One of my heroes and friends happens to be one in the same person, Andrew (bunnie) Huang. Bunnie tirelessly helps makers, businesses, and the world-at-large with his skills and openness. Last week it was announced that chumby, an open-source hardware product bunnie worked on, was coming to an end. In typical bunnie fashion he was more than willing to share his experiences. The following is an interview I conducted with bunnie over email.
Hi Bunnie, thanks for doing this interview – where are you right now?
Hi Phil! Always a pleasure. I’m living in Singapore, and frequently visiting China and the US.
Can you talk about your background a little? You’re an engineer best known for your hardware hacking and open-source hardware projects, etc.
Sure. After finishing my PhD at MIT in 2002, I wrote a book on Hacking the Xbox, which introduces readers to the art of reverse engineering through a documentary of my experience extracting security keys from the console. I also joined a startup called Mobilian designing 802.11/BT chipsets. I subsequently joined another startup called Luxtera designing nanophotonic integrate circuits. There, I contributed to the design of the first chips featuring integrated 10 Gbit optical modulators and supporting electronic circuitry. Most recently, I was in a startup called chumby, which aimed at creating a platform for delivering internet content to low-cost embedded computers. There, I was the hardware lead and I produced a number of open-source hardware reference designs, some of which entered volume production.
What are you currently working on? I recently saw an open-source hardware radiation detector and HDMI “hack” that’s full shipping product.
Since the end of chumby, I’ve been continuing to produce open source reference designs. One of the wonderful parts of living in Singapore is that even though I made no money from the exit at chumby, I am able to choose a lifestyle where I can engage in non-profit, community-oriented design work. Although Singapore has a reputation for being an expensive city to live in, I’ve found the public housing to be reasonably priced, and combined with a solid public healthcare system, $60/month 100-Mbit home broadband connections, and ubiquitous hawker centers featuring $3 dishes celebrated by Anthony Bourdain, I have everything I need to geek out on a shoestring budget.
A personal goal of mine is to spend a year building things that I care about, as opposed to things that could make investors rich. I’m about 5 months into my personal sabbatical from entrepreneurship, and here’s some of the things I’ve been working on or recently completed:
- Safecast Geiger counter reference design. As a volunteer for Safecast, I helped create a new, more user-friendly design for radiation measurement to help out with the ongoing nuclear crisis in Japan.
- NeTV manufacturing and distribution. NeTV [http://www.kosagi.com/blog/] is a device that can overlay video on top of encrypted feeds in a ‘DMCA-safe’ fashion. It was developed while I was still at chumby, but chumby couldn’t fund the sales and marketing of NeTV. It’s hard to see a product which you’ve poured your heart and soul into never see the light of day, so I took advantage of the open source license on the device and I am currently building the device through Kosagi, a company I set up in Singapore, and I’m making it available to the world with Adafruit’s help!
- A new open source robotics platform codenamed ‘Kovan.’ The device was commissioned by an educational organization, but once it is released to public I will publish the design under an open source license. It’s currently in beta testing with the customer. The platform is purpose-built to enable vision-enhanced autonomous robotics projects, combining an 800 MHz linux computer with four 1.5A motor drivers, 8 ADC channels, 8 5V-tolerant digital I/Os, 4 servo drivers, an integrated Li-Ion charger, and an FPGA for enhanced computer vision processing capabilities. The device will be released sometime this fall.
- A new open-source high performance hardware platform codenamed ‘Novena’. I won’t disclose too many details since it’s in early stages, but the platform promises up to quad-core 1GHz ARM processing with up to 4GB of DDR3 memory. You could, for example, use it to build your very own open source laptop. I expect more details to emerge before the end of the year.
- I recently joined the staff at Maker Shed as a consultant to help them lean-up their supply chain.
- I spent a month in China, to immerse myself in the language, culture, and of course the electronics markets
- I’m hoping in the next month or so to intern at a Singaporean biotech company and finally get my hands dirty in a bio lab. For a very long time I’ve had an interest in biology, and I’ve had many aborted attempts to get something started there. I figure this is may be my last chance to figure out if this is really something for me. One thing I’m finding is it’s incredibly hard to pick up something entirely new, because I just feel so much more valuable doing electronics than biotech. But that’s exactly the sort of thinking that gets you pigeonholed, and stuck in a rut!
There’s some other hardware security-related projects I’m also really excited about which I have been working on in the background, but they are also too early phase to talk about.
I know you help a lot of maker-related companies – what type of roles do you have when you work with hardware companies as an advisor?
I really enjoy working with and helping makers. Usually I’m called upon to advise on hardware strategy, principally around supply chain and strategic design decisions. As an advisor, I try to use my versatility to fill in any gaps that the startup may have. I can perform roles ranging from overall strategy advice, to engineering review, to debugging circuits, to supply chain debug and cost-down. I try to focus on high-value, high-risk tasks which the startup would like to get done, but doesn’t have the resources to execute. As a result, sometimes I fail at my tasks, but I think it’s better to try and fail rather than never to try at all. I prefer to avoid being an “armchair quarterback” — I have a lot of respect for the effort entrepreneurs put in, and it’s all too easy as an advisor to criticize without really adding value.
What is chumby?
Chumby is a software platform whose goal is to enable “dumb” devices to connect to the cloud. The company was started in 2006, before the term “apps” was coined (we called them “widgets” back then), and before the iPhone was introduced. Back then, the most interesting thing you could do with WiFi was replace the Ethernet cable to your laptop, and one of the leaps of faith in our business plan was that every household would eventually get WiFi.
Our original strategy in 2006 was to “lean up” the internet stack by eliminating the browser and serving apps directly to devices which ran Adobe Flash on raw iron, thereby reducing BOM cost and enabling low-cost, “dumb” devices to incorporate the best parts of the internet. This made sense back then, as 64 MB of RAM and a 350 MHz CPU with a couple hundred megabytes of mass storage were considered fairly cutting-edge for an embedded platform.
The big news of last week was that the product is basically over, it’s open source, so someone could build it. Someone could also acquire the assets?
The short answer is yes. I’m pretty far, literally and figuratively, from the action around the wind-up of the company, but I believe some of the assets have already been acquired. However, there are still some remaining assets that are now owned by the investors that I’m sure they’d be very happy to monetize.
How did you get involved? And what was your role at the company?
I was originally an advisor to the company, a consultant brought in to figure out some bits of the hardware strategy. We had weekly dinners where we’d talk about what the product might be. Eventually, I got excited enough about the product that I just hammered out an initial prototype motherboard in my spare time. Around the same time, my boss at my prior company was really irritating me — he lectured me about the importance of being in my chair every morning by 9AM (completely ignoring the fact that I’d work till midnight the day before) — so I resigned on the spot and joined the founding team of chumby.
My role at the company was initially VP of Hardware, which sounds grand but when the hardware organization consists of exactly one person you’re also the solder jockey and the janitor. Now that I think back on it, the team took a big chance on me, because at the time I had no experience in supply chain management and had never been to China — they took a leap of faith on me and gave me the opportunity to figure it all out. I really appreciate that they gave me so much latitude to learn on the job.
What was the best part of making the chumby?
There were so many great things about making the chumby. I think overall, one of the best parts was that I had to figure everything out from conception to distribution. It meant that I got to see every part of the process first-hand, from industrial design, to electronics design, to tooling, to supply chain, to retail and reverse logistics. There are so many things that go into a product, and satisfying that curiosity about how things are made was really great.
Aside from that, I think the other thing I really treasure from making the chumby was all the wonderful people I got to work with and meet along the way. I made a lot of friends along the way, and I had so many excellent mentors.
And finally, I think the best part about making chumby isn’t really the making — it’s seeing people use it, and seeing people enjoying and appreciating the device. The smile on a user’s face is the ultimate reward.
Can you talk about making a device from start to finish, from idea to factory to retail shelves?
I think one of the best parts about making a device from start to finish is that you have a totally unconstrained set of tools to solve the problems at hand — you can solve business problems with board layout, and vice versa. For example, there was a question about how we could uniquely and flexibly brand units, in a fashion that allowed for swappable face-plates (i.e., snap on the NFL faceplate and get your football scores, snap on the Bloomberg faceplate and get your financial news). This is a topic that could take dozens of meetings to hash out. But as the sole hardware guy, I knew that embedding an EEPROM costs only $0.20 and while everyone else discussed possible solutions in the staff meeting, I fired up my board design tool, add the 8-pin EEPROM to the board, tossed on an appropriate connector, and had the whole solution engineered by the time action items were assigned. It actually took me longer to convince them that the work was done, than it took to do the work.
I think I ended up absorbing many of the skills required to build a product from start to finish because it’s very difficult to communicate requirements. The question was always whether it would be faster for me to do it myself, or to explain it to someone else to do and wait for them to do it, and then possibly have to re-explain it and have them change it. That’s one of the reasons why I learned mechanical design; a long pole in the tent for many consumer products is the ID and plastics tooling, and being able to efficiently and effectively communicate with a mechanical engineering team using their language was important to getting the job done right.
What were the challenges with retail sales?
Retail, and distribution, is the most difficult challenge. Here’s a few of the difficulties encountered:
1) Dealing with the merchant buyers. Brick and mortar retailers hire teams of buyers assigned to monetize shelf space. They think about products in terms of revenue per shelf space, and they don’t really see anything beyond that. This puts in sharp relief any features you want to add to the product to make it ‘better’ that also drives up product costs. Also, merchants tend to look at your product not as a whole, but as so many grams of plastic and so many wires, which if you multiply it out by the commodity price of the raw materials sets their expectation for how much they will pay for it to be on their shelf. It’s possible to cut better deals with merchants, but it takes a lot of effort to educate a merchant about the upside value of your product. Unfortunately, the turnover in merchant staff can be fairly high, so you can spend months cutting a deal only to find out that the person you were working with has left the organization.
2) Margin. Everyone in the supply chain has their hand out — the distributor, the merchant, the factory; and beyond that there’s market development funds and other ‘slush money’ that has to be factored in. At the end of the day, the shelf-cost is about 3x of your parts BOM cost. This means that adding a $0.50 part on the BOM turns into a $1.50 retail price impact.
This is aggravated by the fact that prices are quantized into ‘magic numbers’ — i.e. $19.99, $49,99, $99.99 — that just have to be hit. You just don’t MSRP a product for $127.45 — if you’re above $99, psychologically you are binned in with the $149 or $199 products. When your BOM cost starts to approach one of these quantization points, you get into lots of soul searching about whether it’s worth $0.50 to improve say, the speakers in your product, because that small cost increase will either have to come out of your own margin, or you risk pushing your product into a higher price tier.
3) Cash flow. Retailers are notoriously bad at paying you on time. You may negotiate 60 day terms, but often times you’re not paid after 90 or even 120 days. Basically, if your product doesn’t sell out so that the retailer has to place another order with you (at which point you have some leverage to collect outstanding payment), you get strung out. This can be partially mitigated with financial instruments such as factoring insurance — insurance companies will sell insurance on anything, including insurance hedging against retailers not paying on time or going insolvent before they can pay you.
4) Reverse logistics and returns. Many retailers offer no-questions asked return guarantees. That’s great for the customer, but guess who gets to service those returns? That’s right, the retailer passes the buck to you! This is part of the reason why payment times can be quite bad, because retailers are retaining cash to hand back to customers to satisfy returns. Once the returns are processed, you get to figure out how to get the returned material off their dock, and back into a facility where you can refurbish the units. Typically, most units returned are not defective; they simply did not meet customer expectation, or the customer had buyer’s remorse after an impulse buy. However, despite the return, the otherwise working units are usually missing accessories, or have been cosmetically marred thereby requiring extensive rework to refurbish.
5) Contracts. Retailers will hand you a default contract full of terms that very strongly favor them in almost every contingency. Sometimes the contracts can expose you to liabilities that you can’t possibly hope to cover. For example, I’ve seen language such that if an affiliated content website was down for longer than a specified amount of time, then one could be liable for non-specific damage to the brand reputation of the retailer selling your goods. Those sorts of open-ended liabilities are unacceptable and negotiating them out can take months. Other onerous terms include things like penalties for late shipments, or fines for defective units. This contract negotiation process is very distracting to top management and can put a real drag on the organization.
Did you get any patents? How do they work within the world of open-source?
Yes, I actually had been granted several patents during my tenure at chumby. Patents are a very natural way to protect hardware ideas. As F/OSS licenses such as GPL and BSD rely upon copyright to have power, open hardware licenses can likewise draw upon patents to have power.
As no license existed when we started that addressed the patent issue, chumby had created its own flavor of open source license. The license was basically an automatic cross-license with users who created derivative works: those who utilized our source would get a license to the patents, under the condition that any patents granted for on the derivative work also had to be automatically licensed back to us.
There were a couple of other restrictions added as well which were not ‘truly open’, such as a condition that the derivative had to at least give users the option to run the chumby network in a competing product (an opt-in checkpoint during the boot process), and an ‘ask us if you want to manufacture’ clause which stated that derivatives going to mass production had to get additional authorization from the company (primarily there to create a checkpoint to verify interoperability with the servers, and also to enforce proper trademark and branding rules). Of course, this ‘ask us if you want to manufacture’ clause buried in the license meant that the license couldn’t truly be called open source, because the company could always say no (it never did in practice). However, it does highlight one of the ongoing struggles in the OSHW ecosystem, which is how to address trademark and interoperability issues in an increasingly complex and diverse ecosystem.
Also, the rights to the patents I created at chumby are all assigned to the investors. They will likely be sold to the highest bidder, which could very well be a patent troll. I would regard that outcome as unfortunate, but also a reality that I must accept as the investors have the right to explore all lawful venues to recover their investment. However, in an ideal world I would buyback rights at an affordable price, and then license them to the open source community and try to establish a material precedent on how to handle patents in the open source community.
Do you have any advice for a maker who is considering taking VC funding? Anything different if they’re doing open-source hardware?
I’m generally of the opinion that VC funding is suitable only for accelerating certain kinds of growth, but not very good for early-stage R&D, or businesses that have slow-but-steady growth models.
The hardware model is radically different from the software model. Software is innately scalable; you can acquire a hundred thousand users overnight. Monetizing the user base in software is trickier, but most software plays start with scale and then worry about money.
Because hardware requires the movement of atoms to acquire a user, scalability is limited by the rate at which you can economically and reliably assemble your atoms and ship them to the customer. On the other hand, there is a very natural point for monetization in hardware, i.e. the margin you charge on every unit sold. So money comes earlier and more often, but the growth rate is limited by pesky things like the laws of physics and the availability of raw materials and skilled labor to build the units. Noteable exceptions to this rule are concepts like Square, where the hardware was very cleverly designed to be so cheap that its cost was arguably lower than the cost to acquire a customer through other means (such as print advertising and mailing campaigns), and therefore it was cheap enough to just give away.
Therefore, in hardware, the first question you have to ask yourself is what is your distribution channel, and how much friction there is in getting your product to end users. Ultimately, the size of that pipe and the monetary drag on transactions limits the growth rate of your idea. You also have to factor in the ‘boomerang’ costs, such as returns and customer support costs (you will be shocked at how many support calls you get from people who forget to plug it in).
If you have an awesome distribution channel and a solid marketing campaign, and you have customers lined up out the door, maybe VC is a reasonable match. But, a typical Maker will start out selling stuff on-line, and possibly in boutique stores. The time it takes to turn capital into revenue will be on the order of months initially, and that’s a brutal cycle to finance with VC — all the money you have tied up in the supply chain isn’t adding any value to *you*, but you traded a lot of your ownership in the company to get that money.
I would typically recommend that a Maker try to first fund all the R&D out of their own pocket, or with a very friendly angel loan. Once you have a prototype and a solid plan for production, I think it’s smarter to go into debt to finance small batches of builds, so you’re never over-extended, and build your market one step at a time. Every time you turn inventory, you should come back with more cash, which you can plow into making more inventory. Doing this forces the good discipline of getting the Maker focused on leaning up the supply chain so that inventory turns faster. The best hardware companies turn inventory in a matter of days. If you’re growing your capital base by 20% with every inventory turn, it only takes four turns to double your money: $100 turns into $120, which turns into $144, which turns into $172, which on the fourth turn results in $207 (that’s the magic of compounded percentages). If you can do a full turn of inventory once every 8 weeks and sustain a 20% growth rate with each turn, you’ll grow your business by over 300% in one year. Of course, the markets are never so ideal and predictable, but you can play with turn time versus margin available to grow your business, such that higher margin businesses can take longer to turn inventories and still sustain a palatable growth rate.
Bootstrapping like this is a lot of hard work, but at the end of the day you own every penny you make, as you have no investors. The glory stories for this model aren’t as big as say, Instagram or Google, but if you’re doing it right, you’re in control and your work is more likely to pay off in the end. In fact, many successful Chinese hardware manufacturing businesses grew primarily using bootstrapped funding just like this.
What are your thoughts on Kickstarter for funding?
I think Kickstarter is a great phenomenon, but you also need to be a little bit careful raising money on Kickstarter. To some extent, Kickstarter is the ‘ultimate dumb money’. Customers are sold on a vision, buy-in early on, and you have to deliver on that vision; in crowdsourcing your money, you’ve also crowdsourced your board of directors. However, the road to product development is never smooth. As a result, Kickstarter money can lock you into some commitments early on that you can’t back out of.
I think Kickstarter can be a better solution than VC, but I think it should be used only after the idea has matured sufficiently, and you’re primarily looking to find a less dilutive way to finance production than VC money or a bank loan (and in fact, after you consider the frictional losses of extracting money from Kickstarter, a bank loan with a few percent interest could be favorable; but of course, a bank loan doesn’t come with the same visibility, marketing, and upside potential as Kickstarter does). I don’t think it’s a good idea to fund early R&D off of Kickstarter, because of the nature of the hard commitments you have to make to customers early on.
When you advise companies what do you most often suggest to the founders?
Ship or die! Particularly if you’ve made the step of accepting VC funding. The moment VC money hits your books, you’re on a fixed-length fuse. If that fuse runs out and you haven’t created substantial value, a bomb goes off that wipes out a chunk of your valuation. If you’ve raised a million dollars and you plan to burn it in a year, every day ‘costs’ you $4k. I use that as a value barometer to guide decision-making: if $30 in expedite fees can pull in the schedule on a long-pole task by one day, it’s well worth it. This is also part of the reason I lived on “china time” even though I was in California: staying up till 4 or 5AM every night to flipping emails with the factory to shorten the longest pole in the tent can shave days off a schedule, which translates to tens of thousands of dollars in burn.
In the face of ‘ship or die’, one should not be looking to ship the perfect product. It is more important to ship a product that’s good enough, than a great product that’s late.
The situation is extreme if you’re in consumer electronics, or any similarly seasonal business. In CE, up to 90% of your business can happen in the 4th quarter. If you miss Christmas, you will have no revenue for the next three quarters, and therefore missing Christmas is equivalent to dropping an extra year of burn on your cap table. Worse yet, during that year your competitors continue to improve.
Chumby suffered from precisely this. We premiered an alpha version of the device in August 2006, but we missed Christmas 2007. We didn’t launch our squishy, connected alarm clock until just after Christmas — February 2008.
Now consider the world events that happened around these dates: the iPhone shipped June 2007, and the global economy crashed in October 2008. It was bad enough that we had to weather almost a full year, from February 2008 until Christmas 2008, burning venture money to stay warm: but when the economy fell out, so did the appetite for a $200 stocking stuffer. This led to a backup of inventory, and a fight for survival.
If my memory serves me correctly, we could have shipped a product for Christmas 2007, but it wouldn’t have been quite as polished, as perfect, or had as many features. But, maybe it would have been good enough. In retrospect, the iPhone had by far less momentum in 2007 than in 2008, and we could have cleared a lot of inventory from the books. On the other hand, perhaps it was our awareness that the iPhone, its apps, and its awesome touchcreen would obsolete the idea of a connected alarm clock that drove us to second-guess our strategy and delay launch to strengthen features like our streaming music integration.
At any rate, the lesson is clear enough to me: ship or die!
A second piece of advice I’d generally give to hardware companies is: when it comes to pricing, aim high. It’s virtually impossible to raise your pricing if you start too low, and there’s nothing like a sale to get people to buy.
The ill temptation for startups that are principally selling their hardware on-line is to set the pricing expectation as low as possible to drive buzz and improve initial sales. The temptation to sell your $35 device for $49 direct on-line is huge — that is, after all about a 28% margin (neglecting that your BOM hasn’t factored in soft costs). That’s great, until you’ve dropped off the front page of Engadget and your sales are plummeting.
Engaging a retailer may help bring in more, and more consistent, sales (although your mileage may vary). However, a retailer, particularly if they are a boutique retailer selling in low volumes, will initially target between 40% to 60% margins off of MSRP. This means they want to buy the product from you for $49, and sell it at $99. But, if you’ve already sold a bunch of units at $49, there’s no way the retailer can sell it for $99. So to access retail, you have to cost-down your $35 product down to $25, so the retailer can sell it at your pre-established price of $49. Even if you’re successful with such a drastic cost-down, you’re still left making no money!
If you had just introduced your $35-cost device at $99, you may have garnered fewer customers initially, but your initial margins would have been spectacular and now you have the room to cut-in a retailer, or run sales of your own to get more customers.
Keep in mind part of the reason why MSRPs are so high is because retailers also love to use sales to make units move, and a $99 unit priced down to $69 feels like a smart buy – but at $69, the retailer is now only making 29% margin.
As you can see, if you aim too low on pricing, you effectively rob yourself of the opportunity to go to retail as a possible distribution channel; and you simultaneously rob yourself of the opportunity to have sales and promotions. Sales and promotions are so important because viral marketing can only get you in front of a customer maybe once or twice at best, and once you drop off the front page of Engadget, so does your sales. You need a new message to deliver once your virality wears out, and there’s nothing like a price drop to get new customers interested in your product.
So: aim high on initial pricing; strive for 3x over BOM. You’ve put your heart and soul into your product, price it like you mean it.
If you could do it over, how would you change the hardware of the Chumby? The software? The way Chumby was made?
Well, as the previous question indicates, I would have put a much greater focus on shipping things on-time, perhaps at the expense of jettisoning some features.
One of the more counter-intuitive things I learned is that accessories and packaging can take more time than the product to develop. The squishy chumby came with a wonderful set of linen and microfiber bags, and rubber charms: we had developed over a dozen charms in all. There was also a custom power adapter, branded ribbons, gift boxes, branded tissue paper…I even had to iterate the hardware design and spin an injection mold tool to improve the attachment method for the charms to the device. I spent at least 4 months intensely focused on the accessories and packaging for the product. Of course, our fan-base went wild over the attention to detail, and that helped goose sales. In retrospect, I wonder if we couldn’t have done better forgoing the details and just shipping before Christmas.
I think one of the most gut-wrenching realizations that small companies have to make is that they aren’t Apple. Apple spends over a billion dollars a year on tooling. An injection molding tool may cost around $40k and 2-3 months to make; Apple is known to build five or six simultaneously and then scrap all but one so they can evaluate multiple design approaches. But for them, tossing $200k in tooling to save 2 months time to market is peanuts. But for a startup that raised a million bucks, it’s unthinkable. Apple also has hundreds of staff; a startup has just a few members to do everything. The precision and refinement of Apple’s products come at an enormous cost that is just out of the reach of startups.
I don’t mean to say that design isn’t important — it still is an absolutely critical element to a product, and good design and attention to detail will enable a startup to charge more for a product and differentiate themselves from competitors. Apple has raised the bar very high for design and user experience, and users will judge your product accordingly. But it’s important to keep in mind that your true bar for comparison is other startups, and not Apple; and if your chief competitor is Apple, you either need your own billion dollars of cash to invest in product design, or you need to rethink your strategy.
Which I guess does lead to another thing I’d probably change. Pivoting is so important for a startup. A startup has to be able to run circles around big companies. Culturally, chumby just had a lot of challenges being agile enough to adapt to a rapidly changing technological landscape.
Of course, in 50/50 hindsight, there’s a lot of things we could have done differently, but when I think back upon all the early decisions that were made and how we got there — the resistive touchscreen, lack of integrated battery, the use of Flash as our core platform — I don’t see how we could have, back then, made any other fact-based decision.
But that does show one of the flaws of fact-based reasoning. Engineers love to make decisions based upon available data and high-confidence models of the future. But I think the real visionaries either don’t know enough, or they have the sheer conviction and courage to see past the facts, and cast a long-shot. It’s probably a bit of both. Taking risks also means there’s a bit of luck involved.
I certainly have a fact-induced myopia: my recent focus on operational efficiency, schedules, and risk-management has sapped my ability to have creative and audacious visions. One of the reasons I’m taking a year off from entrepreneurship is to decompress a bit and to try and re-discover and develop the creative bits of myself that have atrophied over the past couple of years.
Now that you’ve been part of a full cycle of a VC funded company that makes hardware, what suggestions do you have for company structure, from the people to the location, to the overall organization?
I think that really depends on the type of product you’re trying to build. Hardware has many different specialties and markets — from consumer to medical to industrial; and from high-end boutique to hobby to mass market.
There’s good business potential in all of them, but your location and focus and team composition will need to be tuned based upon your product, and what gives you a competitive edge. In the case of chumby, hardware was just a barrier to entry for apps to run in your home, so it was instantly a race to the bottom; hence, the hardware part of the company had to run lean (chumby had one hardware engineer, and one operations director), and it needed a China-centric strategy from day one.
I would say generally that if you can suffer to do a hardware startup through bootstrapping, it’s well worth it. The Makerbot guys developed and shipped their printer entirely on angel money, before closing a round of VC funding. I remember Bre once mentioning that they lived on nothing but cup ramen noodles for a month. There is a broad range of hardware products that can be bootstrapped at first…and then Kickstarted, debt-financed or VC funded to scale.
Any hardware company that has passed the idea phase and is entering the scaling-up phase, has to be razor-focused on operations and cash flow. Being able to manage a ‘build to order’ paradigm is so critical, but so difficult: a key metric for any hardware company, small or large, is how quickly you can turn inventory into cash. There are two halves to the equation. One is leaning up your supply chain and trimming lead times so you don’t need to sit on much inventory, yet can satisfy new orders quickly; and the other is leaning up your cash management so you can bill customers quickly while stretching your credit lines as far as possible. It’s a multi-dimensional optimization problem that can make your head explode if you don’t have the right staff. As a result, it’s important for your team to include a crack operations director and a team member who is adept in semi-exotic financial instruments such as factoring insurance, collateralized lines of credit, and trade contracts.
Of course, being able to access China effectively early on does offer a disruptive advantage to your startup — it’s hard to ignore the order of magnitude advantage China has over the US in assembly costs — but working with China does come at a huge cost and risk to the organization, and may not be for everyone, particularly on day one.
I outsourced myself to Singapore to get closer to China, because I know I will never be able to get away from the China ecosystem; China has such a firm grip on hardware manufacturing, I think it will take decades for them to lose their edge. This geographic diversity also means that any effective hardware startup has to be able to function effectively with a de-localized team.
What’s next for Bunnie, what are most excited about to do next?
That is *the* question for me! I don’t really know what’s next. As I had noted earlier in the interview, I’m taking a year off to do things that aren’t specifically entrepreneurial. My current priorities are to first have fun with my work, second to not lose too much money, and third to do something that’s ‘good’ for the community, typically through a combination of hacktivism, volunteer work, and open-source methodology. I’m hoping in this year I’ll collect the bits of my soul that I’ve lost along the way, find some new ones, and re-learn the value of ‘magic’ in my life. I’m also spending a fair bit of my focus tuning up myself, getting fit, changing my diet habits, and losing weight. The coolest piece of hardware you’ll ever own is your body, and if that’s not working well, there’s no hope for anything else. Once I’m done with my aimless wanderings, hopefully I’ll have a better idea of what’s next.
Update: You can hear and see bunnie speak @ “Perspectives on Manufacturing Open Hardware” at Maker Faire Bay Area Center Stage, Saturday at 12:30 p.m.