Growth Newsletter #276

To ground us, let’s go back to the beginning. Garmin (originally ProNav) was founded in 1989 in Kansas by two engineers, Gary Burrell and Min Kao. “Gar” and “Min” joined forces because they saw ripe opportunities in the emerging U.S. satellite nav market.

Their first product was a bulky boat GPS that retailed for $2,500, but throughout the next decade, they diversified their offerings across several markets.

1991: The ProNav GPS 100 takes off in marine markets.

1994: Garmin launches the GPS 155 which sets the standard for aviation nav.

1998: Garmin introduces the StreetPilot, their first portable device for car navigation.

2005: Garmin launches the nüvi line. Its practical, user-friendly design helps it become the go-to driver GPS in the U.S.

With mass adoption of the nüvi, Garmin saw explosive growth in the period following the product's launch. In 2006, their total annual revenue was $1.77B, which was up 73% from their revenue just one year prior.

By this point, Garmin had officially made the leap from niche gadget company to mainstream tech staple, and they hit paydirt with a product that materially improved the driving experience for so many.

In 2007, about 70% of their sales were car GPS devices. And then their world got turned upside down…

The iPhone Blindside

In mid-2007, Apple launched the iPhone and poured gas on the smartphone revolution. Within a year, 6 million iPhones were sold. By 2009, Apple had moved 20 million units thanks to the iPhone 3GS. Of course each of these was capable of running the rapidly-improving Google Maps app.

To smartphone owners, the main value prop of a standalone GPS disappeared into thin air. Who would fork over $300–$500 for a Garmin nüvi, when your smartphone did the exact same thing with real-time updates and was already in your pocket?

Garmin’s stock, which saw a huge pop after the success of the nüvi, plummeted in 2008. The combination of smartphones eroding its market share and the 2008 financial crisis combined to form the perfect storm. The car GPS had basically become a relic as quickly as it had risen to prominence.

So many other companies in Garmin’s position then would have dug their heels in. They might have added traffic alerts, a sleek iPhone-esque UX, or a subscription billing model. But instead, Garmin read the writing on the wall, made a hard left turn, and hit the gas.

GPS: Global Pivoting System

In 2008, Garmin’s leadership team smartly acknowledged they were fighting a losing battle with their flagship car GPSs. Instead of trying to “build a better mousetrap” they looked to repurpose some of their core strengths and efficiencies to make the ultimate pivot.

They tapped into their engineering talent, general GPS prowess, and vertically-integrated model to make decisive, defining moves:

Focus on fitness & outdoors

Garmin had already launched the Forerunner five years prior in 2003, which was a wrist-worn GPS primarily for runners. It was a little clunky (and niche) but it had a strong cult following and continued to evolve through several iterations.

By 2008, the design of the Forerunner had taken the form of a more typical watch and no longer looked like a wrist-computer, perhaps signaling a coming-of-age for the product line.

Garmin doubled down on their fitness and outdoor efforts. In 2011, they launched the Approach S1 at the PGA Merchandise show. The watch came pre-loaded with 14,000+ courses and helped golfers track their performance in a more accurate way.

“With the Approach S1 golf GPS watch, Garmin has once again created an entirely new category for fitness and outdoor recreation. Golfers who want their data and their device as streamlined as possible will find Approach S1 to be a sleek and simple hands-free solution to taking the guesswork out of their game.” — Dan Bartel, VP of Worldwide Sales, Garmin

In 2012, they launched the fēnix line, a smartwatch aimed at outdoorsy folks: mountaineers, hikers, hunters, cyclists, etc. Its rugged build and ABC sensors (altimeter, barometer, compass) made it an ideal backcountry companion.

In a weird way, the smartphone revolution enabled the success of Garmin’s new fitness and outdoor watches, because Garmin's new products required tech that had been downsized and commoditized for smartphone application.

The Apple Watch wouldn’t launch until 2015, which posed yet another existential threat to Garmin’s outdoor and fitness-related options. But Garmin smartly continued to invest in performance and very specific use cases, whereas the Apple Watch was (and is) more of a generalist tech wearable.

In other words, Garmin hasn’t tried to be a smarter smartwatch for the masses. Instead, they’ve made each offering supremely useful for its niche, whether that’s insanely rich running data or more accurate backcountry coordinates or helping your uncle line up his approach shot.

Their wearables are fitness-first. Period. And they’ve never lost sight of that. Today, the lion’s share of Garmin’s annual revenue is fueled by their “outdoor and fitness” segment, which can be further divided into crystal-clear sub-categories (golf, running, mountaineering, even equestrian, etc.). This is a testament to Garmin’s focus and their ability to find product-market fit across several markets.

This chart shows another interesting takeaway: the growing presence of marine and aviation products in their revenue mix. Again, these serve well-defined, unique audiences (primarily boat owners and plane captains) and Garmin continues to reap rewards from fundamentally-sound seeds they planted long ago in these categories.

“Just as they had found a way to take GPS from the ocean to the air to the street, Garmin’s R&D team identified fitness as a niche market. They didn’t cling to the past. They invented a new future.” —Trung Phan​

In last week’s Demand Curve Growth Newsletter about elevator pitches, we focused on proven ways to differentiate your brand in the “how” portion of your pitch. One of these paths was “You serve a specific niche better than anyone.”

Garmin is living proof that you don’t have to serve just one niche. They serve several at the same time, because each product stays laser-focused on a unique market. While they do appear to have more “generalist” fitness wearables offerings now, it’s clear what each line specializes in, and fitness (not tech) is still at the forefront.

And if you want proof they’re still finding extremely well-defined opportunities, check out the Blaze horse tail wrap. Certainly not something they’ll be competing with Apple on.

Hitting the gas on R&D

Another bold choice that paid off was Garmin’s decision to go all-in on R&D when they realized their standalone car nav systems were passé. Other companies might have cut costs and retreated to survival mode, but Garmin went on the front foot.

As you can see in the chart below, Garmin decided to spend big bucks on R&D initiatives and hire more R&D-related staff after their 2008 gut-punch. They ramped up spending despite the fact their sales and stock had taken a tumble, signaling a calculated risk and “betting on themselves” to bounce back.

Even after the current CEO Clifton Pemble took over in 2013 (following Min Kao’s retirement), the focus on R&D spending remained strong and even increased further under Pemble’s guidance.

Garmin was in a strong position to make this big bet on R&D, largely due to their fiscally conservative ethos and good financial standing. Take a look at this excerpt from an interview with Min Kao back in 2012.

“Gary and I both are fiscally conservative by nature, and we managed our company accordingly. Our early success bred more success. We reinvested in the company and established disciplines like having cash in the bank, maintaining sufficient inventory levels, and staying debt-free. Those practices helped avoid a lot of hurdles.” — Min Kao, Founder & Former CEO, Garmin

On top of being financially set up to weather the storm, Garmin’s famed vertical integration helped them stay resilient. They make their own chips, software, and hardware. Not to mention their marketing, sales, and support teams are also in-house.

This philosophy of overarching alignment (and dare I say synergy) allowed them to create a focused, controlled pivot, where they could create efficiencies while insulating themselves from third-party delays and pricing volatility.

“Gary and I believed in our business model of vertical integration. By doing so, we have been able to have greater control over timelines, quality and service. It might have been easier in the short term to offload many of these functions, but in the long run, we've learned that by controlling the entire process, we’ve had higher levels of innovation, reduced risks, lower costs, and greater scalability.” — Min Kao, Founder & Former CEO, Garmin

Owning the stack meant Garmin could reuse their core GPS, mapping, and battery-management tech in entirely new product lines (like the Forerunner, Approach, fēnix) without reinventing the wheel.

It also meant they weren’t waiting around for third-party component makers to supply their parts, and they also weren’t on the hook to pay marked-up prices to these suppliers.

Three Main Takeaways

Garmin, a company built to simplify navigation, ironically proved it could navigate its own way through major disruption. Let’s take a look at three big lessons we can learn from Garmin’s pivot masterclass.

1. Don’t Fight the Tsunami

When the iPhone caught on, Garmin didn’t try to out-feature Apple on their GPS. Other hardware incumbents (think BlackBerry or TomTom) clung to their legacy and lost. Garmin rightfully realized that was a losing game, so they pivoted to new markets while they still had cash flow and credibility.

If you see a cultural or technological tidal wave coming, don’t hurry to build a taller sandcastle. Do what you can to build somewhere else, and quickly. For example, if AI threatens your specific SaaS edge, reframe your offering around plays that are harder for AI to encroach on.

2. Niche Is the Moat

Garmin didn’t pivot to make products for “everyone who needs a watch.” They built the Forerunner for runners, the Approach for golfers, the fēnix for outdoorsy folks, etc. Whereas the iPhone and Apple Watch won by going wide, Garmin’s fitness and outdoor products won loyalty because they solved very specific problems in depth.

So double down on specificity and depth in your positioning, especially if your business isn’t a mass-market product or service.

Don’t just say “all-rubber watchbands,” say “all-rubber watchbands that don’t scratch or scrape your laptop keyboard.” That tweak creates much more defensibility. (Free business idea for any takers. I’d buy a few.)

3. Bet on What You Do Best

Instead of slashing costs when sales collapsed, Garmin increased R&D spend. They treated the downturn as the right time to reinvest. It might have been risky on paper, but their vertical integration and healthy balance sheet gave them a fighting chance.

Nearly twenty years after the iPhone launched, Garmin's diversified product portfolio and strong stock performance suggest the big bet has paid off.

In hard times, invest in experiments that align with your DNA. Instead of cutting and burning, reallocate it to new bets that overlap with existing core strengths or capabilities.

​Gil Templeton​
Demand Curve Staff Writer