Client Success Stories - Niles Audio
|At Niles Audio, a leading
in-home entertainment manufacturer based in Miami, Florida,
Vice President of Sales Frank Stern reports: "From
the time we convened and said, 'let's make a keypad,'
to the time we shipped was seven months. If we had done
it the old way it would have taken a year and half."
The first Niles Audio product born of QRPD,
the "Intellipad", won best product of the year
at the CEDIA show, and greatly exceeded sales forecasts
for the next three years.
A few years ago, in April President Ivan Zukerman hired Global
Brain , Inc. to jumpstart an introduction of QRPD
to his roughly 100-person company that he had founded over
a decade earlier. His director of Operations, Bob O'Hara,
had taken a workshop on QRPD
at a conference and told Ivan that he thought this product
development methodology could benefit them. After a brief
assessment, Global Brain taught a 2-day workshop and facilitated
a jumpstart day of planning on the Intellipad project. They
then suggested that the 10 people in the engineering department
were overloaded with 10 projects(!). In May of 1995 Niles
either killed or finished 5 of these, freeing up personnel
and mindshare to focus on the Intellipad project.
Niles then used a cross-functional team, led by Frank Sterns,
to keep the project aligned to a one-page project vision.
The team argued about it and hashed it out for 2 months while
they began doing "Chicken Tests" on their innovations.
Frank says, "With QRPD instead of handing off a design
from one department to another during a product's evolution,
all departments are in on the project from day one. Having
right hands knowing what left hands are doing is extremely
The project entailed the usual set of challenges in hardware,
software, and industrial design. It originally called for
tackling four major innovations. With the help of Global Brain's
day a month visits, Niles realized that limiting it to only
one would give them a better ROI (Return-on-Investment). That,
plus Franks' determination time and again to stick to the
vision and schedule allowed Niles to complete the project
at record speed, and ship it one week ahead of schedule and
Christmas in December!
Was hiring Global Brain worth it?
Now let's look at the Return-on-Investment (ROI) Niles realized.
While exact margins and profit figures must remain confidential
to protect our client, we can make some decent assumptions
for this type of business. Let's assume they sold 20,000 Intellipads
per year for 5 years with minimal enhancements to the product.
A typical gross margin for this product that sold at $295
retail is 50%. The profit before tax that should flow, after
expenses, to their bottom line would be about 17% per unit
sold, or about $50. That translates to $1M per year (20,000
x $50), or about $5M in 5 years-although the product actually
kept selling beyond the 5 years, and this calculation does
not include add ons and increases in other product lines as
a result. If we assume that Niles had 10 people working on
it for 7 months, at a burdened salary cost of $10,000 per
month per person, that makes for an investment of about $700,000.
That makes for a handsome ROI of $5M/$.7M or about 7 or 700%,
depending on how you're used to stating ROI. During that time
Niles paid Global Brain about $50,000 total: about $20,000
for the initial "Jumpstart" week and then 6 monthly
visits and expenses.
Now let's look at a conservative "business as usual
scenario" had they not hired Global Brain, and the project
would have taken 18 months as they had expected it would.
Even assuming that they would have still had a market, i.e.
that their competitors would have not released their new product
that would have not come to dominate the market, and that
Niles could still have gotten the price, margin, and profits
above, all highly optimistic and questionable assumptions,
but only gotten 4 years of sales instead of 5, that would
give them a profit of $4M. Their development cost would have
jumped up to $1.8 M (10 people x $10,000/month x 18 months).
That would have meant a ROI of about $4M/$1.8M, or 2.2, or
Turning now to a more reasonable and likely scenario, hiring
Global Brain looks even more attractive. Lets assume that
delivering in their expected 18 months resulted in only getting
half their expected sales, and at a lower gross margin due
to the competition. That would mean 10,000 units per year
at a before tax profit of 12% instead of 17%, or $36 per unit,
or $360,000 per year, or about $1.5 M total in 4 years. The
ROI would now be a negative .2, as they would have not recovered
the development investment of $1.8M.
To recap, using Global Brain for about 11 days of consulting
over 8 months at a total cost of about $50,000 gave Niles
an ROI of 5 versus 2.2 using even conservative assumptions,
and netted them an extra $1.8M in profit before tax ($4M vs.
$2.2M). That makes the ROI on hiring Global Brain , Inc. $1.8M/.05M,
or 36, even using conservative assumptions! Clearly a very
worthwhile investment, not to mention the positive cultural
change Niles experienced.