Category: startups

Founder therapy and Smiley curves – the tough world of hardware startups

San Francisco’s Highway One incubator looks to ease the pain for hardware startups

There’s no doubt building a hardware startup is hard, whether it’s sensor networks, smart lights or home automation hubs getting physical products to the market is far tougher than launching an online service or app.

In a light industrial part of San Francisco’s Inner Mission district, the Highway One incubator is one of the initiatives looking at helping entrepreneurs bring their ideas to market.

“Our goal is to help hardware startups scale faster,” says Brady Forrest the director of Highway One. “We turn prototypes into products. People come here with an idea and we make sure they can implement it, we bring a lot of design best practices and engineering best practices and make sure they are being honest with themselves.”

“I also end up conducting a lot of founder therapy.”

The selection process

Getting onto the four-month program is competitive with applicants being subjected to a rigorous vetting process, “they fill out a double page application, send in a video of them telling their story and then a video of them using a prototype.”

“Then we start to talk with some business analysts to check the market sizes, competitors and then we go to an engineering review to check the team has the technical chops and that prototype is what they say it and that it’s achievable.”

Once on the program the course is an intense immersion on building a product with access to a prototyping lab, support services and a 10-day trip to Shenzhen, China, to learn about global manufacturing.

The Shenzhen link is important as Highway One is part of PCH International, an Irish company born out of founder Liam Casey’s case work in sourcing Chinese manufacturers. This Fortune magazine profile of Casey and PCH describes how deeply embedded the company is in global supply chains.

Want investors want

At the end of the incubator process is a pitch day before potential investors. Right now Forrest says, “I think investors want to de-risk as much as possible. Right now hardware is so expensive and it’s higher risk. Yet in a lot of ways it’s easier in a lot of ways for people to know what they’re getting.”

smiling_curve

Part of the challenge in funding hardware startups lies in financing the fabrication phase of the product’s development. Forrest cites the ‘Smiley Curve’, originally described by Acer founder Stan Shih, where the value added is at the beginning and ends of the cycle.

“The VC’s don’t like to fund the build part, one nice thing for startups is that they can get manufacturers will take on the build part so they don’t have to seek funding for working capital”

Hardware’s next wave

For investors, this makes funding hardware startups easier for investors. “It’s still not easy though,” Forrest warns. “It’s become harder for hardware startups to raise new rounds, so they have to watch their burn.”

While at the moment a lot of the focus is on wearables and the IoT, Forrest sees the Federal Drug Administration’s new rules on medical accessories changing the sort of devices being pitched to the program.  “I now think we’re moving into a new field where the devices will have an effect on the body. The FDA’s new rules around making it easier to make things around FDA approved devices will open that.”

He’ll find out soon what the next big thing is in hardware startups as applications for Highway One’s May 2016 round of participants is now open.

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Eric Schmidt on managing Google

In an interview with LinkedIn founder Reid Hoffman, Google chairman Eric Schmidt describes how he managed the company’s high growth.

“In all my issues at Google, I knew I had no idea what to do, but I knew that I had the best team ever assembled to figure out what to do,” says Google – and now Alphabet – chairman Eric Schmidt in an interview with LinkedIn founder Reid Hoffman.

Schmidt’s interview is a great insight into managing fast growth companies,”almost all small companies are full of energy and no process”. While he reflects on his early days at stricken companies like Sun (“tumultuous and political”) and Novell (“the books were cooked, and people were frauds”).

Moving to Google he found all of his management skills exercised at a company with a unique culture and rapidly growing headcount.

One notable anecdote is how Larry Page kept a 100k cheque from an early investor in his pocket for a month before cashing it.

Compare and contrast that attitude with the current startup mania where by the end of that day a media release would be issued proclaiming the company to be a new unicorn on that valuation.

Schmidt’s view, like many others, is that the real key to success in the company is the people. This echoes the interview with Meltwater’s CEO earlier this week where Jørn Lyseggen described how the key to starting a venture in a new country was the first five people hired.

One great takeaway Schmidt has from his time at Google is how great companies are created through the Minimal Viable Product method, “the way you build great products is small teams with strong leaders who make tradeoffs and work all night to build a product that just barely works.Look at the iPod. Look at the iPhone. No apps. But now it’s 70% of the revenue of the world’s most valuable company.”

Ultimately though Schmidt’s advice is to make decisions quickly, “do things sooner and make fewer mistakes. The question is, what causes me not to make those decisions quickly.”

“Some people are quicker than others, and it’s not clear which actually need to be answered quickly. Hindsight is always that you make the important decisions more quickly.”

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Building the world’s biggest small software company

Blown away by the internet, Meltwater founder Jørn Lyseggen planned to build the world’s smallest software company. Fate had different plans

“The next day I quit my job. I remember walking home that night and thinking I felt incredibly privileged to be living right at this point and I was going to see how the internet would unfold.”

Jørn Lyseggen, the founder and CEO of media monitoring service Meltwater, was describing his first encounter with Netscape 2.0 in 1995 while working on artificial intelligence at the Norwegian Computer Centre.

Today, Meltwater has 1,100 employees in 41 cities across 21 counties and Jørn spoke to Decoding the New Economy in the company’s San Francisco head office last week.

Having quit his job as a researcher, Jørn became what he describes as ‘an Internet evangelist’ in the early days of the Norwegian web and founded a series of online businesses including Norway’s first web mall.

The fourth business Jørn set up was Meltwater which they originally operated out of a shed in a disused shipyard, Shack 15. “We got free office space from one of my former clients,” he recalls. The old customer also gave them 25 old computers which they patched together to become the company’s first server farm.

Building the world’s smallest software company

“Our aspiration originally was to create the world’s smallest software company,” recalls Jørn. “We wanted to be four engineers creating the most sophisticated technology in our industry then we would sign up resellers then sit back and watch our revenue go through the roof.”

At the time media monitoring was largely made up of clipping services that would hire armies of contractor to physically cut and paste newspaper articles.

“What we wanted to do was build software that could keep track of everything that was published online,” Jørn explains. “When news started to come onto the internet then you could start to analysie it automatically. We thought there would be a better way to do this with algorithms and software.”

The best laid plans

It turned out however the plans to have a small software company didn’t work out. “We poured our heart into our technology for the first year and then we got really excited when we signed up two really respected resellers in the Norwegian market.

“They presented to 1500 companies, which is a really big number in Norway, and the results were devastating with 1499 ‘no’s and one maybe.”

For Meltwater’s founders it was a time for re-evaluating the idea. “That was a pivotal point in the company as we had to ask ‘is this a business?’. What we realised was that we were too focused on the technology and what clients are really worried about at the end of the day are the pain points.”

“Once we did that switch we started to get business and then we grew very quickly so instead of being the smallest software company in the world we set out to become the biggest in our industry.”

Going global

From there the spread across Northern Europe and the UK, “every time you start up in a new country it’s like starting a new company.” Jørn ruminates. Strangely it was Germany that proved to be the most difficult to break into. “It’s counterintuitive, you’d think the shared culture would make it easy for a Norwegian company. It wasn’t.”

The big move though was the United States, on the basis that any company with global aspirations has to be in the world’s biggest market. “Norway is a small country, we used to joke there are bus stops in New York with a bigger population than Norway.”

Jørn was surprised to find the US was an easy market to break into than the United Kingdom or Germany, “I love their open mindedness and the welcoming factor of the US culture,” he smiles.

“They are very open minded in the US, it’s a strength in their culture. In the US if you present something interesting to them they’ll accept it. The flip side is if they are open minded to you then they’ll be open minded to your competitors.”

Hiring as a key factor

Choosing the right people is the key to business success Jørn believes, with local hires being essential when expanding into foreign markets, “You need some local credibility.”

More importantly though is the importance of getting the right people early in the life of a startup business, “It’s all about culture.” He states, “make the first five to ten people the base for your platform.”

Having the right people also made it easier for his management team to delegate as executives focused on the international expansion. “We’ve got really smart young people working here, they don’t miss me when I’m not around,” he smiles.

Romanticising startups

“Back in the day it was considered you started a company because you couldn’t get a job,” Jørn laughs. “I’m the first to encourage entrepreneurship but it worries me when it becomes trendy.”

“It’s important that entrepreneurship doesn’t become too romanticised. Because it’s really hard work and most startups fail and most people have to work for years while barely getting by financially and it’s high stress”

“I never saw myself as a business person,” Jørn remembers. “I had a healthy scepticism to the commercial world, that’s why I became a research scientist because I thought it was a better use of my time.”

Becoming an entrepreneur

However the revelation of Netscape 2.0 changed all that, “it really blew my mind,” he grins as he recalls how he decided “the best way to be part of this was to be in my own business.”

Building your own business though is not an easy process and there’s tough decisions to be made. Jørn though believes that the hardest times running your own business are not when cash is tight but when the tough decisions have to be made, “sometimes you have to make calles that are challenging.”

For Jørn, he only sees more exciting times ahead as the internet evolves, “social is still in its early stage. A lot of companies struggle and worry that they haven’t figured it out, but the truth is most people haven’t figured it out.”

Paul travelled to San Francisco as a guest of Oracle

 

 

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Nine billion opportunities for fraud

The current wave of billion dollar unicorn tech companies makes a startup investment fraud almost inevitable

Everything is not all it seems at Theranos, the medical testing startup estimated to be worth  nine billion dollars reports the Wall Street Journal.

If true, the allegations Theranos is using conventional technology to run its diagnostic tests mean most of the investment community and tech media have been sucked into an elaborate con.

While it’s too early to say whether the allegations about Theranos are true, with so many multi billion dollar ‘unicorns’ running around it’s inevitable somebody will try such a scam.

Indeed, it’s in the interests of many to promote such a unicorn and for those early into the company it could be immensely profitable.

Even if Theranos turns out to be for real, there will be those that won’t be.

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Xero and the US cloud accounting challenge

Xero starts its serious push into the US cloud accounting market

Last month I wrote a piece for Business Spectator on how competition in the Australian cloud accounting market was hotting up with the re-entry of Intuit and Sage.

One of the divides between vendors was whether online accounting services scale globally with one group – including MYOB and Reckon – saying that deploying services in different jurisdictions added complexity while others believed a global product was necessary to achieve scale.

The most obvious member of the global scale camp was Xero, the company that has pioneered the growth of cloud accounting software. Two years ago we interviewed the company’s founder Rod Drury about his ambitions for the company and the direction of the cloud accounting market.

For Xero though, growing globally isn’t easy. While its most successful market has been in Australia, that country has many similarities with Xero’s native New Zealand and the company has found the UK and US markets tougher.

Renewing Xero’s US push

To deal with a much bigger and diverse market, the company appointed Russ Fujioka, a veteran of Dell, Abode and the various venture capital companies, to lead its revamped operations in the United States and Decoding the New Economy caught up with Russ recently at Xero’s San Francisco office.

For Fujioka, the key to growth in the United States market is the small business sector with the US recording nearly half a million new business registrations across the nation each year.

“You see the M in ‘SMB’? We don’t want to be playing to that market,” says Fujioka in emphasising the Xero’s focus on the small business sector.

Fujioka also sees opportunity in what he calls the ‘pre-accounting’ sector, the roughly 18 million self employed contractors and freelancers who don’t need a full fledged accounting service but need access to basic bookkeeping, invoicing and expense tracking.

Dealing with diversity

While the 28 million US small businesses represent a huge opportunity to Xero, the market also presents challenges with, unlike the New Zealand, Australian and UK markets, hundreds of banks and thousands of different state and local tax regimes.

To deal with the complexity of local tax and employment rules, Xero announced a partnership with Avalara to provide the data feeds for calculating sales taxes and payroll obligations, something that is essential to Xero’s business plans, “payroll is fundamental to our offerings.” Fujioka says.

Also fundamental are accountants and book-keepers where co-opting them as sellers of the service has been part of Xero’s success in Australia and New Zealand with Fujioka seeing a fifty-fifty split between those businesses signing up directly and those going through advisers.

The changing accounting industry

Like the rest of the world, the accounting profession is going through major changes as much of the transactional work becomes automated, Fujioka sees this as an opportunity for companies like Xero to add value to the industry and help individual firms become more akin to system integrators and technology advisers to their clients.

The ultimate aim for Fujioka is to make Xero the site, or app, that every small business starts and ends their day with, “we really want to be that single pane of glass for small business – you start your day with us, you end your day with us and during the day you check your status on your Apple Watch.”

For Xero, the key to global success is cracking the US market. The challenge for them is to capture a new generation of business owners and accountants.

Paul travelled to San Francisco as a guest of Salesforce and Splunk

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Marc Benioff’s five key business questions

There are five key questions every business leader has to answer for their venture to be successful says Salesforce founder Marc Benioff

Probably the best regular session of the annual Dreamforce conference is the final session where Salesforce founders Marc Benioff and Parker Harris answer questions from the attendees.

As with any open microphone session, some of the questions are silly but many highlight frustrations Salesforce’s customers have and some give the opportunity for an insight into Parker and Benioff’s thoughts away from the scripted glitz of the main keynotes.

One questioner asked Benioff and Parker what their advice would be to someone in their position of 16 years ago with a new business.

Forget the tech

“Don’t think about the tools or the technology,” said Harris. “Thing about the problems you can solve. Stay focused and work hard and build a great company.”

While Parker also emphasised a great team is another important element, Benioff flagged an element of luck in building a successful business, “we got the timing right.”

Ultimately though it came down to making the jump from a comfortable, if frustrating, corporate job to a risky startup.

“I remember I was working in a big company for a long time, very unhappy.” Benioff recalled and noted the decision to strike out on your own is very much a personal decision, that can only be done when you are convinced it is time.

The five questions of business

Knowing when that time has arrived comes down to five questions, Benioff believes.

“It all starts with you, you have to get clear about what is it that you really want, what is really important to you, how are you going to get it, how will you know when you’ve got it and what is preventing you from having it.”

“When you can answer all those five questions you’ll have clarity in your direction. The problem with most small businesses – and big businesses – is they can’t answer those questions.”

“If you can answer those questions then you can break out.”

Ultimately Benioff and Parker flag focus as the key individual attribute and being able to focus on answering those five questions is a very good first step to having a successful business.

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Slaying the internet’s goliaths

A big competitor entering your market doesn’t mean your business is doomed

Techmeme has long been one of the most useful sites for technology news and this week it celebrates its tenth year.

For those, like me, who write every day on tech issues the site has been a godsend. Many a time with the end of the day approaching Techmeme has pointed me an article that has got the creative juices flowing.

Gabe Rivera, the site’s founder and CEO, tells of the lessons learned over the past decade with a repeated theme of ‘Techmeme killers’ regularly coming along.

Prominent among them was Google’s relaunch of its Blogsearch product which was billed as a ‘Techmeme killer’. Like so many of Google’s products, Blogsearch was quietly retired two years ago while Techmeme is still around.

Techmeme’s success in the face of an attempt by Google to take over their market isn’t surprising, marketing guru Seth Godin described how his startup, Knol, survived an onslaught from the giant company in 2013.

Despite Google’s cash and market strength, execution matters and often larger companies lack the committed evangelists that give the smaller businesses their energy.

Both Techmeme and Knol show that no company is guaranteed success, despite its resources or power.

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