Client Success Stories - Niles Audio

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 efficient."

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 220%.

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.