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A
New Metric
This
author developed the M/E Ratio™ to guide technology-based enterprises. The
metric was created for the MIT Enterprise Forum, a world-wide non-profit
affiliate of MIT which assists these companies.
The
M/E Ratio™ applies to technology-based enterprises investing in the development
of standard products. This new model separates marketing from the
functions of promotion and selling. Formulating a ratio of marketing to
engineering installs marketing concurrently with engineering, and sizes the
market research budget with a readily identified number (engineering
investment).
-
Apportion
the marketing investment relative to the engineering investment.
Marketing is an investment, just as engineering is an investment. New
products and new businesses do not have a sales stream to divide for an
estimate of marketing, but they normally have a well-estimated engineering
investment.
-
Invest
those marketing dollars either before, or simultaneously with the
engineering dollars. This becomes one definition of marketing, and a
means to distinguish marketing from promoting and selling. Marketing
occurs at a special time during product development. Marketing is the
process that comes before the product is ready.
This
model has been tested against real-world results. Data were gathered from
the end points, from major successes and serious failures. (The mediocrity
in the middle was ignored.) Some labels of success or failures are obvious
and acknowledged by the industry, such as Intuit’s success, or arrive from
this author’s business judgment. Other appellations are self-proclaimed,
as is Keithley’s public declaration of failure. The M/E Ratio™ is not
available from annual reports, and was developed by personal interview.
Note that M/E Ratio™ data was collected narrowly, generally for one product at
one time. For example, Varian Associates supplied data from a 1969 failure
from one division and a 1993 success from another. That does not mean that
Varian in 1998 is either an overall success or failure. The placement of
any company constitutes neither an endorsement nor an indictment by this author.
More
than $1 Trillion is represented either in value creation by the successes, or in
capital squandering by the failures. The data are consistent from the
1940s into the 2000s, from startups to Fortune 500 firms, and across a broad
range of technology-based enterprises.
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