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Client Confidential
Hardware Startups 101
for “Career Engineers”
March 2014 to NES-OSA
Gregg Favalora
CTO – VisionScope Te...
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality...
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin /
Legal
Financing / Legal / Account...
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality...
http://bit.ly/hwstartupsbos
A Company’s Lifecycle [Ideal versus actuals]
Startup
Profitable
M&A or
IPO
“Lifestyle Business...
Client Confidential
http://bit.ly/hwstartupsbos
You Can’t Predict the Ride’s Result or Duration
10
Actuality
Systems
Actua...
Client Confidential
http://bit.ly/hwstartupsbos
1997 – 1999: *Huge* initial struggle for $$
Persisted tenaciously...
ka-ch...
http://bit.ly/hwstartupsbos
2000 – 2004 – Actually, a ton of fun
• 6 full-time employees
• Tiny office in Reading (128)
• ...
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• g...
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• g...
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• g...
Client Confidential
http://bit.ly/hwstartupsbos
Phase 1: $1.5M, Proof-of-concept
1997-2001
• 100 million pixel display
• g...
http://bit.ly/hwstartupsbos
Key Lesson
• Step outside your “engineer hubris” and give deadly-
serious thought and sales ex...
http://bit.ly/hwstartupsbos
Lightning-fast HW Startup Survey Course
• What will you learn tonight?
• Case Study: Actuality...
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin /
Legal
Financing / Legal / Account...
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-...
Client Confidential
http://bit.ly/hwstartupsbos
Want to Sell More than 100 of your Widget?
Source: Crossing the Chasm
Prod...
http://bit.ly/hwstartupsbos
Customer Development
• Key lesson – buy these books
– The Four Steps to the Epiphany: Successf...
http://bit.ly/hwstartupsbos
Cheap Prototypes & Affordable Production Runs
• In this audience, you’re the experts.
• Avail ...
Client Confidential
http://bit.ly/hwstartupsbos
Use makerspaces
Artisan’s Asylum
Somerville, MA
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin /
Legal
Financing / Legal / Account...
“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
– Ge...
http://bit.ly/hwstartupsbos
Fundamental Constants of Financing
• Unless you’re a recent Stanford dropout with a software
s...
Client Confidential
The Pitch Deck: see the online handout
• Customer Problem
• Product Overview
• Key Players (team)
• Ma...
http://bit.ly/hwstartupsbos
A one-slide visualization of “dilution”
Source: http://www.bothsidesofthetable.com/2011/10/14/...
http://bit.ly/hwstartupsbos
A one-slide visualization of “dilution”
Source: http://www.bothsidesofthetable.com/2011/10/14/...
http://bit.ly/hwstartupsbos
Actuality’s financing rounds (1999-2008)
Series A ($1/share) (2000) $ 1,500,000
“2001 Note” 80...
Client Confidential
http://bit.ly/hwstartupsbos
Board of Directors
Great core
technology! Have
you considered this
other m...
http://bit.ly/hwstartupsbos
Characters to be Wary Of
• GOOD consultants are great;
– Get references, and then work with th...
Client Confidential
http://bit.ly/hwstartupsbos
Regulated market? Think carefully…
Some topics required for compliance wit...
Product Customer Development (Prod. Def’n.)
Affordable Manufacturability
Patents
Admin /
Legal
Financing / Legal / Account...
Client Confidential
Sales for Engineers
• One-paragraph, iPhone-
friendly email intro. Take as
much time on the subject li...
0 0
00
0 0
stretch break
you’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...
http://bit.ly/hwstartupsbos
Launchpad: Steps 1-5
1. Enter the waters, pick cofounders. [ cite: Greenhorn ]
2. Quickly find...
Client Confidential
ASIDE: Bplan Competitions, Accelerators
• MassChallenge
• MIT $100k
• MITX Awards
• Babson
• Dartmouth...
Client Confidential
http://bit.ly/hwstartupsbos
Two big well-regarded competitions
• MassChallenge
• Global (really!)
• AP...
http://bit.ly/hwstartupsbos
Launchpad: Steps 6-10
6. Try like heck to sell it & market it.
7. Get a mentor; get your ducks...
bit.ly/hwstartupsbos
http://bit.ly/hwstartupsbos
Good luck! Email me any time!
Gregg Favalora
VisionScope Technologies, LLC
favalora@gmail.com
...
Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)
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Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)

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Strategic and tactical advice on hardware startups for first-time entrepreneurs. A talk by Gregg Favalora - an entrepreneur who exited a "holographic display" startup in 2009 - that will rapidly teach Career Engineers about the primary themes of startups. Topics: product definition, financing, sales. Links to an Online Guide for HW Resources in Eastern Massachusetts.

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Hardware Startups 101: Tips for "career engineers" (NESOSA 2015; Favalora)

  1. 1. Client Confidential Hardware Startups 101 for “Career Engineers” March 2014 to NES-OSA Gregg Favalora CTO – VisionScope Technologies, LLC Favalora@gmail.com Visit http://bit.ly/hwstartupsbos for links to the cited meeting calendars, pitch deck fundamentals, books, etc.
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. http://bit.ly/hwstartupsbos A Company’s Lifecycle [Ideal versus actuals] Startup Profitable M&A or IPO “Lifestyle Business” Dissolution
  6. 6. 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
  7. 7. Client Confidential http://bit.ly/hwstartupsbos 1997 – 1999: *Huge* initial struggle for $$ Persisted tenaciously... ka-ching!
  8. 8. 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!
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. 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
  13. 13. 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 $$$.
  14. 14. 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
  15. 15. 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?
  16. 16. Client Confidential http://bit.ly/hwstartupsbos Avoid My 12-year Fishing Expedition Gregg The Elusive “Market”
  17. 17. Client Confidential http://bit.ly/hwstartupsbos The Chasm http://www.disrupthealthcare.org/2013/03/selling-hospital-based-incubator-idea.html
  18. 18. 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”
  19. 19. 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
  20. 20. 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:
  21. 21. Client Confidential http://bit.ly/hwstartupsbos Use makerspaces Artisan’s Asylum Somerville, MA
  22. 22. 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
  23. 23. “Boring but important” (as The Week magazine likes to call it)
  24. 24. 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.
  25. 25. 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)
  26. 26. 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
  27. 27. 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/
  28. 28. 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/
  29. 29. 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
  30. 30. 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
  31. 31. 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]
  32. 32. Client Confidential http://bit.ly/hwstartupsbos Regulated market? Think carefully… Some topics required for compliance with 21 CFR 820 (cGMP), for example: general provisions quality system requirements design controls document controls purchasing controls identification and traceability production and process controls inspection, measuring, and test equipment acceptance activities nonconforming product CAPAs labeling and package control handling, storage, distribution, and installation records servicing statistical techniques It demands organization-wide mind for Quality, plus the costs for certifications, etc.
  33. 33. 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
  34. 34. 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
  35. 35. 0 0 00 0 0 stretch break you’re doing great, almost done The Bourne Identity
  36. 36. 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
  37. 37. 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 ]
  38. 38. 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
  39. 39. 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
  40. 40. 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!
  41. 41. bit.ly/hwstartupsbos
  42. 42. http://bit.ly/hwstartupsbos Good luck! Email me any time! Gregg Favalora VisionScope Technologies, LLC favalora@gmail.com http://bit.ly/hwstartupsbos

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