SimiGon: Cleared for takeoff
  After four years in the field and a number of small deals, SimiGon has finally started to make a profit, thanks to a contract with the US Navy. Even its competitors are benefiting, and it is all happening even though no one from the company has met with a single US Navy officer.
Globes   January 22, 2000

From now on US Navy F-18 pilots will have to get used to a more innovative method of learning and flight training, using a simulator with a personalized training system developed by a Herzliya-based company. The agreement that SimiGon, founded by CEO Amos Vizer and Ramy Weitz, signed last week was the most important in the company’s life.

The deal comes just in time for SimiGon. Until now, the company had signed a number of small deals around the world, but had not managed to parlay them into real progress. According to estimates, it had revenue of less than $2 million last year from 17 customers. The company has raised only $5 million since 1998 and currently has 60 employees.

SimiGon’s revenue from the US Navy deal is expected to reach $12 million over the next four years. Even though the September 11 terrorist attacks changed the US Navy’s consumption habits and made it easier to gain approval for US Armed Forces procurement, it can still be assumed that an organization like the US Navy does not sign deals of this type without doing its homework. US Navy personnel undoubtedly spent long hours in SimiGon’s Herzliya offices and left no line of the system’s code unchecked.

Undoubtedly? Not exactly. Vizer has never met a single US Navy pilot. No SimiGon employee has ever officially met a US Navy representative. So how was a deal of this size signed without the purchaser examining what he was buying?

The answer lies in SimiGon’s interesting business model. There are a number of players in the pilot training market competing with each other, just as in other markets. In most cases, the competition was of little use to the customers. The competitors in the flight training market established strategic cooperation between themselves, so that all the competitors profit from any deal, like the one in question. SimiGon obtained its US Navy deal through its cooperation with US company Visual Training Solutions Group (VTSG).

Like the McDonald’s hamburger

Had SimiGon approached the US Navy by itself and offered its system, it would have had to recruit 5,000 employees in order to adapt its system to the US Navy’s requirements. Every military body in the world has a different avionics system for the same airplane, and the data for the flight training system has to be updated separately for every deal.

VTSG also knew that in order to reach the US market on its own, it would have had to invest over $10 million in developing the system. Cooperation was therefore established, and all VTSG had to do was develop the avionics for the US Navy F-18 on the system “purchased” from SimiGon.

SimiGon’s partners/competitors visit Herzliya to receive training in the development tools that SimiGon offers them, so they will know how to add the radar, missile, and cockpit to the flight trainers purchased from the company. “I gave them the tool in a tenth of the time it would take them to build it,” Weitz says. “The customers are satisfied, because they get a uniform solution. The competitors save money, and we also profit. They're developing from potential competitors into a partner in our success. We call this a value added reseller (VAR) model.”

Wait a minute; how does SimiGon prevent a partner from entering the market by itself in a couple of years, after developing a similar platform? For protection against this potential problem, SimiGon uses a franchise system. Vizer cites McDonald’s as an example. If a hamburger stand owner obtains a franchise to produce and sell McDonald’s hamburgers, he will know exactly how they are made. If the right to make and sell the hamburgers is withdrawn, he will still know exactly how to make them, even if his stand does not bear the company logo. Even though his hamburgers will taste like McDonald’s hamburgers, the customers will prefer the nearby outlet with the franchise and the splendid logo, even though there is no difference between the hamburgers in the two locations.

SimiGon fought to insert a number of clauses into its contract with its competitors. In addition to exclusivity for five years, the contract requires that the competitors stress the advantages of SimiGon’s AirBook system and confirm their dependence on SimiGon, the supplier. This is also a method of becoming a recognized brand.

Another aspect of cooperation between the companies is the setting up of an e-commerce site for AirBook system components. For example, if VTSG, which sold the system to the US Navy, has to add a missile system developed by another of its competitors (in this case, Delex), it can buy the system through the site and add it.

In this way, all the competitors in the market benefit from the US Navy deal. SimiGon sells the system, VTSG makes the deal with the customer, and Delex, which had no connection with the deal, wins a small share of the work on the system. SimiGon gave its competitors/partners the name ACO, which stands for AirBook Certified Organization.

”We have a model that works,” says Vizer. “The customer is satisfied, because he gets a higher quality at a lower price in a short time. Our competitors are also satisfied, because they get more work from deals with which they have no connection whatsoever. We profit from the sale of the system. Furthermore, our marketing costs on the deal were zero. There were no expenses from this sale.”

Vizer also asserts that thanks to this business model, SimiGon succeeded in getting into the black by mid-2001. “This business model enables us to focus on developing our system, while leaving our business partners to bear the expenses of managing the project opposite the end customer,” he claims.

The Air Force will recommend and approve

It could be said that the US Navy contract was built over three years. Before it was signed, two US Air Force delegations visited SimiGon to make sure the company was not a front for an attempt by the Israeli Mossad to discover secret US flight specifications. After not leaving a single line of code unexamined, the US Air Force decided on a fairly small procurement of the system. “Without the recommendation of the US Air Force, the US Navy would never have bought the system,” Vizer says. “The Air Force made sure we were doing a proper job and that what we would supply them would be real.”

What drives the current aviation market to search for technologies like that of SimiGon? Vizer notes that budgets for flight hours are going down. The pilots are getting less and less real flight experience. On the other hand, the PC environment is more natural for pilots. “It's important to keep in mind that flying is the easy part. The hard part is maintaining the airplanes' avionics,” Vizer continues. Incidentally, it is easier to persuade a military body to upgrade its radar system if its pilots have already managed to fully exploit the potential of the current radar system. SimiGon is already in advanced contact with two of the world’s three leading airplane manufacturers and is offering them the AirBook system as a supplement and replacement for the regular airplane literature.

What is the AirBook system that SimiGon is trying to turn into a recognized brand? In general, SimiGon says the system presents the pilot’s entire world on a PC. The goal is to dramatically alter the way the professionals train and acquire their know-how.

The training system is personalized for each pilot, enabling him to train and communicate with his colleagues. Within the software, information can be shared with other pilots (“Here’s an interesting flight that everyone should pay attention to”). An exercise can be scheduled for a number of pilots flying together, an instructor/officer can send everyone a message saying that the attack route has been changed, etc.

In addition to sharing capabilities, the system, of course, includes simulation possibilities, but these constitute only a small part of it. This is not a simulator system sold for several million dollars, but a low-end virtual flight system, which simulates airplanes' real behavior on a PC, and includes virtual reality goggles.

Development of the flight instruction and training system took into account people’s character and ability to learn new material. Vizer quotes research on the best methods of remembering study material. The study shows that a student remembers 10% of what he reads in books, 20% of what he hears, and 30% of what is transmitted through multimedia. Half of the material can be recalled if the student watches an instructor perform the operation during the explanation. The most effective learning activity, however, is when the student himself utilizes the material he is learning. Using this method, 90% of the material remains in his memory.

According to Vizer, a young pilot typically learns most of the material through lectures and books. Considering the results of the above-mentioned experiment, Vizer claims his system greatly streamlines the learning process. Instead of learning about the airplane’s switch from a picture in a book, in SimiGon’s system the cadet operates the switches “inside the cockpit,” with virtual reality goggles. “Knowledge is the critical resource in the new economy,” Vizer says, and adds, “The learning method is therefore of great importance. Decentralized simulation is the best way to operate, and is the key to the new technology.”

Who’s available in Amsterdam?

The system is built using the knowledge center, where all the information relevant to the field is located: instructors, tips distributed by word of mouth, a “read and sign” section, and a site for self-testing. The engine selects the information relevant for each pilot. The system knows what pattern you flew, when, and what your next scheduled flight is. For example, if the system knows you haven’t flown to Amsterdam for four years, it displays the rules that have changed since then. To a pilot who flew to Amsterdam yesterday, the system displays a screen that says there have been no changes in the rules, thereby saving him a lot of time.

Another example is when the system knows that an F-15 pilot is transferring to the F-16, he receives a training syllabus that is different from the one for a beginning pilot. “Not all the pilots require the same training,” Vizer says. “It’s important not to bore the student. The depth of the training can vary from the most basic topics to the most complex flight pattern maneuvers.” Incidentally,  Vizer envisions every cadet receiving a mobile computer on his first day in the pilot’s course. The computer will accompany the pilot up until his flight mission in Afghanistan, in Vizer's vision.

There are a fairly large number of applications for e-learning technologies, but SimiGon decided to focus initially on aviation, simply because it was more intuitive for the company. Other applications under consideration, at the moment solely for the future, are systems for driver training, medical training, and ships. Vizer says aviation is an excellent reference; other markets will adopt you with the greatest of ease, once you have proven yourself in the aviation market.

In October 1998, Samurai Web Ventures invested the primary capital in the company. SimiGon raised more capital in September 1999 from CAP Ventures, controlled by chairman and CEO Michael Anghel and Shimon Weintraub, and a private investor. Four months later, Israel Aircraft Industries (IAI) invested in the company, bringing the total capital invested to $3 million. The company raised $2 million more from its shareholders in February 2001.

The company, which had $2 million in revenue in 2001, reached profitability in the second half of 2001. SimiGon’s next target market, scheduled for penetration in 18-24 months, will probably be either the medical or auto market.

In conclusion, Vizer has advice for start-ups on how to work opposite a military organization. “A military organization is a bureaucracy, as well as an organization with its own interests” he says. “You have to find a clerk with an interest in promoting innovation in the organization. This bureaucrat must think the solution you're offering him will move his organization forward. In addition, you also need a lot of field work to succeed opposite military organizations. Our partners have the best knowledge of these organizations, so it was easiest for us to work this way.”


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