• 3D Systems ($DDD) has chosen Vyomesh Joshi to lead the company. Most likely, the company is rebooting.
• Probably, it will lose some visibility due to a low-profile strategy compared to the previous one.
• The strategy followed by the previous CEO had the mass-market allure which was one of the catalysts that brought the 3D printing industry to sky-high valuations.
• However, I believe the strategy based on business to business (B2B) can yield the best results during the next 3 to 5 years. Now, the question is: Can 3D Systems pull-it off?

Photo credit: Creative Tools

Act 1 – The board of directors

The past few months have been turbulent for the company. Back in October, Avi Reichental was dismissed from his post as 3D Systems’ CEO.

The first question is: why was Avi fired? There isn’t a clear reason. Yes, the company was going through some problems with receding sales and shrinking margins but this was common to the whole industry and, in the past, many CEOs have escaped from being sacked under similar conditions.

At this stage, we have two main possibilities about what drove the directors: i) the board is short term oriented or ii) the board no longer believed in the CEO’s long term vision for the company.

I am led to believe the second is the right one. Avi was CEO for 12 years during which he led the company through an acquisition spree. This tactic always carries the risk of goodwill write-offs down the road. I am guessing the board didn’t enjoy having the auditors telling them that half a billion dollar in assets are worth nothing.

Additionally, the management seemed infatuated with the idea of reaching the status of a mass market brand. The company was frequently alluding to the potential of the consumer market for 3D printing. As the industry bumped into a recession, 3D Systems faults became more evident. I’m led to believe the board saw the lack of focus as one of the main problems within the company. Additionally, since the stock price took a beat, a return to the M&A market is also out of the equation, therefore, the board opted to pursue a different strategy.

Act 0 – What did Avi achieved during his 12 year tenure at the company?

During the time Avi was the frontman at 3D Systems, he left his mark on the company. Though his departure bears some negative connotation, his 12 year long leadership will be seen at a more positive light if taken has a whole.

Analysts might pinpoint an apparent uncontrolled addiction to M&A but I urge you not to forget that those acquisitions also brought incredible tech and products into the company. As you can see in Avi’s presentation at TED, the potential of the current 3D tech is really impressive.

Now, the company has to clear the air and define solid market segments for their tech. In my opinion, the safest way is to go with other businesses needs. There are endless opportunities for 3D Systems to use its tech to help others improving their own performance. The company is already helping in dental restorations but there are plenty of opportunities in the medical space alone.

All-in-all, Avi’s reign at 3DS was not that bad. The company has built an impressive portfolio of products and technology and has already shown that it can be profitable.

Act 2 – Why Business to Business (B2B)?

The answer is pretty simple. So far what drove 3D Systems was technology. The tech has showed potential to become a whole new industry. At this stage, analysts following the sector are trying to guess which company will have the fastest and cheapest tech. They know this will play an important role in the future valuation of the companies.

However, to my knowledge, seldom has the cheapest, fastest product won the war without some solid market segmentation supporting it. I’ve developed the rule of never investing based on the expectation that a given company will come out as the tech leader. The reason for my rule is specs alone do not bring loyal customers, good marketing does.

The B2B approach can raise the level for 3D systems. The company has dozens of products and technologies that can easily aim at disrupting several industries. 3D Systems has the answer to the woes of several manufacturing problems. It just has to focus on the problems it can solve for other industries and show it to them. That’s good marketing. Trying to be the fastest, cheapest consumer 3D printer in the market won’t do any good for their margins. Showing companies how they can add value through simplification and flexibility can do a lot.

Act 3 – And what now?

The board has been really patient in choosing the next CEO. They’ve picked Vyomesh Joshi. He was best known for being the Imaging and Printing VP at HP. If the rationale I’ve laid previously is right, he will go with a B2B approach to 3DS but we will have to wait and see. I’m guessing he’ll want to target some small and medium businesses (SMBs) but I hope he keeps it real. If he chooses to keep the consumer mass market non-sense, he might get the hype back but I doubt a solid business model will come out of it.

The bottom line is 3D Systems has a lot of potential, it just needs the right direction to become attractive to investors once again. For now I’ll be on the sidelines watching patiently.

[Disclosure: I’ve no positions in the mentioned stocks]