Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
Transcript of Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
Client Confidential
Hardware Startups 101for “Career Engineers”
March 2014 to NES-OSA
Gregg Favalora
CTO – VisionScope Technologies, LLC
Visit http://bit.ly/hwstartupsbos
for links to the cited meeting calendars,
pitch deck fundamentals, books, etc.
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality Systems searching for a market
• Nine critical factors: “Traversing Gregg’s Tripod of
Tripods”
• The 10-step path for aspiring entrepreneurs
http://bit.ly/hwstartupsbos
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin / Legal
Financing / Legal / Accounting / Taxes
Board of Directors: Bosses, Allies
Quality Systems, Design Ctrl. (med dev)
Psychology Outbound Marketing, Sales
Attracting and Retaining Talent
Seeing & dealing w/ stress, bozos
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality Systems searching for a market
• Nine critical factors: “Traversing Gregg’s Tripod of
Tripods”
• The 10-step path for aspiring entrepreneurs
http://bit.ly/hwstartupsbos
A Company’s Lifecycle [Ideal versus actuals]
Startup
Profitable
M&A or IPO
“Lifestyle Business”
Dissolution
Client Confidential
http://bit.ly/hwstartupsbos
You Can’t Predict the Ride’s Result or Duration
10
Actuality
Systems
Actuality
Medical
Series A
$1.5M
Note
$0.8M
Series B
$3M
Series C
$6.5M
Notes
$2.5M
1997 2004 2009
PerspectaRad
Acquisition
By OFH
Sold
Patents
2011
Vision
Scope
Client Confidential
http://bit.ly/hwstartupsbos
1997 – 1999: *Huge* initial struggle for $$
Persisted tenaciously...
ka-ching!
http://bit.ly/hwstartupsbos
2000 – 2004 – Actually, a ton of fun
• 6 full-time employees
• Tiny office in Reading (128)
• Engineering
• Ship betas & product
• Rounds of funding
• Winning awards, getting grants
& customers
• Bringing in seasoned exec team
• ...a whole new set of challenges
& excitement
Build it, baby!
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• grad-school dropout
• ** three years ** to $
• undocumented sole-
sourced stuff (DLP)
• only 6 people
Gregg Favalora, re: Actuality Systems
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• grad-school dropout
• ** three years ** to $
• undocumented sole-
sourced stuff (DLP)
• only 6 people
Phase 2: $8M, Look for Market
2002 – 2006
• Started selling prototypes
• For “whole product” added an API for
standard 3D graphics (OpenGL)
• Selling products vs. components
• Failed to identify segment with
sufficient ROI for a $100k product
Gregg Favalora, re: Actuality Systems
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• grad-school dropout
• ** three years ** to $
• undocumented sole-
sourced stuff (DLP)
• only 6 people
Phase 2: $8M, Look for Market
2002 – 2006
• Started selling prototypes
• For “whole product” added an API for
standard 3D graphics (OpenGL)
• Selling products vs. components
• Failed to identify segment with
sufficient ROI for a $100k product
Phase 3: $2M, Pivot out of HW
2007 – 2009
• Good clinical studies, but no VC
interest. PIVOT: became a medical
software company for prostate cancer
• Attend procedures in OR, understand
reimbursement, hire VP Clinical, study
successful competitors... * recession *
Gregg Favalora, re: Actuality Systems
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• grad-school dropout
• ** three years ** to $
• undocumented sole-
sourced stuff (DLP)
• only 6 people
Phase 2: $8M, Look for Market
2002 – 2006
• Started selling prototypes
• For “whole product” added an API for
standard 3D graphics (OpenGL)
• Selling products vs. components
• Failed to identify segment with
sufficient ROI for a $100k product
Phase 3: $2M, Pivot out of HW
2007 – 2009
Good clinical studies, but no VC
interest. PIVOT: became a medical
software company for prostate cancer
• Attend procedures in OR, understand
reimbursement, hire VP Clinical, study
successful competitors... * recession *
Phase 4: Wind down, asset “sale”
2009
• ~70 shareholders (!) approve sale to
my new employer, OFH
• Became wind-down CEO 2009
• Patent broker, 150 prospects
• Almost-sale in 2010; depressing!
• Actual sale in 2011, gave some $
back to investors
Gregg Favalora, re: Actuality Systems
http://bit.ly/hwstartupsbos
Key Lesson
• Step outside your “engineer hubris” and give deadly-
serious thought and sales experimentation towards
answering this question as soon as minimally viable:
HOW MANY OF THESE CAN WE SELL
AND AT WHAT PRICE
• Disregard “build it and they will come.” Only trust $$$.
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality Systems searching for a market
• Nine critical factors: “Traversing Gregg’s Tripod of
Tripods”
• The 10-step path for aspiring entrepreneurs
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin / Legal
Financing / Legal / Accounting / Taxes
Board of Directors: Bosses, Allies
Quality Systems, Design Ctrl. (med dev)
Psychology Outbound Marketing, Sales
Attracting and Retaining Talent
Seeing & dealing w/ stress, bozos
What Will Be On My Mind as a Startup CEO?
Client Confidential
http://bit.ly/hwstartupsbos
Avoid My 12-year Fishing Expedition
Gregg
The Elusive
“Market”
Client Confidential
http://bit.ly/hwstartupsbos
The Chasm
http://www.disrupthealthcare.org/2013/03/selling-hospital-based-incubator-idea.html
Client Confidential
http://bit.ly/hwstartupsbos
Want to Sell More than 100 of your Widget?
Source: Crossing the Chasm
Product must:
provide value
be “whole”
http://bit.ly/hwstartupsbos
Customer Development
• Key lesson – buy these books
– The Four Steps to the Epiphany: Successful Strategies for
Products that Win (Steven Blank)
– Crossing the Chasm: Marketing and Selling Disruptive Products
to Mainstream Customers (Geoffrey Moore)
– (Free e-book) Bringing a Hardware Product to Market (Elaine
Chen)
• These are listed in the Online Handout
http://bit.ly/hwstartupsbos
Cheap Prototypes & Affordable Production Runs
• In this audience, you’re the experts.
• Avail yourselves of Maker Spaces, pay univ. shops, …
• Read Ben Einstein’s “Hardware by the Numbers” (online)
– Typical costs for contract manufacturing runs
– Seek affordable packaging
– You’ll learn the basics of financing, too
• New England-based contract manufacturers, box builds
– E.g. Cirtronics is fast, careful, quality, friendly
Remember there’s an Online Handout with references:
Client Confidential
http://bit.ly/hwstartupsbos
Use makerspaces
Artisan’s AsylumSomerville, MA
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin / Legal
Financing / Legal / Accounting / Taxes
Board of Directors: Bosses, Allies
Quality Systems, Design Ctrl. (med dev)
Psychology Outbound Marketing, Sales
Attracting and Retaining Talent
Seeing & dealing w/ stress, bozos
“Boring but important”(as The Week magazine likes to call it)
http://bit.ly/hwstartupsbos
Money, Money, and Legalities
• Legal
– Network into an affordable, startup-smart attorney
– Get a good NDA early, as to help to not-trash some patent rights
• Taxes
• Accounting
• Financing your Startup
– (A) Write your BUSINESS PLAN & make a PITCH DECK
– (B) Raise the money
– (C) Execute towards the goals in (A)
– (D) Repeat to A; if you’ve missed the goals, your own stake will
take a big hit.
http://bit.ly/hwstartupsbos
Fundamental Constants of Financing
• Unless you’re a recent Stanford dropout with a software
startup concept in Palo Alto, the Constants are:
• Financing-to-financing period (T):
18 months
• First call-to-closed round (t[financing]):
9-12 months
• % of founder time chasing $:
75% (in my opinion)
Client Confidential
The Pitch Deck: see the online handout
• Customer Problem
• Product Overview
• Key Players (team)
• Market Opportunity
• Competitive
Landscape
• Go-to-market
Strategy
• Stage of
Development
• Critical Risks
• Financial Projections
• Exit Options
• Funding
Requirements
Source: Christopher Mirabile’s Inc. piece
http://bit.ly/hwstartupsbos
A one-slide visualization of “dilution”
Source: http://www.bothsidesofthetable.com/2011/10/14/understanding-how-dilution-affects-you-at-a-startup/
http://bit.ly/hwstartupsbos
A one-slide visualization of “dilution”
Source: http://www.bothsidesofthetable.com/2011/10/14/understanding-how-dilution-affects-you-at-a-startup/
http://bit.ly/hwstartupsbos
Actuality’s financing rounds (1999-2008)
Series A ($1/share) (2000) $ 1,500,000
“2001 Note” 807,500
Series B ($0.2826/share) 3,499,996
Series C ($0.35/share) 6,499,998
Note 1 (Mar 2006) 1,445,134
Note 2 611,206
Note 3 (2008) 536,356
$14,900,189
70%Gregg’s Equity
at Start-up
0.7%Gregg’s Equity
at Last Round
Client Confidential
http://bit.ly/hwstartupsbos
Board of Directors
Great core
technology! Have
you considered this
other market?
Happy to help you
raise money for
your next round.
I bet the founders don’t
suspect the evil lurking
within this particular
Board Member…
MUAHAHAHA
http://bit.ly/hwstartupsbos
Characters to be Wary Of
• GOOD consultants are great;
– Get references, and then work with them on well-defined tasks
– [Lens design example]
• TRICKY consultants are hard to spot. Watch out for:
– Racking up a lot of deferred fees with little to show for it
– [Business development example]
– [“Not actually nice mentor” example]
Client Confidential
http://bit.ly/hwstartupsbos
Regulated market? Think carefully…
Some topics required for compliance with 21 CFR 820 (cGMP), for example:
general provisionsquality system requirementsdesign controlsdocument controlspurchasing controlsidentification and traceabilityproduction and process controlsinspection, measuring, and test equipmentacceptance activitiesnonconforming product
CAPAslabeling and package controlhandling, storage, distribution, and installationrecordsservicingstatistical techniques
It demands organization-wide mind for Quality, plus the costs for certifications, etc.
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin / Legal
Financing / Legal / Accounting / Taxes
Board of Directors: Bosses, Allies
Quality Systems, Design Ctrl. (med dev)
Psychology Outbound Marketing, Sales
Attracting and Retaining Talent
Seeing & dealing w/ stress, bozos
Client Confidential
Sales for Engineers
• One-paragraph, iPhone-
friendly email intro. Take as
much time on the subject line
as on the very brief contents.
• Explicitly respect people’s time
• In demos, “you” not “I”:
– NO: “With our feature-rich
software, I can click here…”
– YES: “You can learn about your
customers with ClientSort 2.0…”
• Use less techno-jargon.
• The two best words are “for
example.”
• Smile, use first names, talk
about happy things
• Email their PR people
• Email one of their VCs
• Try to Shopify it – sell
prototypes (FCC / UL though)
• Don’t use gimmicks, e.g. don’t
use Re: unless it really is
• READ SOME ACTUAL
BOOKS ON SELLING
0 0
00
0 0
stretch breakyou’re doing great, almost done
The Bourne Identity
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality Systems searching for a market
• Nine critical factors: “Traversing Gregg’s Tripod of
Tripods”
• The 10-step path for aspiring entrepreneurs
http://bit.ly/hwstartupsbos
Launchpad: Steps 1-5
1. Enter the waters, pick cofounders. [ cite: Greenhorn ]
2. Quickly find MVP, try for POs. [ cite: Blank, Chen ]
3. Get a good NDA, find startup-friendly att’y
4. Prototype [ cite: HW by the Numbers; HW-friendly
makerspaces ]
5. Enter competitions & startup accelerators [ cite ]
Client Confidential
ASIDE: Bplan Competitions, Accelerators
• MassChallenge
• MIT $100k
• MITX Awards
• Babson
• Dartmouth (Tuck)
• HBS Alumni
• Hellenic Business
Network
• WPI Venture Forum
• Yale Entrepreneurial
Society
• MassChallenge
• TechStars
• Bolt
• Blade
• LearnLaunch x
• Greentown Labs
• Rock Health
• Healthbox
• […]
Business Plan competitions Accelerators, Funds
Client Confidential
http://bit.ly/hwstartupsbos
Two big well-regarded competitions
• MassChallenge
• Global (really!)
• APPLY BY APR 1 (2015)
• 4 months
• Office space
• Mentorship
• Network
• $2 million cash awards
• $10 million in-kind
• “…128 winners…”
• No equity taken
• Three contests / rounds:
• Pitch
• Accelerate
• Launch (Mar 13 2015)
• $350k cash + prizes
• In-kind prizes
http://bit.ly/hwstartupsbos
Launchpad: Steps 6-10
6. Try like heck to sell it & market it.
7. Get a mentor; get your ducks in a row about financing.
8. Open a 100-row investor-tracking sheet, try to get 18
months of money for your 12-month milestone
9. Accept or select Board Members with great care
10.Launch, publicize, & ramp!
bit.ly/hwstartupsbos
http://bit.ly/hwstartupsbos
Good luck! Email me any time!
Gregg FavaloraVisionScope Technologies, LLC
http://bit.ly/hwstartupsbos