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Zipping Through Growth

Faced with the challenge of giving its high-tech products broad consumer appeal, Iomega launched an aggressive market share drive that jumped sales from $141 million to $1.2 billion in two years. But overcoming one obstacle raised another-the challenge of managing hypergrowth.

Before I joined Iomega, the company made really techie products for really techie people. Back in the ’80s, Iomega had one product, the 5.25 Bernoulli drive or “Bernoulli Box,” a data storage device that sold primarily to one market: the U.S. government. Geared to this low-volume, niche market of people needing to store big clumps of data, the Bernoulli Box was a high-ticket, “plain Jane” product designed for function rather than form.

In the ’90s, things started to change. Technology was everywhere-and beginning to gain broader acceptance among both consumers and businesses. At Iomega, we recognized that people wanted to do exciting things with their computers. They were using their computers in completely new ways-downloading big files from the Internet, playing hot new games, experimenting with colorful graphics and digital images, and running multimedia programs. Yet their computers featured the 3.25-inch floppy disk drive first introduced more than 10 years ago and inadequate for storing even the most rudimentary multimedia file. An entire group of computer users had nowhere to store their “stuff.”

So Iomega changed too. Beginning in 1994, with a fresh senior management team, we reorganized the company to create new products and new markets. We expanded into new production facilities and new international headquarters. We added new business partners and developed new financing strategies. Modeling ourselves more after mass market consumer companies than after electronics equipment companies, we adopted a philosophy that was completely customer-centric. These changes were based on the understanding that our business is not about computers-it is about people.

With that in mind, Iomega developed a data storage solution catering to the price-conscious home and small-business markets, complete with a catchy name, the Zip drive, and flashy packaging. Three years ago, we launched a major program aimed at creating a broad presence throughout computer retail outlets-directly reaching the average consumer with a new category: personal storage solutions. These efforts catapulted us out of the box and into the big leagues; today our products are available in more than 10,000 storefronts throughout the world, with our Zip disk emerging as the successor to the floppy. Back when we started, the industry told us we would probably sell a few hundred thousand products. Instead we sold millions. Our products changed the way people share, store, and save their stuff. In fact, our products have been so popular with PC users that 15 world-class PC manufacturers now offer or plan to offer our Zip drive built internally as an option for their customers on select computer models.

That was the beginning. Since then, we have continued to focus on personal storage solutions for consumers—-developing drives, media, and software that answer people’s needs. As a result, today there are more than 160 patents issued or pending for our drives and disks.

Supply Side Ergonomics…

Explosive growth, however, brings the challenge of meeting market demand. During the 1995 holiday season, for example, we were poised to launch a television ad campaign for our Zip drive. But looking at the numbers showed us that we didn’t have the production capacity in place to keep up with the additional demand the campaign would generate. Our decision was to shelve the ad campaign-a tough call and a solution not popular with the Zip business unit’s marketing executives. But logic prevailed; we had to maintain a stream of demand that we could support, rather than create disappointed customers who couldn’t get the product they wanted.

We then focused on completely revamping our manufacturing and distribution processes so we could support the growing demand for our product. We had to accomplish this in record time. We searched the globe for the ideal solution for our manufacturing needs.

In all honesty, luck is sometimes an important factor in successfully managing explosive growth. We knew that Penang, Malaysia, was an attractive site to consider for expanding manufacturing capacity-it offered a highly skilled work force and, more importantly, was in close proximity to our key suppliers and components manufacturers. Last summer, as we investigated our options in Penang, a 376,000-squarefoot, world-class disk drive manufacturing facility came on the market, and we quickly bought it. Since much of the necessary capital equipment and personnel were already in place, we were able to ramp up to the facility’s full production capacity less than two months after announcing the purchase. The move immediately reduced transportation costs and improved quality levels. From a standing start in August, the facility manufactured more product by December than our previous facilities had produced in a similar timeframe. And this was achieved while exceeding previous quality standards.

On the distribution side, our domestic distribution facility in Clearfield, UT, was adequate when we were a $141 million company but wasn’t keeping pace with our needs as a $1.2 billion company. In July of 1997, after researching several areas throughout the country, we announced plans to open a new packaging and distribution facility in Greensboro, NC. The plant is already operational. We chose Greensboro because it is one of the most active distribution regions in the country. The facility allowed us to decrease time-to-market and reduce overall costs. This move, and the speed with which our management team was able to get it up and running, is another step toward giving Iomega customers what they want, when they want it, at a price they are willing to pay.

Today, our approach to managing growth is inherently tied to my simple philosophy for creating growth-keep the customer central to all you do. We continually ask ourselves: What technology trends are occurring today that will change the needs of our customers tomorrow? While our main focus continues to be personal storage solutions, we don’t limit our scope to the PC. We look at all storage needs, including audio and digital image applications. Right now, for example, we’re working on a technology platform, known as “n€.hand,” for handheld electronic devices. For example, we’re working with camera manufacturers today to develop technology that may change the way the average person stores and shares pictures and other visual images tomorrow.

The iterative product development process we use directly involves our customers. We call it “ordered chaos” because it relies on providing customers with prototypes, getting feedback, modifying the products, and then going back for additional feedback until we get the product right. The “ordered” part comes from knowing this is our process. The “chaos” part comes from quickly responding to the customer’s input, which is often not what our engineers want to hear.

We get to know our customers. We talk to thousands of people: small business owners, teachers, corporations, parents, college students, and kids. Our product developers ask about specific preferences for functional and design elements-even what size our products should be. Complicating matters, customer opinion often varies. For example, some of our customers preferred a drive that rested horizontally on the desktop, while others wanted a stand-up device. Our engineers designed the Zip drive to accommodate both preferences. It was also necessary to redesign the drive’s loading mechanism to accommodate both men and women, who tend to handle disks differently.

This is the process we used to fine-tune each product in our line, including: the Zip drive, which offers 70 times more capacity and 20 times the speed of a floppy disk; the Jaz, a one-gigabyte hard drive; the Ditto drive, which remains the No. 1 tape back-up solution at retail; and the recently introduced Buz Multimedia Producer, an affordable audio/video and photo capture solution.

Opportunity Doesn’t Knock

It’s easy for corporate leaders to miss looming threats to their business because they don’t understand their markets. While traditional coffee sellers lost millions of dollars because they were caught up in price wars and marketed coffee as a commodity, Starbucks created a minor empire by focusing on quality and customer service. Starbucks marketed the coffee drinking experience, not just the beverage. Companies such as Nordstrom have succeeded because they mapped out new business models that centered on customer service, while many well-known department stores have floundered as they continued along with the one-stop-shopping business model. Federal Express distinguished itself from other package delivery services with an approach to customer service that was built on its commitment to operational excellence.

At Iomega, we also look to leaders in the technology industry who have been able to set new standards of achievement. While Intel churns out millions of state-of-the-art microprocessors, Andy Grove sees the company as more than a maker of parts. In driving Intel’s first-rate marketing efforts and leading Intel to acquire an interest in more than 50 other companies, Grove has established himself as a visionary and his company as one of the foremost leaders of the computer industry. Had Bill Gates kept his focus strictly on operating systems and software applications, Microsoft could have gone the way of other technology companies that once set industry standards and later floundered. Much to the frustration of his competitors, Gates continues to keep his focus broad and move with speed and agility when he spots new trends.

We try to do this at Iomega. To reinvent Iomega in 1994, we created a melting pot of top talent from leading firms such as Philips, Whirlpool, GE, IBM, Sony, Hewlett-Packard, Oracle, and Pentax. We brought together a stellar cross-section of expertise from varied industries, built a creative, high-energy, and focused corporate culture, and dramatically expanded our research and development team.

But it’s been hectic. If you look at our growth track since the first quarter of 1995, we have essentially had to manage a new company every 90 days. Think about it: In the first quarter of 1995, we were running a company with annualized sales of $200 million. Seven quarters later, or by the end of ’96, we were running a company with annualized sales of $1.6 billion. When you consider the impact of that kind of growth on all we do, whether hiring, manufacturing, or financing the business, it’s practically like starting over each quarter.

We’ve tried to break the mold of integrated marketing. We created a model that represents true integration of each component of the marketing mix, including market research, product development, brand identity, and sales. Our marketing efforts are cross-functional. Engineers actively participate in our market research projects. Product managers comprise part of the team developing sales collateral, advertisements, and packaging.

If management weren’t in accord across all functions, I don’t think we would have been able to sustain our growth. Our CFO, Len Purkis, is a good example of this cooperation at work. It is his job to ensure that business units, such as distribution and manufacturing, meet product demand and that the resources are available for all groups to perform optimally. He works with the sales and marketing team to make sure they have the cash to create demand. To illustrate the partnership role this team shares with other groups, he eliminated the term “controller” within the finance department. He put together a finance team that gets involved in strategic direction and all functions of our business, working in tandem with each group to help fulfill goals rather than create roadblocks. I’ve worked at other organizations where finance is a roadblock to be overcome, not a division that contributes to increased sales. Len makes sure everyone in finance sends the message that finance helps drive sales.

Know Thy Marketplace

Our meteoric growth is a result of our commitment to sparking creativity and growth through marketing. I like to say we color outside the lines. We look beyond our industry for new ideas and approaches. We’ve modeled our business similarly to consumer products companies like Gillette. We aim to make the Iomega brand just as appealing-and recognizable-as any other top mass market brand. Our goal is to make the Iomega brand as closely associated with personal storage as Kleenex is with tissues.

We try to have fun as we communicate the ease of use, design, and affordability of our products. For inspiration we looked at successful brands such as Tide, Black & Decker, Swatch, and the ubiquitous Coca-Cola. Like these companies, we’ve created a strong brand personality-a likeability cache. We set out to create and communicate a relevant brand personality that makes us approachable, even desirable.

We focus as much attention on creating our image as we do on developing our product. It’s been said of us that when we appear at a trade show, “it’s like grape juice on a white carpet.” While not unusual for the consumable goods market, our investment in trade and consumer marketing is well above that of most technology companies. In fact, from 1995 to 1996, our ratio of marketing investment to sales increased tenfold and our marketing operation grew from 20 people to 100.

We are now focusing on global growth. In 1996, international sales accounted for 34 percent of Iomega’s total sales. In the second quarter of 1997, our European sales grew 91 percent; our Asia/Pacific sales grew 30 percent over the same quarter in 1996. Our global manufacturing and distribution plan capitalizes on the strengths of each site and partner. Our overseas operations are staffed almost entirely with locals; expatriates make up less than 1 percent of our employees worldwide. We combined this with expansion in worldwide sales and marketing capabilities. This means we are better positioned to build, market, and distribute products to address worldwide consumer and business demand.

We established regional headquarters in Geneva and Singapore to provide a springboard for further global expansion. We also established distribution facilities in Utrecht in the Netherlands and in Singapore. And we’re closely watching the growth of the installed base of computer users to make certain our resources are properly invested to capitalize on opportunities in expanding and emerging markets.

My vision for Iomega’s future is to continue to find ways to capture market share by anticipating and filling the needs of tomorrow’s customer before the competition even knows they exist. As technology and customer needs change, Iomega changes-because we are focused on the customer, the brand, and the future.

In the last two fiscal years, this focus has taken us from a $141 million popcorn stand to a $1.2 billion global leader in personal and professional removable storage solutions. We now build in several days what it took us years to build in 1994.

Yesterday’s “unrealistic expectation” has become today’s reality; our new goal is to attract enough of tomorrow’s customers to continue to accelerate our rate of growth.

Kim Edwards is president and CEO of Roy, UT-based Iomega Corp., a manufacturer and marketer of personal data storage solutions. This article contains forward-looking statements; numerous factors could cause actual results to differ and such differences may he significant. These factors are identified in the company’s June 4, 1996, prospectus and most recent reports filed with the SEC.

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