SM: You were dealing with this constantly at Raychem, right? You were bringing new products to market, you identified the markets well, but how did you bridge the technology development and the market? Take for example the first five products you mentioned; three worked and two failed – over the larger scope of Raychem what was your process for success? PC: Once you found interesting markets and you develop a sales force, then you leave the development people to work on the problems you see that are worthwhile and where you have a sales outlet.
We went international early in our history and sold around the world because we were worried that a competitor would come along and get a foothold in Japan or India or in Germany, so we sold our products everywhere in the world quickly. That was a major, major effort. It was expensive. That is why I said what I did before – a big gross margin is essential. We used to spend something like 15% to 20% of revenues on sales and marketing, and 8% to 10% of revenues on R&D. For a software company that is not much, but for a materials science company those are very high numbers.
SM: The margins are not as high with that type of company normally, correct? PC: We averaged 60% gross profit for the first several years. Even by the time I retired in 1990 our gross profit was over 50%.
SM: That is certainly not the industry average. PC: True, the industry average would be 25-30%