EXPERIENCE

Case SturlvHBR.ORG

Elie Ofek is the T.J. Dermot Dunphy Professor of BusinessAdministration at Harvard Business School. Jill Avery is anassistant professor at Simmons School of Management.

The Experts

Gauri Nanda, founder andCEO, Nanda Home

àà

Ravi Sawhney, founderand CEO, RKS Design

HBR's fictionalized case studies presentdilemmas faced by leaders in real

companies and offer solutions from experts.This one is based on the HBS Case Study

"Nanda Home: Preparing for Life After Clocky"(case no. 9-511-134), by Elie Ofek and Jill Avery,which is available at hbr.org.

Riding the popularity of a great first productis easy; finding the next one is hard.by Elie Ofek and Jill Avery

In Search of aSecond Act

Steph2inie Alexis couldn't get outof her car. She knew that if she satthere much longer, she'd be late for

her meeting with her board member andfriend Rob Cooley, but she still had no ideawhat she was going to say to him—hencethe paralysis.

Rob had asked Steph to his office indowntown Vancouver to discuss thefuture of Alexis Products, the companyshe'd launched three years ago with onegreat product: the Brrrd, the first interac-tive language-learning tool to incorporateartificial intelligence. It looked like astuffed animal—a cartoonish plush birdwith a beetling brow and goofy eyes—butit was equipped with a microphone, tinyspeaker, headphone jack, and computerchip, and contained enough speech-recognition and voice-generation technol-ogy to engage in sassy, conversationalbanter in Mandarin.

The Brrrd couldn't teach you a lot ofgrammar or vocabulary, or help you torecognize or write Chinese characters, butit was a fun, effective way to leam the ba-sics—key words and phrases having to dowith food, transportation, clothing, mov-ies, music, money, personal hygiene, andbusiness. For a while the Brrrd had beenwildly populEir, especially with studentsand young professionals trying to leam alittle Mandarin before their first trips toShanghai or Guangzhou.

But the Brrrd's heyday had come andgone. The media attention generatedby the product's novelty had died down,and in spite of incremental technologiesimprovements, sales were slipping. ForAlexis Products to survive, Steph neededto either come up with another hit-quickly—or formulate a cohesive strategyto take on the language-learning market asa serious competitor. Rob had summoned

April 2013 Harvard Business Review 133

EXPERIENCE

her because the company stood at a cross-roads. He was one of her most importantinvestors and a leader on the board; if shecould eam his support for a new strategy,the other members would follow. So whatshould the company do for its second act?Her employees and investors were count-ing on her to make the right decision.

Fun or Functional?The Bmrd was hatched during a laughter-filled car ride. Steph and Tina, one of hergrad school classmates at MIT's Media Lab,were driving to Chicago for a conferenceand heard an ad on the radio for the lan-guage-learning company SimpleLanguage.

"I keep meaning to order that forMandarin," Tina said. "I'll be in Shanghainext semester. I've tried books and CDs,but nothing is sticking. I just can't seem toretain it."

"Oh, stop complaining and try harder!"Steph blurted out—in Mandarin.

"Don't rub it in! Not everyone growsup in a bilingual famuy," Tina moaned.

"Actually—talk to me in Mandarin. Help melearn—in a way that's fun, not boring."

Steph was no teacher. She was anengineer and a programmer. But she'dlearned Mandarin just by listening to herTaiwan-born mother. Maybe she couldteach Tina the same way. Steph launchedinto Mandarin, chatting about passing carsand the faces of kids on a bus and Tina'snew purple eyeglasses—pretty muchanything that came into her head. WhenTina hesitatingly repeated the vocabulary,Steph mimicked her atrocious intonation,and they laughed and joked until Tina gotit right.

"I wish you could make me a UttleSteph Robot to carry around," Tina saidnear the end ofthe ride. For the next fewdays, Steph couldn't get the comment outof her head.

Back at the Media Lab, she startedworking on the Brrrd, and within a yearshe had forged a solid partnership vdth amanufacturer in China and turned her pro-totype into a commercial product priced at$79.99 and sold through high-end retailers

such as the Sharper Image and Hzim-macher Schlemmer.

It immediately became a media darling,and sales hit $3 million in the first year.Journalists, retailers, and customersseemed to embrace it because it was acategory smasher—both a toy and an edu-cational product. Its speech-recognitionsoftware and AI "brain" could figure outwhat language areas were giving a usertrouble—making it a highly functionaltool—while its deep reservoir of conversa-tional phrases, including jokes and retortsas well as praise and encouragement,made it a welcome companion.

Steph had gotten used to explainingthe Brrrd's dual nature to anyone whoasked. But lately her marketing chief,Grégoire Ferron, had been raising difficultquestions about what that duality meantfor Alexis Products.

"Are we a toy company or a languagecompany?" he had asked testily at a teammeeting just that morning. "We can't beboth."

Steph was worried about Grégoire—worried that he might leave the companynow that sales and morale were sagging.She knew he felt outnumbered by thegadget people on the staff. She was tryingto formulate an answer that would be re-spectful of his viewpoint when Mia Yoon,Steph's top sales executive, piped up. "Weall know what our unique seUing point is,"she said. "Fun."

Steph sensed Gregoire's exasperationand jumped in. "What's cool about theBrrrd is that it is both. It plays with youin an educational way. It teases you intolearning."

"But as a language-learning tool, it hassignificant shortcomings, which is whysales are down," Grégoire said. "I think weshould turn the Brrrd into a gateway to asuite of language offerings that can reallycompete with SimpleLanguage from apedagogical standpoint." SimpleLanguage,whose computer-based courses haddisrupted the language-learning estab-lishment more than a decade ago, wasGregoire's former employer.

"Pedagogical?" Mia asked scornfully."Who cares about that? People buy theBrnd because it's a blast to talk to, andmaybe they learn a little Chinese. Oncewe start using education buzzwords like'pedagogical,' we lose our customers."

"Well, even if we decide to pursue the'fun gadget' path, we need a strategic fo-cus," Grégoire responded, his voice rising.

"And call me biased, but languages are theobvious answer. The Brrrd has launchedus into a market that's lucrative and fast-growing. I'm not saying our new productshouldn't be fun. Just that it needs toprovide more in the way of tangible ben-efits. If we could find a way to be fun andstay on the cutting edge of AI while alsoadopting best practices for teaching lan-guages, we could dominate." He pausedto let his words sink in. "But when the funoutweighs the functional, you're just a toycompany trying to chum out—or worse,chase-the latest fad."

"But Steph has so many great ideas,"Mia said. "Why would we want to confineourselves to just one category? Whatabout using our AI and speech capabilitiesto motivate people to exercise? Or to helpelderly folks keep their minds nimble? Orto teach people how to cook?"

Mia was biased, too—toward diversi-fication. She had bounced around fromretail to media to tech throughout hercareer, but she had great instincts andSteph valued her outlook. On her first dayof work at Alexis Products, she had walkedinto Steph's office and said, "I'm here now,which means you can stop thinking aboutsales and start inventing again. Come upwith something cutring-edge that willmake me laugh—whether it has anythingto do with languages or not."

It was just like Tina's challenge yearsbefore, and Steph had been inspired. Now,every morning, she made it a point tospend at least an hour doodling, open-ing her mind to all sorts of ideas. And yetshe still hadn't come up with a killer newproduct.

Once, during one of those periods ofcreative thinking, she had picked up the

134 Harvard Business Review April 2013

HBR.ORG

HBR.ORGTell us what you'd do.Go to hbr.org.

Brrrd and asked: "Are you just a toy?" andit had shot back the Mandarin equivalentof "I won't dignify that with an answer,"which had made her laugh.

But she had to take the company's fu-ture seriously. Should it aspire to becomethe next Wham-0, maker of an incredibleseries of iconic toys, from the Frisbee andthe Hula Hoop to the Slip 'N Slide andthe Super Ball? Or should it model itselfafter iRobot, which launched with the funRoomba robotic vacuum cleaner and thencarved out a niche with functional prod-ucts idmed at solving other householdcleaning problems?

capitalize on the Brrrd brand and providean advanced-level product for custom-ers who wanted more than the basics ofMandarin. There were other possibilitiestoo. Since kids were a natural audience forlanguage learning, and the company hadalready established a reputation for inject-ing fun into education, she could focus onthe elementary school market. She couldalso develop an image-recognition capa-bility for the Brrrd to help people leam towrite Chinese characters. She could havefun with that.

Still, thinking about becoming an"educational content publisher" made

When the fun outweighs thefunctional, you're just a toy companytrying to churn out the latest fad."

Going the Wham-0 route would meaincoming up with great new product ideasall the time, and then finding customersfor each one in the fiercely competitive$855 million electronic toy industry. Theconcepts she had sketched during herdoodle time were pretty interesting—therewas the Snowman, a talking gadget thatwould stand in the refrigerator and tell youwhat you were running low on, and theFoeFriend, which would play word gameswith you—but she suspected they lackeda wow factor. She'd have to rely heavily onMia to sell them. She wondered whetherher sales executive could be an effectivebrainstorming partner and whether Miamight use her sales expertise to exerteven more influence over the company'sstrategy.

Going the functional route would meanacknowledging that the company wasfocused on just its core product and didn'texpect to produce emother blockbusteridea. But maybe that was OK. There wascertainly a lot of money to be made inthe $956 million language-instructionbusiness, and she could see how, withGregoire's help, the company might

her feel tired and overwhelmed. To suc-ceed, Alexis Products would have to grabshare from the likes of SimpleLanguage, atough and experienced competitor. Thecompany would have to hire a cadre of lan-guage experts, who would no doubt findfault with the Brrrd's "teaching methods."Plus, Apple's problems with Siri had ex-posed real limits to the power of artificialintelligence and computerized speech.It would be business suicide to promisemore than the company could deliver.

Maybe she was just a toy queen at heart."Steph?" Mia prompted."You both make good arguments," she

replied. "I'm torn myself. Let me think abit more about it."

Other People's Moneysteph overcame her paralysis, grabbedher briefcase out ofthe back ofthe car,and walked into Rob's building. Shehad mixed feelings about their workingrelationship. Initially she hadn't neededinvestors. She'd inherited a trust from hergrandfather, the founder of a Canadiantimber company, and had used thosefunds for product development. Her unde

offered her space in a building he ownedin Vancouver, where Steph had grown up,and she had accepted.

And when product-developmentcompanies in the U.S. 2ind Canada hadbesieged her with tempting licensing andcommercialization offers for the Brrrd, shehad used her independent means to retainfull control.

But when sales declined to $2.2 mil-lion in her second year of business, thereduced cash flow began to pose aproblem for the company. Steph's unclepersuaded her to seek outside funding andintroduced her to Rob, a retired computermagnate. They'd immediately hit it off. Heand several of his angel-investor friendshad put money into the company andbecome directors.

At first, they'd assured her that theyloved the Brrrd and had full confidence inher ability to lead the company. But by thethird year, when sales had sunk to $1.5 mil-lion and a hoped-for distribution rela-tionship with Best Buy fell through, theboard meetings started to become morecontentious. Beefing up sales and market-ing by hiring Mia and Grégoire had allayedthe directors' concerns for a while. But theboard was clearly growing impatient.

In his affable and tactful way, Rob hadspelled it out when he called to set upthe meeting. Steph needed to rememberthat she was playing with other people'smoney—a lot of it. "The investors want toknow whether to keep their money in ornot," he'd said. "It's as simple as that. Whydon't you come over here tomorrow andhelp me understand your vision. Where isAlexis Products heading?"

Now, standing in the elevator of hisbuilding, she had to decide.

Should Stephcreate anothergadget or focus onlanguage learning?See commentaries on the next page. À

April 2013 Harvard Business Review 135

EXPERIENCE

Gauri Nanda is the founder and CEO of Nanda Home, a mai<er of home products,such as the Clocky alarm clock, that are both funny and functional.

THE PICTURE that Stephanie Alexis's mar-

keting chief and sales manager are painting

ofthe company's future is too simplistic.

Grégoire Ferron and Mia Yoon seem to have

persuaded Steph that Alexis Products faces

a stark choice: to become either a toy-

maker or an educational content provider.

That's the same sort of misguided thinking

that my company, Nanda Home, faced—

and still faces. It's very hard for people to

conceive of a company that makes things

that are both fun and useful. But fusing hu-

mor and practicality is the kind of thinking

that makes for breakthrough products and

new product categories.

It's not necessarily true, as Steph fears,

that in order to move forward in language

learning, the company would need to hire

cadres of pedagogical experts. The Brrrd's

strength is that it adds so much enjoyment

to learning that users probably don't even

consider it an educational tool. It's built on

a "less is more" philosophy. Steph could

take her idea and run with it, creating a

line of fun and funny characters that are

just functional enough to teach conversa-

tional skills in a variety of languages.

For example, without trying to create

a formal language curriculum, she could

develop Brrrd characters for beginning.

intermediate, and advanced Mandarin

speakers (that approach would encourage

repeat customers as well). Or she could

create characters for additional languages,

populating her brand with multiple lifelike

characters that relate to one another.

I don't mean to imply that Steph should

ignore Grégoire and Mia—she's fortunate

Her morning ideationtime is a good idea,but one hour a dayisn't enough.

to be working with managers who inject

energy and ideas into the company. For

any businessperson, it's critical to find the

right people to work with. I still find that a

challenge. At first, an entrepreneur has to

wear a lot of hats. But eventually he or she

must delegate or the workload becomes

overwhelming. One way I've managed to

shift some of my responsibilities is by part-

nering with another company to handle

manufacturing and distribution. It took me

five years to get to the point where I could

do that, but it has been very helpful. Now

I can focus more on creating new products.

WHAT WOULD YOU DO?

SOME ADVICE FROM THE HBR.ORG COMMUNITY

STEPH SHOULD let the marketguide her. There must be a gap—a need that isn't being met. In thatgap lies the answer. If she decidesto go into languages, a partnershipwith a language-learning specialtybusiness might allow her to takethe Brrrd to a new level.Joy Monsma,MBA instructor.The King's University College,Edmonton

IF STEPH feels she must choosebetween two outdated categories-toys and languages—she riskslosing what has made the Brrrdsuccessful. Instead, she shouldbetter articulate what the companydoes best—interactive fun with apurpose—and focus on creatingproducts that build on that idea.Christopher Dougherty,area support manager. ScoutsCanada

steph has delegated some of her mar-

keting and sales responsibilities, but she

needs to figure out how to off-load more

of her day-to-day burdens. Her morning

ideation time is a good idea, but one hour

a day of thinking about new products isn't

enough—I don't know how anyone could

get much accomplished in an hour.

Not that ideation is all that time-

consuming. For me, anyway, coming up

with the initial idea is quick and easy. I'll be

walking down the street, and an idea about

how I could make something better will

just come into my head. Usually it's a very

simple concept. What tends to take a long

time is keeping it simple.

We often start with a simple idea, but

as we think about all the features it could

have and the things it could become, the

design becomes more and more compli-

cated. We then have to work hard to strip

away unnecessary complexity so that the

idea becomes simple again. We're doing

that right now with a product. It's a pro-

cess that has already taken eight months.

I see so many products today that are

overly complicated. For most things, you

shouldn't have to read a user's manual.

Steph would do well to keep that in mind

as she considers her next step.

STEPH SHOULD think crowd-sourcing and ecosystem. She shouldcreate an environment in whichusers learn from one another andevolve together as a group. Usersshould have as much fun using the jBrrrd as she and Tina had laughingtogether in the car.Bengt-Arne Vedin, 1professor emeritus, IRoyal institute of Technology, JSweden

136 Harvard Business Review April 2013

HBR.ORG

>S * Ravi Sawhney is the founder and CEO of RKS Design, a strategic design consultancy in,- y Thousand Oaks, California, and a coauthor, with Deepa Prahalad, of Predictable Magic.

During my 35 years of innovation in many

industries, I've created series of products

that extended great brands. Rather than

simply setting aside an hour to doodle on

The Brrrd makes anemotional connectionwith customers, andthat's the magic thattransforms a product.

her own, Steph needs to develop a well-

structured innovation capability. By that 1

mean a process that allows Steph and her

team to create prototypes in three dimen-

sions and rapidly iterate on their ideas. At

my firm, we hold a series of sessions to

uncover specific segments' needs and

aspirations, and then generate an explosion

of ideas that get filtered into product and

service offerings for those segments.

Steph seems to assume that extend-

ing her brand deeper into one category

means giving up on inventing another

world-beating idea. But I believe that if she

approached innovation more systematically,

she could emerge with another superhit

that fits with the Brrrd brand and comes

alive and connects with customers in the

same way.

Alexis Products would only hurt itself by

trying to become a producer of novelties.

Consumer product companies that jump

from category to category are like barkers

at the county fair, selling one poorly made

product after another and then moving on

to the next town. It's a lottery play—they

hope one of their crummy products will go

huge and make them rich. They don't start

with a true sense of integrity.

Steph should build on her success with

the Brrrd and continue to forge emotional

connections between consumers and her

products. 0

HBR Reprint R1304M

Reprint Case only R1304X

Reprint Commentary only R1304Z

I'M SURPRISED that Stephanie Alexis

would consider going in a different direc-

tion for her next product, given what she's

achieved with the Brrrd in a relatively

short time.

First, she has secured a manufacturing

partner in China. It appears to be a reliable

partner, capable of wori<ing with her to re-

tool for a next-generation product. Second,

she has a distribution pipeline. She has

obviously set up effective systems for ship-

ping product to the U.S. and other parts of

the world, warehousing it, and moving it

to sales outlets. Third, and most important,

she has built a brand. The value ofthat

can't be overstated.

A brand is a beacon of positive associa-

tions that make consumers receptive to

the company's new products and concepts.

And the Brrrd isn't just any brand. Steph

took an everyday object and animated it,

and people fell in love with it. The Brrrd

has succeeded in making an emotional

connection with customers, and that's the

little-understood magic that transforms

a product—that elevates it from simply

serving a purpose to becoming a reward-

ing and empowering experience. She's got

a brand that stands for creativity, fun, and

excitement.

Those three elements are difficult to

establish, to say the least, and they're

extremely valuable. Should Steph decide to

sell the company, for example, she could

no doubt find a buyer willing to pay quite

a premium for her wonderful brand and

well-oiled manufacturing and distribution

machine. But if she were to jump to a new

product category—to start over again from

zero—she'd be throwing all that away.

Now, I have my reservations about the

fictional Brrrd concept—1 don't think it

would have become a blockbuster in real

life, because it doesn't solve an everyday

problem. Still, if 1 believed that language

learning were an enticing field, I'd take

Grégoire Ferron's side and advise Steph to

extend her winning brand with a suite of

new Brrrds that do different things with

languages.

Wisdom They Don't Teachin Business School

Michael E. RindlerJack H. Mitstifer, MD

Written for healthcareleaders and physicianexecutives. Wisdomapplies to all leaders.

Available for iPadand Kindle.

Partners Rindler and Mitstiferadvise healthcare systems,hospitals, and physician groupson performance improvement:leadership, financial, andgovernance. Fifty years ofexceptional leadershipand medical experience.Solutions for thriving in theera of healthcare reform.

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