Continuing my story from “Life as a Small Robotics Manufacturer,” I’m moving on to the days after the design is done. When building a business, thoughts often go to images of world-beating products, money flowing in, and perhaps an IPO (initial public stock offering) and early retirement. Sometimes that is the outcome, but like a high school athlete with dreams of Super Bowl victory, the odds are long. Fortunately for the world of innovation, long odds rarely intimidate the entrepreneur.

From engineer to entrepreneur

In 2015, with a solid product line in hand, I applied for and was granted a booth at the Maker Faire Bay Area—the big one. I showed up with ten each of about a dozen different products ranging in price from $84.00, for an Arduino compatible NeoPixel clock kit to $5.00 for a blank PCB. The dozen products were only a sampling of what I had to offer. For a hobbyist or maker targeted business, it was a really good start.

My booth at Maker Faire Bay Area, 2015. DUANE BENSON

As a technical person, you may have had to deal with customers from time to time. If engineer memes are to be believed, many of those interactions are awkward, uncomfortable, and to be avoided at all costs. As an entrepreneur though, you must accept them as a part of your world. The good news is that in my experience, customer interactions can be great fun and rewarding. How cool is it to see someone else get excited about something that you envisioned, designed and built? 

Related:Life as a Small Robotics Manufacturer

That was my experience at Maker Faire. Nothing but excitement about my products with plenty of positive feedback and a surprising number of fairly deep technical discussions. 

Scaling to volume production

After that initial success comes the transition from a maker to a manufacturer. Even if you have a money-making product, there are usually several inflection points of scale where the economics don’t work. For example, you may be able to hand build 10 boards a day between all of the other aspects of running a business. That could lead you to consider the manufacturing cost to be effectively zero.

In my case, it took about 30 minutes to hand assemble each board. That was five hours building and five hours running the business. The averaged profit per board came out to just under $4.00, so we can call that $250.00 per week of gross profit when hand building at a rate of 10 boards per day ($13,000 per year). Clearly not enough to meet my vision of an IPO and early retirement. However, at this point in the startup, validation is the real goal. Profit comes later.

At the time, $25.00 seemed like a fair and competitive price for the Arduino compatible CPU board. Parts cost about $15.00, the PCB was $3.50, and the shipping box and inserts were about $2.50. A total assembled board cost of $21.00 left me a gross profit of $4.00 per board. A day’s work of hand building ten boards resulted in $40.00, or about $4.00 per hour (or less) given the time I was putting in. Not much, but enough to demonstrate promise.

Related:Mechanical Engineering Perspectives, Part 3: Quantity, Quality, and Time to Market

Arduino-compatible robot boards ready for sale. DUANE BENSON

Scaling up, however, delivered another lesson in economics. At a small run of 100 boards assembled, the cost per assembled board was $19.00. That quantity wasn’t enough of a jump to hit any significant price breaks on parts, so I only saved two dollars. Upping the quantity to 1,000 got me into price break realm. However, there is no account for outsourced PCB assembly in that number. I could build 100 in two weeks, but 1,000 was just not realistic. Outsourced assembly for 100 boards came to about $30.00 each and about $6.50 each for 1,000 boards. At 1,000-unit quantities, the total cost of parts, PCBs and assembly came out to around $12.50. $12.50 per board profit starts to look like a real business if you can sell the 1,000 boards in a reasonable time.

Rate of growth and the income gap

Now for the dilemma. The Maker Faire trip cost about $1,200 between travel, hotel, and meals. I considered my sales number to be pretty decent, but in the end, I still lost a few hundred dollars on the trip. If you count the amount spent building the units I didn’t sell, the loss for the event was even greater. That’s not necessarily a problem. As a startup, I would simply consider that to be marketing expense if sales momentum from the show would lead to enough additional sales.

Related:How to Select the Right Amount of Flash Memory

That “if” turned out to be a significant issue. A few days at an event being passed by a few hundred people is important, but it is not enough exposure to build a business around. Most of the people who would buy one of my products did. Most of the people who went home thinking that they would later buy something did not.

Maker Faire was just one point of exposure and to sell enough boards to make a living, I would need a lot more exposure. And, I would need to be able to build products for a lot less money. Those two things equate to marketing and higher volumes.

Getting the word out

Bad marketing should be rejected. Good marketing, however, is simply the process of letting people know about what you are building. Better marketing is finding the people who want or need your product and giving them enough accurate information to make a good purchase decision. Good marketing requires an understanding of your product and human communications. Knowing your customers and product well and having good language skills allows you to craft a good message, which is the heart of good marketing.

Marketing also requires money, luck, and time. Assuming you have created a good message, marketing success is a triangle between money, time, and luck. More of one factor will allow you to get by with less of the other two. Extreme luck does occasionally happen, but it is rare, and you can’t depend on it. Given that, you can effectively reduce the marketing equation down to just time vs. money. If you want to market and sell faster, spend more money. If you don’t have the money, expect it to take more time.

Other people’s money and taking the leap

I had market validation that at least some of my products would sell. I had spreadsheets and detailed financial calculations confirming that if I could hit the right sales volumes, I would be able to make a profitable business. All of that is foundation of a startup. Business milestone one is the idea, two is the product, three is market validation. Milestone four is the ability to fund the actual startup activity.

To “bootstrap” is to use your own money. Few businesses take only this route these days. It can work, but you must be willing to personally risk a lot. I had bootstrapped up to this point, but like many entrepreneurs, I had reached a point where either money runs out or the level of personal financial risk is no longer tolerable. That means investors and trading part ownership for funding.

Angel investors are the first stop. They put in a little money and take a lot of risk. Angels expect their money to go directly to building the business, so don’t expect angel money to be something you can live on. They don’t really like to pay salaries. If an early-stage investor gives you $150,000, they want 100% of that to go to growing the business, not paying you a $150,000/year salary.

For this stage of the startup growth, you need a different source of money to live on. It can be savings, family money, or a “day job.” One common option is to keep your day job and do most of the work after hours. At this point, I was putting in 40-plus hours per week for my day job and building boards, a website, a marketing plan, and writing firmware in the evenings and weekends. Also, I didn’t have the $150,000 angel investment so I was funding all of the business growth out of my salary.

MVP—Minimum viable product (line)

The concept of minimum viable product, or MVP, has been around for a few decades now. It refers to stopping development at the first point at which people will pay for your product and it will reliably work. “MVP” also applies to a product line. When you are starting out, you typically have a limited set of resources (meaning time and money). You must ration both and that might mean leaving some things you want to do or some products you want to sell for later. At this point in your company’s evolution, you don’t have spare anything. Every minute you take and every dollar you spend must contribute to the workable part of the business.

My mistake was in ignoring the MVP concept with my product line. I didn’t have enough confidence in any of the specific products to sell them alone. I also let my own personal preferences influence my product decisions. My custom design Microchip PIC-based microcontroller boards were my favorite, so I spent a lot of time on their design. The problem was that Arduino buyers and bare metal microcontroller developers are not the same people and don’t run in the same circles. I ended up diluting my efforts and dividing my resources. By doing so I created an environment where I could not attract investor attention, nor could I create a business with bootstrapping alone.

At least I got the T-shirt…

At least I got the T-shirt. DUANE BENSON

I had an awful lot of fun and learned a lot. If I could go back in time, I would do it again. There is no way to tell if I could have made the Steel Puppet business work had I pressed forward, but I made the call to stop before creating a lot of debt. Being able to make such decisions and live with them is probably the most important aspect of the entrepreneur. All I have left for my efforts today is a set of boxes filled with boards I built, an unused web URL, and a Steel Puppet T-shirt.