ThinkFlood Blog


Steve Jobs: A Great Leader

Posted in Uncategorized by Matt Eagar on October 5th, 2011

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I do not have many heroes, but Steve Jobs was one of them. It is sad to think that we have lost someone with such leadership talent and vision. At the same time, if the measure of a true leader is how he inspires others to act, then I believe we have yet to close the book on Steve’s life and accomplishments. May the echoes of his example continue to reverberate powerfully through the future of our society, and may his family and friends find peace in their memories of him.


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This is Going to be Big

Posted in iPhone and iPod by Matt Eagar on June 18th, 2009

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Tomorrow is going to be a big day for Apple — I can feel it. I ordered my first generation iPhone the day they were released, and it is battle scarred now, with numerous scratches, surfaces worn smooth, and even a cracked screen from our casting session for this video when one of the actors fell on it. As many people may be discovering now, the new OS that came out today runs rather sluggishly on the original hardware. Needless to say, I’m itching for my new, 32GB 3GS upgrade.

Not wanting to wait any more than necessary, I called AT&T this evening to find out the status of the order I placed with them last week. Turns out, they are out of stock. Yup — anyone trying to order from AT&T since earlier this week is going to have to wait.

iPhone 3GS

Photo courtesy of Apple

This morning, Philip Elmer-DeWitt compiled some of the analyst opinions for this weekend’s iPhone sales in his Apple 2.0 blog. While I wouldn’t venture to speculate on what will happen over the next couple of days other than to say that selling a quarter billion dollars worth of phones in one weekend seems like a given, I think the real story is not about the 3GS or the immediate sales impact, but about the $99 price point of the current 3G.

Price is a big deal. While there are always people who will buy at the high end of the price curve (zealots like myself who shelled out six bills for an iPhone just under two years ago), I don’t think any phone is mass market until it breaks the 3 digit price barrier. I have no data to back up that assertion, but I think most people would agree. $199 sounds like a lot to pay for a cell phone. $99 seems pretty reasonable.

But the real story here is that people will be lining up to pay $99 for these devices because they are so much more than phones. While Apple doesn’t break out results for them, everything I have seen indicates that the entry-level iPod touch sells quite well. Some of this has to be the fact that some people do not want to switch to AT&T. But my guess is that $229 without a contract also seems like a relative bargain to get into the iPhone game. With the price of an actual phone — one that brings that great Internet experience just about wherever you need to go — dropping below $100, I predict that sales of the iPhone itself will take off.

These things don’t change linearly. That is, a reducing price by half doesn’t double the number of people who buy a phone. Instead, the potential increase is much greater, as huge swaths of the population who never before considered buying an iPhone will now be taking a second look. We saw it with the iPod when prices started dropping below $200 for the nano, and I see no reason why the iPhone won’t follow the same pattern. By rights, Apple should end up selling 100 million iPhones over time.

The skeptics will point out that actual cost of ownership for an iPhone is much more than $99. Pshaw. Most people don’t really weigh monthly payments when making a purchase. Realtors have known this for years. How else did we get into the 0% down, debt up to your eyeballs mess that we have now? Besides, this will be a replacement for other cell phone contracts. Sure, the iPhone data plans are relatively more expensive (compared to 2G network plans), but not by all that much. No, I think what we will see is a significant increase in iPhone sales, and I predict that it will be steady over time as people wait for their existing contracts to expire so that they can upgrade their phones or switch carriers.

Technology nuts will turn out in droves this weekend for the 3GS, just like they did two weeks ago for the Palm Pre. But the drumbeat of new iPhone customers coming to the 3G will sound slow and steady for the rest of the year.


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Thank You, Thank You, Thank You

Posted in Uncategorized by Matt Eagar on June 13th, 2009

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These last two weeks have been a little crazy. We have been flooded with calls — inquiries, suggestions, everything. It’s great. A little overwhelming, but great.

It’s always a little scary when you take something that you have worked on for a long time — particularly when your livelihood depends on its success — and you put it out there for the world to see and to critique. Wanting to pull back and wait is a perfectly natural — and perhaps the only sane — reaction. Every time I see another review go up, my heart starts beating faster. What was the experience? Did things work out okay? (After all, we are in beta…) Did the reviewer understand how we have laid things out?

I have the same pangs in my gut when we receive an email or a phone call from a beta tester. After all, these are people who laid down $119 of their hard-earned money to get a RedEye, and so we want them to have a great experience. But usually a call means that they are having a problem, and that is the last thing we wish on them.

To be honest, it hasn’t always been smooth. We’ve had our issues, and we’ve tried to work through them as quickly as we can. But in the end, the thing that amazes me the most is the reaction of those customers who have encountered the problems.

We have a fantastic group of beta customers. I am floored by the level of patience that they have had with us, not to mention the problem solving skills and the creativity that they have shared. To be honest, going into this I didn’t expect our customers to be figuring out solutions to problems we have, but today two people — one of them Frank Nicholas from Indiana (thanks, Frank!) — found solutions to two different issues. How amazing is that?

Earlier I was overwhelmed because I was worried that people might not take well to what we are doing. But today I am overwhelmed by the willingness of these early customers to put their own time and energy into helping us make the RedEye better. We could not have asked for more, and I am truly grateful.

Thank you, thank you, thank you.

Group Hug

UPDATE (17 June 2009): Michael Watson is another of our fabulous beta testers. We are always tickled to see people write about us in their blogs as Michael did. Now we just need to make sure we live up to the high expectations.


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The Value of a Free Lunch

Posted in Management by Matt Eagar on March 2nd, 2009

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A lot of stuff today is free, and I love it. From open source to Google, from free Wi-Fi to various promotions and add-supported broadcasting and Internet content, we get a lot of great stuff for free. In fact, we’ve become accustomed to it.

Lunch

I’m convinced that someone could write an interesting sociology PhD thesis by examining comments on the iTunes App Store. With something like 20,000 applications and counting, there are a lot of duplicate efforts, and it is not uncommon to see three, four, five, or more versions of similar applications. Invariably, some of these are available for free, and some cost money. Anecdotally, it seems that consumer preference is for the free applications — these have the most downloads, and they tend to get higher “star” ratings. In fact, I have seen cases in which commenters have disparaged paid applications which are functionally superior simply because they feel $4.99 is too much to pay for something they can get for free somewhere else.

To me, this is fascinating. It’s almost as if we have come to see free things as an entitlement. We want our music, our TV, our movies, our books, our software — everything we can get — free. Of course we do. Who wants to pay money if we don’t have to?

The thing is, free creates some problems. First, usually there is some sort of cost to produce these things. The Internet and the digital revolution have certainly reduced the cost of many things, but none of these is completely free to produce. That is particularly true if we consider the time spent in creating this content. Yes, it is possible that someone coding up an iPhone application during nights and weekends can offer that software for free (primarily because Apple subsidizes its distribution 100%). But I find that most things of value require more effort than this, and it is hard to make a living when you do not charge for your product somehow.

Of course creative people have come up with solutions to this problem. Some rely on advertisements to support their work. Others sell related services, or gather data from their users and sell that. However, generally speaking even these approaches cannot sufficiently subsidize physical products where the cost of materials and manufacturing is more than a few pennies per unit. For this reason, we don’t see successful free business models outside of software and media — they just are not viable.

But I think there is a more fundamental problem with free stuff, and that problem is the sense of entitlement we develop when we receive something through no effort on our part. When we receive things for free, we take them for granted. We tend to waste them. Our perception of the value of those products and services — and their paid competitors — actually decreases.

In my last post, I mentioned that we will be launching our product in April as a public beta. While many beta tests are free to participants, ours will not be. What we will do is offer a discount to our beta testers. They will be able to pick up our final, production hardware roughly at cost. This enables us to continue to function as a company — which is in the best interest of all of us, as it means we can keep our jobs and they can get product support and new software with new features. Since the hardware is not “beta hardware,” it seems reasonable to us that we offer a discount now, as they will end up with the full production version once we release our software updates.

But perhaps more important than recouping production and distribution costs on our hardware, it is critical that those who participate in the beta test actually care enough about the product to use it and to give us feedback. After all, the reasons we are bothering with the beta test are to ensure that the product works in a wide variety real world situations, and to understand what features and changes are most valuable to our customers. If those customers receive the product for free and then leave it to collect dust on the shelf, then we cannot accomplish those goals.

So, dear beta testers: we love you. But even if we could afford to give you the hardware for free, we wouldn’t.


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Squish Like Grape

Posted in Management by Matt Eagar on March 1st, 2009

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Daniel-san, must talk. Walk on road, hmm? Walk left side — safe. Walk right side — safe. Walk middle — sooner or later, get squish just like grape.

©John G. Avildsen, Columbia Pictures Corporation

©John G. Avildsen, Columbia Pictures Corporation

Ah, the immortal words of Mr Miyagi (Pat Morita) from The Karate Kid, cherished movie of my youth. My ears ring as I say this, but…

…sometimes it’s okay to go halfway. In my post from yesterday I consider how to answer the question, “When Are We Ready?” Well, we have done this with regard to the launch of our first product, and the answer is: we are ready now. But the answer is also, “We will launch first as a public beta.”

Yup. We’re going to launch next month, but we’re also going to call this version a “test” — i.e., not the final product.

So, what could possibly possess us to make like grapes and walk down the middle of the Interstate? The answer came as we considered those two questions: 1) is it valuable enough? and 2) can we afford to fix it?

The answer to the first question is yes. We think we have a really fun product that will be valuable to people every day. But the answer is also that we feel that a subset of the overall population will find its problems more tolerable than others early on. These are people who are willing to dive into a setup process that will be slightly more involved and tedious than what we have planned for the “final” product.

They are also people who are willing to deal with a few warts that will surface. This goes to the answer to the second question. This product is a new kind of accessory for the iPhone and iPod touch. At this point we are comfortable that the hardware design is solid. But the nature of this accessory is that it must interact with literally thousands of other kinds of devices, and there is no way that we could test all of the possible combinations beforehand. Therefore we anticipate that we will need to update the software to improve compatibility and squash a few bugs.

Actually, this last part is one of the most exciting things for us, because the ability to roll out software updates with new features and tweaks will be groundbreaking. We have many ideas of ways that we can make the product more fun and elegant. But what we want the most is to hear what other people think after using our product. We are launching in “beta mode” because we want the chance to hear our customers’ ideas about how the product can be better. We expect that they will have suggestions that we would not have considered otherwise.

And so that is the real value of going halfway — at least in this case. We can offer something useful as early as possible, and we can give our customers the chance to influence the design of the product so that it can be even more useful to them in the long run. I suppose some people might see that as a dangerous proposition. But for us, it’s mostly just exciting.


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When Are We Ready?

Posted in Management by Matt Eagar on February 28th, 2009

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This is a basic question that we all ask ourselves at one time or another. Am I ready to drive a car? Leave home (for school, a job)? Enter into this relationship? Hold this responsibility?

Reading the SignalsLately at ThinkFlood, we’ve been asking ourselves the same question — about our product. It seems that there are two opposing forces here. On the one hand, we are eager to get going, to do new things, and to test ourselves. On the other hand, we are apprehensive. We wonder whether our preparations are enough, and whether we are up for the task.

Some will say that the latter is just fear of the unknown. I’m not so sure. Certainly there is an element of unfamiliarity. But there are also good reasons that we may pause. For example, as a young company preparing to launch our first product, we want to make the right first impression. We believe that marketing — not technology — is our biggest challenge, and we need to make sure that when we “go live” the general perception is positive, or we will be digging ourselves out of a deep hole for some time.

Of course this being a business, there are some additional factors in the equation. For example, where are our competitors? For the moment, we seem to be in the lead, but there may be another company out there that is keeping as quiet as we are who sneaks up and surprises us. Another question many companies face is short term cash flow. Thankfully our non-development expenses are basically zero. (This is not true of our personal finances, and I know that my family is dying for this thing to hit the market.)

I think a lot of these factors — on both sides of the issue — are basically irrelevant. Let’s consider a few:

  1. Competitors. Let’s face it — we have just about as much clue as to what our competitors are cooking up as we do about how the stock markets are going to move. In fact, that’s a pretty good analogy — timing the market is impossible. Instead, we have to focus on fundamentals (as a product company, that is creating something valuable for other people), make it as good as it can be, and settle in for the long haul.
  2. Preparations. There is always more that we can do, and there will always be hiccups along the way. The fact of the matter is that it is impossible to be prepared for everything, and incredibly hard to know how to prepare until you start.
  3. Cash position. A lot of people will argue that this is an absolute — no cash, no company. I won’t argue with the last statement, but limited cash on hand is not the same thing as saying there is no cash available. The other day, Jason Calacanis made a pretty compelling argument that entrepreneurs can survive if they want to.
  4. Excitement. It’s generally easier to find reasons not to do something than to do something, but let me at least address one reason why people rush into things: excitement. It’s thrilling to do new stuff, particularly if you have identified something at the heart of the latest fad. But enthusiasm alone cannot create real value.

Now, I’m sure that you can come up with a bunch of other reasons to take the plunge or to hold back — I can’t possibly address all of those concerns in this post. Even so, I believe that there are only two questions to consider when planning to start something new:

  1. Is it valuable enough?
  2. Can I afford to fix it?

The order of these questions matters. First, whatever you are going to do, it has to be valuable to someone. In fact, it needs to be valuable enough that the cost of doing it is less than the value it delivers. As long as this is true, it is worth doing. The second question is related: when it breaks, can I afford to fix it. In other words, is the fully-loaded cost still less than the value you can deliver? You have to assume that whatever you do will fail sometimes — this is particularly true since you are about to start something new. So the question is not whether it will break, but whether you can afford to fix it if it does. If so — if the cost of producing it and fixing the failures is still less than the value you get from it — then there is no reason to wait.

What do you do if you cannot answer yes to both these questions? The answer is simple: 1) either increase the value of the thing by adding more features or (my favorite) streamlining to make it more useful, or 2) reduce the costs to produce and to repair until the answers change.


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Of iPhone Docks and Lesser Things

Posted in iPhone/iPod accessories by Matt Eagar on February 19th, 2009

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Yesterday a silent cheer echoed around the world when a consortium of cell phone makers and service providers proposed a new standard that would make possible, of all things, a universal cell phone charger. But it did not take long for critics to point out that the plan will not work because of the conspicuous absence of some major players: Apple, Palm, and RIM.

Car batteries have had a standard interface for decades

Personally, I think the fact that these companies did not agree to have this plan “mostly” implemented until January 2012 calls its feasibility into question more than anything else, but that’s another story. What I find most interesting is speculation as to whether Apple will participate.

The answer to that is a resounding no, but not for the reasons that most give. Contrary to popular belief, Apple is not going to snub this effort just because they can. Rather, I see the announcement as an effort on the part of some of the weaker players (“Hello, Moto”) to put in place a program that they can use as leverage against the companies (Apple, RIM) that are looking the strongest at the moment.

Let’s consider the history here. Apple’s iPhone connector is really just an iPod connector — the same one they introduced way back in 2001. In other words, for the past eight years, Apple has had a “universal” charger for all of its models of iPod and iPhone. By contrast, it seems that virtually every phone from the other manufacturers has a proprietary charger that differs from every other model supplied by the same manufacturer. Now, that does seem ridiculous. Unless your goal is to sell the public a lot of cheap car chargers at $35 a pop with an 80% gross profit margin, in which case it makes a lot of sense. [sigh]

The fact is, there have been several Windows Mobile smartphones which have offered a “universal charger based on the mini-USB connector interface” for some time. Which makes it all the more ludicrous that it will take until 2012 for the rest of these guys to catch up.

The real issue here is that while most of these phone companies are talking about chargers – dumb electrical connections that provide only power to the device – the smartphone connectors tend to carry data, as well. For example, those Windows Mobile mini-USB connectors allow syncing of data (calendars, contacts, music, applications, etc) between the phone and a PC.

Among these “smart connectors,” Apple’s 30-pin dock is much more sophisticated than anything else on the market. In addition to syncing data to a PC, it also allows robust access to the music library on your iPod or iPhone, which is the primary reason why there is such a thriving market of iPod accessories today. What would the world of the iPod be without speaker docks, clock radios, DJ mixing tables, video projectors, and a host of other accessories that all communicate using the 30-pin connector?

Personally, I think the success of the iPod (and by extension, the iPhone) is largely a result of the accessory market. Think about it: if you buy an iPod today for a couple hundred dollars, and then you spend a couple hundred more on an good speaker dock, what is your next MP3 player going to be? A Zune? A Walkman? Every time someone buys an accessory for her iPod or iPhone, the switching cost of moving to another platform increases – it’s a built-in customer loyalty program.

It seems that Apple has successfully done with iPod accessory makers what Microsoft did with Windows developers two decades ago. They have built up an ecosystem of supporting players. The iPod/iPhone market is strong today because of these companies. Many of the products they sell address niches too small for Apple to serve. But rather than forgo those opportunities altogether, Apple has licensed their connector technology to these companies and then sat back and watched while a thousand flowers bloomed. They are doing the same thing today with iPhone apps.

Finally, Apple’s competitors seem to be realizing that there is a solid business strategy here. Rather than stiffing their customers in order to sell a few extra car chargers, they could have built cohesive product lines and attracted a cottage industry of accessory manufacturers and application developers. Everyone from Microsoft to Nokia is trying to get on board with the program now. But it may be too late – Apple is way ahead of them.


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The Finance Trap

Posted in Management by Matt Eagar on January 22nd, 2009

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Today I spent a couple of hours compiling and cleaning up financial statements in preparation for talks with investors. Whenever I do this, all I can think about is how glad I am that I did not pursue a career as a financial analyst or an accountant.

Finance

So, it’s probably pretty obvious that I have some bias against jobs in finance. It’s not that I distrust people in finance, or that I think finance and accounting are useless. On the contrary, there is certainly a place for them as management tools in business. However, I think the problem is that finance is so abstract that we tend to separate it from the fundamentals of business.

In some ways, finance and academics are similar. Both are necessary for an informed picture of the world — they help us develop the critical thinking and language we need to understand and to communicate important concepts. However, if pursued without a regular and solid grounding in real world experience, they can create false pictures and lead us into some sticky traps.

I think this separation from reality is what has happened in the current financial meltdown. For example, one of the basic goals in finance is to reduce risk. We have many vehicles to do so — we share risk through insurance, we minimize the impact of risk through hedges, we evaluate risk by marking assets to market, and so forth. However, one dimensional risk management does not make a good financial instrument. There are other factors, such as transparency. It seems to me that credit default swaps and collateralized debt obligations played up the risk management idea, but completely ignored the importance of transparency. As a result, we no longer know who owns what, whether terms are negotiable, or what the “real” value of the assets are. Throwing money at the problem reduces leverage — and therefore mitigates certain kinds of risk — but it does not provide any greater transparency, and so other types of risk linger.

I don’t say these things to point blame or to criticize well-meaning actions already taken. Rather, I point out the difficulty in constructing things like financial models and forecasts. Yes, we can analyze this or that historical trend and come up with some estimates. But in the end we don’t really know. At best, finance is a guide that helps us determine what to look out for — we cannot afford to depend on it as a primary means of creating wealth, because so much of it is speculative.

This attitude has dictated many of my practices in business. First, I prefer to work in a company that provides an actual product. Sure, there is a room for services, but ultimately I feel that products have a more sure foundation — they are real creations, not just virtual reshuffling. Second, I do not see much point in playing games with payables and lines of credit. These things have their place, but if used too extensively they create race conditions which can make a business insolvent. They also create internal conflict between debtors and creditors — I much prefer equity ownership, which aligns investor and company interests. Finally, I like to get out into an operation to see what is going on. Numbers are useful, and I enjoy looking at things in different ways. But unless I can tie those numerical conclusions back to real-world observations, I refuse to accept those conclusions as fact.


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What’s Really Wrong with the Economy

Posted in Management by Matt Eagar on January 21st, 2009

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In some ways, we have a credit problem – though it’s not the same one that the larger economy faces.

Ignorance

While we haven’t gone public with what we are working on, it is no secret that ThinkFlood is a small startup. Right now, there are three of us on the team (an early founder jumped ship when we changed products back in April). We are gearing up for our first product launch this coming April — a hardware accessory for the iPhone and iPod touch — so we currently have no revenues. In addition, we have worked with a handful of service providers over the past few months, but our expenses have been relatively low and so we do not have a lot of payment history. Finally, early last year we made the decision to stay away from VC funding, so we don’t have gobs of cash in the bank (although we do have enough to get going).

With all this in mind, it’s not surprising that we have a credit problem. It’s not so much that our credit is problematic — we pay all of our bills quickly and reliably — more that we just don’t have much of a history. So, last summer when we were lining up contract manufacturers, we were not surprised that most of these potential partners wanted us on secured terms — or at least a very short leash (e.g., Net 15 days).

No problem. When we walked in the door, we expected a bit of pushback (being young and small and everything), and we were ready to work with them. Cash up front? Sure, for the first few months. Our only expectation was that once we established regular sales that we might be able to get standard industry terms (e.g., Net 30 days). But no rush — we have some cash, and an existing line of credit at the bank can finance our inventory purchases well enough. What mattered more to us was the level of service and flexibility that we could get from these partners.

We distributed our initial bid package in mid-August, and then we waited. Our first order of business was to find a place to build our prototype devices, so when the one month mark rolled around and we hadn’t received any responses, we started calling to ask for at least a quote on the prototype work. A couple of weeks later we finally received some bids.

The price spread on the prototype bids we received was nothing less than astounding. While fixed costs (setup, stencils, etc.) were fairly comparable ($1,000 to $2,000), the per piece costs were all over the map. Our high bidder came in at just under $400 per device, while the low bidder was $65. We had a cluster around $300, and a few others scattered across the range. This despite the fact that we were providing all the prototype material on a consignment basis — leaving only the cost of labor in the final total. When the production bids started coming in we saw a similar spread: the high bidder was more than twice as expensive as the low bidder, and even the low bidder was offering to do the work at a 100% markup over the bill of materials cost (we had expected a markup in the 30-35% range).

Of course it was obvious to us that the high bids were essentially a rejection of our business. These companies were happy to take our money if we were foolish enough to give it to them, and their high prices were a vote of no confidence in our future. But why? It couldn’t be a concern over our finances, because we were willing to pay up front (in fact, the low bidder was one of the companies that gave us a line of credit). Could business be so good that they don’t need the work? On the contrary, these were all local New England contract manufacturers — an industry largely down on its luck since the bursting of the telecom bubble a decade ago. When we were touring their facilities, most looked uncomfortably quiet — here and there a medical device build, but honestly nothing too impressive.

Now our goal all along had been to keep production local as long as possible. While it is nice to be able to print “Made in USA” on a label, there are other reasons — the ability to drop in to monitor production, a closer working relationship with plant management, reduced shipping costs, etc. In fact, while labor costs are an issue, electronics manufacturing today is highly automated, so the real pricing differences between domestic manufacturing and production in a low cost region are small. Moreover, because our product is aimed at the consumer market, we designed it to snap together quickly to minimize these costs.

Frustrated, we decided to broaden our net. The response was incredible. Within a couple of weeks of releasing our bid package to contract manufacturers in Asia (Taiwan, mainland China, Thailand, etc), we received responses. And the price? 25-30% markup over our bill of materials cost — or just about what we had expected. In fact, one of the manufacturers even offered us Net 45 terms. And all this despite the fact that we had relatively weak connections to these companies before we contacted them — whereas most of the manufacturers we contacted in New England had done work for one or more of us when we were with prior employers.

We had a similar experience trying to find a plastics manufacturer for our device enclosure. Local US firms took 6-8 weeks to respond to our requests, and then were 2-4 times as expensive as their Asian competitors, who typically responded within 1-2 weeks. For example, we ended up paying $19,000 for two, dual-cavity injection molding tools to a company in China (which incidentally also has electronic assembly capability and is FDA-certified to make medical devices for Procter and Gamble), while a local US manufacturer wanted to charge us $67,000 for single-cavity tools. The quality of these tools coming out of China is just as good as what we would get here, and the service we are getting is fantastic — in spite of time zone, cultural, and language differences.

Here is what I don’t understand: where is the sense of hunger in US manufacturing today? I would think that given the state of the economy — not just now, but over the last decade or more — these companies would be itching for new work, and happy to find new companies to supply them with jobs in the future. Sure, some startups will fail, but they can manage the risk and still be successful. We would have been happy to pay in advance for a few months. But we can’t afford to pay 100% markup (much less 300% markup) over our component costs and have a viable business. No wonder so many startups fail — if they cannot get the support they need from established manufacturing partners.

Now, in the end everything is working out for us. We can get what we need at prices that make our business viable. But we aren’t going to be doing much production here in the US, and it’s not for lack of trying on our part. Why does an Asian company on the other side of the globe show more interest and confidence in us than the guy down the street? As a rule, the Asian companies have bigger manufacturing facilities, newer equipment, and cheaper labor costs, so we expected to go there eventually. But I was surprised how quickly the US manufacturers pushed us there with their own disinterest. Is it surprising that our manufacturing output is declining at an alarming rate, or that US businesses are losing to competition overseas? To me, the reasons don’t seem to have anything to do with NAFTA or any of the other demons that Lou Dobbs tries to summon in his tirades. Outside of a few entrepreneurs, it seems to me that US business just isn’t as hungry as it needs to be. The fact that so many companies are looking for a piece of the government bailout pie is just evidence to support my theory.


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Barrier to Entry

Posted in Usability by Matt Eagar on November 15th, 2007

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Earlier I wrote a few postings about why it is so hard to make things easy to use. I have been thinking about this concept recently, but from a different angle.

The world is a big place. It’s big enough that we have a hard time comprehending its size. Six billion inhabitants or so. 40 million meters in circumference. Modern transportation and communications make these things seem relatively trivial. Most of us today think it is rather quaint that people only a century ago rarely traveled far from home, or that six or seven centuries before that people actually believed the world was flat.

The whole world in our hands

With so much out there in the world, it’s awfully hard to do something original. In fact, it’s so hard to think truly original thoughts, that when someone does and bothers to document it, we give that person a doctoral degree. (And even then, doctoral theses are starting to seem less unique and perhaps more petty.)

Perhaps as individuals we do not feel the need to be quite so unique. After all, many of us spend large portions of our lives trying to gain some level of acceptance and approbation from those around us. But for companies in capitalist markets, the rule is differentiate or die. To this end, company leaders are constantly asking themselves what they can do to distance themselves from the competition — how they can erect barriers to entry on their turf.

One man's barrier is another man's roadmapIn fact, I believer there are relatively few true barriers. Some will argue that things like patents, copyrights, and trademarks are barriers to entry. I suppose they are — but they are particularly weak ones. Clever imitators can easily get around most of these — and that’s only if they choose to abide by the law. These methods are particularly ineffective for small companies, as most cannot afford to hire armies of lawyers to prosecute offenders (indeed, they may be struggling just to keep away illegitimate challenges).

To me, the real barriers to entry are more about doing things that others will not do. Of course there are several reasons why others may choose not to copy. One reason may be that the idea is a poor one. A company pursuing a bad business idea will generally enjoy a competition-free landscape, but that does not make it business successful. When the idea is a good one, however, others usually shy away for one of two reasons: either the work is too hard, or the work is too dirty.

At this point, I am sure there are people out there screaming at me, saying that there is another reason: that others simply do not comprehend what it is that we do. The old trade secret argument. But the fact of the matter is that trade secrets are nothing more than hard work performed only once and then protected (as opposed to the kind of hard work that is recurring). With six billion people in the world, there really is not anything stopping others from reinventing what you may have already discovered. In fact, they are just as likely to do it better — and then what value is the secret?

So, if we want to win the game, we are left with the choice between hard work and dirty work. Of course these types of work take many forms. And one of those forms is to design for usability. Because usability is not easy to achieve, it’s devilishly difficult. Usability requires making choices that are not always fully quantifiable. It requires top down innovation that sometimes rejects the results of focus groups and customer surveys. It requires leaps of faith, and gut wrenching challenges to the status quo. It requires relentless rethinking of fundamental principles coupled with rapid implementation and enough consistency and familiarity to remain almost unnoticeable to most people. Usability is one of the toughest, most precarious balancing acts around. And it is therefore a magnificent barrier to entry. No wonder most companies wish they were doing it. No wonder most don’t.


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