This Script Gets Your Hardware Startup Through Next Semester
“College is software, industry is hardware.“.
College is rough at times and if you been through it you know exactly why. It’s like a job - you gotta go in early. But also, it isn’t like a job because you don’t get paid. But it is like a job because there is a whole hierarchy that will love to see you bending over at times.
I actually thought college was rather brutal. Everyday for the first 3 and half years, right until finishing my last “Prüfungsblock”, I knew I couldn’t fuck up. A Bachelor’s degree at ETH Zurich, has something called the “Prüfungsblocke”, blocks of exams that when failed twice, kick you out for good. Regardless of the year you are in, you no longer can continue with your studies!
It’s the equivalent, to - when you do have job - getting fired without compensation nor record that you worked there at all…It’s brutal, but I actually loved it. It kept me constantly in check.
Survival Through Pragmatism
One thing no college, academia or even consulting experience can teach you is how to survive in the world of industry, of the people who make money out of people like you…
We started out Egg end of 2013 with a vision as clear as water. At it’s essence we set out to change the way people charge their gadgets every day. The market is great, just consider that for the past 40 years the bulk industry of power strips has sold the same product over and over again. Power strips was and is going to be my business in the next years to come.
So, we went on to produce an unprecedented volume of powerpoints, pdfs, GANNT charts, spreadsheets; enough to plan for few good moon landings. And then, using the Kickstarter formula: 1. MVP; 2. Funding; 3. “China”, we thought it should be smooth sailing.
When we finally closed stage 1 and 2, we made the ad hoc decision of not going to China (for a few educated reasons). Instead, as proud troopers, we decided to produce inland.
That’s the real journey I want to share with you. Follow this script religiously, it can actually save your hardware startup.
Not Everyone Cares If Your Startup Survives Next Month
Your logo is soo cool and the world wants your product more then time-traveling. Actually, most people you know do care about you startup. But out there, where money is the currency, you and your startup are “breakfast” if you don’t keep this list close by.
Rookieness can hit a caring string with some good fellow that has been through a rough time and pulled it through. You might remind him of you. In fact, most entrepreneurs went through the rocks to get a high-flying company paying salaries and dividends. But trust me, a caring good fellow is the absolute exception to what you’ll find out there.
When you see the CEO of an industrial company getting to your kickoff meeting on a 150'000 EUR Mercedes while every other car parked outside is a Peugeot or Skoda, believe me, the money that bought that car wasn’t all from being nice to rookies without a strategy like you. Go to next bullet.
Word Is Not A Universally Accepted Currency
When you hit the procurement phase, you’ll say to your partners a lot: “what a great meeting! Those guys are all we need!”. Yes, in this business everyone will be awesome until your “expectations” clash. You’ll have to be a pretty good dammed planner not to get into one, so just relax about it.
You know you’ll have to deal with it the moment you read an email saying something like: “sorry, but those M6 screws weren’t included in the initial proposal. Attached follows the revised proposal.”. And you’ll reply, but your sales guy said it was. And you’ll get an email saying: “Dunno, check the pdf”.
Word isn’t the currency it used to be anymore and in industry, unless you have it written, it’s really not worth a whole lot much…So, write everything in a wrap up email and send it to everyone in the meeting. He said she said will get you into trouble…
Min. 3 Quotes Of Everything
Never ever decide on a supplier without having at least 3 independent budgets to compare. And wait, make sure they are never under the same hood.
When we first looked for an assembly partner we got recommended to a super nice company. The CEO was quite professional (actually owned a 150'000 EUR Mercedes). So we didn’t go through the trouble of looking for alternatives, because he’d been recommended by a key person in our company. The initial meeting was long, but objective and all was missing was a closed budget. And that day was two days later. When we got the email with the proposal we couldn’t believe what we were seeing. The price per unit (PPU) was not 1.5x higher, not 2x higher, but 6x the PPU on our business plan! :O
We thought it was game over. Egg needed to drop the price 6x! It was hard for us to imagine that someone could drop a price by even 25%, let alone by 80%! This takes me to the next point.
Your Price Target Comes First
The company’s CEO was “nice enough” to drop his initial price by 50%, but that was still not enough for a sustainable business in our field. We didn’t loose our minds though and decided to put that guy on hold and look around.
We found a few companies that looked like what we needed and entered through the normal door: email@example.com. However, this time, we’d try a different strategy. We used the same presentation, of what we needed, just added one very last slide: our price target.
From having a PPU 600% higher then what we needed it to be, we received, from 3 different companies, 3 budgets around 10% above our target! That’s right, ~10% above, only. Now, we had a working base and hope was back on…The deal was now about negotiating scale in order to get loose of those hanging 10%. In this business, most responsible suppliers will negotiate around the 10/10 rule. Increase volume 10 fold, he’ll give away 10% of the initial PPU. Then 5/5, then 2/2. But for that you might have to trigger up the next bullet.
Pull Up Other Budgets, But Never The Budgeters
When you want to get real negotiation space, there is no better way to do it then pulling up competition budgets. You’ll go much farther this way then if you pull up the “my margins” argument. Like if they care. The Fermi Energy principle applies like a charm, “no two companies can eat the same margin”. And they’ll want your margin. What they don’t want is to loose you to the guy next door.
Important, don’t bluff! Any experienced sales guy will know what price can and can’t be done. So, if you play it to hard, you might end up loosing your best supplier for good. Important is, never ever tell who your alternative budgets are from. Even when you are tempted to do so, or the sales guy is pushy.
So, we made it to the target price. Now, pay attention to the next bullet.
Don’t Close Plan B Until It’s All Done
The last position you want to be in is start the production of whatever you are producing without keeping your plan B open right until you finished the whole batch.
And I’ll give you an example. When we did finally close the PPU with the new assembly company, we knew that there was a possibility that someone in the supply chain fails a timing, or a part arrives with a significant rejection rate. And it did. We had a supplier who delayed the delivery of a key component, but, and notice this, after we started of the assembly line! What this means is, the assembler had to interrupt the line, and have his workers catching flyes until the component arrived.
Often in industry, companies make more profit from budget revisions of last minute changes, then they do with the initial budgets.
So, at that moment, we were in our assembler’s hand, literally! He could overcharge us, and we wouldn’t have a chance but to pay…
So, you’ll always need to consider revisiting your alternative “budgeteers”, even if you are half way thought production. It might be a bitch, but it might truly save your life.
Luckily, we did pick an absolutely amazing partner to assemble Egg Powerstation and our extra cost due to that delay was quite absorbable…So the key message is, never tell “no” to your 2nd and 3rd best budgets, until you have your production completed.
That takes me to my second last bullet.
Meet Every Single Manager That Will Be Involved In Your Outsource
How an organization will act when uncomfortable problems need to be solved, is something you can only read when you meet everyone that will be involved in the project. This means that it’s advisable to meet the company’s CEO too!
Go to a meeting with everyone. And pay attention, if you feel that something isn’t right, that there is coldness between area managers, or CEO and managers, follow this simple advice: abort while you still can!
When you work with expensive equipment like injection molds, a 0.1mm off the initial 3D design might get the final product a squeak or too much grip on a sliding part. It’s hard for someone at work to admit a mistake, but it is much harder if the workplace isn’t a supportive environment.
Believe on this, a cold non-communicative company will most likely create a larger problem when facing an error where a good company will assume the mistake and expenses on the fly, just to get the client happy (or not make any mistake at all).
Always be honest about what you are all about, which is: to make a competitive business happen! Tell this to your suppliers, as it is. Tell them that you do not wish to go to China and that you count on them to stay close by for a few years to come!
Hope it helps someone as it is helping me!