Matt Bauer

New Rules For The New Bubble - The Warning

2011-03-13T00:00:00-08:00

There should be an asterisk at the of the title Steve Blank’s SXSW talk. It should read:

While new rules are in place for the new bubble they only apply to startups operating in the bubble. All other startups should continue following the rules for their respective sphere. Entrepreneurs should continue to start startups in any sphere.

Steve Blank identified four paths to startup liquidity and explained them chronologically. I wasn’t there but I hope he noted the latter doesn’t replace the former. It should seem obvious but in the world of the new iPad making the original iPad a paperweight, I don’t think it is. The reason for the new set or rules is a new type of business model has been found. I believe that was adequately explained in his deck and don’t see any reason to add to it. Instead, I’d like to argue the case for the continued validity of the former business models with two goals in mind. First, startups should continue to pursue and innovate in these business models. Second, investors should apply the appropriate set of rules when evaluating an investment.

I like how Steve Blank calls the period from 1970 to 1995 ‘Building a Startup the Hard Way’. It’s exactly what it is, everyday second of every day. I personally miss these startups and wish they would come back. I really wish more fabless semiconductor companies would do their own fab. With all of them being fabless, I don’t expect any innovation in semiconductor manufacturing. We’ll just get whatever Intel does. It’s a real shame because a leap in semiconductor manufacturing could kill Intel and maybe ARM. I’d also like to see a startup oil company. These companies just rip through the NASDAQ like a shotgun blast taking out the existing players and creating huge value. I’d also argue they’re less risk. The money required for these companies is so huge that there’re only a few players and often working on complimentary technologies. Existing players are burdened with their current products/solutions and stock performance they often can’t fight back. This is the kind of startup I hope to do one day.

The concept IPO which dominated the 1995 to 2000 years is still viable. I submit Tesla is an example of this. These startups don’t take as much capital as the former but still large amounts of it. I actually see these types of startups booming over the next couple years. It just won’t be the way we’re use to it. I think the New York Times, GM, Fannie Mae, Freddie Mac and other listed companies will eventually face such investor pressure they’ll have to honestly start the search over for a business model (Steve Blank definition of a startup). Just imagine that. A startup whose seed funding is in the publicly traded capital markets. Oh the possibilities. Indirectly I see DST doing this for startups too. Sort of like a publicly traded (assuming DST goes public) index fund of startups.

The Lean Startup isn’t going anywhere either. These are the incubators for entrepreneurs and investors. It’s where entrepreneurs and investors have sex for the first time. Both are excited and nervous. It’s awkward, mishaps occur but lessons are learned. No matter what happens though, you want another go at it. If after some time you have track record of adding value you’ll have the chance for the other types of startups mentioned above. The career entrepreneur works in this sphere and retires here as an investor. Not a bad job if you can get it.

I describe the current period or what Steve Blank calls the New Bubble, as the Appendage Startup. That’s a startups who’s purpose is to prove out a business model and grow it very large for acquisition by a tangental publicly traded company as a new line of business. I don’t see these companies able to continue going IPO. It’s just like that right now because it’s a bubble. This is mainly speculation as I need more time and data to fully understand this new type of startup. For now, this is my current best thinking.

Just remember the new rules for the new bubble are only for startups operating in that bubble. Startups operating in the other spheres should continue with the rules for their sphere. Entrepreneurs and investors should continue to start and invest in startups that’s appropriate for them.

Hardware Refresh

2011-03-07T00:00:00-08:00

I’m a hardware entrepreneur and where I operate there be dragons. Not so long ago most knew about my world. They knew about it’s difficulty, risk and riches but I’m afraid this is no more. I find it confusing that an area named after the raw material used in hardware know very little about the hardware world. Most only have software knowledge. To understand how different this knowledge is do the following. First, open a web browsers and click on a link, and then a link on that next page, and then a link on that page and so on. Do this till you can no longer or till five minutes elapses. Go ahead, do it. Now let’s do the analogous thing in the hardware world. So first stand up. Turn to the right. Now run as fast as you can in a straight line till you can no longer or or five minutes elapses. Understand the difference now?

Unlike the software world where programmers can create worlds and the rules in those worlds, the hardware world is played on terra forma and Mother Nature makes the rules. Mother Nature is also a cold hearted bitch. If you attempt to break her rules she’ll destroy your hardware on a good day and take your life on a bad day.

As a result you must adjust your definition of a minimally viable product. That’s pitch speak for it’s going to cost a lot more in time and dollars than any software startup. It’s also riskier and more difficult to scale if the product succeeds.

For a minimally viable consumer electronics product a team consisting of an electrical engineer, mechanical engineer, software engineer and designer is needed, minimally. To succeed you really need a project manager, business/retail development person, quality assurance/customer support and shipping. Don’t forget that assumes one of those people has the product vision, knows manufacturing and won’t get screwed by vendors too. Besides the team you need to get the product made which means contracting out the plastics, electronics assembly and packaging. Don’t forget you have the regulatory testing to pay for too. It’s also different depending on where you’re selling and what your product liability insurance dictates.

It gets worse. Modern consumer electronics are expected to be connected devices. This means besides the necessary embedded software, you’ll likely need to write mobile and web software too. In essence, a modern hardware startup is everything a software startup is and more. As such it shouldn’t be a surprise that a hardware startup requires at least twice as much (and usually more) capital to launch a minimally viable product.

In the past to recover such a large expense you can price the product accordingly. That was until the iPod, iPhone and iPad. Apple has aggressively priced their products as a result of their popularity, volume and subsidization. This means if a hardware product needs to cost $299, it must be as feature rich and perform as well as an iPhone. If it sells for $100, better be half as amazing as an iPod Touch. It doesn’t matter what the hardware product is. It could be a digital toaster. The modern consumer is mentally comparing it and it’s price to iPhone.

Even in this difficult hardware world, a hardware startup can absolutely thrive. Mine is. You just have to be really good at many things and absolutely refuse to quit.

Ruby.mn Presentation - A Case Study

2009-03-30T00:00:00-07:00

I’ll be giving a presentation at this month’s RUM meeting. It’s a case study on one of our projects which is a rewrite of an existing php application. The application is rather complex with a existing custom CMS, very fine grain authorization, lots of data and complicated domain logic. I won’t cover everything in detail but will discuss my overriding principals working with something this large and complicated in Ruby on Rails.

If you’re planning on attending you may want to print out the following PDF or just read it on your laptop while at the meeting instead of trying to squint at the screen.

I Have A Few Things To Say

2009-03-16T00:00:00-07:00

I've had various blogs in the past but in total I've only done about ten or so actual posts. I have a feeling that's going to change and hence this blog. I plan to talk mainly about code and running a code related business be it consulting or application offering. I have no idea what the frequency will be but my goal would be every week. We'll see if that actually happens.