The things I wish I knew three years

ago.Danielle Applestone, CEO Other Machine Co.

2

1. Be verrrry specific about the market.

2. Is that market big enough? You can calculate it!

3. The way you manufacture mostly depends upon your production needs in year three.

4. Good early habits with data let you do more with fewer people and scale more easily.

The 4 big things...

● This is just my experience (I have no formal business training).

● I run a 22-person, venture backed startup that builds a $2200 product and does final assembly in-house.

● Follow at your own risk!

Caveats

● Describe the buyer.

● Identify the friction the user currently experiences.

● Identify the value that the product provides.

You have a product. Who is it for?

● Who’s the Buyer?○ “Elec. Eng. faculty at post-secondary US edu. with

at least 25 students and one lab course in the program”

You have a product. Who is it for?A product that mills PCB’s and is priced at $2000 (your cost is ⅓ of that).

● Who’s the Buyer?○ “Elec. Eng. faculty at post-secondary US edu. with

at least 25 students and one lab course in the program”

● Where is the current friction?○ Students either don’t fabricate PCB, use chemical

etching, or use external board fab.

You have a product. Who is it for?A product that mills PCB’s and is priced at $2000 (your cost is ⅓ of that).

● Who’s the Buyer?○ “Elec. Eng. faculty at post-secondary US edu. with

at least 25 students and one lab course in the program”

● Where is the current friction?○ Students either don’t fabricate PCB, use chemical

etching, or use external board fab.

● What is the value proposition?○ Students will iterate quickly and get more hands-

on experience at low cost, allowing them to get good jobs.

You have a product. Who is it for?A product that mills PCB’s and is priced at $2000 (your cost is ⅓ of that).

● 7000 post-secondary institutions in the US. ~30% have EE.

● 5 students can share one machine.● It costs $2000.● Each school has 25 students in the EE department.

30% x 7000 sch. x $2000 price x 25 stud. x 1unit/5 stud. = $20M

Is this market big enough?

● 7000 post-secondary institutions in the US. ~30% have EE.

● 5 students can share one machine.● It costs $2000.● Each school has 25 students in the EE department.

30% x 7000 sch. x $2000 price x 25 stud. x 1unit/ 5stud. = $20M

Is this market big enough?

1. How much will it cost to run your company in the first two years?

2. How much will you earn in the first three years?

It depends on two answers...

● a person = $150k per year● a company with heavy R&D = 25% of all expenses

10 people x 2 years x $150k/yr = $3M

25% of total expenses = $1M

How much does it cost to run this company?

You will need $4M for the first two years.($2M per year)

How much does the company need to earn?

BURN EARNYear 1 $2M $0Year 2 $2M $1.2MYear 3 $2M $4.8M

● Cash neutrality matters more for hardware companies because we are more risky.

● You need to earn three years of opex in your first two of sales.

● You will make 0%, 20%, 80% of your money in years 1, 2, 3.● In our scenario, that’s $6M.

How much can this market produce?

● You can expect 5% market penetration by year 3.● Your market needs to be 20x what your revenue needs

are.

a $20M market...

I need $6M, so I need a $120M market, and $20M isn’t enough

The options are:1. Add more markets (but with caution)2. Get by with less people (bootstrap)3. Build a different product (sometimes sad)

Bootstrap it!

● You can expect 5% market penetration by year 3 = $1M● You’ll spend a bit more on R&D while bootstrapping

with a $20M market

BURN EARN

Year 1 $150k + $100k R&D $0

Year 2 $150k + $100k R&D $200k

Year 3 $300k + $200k R&D $800k● You can hire someone in year 3 as your reward.

● It will cost you $500k in sweat, angel $, or nest egg.

● Flexibility

● Speed

● Cost

● Quality

How to manufacture?There are always tradeoffs

How many do you need in year three?

QTY METHOD DESCRIPTION0-1k In-house Build the 1st 1000 “yourself”1k-5k Hybrid In-house final assembly, nearby outsourced

parts5k-10k “Local”

outsourcedNo ocean plane rides

10k + Large volume mfg

Fully outsourced, global

This depends a lot on the price point of your product as well

● Production Data○ How many can we build?○ How long does it take?○ How much does it cost?○ When do we need to place orders?

● Product “History”○ What parts, from where, assembled by

whom?● Support Tracking

○ Informing engineering teams about trends○ Know when to scale support

Good early data habits: do more with less.

danielle@othermachine.co@dapplestone

Thank you!