Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected] and your query could be the inspiration for his next column.
Q: I’d like to know your thoughts on the role R&D plays. What is a realistic percentage to spend on R&D? Is there a rule of thumb?
A: There’s no rule of thumb but a lot of the best medically oriented companies will spend around 10 percent. Even 12 percent in some cases is not exceedingly high.
I read an article once about the problems of sustaining R&D. When you are a CEO, frequently the new products you launch were developed with money spent by previous CEOs — because of the timeframe it takes to bring new products to market.
So you are enjoying your previous predecessor’s work. It is easy for the current CEO to cut R&D because these are longer-term dollars. If you are looking for immediate results, cut out your R&D, and it will just increase the profits by, say, 10 percent pretax. But in the long run, it will slow down new product development, and the company probably wouldn’t have the leadership later it enjoys today.
But you always want to offer something new. It generates excitement. As soon as Invacare introduced a new product, we started the design of the next model because everything can be improved. I don’t believe in the old saying that ‘If it ain’t broke, don’t fix it.’ It can be better, lighter, lower-cost, have better functionality and appearance.
When you are developing products, you really want to find the sweet spot where there is the greatest demand for the product. Sometimes an engineer will design a product that is so complicated no one will buy it. Other times the marketing department wants so many features on it that it is too expensive. So you’ve got to get both of them working together and find out what does the customer really want. You think people may pay for this feature but they may not want it.
But the essential thing is that you do have new products in the pipeline and that you do replace products.
Q: You’ve probably seen all types of sales people in your career, and I understand you started your entrepreneurship journey in sales. What’s your advice to achieve successful sales?
A: I was always delighted personally in using my ability to get an order where no one else was able to get one. It’s called ‘bearding the lion in his den’ — in the broad sense, confronting someone on his or her territory … you cut the lion’s beard off without it eating you alive.
You have to be persuasive, and you have to have good reasons for the person to buy from you. You need to be prepared for the call and deal with the reality of the situation. It may be that the person is basing his or her purchasing decisions on wrong information, as is frequently the case.
A lot of people would fear going into a messy situation or calling on a competitive account. But by taking that step, you stimulate your sales organization: if Mal can do that, I think I will try it.
Mal Mixon is the former chairman of Invacare Corporation. A complete story of Mal’s rags-to-riches journey is told in his book, “An American Journey,” published by Smart Business. It can be found at www.anamericanourneybook.com and on Amazon.com.