By Stephen A. Rutan

Developing and maintaining proprietary position in the marketplace is one critical way U.S. companies can stave off the competitive invasion of Chinese goods. Learn to do things that your competitors, both domestic and global, cannot do. By examining a hallmark business example of proprietary position, we can learn valuable lessons about how any company can incorporate the value-driving elements of proprietary position into their business strategy.

Chester Carlson is not a household name. Yet, when he introduced the first commercial version of his invention, he initiated what is arguably the most significant event in modern communications history after the Gutenberg printing press.

In the book, Copies in Seconds, David Owen recounts the story of how Chester Carlson invented xerography and helped introduce the Haloid Xerox model 914 in 1960. This office machine was so completely different from any other contemporary means of making copies from an existing document that it profoundly transformed work habits and the flow of information in companies throughout the world. From this tale, we can examine many of the drivers of proprietary position and how they can help any business cope with the competitive threat posed by the unceasing flow of products that enter this country from China daily.

It does not need to be pretty

When the Haloid Xerox Company launched the 914 in 1960, it weighed 648 pounds, could barely fit through most standard office doorways, required 36 square feet of floor space and experienced frequent breakdowns. It required almost daily visits by service personnel to keep it working. It was so expensive compared to the available document reproduction technologies at the time that the company realized it would not be able to sell the machines! Instead, it would be necessary to pursue a leasing program.

This illustrates an important first lesson about proprietary position: the ideas that separate you from your competition do not need to start out in a polished state of execution. Strive to identify the fundamental customer need that you are trying to fulfill and make certain that your product or service delivers on that promise. Anticipate that time, technology and refinement of ideas will eventually allow you to fill that need in a more elegant fashion than your early efforts will be able to demonstrate.

This may be equivalent to the investment you need to make when introducing a new service for your customer. In the initial stages, you do not have the established infrastructure with clearly defined policies and procedures. Nor do you have the trained personnel coupled with the nurtured customer expectations and response to your process for delivering the new service. This can cause a great deal of inefficiency in providing the service to the market. The anticipated costs involved in these initial stages can be enough to discourage you from attempting the new service in the first place.

See through these start-up costs and difficulties. Imagine what the solution will look like when you have a critical mass of customers using the new service and the well-oiled machine that delivers the service smoothly and cost-efficiently. Consider also, that if you believe in the finished product, these same learning curve difficulties will serve as a barrier to your competitors as they attempt to copy your new profit machine.

This is clearly one basis for competing against firms based in China. Proximity to the domestic customer and the fact that you share a common mindset in how you approach business provides you with a great advantage in developing services that meet the critical needs of your customers. All of your cultural compatibilities (ease of communication, understanding the consumer mindset, respect for legal business practices, etc.) serve your ability to tune into a customer's important concerns and translate this awareness into valuable, differentiated products and services.

Don't ask your customer about the future

There are several ways to discover the unique products and services that may delight your customers, but plenty of experts suggest that asking them directly for help in product ideas is not the best way. Your customers are not likely to be able to describe to you the bold and distinctly new product that is going to revolutionize your position in the market. This was demonstrated during the later product development years of the 914.

Many individuals and corporations rejected the prospect of Carlson's copy machine. No less a judge of the office environment than IBM, assisted by the Boston-based consulting firm, Arthur D. Little, declined to support the later stages of development (within 2 years of the ultimate product launch year of 1960). "The consultants' conclusion…was unequivocal. 'Model 914…has no future in the office copying market.'" It is clear by way of the rearview mirror that their conclusion was both completely wrong and shortsighted.

How does this correspond to our relationships with our customers and the ways in which we must cope with the competitive Chinese threat? Imagine that we survey our customers, based on the existing understanding of their business and its processes and, furthermore, that we enter these discussions under the dark cloud of lower-priced, high quality Chinese goods. It is likely they will tell us that the one thing that will make a difference is a marginally better version of our current offering at a significantly lower price. Even if we can make this adjustment in a relatively short period of time, it is unlikely that this will be the basis for competitive advantage that will last for more than one iteration of minor (or perhaps even major and costly) product redesign.

Instead, we need to develop the innovative product overhaul or product line extension or packaging change or delivery system alteration that rivets the attention of our customer. This requires a radically new way of thinking about their business - one that our customer is not likely to be primed to think about. We need to develop the innovative solution in our area of specialization and be able to communicate its value to the customer. We then must confirm in their minds that if they want a new and better solution to their problems, they need to consider more than price in their purchasing decisions.

The Narcotic Effect

What was really responsible for the truly explosive launch of the first practical office copier? It completely transformed the way in which people worked. The Xerox marketing and design organizations had no idea how many copies office workers would want once they realized how easy it was to make copies. Customers were using the machines at five to ten times the projected levels. This sudden quantum leap in the ability to make perfect copies effortlessly answered the question of information distribution in a new and far superior way.

"Once you got that 914 in the office, the narcotic effect began. Making a copy on a 914 was seductively easy, since all you had to do was push a button - and the copy itself provided positive reinforcement, since it didn't smell bad, curl up, or turn brown. 'The biggest problem our customer had was not with us.... The problem was with their own employees, to stop them from abusing the privilege of having that machine there.'"

You may be thinking, "The 914 was certainly an astounding triumph, but, let's be realistic: nobody is likely to invent something as revolutionary as xerography around here anytime soon!" This point is well taken. Brilliant inventions such as this do not simply fall into our lap. We can, however, use this example of such a revolutionary change to inspire us to find evolutionary changes in our own business that will garner customer loyalty and increased profitable sales.

Start with a clean sheet of paper and imagine what it is that your customer really wants. How could your product or service be offered in a dramatically different way so that your customer actually enjoys doing business with you, or sees your product or service as something that they simply cannot live without?

Hardship enabled the breakthrough

Chester Carlson grew up in "unspeakable poverty" and struggled through the hardship of his formative years in ways that most of us can only imagine. He was the primary provider for his family by age 17 and still managed to finish high school and work his way to a degree from Cal Tech. He credits his ability to persevere in the face of difficulty and repeated rejection to these trying years.

Perhaps we as business people can view the current competition from Chinese-manufactured goods as a re-visitation of our challenging formative years. Somewhere in your company's history, the organization was an emerging new business fighting to establish a place in the market and battling on a daily basis for survival. Several years (or perhaps decades) of secure revenue streams with loyal customers and stable product offerings may have taught your staff to unlearn that entrepreneurial spirit.

Clearly, we are now competing with hungry up-and-coming Chinese competitors who are themselves battling it out in the fiercely competitive, entrepreneurial environment in China. We cannot afford the luxury of resting on our laurels. We need to recapture the almost desperate sense of fighting for our existence. Part of our relationships with our customers should be oriented around communicating this sense of urgency in how we respond to their needs. Let our customers know that we are passionate about serving them by providing great products and great service.

Products and services together

Once the 914 was established in the market and usage was far exceeding expectations, Xerox quickly realized that they would need dozens and then hundreds of service technicians. This huge corps of capable technicians was mandated by the maddeningly frequent breakdowns and paper jams that the new machine experienced. This seemingly tragic flaw was expressed in the expert opinion of one of their own physicists, Harold Clark: "As an invention, it was magnificent…as a product, it wasn't any good."

The service staff buildup was a simple, logical response to the market need, rather than a brilliant strategic move. But this necessary step in the growth of the company became the one-two punch that helped Xerox dominate this area of the office environment for so long: Complement an indispensable product with extraordinary service.

It is ironic that this natural response to a truly flawed product actually helped Xerox endear the company to their customer base. The service technicians were on site so frequently that they became "like family". In spite of the aggravation of daily interruptions in machine availability, virtually no customers ever asked to have the 914 removed!

This is a simple lesson for us and our approach to developing proprietary relationships with our customers. If our product is a commodity, then complement it with elements of specialty services. If the standard service levels in our industry are extremely high, then find ways to differentiate your product or service with features and inherently superior performance. If both product performance and service are at mature, high levels then do not rest. Develop a culture of innovation and find the means to redefine the way your customer interacts with your offering.

Extraordinary results

What is the payoff for proprietary position in the marketplace? The Haloid Xerox Company grew from $32 million in the year prior to the launch of the 914 in 1959 to twice that in 1960 to $400 million in 1965 and $1 billion in 1967. This averages better than 50% annual growth over 8 years. Some have referred to the 914 as the most successful product ever marketed.

While our ability to completely revolutionize any aspect of our industry can only be the product of diligent effort over a significant period of time, we can still tune in to specific opportunities to separate ourselves from global competitors. Our viability in the long run is dependent on being different from others. The ability to do things better than our competitors is one way to succeed. The ability to do things that our competitors cannot do at all is the basis for proprietary position in the market and is likely to be a source of sustainable advantage.

Steve Rutan is a Consultant with Center for Simplified Strategic Planning, Inc. He can be reached via e-mail at

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