Starting a Business in Silicon Valley
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tlalexander.com
> but all the stories of success from Techcrunch, the accelerator Y Combinator, and the Facebook movie combined and fed in to my fantasies that somehow through sheer will and my own brain power I could achieve similar success
Maybe just me, but getting inspired by Mark its the first mistake you could do.
FB/GOOG/etc are the very rare outliers. Don't hedge your business (or mental-wellbeing) on the expectation to replicate their success.
It's good to have high ambitions but have a plan B & don't expect to be the unicorn. It would be analogous to starting a band in the hopes of becoming the next Beatles.
1. Try something new
2. Read all the advice from experts
3. Nod and say “sure, no problem”
4. Make all the mistakes anyway
5. Finally understand for yourself what that advice really meant
6. Advise beginners not to do that thing
7. Repeat
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I've had that experience more than once.
* "Don't remove the credit card field from your sign up form."
* Hmm, but what if I remove the credit card field from my sign up form?
* Conversions went down
This. If you're doing hardware, your price needs to be minimum 3x-5x the COGS.
If you think you're going to win some market by pricing with lower margins, like 1.5x-2x, you're setting yourself up for failure.
Interestingly, the same rule holds for restaurants: food input costs should be no more than 20-30% of the meal price.
The need to just make any money at all, means that you have to import cheap goods from China, unless your competitive advantage will worth more than that 5x margin ones get from "cheap sh*t." And you will never ever get this for any non-high tech (which implies easy to manufacture) consumer product.
Price anything at professional grade. For example, a heavy duty professional microwave can cost well over $1,000, but you can run it 20 hours a day for years.
Thanks to my former restaurant owner friend for this example.
[0] https://www.bls.gov/opub/reports/minimum-wage/archive/charac...
Maybe if America slowly increased the minimum wage at inflation + 10% each year, it would end up in the same place as Australia. Right now, US social rules and expectations are set up around a low minimum wage, and doubling that minimum wage overnight might rock the boat a lot.
Woah. One of these things is not like the other ones.
(As an Aussie, though, the tipping thing just seems weird. It's nice to tip a little for really good waitstaff, but if doing so means they get a pay cut on their hourly wage then that's bogus. Paying your staff poverty rates because you expect them to live off tips is like paying your police force poverty rates because you expect them to live off bribes.)
A waiter literally works for you during the meal you tip for. A policeman is not supposed to.
No, they work for the restaurant. Their job is to relay orders from me to the kitchen and bar.
You got the whole thing wrong, and you managed to insult every waiter and waitress in the process:
A waiter does so much more than that. They generally take care of you - they help you to choose your places to your liking, undress, seat, they recommend food based on their expertise and clever judging of their client, and so on - they generally take care of you, and that can and is (and should) way more complex than being a human conveyor belt.
The actual argument is whether this job is a job done to the customer or to the restaurant (because it can be thought of as a whole package service or their image).
Americans think that the waiter will help a client more if the client is the person who pays them - literally, with actual cash changing hands.
Other people don't. I'm from such country and sometimes it leads to horrendous results, however most of the time it's OK - yeah, "OK", never great, so I definitely can see the point the Americans have.
Overall, IMO there are places where human staff is appropriate (fine dining places, brewery, upclass cafe...) - tipping is appropriate here. Of course there are places where the point is to obtain a plate and eat everything as soon as possible so you can be gone - but IMO people shouldn't serve the plates at these places.
As you say, the real difference is whether the waitperson is an employee of the restaurant who is paid by them to look after you, or whether they're an independent contractor who resells the kitchen to you at the table as a service. The service produced is generally the same, IME, but in the U.S. model you have to negotiate with two different contractors while each is trying to push the costs onto the other. Ugh.
In a tip economy they are what they are - poor supplicants begging for your scraps. They have no power over the kitchen nor much over you, since they get their feedback after they've made their 'pitch' not before.
1. They can't choose a place to your liking, because they are assigned to specific zones of the restaurant. At best, you can request the host/hostess for a particular location, at which point your waiter is selected for you by virtue of your location.
2. They don't . . . undress you. You may be thinking of a brothel, not a restaurant. This claim is probably the most bizzare.
3. Again, it is generally one of the host staff that does the actual seating.
4. If asked for a recommendation, at best you'll get what they prefer eating, or a generic "what's popular" suggestion. In no way do they judge their client (On what? They just barely met you!) and immediately recommend that you'd love the lobster bisque because . . . your hair is brown.
>2. They don't . . . undress you. You may be thinking of a brothel, not a restaurant. This claim is probably the most bizzare.
I'm not native english speaker. What is bizzare about waiter taking your coat and carrying it to the coatroom, "helping" you off it in the process? It's act of courtesy.
As a European I would say that US type waiter works against me. When I'm trying to eat my meal, I don't need some stranger to come to my table every two minutes to ask me "how are you?", "is everything ok?", "do you need something more?". It's just annoying. I can't eat, I can't talk personal talks with friends, when someone is around me trying to annoy me all the time. I can't raise my head or look around because the waiter would come to annoy me again. And in the end, that annoyance comes to your table and expects 15-35% of the price for the annoyance "service" he gave you during the lunch?
Sorry, but when I'm in restaurant, I just want to order food or drink and be left alone. If I need something I'll raise my hand and wait. What's the issue in waiting for a guy to come, he's a waiter after all ;) If the waiter comes quickly after I raise my hand (usually to pay the bill) I would round the bill to the next full €, and that's it.
That's why in Germany you have 3-5 times less waiters serving the same number of people in restaurants, they are paid a livable wage, and you pay what you see in the menu, without a need to add 50% for VAT and service tips.
I wish there was a way to signal that I don't want to be bothered but even when I voiced this feeling to a waiter in NY he was still coming around unasked.
Restaurateurs - just pay your staff properly, waitstaff - don't bug the customers; there you go - european advice for free.
There is root cause underneath - poverty. Let's focus on that.
In one specific instance I had finished my meal and was pondering on getting dessert or another beer, talking to my friend, the waiter came over to ask if we wanted something else, I said "not yet" and 2 minutes later had the check on my table.
I really didn't have any great experiences in the US on a sit-down restaurant, the food was nice but the service is always too much on your face. I understand that it's done because of American's social norms but even coming from a Latin country it felt way too much. And way too fake, my feeling was always that this behaviour was for the tips, never for a genuine care on how I'm being served.
It would seem unusual if “prices just [went] up” without any other changes to the overall system.
"Study: Wages cause billions of damage for German companies"
https://www.der-postillon.com/2014/08/studie-lohnzahlungen-v...
There's ancillary effects of course but not in the way you're suggesting.
There is a market opportunity and many people capitalize on it. Amazon is full of things like this. Generic items or barely designed items with your brand stuck on them, built by somebody found on Alibaba and shipped to the consumer. They're fantastically cheap, the margins are much thinner, and the products range from adequate to terrible.
It's terribly difficult to build a high quality product people will want for many years (no new design costs) which you don't have to market or do anything with and can just manufacture and sell for a tiny profit. When it is done you'll usually find it as a small very specialized family type business which hasn't sold out yet.
I would imagine things are super high tech and new, would need some iteration in their first 5 to 10 years, but after that, I don't know.
the costs that scale with each good sold is: Support, cost of returns, Sales, marketing, etc.
Ad from 1924.[1]
Current product brochure.[2]
Jenkins used to advertise that one from a 19th century water main had been removed because the line was being re-routed by a water utility. The valve was cleaned up and put on display, and after a while, when everybody was tired of looking at it, it was put back into inventory and went back into the ground, probably to serve another 100 years.
[1] https://s.ecrater.com/stores/260372/5725ed67b3cab_260372b.jp...
[2] http://www.cranecpe.com/chem-energy/products/valves/gate-val...
recent past
1924
More than 150 years!
"Jenkins Valves - Since 1864"
How many other electronic devices can make that claim?
But who can forget the stellar recent hardware companies like Fitbit, Jambox, Sonos, and Pebble all of whom waited a minimum of 5 years before bothering to introduce a second product.
If you go direct to consumer, you need to invest in building out awareness, and online and offline sales channels by yourself, which costs margin too.
Someone else about to close a business down for a physical product. He was boutique sized, because of competition from factory made higher volume, he could never get above 2x COGS, and it has been a hard grind that is now losing money instead of the narrow margins he'd had for a while.
- 33% food
- 33% all other expenses
- 33% gross profit
I’m obviously biased from my bad experience, but do be mindful to do due diligence on pricing, delivery, and costs. Well, my other issue was that I didn’t know how to do those things and I ran out of time.
Best of luck on the launch.
There are plenty of direct-to-consumer brands now thriving with around 50% to 60% gross margins, i.e., selling at 2x-3x COGS.
If you have a quality product and a lean sales organization, the 5x COGS model is a thing of the past.
Mature ones, sure. Unless you plan on financing growth pretty much exclusively out of the middle of your cash flow statement, however, you'll need a wider margin as an upstart.
24 ounces of Prime beef, aged for a month? I'm not sure I can get it myself for less than $25/lb.
No way they're making money on the beef.
Good waiting staff is worth their weight in gold. Knowing when to ask if the customer would like an extra drink is an art. On a side note: I never get the 'free refill' policy in the states. Why would you give something away that has a 300% margin...
No problem!
One might sum this up by saying "Silicon Valley" but it really is most anywhere in the modern world where any modicum of freedom prevails, though Silicon Valley still offers unique advantages in my view.
The odds of failing are still stunningly high and those who make it to success are often bloodied by the process but the door is open today in a way it never has been before.
Another way of saying this is that, in the founder/investor partnering that is typically necessary to succeed, no arrangement was even possible for all but a rare few in mom/dad's ancient days, a reasonable arrangement that skewed heavily toward investors was possible just 20 years ago, and an even more reasonable one with founders and investors in near parity (when the founders are strong) is readily achievable today.
I actually don't believe that the story told in this blog post conveys a typical situation but what I have just said does so based on my having worked in depth in this world since the mid-1980s.
The length and structure of this sentence obfuscates its meaning.
He says our business model is "wholly-changed" and now founders need to be super-talented and a long list of other things in order to succeed in the modern world.
I would argue that founders have always needed incredible smarts and a good product/market fit to succeed. I don't think anyone would claim that the "titans" of industry (think Rockefeller, John Jacob Astor) didn't have street smarts, grit, and perseverance.
> affords amazing access to capital, an ultra-connected network of technically savvy persons with whom one can potentially ally, and a huge reservoir of resources by which founders can educate themselves to learn, grow, and develop
For sure, there's more resources (cheaply) available than ever before.
IMO, this should all add up to make it easier to start a business and succeed. Maybe that's what he wanted to say.
Before recorded music the very best professional musician probably made five times as much as the one who was just barely able to reliably get work.
There’s an entire economics literature on these systems.
https://en.wikipedia.org/wiki/Tournament_theory
> Tournament theory is the theory in personnel economics used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals.
Where this doesn’t apply you get Baumol’s Cost Disease.
https://en.wikipedia.org/wiki/Baumol%27s_cost_disease
> Baumol's cost disease (or the Baumol effect) is the rise of salaries in jobs that have experienced no or low increase of labor productivity, in response to rising salaries in other jobs that have experienced higher (low or no) labor productivity growth.
> The rise of wages in jobs without productivity gains is from the requirement to compete for employees with jobs that have experienced gains and so can naturally pay higher salaries, ...
The explanation, or part of it, is a unified interconnected world market where even a tiny idea, well executed, can be incredibly well rewarded, since it scales across the economy of most of humanity.
Nobody really "constructed" it. It emerged.
That system existed for at most 40 years, probably less. It lasted from the beginning of the post WW2 boom to the oil crash in 1973. It lingered on in companies built up during that era and the expectations and cultures built up then but it was surely dead by 1990. To call a system that barely lasted the working life of one human ancient is a bit much, no?
Also large, long lived companies like the 17th century East India Company employed tens of thousands of people, many for decades.
China also has centuries old companies and civil service institutions.
Neither entrepreneurs nor megacorps are recent inventions.
Parastatal companies like the EIC or VOC were products of societies that had just barely mastered professional rather than personal administration. They were also very unusual. Setting them up took special acts of the legislature and vanishingly small portions of the population served in them, or any similar organisation.
Professional bureaucratic organisations outside the state were absolutely in place by the Renaissance, like Florentine banking houses but they were small.
Entrepreneurs and mega corps are not recent inventions but mega corps not intimately entwines with the state are. In what Francis Fukuyama calls a closed access order they’re impossible and open access orders are at most two centuries old. See his book, Origins of Political Order.
The efflorescence of megacorps, outside the state, that could believably promise a lifetime career with the security of the civil service was a time limited thing.
> The origins of the British civil service are better known. During the eighteenth century a number of Englishmen wrote in praise of the Chinese examination system, some of them going so far as to urge the adoption for England of something similar. The first concrete step in this direction was taken by the British East India Company in 1806.
> Thomas Taylor Meadows, Britain's consul in Guangzhou, China argued in his Desultory Notes on the Government and People of China, published in 1847, that "the long duration of the Chinese empire is solely and altogether owing to the good government which consists in the advancement of men of talent and merit only," and that the British must reform their civil service by making the institution meritocratic.
> Influenced by the Chinese imperial examinations, the Northcote–Trevelyan Report of 1854 made four principal recommendations: that recruitment should be on the basis of merit determined through competitive examination, that candidates should have a solid general education to enable inter-departmental transfers, that recruits should be graded into a hierarchy and that promotion should be through achievement, rather than "preferment, patronage or purchase"
Downside is it prioritises a classical education and the cult of the amateur chap who did a PPE but doesn't have any serious domain knowledge (Jen from the IT crowd)
It’s part of a series of lectures I delivered are African Leadership University in March. Please check out the playlist here below. I just finished editing these videos last night! https://www.youtube.com/playlist?list=PLP0dfLFk-anezfZZMB4Dh...
1) How did you manage to keep working even after you realised you were $85k in debt after 2 years?
2) What drove you further into investing into the business after that point? Sheer motivation?
3) How did you stay sane throughout all this?
* no investors interested in pre-seed phase - they all say that you should call them when you are already profitable
* nobody interested in being cofounder - cold cash only
* clients saying that they like your MVP - but you unknown, so they won't buy the product anyway
I don't mean that in SV things are magically happening on its own, but sometimes I have an impression that anywhere else you have to be twice as bold and twice as careful to get 1/10th of a result... Yet they are written in a way that suggest that you can easily reproduce SV results everywhere.
That being said, any great company is a product of vision * team * execution * luck.
SV and to a larger degree US provides the huge networking effects of talent, funding and a big market.
That being said, it still warms my heart to see successful startups from other countries do well.
Read the The E-Myth Revisited (80's classic)
Check out MIT's Bill Aulet's Disciplined Entrepreneurship: 24 Steps to a Successful Startup & accompanying workbook.
Robotics is a tough business. The problems tend to be way underestimated. Even by the big names, like John McCarthy and Vic Scheinman. There is progress, but it's slow. I've done some stuff there myself, but never made money off it, although I sold some technology off to the game industry.
Linear motors have never made it big. They exist, but they're a tiny niche and cost too much. I once was very interested in Aura, which made the electrical equivalent of a hydraulic cylinder, but they went off into strange directions, first subwoofers for gamers (the Aura Interactor), then some financial mess.
If you're building RF stuff, as this guy was, the test gear you need is quite expensive. More expensive than what you need to build the product. Big problem for startups.
This guy seems to have failed to research the history of the fields he was in. That's important in technically hard areas. Otherwise you repeat old mistakes.
I am forever indebted to Earl McCune for his help: http://wirelessandhighspeed.com/
I did get a functional RF design that passed FCC testing, but the fear of regulations around RF sunk me. I read the specifications for wireless in the US, EU, Australia and New Zealand and designed a frequency hopping wireless protocol that I believe satisfied all three regions rules. The protocol supported operating in the 902-928 MHz band, 915-928 MHz band, and the 865-870 MHz band with pseudorandom channel schedules picked as a hash of the network name.
But damn it was a lot of work. And then I found out about how the FCC also issues directives that maybe count as law too, so it’s not just part 15 you have to comply to...
I suppose that could be called a lack of research. I saw it as naïveté and optimism, which might be the same thing. I learn everything else by doing so that was my plan for learning to run a business. I can’t research everything so I just dive in and see what happens. I was desperate to do something.
As far as the linear motors, they were specifically sex toys. The linear motors worked, but only at the prototype stage and they needed better electronics and software to work at the desired speed and smoothness the application would require. Here’s some videos I have not posted publicly, but have thought I should share (safe for work):
https://youtu.be/Fm8lxtqEPk8 https://youtu.be/H3qLlZ6cJho
See the mildly NSFW web page: http://www.mobiusadult.com/investors.html
And SFW images of the device hardware: http://www.tlalexander.com/content/images/2016/12/IMG_7219_p... http://www.tlalexander.com/content/images/2016/12/IMG_7185_s... http://www.tlalexander.com/content/images/2016/12/robots_sm....
Was your BOM cost 100x higher than the competition, or only 10x higher?
I wasn’t trying to start a billion dollar business. I was the only employee and I wanted to make enough to support myself while making a fun product. Unfortunately the product was too complex for me to do it myself, especially at that skill level.
Thank you for sharing!
Real World MBA.
FYI the link in your profile (www.reboot.love) isn't working - outdated?
I’ve updated my profile and I’ll have to fix my server!
(Never buy 500+ pounds of used LEGO pieces, ever, just trust me)
I knew a small scale bicycle manufacturer and he worked with a well known & respected bicycle manufacturer in Taiwan. Even then he'd only get his bikes produced while he or someone else was on site as otherwise they swapped parts, or worse, change the alloy mix in the metals to something cheaper but a lot weaker.
In the end, the guy got crowdfunded, and his girlfriend helped him a lot. They could have done that from anyplace, living near his parents, and gotten married.
- Cafe 220 $
- Oren's Hummus $$
- Crepevine $$
- Il Fornaio $$$
- Coupa Cafe $$
- Local 271 $$
- Sprout $$
- Madera $$$$ (Sand Hill Rd)
Man-bod approved.