Why building a hardware startup is easier than ever

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In this interview I talk with Jeremy Conrad, co-founder of Lemnos Labs. This Silicon Valley incubator specializes in hardware startups. Jeremy used is background in Mechanical Engineering and the Air Force to help create the eco-system to support a new wave of startups – those focused on actually building something.

Transcript:

Stephen: Give us a brief overview. What is Lemnos Labs? What were you guys founded for, and what are you guys trying to do?

Jeremy: Sure. Lemnos Labs is an incubator, and there are a lot of start-up incubators right now, but what makes us different is we focus on physical products. Everything in our portfolio is a goods. We have an electric vehicle company and we’ve gone an electric guitar company, all the way up to industrial robotics. Our core thesis is that it’s never been easier than now to start a hardware company, but there is still a little bit more that can go wrong. We try to provide the guidance and resources necessary to really help get the companies off the ground.

Stephen: Very cool. Why did you guys decide, “Let’s do hardware. Let’s build stuff.” It’s like you said so many incubators, so many businesses are all about digital. Let’s build something that exists in bits, but you guys are actually building physical stuff.

Jeremy: I think there are two reasons. Me and the other partner are both at Lemnos are both mechanical engineers, and I spent five years in the Air Force building lasers, missiles and infrared cameras, so it’s certainly a passion of our, but I also think that there is value in being where other people aren’t. It’s not like physical products are going away. There is certainly a huge growth on the web, but people still buy and interact with physical goods everyday. I think that it is kind of an underserved market in that sense.

Stephen: Very cool. Yes. Do you think that there is more of a trend now? Three-D printers are becoming available, tech shops, and there is a community groundswell support for actually physically building products. Do you think that has sort of helped start this new movement?

Jeremy: Definitely. The maker community, the tech shops, rapid prototyping, I think all of this really starts to help out. What we do at Lemnos is it’s a lot easier to make one of something and then make one of something you need to last for two years or to make one of something that you’re going to then produce by the millions. For us it’s about, how do we take this great energy and this great capability and rapid prototyping and really kind of mesh that with the systems engineering and skill sets you need to bring products to market that are successful.

Stephen: You actually were in the Air Force, and you actually built physical stuff. At what point did you say, “I want to start an incubator, and I want to help other people build this stuff.”

Jeremy: Definitely going in I had seen a lot of my friends go off and start their own company. In the back of my mind I had kind of always wanted to go start my own thing as well. When I separated from the Air Force I actually moved to San Francisco and started a web company. I worked on that for about six months. I got to the point where we realized that the business case just really wasn’t there. We ended up shutting that down, stopped, really looked around and said, “We’re not the best programmers, but we are decently talented mechanical engineers.” If we wanted to start a company involving building something, the ecosystem isn’t there, and that’s when we had this realization there was this opportunity to enable a lot of start-ups that we think aren’t getting started just because there’s not as much focus on the early stage.

Stephen: Did you have capital or did you have to go out and convince people, “Hey, here’s this incubator we want to start.” Did you need investment for that? Or was that something you guys had the funds to start on your own?

Jeremy: We can’t really talk about fundraising right now. All the companies that were in our last class did receive a $50,000 investment.

Stephen: That’s cool. What are the lessons learned so far in physical hardware startups versus a web startup?

Jeremy: Certainly it’s a lead times matter. For instance, one of our companies is working on a consumer product. As they look to launch, for instance, one of the Lemnos mentors recently launched the Pebble watch on Kickstarter, and watching 10s of thousands of sales in a couple of days, for our company, some of our companies are looking to launch on Kickstarter, making sure they have at least thought through that if they got 15,000 orders, what would you do? Certainly there is that difficulty of brand tarnishing of getting all these orders and you can’t fill them for a year because you didn’t think to start talking to the vendors before you launched on Kickstarter. Trying to anticipate what the lead times are and what the critical path is, is really important.

Stephen: Any prototyping issues that you guys have come up with, or does that stuff gets worked out naturally?

Jeremy: There are always prototyping issues. It’s like a learning process.

Stephen: Yeah.

Jeremy: One thing I think that has been even more valuable than I thought it was is that we’ll often bring in our mentors or people in our networks to talk to the companies. The feedback that they can get is really valuable in ways that would be unexpected. For instance, if you have a problem when coding a website, you can go to Stack Overflow or some thread somewhere and find an answer. The reality is you’re trying to identify a better material or material that can be used in mass production. It’s not quite on the internet. It’s not just a simple Google search away. The ability to interact with people who have been delivering products for 20 years can be critical. Even more importantly is the cross pollination. We’ve got, like I said, industrial robotics and consumer electronics. Sometimes it will be something from one field, and they’ll say, “Oh, we do it this way all the time” and in consumer electronics they may just have never thought of.

Stephen: As people are building these prototypes do you let them know, “Hey, you should go out and get feedback”? Are they in the lab staying secret with what their building? How does that process work through?

Jeremy: We definitely push them out and make them go out and do customer validation. People gravitate towards what they’re best at, so a lot of our entrepreneurs do want to build because that’s what they’re really good at. For us, though, you can build a great product or build a great thing, but if you haven’t actually verified that the market is there, if you haven’t gotten feedback from potential users, you may have built something that’s totally worthless or not viable. Making sure you’re getting that feedback as early as possible from your users is important. For most of these companies, they all have aspects that are patentable, but trying to be stealthy or things like that I’m not sure is as useful.

Stephen: They really don’t need to worry about, “I’m going to share this with somebody, and they’re going to go and steal my idea and run off.” It’s not really as big a concern?

Jeremy: I think this is a concern with any company, but it really does come down to execution, and I think that it’s more important for them to get the feedback from the potential customers. There’s huge value in that. The risk that that potential customer never would have thought of building a better guitar, that’s unlikely.

Stephen: It’s really about the execution. You can have this idea, but unless you have the equipment to build it, the mentors to help you, the resources to do all that, unless you can actually execute on it, it’s not a threat?

Jeremy: Exactly.

Stephen: What are some of the things you’ve noticed as you were doing hardware start ups? What are some of the trends you’ve seen picking up? Three-D printing is getting there, what are some of the things that you think in a year or two this is going to be really cool?

Jeremy: Something we’ve certainly realized in the course of this first class is just how far design tools have come. When I was a senior in college, if you had solid works and a laptop, if you were designing anything more complicated than a ball, you were screwed. It would just clink over, and you could never really render anything right. A $1000 laptop can run even the most sophisticated CAD software. Also, you’re really just starting to see this new set of startups that are related to our community where you can do cloud-based design, where you can do analysis in the cloud, and those are the kind of tools that make it even easier. When you combine that with 3D printing, with places like Tech Shop, there is a convergence that makes it incredibly easier and easier than it’s ever been to start these types of companies.

Stephen: Do you think people have always wanted to do this and now they have the tools? Or now that the tools are available people are suddenly thinking in new directions, like “I didn’t really think about that before, but that would be really cool to build this product”?

Jeremy: I think there is this visceral element to building hardware, and I think for a lot of people it is always there in the back of their minds. I think it is certainly interesting that a lot of even web entrepreneurs when they have a side company or build a yacht or something of that nature. There is something about interacting with the product in the physical world that is very tangible and unique.

Stephen: I totally agree. In my past I was actually working for a defense contractor. I have a mechanical engineering background as well. There is nothing like actually turning a wrench and building something and seeing it right there.

Jeremy: Absolutely.

Stephen: It’s really cool. It’s kind of awesome to that get more into the consumer side. Where do you want to see Lemnos Labs go in a couple of years from now? A bigger graduating class? Do you guys want to specialize in a particular category? Consumer electronics? Anything like that?

Jeremy: We’re pretty broad, and we like our broad focus. I think there’s a lot of commonality in hardware, even it’s air space down to consumer electronics. We do a tailored design review process. You do get different feedback for those companies, but as I said earlier, I think there is this massive benefit to having a diversity of companies and mentors because it is that sometimes we get the biggest innovations with cross disciplinary types of stuff. In terms of where Lemnos goes long term, we’re really focused on this class and our next class, and we’ll certainly grow the classes a little bit, but we’re still very much feeling out the value we add and making sure we don’t want to grow too big and lose the ability to help out the companies.

Stephen: I’ve noticed you have a ton of mentors on your website there. How did you find them all? Was that through personal contacts, or you reached out based on some of the companies that were interested?

Jeremy: Definitely both. A little bit of column A, a little bit of column B. I think one interesting thing about hardware is you’re Jack Dorsey you probably get 1000 requests a day to be an adviser or mentor. You can go and build and sell $150,000,000 company in hardware, and the reality is most people aren’t beating a path down to your door. A lot of them are actually really passionate entrepreneurs who are passionate about having more hardware and helping out. The history of Silicon Valley is hardware. If you’ve read or seen Steve Blanks, The Secret History of Silicon Valley, there is this really cool history to the hardware development in the Bay Area, and I think it certainly is kind of drifting back towards that direction.

Stephen: Do you think that people are going to start or that this will bring manufacturing back into the U.S. or is more like we’ll rapid prototype a couple prototypes and then maybe outsource?

Jeremy: It’s really unclear, and I can’t claim to be an expert in manufacturing.

Stephen: Of course not.

Jeremy: The U.S. still manufacturers an incredible array of products. If you look at Space X is a great example. They are producing some of the best rockets in the world. They built it a factory from the ground up in the middle of L.A. There are a lot of things with still tons of manufacturing capability and skill here. People get very caught up in, “Oh, all the iPhones are made in China.” I think it really does neglect the fact there is so much awesome stuff that is made in the United States.

Stephen: It’s really not as dire. I live in Phoenix, and we have a huge manufacturing base. We’ve got aerospace, golf clubs, water filters. There is all this stuff that is built in Phoenix that you wouldn’t think about, but there is a huge manufacturing base. A lot of stuff. When I was an engineer that is where I worked, in Phoenix. We really didn’t have any problem getting anything made in the city, unless it was a real specialty part it might go to California, but otherwise there were plenty of machine shops.

Jeremy: Exactly. There is still plenty of manufacturing. Different areas will specialize in different stuff. Certainly there is a lot of great, high quality equipment made in the United States.

Stephen: Do you have any products that maybe one day you would like to build. You’re like, “Eh, I’ve got this idea.”

Jeremy: Right now I’m overwhelmed with our company. It’s great to be around the entrepreneurs, and right now our occupations to open for our next class. I’m taking two phone calls a day right now just talking to potential entrepreneurs. It’s really interesting to hear their ideas and talk it through with them, like “What’s your go-to-market strategy?” or, “Technically, I’m worried about this. Convince me that this is not actually a big technical risk”, or things like that. Lemnos keeps me pretty busy.

Stephen: What is the application process for Lemnos? If I’m a hardware entrepreneur, and I’m thinking, “Great! This is something I want to do.” What’s the best way to get started and approach you guys?

Jeremy: It’s as simple as an email. My email is jeremy@lemnoslabs, and the email for the application is just partners@lemnoslabs. It’s a little bit less formal. We look for, at the end of the day, the team is really important. We don’t want to fund sole founders just because being in the trenches alone sucks. It’s really hard and difficult to start a company by yourself. Also, we look at the core technology. We need to believe that it’s possible and viable as a technology. If there is some technical risk that’s certainly part of what we do. Then that there is a market applications. Typically when we get an application, people outline what they plan to do and maybe some rough numbers and a 4-1/2 month plan with about $50,000 to spend, right? Then we work from there. It really is about talking to the entrepreneurs and really getting to understand where they’re at and what they’re capable of.

Stephen: They don’t need have any physical hardware built, they need to have a pretty fleshed out idea, but they don’t need to come to you and say, “Hey, I’ve got this really early stage widget, and I need $50,000 and four months to make it a really cool widget that I can then sell.”

Jeremy: Some of the entrepreneurs that approach us have working alphas or prototypes, and that’s certainly great, but we don’t require it. You just need to have an idea, a solid kind of concept of what you plan to build.

Stephen: Is there any kind of spark you’re looking for? Something that you’re like, “You know, that’s awesome!”

Jeremy: Absolutely. At the end of the day startups are hard. They’re much harder than [inaudible 14:05] popular class. It sucks sometimes. If you don’t have this burning desire to start a company and you’re truly passionate about it, it makes it very difficult to succeed. It’s not for the faint of heart.

Stephen: It’s really tough. Especially when you’re building something. Are there any roll model hardware startups that you guys study or tell your class, “Hey, look at what these guys are doing. They’re doing it really, really well”. Not that they have to emulate it, but consider or look at what they’re doing?

Jeremy: I think there are tons. You can look at consumer products. You can look at the flip camera. They had phenomenal success. [inaudible 14:49] they had several other products before the flip, and then the flip kind of blew up. One of more mentors is the founder of [Siftio], and I think Siftio took something that was developed at [Mintinea] Lab and transitioned it out. I think also there has been some great successes that people, for some reason, just aren’t necessarily aware of. There is a company in the South Bay that actually does surgery robots and has a $10 billion market cap. It’s technology that was spun out of SRI. It’s really ultra high-tech stuff. All the way down to iRobot. They have about a $1 million market cap as well. I think that founder had a great vision for robots that are a single purpose and that do really great things.

Stephen: That’s really cool. I didn’t realize there were surgical robots. That’s pretty advanced.

Jeremy: That’s certainly what it comes down to. Part of our job is to be aware of what the state of possible is and what companies have had success.

Stephen: I’m sure you’ve noticed just a huge increase in even the last years of lot more hardware start ups. Has it been pretty consistent and now people are just noticing?

Jeremy: No. It has totally not been consistent. There is a bit of a hesitation with companies like Instagram going from to 0 to billion dollar in excess of 18 months. From a lot of investors perspective there are certainly very appealing things about the lab. There certainly wasn’t [ebb 16:12] away from hardware. I think you’re seeing a growth in hardware startups being funded and started, and I think there are a variety of reasons for it. I think if you look at Family Groups Portfolio has a number of really interesting hardware companies including thinks like Siftio and Robotics, and I’m not sure if a decade ago there was quite as many people into thinking of that.

Stephen: That’s a really good point. When it comes to building a hardware startup company, should people have a background in engineering or a background in producing physical things or is that something you can learn as you go?

Jeremy: That’s an interesting question. All of our entrepreneurs in this class did have backgrounds in engineering. Well, there was one with a background in physics. I think it is important to have that, but I don’t want to say you absolutely have to have it, because I’m sure there are definitely companies where people aren’t hardware engineers. Certainly a robust understanding or, this is where co-founders become really important, if you have a great vision and your co-founder has more of the engineering skills, then those are great companies as well.

Stephen: Really, at the end of the day, you’re looking for a passionate team that has a really good technology that can turn into a viable consumer product. They don’t necessarily have to fit a mold?

Jeremy: No, it doesn’t have to be a consumer product. I think there are a lot of actually incredible opportunity in either B-to-B, or you can imagine if you have a better way to refine something or something like that. There is a lot of physical innovation that can occur that can yield companies that maybe sell commodity products or something like that where you don’t actually have to be selling to the consumer.

Stephen: Very cool. Awesome.

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