Business models
Date: 03/23/2017
Attendees: Shams, Pierre, Joel, Bethan, Fernan, Shingo, Jorge, Maria, Ali, Greg, Ryan, Tara, others?
Introductions:
We started off by going around the circle describing participants’ businesses/business models/ideas:
- selling STEM kits
- environmental monitoring equipment
- CNC machines, 3D printers
- health and wellness devices (heart rate monitor, EEG)
- Biomaterials
- PhotosynQ (sell devices but longterm plan is to make money from network transactions
- Independent FabLab (membership based)
- Hackscience (automated tools for labs) charging for software
- Consulting to finance open source work
- PCR machine
- Sensorica (distributed design, network resource planner, tracking contributions, etc.)
- Artists need start a business for tax purposes
- Interest in how open hardware can be applied to traditional business model canvas (worksheet to help figure out your business plan)
- How is your business going to make money: hardware (e.g., electronics, consumables, etc.) vs software vs services (e.g., teaching, workshops, consulting)
- Survey (how are companies represented in this group funded):
- Bootstrapped: ~10
- VC: 4
- Kickstarter: ~10
Recommended Resources:
Case studies of businesses that have reached “sustainability”
Shams (The Tech Academy)
- Started 4 years ago in Bangladesh
- Started wanting to teach everything (didn’t work) narrowed focus to teaching robotics open science hardware
- Originally stared as an education model, long term goal is to transform into an innovation centre
- Bootstrapped funding
- Taking investment has strings attached (need to pick the right people)
- Important to wait until your company has focus before looking for investment
- Common tension when starting an OSH business is worry about people copying
- if you are making a product for the masses, someone will copy it before you can reach everyone
- if you are making something more custom, you don’t have to worry about it as much
- ethics issues:
- if someone copies your work, the expectation is that they will add value (but not everyone will follow this ideal)
- need to keep 1 step ahead
Pierre (3D printers)
- 3D printers in Peru
- Started by giving workshops and selling kits
- Sourced 50% of the parts locally
- First workshop (5 people x $500 each), second workshop >10
- Benefit is that people can access replacement parts locally, fix it themselves
- Even a cheap printer (e.g., $100-200) is too much for many people
- Jorge: consider models where you give away printer under contract to buy x amount of filament
Joel (Pulse sensor, OpenBCI)
- Selling stuff (software is free)
- Crowdfunded (good way to test market)
- Need to have working prototypes, quotations for manufacturing at scale, etc.
- Successful campaign should pay enough to build product and pay you
- 2011 pulse sensor (~$250 to make prototypes)
- Working with contract manufacturer
- Cost $5 to make PCB, cable, kit, bag, labels, shipping charge $25 (5X margin)
- Need to have a margin! (cover overhead: salary, transaction fees, shipping, returns, etc.)
- Only very recently started to find anyone interested in funding open-source hardware companies
- Things that VCs might consider funding: service, keeping some part of it closed
- Getting investment is about building relationships and takes a lot of time
- Question from Ali: would you consider an open and closed version?
- OpenBCI owns their trademark
- Working with another company doing biofeedback for ADHD
- This company will seek FDA approval, produce hardware, and license the OpenBCI trademark
- Importance of having a strong community (can help mitigate negative impact of knockoffs)
Andrew (OpenROV)
- Original ROV model is fully open source kit version
- 2nd model ROV is ready to use out of the box (not a kit)
- internal debate about how much of it will remain open
- decided to keep software and many other parts open but some of the electronics are not
- did everything backwards
- doesn’t want to be a hardware manufacturer
- was a freelance writer but had to incorporate for tax and liability reasons
- being incorporated opened up other opportunities for consulting
- 25% working with OpenROV
- 50% consultation with NGOs, government, etc.
- 25% running workshops
- Helping schools apply for grants to fund workshop
Bethan (bento.bio)
- DNA analysis equipment (e.g., PCR, gel electrophoresis)
- Used outreach money to prototype devices, hold workshops
- Used student grants to build 20 prototypes and sold under-value to beta testers
- Kickstarter campaign > $200k (1.5 years to fulfill orders)
- Didn’t get good quotes from manufacturers
- Would have like to have done more user testing
- Did a good job creating narratives around what people can do with their product
- Trying to decide what to keep open
- Have an online platform, could sell reagents, etc.
- $250k over the last year, paid 2 people just above living costs
- outsource a lot of development to contractors (important to build long term relationships)
- tooling costs > 50k pounds
- 3X markup (not enough to grow team, etc.)
- Distribution channels post kickstarter:
- Distribution companies charge 30-60% markup
- have a varied market
- academics (purchase orders)
- educators
- community products
- hobbyists
- Challenges: how do we scale? Want to diversify product line
- Pressure to scale (people need to make a personal decision about what kind of company they want to create)
- As part of startup incubator, forced to discuss product with lots of investors
- Very valuable exercise
- What aspect of our product is interesting to you? etc.
Fernan
- Works in academia
- pushing community to do open source (easy to talk about as an academic, but harder for those people actually starting a OSH businesses since the have to deal with many issues)
- Asymmetric relationships between different parts of the world
- we shouldn’t all look to silicon valley for answers because it is the source of many of the problems
Shingo
- Shenzhen can copy anything quickly and cheaply
- Doesn’t want to be a manufacturer, but rather be a service provider
- Allow people to test their own food, blood, etc.
- Sell applications or consumables bought through app (these can work with different vendors’ products)
Jorge
- Chinese model:
- Focus on making it as cheap as possible (low margins 5-50%)
- Make it accessible
- European/American model:
- Higher margins 4-5X
- How do you make workshops/training sustainable?
- Gave an example of business setting up low cost science labs
- project started with grant
- identified pain points which led to business model
- gathering materials is hard --> sell parts
Maria (Sensorica)
- Hard to get grants because people don’t understand the business model
- free form, self-organized teams
- Contribution based
- Log contributions to each project and distribute revenue accordingly
- Loose, fluid structure (but not widely proven)
- Team up and collaborate with different academic institutions
Phil
- Mycoworks
- Silicon valley experience
- Didn’t intend to form business
- People asking to buy materials that he had been teaching about
- Found another friend (neither had business experience)
- Incorporated and hired CEO
- Filed as Delaware Corp.
- wanted to make a commodity at large scale
- Pivoted after joining a biotech startup and expanded to several materials
- Tesla model: sell premium products first to subsidize development of future commodity product
- In 5 years, plan to sell commodity materials at 30% margin
- Started a non-profit to teach community to make materials
- End game is to license technology to other companies (doesn’t want to be manufacturer)
- Need values investors (~3%) who believe in what company is doing
Ali:
- Lab automation software
- Suggests to try and align the impact you want your company to have (e.g., social impact, problem you want to solve) with what generates profits
Greg:
- Need to focus on what unique opportunities being OSH brings
- software has well-established open-source business models
- E.g., if citizen science is producing valuable output (something that people would pay money for), this provides a unique revenue source