Navigating the Technical Stack — Ric Fulop, CEO Desktop Metal

Systems Leadership — April 23, 2019

Perhaps the thing that surprised us the most in our session with Ric Fulop was how far removed so many of our students are from making physical products. While backgrounds usually vary widely inside of our classes, the ability to see the opportunities and challenges faced by Desktop Metal and other 3D printing companies arise from a deep understanding of manufacturing processes and the benefits that come from additive manufacturing. We wondered what it would have been like to teach this session outside of Silicon Valley — while the learnings would likely have been the same, this was the first time a deep drill down on the implications of a new technology appeared to be largely a novel and unexplored area for our classroom.

Understand Market Transitions

Fulop commented that additive manufacturing has been around for decades — the core idea and technology is not new. However, recent technological transitions are creating opportunities in multiple aspects of the market — from prototyping to high volume manufacturing of parts that were previously not possible to make with standard technologies. In times of transitions such as this, a company such as Desktop Metal has the ability to compete against large incumbents such as HP by bringing speed and new capabilities in ways that competitors are unable to do.

Fulop shared that he sees the 3D manufacturing market as akin to where the semiconductor industry was in 1979 — the base technologies have been around for awhile, but as the capabilities advance new markets and use cases are opening up. For Fulop, he sees a market opportunity that is currently over $120B per year and growing, ranging from small machine shops to high volume players who will require highly reliable equipment that can make high value parts with new alloys and materials.

This transition — of equipment, materials and output — is what creates the opportunities for companies like Desktop Metal. At a time when a high number of components in the value chain are going thru big changes and disruption, this is the exact moment when new players have the ability to establish a foothold.

Business Models Vary By Market Segment

One particular insight Fulop shared which caught our attention was his view that the company’s business model needs to vary by market segment. In the prototyping market, Desktop Metal offers a complete wing-to-wing solution for customers: machines, ink, metal powders, support, etc. At the high-end, when Desktop Metal is selling to large enterprises, some of the company’s customers have direct relationships with metal suppliers and can thus manage that part of the value chain. Fulop highlighted that Desktop Metal has to be flexible enough to build solutions that can meet the needs of each customer segment — and they must do so simultaneously.

This flexibility is often hard to do for a disruptor — not only does a company need to build a unique set of products and channel relationships by customer type, but how the firm makes money, and with whom it must collaborate, is dependent on the dynamics of the value chain and end user needs. What makes this particular dynamic even more complex for a Systems Leader is that at a time of great volatility being driven by technological change, executives must learn to be flexible on multiple dimensions simultaneously (technological, partnering, channel, etc.). Whether a company is a large incumbent (e.g. HP) or a new upstart like Desktop Metal, the ability to develop and deliver on multiple business models at the same time is a skill that must be mastered in the fusion of digital and industrial.

Customer Outcomes Are Defined by Knowing Your Customer

Fulop commented that one thing his company spends extensive time understanding is what their customers actually make on their machines. At its most base level, this allows Desktop Metal to be sure it is delivering a whole product that meets the goals of the people who purchase their equipment and services.

But he also made another point: Desktop Metal’s understanding that it is difficult for any company to adopt a new technology in manufacturing, and that while a long sales lifecycle can be frustrating and challenging for employees and investors, once validation is achieved a company like his can become part of their customers’ manufacturing processes for years. Going back to the comparison of the semiconductor industry, once Fulop and his team “win the socket” they earn the right to sell into a company for years to come — and that is where the large volume of revenues and profits come over time.

As we have highlighted in previous posts, the imperative of understanding customer outcomes of products and services on a customer’s income statement or balance sheet allows an organization to know what products and services to deliver, what people to hire, what channel to use, etc. And in the digital industrial transition, even startups must be ready for long sales cycles, complicated relationships and hard technological invention. But when the battle is won, the benefits will profitably last for extended periods of time.