VIZIO – AN UNEXPECTED DISRUPTOR’S DISRUPTOR

Crossing major entry barriers and emerging just under the radar of the electronic and television empires of Sony and Samsung, VIZIO, Inc. entered and cornered the oversized TV monitor market. The market disruption that VIZIO generated is fascinating and distinctive, as it challenged the established conglomerates, who ruled the TV market at the time selling 50” to 103” inches flat panel TV displays which used advanced LCD and plasma technology. Most American consumers could not afford the hefty price tags which started at $2,999.00 and went upwards of $15,000.00. VIZIO’s founder, William Wang, stated that as a techno geek, he was always keeping up with the latest gadgets. One day while out shopping, Wang said he was coveting the latest oversized and overpriced TV model and thought aloud, “I could build one of those”[i]. It was right there in the middle of a TV aisle that Wang said the vision for VIZIO began. Wang envisioned a Plasma flat panel TV display that was smaller at 42” inches but would be cheap enough for the middle-income family to afford. His idea would become a serious competitive contender and successfully disrupt the markets against Sony, Samsung, and Sharp, who were busy launching the newest technology of Plasma-Addressed LCDs (PALC) -LED oversize TV monitors… becoming somewhat of a ‘disruptor’s disruptor.’

William Wang was not always a successful entrepreneur from Los Angeles, in fact his earlier endeavors in his words were financial disasters[ii]. He was not always an American either. Wang tells how he was born and raised in Taiwan and immigrated to California at 14 years of age with his family. Entry barriers and profitable bottom-lines in global business were far from his youthful mind when he crossed the ocean. The new world of the Americas would prove to be his first challenge as he overcame extremely difficult language and cultural barriers, not knowing even one word of English when he arrived. Aspiring to become an architect, Wang (2007) endeavored through school and into college. Wang reminisced that his parents warned that architecture pays little, and so he changed majors and graduated with an electrical engineering degree in 1986 from USC. This was invariably a decision that would lead him to great heights and success in business but not for a few decades more. A time of learning and sifting was to be surmounted beforehand. The first job that Wang states he took after college was with a Chinese company that retailed computer monitors, where he answered the telephone as a tech support in customer service. He says answered those calls until 1990 when he first heard that familiar voice in his head that said, “I could build a better monitor”[iii], referring to the IBM standard. As a daring, imprudent 26-year-old, Wang goes on to tell how he convinced his parents, his boss, and an investor in Asia to loan him $350,000.00 for his first startup, MAG InnoVision. Wang avowed that even though MAG grew to $600 million in just six years, he made mistakes with overspending, hiring the wrong people and lost a lot of money because he was obstinate towards change and the company was sold.

The next endeavor that Wang started was a computer monitor startup, Princeton Graphic Systems, along with a R&D facility that provided custom video displays for casinos and internet HD TVs, but they failed miserably. Wang called them, “financial disasters” and just when they were “collapsing” down on him, he was in a plane crash aboard a Singapore Airlines 747 taking off out of Taiwan. The back half of the plane blew apart, but he was seated in the front half of the plane and that was in flames. He barely escaped by running out of the plane and suffered acute carbon monoxide poisoning. Surviving the crash would be a pivotal moment for him, as he shared in the interview, which would inspire him to focus on cleaning up his life and businesses for the next year or two.

Gateway would offer William Wang his next job which was to strategically construct a plan for 42” plasma tv’s that would enter the market at $2,999. According to Wang, he would be instrumental in setting up suppliers, “key manufacturers”, and marketing the product for Gateway. Clearly this is the exact education and mentoring that would soon court Wang to success. According to Bygrave, previous experience in the same industry is paramount to the success of an entrepreneur and is usually where they get many of their viable ideas for a business. Additionally, experiencing failures and learning from past mistakes help in equipping the entrepreneur with the ability to recognize an opportunity. Having the “right stuff” to be an entrepreneur seems to be exactly what Wang was personally equipped with.

William Wang did not dawdle at age 26, forging his first startup right out of college, and making swift decisions is what entrepreneurs do. Furthermore, Bygrave lists some of the “10 D’s” of personal attributes, which entrepreneurs possess as the ability to dream up new startups and implement them, that certainly describes Wang. Dedication and devotion are entrepreneur characteristics that Wang also possesses from the list, as well as the desire to be the driver of his own destiny. Nowhere are these attributes clearer than in Wang’s constant pursuit throughout his career in building computer and tv monitors. Curious though is how Bygrave mentions that the environment plays a part of influencing the making of an entrepreneur, in that there are clusters of entrepreneurs. In other words, certain areas produce more entrepreneurs than other regions of the country or world. Los Angeles, where Wang started VIZIO, is within a day’s reach from the Silicon Valley, which is famous for clusters of high-tech entrepreneurships. The Silicon Valley high-tech environment seems to have also influenced and become a strategic advantage for Wang’s next startup. The opportunity that Wang saw repeatedly was to build “affordable” tv monitors, and looking back to that day he was shopping, would be realized through the plasma technology, because in his words, “plasma had picture quality over the new emerging LCD”[iv]. Coupled with a 20-year experience and qualifications in electronic design and entrepreneurship in manufacturing monitors, Wang also possessed the self-efficacy for motivation, which he turned into determination. Wang had experienced financial ruin, recognized, and learned from his mistakes, and had the perseverance and fortitude to pursue yet another attempt at building monitors. So, entrepreneur attributes of the 10 D’s are evident and would propel William Wang to attempt yet another daring venture.

Wang was quoted saying, “It’s hard to build a big company. We have to be a lot better than the competition…and careful how to spend our money”[v]. He goes onto discuss the difference of being cheap versus lean. The explanation is that cheap is basically interpreted as hording the investment for yourself whereas lean is being sure that the overhead and inputs into the product are what is necessary and have a benefit to the end-product and customer. It seems that Wang’s failure-experiences would have a payoff in making him a savvy competitor who is cognizant of the iterative process of building and refining a product.

Returning to Wang’s employment with Gateway, he was learning about network efficiencies of the value chain model which uses a constellation of suppliers, distributors, assemblers, and most importantly the retailers all orchestrated to play as a symphony. The challenge is for the network orchestrator to bring together these suppliers, assemblers, component manufacturers, and join them to the customers through the mediation retailer, or hub as it is referred to. This symphony then plays to the tune of the customers’ needs and wants into a value chain model that answers what to sell, how much volume to produce, and lastly what price the product should be offered at which will satisfy the consumer. Wang did not have a formal education in business and may not have been aware of the three simple steps with four simple rules to follow for a successful startup model that Wang utilized. He seemed to have intuitively followed the music that unlocked this value chain model that would make VIZIO, Inc., the largest flat panel TV company in the United States.

The three simple steps answer basic questions that are paramount in recognizing and designing the opportunity space and perspective. These steps are contingent upon five major areas as: Customers, Competitors, Suppliers, Government, and Global environment[vi]. The first step of “Where to play” raises the question of who the targeted customer is and what are their attributes? Where to play replies to the design of who and where to find the customer per the opportunity space of if there is a customer market. The second step of “what to do” needs to be designed as the strategic plan that answers what kind of activities, what resources, and where to find the resources that should be used in the value chain… and if profits can be made? This second step is then congruent of what suppliers, government constraints, and about the global environment. The third and last step in the model is the question of “How to win”, which addresses the competitive threats and opportunities when facing the trials of crossing market barriers.

These following four simple rules assist with good decision-making while following the three vital steps. The first obstacle in Step #1 of “How to Win” recognizes that the supplier and the customer could conceivably cut out the hub, or middleman. Stated in another way in the case of VIZIO, being the hub would need to ensure that the supplier, retailer, and customer would see the necessity and receive a value in using VIZIO. The requirement that both the hub and partners (Retailer and Supplier) should receive returns is Simple Rule #1. Wang learned about the value and necessity of forging supplier and key manufacturer relationships at Gateway and would facilitate VIZIO in extraordinary ways in a competitive advantage which will be elaborated further in this study project. Simple Rule #2 addresses the “what-to-do” step that the hub and partners need to show that they are competent, skilled, and equipped with the ability to deserve these returns, benefits, and profits. This entails screening the suppliers, the manufacturers, assemblers, and even the retailer to be sure they possess the quality and efficiencies, as well as the capacity for growth should the product become profitable to ensure a competitive and sustainable advantage. Simple Rule #3 states that the hub needs to prove its strategic plan for profitability to the suppliers, manufacturers, assemblers, and even retailers, to make an alliance that will ensue in a strong customer base, and thus sufficient profits for the hub and the partners. This may require being transparent with costs, required profit margins, and distribution strategies with the partners, forcing a trust and reliance…to a strong alliance. Convincing the partners and even the customer to “join-up” is Rule #4, which can be the most difficult to execute and shadows the last step of “how to win.”

Gateway failed to do execute these steps, and in Wang’s estimation of the problem caused the TV’s to be offered, “as too expensive and to remain too high-priced,”[vii]. This resulted in only a few Gateway’s TVs sold, and negated utilizing efficiencies such as economies of scale. Eventually, Gateway exited the TV business and Wang must have thought this was a huge opportunity misled. VIZIO would be born out of Wang’s subsequent loss of his job with Gateway, which he would start with only two employees. Wang noticed these principles of constellation networking efficiencies, and the, aforementioned, three steps with the four rules would be the exact path that VIZIO journeyed on. Wang was able to create a value chain constellation of suppliers, assemblers, and a connection to a hub, all for a cheap price for the customer. Unlocking these efficiencies required tapping into the three steps’ and four rules’ strategies, and Wang did this very well.

Part of the iterative process is for the entrepreneurial offer or idea to be tested and acknowledged as a viable opportunity. Recognizing flat TV panels as an opportunity - had stemmed from Wang’s long participation in the R&D processes, design, and marketing of monitors and TVs in the industry. Wang now had 20 years of observation and experience, which he coupled with a “go-to-market” strategy of manufacturing and assembling a stripped-down simple but attractive oversize TV to be offered to the average consumer. William Wang noticed a market space opportunity for a reasonably priced flat panel plasma TV with a superior-quality picture and reliability that could be differentiated in the over-controlled market of Sony, Samsung, and Sharp competition. Wang strategized that customers were willing to suffice with a smaller over-sized flat panel TV - if it was affordable and had at least the same or better quality. To achieve his goal to offer a competitive product and crash through the entry barrier, Wang would need to focus on efficiency, quality, and the cost drivers to complete his competitive strategies of profitable returns with VIZIO’s suppliers and partners. Wang modeled Gateway’s strategy by designing a product that applied the simple rules #2 and #3 that drives competitive efficiencies and gives returns to the partners. VIZIO limited the customer choices of TV monitors to only a couple of models, which kept manufacturing and assembling costs low and enabled the suppliers to be able to recap a profit and keep up with production capacity in the event of sales growth.

William Wang observed the space in the marketplace specifically because of using plasma technology in the manufacturing of the TV monitor screens. Wang reacted to what he considered was an exclusive opportunity to manufacture oversize plasma screens by using older, reliable, parts – amidst the new technologically advanced LCD-LED TVs. The reason this was an opportunity is to reiterate how Wang described plasma technology. His opinion was that plasma technology was far superior to the newly emerging LCD-LED technology and was “tried and true,”[viii] in that the technology had all the bugs worked out and the components were dependable and, most importantly, were guaranteed to work.

Restated, Wang introduced a product to the market that was desirable, inexpensive and the components were attainable and dependable. Wang gives credit to the government’s mandate for digital TV by 2009, without it, he claims that it would have taken a decade to make it in the markets. Wang recognized that the plasma panel components of technology for tv were now being sold openly, which is an entrance into the supply market. Mirroring the PC industry that he had come from, Wang outsourced the assembly and supplier segments of VIZIO’s value chain. He chose companies that already had the proven track-record, raw materials, and skilled labor, which gave him the jumpstart to respond immediately to the demand in the market. The flat panel model screen had already been developed through Gateway BUT the demand was clearly shown to Wang. He expanded on his Gateway prototype business model by adding a step of limiting the end customer’s choices of one size, initially, to save with fixed costs and incorporating on economies of scale (Rule #1). The choice to use AMTRAN, a supplier that still had on inventory outdated, but dependable, components, would drive lower costs that benefited the customer and eliminated the need for costly warranty returns. Wang chose to use Han Hai as the assembler, another veteran company. VIZIO’s team strategically chose to limit the variation of products into one (later five) models to achieve economies of scale by spreading out fixed costs with razor thin margins. This key strategy was to use resources already available, and outsourcing would keep his overhead costs at 0.7% by 2007, which would lead him to make even more lean choices of selling an 8% portion of VIZIO to his manufacturing partners, AMTRAN and Han Hai. This buy-in would further guarantee good, quality products and ensure a solid supplier relationship to facilitate an assurance of quality and growth.

All that was needed for the plan to be finally executed was for Wang to secure Rule #4, which was to join up with the partner for retailing to ensure enough customers, as the last stage in “how to win.” This strategic step also was necessary to reiterate Rule #3 that the hub (VIZIO) needed to reassure its alliance with the supplier and assembler partners to prove it could deliver a sure customer sales base. Wang set out to formalize a key relationship with COSTCO giving VIZIO entrance and visibility in a large customer market, which would eventually lead to forming major alliances with Wal-Mart, Sam’s Club, Dell, Target, and Amazon. A startup business’s sustainable success is driven by how the business solves the “chain of causality,” and becomes sort of a “chicken and egg problem.” In other words, this is somewhat of an entry barrier in that the hub must get the supplier, assembler, retail partners to commit to deliver a competitive, quality, inexpensive, product that will attract the customer. The partners may not commit unless they see that the customer demand is strong. Alternately, the customer may also want assurance that accessibility to the product, and quality and deliverability is guaranteed for a no-name brand like VIZIO. The hub must communicate and “sell” its ability and vision that it could compete, and this was “how to win.”

VIZIO would capture this idea by entering the LCD flat panel TV market with the outdated plasma panel and would take the competition by surprise! Up to that point customers were not willing to pay higher price for the plasma quality when the new LCD technology was cheaper. By 2002, the LCD flat panel TVs were moving ahead of plasma and the screens and were now being offered in the computer and billboards. VIZIO needed to compete by offering a cheap but better-quality flat screen TV and to stay under the radar of the TV magnates. VIZIO’s focus on producing an efficient but simple TV monitor that required less raw materials and assembling (which benefited all, the hub, suppliers, and consumer) would pay off. Wang correctly assumed that though the average American was wooed by the expensive 50” to 102” flat screen TV’s, they would be just as happy with a 42” that was affordable. Lastly, VIZIO not only drastically reduced the drivers of cost and extenuated value but transferred the need for R&D onto its manufacturers, thus eliminating those capital costs as well.

Ready for the challenge, VIZIO approached COSTCO, the final link in the chain of causality, which was a retailer with exposure to a mass market. VIZIO had so far positioned itself for better opportunities, in an identifiable middle-class consumer (Step #1 of where to play), that would shop at major retailers, with an absolute, sizeable market alongside of global growth potential, offering a competitively priced and quality product, through a highly developed value supplier and distribution chain (Step #2 of what to do)– all of which satisfies the high margin, high powered, and strong opportunity on an entrepreneur’s checklist and Step #3 of “How to Win”. However, convincing COSTO of this and (Rule #3) to sell their virtually, unknown brand of VIZIO TVs would be an unprecedented victory for Wang and his team. Selling through the big box retailer would propel VIZIO’s market dream but would not happen all at once. Arguably, the suppliers, who were selling old, obsoleted components, and the retailer, who had only to give up a small amount of space, were not really at a formidable risk. At any rate, COSTCO was still vehemently unsure of the venture and only agreed to sell VIZIO TVs in one store for the Christmas season. The customers not only loved it, but COSTCO sold out the inventory and immediately expanded VIZIO’s market base to all their 320 stores! By leveraging the supply chain and forming strong alliances, VIZIO became the TV supplier of choice for COSTCO, right under the noses of its daunting and tough competitors of Sony, Samsung, and Sharp!The leveraging was not limited to the value chain, nor the frugal use of the original $600,000 that Wang managed to accumulate through family, colleagues, and supplier investments, VIZIO initiated leading marketing and swift decision-making tactics. Vizio marketed their products in full color boxes with descriptions for their customers to evaluate, which was very leading-edge and daring marketing maneuver. Timing was another key strategy – VIZIO entered the market in 2002 when the demand had not yet been filled, at least not by a cheap, knock-off oversized, flat-screen plasma TV. By 2004, Wang had developed an effective distribution channel and was well on the way of building a strong brand.

Stated earlier, Wang reiterated how hard it was to build a company into a large competition and that being lean would require keeping VIZIO’s overhead at 0.7 % of its sales, which was 0.3% under the industry standard. To continue as a successful disruptor, VIZIO would also need to match the industry competition’s gross margins of 10-15% and come under the overhead costs of $56 million. VIZIO proved in its peak of 2008 to be very profitable, growing to over $2 billion in revenues with profit margins of 2% and gross margins between 5%-10%. The VIZIO brand would attain bragging rights of a lead over the competitors boasting overhead costs of a mere $14 million, or 0.7% sales, and overhead range of 4-5%. VIZIO would sustain its profitability well into year 2020, and according to Wharton financial statements, would earn $2,042.476 million, but with significantly less revenues, ending with a net income of $102,475.00. However, with a healthy 5% profit margin and a 7% gross margin, VIZIO was receiving a 5% net return per dollar invested. This would produce a return on equity at 7%, a Dupont ROE of 1.07, and an attractive equity multiplier (how debt can by met by assets) of 7.67 times, see addendum for calculated statistics.

Wang (2007) reported that by 2006 revenues had climbed to about $700 million and propelled to over $2 billion by 2007. VIZIO continued its success and held 10.4% of the market share and was in a shocking 3rd place with Samsung and Sony by the start of 2009!

While Vizio saw unprecedented success as a disruptor, they still had to overcome many challenges. Especially was the chief potential threat of being copied by its competitors. Not only could the competition offer substitute tv models as a comparative advantage, but they could replicate VIZIO’s mean and lean business plan. The only way to sustain success going forward was to offer other models for comparison, which VIZIO did… However, the LCD technology was still developing and not just lingering around the corner, now it was becoming a more imminent threat. VIZIO needed to seriously consider the threat of the competition that was offering new innovations and substitute products. In 2007, Sony and Samsung both innovated with “low-end, entry level TV lines” in direct competition response to VIZIO. Another threat to VIZIO’s future and plans for expansion was the recession in the U.S., and how it would affect the economies domestic and globally. Wang was concerned about the risks of expanding globally, and he should have been.

Unscrupulously, the 2008 recession subdued not only the ongoing demand in the United States for flat screen plasma TVs but thwarted also Wang’s considerations for global expansion. Walmart and Sam’s Club were still showing sales increases by end of 2008 and Wang was seriously considering entering the Brazil market through Walmart. However, VIZIO decided to expand in the end of summer 2008 to the Japan and Canada markets, where the VIZIO brand was already established, instead of entering the fresh, unchartered market of South America. As VIZIO began geographic expansion an arising threat on pricing began, eroding the price to break-even levels, due to close substitutes of TV innovations taking market share. Entering global markets posed problems such as: the competition of substitutes, challenges of distribution to foreign countries, a deteriorating relationship with AMTRAN, an increasing global severe recession, along with how well their retailers were represented in those markets. These are all good reasons for VIZIO to step back from global expansion and ponder either an innovation or exit strategy. The recession became fully impacting by 2009 and would push the question of whether VIZIO should enter global expansion or exit the market of plasma TV’s…

Wang and his team very eloquently chose to exit the industry in 2016. Or so the media thought, actually, VIZIO would back out and go on to acquire Advanced Media Research Group and Cognitive Media Networks by 2015, launch WatchFree in 2018, and become the second largest seller of flat-screen TVs in the US, and finally present themselves as an IPO in 2021 to the New York Stock Exchange! Wang has vowed to stay as VIZIO, Inc. CEO, to control the company and hopefully offer TVs that play an “ever larger role…in connected homes,”[i] with innovations just around the corner. An entrepreneur is central to the success and sustainability of the idea and is the life and breath of the business that is born. It is evident to see how if Wang had decided to exit and sell VIZIO, that not only his vision but VIZIO’s perpetuity as an ongoing concern would also have possibly exited with him. A business should have ready an exit strategy, but the framework should clearly include a strategy to innovate and remain competitive. Wang recognized that the technology he developed had a competitive advantage, however the exploitation of plasma screens was closing. To his credit, the vision to keep the brand name that he developed and continue to innovate to offer and enter new opportunities shows Wang’s character as an entrepreneur and disruptor.

Amazingly, William Wang recognized an opportunity, developed the value constellation with critical capabilities, and in my opinion reached a goal that is unprecedented for an unknown company.

[[1] Palepu, 2019

[1] Wang, 2007

[1] Wang 2007

[1] Wang 2007

[1] Wang 2007

[1] Chatterjee 2019

[1] Wang 2007

[1] Wang 2007

[1] Wang 2007