Category Archives: Startups

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Personal Manufacturing and the changing world of Capital

There was a pretty lively discussion on one of the mailing lists I’m on and I got a bit carried away with one of my responses.  So of course, after I did all that writing I didn’t want to see it go to waste, and here it is!

This post is in response to a reference to http://www.nytimes.com/2014/03/16/opinion/sunday/the-rise-of-anti-capitalism.html (Paywalled NYT link, limited free access)

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Here’s the issue I have with the article.  It’s all about torturing the facts until they support your own arguments or just over simplifying things until you can’t recognize the arguments any more.  The whole concept of “Zero Incremental Cost” is just right enough to seem interesting but once you look at it, it’s a completely different concept than he’s basing his argument on.  Let me explain.

What he’s talking about is that automated manufacturing processes means that once you have the plans for something, it’s basically machine time, energy, and materials to make another one.  This is the big lightbulb going off moment that happens when I give people something off my 3D printer – first people tell me “I don’t want to take your <item>.”  My response “Oh, I’ll just print another” allows them to see – I just go in and push the button and another appears!  So Zero Incremental Cost – things just appear now in the economy and we all move to a commune and grow our collective garden with our printed shovels and spades, right?  Not so fast.

It turns out that each item done with a 3D Printer or a CNC Mill or an Automated Router will cost MORE than one created by traditional methods.  That’s right – it’s more expensive to 3D print an item than to make one in the way that all that stuff on the retail shelves today are made. (Talking same to same – remember, current personal automated manufacturing is limited in materials and complexity as well.)

So what’s the big deal then?  If it’s always more expensive to make one yourself than to get one-off the production line, doesn’t that mean that mean that this whole Maker/3D Printer/etc movement is doomed to failure as it’ll always be undercut by traditional manufacturing?  Nope – the differentiator is that my item is higher cost (maybe twice the price) but all I have to pay for is that one item.  That production line item is so cheap because all the design and setup costs were amortized over a production run of 10’s of thousands, or more!  So in order to get that individual cost down to half the cost of one-off my personal 3D Printer, I’d have to buy 10K.  (There’s a scene in Batman Begins where Alfred mentions they have to order 10K Batman helmets – the joys of being a multi-billionaire.)  With my Personal 3D printer each item is more expensive, but I only pay for the ones I need.

And this is where the whole Anti-Capitalism happens.  And why it’s not Communism.  And why it’s another layer rather than killing Capitalism.

If you have a market for 10-100K of an item, you’re going to use traditional manufacturing processes – the cost savings means you’ll end up paying maybe half what you would with more “cottage” production processes, and that’s going to be a big chuck of change.  Unfortunately you must have a LOT of money to save that much money – you have to buy that production run of 10-100K up front – which means you need capital to cover your inventory.  So Mr Banker loans it to you and takes his cut say 5% as interest.  You’re happy with that, you’re still saving 45% after paying the interest.  So you know you have at least a 45% margin over my personal production system, time to head down to the Ferrari dealership and see what the latest model is!

Except what happens if your market is 5K and your minimum run is 10K?  Well, you can expect there will be a “Long Tail” need and warehouse the other 5K – but now you’re running at a loss short-term (remember your Banker takes his 5%, so you’re not breaking even at this point) and now you have to warehouse that second half while you find buyers for them.  So not only are you holding inventory, that inventory is costing you money the longer it sits.  Then there’s insurance, shrinkage (things falling off the back of trucks), samples…. The list goes on, the longer you hold that inventory the more costs happen and generally the less you’ll take for them just to get rid of them.  This is the fun of automotive parts and why there’s such a big industry for them (and why a gas cap for your K-Car costs $100 when the car itself may not be worth that.)

But if you start from the ground up – you pick up your $1-3K 3D printer and you need an item, you make it.  It costs you twice what it would be to get it made in a production line, but you don’t have to do that.  You’ve filled your need with that one (or two, or a dozen) items.  Which means even though you’re paying more per item, you’re only paying for those items as you need them and you’re also able to customize each of those items for your task, so you may actually be able to get better value from them.  And thus the anti-Capitalism part – you don’t need that loan on the 10-100K product run.  You may need a loan on that $1-3K printer (or maybe more if your business expands and others want you to make stuff for them) but that 5% is going to be MUCH smaller.

So now you see that the personal manufacturing revolution is simply about taking “just in time” to the next logical level.  And the lowered infrastructure and skills costs that have been happening are actually helping drive down the need for Big Capital, just like Cloud is driving down the cost of doing a software startup.  You just don’t need to build a production line or Data Center until you’re pretty sure you have the market to support it.  And if you have a market to support your business, then those deals you do make with Big Capital are going to be much less like the Silicon Valley VC world and more like a traditional business loan or investment.

Startups and Incubators–are you leaving money on the table?

Coming out of South By SouthWest Interactive and bouncing between the community events and our Incubator program, one thing that struck me was how many Startups know about BizSpark, but aren’t taking full advantage of it.  Many (most?) of the startups I talked with are loving the program, but generally only have their primary technologist registered.  The thing to remember with BizSpark, is that the tools and platform benefits are for ALL your developers and designers!  Not to mention the full company benefits like Azure hours or hosted online meetings, Exchange, and SharePoint.  EACH of your developers and designers can have their own MSDN subscriptions – all you have to do is add them to your company’s BizSpark account.  I’ve heard a couple of people question – why do I want to take the trouble?  I’m covered with what I’ve got now!  Two big reasons.  First – we hope you’re using the software we give you.  We hope you’re using it a LOT.  So we want to make sure you get all the activations that are coming to you – I’ve had several startups come to me and ask “how do I get more keys?”  Well, they had all their devs just using one account.  After we got everyone set up on their BizSpark account, they were both thrilled with the additional options they could explore, and there were no more delays in finding additional keys – everyone had PLENTY!  Second – Startups are fluid.  People join and leave much more rapidly than with larger companies.  So getting each person their own MSDN subscription means that if someone leaves and “leaks” their keys – well just those keys gets deactivated and no one else is bothered. 

 

So take a second to review your BizSpark enrollment – don’t leave $20K+ of software per developer/designer sitting on the table.  We WANT you to have it and I’ll bet your guys would be thrilled to get their personal access – I expect it’ll be worth the 10 minutes or so to get everyone their own account.

 

(And if you’re a startup and not signed up to BizSpark, jump on that right away, or just use “Contact Me” on this blog (or leave a comment here) and I’ll make sure we get you fast-tracked!)