Stephanie Alexis couldn’t get out of her car. If she sat there much longer, she’d be late for a meeting with her board member and friend Rob Cooley, but she still had no idea what she was going to say to him — hence the paralysis.
Rob had asked Steph to his office in downtown Vancouver to discuss the future of Alexis Products, the company she’d launched three years ago with one great product: the Brrrd, the first interactive language-learning tool to incorporate artificial intelligence. It looked like a stuffed animal — a cartoonish plush bird with a beetling brow and goofy eyes — but it contained a microphone, tiny speaker, headphone jack, computer chip, and enough speech-recognition and voice-generation technology to engage in sassy banter in Mandarin.
(Editor’s Note: This fictionalized case study will appear in a forthcoming issue of Harvard Business Review, along with commentary from experts and readers. If you’d like your comment to be considered for publication, please be sure to include your full name, company or university affiliation, and email address.)
The Brrrd couldn’t teach you a lot of grammar or vocabulary, or help you to recognize or write Chinese characters, but it was a fun, effective way to learn the basics of the language — key words and phrases having to do with food, transportation, clothing, movies, music, money, personal hygiene, and, of course, business. For a while it had been wildly popular, especially with students and young professionals trying to learn a little conversational Mandarin before their first trips to Shanghai or Guangzhou.
But the Brrrd’s heyday had come and gone. The media attention generated by its novelty had died down and, in spite of incremental technological improvements, sales were slipping. For Alexis Products to survive, Steph needed to either come up with another hit — quickly — or formulate a cohesive strategy to take on the language-learning market as a serious competitor. Rob had summoned her because the company stood at a crossroads. He was one of her most important investors and a leader on the board; if she could earn his support for a new strategy, the other members would follow. So what should the company do for its second act? Her loyal employees and her investors were counting on her to make the right decision.
Fun or Functional?
The Brrrd was hatched during a laughter-filled car ride. Steph and Tina, one of her grad-school classmates at MIT’s Media Lab, were driving to Chicago for a conference and heard an ad on the radio for the language-learning company SimpleLanguage.
“I keep meaning to order that for Mandarin,” Tina said. “I’ll be in Shanghai next semester. I’ve tried books and CDs, but nothing is sticking. I just can’t seem to retain it.”
“Oh, stop complaining and try harder!” Steph blurted out — in Mandarin.
“Don’t rub it in! Not everyone grows up in a bilingual family,” Tina moaned. “Actually — talk to me in Mandarin. Help me learn — in a way that’s fun, not boring.”
Steph was no teacher. She was an engineer and programmer. But she’d learned Mandarin just by listening to her Taiwan-born mother. Maybe Steph could teach Tina the same way. So Steph launched into Mandarin, chatting about passing cars and the faces of kids on a bus and Tina’s new purple eyeglasses — pretty much anything that came into her head. When Tina hesitatingly repeated the vocabulary, Steph mimicked her atrocious intonation, and they laughed and joked until Tina got it right.
“I wish you could make me a little ‘Steph Robot’ to carry around,” Tina said near the end of the ride. For the next few days Steph couldn’t get the comment out of her head.
Back at the Media Lab, she started working on the Brrrd, and within a year she had found a manufacturer in China and turned her prototype into a commercial product priced at $79.99 and sold through high-end retailers such as The Sharper Image and Hammacher Schlemmer.
It immediately became a media darling, and sales hit $3 million in the first year. Reporters, retailers, and customers seemed to embrace it because it was a category smasher — both a toy and an educational product. Its speech-recognition software and AI “brain” could figure out what language areas were giving a user trouble — so it was a highly functional tool — while its deep reservoir of conversational phrases, including jokes and retorts as well as praise and encouragement, made it a welcome companion.
Steph had gotten used to explaining the Brrrd’s dual nature to anyone who asked. But lately her marketing chief, Gregoire Ferron, had been raising difficult questions about what that duality meant for Alexis Products.
“Are we a toy company or a language company?” he had asked testily at a team meeting just that morning. “We can’t be both.”
Steph was worried about Gregoire — worried that he might leave the company now that sales and morale were sagging. She knew he felt outnumbered by the gadget people on the staff. She was trying to formulate an answer that would be respectful of his viewpoint when Mia Yoon, Steph’s top sales executive, piped up. “We all know what our unique selling point is,” she said. “Fun.”
Steph sensed Gregoire’s exasperation and jumped in. “What’s cool about the Brrrd is that it’s both. It plays with you in an educational way. It teases you into learning.”
“But as a language-learning tool, it has significant shortcomings, which is why sales are down,” Gregoire said. “I think we should turn the Brrrd into a gateway to a suite of language offerings that can really compete with SimpleLanguage from a pedagogical standpoint.” SimpleLanguage, whose computer-based courses had disrupted the language-learning establishment more than a decade ago, was Gregoire’s former employer.
“Pedagogical?” Mia asked scornfully. “Who cares about that? People buy the Brrrd because it’s a blast to talk to, and maybe they learn a little Chinese. Once we start using education buzzwords like ‘pedagogical,’ we lose our customers.”
“Well, even if we decide to pursue the ‘fun gadget’ path, we need a strategic focus,” Gregoire responded, his voice rising. “And call me biased, but languages are the obvious answer. The Brrrd has launched us into a market that’s lucrative and fast-growing. I’m not saying our new product shouldn’t be fun. Just that it needs to provide more in the way of tangible benefits. If we could find a way to be fun and stay on the cutting-edge of AI while also adopting best practices for teaching languages, we could dominate.” He paused to let his words sink in. “But when the fun outweighs the functional, you’re just a toy company trying to churn out — or worse, chase — the latest fad.”
“But Steph has so many great ideas,” Mia said. “Why would we want to confine ourselves to just one category? What about using our AI and speech capabilities to motivate people to exercise? Or to help elderly folks keep their minds nimble? Or to teach people how to cook?”
Mia was biased, too — toward diversification. She had bounced around from retail to media to tech throughout her career, but she had great instincts and Steph valued her outlook. On her first day of work at Alexis Products, she had walked into Steph’s office and said, “I’m here now, which means you can stop thinking about sales and start inventing again. Come up with something cutting edge that will make me laugh — whether it has anything to do with languages or not.”
It was just like Tina’s challenge years before, and Steph had been inspired. Now, every morning, she made it a point to spend at least an hour doodling, opening her mind to all sorts of ideas. And yet she still hadn’t come up with a killer new product.
Once, during one of those periods of creative thinking, she had picked up the Brrrd and asked: “Are you just a toy?” and it had shot back the Mandarin equivalent of, “I won’t dignify that with an answer,” which had made her laugh.
But she had to take the company’s future seriously. Should it aspire to become the next Wham-O, maker of an incredible series of iconic toys, from the Frisbee and the Hula Hoop to the Slip ‘N Slide and the Super Ball? Or should it model itself after iRobot, which launched with the fun Roomba robotic vacuum cleaner and then carved out a niche with new products aimed at solving other household cleaning problems?
Going the Wham-O route would mean coming up with great new product ideas all the time, and then finding new customers for each one in the fiercely competitive $855 million electronic-toy industry. The concepts she had sketched during her doodle time were pretty interesting — there was the Snowman, a talking gadget that would stand in the refrigerator and tell you what you were running low on, and the FoeFriend, which would play word games with you — but she suspected they lacked a wow factor. She’d have to rely heavily on Mia to sell them. She wondered whether Mia could be an effective brainstorming partner and whether Mia might use her sales expertise to exert even more influence over the company’s strategy.
Going the iRobot route would mean acknowledging that Alexis Products was focused on just one market and didn’t expect to produce another blockbuster idea. But maybe that was OK. There was certainly a lot of money to be made in the $956 million language-instruction business, and she could see how, with Gregoire’s help, the company might capitalize on the Brrrd brand and provide an advanced-level product for customers who wanted more than the basics of Mandarin. There were other possibilities too. Since kids were a natural audience for language learning and the company had already established a reputation for injecting fun into education, she could focus on the elementary-school market. She could also develop an image-recognition capability for the Brrrd to help people learn to write Chinese characters. She could have fun with that.
Still, thinking about becoming an “educational content publisher” made her feel tired and overwhelmed. To succeed, Alexis Products would have to grab share from the likes of SimpleLanguage, a tough and experienced competitor. The company would have to hire a cadre of language experts, who would no doubt find fault with the Brrrd’s “teaching methods.” Plus, Apple’s problems with Siri had exposed real limits to the power of artificial intelligence and computerized speech. It would be business suicide to promise more than the company could deliver.
Maybe she was just a toy queen at heart.
“Steph?” Mia prompted.
“You both make good arguments,” she replied. “I’m torn myself. Let me think a bit more about it.”
Other People’s Money
Steph overcame her paralysis, grabbed her briefcase out of the back of the car, and walked into Rob’s building. She had mixed feelings about their working relationship. Initially she hadn’t needed investors. She’d inherited a trust from her grandfather, the founder of a Canadian timber company, and had used those funds for product development. Her uncle offered her space in a building he owned in Vancouver, where Steph had grown up, and she had accepted.
When product-development companies in the U.S. and Canada had besieged her with tempting licensing and commercialization offers for the Brrrd, she had used her independent means to retain full control.
But when sales declined to $2.2 million in her second year of business, the reduced cash flow began to pose a problem. Steph’s uncle persuaded her to seek outside funding and introduced her to Rob, a retired computer magnate. They’d immediately hit it off. He and several of his angel-investor friends had put money into the company and become directors. At first, they’d assured her that they loved the Brrrd and had full confidence in her ability to lead the company.
But by the third year, when sales had sunk to $1.5 million and a hoped-for distribution relationship with Best Buy fell through, the board meetings started to become more contentious. Beefing up sales and marketing by hiring Mia and Gregoire had allayed the directors’ concerns for a while. But they were clearly growing impatient. In his affable and tactful way, Rob had spelled it out when he called to set up the meeting. Steph needed to remember that she was playing with other people’s money — a lot of it. “The investors want to know whether to keep their money in or not,” he’d said. “It’s as simple as that. Why don’t you come over here tomorrow and help me understand your vision. Where is Alexis Products heading?”
Now, standing in the elevator of his building, she had to decide.
Question: Should Steph create another gadget or focus on language learning?
Please remember to include your full name, company or university affiliation, and email address.
Counting the days until 
Tune in to the TED Blog for live coverage of TED2013 beginning on February 25. 
