Adora Cheung: Welcome.
We have Eric here today. Eric is a YC Partner. He was previously the CEO and Founder of Pebble, which went through the YC Batch in all the way winter of 2011.
Eric Migicovsky: A long long time ago.
Adora Cheung: You're an old man Eric.
Eric Migicovsky: Exactly. So now we have the other building on the other side but, YC Batch was one of the last ones in this small small building.
Adora Cheung: Yeah. You actually ...
I t was called Alerta, when applied?
Eric Migicovsky: Yup, and our product was called InPulse.
Adora Cheung: InPulse?
Eric Migicovsky: Yes.
We hd a whole bunch of complicated names.
Adora Cheung: I mean Pebbles' a great name. How did you end up with that?
Eric Migicovsky: How did I get to a much better name?
Adora Cheung: Yeah.
Eric Migicovsky: You go through a lot of worse names on the way.
I think the original names were found using a thesaurus or some sort of like, we just like scanned through a book of words that were related to alerting, Alerta, that's how we got to it originally. Pebble was a much better name.
I actually thought of it while lying on a beach and it was like two years before we actually made Pebble and I just wrote it down in Evernote on a list of good names. You have no idea when you're gonna use another name so if you think of any good ones, you just write it down.
Adora Cheung: So today I want to spend a little time talking about hardware start-ups given you ran one, especially one that was one of the larger hardware start-ups in the past few years, but then spend the bulk of the time talking about Hard Tech because you've spent a lot of time working with Hard Tech or T-tech or whatever we want to call it.
Eric Migicovsky: Here at YC.
Adora Cheung: ... Here at YC and there are a lot of unknowns still out there and we obviously want to find more of those kind of start-ups. So starting with Pebble, can you take us through a quick story of when you came to YC? How big were you? What did you do in YC? That's actually a common question of what hardware start-ups actually do in three months.
Eric Migicovsky: We applied to YC, we started the company in 2008, started working on it while I was still a student at Waterloo. Kept working on it through 2010.
We hadn't actually shipped or we were just starting to ship the product to our first customers, this is before Pebble, back in mid 2010 and I'd been on Hacker News forever but I never really understood what YCombinator was, I just thought it was like the domain name for Hacker News, and one day someone said, "Hey, you should check out YC." So just on a whim we applied.
Th e video we recorded, if I look back at it, was during Oktoberfest in [inaudible] where I was living and we were wearing Oktoberfest hats in the video.
We applied for some crazy reason Paul Graham and Jessica and the gang decided to accept us even though, I think we were the third hardware company that dropped through.
We started YC in 2011 in the winter and the stage of the company was we had shipped maybe, I think two or three hundred of our very first watch, the watch that was called InPulse that worked with Blackberry Smartphones and we had some great customer, we were getting money, we were earning some money, hadn't raised much.
I think I borrowed $15,000 thousand bucks from my parents, got some government grants in Canada which was quite easy, but we hadn't raised any money from investors. YC was the first investor.
Adora Cheung: So $15,000 thousand dollars let you manufacture, was it the first 100 units?
Eric Migicovsky: We ended up making them one by one actually. SO the first watch, they were manufactured, we bought the circuit boards from China, we had the metal, the kind of metal casing of the watch made at a small metal shop.
I guys had a CNC, a five-access CNC mill and he actually read about us in the school newspaper or something like that and offered to be our first shop for making the actual metal cases. So metal case would get made a couple of blocks away.
We get the circuit boards shipped in from China.
We also made the plastic watchstraps in China and then we would do the final assembly one by one in the garage.
I think that early process of making everything one by one was perfect for us because we screwed up everything that you could possibly screw up in the first 10 watches.
We had a lot of problems.
We had a problem with our app.
We couldn't get the signal out of the watch because it's like a Faraday cage sitting on your wrist.
An d so we said, "Well maybe lets change the metal back for a plastic back?" So we had a whole bunch of laser cut acrylic, you know, plastic cut to the same size of the back of the watch.
We kind of jammed it in and then we shipped the first 10 of them out by FedEx on something like 7 or the 10, the electronics exploded out the back of the plastic and people would show us pictures of this watch that they just bought with the guts just everywhere and so we adjusted the thing.
We started putting a piece of foam rubber inside the watch when we shipped it so that the back wouldn't explode. But it was a really good thing that we were making them one by one or else we could have potentially made hundreds with that same problem right at the beginning and had lost basically everything.
I think we iterated really quickly and when we screwed up it was only a maximum of like a pretty small screw up.
Adora Cheung: How many units had you sold before you actually went through the entire manufacturing process?
Eric Migicovsky: We continued to manufacture hand-by-hand, one-by-one by hand, up until around 700, 800 units.
Adora Cheung: Wow.
Eric Migicovsky: One of the things that people ask often about YC is, "What happens if I have to move my business to Mountain View? Its gonna interrupt my production process or whatever." So what we did was I hired a couple of high school students and I asked one of my friends who I went to school with who was doing his Masters back at Waterloo, to just kind of manage and run the production thing and they would ship them down here and we would finish it in our house that we were all living in. So I think the trick there was we didn't let's the fact that we had to be here in Mountain View interrupt our actual sales process.
Adora Cheung: So afterwards I see Pebble obviously took off and lots of great things happened.
I mean you went through lots of ups and downs-
Eric Migicovsky: It was a year after Waterloo, it wasn't like immediately after.
I t took a long time.
Adora Cheung: ... So what was the hardest part maybe out of your whole journey with Pebble?
Eric Migicovsky: Looking back I think it's different because seeing it forward, it actually took us a long time to get from the initial idea to any sort of real product market fit.
I t was five years. So we started the company in 2008. Built the initial prototype late 2008-2009. Didn't start shipping until 2010 and that was for our first watch and then we had a lot of lessons learned from that first production run and then we redesigned and created what would become Pebble in 2012. So that's five years. The hardest thing, I mean I would say we worked with a lot of founders, and the hardest question that I think I ever get as someone who helped start-ups is how do I know that what I'm working on is the right thing to work on? How do I know that this little pivot that I could do is not the right one, like maybe I should try that.
An d there's no answer to this.
I t is the hardest problem. So thinking back, I think it was probably very misguided in that I just had faith and I just never gave up even though now thinking back it's insane doing something for five years. Like, what is the definition of insanity? Doing the same thing and hoping for different results.
I was basically doing that for five years.
I guess we didn't know what we didn't know.
We were very naïve and we had a very small amount of money and we didn't know that you're not suppose to make consumer hardware products on a budget of $40,000 thousand dollars. Most electronics that you use are made with budgets of millions of dollars.
Adora Cheung: But now that you've done it or you did do it, do you think it's possible now?
Eric Migicovsky: Its totally possible. What I'm saying is that I think that the hardest part that we had to go through was not letting other people get us down and kind of maintaining that naivety. One of the things that I really love about that phase of the start-up was people couldn't really convince us that what we were doing was wrong because no one had really done it before and if people said, "Oh, you should look at raising more money." Or something like that we really didn't have the resources to do that.
We were a very constrained naïve team and so we had to figure it out and I think some of the ways I could have screwed it up was, actually the ways that I did screw it up was right after YC we raised a bit of money, about $250,000 thousand dollars including this kind of large check that we got from one investor and I took all that money and invested it in inventory because I thought at the time the biggest constraint on us growing was we didn't have a reliable, we didn't have a large amount of inventory.
We were making them by hand so we only had 10 or 50 a week and I was under the mistaken impression that if we could start selling it in real time rather than saying we'll do it pre order and sale it to you in a couple of weeks, that our sales would have taken off more because then we tried this, we manufactured instead of making them by hand in our garage we went to a small contract manufacturing in San Jose and manufactured 3000 at once and spent all of our money on that.
I 'll see that the stories going, it takes longer than you expect to bring up a new manufacturer. So it took six months or eight months instead of three months.
I t cost more than we expected so the [inaudible] cost rose and then by the time that we actually manufactured them, that eight months rolled around our email list of potential customers had kind of dried up. Everyone had switched from Blackberry to using iPhones and then we were stuck with a whole bunch of inventory. So that was a really rough difficult part.
Adora Cheung: It's often, not always, but in many cases people get really creative when they don't have much money and they have to get really scrappy and then when they raise a ton of money they forget how to do that.
Eric Migicovsky: It happened to me again three years later.
We raised a bunch of money and then started hiring and this is a big problem that even mostly the successful companies run into. So I think the moral of the story for me at least how I think about projects that I work on is that frugality is vital to me. Not everyone has the same and not every industry is exactly the same.
Th ere's a few crazy industries right now which are kind of by definition the opposite of frugal. I'm thinking of the scooter, scooter [inaudible] phase, where it's like a matter of raising as much money as physically possible but for the vast majority of people staying frugal is what actually like ...
Adora Cheung: Yeah.
I f you don't have obvious network affects or first mover advantage then usually you should get on the other path. So Pebbles' known as one of the most successful Crowdfunding Campaigns on KickStarter. A lot of people view Crowdfunding as a way in loo of fundraising to do that route. So I think there are a lot of questions on when is the right time to do it? Especially like at what point do I need a product that is real and it works do I need to align that with the Crowdfunding campaign and so forth? What is your advice on that?
Eric Migicovsky: After having gone through a couple of these cycles, here's my advice.
I think Crowdfunding can be useful for two specific points, mainly useful for two specific points in start-ups. You could use Crowdfunding at the very early stage when you have an idea on the back of a napkin, maybe a render or two to raise $25 $50,000 thousand dollars that can help you get to a working prototype.
Th is is for people who are software engineers and are experimenting or want to work with hardware.
Th is is for hardware engineers who have zero money and they just want to prove that some people want their product. So I want to be very specific.
Th is is an intention play. Its not trying to build a multi-million dollar campaign with super fancy CGI graphics and overproduced videos.
I 'm talking about people honestly saying, "I just need a little bit of money to get this idea off the ground." And I think there's an opportunity to use Crowdfunding right there.
I t could be as emailing a bunch of you friends and saying, "Hey, do you wanna just, do you want one of these?" This is like the best test that you can have for early product market fit is do your friends and family actually pay you money for what you're making? Do earlier customers actually pre-pay for what you're making? It's not perfect because they may want to try it first or something like that but if you are making something that people really want they're basically throwing their money at you. So that's an opportunity for kind of this early Crowdfunding.
I really encourage people to not try to do the marketing blow-out campaign at the start for two reasons. One is just looking back, most of those campaigns, even if they do succeed at raising money, usually fail to produce and actually ship their product.
An d I think the reason why is going through the cycle of having to make something and ship it to customers is really educational and you also learn what people like about your product or what they don't like as quickly as like you reduce the amount of time between you having the idea and you getting validation of do people actually want this idea. So that's the first I think opportunity for crowdfunding.
I think there's actually another opportunity using it more of as a marketing and sales channel, which that I think more of what we did where we had already made, most people don't know this, but when we launched out Kickstarter Campaign, we had already made and sold around 1500 of our first watch. So we had gone through all of the pain and the cycle of building that and we had a really good idea of what Pebble should look like because we had feedback from about 1500 individuals who were super eager early adopters, very open with their feedback and we tuned and tweaked the product. So I think there's a kind of like two separate Crowdfunding opportunities in a consumers products lifecycle.
I think too often people blend them together or they don't know which path they're on and so they kind of screw it up. There's actually a couple of other platforms for this early Crowdfunding, there's Kickstarter and Indiegogo and that kind of thing, but there's also TenD, there's Crowdsupply, theirs like Hackaday Forums. There's a lot of really niche areas where you could, you could go to a discord server and say, "Who wants to buy ..." Like you don't have to use the big Kickstarter platforms for kind of that early phase.
Adora Cheung: Do you suggest having a date in which I can promise you I can actually deliver this? 'Cause if I'm using Kickstarter with the first route, maybe I don't know that I can deliver it within six months.
I s there a certain time period in which I know I can deliver then I do that?
Eric Migicovsky: Yeah.
I would encourage that if you're not confident your ability to ship it, then don't use one of these Crowdfunding platforms where it's very shipping centric, there's other options. And again, I really do encourage going through that first cycle to find out things like, how long does it take me to make things? Do I have all the skills on my team or do I actual have to find people potentially in the community to help contribute software or other skills to the team? Again, too many people I see they skip that step and they try to go directly to high-powered marketing campaign and it's just such a sad time most of the time.
Adora Cheung: And sometimes there's a group, we try to go after the group before the early adopters, 'cause on Kickstarter those are kind of early adopters but there's a group before that.
Eric Migicovsky: Exactly. Exactly, and I think for your given industry and for your given product category you should be able to it. Sometimes it's as simple as going on a [inaudible] .
We've had some great companies come through YC and they do their initial sales just by earning credibility in a Facebook group or they earn credibility in Reddit group or Discord.
Th ere's a ton of customers there.
Adora Cheung: So when you talked about Pebble earlier, you talked about hiring people and outsourcing things. What's the right call in terms of outsourcing the various components?
Eric Migicovsky: This is a really hard question for Hard Tech companies because more often than not, the skillsets that you'll need to build your products are actually quite varied. You may need a mechanical engineer, an electrical engineer, a computer engineer, some production people, OPS people, and you don't necessarily need 100% of that person all the time, you need 15% or 20% for three weeks and then your back to not needing an electrical engineer. So the best way to solve this is to have really flexible technical people on your team where you guys can just kind of incorporate everything and just do it yourself because those teams move so much faster than teams that require an external kind of process. Some of the most painful moments of my early career were not having full time co-founders and having to work with contractors or consultants who honestly like you can't pay someone enough to care.
I mean firstly because you probably don't have that much money, but also because people who are working on contract, they're just set up to not have same motivations and same alignments of someone whose working 24/7 trying to get their [inaudible 0:18:48] start-up off the ground has. You run into time commitments.
I just got an email the other day from a Founder who's like, "Yeah our intern went back to school." And he was developing a large portion of our company.
Adora Cheung: Oh, no.
Eric Migicovsky: So I actually opt for in the early days and pretty much all days, trust and dependability and kind of smartness over very specific deep domain specific knowledge in who I'm looking to hire.
Adora Cheung: So last question on hardware specifically, there's this common saying or adage or whatever you wanna call it, it's like, "Hardware, you can't just build hardware, you have to have a software component so the scales you could have a subscription service of it instead of just the one off type purchase." How much do you believe in that or what do you think about people who say that all the time?
Eric Migicovsky: I've been working on, I've been doing a bit of research into this category, this really got me interested right after Pebble because that was some feedback that we often got, "Could you launch a subscription service? Could you have some sort of payment subscription?" And you've heard of product market failure, right? The idea that customers really in a particular market are going after your product.
I actually think there's something called Business Model Company Fit, where you could have the best product in the world, you could actual have product market fit, but if you have the wrong business model, you're not gonna be able to fund and grow your company over the long term. So it's kind of like an advance thing, you don't need to worry about this if you don't have a product market fit because if you don't have a product market fit you don't have a company. But we ran into a problem pretty soon after we hit product market fit of misunderstanding what was the business model that was gonna drive this company? And I think it's like seven or eight or nine different business models that kind of like lanes that hardware companies or Hard Tech companies can use. From just kind of researching and putting companies into different categories and you have the subscription companies like the Nests or the Drop cams of the world that are selling ring healthy $3 to $10 dollar subscriptions per month. But then you see other companies try to do something similar and it just does not work. So in our case we didn't struggle I think with subscriptions, we experimented with it, it wasn't really gonna work for us, but the way that we screwed it up was, we didn't understand that we were in a hits driven market. Hits driven being, you come up with a consumer product, hopefully it's a hit, it hits that product market fit and people start pulling it out of your hands. Similar to a games company, we didn't realize that we had to be super frugal, super kind of low-budget as we developed the new products and kind of tried to engineer another hit. Our first product was certainly a hit. I don't think we ever reached a stake velocity to a hit with any of our later products and I think if we had built more frugal organization, if we were able to build products cheaper and then launch them and test to see if they were successful and if they were successful, scale it up, ETC.
I think we would have had a slightly different outcome.
I t kind of goes back to, there are these different models for hardware companies and you need to make sure that your on the right one. You have to question yourself and be like, "Should we really be on a subscription model? Is this really what customers are gonna want? Will they want to spend $5 dollars $10 dollars a month?" And you can't force it, and if you force it like I think we tried to do, you might add extra problems on top of just building great products for your customers.
Adora Cheung: So pivoting a little bit to Hard Tech, so we funded lots of cool Hard Tech companies lately, Quantum Computing, Self-Driving cars, [inaudible] printing in entire homes so on and so forth-
Eric Migicovsky: Agriculture Technology, yeah.
Adora Cheung: ... Nuclear Vision, Nuclear Fusion.
Eric Migicovsky: Aerospace. Space.
Adora Cheung: Space. Yes, rockets. Lots of satellites and rockets. So maybe we could calibrate the conversation a little bit. How do you define Hard Tech, D-Tech? What does that really involve?
Eric Migicovsky: For me I think what I'm excited about in harder technology spaces is the, in the software world the iteration cycles are quite short. You could push code to your repo and have it go live within seconds and so you could rapidly iterate on your product and get feedback from your customers, I think Hard Tech companies can't.
Th ey don't have this same rapid iteration cycle.
Th ey either have hardware in the mix which kind of not at that same speed yet, though it is dramatically decreasing the amount of time that each iteration cycle takes, or you might have some sort of fundamental technology that your working on that needs to be developed in order to unlock a new business model or new use-case. Or you might be regulatory, regulatory constrained either in the medical device space, drone space, transportation space, self-driving car space.
Th ese are all like there're external processes that you can't control that affect your iteration cycle time.
Adora Cheung: So say I had this crazy idea, something to do with rockets or something insane to most people, normal to me of course-
Eric Migicovsky: Except for Rocket Scientist.
Adora Cheung: ...
An I have no money, where do I even start? What do I do?
Eric Migicovsky: It doesn't cost that much money to get started these days. You can do something like start-up school where they give you free money to invest in, like if you're working on AR Machine Learning you can use that to get compute credits.
Adora Cheung: Maybe a better question is, what is an MVP?
Eric Migicovsky: For most of these harder tech? For medical devices I think the MVP is successfully peer-reviewed science that supports what your working on, that there's some sort of opportunity here and kind of understanding of what your path to clarence is.
Th ose are in my opinion I think the best companies because there the ones who have shown that they understand which business model their in and they know what's gonna be taken of them to get to kind of sales, but they don't necessarily have to be too far along that path and I think at that stage investors start to get excited when they see the mating of science in a use-case.
We've had a bunch of companies that are working on rockets and satellites and propulsion, that kind of thing. For those cases it's usually some sort of sub-set scale representation of what you're working on and customers. So in all cases, even if you're working on regulatory constrained products, having customers either contributing money to you through early contracts or further along on the pilot track, the better.
I think often times engineers, we love to build things, we don't as much love to sale them. So what I look for in early stage companies is are the founders technically competent and do they understand that they're gonna have to kind of reverse themselves, become sales people or not?
Adora Cheung: What do find by Demo Day when they're in front of a lot of investors? What is it that you encourage them to accomplish by then? It sounds like there's two paths. Business if you can do sales, there's no regulatory issues to doing sales you should have some paid contracts [inaudible] maybe and then also technical validation like proof that you can actually build this.
Eric Migicovsky: Yeah, and I think too often people convolve these and they say I don't wanna sales until I have something that I can show to them.
Th at's just not true. Most customers, if you explain that they have a problem and you have a way to solve it, they'll get excited and if they're not excited it's probably a sign that they don't really have a problem that they want to solve.
An d so, often times we get companies that come in at the beginning of YC and they say, "Well, we wanna spend the first two months working on improving the prototype and getting it to the point where were proud of it and then we'll do sales in the last month." And we kind of flip that around, like do the sales, hit the pavement, like talk to customers and you'll actually build a better first product for them then if you just built it first and then showed it.
Adora Cheung: It also gives you confidence that your going down the right track, if someone gives you-
Eric Migicovsky: And it's hard.
We had a company in the last batch that had been working for two years on building a prototype.
Th ey were commercializing some technology that they worked on in the university and it had a hardware component and I remember seeing, I think it was their second or third application to YC and they had kind of similar videos of them doing the demo with their technology and we liked their commitment, they had been coming back and their technology was getting better and they were just starting to talk to customers and we said, "Lets give them a shot." So we brought them in for an interview, accepted them in, and then basically the first week we took them aside and just said, "You need to start selling. You need to get people excited and interested." And it was almost a 180 for them because they thought that we were gonna say, "You should work on the technology and get to the point where you have working units, widgets that you can sell." And we said, "No. Start going and talking to customers." It took a little while for them to get up to speed, it's like excersizing a new muscle especially for engineers and within the span of two months they went through several roller coasters of having zero leads to having a whole bunch of leads to having them all collapse and no ones signing, and then probably six or seven weeks into YC, they were like, "We got our first contract." Then they got their second contract and then they got their third and then by Demo Day, they had already lined up four or five million dollars in sales and it all happened in the span of three months because they kind of stopped working necessarily on just building their technology.
Th ey were still working, they had a three or four person team so they were able to split it up, but the focus, the number one goal became, "How do we get sales?"
Adora Cheung: You do a lot of trips where you go to schools specifically you talk to scientist and engineers, [inaudible] programs. What is your advice to them to make the job? What should they consider? A lot of them are thinking about commercializing it but maybe they think, I don't know what they think actually. But what is your one-two punch on that?
Eric Migicovsky: Having started my company in a university town versus somewhere here like Silicon Valley, I felt very protected.
Th ere were a lot of government grants.
I was able to raise non-diluted funding, and plus side we were able to to use that funding to work on the project but the down-side was there was no pressure to have some sort of product that customers would pay money for.
I t wasn't really in the DNA of the start-up kind of Eco System that I was in. Most people were in trans with working on their start-up and not necessarily getting to that next stage of building kind of a profitable longer term corp.
An d I think that that's sometimes affects people who are in universities even more because the default is raising money through grants and working on longer term projects, whereas the special case is spinning out a company and actually trying to customers to buy it and I think what I would encourage is like try getting out of your comfort zone, just as an experience or experiment. Don't say that you have to dive in head first with no parachute but if your working on some sort of technology that you think could have some sort of positive business impact like get her into the lab. Go to some conferences, not educational conferences, like corporate sales conferences. Start talking to customers and see what people think.
Th at's a start. Hopefully, if your lucky and things are in the right spot, again, customers will be like, "Where's this been all my life? This is amazing.
Th is is exactly what we've been dreaming of, I can't believe it finally came out of the lab." And that should be the momentum that just pulls you along, but you have to get out to at least try it.
Adora Cheung: Say you get to the point where you feel confident you have some amount of interest in your product, but to actually build it you need lots and lots and lots of money. What do you need to show to investors?
Eric Migicovsky: The best companies in my onion are the ones that don't require a ton of money to work on or at least to get to some sort of MVP stage. Kind of like all the advice that YC gives, it's usually applicable to 90% of the companies, and there's always 5% on either side that are in a special case. But even some of the best Hard Tech companies I've seen, they don't have a binary outcome where they need someone to insert $100 million dollars and that's the only thing that can develop a product.
I don't know anything about these companies other than kind of press reports but take kind of magically versus Oculus, right? Magically raised lots of money and spent 11 years working on a product, verses Oculus which raised two million dollars on Kickstarter, shipped an early development kit that was not amazing, but they iterated and they got through, and now the Oculus, the new one that's like $400 bucks doesn't need a computer, it's exactly-
Adora Cheung: Quest.
Eric Migicovsky: ... Yeah, the Quest.
Th at's exactly what people are dreaming of now and there gonna have it within six months and they had to go through six seven years of painful iteration but they did it.
Adora Cheung: So, last question and then well take audience questions. What's an idea, just still curious, What's an idea that sounded so crazy to you when you heard about it, but then when you met the founder and they stepped through everything you were like, "oh, that's not so crazy, this is totally possible."?
Eric Migicovsky: Relativity Space.
Th at was a company that went through YC four three years ago? Not very long.
Th ey wanted to build a 3-D printed rockets.
Th eir thesis was, it's not actually rocket assemble that costs a lot of money it's the testing phase of integration where if you have hundreds of different systems that have to work perfectly with each other when you assemble and build the final rocket you have to test everything. Slightly different path than SpaceX which is going for the reasonability thing. So their thesis was, if we can 3-D print the entire rocket, from the tip of the exhaust to the motor, to everything in one piece, the integration time is zero because you just printed it. So they're working on this and it was just an idea.
I think they did a Hot Fire during YC.
I think they were working on it, I don't know exactly how long they had been working on it for, but yeah, that's a pretty crazy idea and to come through YC, especially to pitch to investors that probably were not all space investors, must have taken some guts, but they did it. They showed off their first 3-D printed rocket.
Th ey raised early funding off of that. They started work on their larger products and raised a whole bunch more money.
I think they just raised their BRC just last year.
Adora Cheung: They also, they worked at previously SpaceX-
Eric Migicovsky: SpaceX.
Adora Cheung: ... Or New Origin but they didn't have many years of experience so it was kind of actually crazy in the sense also they were extremely young and for this kind of thing to-
Eric Migicovsky: Yeah, and people believed in there vision.
Th ey demonstrated enough I think of what they were working on and I think it was actually interesting, so, I don't want to say too much incase I'm wrong, but I think they were working on the printer first and they were looking for an application for this massive metal 3-D printer that they had built and they found space, I mean it was their background and their passion, so I think that's the one that they took it in, that direction that they took it in.
I see this a lot with people that are working on really cool kind of fundamental technology.
I think PG had a pretty good tweet about this a couple of weeks ago, he said, "If you're in a situation where your building something that's mindblowingly cool and revolutionary, but your finding that customers don't want to buy it, pivot your company so that your actually doing what your customers would have done and just use your pioneering technology to do what they do faster, better, or cheaper, and sale to their customers." And that's kind of I think what Relativity did, is they were building this new 3-D printer and they realized that they could just build rockets with this technology and we will be better than what everyone else is building rockets in that space.
Adora Cheung: Cool. So questions? You first. Speaker 3: Speaking of that, we've actually sold cups of coffee for $40 bucks a piece now but were making equipment for coffee shops to eliminate bitterness. Based on the path of pending technology and how do you find those first customers? Like, you did 1500 Pebbles' before you went public, how'd you get the 1-50?
Eric Migicovsky: So, the question was, how do you get your first customers? How do you get 1-50? I talked about this a little bit earlier, some of the best ways is to kind of infiltrate the community of people who you think will want your product. There are an unlimited set of places on the internet where people talk about products and they talk about services.
Th ey can range from, you know where the WhatsApp guy posted his app first in back in 2009?
Adora Cheung: No.
Eric Migicovsky: He posted it on Fire Talk Forums which is like a whole bunch of geeky business people who fly a lot and that's where he posted it.
Th ink about that as the first kind of usergroup for WhatsApp, it's perfect, right? Its travelers who want to talk to people all around the world who are tired of paying for overpriced SMS bills and it's 2009, so people are just starting to get smartphones and that kind of thing. Perfect. You couldn't have planned it better if you tried. So the best companies are the ones that just kind of get out there. For us we got a lot of press in the early days by talking to bloggers. So I have formed personal relationships with all of the Blackberry bloggers at the time.
An yone remembers Crackberry? CrackBerry Kevin? So I would fly out to conferences on dirt cheap red-eyes and instead of buying tickets to the conference, I think we would just kind of sneak around and get into the ... Like once that CES back in 2009, we'd just walked into Ngadgets Trailer. Ngadget had this big trailer where all their reporters were working and we didn't know anyone, so we just walked in and then just started pitching to people and ended up getting his food.
I t's like a picture of my wrist with a broken watch or it didn't even work at the time, but it's like, "So and so is working on a smartwatch." And that drove a ton of traffic in the early days, was just kind of people self identifying that this was something that I wanted.
Adora Cheung: It takes a lot of hustle for sure. Okay, right here. Speaker 4: [inaudible] .
Eric Migicovsky: Yeah, things are much easier. So the question is like we're a bunch of software engineers, we have an idea that includes software and hardware, how do we get started on the hardware? Well the good news is that it's easier than ever.
I wrote a blog post that was on Tech Crunch a couple of months ago about how software engineers could kind of get started on this and the recipe pretty simple. Find an off the shelf product that kind of does what you want to do.
Th at's kind of half way there that you can actually just buy off Amazon or Alibaba or something. Because the amount of time and money and tears that you'll save just buy buying a product that's half-way to what you want to build will do a couple of things. One is it will get you within two to three days or however long shipping takes an actual physical representation of what you think you want to build and you will began to use it hopeful to solve the problem that you want to solve and you will learn like maybe I'm completely wrong an this often happens. Like the best intention product when you actually build it might not actually solve the problem that you want to solve. So getting half-way there for $200 bucks or $300 bucks plus shipping is just so much better than weeks and months of prototyping just to get to the same kind of level.
Th e next step after this is to take the 50% there product or the %75 percent there product and hack it to do what you think is better. Either adding a little bit of technology on to it, and adding your software stack, modifying it could be as simple as repurposing the same technology and changing the setup. A good example of this would be kind of the scooter companies.
Th ey took Show-Me Scooters, nine-bot scooters and they just glued on cell modems, that's it.
Th at's how scooter sharing starts.
I ts like cell modems and GPS plus scooter.
Th ey didn't build this scooter themselves they just bought it off Alibaba and they bought the modems from some company that was making modems. So that's kind of the prototype I think for the next generation of consumer hardware as well as enterprise hardware.
We had a company two batches ago that builds cameras for neighborhoods, neighborhood security, and they used a raspberry pie in a Pie Cam and a three printed case and they sold those for hundreds of thousands of dollars and the hardware cost a very small amount of money and they're just solving a real problem for end-customers and people are paying them in exchange for that. So, yeah, it's even easier than ever. You can find people on Alibaba, you could meet factories over at WeChat, just don't try to build it all yourself. Don't hire an industrial design firm to build you some new design. Don't higher an engineer firm that promises to do a custom design for you because that will cost hundreds or thousands of dollars and it will probably be the wrong product versus like $300 bucks buying something, meeting the factory that makes that current product and asking them to kind of make the changes that you want to make. Speaker 4: Before product market fit, do you recommend families to move closer to suppliers so places like Shenzhen, you know Beijing?
Eric Migicovsky: So the question is, should you move closer to Chen Gin or factories when you are pre-product market fit? If your pre-product market fit and you have a product that you're iterating on, figure out a way to reduce the iteration cycles so that you get more chances to dazzle customers and to find that product market fit. So you could solve that two way.
I f you think that moving to the factories will enable you to do faster iteration than you already have sales channels setup, that's cool.
I f not and you don't really have than many customers, then move closer to your customers so that they iteration can be done in software maybe, not hardware and your just spending every minute in front of your customers. So we have a couple of companies that did that in the last batch and they were using drones to solve very specific business process problems and they basically just moved to where those businesses are. Took up a crapy motel room and turned that motel room into a drone factory where they were making ad modifying their drone and that case was probably the right call for them. Speaker 5: Do we have to protect our products or how can we protect?
Eric Migicovsky: Protection.
I P protection. Trademark protection.
I s that kind of what you're interest is? Yeah, Patents that kind of thing? So this question I think kind of touches on how do you build a motte for your company? How do you make sure that once you figure out a beautiful product, figure out who to sell it to, that some other dude doesn't come along and just steal your idea. So there's a couple of ways that you can solve this.
Th e best ways in my opinion are companies that have some sort of innate motte where it's either network affect, where the more people that use your product, the better is for everyone. Or some sort of data lock-in where you use the product, you generate data today but it happens to be in one ecosystem, someone who builds a competing piece of hardware can't get that data easily.
Th ose are the two best like what do you think about that?
Adora Cheung: I think those are good, I also think Patents previously used to be very hard to get.
We have a company called Cognition IP, I would just use them and you just pay them some little amount of money-
Eric Migicovsky: They use software to help you file? So the problem with Patents is that they're not, like if you're thinking about this problem specifically like how do we block other people from copying our idea, there actually really difficult tools to use versus those other two things that I described that are actually, you control all of the levers.
I f you can build a product that has built-in network affect or built-in dates you control that. You don't have to rely on lawyers, you don't have to rely on the government, you don't have to rely on the courts, to enforce your domain dominance. But if you rely on Patents or that kind of thing you're basically saying, "I'm putting this money down as an investment but I'm gonna have to invest a lot more money later in order to use unlock that first investment. So it's very rare that start-ups build a successful motte using Patents.
Th is happens much more in Bio Tech space.
Adora Cheung: Yes.
I agree with that.
I think building really great products is just really the only way to really build the motte.
Eric Migicovsky: I mean, again, for 5% percent of companies there might be some sort of Patents strategy but for 95% it creates problems.
Adora Cheung: Yeah.
I think it's also easy to build and people just copy it, even if you get the Patent so it really doesn't matter.
Eric Migicovsky: Well that's the thing, you need money to enforce the Patents. You need time to enforce it and if your companies dead, it's hard to enforce Patents.
Adora Cheung: Cool. Back there? Speaker 6: If you're building a product just trying to solve a hard vetch problem like solving social media especially with AI, how do you convince people to go on and use this when your going after [inaudible] .
Eric Migicovsky: Marginal markets are great. So the question was, what happens if I'm building a Hard Tech problem trying to solve a longer term problem? That first problem that I'm solving what if it looks too small? Honestly, the best investors will want to see a small market because a small market at the beginning means you can identify who's in that market very cheaply verses having to boil the oceans. Saying there's like 2% percent of all people in the world who are interested verses 80% of this one group. So it's cheaper and easier for you to find those customers.
Th e second thing is that small group of people will tell you quicker whether you have a good product or not because they know that they have a problem and your telling them, "Hey, buy this thing, it solves your problem." They can use it and be, "Yeah, that solves it.
Th at's good. Problem solved" They'll give you feedback. Whereas if your trying to again target like a really large group with a vague product idea, it's gonna be harder to know whether that person just wasn't interested that week, maybe they didn't have enough money.
Th ere's more reasons than you had a bad product if it's a really vague and large market.
Adora Cheung: Just to add on to that.
I think starting small is good but also having a roadmap to how it builds into something big is good as well for investors specifically.
Eric Migicovsky: And for yourself as well to know like keep motivated. Speaker 7: What do you think about the term of hardware for service because now [inaudible] .
Eric Migicovsky: So this questions related to like do I pick a recurring business model, subscription business model, hardware service, or do I just sale the product? So this kind of goes back to what I was talking about before, which is making sure that you have the right, you're pretty sure your in the right business model track for your company. So there are a lot of these different tracks.
Th ey're not just hardware service, they're not just consumer, there's hybrid model, there's insurance models, there's advertising driven models, there's a ton of different way that you could look at it so it's not just one or the other. Heres what I would say, on the Enterprise side, you need to figure how much money you will save your customer, or how much more money they will make and price your product accordingly. Like your product price to them will be less than either how much they're saving or how much more they're making and you should try to price it as high as possible to still let them have some savings but you should rightfully so, earn some of the profit from that innovation that you have. Sometimes that may a hardware as a service model.
I t might be upfront and it really depends on kind of your customer at that point. So it's really hard for anyone to try to give advice on that front and it's much more around talking to customers, experimenting. You could do press experiments. Most companies are so small that every time a new person hears ...
I 'm sorry, every time they do PR new people who have never heard about it, will hear about it for the first time and they won't know what the last price was. So you can afford to do that kind of experimentation, especially at the beginning of your company. Speaker 8: Is hiring.
An d having access to all problem [inaudible] .
Eric Migicovsky: How do you do hiring, especially when you're scaling? Hiring is a mode that the company's in and it's a very distracting mode, so I think the mission of a early stage start-up is to get to product market fit.
An d it's definitely not to hire a team. No one gets points for hiring a team or you get a very small number of points for hiring an amazing team. You get a lot more points for finding a product that has product market fit. So hiring in general is really a touchy subject, there's no one size fits all there. Some general advise that I have is what I mentioned before which is hire for trust and hire for reliability over hiring for specific domain knowledge.
Th is has really benefited me because right after we kind of hit on Kickstarter we were only two people of the company, two full-time people and two interns and so we had nobody and all of a sudden we needed to hire people and we could have spent three to six months hiring a 30% team, people that we would need to hire, experts that have done it before We could have spent time doing that.
We would have delayed our initial production by probably three to six months, however long it would have taken to hire that team. So what I did instead was, I jut phoned up some of my best friends from university who had been intentionally involved in the project and said, "You need to quit your job and just fly here." And I think all of them, we just hired seven people within three or four days like that and that worked because we had that momentum and we had found product market fit and so they were like, "That's cool.
I wanna be part of this rocket ship.
I wanna take off." But we didn't have to do three to six months of hiring, we did six to three days with the hiring and I knew them, I trusted them, they were instantly part of the team because it was just like we were working on another school project again.
Adora Cheung: It seems like the best source pool is either people that you met in college or from working.
Eric Migicovsky: Past jobs you've had. Yeah, like to often people overlook like someone that they worked at a job with two or three years ago. One of the coolest hacks that you can do is just look through it manually, slowly. Look through your Facebook or LinkedIn and just look at every persons name and think, "Is this person cool and technical?" And just go through that list and you'll probably find a Co-Founder, you'll probably find a first employee, like some long lost friend from high school that's actually a super cool developer. You could hire her and just bring her on to the team.
Adora Cheung: The second step that people miss then is actually asking that person and giving a real offer.
Th ere's always a, people do this ambiguous dance of like, "Oh, I don't want you to say no to me, so I'm not really gonna ask you."
Eric Migicovsky: So there's a good book called, "The Hard Thing About Hard Things" by Ben Horowitz and he talks a lot about working with friends and the difficulties and benefits of working with friends. So I'd read that book if you do end up hiring and working with a bunch of your friends.
Adora Cheung: Right back there? Speaker 9: On one hand your like well this might be solved with a little bit of power but it would also [inaudible] .
Eric Migicovsky: Question was, For some project problems, they can be solved exclusively by software, how do you know when to involve hardware in it? When in doubt take all the hardware out, doesn't solve the problem.
Th at's the best place to start.
Th at's why I was kind of saying like how could you just buy something off the shelf and just use it. Because you may need some hardware, you may need a camera, you may need a microphone, you may need a commute platform, just buy raspberry pie and plug USB devices into it. You don't need to build anything these days. Some people that that it's not gonna be in the right form factor, or it's not going to do the exact right thing as what I think our customers need. Just try. Just build something, hack something together, and see if it at least almost solves the problem because like I was saying more often than not that initial test will prove that either you have really good problem that really needs to be solved or nobody really has that problem and you don't need to now spend three months working on custom hardware. Speaker 10: So actually we are creating a holographic [inaudible] what is the best way to [inaudible] .
Eric Migicovsky: So the question was, we have a really complex product an AI Psychotherapist or therapist that can help people. How do we demo that or how do we convey that product to people? I would hazer to guess that it's kind of a similar question to the last one, it's like are there ways that we can do this in software rather than hardware. So if I were working on a project like that I might start by actually creating the assistant as an app first or maybe like a 3-D unity character that approximates it that gets similar, close to what you want to do or use an off the shelf device like a HoloLens or Magic Leaf, or something like that, where even though it will cost way more than you think it's gonna cost for the future, this is kind of the trick. Like over spend in the early days. Spend more than you have in order to get that first test done if it's possible.
I f you don't have any money then I guess you can't, but if you have a little bit of money, spend that $400 dollars to get a Oculus so that you can simulate the experience in VR before you actually go make the hardware. Speaker 11: The thing about building a company is you have to have a product market fit from your own revenues and profits and potentially [inaudible] .
Eric Migicovsky: I would actually go one step above that and understand why hardware companies need financing? Usually it's for inventory.
I t's rare that a company will have to get funding for, I guess it's not rare, there's like funding for inventory and there's funding for R&D. Funding for R&D is like you need that. You can either get it through prepayments from potential customers that's harder but most people try to raise R&D funding from people like YC or other investors. Banks will not lend you money for R&D, your family might. So I would try to reduce that as much as possible. Try to spend as little money as possible hacking together, prototyping, getting to the point where you know what products you're gonna build.
Th en on the inventory financing side, heres the thing that I've learned.
I nventory sucks.
I nventory's' is one of the hardest things that hardware companies have to deal with because they can't make money generally until they have a rodent that they need to sale.
I t costs money to build that product and it costs time to build that product. So you have what's called a cash conversion cycle where you may need to put inputs, dollars, into your product in order to get outputs down the road. Again, it is impossible, it is very difficult to manage inventory. So the better thing is to actually to rise above it and to get into a situation where you don't need to buy as much inventory.
Th ere's two ways that you can do this. One is you can get customers to pre order, that's the easiest way because then you have a very perfect idea of how many units you need to build so that you can, and you can use that money from pre orders to actually fund the development, you don't need to raise money from [inaudible] , you don't need to raise money for [inaudible] .
Th at doesn't work always, but it does work in some crazy situations like Show-Me, up until two or three years ago sold their phones on Tuesday mornings. You couldn't go onto the website and buy Showme phones , you could only buy them Tuesday mornings. So it was like a thing, everyone would be at their computers on Tuesday mornings waiting for the latest drop of Showme phones and they had a really short production cycle, like not a week, but they knew based on these Tuesday sales, how many units that they'd need to make over the next couple of weeks. One Plus also did the same thing. So that's one way of doing it, the pre order route.
Th e other way is to change your product so that it takes a short time amount of time to build.
Th is is called reducing the lead times. So the secret benefit of reducing your lead times is that you have to put less of your hard earned cash into inventory that will then take months to turn into actual revenue. So interestingly enough sometimes it's in your best interest to pay more for the product, pay more for the building materials, pay more for the components if the lead times are shorter because you may not actually have a margin problem, like you actually have quite a bit of free margin but you have this cash flow problem where you can't fund new batches of products because it takes six months to turn that product into revenue. So you could take some of the margin, you could do a trade off where you earn less profit per unit, but you're taking less of a risk upfront.
Th at's kind of the general learnings that I've had around how to do hardware financing.
Adora Cheung: Great.
Th ank you very much Eric.
Eric Migicovsky: Thank you.