What does it look like to an entrepreneur bootstrapping themselves through the early stages? I talk to Saurabh Palan, Founder and CEO of Mighty Carma, about the process. Firstly, Saurabh has just come through a few months of intense iteration (worth a whole nother blog post or two) in which he’s talked to potential customers, changed his design, talked to potential investors, changed his design, talked to more potential customers etc.

Crowdfunding was not Saurabh’s first choice. Saurabh’s first choice was to find a channel partner, who would then invest in him directly, or make investing in him appealing to investors due to the large market potential. Makes sense on paper but takes a lot of time that rarely pays off. Paul Graham from Y Combinator has written a great post “Do things that don’t scale” touching on that issue.

Along the way, Saurabh’s company changed its focus from robotics product to consumer automotive product. In technical terms, Mighty Carma is working on a Smartphone-based Advanced Driver Assistance System (ADAS). Steve Blank has also just written a great post on how robotics companies find their MVP and prove their business model by moving away from the robots.

It wasn’t Saurabh’s second choice to go to a crowdfunding campaign either. His preferred route is still to get direct investment or perhaps to get into a hardware accelerator like Lemnos Labs, Bolt, Haxlr8r, AlphaLabs or Highway1, the new PCH International accelerator.

50% of crowdfunding campaigns fail. While there are a lot of great hardware success stories like Ouya and Pebble, it is risky for the startup/entrepreneur. There are a lot of #fails. As an entrepreneur, you have to ask: how many times are you willing to take the risk? How will this impact on investor confidence? See my blog posts; “Crowdfunding Robots“, “New Funding Sources for Robotics“, “3 Reasons to Crowdfund a Robot” and “A Botiful Story“.

I asked Saurabh why he’s considering crowdfunding. “The cost and MVP fundamentals for the hardware are very different from the software company. It is easier to build an app, ship it and then fix what’s broken. You can easily do user testing as well as get feedback from customers who may want different things from what you have. For hardware, on the other hand, it’s very difficult to do consumer testing as we may just have a couple of 3D printed, hand-made prototypes.”

“Even though it’s open-source and cheap, building hardware comes at a cost. Crowd-funding allows us to show that prototype to a larger audience, get feedback, and test if this is something people will buy, if we manufactured it. Also with crowdfunding, it is easier to test ideas, and if it fails, you have lost a few months of work and some small cash, and if it worked, you can be the next big thing.”

How will you choose a crowdfunding platform?

“Both Kickstarter and Indiegogo are great platforms. However, after the changes made to rules on Kickstarter, it is difficult to get projects approved on Kickstarter, especially if it’s a hardware project. Kickstarter fails to understand how hardware works. They expect you to show a real product, not a 3D rendering of what it would be like. It is OK to show 3D printed product as long as they also allow the renderings for what users will get. This matters a lot as without 3D, the projects lack color, design details and also in some cases functionality.”

“Indiegogo on the other hand, lives and breathes hardware. They are based in San Francisco, right in the middle of the most innovative place on earth. They understand that it is very expensive to make hardware, also the chances of success is high when consumers are able to see the final product, even if it is in rendering.”

“Though Kickstarter has an advantage of wider audience and million dollar success, it is difficult to repeat the same on Kickstarter, due to their new rules. Indiegogo on the other hand is very open. You can not only show 3D, but also sell multiple units of the same product. (Approx 10,000 users bought more than 1 Pebbles.)”

Currently Saurabh is finalizing product design and looking for creatives to help him with marketing materials, pictures and videos for a crowdfund campaign. Many successful campaigns these days also employ marketing companies or professionals to grow customer base and create media interest. Saurabh will be searching Angel.co, LinkedIn and Craigslist for people with the skills he needs and hopes that tapping his existing networks will be sufficient for his crowdfund campaign. He expects to be going to meetups all that month, talking up his campaign, as well as approaching groups in the same space. He’s found that interest groups have been useful in giving him good feedback.

What are the benefits, outside of pre-orders, in crowdfunding?

“For innovative product, crowd-funding helps build a brand name. For example if Pebbles was not crowd-funded, Apple or Sony would have made their product irrelevant. However, due to the brand name, Pebbles is identified as the 1st on many that followed. Also it helps a great deal in raising money. (At least that’s what I have heard. One example is Romotive which did not get a single investor on demoday at Techstars, but were able to raise $5MM after $100k kickstarted campaign.)”

What are the risks to you?

“The risk are enormous. If crowdfunding is successful: 1. Meeting deadline to deliver product 2. Sorting supply chain. 3. Certifications (FCC, CE etc) 4. Setting up scalable manufacturing.”

“If it is not successful: 1. Now the idea has become public, so competitors know what we have and how they can better it.  2. Raising money becomes even more difficult.”

What the rewards are?

“Most rewarding thing is that you get to know from the customers directly if they want this or not. Also its a great marketing tool.”

We’ll follow up Saurabh’s progress with a Mighty Carma crowdfunding campaign as it happens. It’s easy to be wise in hindsight but it’s very hard to navigate the risks and rewards in real time.

Is Robot Launchpad an accelerator or a hackerspace? Both. Right now we’re testing the viability of opening a robot hackerspace. Theoretically, this makes a lot of sense. I believe that the hackerspace and maker movement are fueling a resurgence of growth in hardware startups. Chris Anderson’s new book  Makers: The New Industrial Revolution, argues that we are seeing the third wave of the industrial revolution which started back in the 18th century.

“The real revolution here is not in the creation of the technology, but the democratization of the technology. It’s when you basically give it to a huge expanded group of people who come up with new applications, and you harness the ideas and the creativity and the energy of everybody. That’s what really makes a revolution.

…What we’re seeing here with the third industrial revolution is the combination of the two [technology and manufacturing]. It’s the computer meets manufacturing, and it’s at everybody’s desktop.”

This is a logical extension of Anderson’s 2004 book,  The Long Tail, which applied Mandelbrot’s statistical long tail distributions to the worlds of web commerce and manufacturing. Anderson deftly combined Clay Shirky’s 2003 observations that most websites were link poor, following a power law distribution [Power Laws, Weblogs and Inequality] and the observations of researchers, [Brynjolfsson, Yu and Smith 2003] who found that Amazon’s major book sales revenue came from providing small quantities of hard to find books for niche markets, rather than from its ability to undercut traditional brick and mortar bookshops by price lowering popular books.

Although cooperatives and microfinance are far from new concepts, the last decade has seen many online experiments in crowdsourcing finance, with initial success stories like Marillion, ArtistShare, Sellaband, Electric Eel Shock, fundavlog and Jason Kottke, occurring primarily in music and the arts. This was followed by the emergence of Kiva in 2005, and the rise of the ‘multipurpose’ crowdfunding site like IndieGoGo and CreateAFund (noGoFundMe) in 2008, and Kickstarter in 2009.

There are now dozens of crowdfunding sites and the popularity of hardware projects like 3D printers, robots, smartphone connected devices, internet enabled things has generated a small tsunami of press coverage, all talking about a crowdfunding led renaissance in hardware startups. WRONG! Or atleast incomplete. Our cultural habit is to mythologize the lone inventor, the individual, the artist, the entrepreneur. We frequently fail to consider the team or community environment. It may be more accurate to talk about how crowdfunding sites harvest the ripe fruit from the maker/hacker movement.

Creative tinkering has always been popular, as TV shows “How it’s Made” (2001) and “Mythbusters” (2002) demonstrate. But turning tinkering into a recognizable movement has had other tipping points, notably Make Magazine and the hackerspace movement. Make Magazine launched in 2005 and the first Maker Faire was held in 2006. Paul Bohm started Metalab in 2006 and then helped get the hackerspaces.org community started in 2007. Tech Shop opened its first location in 2006. There are now 6 TechShop locations across the US, with more planned for 2013. There are currently an estimated 700 to 1,100 active hackerspaces across the globe.

While there are no hard figures on how many successful startups or crowdfunding projects have come out of hackerspaces, I personally know of plenty. One of the most articulate of success stories has been that of David Lang and Eric Stackpole’s OpenROV, an open source underwater robot which recently raised over $110,000 on Kickstarter. David chronicled his journey “Zero to Maker” on Make Magazine, describing how in 2009 he turned sudden unemployment and zero maker skills into a crash course in how to make stuff and a partnership in the successful startup.

Some of our Robot Launchpad supporters wanted us to get a space, to incubate their startups, hold classes and generally hack robots. I thought that was a great idea but also maybe not high in priority, given the likely amount of effort involved. I hate saying “no” though, so using lean these days, I say “let’s test” instead. Is there enough interest in having a robot hackerspace for us to make it happen? Is there enough interest for other people to make it happen? How do we test? I started a meetup. I didn’t publicize it. *

“Do you love building robots or want somewhere for your kids to learn robotics? Do you love Maker Faire but hate driving around the Bay Area for techshops, hacker dojos, cowork spaces and other workshops?”

What was the result? Only a few people showed up to our meetup, but they were passionate about wanting a robot hackerspace. In a very short space of time, we’ve moved from meetup to grant application with solid partnerships with local council and major research laboratories. Looks like we might open our doors in a few short months. All the stakeholders believe that a hackerspace operates as an accelerator for innovation; recruits and retains talent for robotics and engineering generally; and promotes STEM curricula (science, technology, engineering and math) to the whole community.

It makes good theoretical sense to use a hackerspace as part of an accelerator. Incubators and accelerators are constantly evolving from models that provide premises, training and funding, that may or may not be part of a larger organization, to models that provide nothing but a cooperative community sharing resources.  Some take equity, some ask for rent. Some take cuts at both ends. Some have sliding payment scales and operate in tranches, others have fixed programs. There are a lot of variations and not all accelerators/incubators deliver value. I’ve tracked more than 200 and put the list on our Robot Launchpad directory. It’s the most comprehensive list I could find anywhere.

Imagine how enormous the list will be with 1000+ hackerspaces added! DIY acceleration.

* I’ll add that the very first thing I did was ask existing organizations (like TechShop) if they were interested in expanding out our way. More efficient that way, even if less fun!

I thought I’d document our somewhat unusual journey through lean startup methodology and robotics. I founded Robot Launchpad almost a year ago to test the assumption that robotics and lean went together, that startups were startups whether they were hardware or software, that Silicon Valley was the place to do it, and that growing my own startup was the best way to test all these assumptions.

Lean refers to the increasingly influential ‘lean startup’ methodology of Eric Ries, that focuses on a fast cycle of ‘build, measure, learn’, using minimum viable products to get to the ‘measure, learn’ stage quickly. The key concept is ‘innovation accounting’ which tries to identify meaningful metrics that may be completely unrelated to anything in a traditional business plan. The key concept is that a startup is “an organization formed to search for a repeatable and scaleable business model”. [Steve Blank 2010] As such, a startup operates under conditions of extreme uncertainty, not having a product/market fit.

I was on the robot conference rounds, finishing my masters thesis in human-robot culture, and a common discussion theme was ‘Why is it so hard to get investment in all these wonderful robot ideas!’ and ‘What is going to be the breakout robot business?’. I’d also just moved to Silicon Valley from Australia with my partner who is running a technology accelerator. The opportunities in Silicon Valley for startups seemed immense compared to the tiny startup ecosystem in Sydney.

In hindsight, I started trying to find something that didn’t exist because of some cultural misapprehensions. To me, ‘Silicon Valley’ was a brand rather than a fixed location and ‘tech’ meant hardware not just software. The more I looked around, the more it seemed that there was very little bridging the thriving startup scenes and the hardware/robotics communities. It looked like people were interested in closing the gap though.

It was comparatively easy to pitch the idea of Robot Launchpad and collect great cofounders and advisors. What was our plan? Test the core assumption – that robotics and startup communities together would produce increased innovation and growth. How? First, to run events, like hackathons but with a business model competition, like a startup weekend but for robots.

We developed our very own ‘robot startup’ competition format but had limited support for something new and untested. We also were being viewed as ‘competition’ by potential partners. Solution? Did we need our own competition or could we test by adding value to other events?

We partnered with a global cloud robotics hackathon, we ran the robot track at Mega Startup Weekend, we had a 2 day roboticists retreat, we ran a robot/hardware track at Google IO afterhack weekend, and quietly infiltrated a number of other events, groups and discussions.

Summary? Core assumption valid, but customer segment and business model still missing. We’ve been wildly successful at creating excitement about robotics at startup events, and vice versa. We’ve inspired other events. We’ve followed up with the people who’ve produced robot business ideas and watched their journey.

Success, in so far as we’ve thrown down a bunch of fertilizer and watched things grow; lovely weed choked uncultivated robot startups. Business model? Everyone wants robots or robot tracks at their events/conferences. Do we want to become event managers or a PR firm? Not really, I want to find structural elements in the situation that can get a global solution, positioning as a potential high growth startup not a service.

Business model? Customer segment? Early stage startups need the most assistance and are least able to afford it. We’ve been exploring offering tailored events or classes in business model generation, customer segmentation, innovation accounting etc. to early stage startups. Something class, web or group based that is affordable, repeatable and ideally scaleable.

Test? Advertized several workshops on our growing newsletter and new website. Result: very little interest. Followed up with interviews with robot startups about what they need/want? Most robot startups just want publicity leading to more customers and better access to VC funding. The startups that recognize a need for advanced coaching/advice also know that it’s available directly from lean startup circles, workshops, classes and books by Steve Blank, Eric Ries, Alexander Osterwalder, Trevor Owens, Patrick Vlasqovits, Brant Cooper etc. Or these resources are available in accelerators, something robot startups would like to join.

Partway through the year we realize that we have moved from running events and growing a robot startup community to being an accelerator. We’re still partnering with lean startup groups on robot specific issues. We also see value in developing a quality assurance checklist specific to robot startups. This is a potential business model.

Test? Startups sign up. We interview them, explore the gaps and look for opportunities, we make introductions. Success, but slow. Startups are interested but given the overall numbers, the variation in verticals and growth stages, it’s difficult to have a ‘cohort’. Or to see measurable results yet. We hope to have a couple of high profile robot startups talk about how we helped, when their funding rounds are finished. We’d love to manage a fund or partner with a fund. That’s under discussion.

But the reality is robotics is currently small, rapidly growing and hugely prone to being absorbed into other verticals. Hardware specific funds and accelerators like PCH International, HAXLR8R, Lemnos Labs and Grishin Robotics exist or have formed recently, and existing funds, like Y Combinator, are accepting more robotic startups. Investors may be our real customer, but the market is already responding to the need.

Not all accelerators offer seed funding, some offer connections, some offer resources, some offer facilities. Some of the robot startups in Silicon Valley wanted a space. Kind of like a tech shop or hackerspace. I don’t see this as a viable business model. I don’t think it’s my priority. In fact, I don’t think this is going to work at all, but why not test it? (Remember, we’re a boot strapping startup. We don’t know what our business model is or our product/market fit. We’re using lean startup methodology. We’re going to test everything!)

…to be continued…