subjected to these processes because quality can be overdone.Blindly building in unnecessary and costly features and services is a mistake. For example, if you have ever stayed in a five-star hotel in a low labor cost country you know the uncomfortable feeling of being hovered over by a staff of 20 as you eat dinner. It is overdone. Or if you know you will never figure out how to use all of the features of your stereo, it is probably overdesigned. We want products and services of excellent quality but not to excess.
Wouldn't you get bored with a car that lasts forever? Wouldn't you prefer to need to buy a new one every once and awhile? How could manufacturers incorporate technological advances into products that never wear out? If your 486 is still running, how do you take advantage of recent breakthroughs in storage and multimedia devices?
We want a kitchen knife to stay sharp but do we want our razor blades to do the same? Probably not. One contact lens maker was sued for designing their one-day lenses to last longer. They were accused of misleading customers by telling them that the lenses should only be used for one day when, in fact, they were capable of longer use.
Businesses should design a level of quality into their products and services that match customer expectations and requirements. No more, no less. And the quality levels within the product should be consistent. Why design the transmission to last 90,000 miles when the engine will still be purring at 200,000?
Do customers know what quality is?
Diamonds have measures of quality (color, cut, clarity and size) that buyers and sellers know well. Differences in the price paid for a diamond of established quality is more a question of bargaining skill than any difference in perceived value. But diamonds are the exception. For many goods and services the determination of quality is uncertain.Is a car repair, a dress, a building, a college education, a vacation on a cruise ship of good quality or not? For these goods and services, the buyer searches for proxy indicators of quality. Brand name, price, company reputation warranty provisions, previous experience, the word of mouth from family and friends, the work of independent evaluators are all sources of information to help ascertain that elusive variable called quality. In the absence of quality measures companies have been known to create them. Ivory soap's 99 44/100 percent pure is a Proctor and Gamble invention.
Businesses should consider giving the consumer information on quality levels. Creating product lines with clear differences in features is one way to do it. Separate brand names and having different outlet types can also be used.
Quality is elusive. Customers would appreciate business efforts to make it less so.
David Lohmann is a professor of management at Hawaii Pacific University. He can be reached at dlohmann@hpu.edu. BACK TO TOP
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My initial understanding of funding a business came from my family, who ran their own business. We had a second mortgage, which was used to guarantee payments on the loan. That arrangement made sense, and was how I though I might start my own business. However, that idea changed when I moved to Silicon Valley. Investment capital critical
for growth of high-tech
businesses in Hawaii
By Duane KurodaSemiconductor start-ups need million-dollar tools to design high-end chips. Enterprise software firms need $50,000 servers to build and test applications that service 10,000 users or more. Networking equipment vendors pay $50,000 and up to prototype equipment for pilot tests and proof of concept. It became apparent to me that supporting a company by self-funding or mortgage loans was a difficult road at best.
Current conditions in Silicon Valley have made attracting investment difficult. Experienced successful entrepreneurs must often pitch to more than 50 venture capitalists to secure a round of financing. Many are unsuccessful, even with several paying customers to validate their technology. I've seen several companies go by the wayside, some with outstanding technology. On the other hand, "brand name" people like Steve Wozniak have received funding simply based on name, track record and a 6-page presentation.
More commonly, I and others are peppered with questions from potential investors such as "who's the customer?" and "what's your unfair advantage over your competition?" Successful answers then lead to "how many paying customers do you have?"
All these questions are valid, and I would ask the same ones before I invested. However, there's a chicken-egg problem hiding in the wings. These questions are asked of early-stage (seed) start-up companies and first (or A) round companies and later. "Seed" stage means the company is either only an idea, a team, some development or a combination of those. "A" rounds previously meant working prototype stage, looking for money to go to market. Now, entrepreneurs in Silicon Valley are expected to have product and paying customers before receiving any investment. However, if you remember the capital costs of equipment, software licenses, or hardware prototypes, there's a disconnect in terms of who can afford to build new companies.
How does an entrepreneur build a technology company that requires $50,000 or more in capital equipment, licenses or prototypes?
Lie, cheat, and steal are the easy answers. However entrepreneurs need to look at other creative ways of financing. There are ways of renting or leasing the equipment, accessing university facilities, obtaining contract work for hire either through charisma, stock options, consulting work or some combination.
Sounds difficult? Well it is, but starting and running any company isn't easy. Entrepreneurship, high-tech or other, is not for the faint of heart. Add the complexities of a depressed economy, and the difficulties of finding "paying customers" makes the future even more uncertain for new companies.
The current funding environment is a painful reaction to the over-hyped investments of the 1999 and 2000 bubble where entrepreneurs had all the power. The pendulum has swung the other way, and the investors have the power and are trying to make up for significant losses due to the bubble. The result has been two-fold. On the positive side are tougher entrepreneurs who are trying every angle to survive. On the negative side are companies with great technology that are dying and entrepreneurs who are staying out of the game.
In such conditions, experts in Silicon Valley recommend extensive networking. Finding lawyers or accountants with strong ties to investment groups or venture capitalists is crucial, as is leveraging banker relationships, as bankers have in-roads to venture capitalists. Random spamming of a business plan is frowned upon, and can even put entrepreneurs on a black list.
Finding "brand name" talent to recommend your business plan to money sources or drawing on every angle of your personal and professional network will be required to even receive a favorable introduction to an investor or venture capitalist. Even then, some say it's a numbers game, where companies pitch to 50 or more potential investors.
This funding problem is also an opportunity for investors and entrepreneurs in Hawaii. Given recent tax legislation, and the tech bubble hangover, investors in Hawaii have the opportunity to attract and grow new companies while other areas are gun shy.
Hawaii entrepreneurs have access to cheaper rents, lower salaries and development incentives to start and grow businesses.
The proximity and access to funding therefore implies several requirements once the idea of tough, resourceful entrepreneurs has been accepted. Individual accredited investors must have a network that can provide potential investment opportunities.
Venture capitalists need individual investors, lawyers and accountants who feed them advanced opportunities in growing companies. Entrepreneurs need a strong network -- including "brand name" talent or respected individuals -- who can introduce them to scores of potential investors.
High-tech entrepreneurship in Hawaii cannot grow by itself without the growth and preparation of other factors. With a proper funding infrastructure, the question won't be "where is the money?" but rather "who can connect me to the money?"
Duane Kuroda is co-founder and chief executive officer of Intrepic Technologies in San Jose, Calif. Reach him at duane@intrepic.com.
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