Managing Segway’s Early Development

9-804-065 REV: SEPTEMBER 15, 2004 RICHARD G. HAMERMESH DAVID KIRON Managing Segway’s Early Development It was a cold dreary morning on December 20, 1999 as Dean Kamen – inventor, founder and owner of DEKA, a Manchester, New Hampshire R company – began his annual speech to his employees. The entire staff had gathered “to hear him talk about the past year, the year ahead, and whatever else had been gnawing at him lately. The speech was usually equal parts lecture, oration, pep talk, and homily, all of it seasoned with wisecracks.

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After the speech, Dean always called each employee’s name and gave out Christmas bonus checks, along with handshakes for the men and hugs for the women. ”1[77] Bonuses were especially important at DEKA, where engineers worked for below-market salaries and received no stock options. Now Kamen was wondering if he could continue this approach. DEKA had attracted some of the brightest engineers because of Kamen’s allure and DEKA’s cutting edge projects.

But for the first time, recruitment and retention were becoming issues. In the midst of the Internet boom, many of the most attractive engineering candidates were looking for positions that offered compensation packages that included stock options and salaries higher than what Kamen was willing to offer. Kamen’s long-time friend and most trusted lieutenant, Mike Ambrogi, had recently accepted a job at Sycamore Networks, which had offered Ambrogi a lucrative compensation package that included stock options.

In 1999, DEKA had a difficult year, several projects were canceled or behind schedule, and many of the gathered staff had concerns that these cancellations and delays would diminish, if not eliminate, their bonuses. DEKA employees were also concerned about stock options, which had been promised only to employees on a secret project that many had never seen. Kamen had created a separate company within DEKA to design and manufacture a product that the team had nicknamed “Ginger. 2 Kamen believed both that the new company had a chance to become the fastest growing company in the world [50] and that stock options were appropriate compensation within such a venture. However, he wondered if it was fair to withhold options from the many other loyal and productive employees who worked at DEKA. After all, many DEKA engineers were responsible for Ginger’s early development. 1 This case draws heavily from Steve Kemper’s Code Name Ginger, Harvard Business School Press, 2003. Page numbers to quoted passages (contained in brackets) all refer to Kemper’s book. The Segway Human Transporter was called Ginger during its development. This case focuses on management issues during that development period. ____________________________________________________________ ____________________________________________________ Professor Richard G. Hamermesh and Senior Researcher David Kiron, Global Research Group, prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2003 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www. hbsp. harvard. edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 804-065 Managing Segway’s Early Development

Kamen struggled to find a fair approach to determining everyone’s bonus. DEKA’s bonus pool, which totaled $1 million in 1998, had typically been 15% to 20% of annual revenues and represented about the same percentage of salaries. Kamen considered several issues: • What should be the size of the bonus pool? The number of DEKA employees had grown significantly over the preceding year, but the company had not made a profit. Any bonuses would have to come from Kamen’s personal funds, which were already being used to finance several projects. In the previous month alone, Ginger had cost Kamen $500,000.

Should Kamen reduce the bonus pool, keep it the same, or increase it? Should the bonus pool be supplemented with a promise of stock options in Ginger? Unlike Ginger’s engineers, DEKA engineers did not even have the promise of options. Should Kamen now promise stock options in Ginger to DEKA employees as well? How should the bonus pool be allocated? In past years, everyone received a bonus. However, in the past, the company was profitable. At this time, many were not working on incomegenerating projects. Some had no projects at all. Should everyone continue to receive a bonus? • • Background

At 49, Dean Kamen was a self-made multi-millionaire with no formal college education. He owned more than 100 patents, and was, according to many accounts, a brilliant, ambitious, visionary inventor with extraordinary sales skills. Kamen wanted to change the world, and already had. His practical medical inventions, including a portable kidney dialysis machine and a portable, automatic drug infusion pump, had already benefited millions of people. For these and other achievements, Kamen would earn the National Medal of Technology award, the U. S. government’s highest honor for inventors who enhanced U.

S. competitiveness. (See Exhibit 1 for a picture of Kamen. ) Kamen’s entrepreneurial success began when he was in high school. Kamen had a summer job as a cabinetmaker that gave him after-hours access to Manhattan’s Museum of Natural History and its Hayden Planetarium. Kamen told the Museum’s chairman that he could improve the Planetarium’s lighting system. The chairman declined to let a 16-year old fiddle with one of his most popular attractions. Undeterred, Kamen used his pass to set up the show and convinced the chairman to see the Planetarium before throwing him out.

The chairman was so impressed that he hired Kamen to create similar lighting systems for three other museums. The museum chairman was not the only one impressed. Several years later, the founder of Cordis, a medical equipment manufacturer, wanted to hire the creator of the Planetarium’s light show to make an audiovisual presentation for the company’s new pacemaker. Kamen was hired over the phone. When company representatives came to see the final product at Kamen’s production facility, they were shocked to find it located in the basement of his parents’ suburban home in Long Island, New York.

Despite their shock, they were pleased with the presentation. Kamen’s brother, who was in medical school, encouraged Kamen to construct a portable intravenous (IV) system that delivered precise dosages of drugs at precise intervals. Such a device would revolutionize hospital care, freeing nurses who had to constantly monitor the conventional IVs, which were large, complex, and stationary. Kamen’s solution, a portable infuser, which he made from off-the-shelf components, reflected his approach to innovation: “I don’t have to invent anything.

It’s out there somewhere if I can just find and integrate it. ”[19] After a positive review from the New England Journal of Medicine, Kamen’s infuser became a standard device in hospitals around the 2 Managing Segway’s Early Development 804-065 world. He formed the company AutoSyringe to manufacture the devices, and used his parents’ basement as headquarters. As the company grew, Kamen moved the company out of the basement to an industrial strip on Long Island. New York state taxes soon became a nuisance, and Kamen relocated the company and 20 employees to New Hampshire, which had no state taxes.

After three more years of sustained growth, he sold the company for a reputed $30 million. With the proceeds, Kamen purchased a plane, a helicopter, an island off the Connecticut coast, a large New Hampshire home, and 500,000-square feet of office space in a former textile mill along the Merrimack River. The Amoskeag Millyard, which housed a row of decrepit but structurally sound brick factory buildings, became headquarters for Kamen’s new R company, DEKA; a name that combined “De” from Dean with “Ka” from Kamen. As he first mill buildings were renovated, DEKA operated out of a machine shop that Kamen had built onto his house. While commuting to the Millyard in his helicopter, Kamen noticed several ways to improve it, so he bought the helicopter company, patented his improvements, and incorporated them into his company’s new helicopters. As the Millyard renovation moved forward, Kamen became dissatisfied with his options for climate control systems in the rehabbed buildings. So, he designed his own, and created a spin-off company, Teletrol, to make the systems [16].

Teletrol soon had a client list that included Walt Disney Corporation and NASA. Kamen’s wealth and natural charisma helped him to become a local celebrity, but one who was out of touch with the nation’s popular culture. He dated New Hampshire’s Miss America contestant, but was unable to recognize Barbara Streisand while sitting next to her at a luncheon on health care. He befriended former governor John Sununu, who later provided Kamen access to president George H. Bush, but was unfamiliar with former basketball star, Kareem Abdul Jabbar, who once wanted to rent his island.

He would later develop a following among the new captains of industry, billionaires and venture capitalists, such as Steve Jobs (Macintosh), Jeff Bezos (Amazon), John Doerr (Kleiner Perkins Caufield and Byers), William Sahlman (HBS), yet Kamen had little idea who Warren Beatty and Andy Warhol were upon meeting them. In fact, Kamen’s cultural heroes were of a different ilk: Galileo, Archimedes, Newton and Einstein. Kamen believed that scientists and engineers could be, even should be, as highly and widely regarded as pop culture icons.

So, from 1992 to 1993 Kamen started FIRST3, a robotics competition that teamed professional engineers with high school students from across the country. For Kamen, FIRST was much more than a simple competition. It was the first step in his pursuit of a world in which science heroes and stars matched the popularity of sports stars. Kamen recruited leaders of American industry, education and government to sponsor the events. Before a competition had ever been held, Kamen envisioned that the FIRST championships would eventually be held at Walt Disney World’s Epcot Center. Several years later, his vision became reality.

FIRST’s 1999 national championships became the largest non-Disney event ever held at Walt Disney World’s Epcot Center. Kamen was as passionate about FIRST as he was about DEKA, where he brought together brilliant engineers, and cultivated an environment to bring out their best. DEKA Kamen believed in doing well by doing good. DEKA projects focused on developing medical technologies that he would license to companies. Royalties from these projects funded a second set of projects, which Kamen dreamed up. Kamen encouraged his engineers to approach both kinds of 3 FIRST = For Inspiration and Recognition of Science and Technology 3 04-065 Managing Segway’s Early Development projects in the same way: as if they were addressing the relevant technological problems for the first time in history. When asked to improve upon an existing technology, Kamen’s team would reinvent the product. In 1987, Baxter Healthcare asked Kamen to improve its kidney dialysis machine, an expensive, complicated, and heavy (over 180 pound) device that was as big as a freezer. Kamen told the DEKA team they were going to make a better machine from scratch. Kamen’s plan alarmed the only two MBAs at DEKA, who advised against making such radical alterations. Kamen responded: If J. P.

Morgan had said to [the MBAs], “I want to build a railroad to the West Coast,” they would have advised against it as too capital intensive, with an uncertain return, because the railroad would be going into nowhere. Morgan’s response to such sensible MBA advice…would have been, “Morons! I know there’s nothing out there. That’s why I want to build the railroad! ”[18] Five years later, DEKA had created an inexpensive dialysis machine that weighed 22 pounds, fit under an airline seat, and was easy to operate. Design News named DEKA’s dialysis machine the best medical device of the year. DEKA licensed the machine to Baxter Healthcare.

Royalties from the product became the main source of Kamen’s personal fortune, and the primary source of funding for DEKA’s freelance projects. 4[19] In the early to mid-1990s, Kamen had little trouble luring the brightest and most risk-taking engineers to DEKA. The opportunity to work with Kamen was a large draw for many, who were captivated by Kamen’s charm, technical expertise, record of success, and the opportunity he offered to create something truly new and useful to the world. Another big draw was DEKA’s culture. Kamen encouraged his engineers to innovate, and seldom dictated specific goals.

One engineer said, “Dean would never do something like give me objectives for the year. He would say, ‘If I gave you objectives, you might reach them, and that would be terrible, because it might keep you from doing something really great. ’”[35] While many larger firms tried to avoid development mistakes that might delay a project, Kamen encouraged his engineers to try outlandish ideas that might not work out. A Kamen aphorism set the tone for the working environment: “you need to kiss a lot of frogs (make a lot of mistakes) before you find the prince (find a solution). [60] Most engineers were thankful for the opportunity to work at DEKA even at below-market rates. One engineer described a widely held view among DEKA staff: “I owe Dean for giving me the greatest experience of my life. ”[33] By the time DEKA had invented a heart stent, the kind that was put in vice president Dick Cheney’s chest after one of his heart attacks, its dominant business model was firmly in place: create the most ground-breaking product possible, with little concern for time constraints; license the products, and use the royalties to finance the next round of Kamen’s revolutionary products.

Origins of Ginger Around 1991, Kamen set out to fix the main problems facing those confined to wheelchairs – climbing stairs, having eye-level conversations, and traveling on irregular surfaces. He collected and studied U. S. wheelchair patents from the previous 100 years. Two years and a few million dollars later Kamen literally stumbled across a solution, when he slipped coming out of a shower. As he 4 One of Kamen’s freelance projects involved the development of a Stirling engine, a non-polluting, cheap power source that could produce electricity and purify water.

NASA was working on a similar device for powering spacecraft. Kamen expected to perfect the Stirling engine first, which inventors had been working on for more than a hundred years, and sell the machines to developing countries. 4 Managing Segway’s Early Development 804-065 flung out his arms to balance himself, Kamen realized that he needed a device that could maintain its equilibrium, whether it was going up stairs or over a curb. The key idea was to make a machine that was continuously falling, but also continuously compensating for all of the factors that might make it fall.

DEKA engineers took the idea of balancing an inverted pendulum, which was well known among engineers, and did something that no one had ever thought to do: balance someone on top of the pendulum, as the entire structure motored forward (see Figure A below). After two more years, Kamen’s engineers produced a working model that could climb stairs. Because of its herky-jerky, dance-like movements, they named it “Fred Upstairs” after the dancer Fred Astaire. Figure A Kamen used Fred to solicit additional funding, promising prospective investors a revolution in the wheelchair market.

Kamen turned to Johnson and Johnson (J), the giant healthcare manufacturer, which had recently exited the wheelchair market. J CEO Ralph Larsen refused to see Fred, until his Chief Technology Officer told him that missing this opportunity would be the biggest mistake of his career. Despite his resistance to J re-entering the wheelchair market, when Larsen saw Fred climb stairs, he agreed to invest $50 million in its continued development. Kamen, in turn, agreed to deliver a marketable product in three years and to license the exclusive rights to all medical applications of his patents related to Fred’s technology.

The culture that evolved at DEKA, however, created numerous delays. Kamen tended to send mixed signals about his priorities on the Fred project. He warned about meeting deadlines, but suggested improvements that delayed production. The suggestions were so frequent that engineers named the process, ‘getting Deaned. ’ When a manager vetoed Kamen’s changes to stay on schedule, Kamen would issue a counter-order. The impact of his suggestions was not lost on Kamen: “They’re afraid when I come down there because they‘re already up to their asses in alligators and all I do is bring new problems…New opportunities. [37] Over the next three years, the Fred Project also developed a culture of secrecy. One outsider called the machine Nobel Prize worthy material, and recommended making the project a secret. Kamen accepted the recommendation and closed the doors to the project, effectively voiding his policy of encouraging employees to learn about other DEKA projects. Engineers were hired for the Fred project without knowing what their job would be and without ever seeing the Fred prototype. However, with all of the secrecy and the delays, by the fall of 1999, the Fred project was more than a year behind schedule and millions of dollars over budget. 35] 5 804-065 Managing Segway’s Early Development Kamen was already enamored with another project that had originated with an adaptation of Fred’s early technology, an early two-wheeled prototype that looked like a motorized manual lawnmower. At some point in Fred’s early development, an engineer began playfully surfing around the laboratory on the self-balancing device. Lighter and more slender than Fred, the team nicknamed the new machine, Ginger, after Ginger Rogers, Fred Astaire’s glamorous dance partner. Soon after, Kamen realized that the device had serious applications.

It was because of Ginger that Kamen retained the rights to all non-medical applications of Fred-related patents. Kamen envisioned entire cities built to accommodate fleets of Gingers. All of the problems of urban congestion, e. g. , environmental destruction and pollution, could be mitigated by wide distribution of Gingers. Even if the market for Gingers failed to achieve his vision in the short term, many markets could already benefit from a low-cost, efficient personal transport: mail delivery, theme parks, college campuses, even the golf industry. As DEKA created a more functional version of Ginger, Kamen began soliciting investors.

One observer described Kamen’s marketing approach: I never tired of watching Dean perform his sales pitch to potential investors. It was entertaining and irresistible. Engineers know that heat always flows from a hot object to a cold object. When Dean began talking about his passion for Ginger to a cool investor, you could watch the target’s molecules heat up and start dancing. [49] … he opened his pitch with an aperitif of statistics … Do you realize that transportation is the world’s biggest industry, bar none? And that transportation and pollution are two of the world’s biggest problems? Even if we did have feasible, affordable alternative-energy cars, which we don’t, they would solve only part of the problem, the other part being traffic jams. Our cities can’t handle any more big vehicles. Yet in 15-20 years, most of the world’s population will be living in cities. Did you know that China is building eight new cities the size of Manhattan every year? Cities are dying for solutions. [49] Then, [Kamen] and the investor would walk down to Dean’s double helicopter hangar, where Dean would tear around on a Ginger until the target’s eyes got big.

Then Dean would switch the machine into a slower mode – known among the engineers as “CEO Mode” – and give the prospective investor a quick lesson. Dean liked to demonstrate Ginger’s balance by shoving the billionaire rider in the chest: “See? See? ” he would say, jabbing the guy hard. “It automatically compensates. ” Then the rider would roll off and his face would get that Ginger look that meant the hook had gone in deep. [51] Reactions like this – from billionaires and venture capitalists – were confirming what Kamen already believed: Ginger’s potential was practically unlimited.

Indeed, John Doerr, the famed venture capitalist, later predicted that Ginger would reach $1 billion in sales faster than any venture in history. 5 For the first time, Kamen decided to start another company, separate from DEKA, to develop, manufacture, and distribute Gingers to markets around the world. Kamen explained his motivation to start the new company: Conceiving, designing, and protyping new ideas is what’s fun, and it’s what we do. Tooling, inventory, manufacturing, and service we have tried to avoid. We’ve let the big boys do that.

We go along for the ride and collect a royalty. But there is no obvious big guy in the Ginger business, because there is no product like Ginger. So we’ve decided to be the captain of our own soul and do Ginger ourselves. [79-80] 5 Heilemann, John, “Reinventing the Wheel,” Time, December 10, 2001, p. 76. 6 Managing Segway’s Early Development 804-065 Team Ginger In 1998 Kamen decided to get serious about Ginger. His first move was to make Doug Field, an engineer on the Fred Project, Ginger’s first employee and chief engineer.

In his early 30s, Field was a two-year DEKA veteran, with graduate degrees from MIT in engineering and business, and was originally hired to work on Fred, without ever having seen the Fred project. He described his reaction to seeing Fred on his first day at DEKA, “I had a huge panic. It had wheels and it was new. Oh my God! What if I hadn’t come here, and then I saw it when it came out? ”[32] As chief engineer, Field was in charge of putting together an engineering team for the Ginger project.

Field’s first hire from outside the company was Scott Waters, a 28-year old industrial designer, the first designer ever hired at DEKA. Waters was already familiar with the Fred project, having done related-consulting work for a small New Hampshire design firm. Waters had designed furniture, snowboard bindings, and a toilet for American Standard, and saw Ginger as the, “opportunity of a lifetime. It’s not just designing a clamshell for something electronic. It has all the meat I could ever want: concerns about structure, cost, worldwide acceptance, and usability. [60] Field hired Ron Reich to be lead mechanical engineer. His job was to ensure that the project moved smoothly from research to product development. Reich had managed 60 engineers for a supplier to the Big Three automakers in Detroit, Michigan and was accustomed to making sure schedules were followed. Like Field, he joined DEKA on blind faith. After interviewing with Field, he went home to Michigan and told his wife, “I just interviewed for a company that doesn’t yet exist, that’s going to make a product I didn’t see—and I can’t wait to start. ”[38].

To find someone to run the company, someone who knew what was required to make a global business, Kamen turned to his friend, Francois Castaing, a former Chrysler senior vice president responsible in large part for the company’s fabled turnaround, and one of the first board members of FIRST. Castaing recommended Tim Adams, then president of Chrysler Europe. A long time veteran of the global auto industry, Adams was ready to move on after the company’s merger with DaimlerBenz. Adams had supervised the turnaround of Chrysler’s Lamborghini division and directed Chrysler’s Next Generation Vehicle Programs.

Before taking the job, Adams told Kamen that he had already worked with a “mercurial entrepreneur and hadn’t liked it, because the owner had insisted on retaining control over every little detail and would sell the desk out from under you for cash flow. ”[46] Kamen assured Adams that he “had no interest in being involved with manufacturing and all those production details. He needed someone like Tim to run the business so he could get back to the fun stuff, inventing and engineering. ”[46] Seeing Ginger sealed the deal. Adams became CEO and president of the new company, accepting a more than 50% cut in salary and a promise of stock options.

In exchange for taking the lower salary, Adams was allowed to fly business class. In October 1999 Mike Ferry became Ginger’s marketing director. Ferry came from Procter & Gamble where he had been marketing director for a paper products division. His job was to identify how Ginger was likely to be used, select demographic targets, estimate demand, and test market the final versions of the product. With the management team in place, Field created a development plan that differed radically from DEKA’s standard approach to development, especially the approach taken on the Fred project.

Field said, “Fred got in trouble by sticking to the DEKA model, which always asked, ‘Can it be done? ’ Instead of shifting to the product development model, which asked, ‘Should it be done? ’”[37] As a result, the culture that developed on the Ginger project represented a significant departure from the culture at DEKA. Ginger had a CEO, designers, and secrecy, whereas DEKA had a horizontal 7 804-065 Managing Segway’s Early Development management structure beneath Kamen. Ginger was focused on developing a product for global sales on a tight schedule. DEKA was focused on research and technological innovation on extended timeframes.

Kamen summed up his attitude toward the growing distance between the cultures at DEKA and Ginger: “Those guys across the hall at Ginger are running a religious cult over there, not an engineering firm. They’re more concerned about … the process than the result. It drives me crazy. ”[275]. Tensions In the winter of 1999, Kamen had several concerns about the Ginger project, including the senior management, cost-containment, project secrecy and maintaining control over the project. Kamen’s focus on these concerns led to several problems. Senior Team Struggles

Soon after Adams started, Kamen began to form the impression that Adams might not be the right person to lead the new company: “You talk to him and he says a few bright things, but he says the same few things every time. He’s a simple guy in a lot of ways and that’s his strength. He’s not nearly as bright as most of the engineers I have, even though I pay him two or three times as much as any of them. ”[54] Several potential investors reinforced Kamen’s initial concerns about Adams. One venture capitalist allegedly criticized Adams to Kamen, asking, “where did you find an old-line butthead like him? [273] According to Kamen, “when it comes to knowing suppliers and manufacturers, [Adams] has been there, done that, and knows everybody. ”[54] However, Kamen limited Adams’s relationships with these groups. He expected Adams to find suppliers willing to absorb the costs of developing factories for Ginger’s novel parts, without offering guarantees of volume sales – guarantees that were commonly offered to offset supplier risk if the product did not meet expected demand. Kamen believed that Ginger’s almost certain success would create a bonanza for suppliers. Adams was finding suppliers less than receptive to this view.

Over time, Kamen and Adams differed on several issues. Adams, along with the rest of Ginger’s senior management team, wanted BAE Systems, a large British firm, to supply Ginger’s key balancing mechanism, a system of unique gyroscopes. BAE had already developed a version that was ready for mass production. However, BAE’s price was 50% more than what the team had projected, and BAE wanted a guarantee of 100,000 sales in the first year. Kamen was pushing Delphi, a large U. S. -based company, which was pricing the gyroscopes much closer to what the team had budgeted.

However, Delphi had yet to develop a gyroscope, and was dodging many technical questions about the gyroscope they had in development. Adams argument for BAE was that, “It doesn’t matter if we reduce cost if we don’t have inventory. ”[274] Kamen’s counterargument was that Delphi’s lower costs could save the company tens of millions of dollars and might not create a large delay in production, if any of the other steps in the production schedule fell behind. Kamen and Adams also differed on where production was to occur. Adams had yet to receive permission to build a factory and move project engineers to a location outside of DEKA.

He had proposed several sites nearby in New Hampshire, but Kamen rejected every one. Kamen even hinted that he might locate the manufacturing site within the Amoskeag Millyard, even though the Millyard’s location presented significant shipping challenges. Because Kamen expected to ship 8 Managing Segway’s Early Development 804-065 between 200,000 and 500,000 Gingers in the first year [230]6, Adams and his team believed that the Millyard could not possibly accommodate the vast resources and networks required to produce and distribute such large volumes of product.

Adams was not the only one on the senior team to be constrained by Kamen’s approach to building the new company. Kamen’s concerns with secrecy were restricting the marketing decisions of Mike Ferry, whose group Kamen had begun calling “The Three Mouseketeers. ” Kamen prohibited any test marketing that risked exposing Ginger to the public, despite Ferry’s insistence that postponing the tests threatened initial sales. Adams said, “It’s hard to know if you have the right marketing targets if you can’t talk to people.

It’s difficult to know if your regulatory strategy is correct if you can’t talk to people. ”[232] Kamen, however, was worried that Honda or some other automotive company would find out about Ginger and duplicate its technology. For Kamen the automotive industry was Ginger’s main competitive threat. He told one prospective candidate for the CIO position, “You worked for IBM, and they never saw the PC coming, which was going to wipe them out. And the PT – the personal transporter – will do the same to the auto industry. [230] Secrecy on the Ginger project was such a concern that any outsider – consultants, job candidates and test riders – who had to see Ginger had to be cleared through Kamen, not even CEO Adams could offer clearance. Personnel Issues Kamen was financing Ginger entirely out of his own pocket, and was trying to duplicate his successful strategy at DEKA – hiring brilliant engineers at below-market rates by offering them the chance to work on new, world-changing projects. By the end of 1999, however, the Internet boom was providing many of the best engineers with the chance to do novel work, and become millionaires at the same time.

Yet Kamen refused to offer competitive rates for both senior managers and engineers. For instance, Kamen balked at Adams’s request for a senior level procurement manager, at a $200,000 annual salary, suggesting instead that Adams hire someone smart for $35,000 a year, and teach them what they needed to know. [135] Kamen also refused to hire an HR manager to do recruitment due to cost considerations, even though Field and other senior team members were then forced to spend valuable time doing interviews. The interviews often failed to produce a new hire.

Ginger’s managers were making offers that were 80% of what they considered a rock-bottom salary. They called the 80% the Dean factor. After several months of looking for new engineers, Field had only half of the personnel he needed: not enough to gain a head start on the next Ginger prototype. As the project slipped behind schedule, Kamen refused Field’s request to tap the most convenient pool of engineers…at DEKA. According to Kamen, “Somebody has to keep working at Fred. ”[173] Kamen’s tactics were creating tensions both on and off the Ginger project.

Ginger already had several engineers on loan from DEKA, including several of Ginger’s most important engineers, and none had been promised options in the Ginger company. Adams characterized the options situation on the Ginger team as “explosive. ”[67] For DEKA engineers working on other projects, compensation was becoming an issue, especially for veteran staff. A very senior DEKA engineer and Kamen’s best friend at the company, Mike Ambrogi, had already decided to leave. Ambrogi had graduated at the top of his MIT class and was considered part of DEKA’s foundation and soul.

However, Ambrogi wanted a greater financial stake 6 Kamen’s marketing team believed, however, that first year sales would not exceed 150,000 units [194]. 9 804-065 Managing Segway’s Early Development in DEKA than what his friend Kamen was prepared to offer. Other veteran staff simply resented the Ginger project, which was developing a reputation for out-of-control spending. Soon after Adams started, many within DEKA believed (falsely) that all Ginger staff flew business class. The fact that only Ginger project engineers had been promised options only added to the frustrations of some DEKA engineers.

Some DEKA engineers considered following Ambrogi’s lead, but many more were anxious to join the Ginger project. One engineer said to Field, “If Fred is hell and Ginger is heaven, you must be Jesus Christ. I hope you’ll save me. ”[173] Conclusion: For Love or Money? By the time Kamen’s speech moved into its second hour, he had yet to discuss the issue of bonuses. The staff was becoming antsy. Throughout 1999, several DEKA projects had lost their funding sources, either because sponsors had decided to cancel or because they had simply run out of money.

Project cancellations had left 30 to 40 engineers without a project, about 20% of the company’s engineers. “[M]y rule is that no one will lose a job for causes that aren’t their ethical or professional fault,” Kamen said. “The consequence is that DEKA—that is, me—had to absorb that expense. ”[79] Then, more bad news: the Fred project was continuing to encounter delays. And the Ginger project was becoming much more expensive than he had anticipated. He had yet to find a satisfactory outside investor, spending millions of his own money on Ginger in order to find a venture capitalist that accepted his terms. My idea of a good partner for Ginger is someone who leaves us in total control,” Kamen said. “We’ve spent a few million this year waiting for the right partner. ”[85] Kamen was willing to sell a 10% stake in Ginger for $50 million. Once the financing came through, Kamen’s plan was to grant a 10% stake in the form of stock options to Ginger’s management team. Although he expected other DEKA projects to deliver hefty profits in the near future, Kamen expected the greatest success to come from Ginger.

Kamen told the group, “whether you like it or not, I am your 401(k) manager. I’m investing in Ginger for you. Imagine what life will be like when we can fund internal projects, and I can eat and sleep again. I don’t think it’s hard to imagine. ”[85] As he turned to the topic of bonuses, Kamen told the group that if bonuses were paid, he would need to take out a loan to help pay for them. 10 Managing Segway’s Early Development 804-065 Exhibit 1 Dean Kamen http://www. bricklin. com/deankamen. htm. Accessed October 21, 2003. 11