Blue 311: Lynch, McCarthy, McKenzie, Woodruff, Yu

Formlabs: Sales and Marketing Architecture to Match a Diverse Market

#1 Formlabs’ Strategy, Product Portfolio, and Segments

3D printing is a fast growing market due to its wide variety of applications across an array of
industries, as well as its declining costs and improving technology. Formlabs’ business strategy is to
offer affordable, in-house 3D printing solutions that match professional quality and speed. The Form
2 represents the company’s latest version of a stereolithography (SLA) desktop 3D printer that is
capable of customizable precision prints. It is a next-generation product that offers a variety of
improvements over the Form 1 and Form 1+.

Formlabs’ first product with true “mass market” appeal, along with the growing number of resins
applicable to different use
cases, enables the company to
provide increased value to their
core customer base of
experienced Computer Aided
Design (“CAD”) software users
(engineers and designers) while
also expanding the product’s
appeal into emerging customer
segments (dental, medical, and
jewelry).

Exhibit 2: Formlabs’ Products, Purpose, and User-Base

Product Price Purpose Target User-Base

Form 1 $3,300 Formlabs’ first-generation desktop 3D Kickstarter crowdfunders and early

Printer printer. New product proof of concept for adopters who aren’t overly
angel investors. First-generation printer concerned by ease of use and
for subsequent improved versions. quality of print

Form 1+ $3,300 Designed to address several defects in Engineers and product designers
Printer ($800-$1,200 the Form 1 (laser failures, cracks in resin with existing knowledge of CAD
upgrade from tank). Used to make precision prototypes software and 3D printing
Form 1) and to test parts prior to full-scale
manufacturing.

Form 2 $3,499 Next-generation desktop printer Expanded from core use-base of

Printer with“mass market” appeal. Improved print engineers and product designers to
quality and reliability, easier setup, a broader base of “prosumers” with
automated resin system, larger build less 3D printer experience.
volume, touch-screen, and Wi-Fi.

Standard Resin $150 / L Building prototypes, design experiments Designers, architects, enthusiasts

Specialty Resin $299 / L Tough / Flexible / Castable - Can be used Engineers, designers, jewelers
as functioning parts, to simulate rubber,
or for making casts
 Biocompatible $399 / L Safe for long term interaction with skin or Dental and medical professionals
Resin musculoskeletal tissue

Service Plan $499 / Yr Customized training sessions, dedicated Customers with minimal or no prior
and priority phone and email support, and experience using CAD software
hardware replacement and 3D printers. Customers with
fewer internal IT resources.

Applying the BCG and GE McKinsey matrices, the Form 2 can best be viewed as a ‘Question Mark’
product (low market share + high market growth) with the potential to turn into a ‘Star’ (high market
share + high market growth) (see Exhibit 3). It has strong functionality and is well positioned within
an attractive, high-growth market. To turn the Form 2 into a ‘Star’, Formlabs should invest significant
capital and human resources into marketing the printer. With the release of the Company’s latest
printer model, the Form 1 can be viewed as a ‘Dog’ and the Form 1+ as a ‘Question Mark’ trending
towards ‘Dog’. As it currently stands, the Form 1+ is priced only $199 less than the Form 2 (~5%
discount) but with significantly worse quality, reliability, and ease of setup and use. With Formlabs’
brand image in mind and significant resources required to implement Form 2’s GTM strategy, it
would be best for the Company to limit further investment in the Form 1 and Form 1+ products, and
sell remaining Form 1 and 1+ inventory at a greater discount.

Exhibit 3: GE McKinsey (Left) and BCG (Right) Product Portfolio Matrices

Market Segmentation and Strategy

Though there are some private hobbyists with an interest in SLA printing, virtually the entire market
for 3D printers is found in the Professional segment, where customers bring greater reliability and
technical requirements. The Professional
market represents a more attractive
segment for Formlabs to pursue due to
the greater volume and higher price
points in business applications, as well
as the added opportunity to sell larger
volumes of resin to professional users
who will utilize their printers more
frequently than hobbyists.
The product strategy for Form 2, then, will be to gain a significant share of the fast-growing
Professional market segment and in turn, position the company to capitalize on increased sales of
resin which represent a significant and recurring profit center with larger margins than the printers
themselves (Case pg. 5). Of the leading printers in the market, only the Kudo 3D has the precision
functionality to perform the complex task of dental modeling. The Form 2 is in the top tier of precision
and performance, aligning it with Professional users at a lower price point than the offerings of
competitors 3D Systems and DWS Labs.

Target Segments for the Form 2

The customer segments detailed in Exhibit 5 can be broken down into two key groups: Professionals
who just need a 3D printer, and those that have a need for an 3D printer along with a broader suite
of products and services. The latter group includes the high end of the Core Markets, along with
almost the entirety of the Emerging Markets, whose users and decision making units (“DMUs”) will
need additional time and education to convince them to make an overhaul of their business
processes to go digital, get CAD software, and buy a printer. The 3D printer market is developing
rapidly and the dominant players are yet to be entrenched, so it is important for Formlabs to pursue
both groups in parallel but through appropriate channels as detailed further in #3 below.

Exhibit 5: Target Vertical Segments and DMUs

Vertical Market Class Channel DMU Strategy

Designers Core E-Commerce, Direct, VARs User for smaller

operations, potentially
Engineering / Core E-Commerce, Direct, VARs R&D or procurement
Industrial division for larger
accounts Formlabs
salespeople to
Consumer Core E-Commerce, Direct, VARs focus on select
Electronics accounts and
R&D department or build out leads,
procurement divisions alongside Value
Auto. / Aerospace Core E-Commerce, Direct, VARs for larger accounts Added Resellers
(“VARs”) where
Research/ Higher Ed. Core E-Commerce, Direct, VARs appropriate.
Jewelers Emerging E-Commerce, VARs Jeweller

Dental / Medical Emerging E-Commerce, VARs Dentist, Lab Manager

#2 Learnings from Form 1’s for a Form 2 Pivot

The lukewarm sales of the Form 2’s 2015 launch should prompt analysis of the company’s sales
experience to-date and inform a new GTM plan to match its new flagship product. Trends indicate
that the launch strategy for Form 1—a “pull” approach leaning heavily on the excitement of early
adopters—will not drive success for the Form 2.

Formlabs’ sales architecture for the Form 1 was built principally around inside sales taking inbound
inquiries, and using a consultative approach suitable for early adopters. By 2015, however, Sales
had found some diversification across channels, having created an outbound channel with two
sub-groups and a VARS channel for international expansion​1​:

Formlab’s limited experience in the above architecture has yielded several key insights critical to its
go-forward plan:

● Organic inbound demand is limited.​ Formlabs’ Luke Wintson put it well: “we had a very
positive [early] experience with inbound, but it also became a crutch. Early adopters make for
easy, transactional sales.” A sales architecture primarily structured around hybrid web/phone
inbound inquiries from the highly-motivated, autodidactic “prosumer” is insufficient to connect
with the target segments outlined in Exhibit 5.
● VARs offer an outbound channel at high efficiency.​ While Formlabs’ VAR channels have
been international-only so far, this limited experience shows an overhead cost of 10-15% per
unit (pages 9-10) versus the 30% sales and marketing overhead associated with Formlabs
team sales.
● Formlabs must evangelize the product and help create the market it wishes to serve.
Experience gathered on the ground by VARs (another benefit of VARs partnerships)
suggests that 3D printing is poorly understood by both target segments and
consumers-at-large, with 70% of store visitors to one brick-and-mortar location asking for 3D
glasses.
● Outside sales is a growth opportunity.​ The needs of the Research / Higher Ed and Dental
segments for a dedicated account manager to consult on planning and purchases over time
suggests the creation of an Outside Sales channel, expansion of great-fit VAR partnerships,
or both. Formlabs is currently losing large sales in this segment to competitors.

1
Channel sizing is approximate; Formlabs currently suffers from a lack of the lead attribution and sales funnel
data needed for exact sizing, but materials show that 10-20% of sales come through the VAR channel, and at
considerably less expense than the 30% Sales and Marketing overhead associated with Inside Sales and
E-commerce.
#3 Form 2 Go-to-Market Strategy and Channel Design

While finding initial success with their Form 1 and 1+ printers, Formlabs now looks to meet the
challenge of ambitious growth goals for the Form 2. The Company must prioritize market penetration
and customer acquisition if it intends to be a major competitor in the years ahead. With these goals
in mind, the challenges facing Formlabs are:
● Low Product Awareness
● Unorganized buying experience
● Ambitious sales goals from the company’s board
● Fractured market with low penetration
In response to these challenges, Form 2’s go-to-market strategy should be directed through three
distribution channels: ​direct, indirect, and e-commerce,​ with each channel aligned with a specific
segmentation, targeting, and positioning (“STP”) model.

Segmentation
The target segments will be the verticals shown in Exhibit 5. However, we expect other verticals will
likely emerge with our direct sales/business development team.

Target Market Selection

Large enterprise organizations in each vertical (employees > 2000) will be serviced by Formlabs’
direct​ sales team, since they require more time and dedication for product support, custom sales,
and education. Small to
Medium size and Mid-Market
(employees < 2000) prospects
will be serviced by the ​indirect
channel sales team partnering
with key VARs to book and
process orders. Due to
Formlabs’s limited
relationships with end
consumers, we find this to be
the best approach to quickly
gain market share while
limiting the amount of required
financial and human resources.

Finally, individual motivated “prosumers” who are seeking out a 3D printer will be serviced by the
e-commerce​ team, leveraging popular e-commerce platforms to raise awareness and organic
reviews for these prospects. Viral social media marketing may attract most of these consumers.
Product and Service Positioning
We propose the following
architecture for Formlabs’ sales,
where a Director of Sales oversees a
tripartite of STP-aligned business
units (Exhibit 8):

Each sales channel will serve specific, aligned client segments as follows:

Proposals and Rationale For Sales Channels

Direct Proposal:​ To execute on its direct sales needs, Formlabs is to immediately hire two
Enterprise Account Executives (AE), two Inside AEs, and one Enterprise Sales Engineers.
Understanding the average wage per employee according to Glassdoor we anticipate the total cost
to be about $640,000 per fiscal year.
Direct Rationale​: Although the cost to acquire a direct sales team may seem large upfront and may
have a low short-term return on investment due to longer sales cycles, we anticipate this to pay
dividends in the long run with a streamlined point-of-contact setup with targeted outbound
strategies/business development. Since the average deal size through this segment will be large
with significant recurring resin sales on the back-end, it is worth the additional investment of
Company resources upfront.

Indirect Sales Proposal​: To develop its indirect sales channels and eventually find traction with
SMBs and the Emerging segments shown in Exhibit 5, Formlabs is to immediately hire two Channel
Sales Managers, one Inside Channel support, and one Channel Sales Engineer. Given established
and successful VAR relationships overseas, we advise a continued indirect sales channel for the
international market, managed by one International Channel Sales Manager backed by one Inside
sales support and one sales engineer rep. Using Glassdoor as a third party data source for income,
we anticipate the cost to be $600,000 per fiscal year for an indirect channel sales team.

Indirect Rationale​: Formlabs has not had the opportunity to form a strong network of relationships
with potential end customers, so the best way for the Company to scale quickly is to establish more
partnerships with VAR networks who have already built relationships with these end customers. This
structure also benefits Formlabs with a shorter sales cycle which can help the Company allocate
more resources towards the direct sales division, which, given its Enterprise targets, has a longer
sales cycle. Also, the ability to do joint sales calls and marketing partnerships with VARs empowers
the necessary work of not just responding to demand, but understanding and creating it. For
instance, our channel sales manager can join meetings with a VAR partner in the role of a subject
matter expert to present the Form 2 to a potential client firm via lunch-and-learn. Joint marketing
efforts of this nature can provide enhanced understanding of the competitor landscape and new
insight into end-customer challenges.

Lastly, working though established VARs in sectors that are great matches for Formlabs’ product but
father out on the adoption curve—dental in particular—is the most efficient route to delivering the
Form 2’s USP to in-sector DMUs.
E-Commerce Proposal​: Formlabs to immediately hire one e-commerce manager. He or she will
work closely with the direct and indirect inside sales support team for order processing or client
referrals. A majority of their workload would be to focus on increasing search engine optimization
(“SEO”) for Form 2, partnering with key third party websites where our target audience is likely to
land, and websites where the Company’s competitors are present. The cost to acquire an
e-commerce manager would be $100,000 annually.

E-Commerce Rationale​: Although we cannot control for bad reviews on e-commerce websites, we
strongly believe that product recognition, product ease-of-use, and product quality will be sufficient
enough to battle negative “prosumer” reviews. An e-commerce manager also brings capability to
increase search engine rankings, and to optimize digital marketing more broadly, increasing pull
marketing and in effect acting as an extension of our outbound sales force. The overall goal of this
sales channel is to continue serving that self-motivated, self-educating sub-segment of Professionals
who are reaching out to Formlabs (a sub-segment in which Formlabs continues to find significant, if
insufficient, success), and also to increase web presence and product awareness generally, in a way
that bolsters the success of other sales channels.

Pricing Strategy
● Enterprise AEs will have the ability to price at a 10% discount floor
● Channel Sales Managers will provide VARs the ability to price at a 5-7% discount floor
● E-commerce (third party websites) will have the highest price. To guard against
cannibalization of VARs, the price disparity between purchasing online versus purchasing
from Formlab’s highest-price VAR partner will be no less than 15%.

Sales Training and Strategy​ Expanding and implementing a sales and distribution team is integral
to the success of the firm. Accordingly, each sales representative, whether internal or external,
should be trained on the key sales pillars shown in Exhibit 9.