There are often wide chasms between the engineers who understand the power of their technology and the businessmen who could use it profitably. This chasm was bridged by Bob Metcalfe when he was pitching the value of his invention.
Bob Metcalfe had invented the Ethernet and was marketing it using his new company, 3Com. These were early days of computer networking, and Metcalfe sold 3 connected computer terminals, which shared hardware resources such as a hard disk or a printer and were connected using Ethernet. This bunch sold for a hefty sum of $3000.
Nevertheless, there were some early adopters for this technology. They bought a few units and set it up in their offices. But they came back to Metcalfe with complaints – the units worked, but were not particularly useful.
Metcalfe understood their point. Three computers connected via email was hardly of use to anybody because the network was too small. He wanted to put this point across convincingly. He realized that with each additional node purchased, his client’s cost went up linearly. But he also realized that if the client already had ‘n’ nodes connected to his network, a newly installed node could communicate with each of the existing ‘n’ units. Ergo, the potency of the network as a whole would go up by the square of the number of units it had. He plotted this linear increase in cost vs. quadratic increase in value on a graph to show that past a certain number of units, the value of the client’s network would overtake the linear increase in costs. The conclusion? The client ought to buy more of Metcalfe’s computers! Metcalfe drew this graph up a on slide and pitched away to glory.
This incident forms the basis for Metcalfe’s law today, which states that the value of a telecom network is proportional to the square of its nodes. This law forms the basis for the value of network effects and is best exemplified by Facebook.
Through this anecdote, Bob Metcalfe demonstrates the art of clearly communicating value to a client – a sublime combination of an engineer’s mathematical understanding, a salesman’s empathy and an artist’s creativity. These are the ingredients of a great pitch.
Credits: Bob Metcalfe’s interview on the Tim Ferriss Show