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A Wearables Startup Playbook

By   /  April 12, 2014  /  Business  /  No Comments


The rise of mobile broadband, commodity sensors, smartphone-based companion apps, virtualized manufacturing and supply chain, crowdfunding, and nimble design have converged to make wearables mainstream. With the category now validated as a strategic hotspot for all major corporations and platforms, investors are clamoring to fund wearable tech startups. Read More

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Kickstarter Opens Up to Creatives in the Netherlands

By   /  April 8, 2014  /  Business  /  No Comments


Kickstarter announced yesterday that it’s accepting campaigns from the Netherlands. People in the country can now create their projects and submit them for the platform’s approval. Those that pass the screening process will be up and ready to accept funds on April 29.

It is the first solidly non-English speaking country that the platform is expanding to; the platform also accepts campaigns from Canada, where French is the official language alongside English. The other countries where Kickstarter operates are the US, the UK, New Zealand, and Australia.

Like for all other projects on Kickstarter, backers from across the world will be able to contribute to Dutch campaigns. However, in order to launch a campaign, a campaign owner needs to hail from one of the country where the platform currently operates. That’s because of Kickstarter’s partnership with Amazon Payments, which does not support non-US recipients, the platform explained back in 2009. In order to expand overseas, Kickstarter has been partnering with third-party payment processors.

The funding goals of Dutch projects will be listed in euros, and the platform said that those pledging from outside the Netherlands will see the approximate conversion rate to US dollars before completing the pledge.

The Netherlands is a relatively small country, with a population of just under 17 million. However, it’s got a fairly developed crowdfunding ecosystem thanks to platforms like Symbid and Gambitious. In order to promote its launch, Kickstarter is hosting educational events. The first is today, at 7pm Central European Time (1pm Eastern). It will be live-streamed here; any and all future events will be listed here.

Despite the country’s relatively small population, the Netherlands is a hotbed of creativity and artistic projects: a 2011 study co-authored by Richard Florida of the Martin Prosperity Institute found the country to rank tenth in the Global Creativity Index. So, it should be a good fit for Kickstarter.

There are a number of challenges that come up when expanding overseas, though, chief among them being the ability to service users in their native language. We’ve reached out to the platform with questions about yesterday’s news, and will update readers when we hear back.

Tags: crowd-funding, crowdfunding, kickstarter, netherlands


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How To Run Live User Testing, Part 1: Setup

By   /  February 18, 2014  /  Tech  /  No Comments

Editor’s Note: Brenden Mulligan is a co-founder and designer at Cluster, and previously created Onesheet, MorningPics, ArtistData, and others. Find him on Twitter @mulligan.

At Cluster, we’re big fans of iteration and experimentation. Since we launched publicly in February 2013, we have rapidly iterated the product on both iOS and Android. In the first eight weeks of being live in the Apple App Store, we launched 10 updates. On Android, there was a week that we pushed out five releases in five days while we did some heavy A/B testing.

While rapid iteration is wonderful, at times we also slow down and make more deliberate decisions about larger changes. When this happens, we tend to make rapid prototypes and then test them in front of different groups. Most of these tests are fairly informal, but occasionally (admittedly not often enough) we run full-blown user testing where we recruit and bring in potential users to walk through the app and give us feedback.

We are working on a big update, so we recently ran multiple sessions for different prototypes. When talking about it with fellow entrepreneurs, they asked us for details. Here is our ever-evolving playbook.

Because this is fairly lengthy, this will be the first of three parts:

  1. Setup
  2. Running the Tests
  3. Debriefing

Before getting started, I want to give a huge amount of thanks to Michael Margolis and the Google Ventures design team, who taught us most of these techniques.

Part 1: Setup

User tests are extremely valuable and require a lot of work to get set up. It takes a significant amount of one person’s time over the course of a week to set up the tests and run them well. So make time to do it correctly.

The setup process is divided into the following sections:

  1. Decide on a specific thing to test
  2. Decide when and where to do the user study
  3. Decide what type of users to study
  4. Recruit users with Craigslist
  5. Trim the candidates list
  6. Prioritize and schedule
  7. Get the right equipment

Decide on a specific thing to test

We were recently lucky enough to do a sprint with the exceptionally talented design team from Google Ventures (entire post on that coming soon). Over the course of five days, we identified core opportunities with Cluster, brainstormed improvements, built several simple prototypes, and tested the prototypes with potential users. The result of this process was a clear idea of what new concepts were working and which weren’t.

With the list of successful ideas, the team then rapidly built a single functional prototype based off our current app. With this working prototype completed, it was time to show it to users and see if all the insights gathered from the design sprint worked in the context of our actual app.

Decide when and where to do the user study

I was scheduled to be spending a week in Nashville, which gave us a great opportunity to run our test outside of the Bay Area. This is incredibly valuable because the Bay Area tends to be filled with tech-savvy, early adopters. Nashville has its fair share of them, but technology isn’t as core to the community there, so we felt like this would give us an opportunity to meet more “real” users.

It’s also important to pick a quiet, private, and neutral place. As tempting as it might be to use your company’s conference room, I’d recommend not bringing users into the corporate office. Use a friend’s office or co-working space. All advice we’ve been given is the more neutral the location, the better.

The privacy and quietness is important because you’ll be recording the session, so you don’t want to do it in a coffee shop where there’s a lot of distraction and background noise.

When I was in Nashville, I rented a conference room from the Entrepreneur Center. It worked out perfectly.

Nashville Entrepreneur Center

Decide what type of users to study

This is a very important part of the process. Before recruiting users, you need to decide what type of people you want to meet with. We had done this during the Google sprint, and because our app involves sharing photos, we asked these types of questions:

What type of phone should they have?
How involved with social media should they be?
What apps should they use (and not use)?
How many photos should they take per week?
How old are they?
How do they share photos currently?

With these questions in mind, we created a Google Forms survey that would help us clearly identify whether the potential tester fit our target profile. It’s not worth user testing if you’re not testing the right type of user, so take some time and do this step properly.

The actual screener we used for our Nashville study (click to enlarge)

Since the user is going to have to physically be somewhere, it’s also useful to get their availability. We did that by starting with the question saying “Which of the following times are you available on Thursday February 6 to come to downtown Nashville?” with five options for time slots.

Recruit users with Craigslist

About a week before we planned to do the user testing, we posted a job opportunity to the jobs/et-cetera section of Craigslist. In this relatively short post, we give very little information, except that we were looking for people to participate in a usability study, they’ll need to be okay signing an NDA and being filmed, and we were willing to pay them for their time (in this case, a $75 Amazon gift card for a 60-minute meeting).

Craigslist post driving people to the screener

The post did not let users email-reply. Instead, there was a link to a Google form we built above. That made it super easy for us to consolidate and organize everyone’s responses.

Trim the candidates list

Usually, we’ll get between 60-200 applicants within a few days. We try to pare that down to five. This happens over several rounds of editing.

For this study, the first big cuts happened with device type. Because of the small amount of time we had to build the prototype, we only could test with iPhone users that had iOS 7 installed, and ideally one of the iPhone 5 models because we didn’t have time to optimize for all screen sizes. Although this skewed the users a bit, we were able to rebalance it by looking at the other info.

Example responses from the Nashville screener, with all personal information removed (click to enlarge)

We then eliminated anyone who didn’t take photos with their phones. Although it might be interesting to talk to these users eventually, we were looking for people who would have an immediate reason to use our app. If they didn’t take photos, it was unlikely they’d be the type of user we wanted anyway.

Prioritize and schedule

With the remaining candidates, we looked at their age, occupation, and a couple other data points and put together a prioritized list of the people we were most interested in talking to. At this point it became a scheduling exercise, slotting our top pick for each time slot and choosing a backup if that person couldn’t make it.

Each candidate was emailed saying they’d been selected for a time slot and they needed to write back within a certain time frame to confirm, or their slot would be given away. The backup list was emailed saying they were on the backup list and to let us know if they no longer could make it if picked, otherwise they would hear by a certain time if they were needed.

Moving candidates around while scheduling

As a warning, people are very flaky. Out of the five top candidates, only three confirmed, and one of them cancelled the day of. It wasn’t a problem because we were able to fill in the slots with our backups, but it’s a bigger pain that you’d expect. It’s even wise to have multiple backups just in case.

Get the right equipment and software

We were testing a mobile app, so it was important to record the user actually using the app. Although you can do this by plugging the app in and watching a screencast on the computer, it’s much better to actually see them touching their phone. We purchased a $100 camera for this, and it’s well worth the investment.

IPEVO Ziggi-HD High-Definition USB Document Camera

The only other thing you’ll need is a way to record the audio and video of the session to your computer. For this, I recommend an excellent app called Screenflow.

Now it’s time to test

You’ve got the goals, the users, and the equipment. Now it’s time to show up and run the tests! The next post will cover setting up the room and running the tests with live users.

Please feel free to reach out to me at @mulligan on Twitter and ask any other questions in the meantime.

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Why There Will Never Be Another RedHat: The Economics Of Open Source

By   /  February 13, 2014  /  Tech  /  No Comments


Editor’s note: Peter Levine is a partner at Andreessen Horowitz. He has been a lecturer at both MIT and Stanford business schools and was the former CEO of XenSource, which was acquired by Citrix in 2007. Prior to XenSource, Peter was EVP of Strategic and Platform Operations at Veritas Software, where he helped grow the organization from no revenue to more than $1.5 billion, and from 20 employees to over 6,000. Follow him on his blog and on Twitter @Peter_Levine.

Open source software powers the world’s technology. In the past decade, there has been an inexorable adoption of open source in most aspects of computing. Without open source, Facebook, Google, Amazon, and nearly every other modern technology company would not exist. Thanks to an amazing community of innovative, top-notch programmers, open source has become the foundation of cloud computing, software-as-a-service, next generation databases, mobile devices, the consumer internet, and even Bitcoin.

Yet, with all that momentum, there’s a vocal segment of software insiders that preach the looming failure of open source software against competition from proprietary software vendors. The future for open source, they argue, is as also-ran software, relegated to niche projects. It’s proprietary software vendors that will handle the really critical stuff.

So which is it? The success of technology companies using open source, and the apparent failure of open source is a head scratcher. Yet both are true, but not for the reasons some would have you believe. The success or failure of open source is not the software itself  – it’s definitely up to the tasks required of it – but in the underlying business model.

It Started (And Ended) With Red Hat

Red Hat, the Linux operating system company, pioneered the original open source business model. Red Hat gives away open source software for free but charges a support fee to those customers who rely on Red Hat for maintenance, support, and installation. As revenue began to roll into Red Hat, a race began among startups to develop an open source offering for each proprietary software counterpart and then wrap a Red Hat-style service offering around it. Companies such as MySQL, XenSource, SugarCRM, Ubuntu, and Revolution Analytics were born in this rush toward open source.

Red Hat is a fantastic company, and a pioneer in successfully commercializing open source. However, beyond Red Hat the effort has largely been a failure from a business standpoint. Consider that the “support” model has been around for 20 years, and other than Red Hat there are no other public standalone companies that have been able to offer an alternative to their proprietary counterpart. When you compare the market cap and revenue of Red Hat to Microsoft or Amazon or Oracle, even Red Hat starts to look like a lukewarm success. The overwhelming success of Linux is disproportionate to the performance of Red Hat. Great for open source, a little disappointing for Red Hat.

There are many reasons why the Red Hat model doesn’t work, but its key point of failure is that the business model simply does not enable adequate funding of ongoing investments. The consequence of the model is minimal product differentiation resulting in limited pricing power and corresponding lack of revenue. As shown below, the open source support model generates a fraction of the revenue of other licensing models. For that reason it’s nearly impossible to properly invest in product development, support, or sales the way that companies like Microsoft or Oracle or Amazon can.

And if that weren’t tough enough, pure open source companies have other factors stacked against them. Product roadmaps and requirements are often left to a distributed group of developers. Unless a company employs a majority of the inventors of a particular open source project, there is a high likelihood that the project never gains traction or another company decides to create a fork of the technology. The complexities of defining and controlling a stable roadmap versus innovating quickly enough to prevent a fork is vicious and complex for small organizations.

To make matters worse, the more successful an open source project, the more large companies want to co-opt the code base. I experienced this first-hand as CEO at XenSource, where every major software and hardware company leveraged our code base with nearly zero revenue coming back to us. We had made the product so easy to use and so important, that we had out-engineered ourselves. Great for the open source community, not so great for us.

If you think this is past history and not relevant, I see a similar situation occurring today with OpenStack, and it is likely happening with many other successful open source projects. As an open source company, you are not only competing with proprietary incumbents, you are competing with the open source community itself. It’s a veritable shit-show.

If you’re lucky and have a super-successful open source project, maybe a large company will pay you a few bucks for one-time support, or ask you to build a “shim” or a “foo” or a “bar.” If you are really lucky (as we were with XenSource), you might be acquired as a “strategic” acquisition. But, most open source companies don’t have that kind of luck, and the chances of going public and creating a large standalone company are pretty darn slim.

Even with all that stacked against them, we still see entrepreneurs pitching their companies as the “next Red Hat of…” Here is the problem with that vision: there has never been a “next Red Hat of…” It’s not to say we won’t see another Red Hat, but the odds are long and the path is littered with the corpses of companies that have tried the support model.

But there is a model that works.

Selling Open Source As A Service

The winning open source model turns open source 1.0 on its head. By packaging open source into a service (as in cloud computing or software-as-a-service) or as a software or hardware appliance, companies can monetize open source with a far more robust and flexible model, encouraging innovation, and on-going investment in software development.

Many of today’s most successful new companies rely on an ecosystem of standardized open source components that are generally re-used and updated by the industry at-large. Companies who use these open source building blocks are more than happy to contribute to their ongoing success. These open source building blocks are the foundation of all modern cloud and SaaS offerings, and they are being monetized beautifully in many cases.

Depending on the company and the product, an organization may develop more open source software specific to their business or build some amount of proprietary software to complete the product offering. Amazon, Facebook, GitHub and scores of others mix open source components with their own proprietary code, and then sell the combination as a service.

This recipe – combining open source with a service or appliance model – is producing staggering results across the software landscape. Cloud and SaaS adoption is accelerating at an order of magnitude faster than on-premise deployments, and open source has been the enabler of this transformation.

Beyond SaaS, I would expect there to be future models for Open Source monetization, which is great for the industry.

So what are you waiting for?

Build a big business on top of and around a successful platform by adding something of your own that is both substantial and differentiated. Take, for example, our national road and highway system. If you view it as the transportation platform, you start to see the host of highly differentiated businesses that have been built on top of it, ranging from FedEx to Tesla. The ridesharing service Lyft is building its business on top of that same transportation platform, as well as Amazon’s AWS platform.

If you extend that platform worldview, Red Hat’s support model amounts to selling a slightly better version of the road – in this case, the Linux operating system – which is already good enough for most people.

Sure, when you first launch a business built using open source components, it’s important to grow the size of the platform and cater to your early adopters to drive initial success. So you might start off looking a little like Red Hat. But if all goes well, you’ll start to more resemble Facebook, GitHub, Amazon or Cumulus Networks as you layer in your own special something on top of the platform and deliver it as a service, or package it as an appliance. Becoming the next Red Hat is an admirable goal, but when you look at the trends today, maybe even Red Hat should think about becoming the next Amazon.

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Y Combinator-Backed Sendwithus Offers A/B Testing And Analytics Tools For Email Marketers

By   /  February 7, 2014  /  Tech  /  No Comments


Sendwithus aims to bring optimization and A/B testing to marketers and anyone else sending out targeted promotional emails.

The company, which is part of the current class of Y Combinator-incubated startups, was founded by Matt Harris and Brad Van Vugt. Harris told me that Sendwithus emerged from the pair’s work as developers, when they found themselves repeatedly having to change a bunch of email templates and wanting to test different variants but finding that there was no real technology in place to do so. (Larger companies will usually build their own systems for this, he said.)

So Sendwithus created a website where customers can select from pre-made email templates or upload their own, log in to their preferred email provider, and then set up A/B tests and drip campaigns. Customers also have access to analytics showing how variants and campaigns are performing.

Harris said Sendwithus is focused on “transactional emails” (i.e., the emails that are sent to specific users at specific times, usually to accomplish a specific task) as opposed to newsletters or other broad campaigns. Just managing all the different templates and automatically sending the right one out at the right time is important to the company’s customers, he added.

Plus, those templates are dynamic, and not just in the sense of filling in your name at the right spot. For example, Harris said that whenever one company using Sendwithus sends a lost password email, it checks to see whether the person receiving the email is a free or paid customer. If they’re free, the company add a short “upgrade to our paid plan” message at the end of the email.

As I mentioned, Sendwithus integrates with existing email delivery services, including SendGrid, Mandrill, Mailgun, and Amazon Simple Email Service. I asked Harris if he might find himself competing with those services down the line, and he didn’t sound too worried, because he said, “Email deliverability, one of the reasons it’s taken so long is that it’s a really hard problem that they’re solving, and we’re solving a hard problem, too.”

Founded 11 months ago, Sendwithus already processes more than 1 million emails a day, he added, and its customers include 8tracks, uSell, SuperRewards and Pricing starts at $19 a month. Update: There’s also a free version for emailing up to 100 customers.

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What Could Go Wrong For Satya Nadella?

By   /  February 4, 2014  /  Tech  /  No Comments


Microsoft crowned a new leader today, with Satya Nadella taking over the reins from exiting CEO Steve Ballmer. Bill Gates will spend a portion of his time at the company assisting with product choices.

While Nadella was essentially the unanimous choice of those outside the company — your humble servant included — his clippings have become too nice. Let’s take a moment instead to focus on what could go wrong for the new CEO.

To be plain, Nadella’s new role is one of the hardest, if not the hardest, jobs in technology. Microsoft is still pulling its re-org together at the same time it is changing its business model. This puts Nadella in the helm partway through two key and coinciding changes to the company.

The following list is a sample of the issues and challenges that Nadella may face during his tenure as CEO of Microsoft:

Windows Phone growth stalls, failing to reach the 10 percent mark in the next two years

Windows Phone’s excellent 2013 was capped by a disappointing fourth quarter sales figure of Lumia Windows Phone handsets. If that presages a broad slowdown of Windows Phone sales, Microsoft’s mobile momentum could stall, pushing that magical 10 percent market share figure further and further out into the future.

That would harm developer interest in Windows Phone, and by extension, the larger Windows ecosystem, thus harming the still nascent Windows Store. That’s not to diminish the fact that Windows Phone itself needs all the developer attention it can muster. Falling growth is anathema to such dotage.

The PC market could face materially worse returns than expected

The global PC market is expected to contract a few points this year, and then bottom out in 2015. That might not happen. If the PC market sees continued weakness akin to what happened in 2013, PC unit volume could decline until key partner OEMs bow out.

And PC volume has been the savior of the Windows 8.x platform as it has slowly arranged its ducks in a row. Without that key influx of new devices, Windows 8.x’s store is all gussied up with no one to dance with.

Worse-than-expected PC sales would also harm OEM revenues for Microsoft, both from consumers and enterprises. This brings us to:

Enterprises refuse to give up Windows XP

A huge chunk of the PC market remains on Windows XP. Nearly 30 percent, to be precise. For an operating system that Microsoft wants to go dark in April, that’s downright depressing.

As Windows XP ages, it holds off future PC purchases and makes companies that use it less secure. Microsoft would prefer more secure customers running shiny new Windows 7 or 8 boxes. There has been a presumption that XP users would make the switch. That doesn’t appear to be the case. That’s Nadella’s new problem.

Windows 8.x fails to garner significant tablet market share, despite updates

Surface had a solid fourth quarter in 2013, taking in $893 million on revenue. However, that was during a quarter in which Microsoft spent heavily on advertising for the two new devices it had just launched.

I don’t think that anyone expects Microsoft to beat that number in the current quarter. A better question is how well the larger set of tablet devices running Windows 8.x sell. Microsoft is preparing an update to Windows 8.x that is mostly focused on improving the Mouse And Keyboard experience, not its touch brother.

So the Windows 8.x we have for mobile today is likely the Windows 8.x for mobile we are going to have for some time. Whether consumers are willing to buy those devices has thus far been a mixed bag. Nadella needs to find a way to increase tablet sales, a device class that I suspect uses Windows Store apps on a larger per-unit scale than other form factors.

Surface Continues To Lose Money

Despite more than doubling its revenue in the period, Surface lost tens of million of dollars in the past quarter.

Microsoft has been strident in the past in stating that it intends to have strong margins on the Surface line of products. But the mere cost of Surface revenue was more than the revenue itself, meaning that the larger Surface loss for the period was much larger than you might think.

Spending heavily to support your new business model is a good plan. But at some point Surface will need to flip to the black. It’s up to Nadella to ensure that the Surface project can finally be taken off financial life support and walk under its own steam.

Office 365 revenues fail to match declining traditional Office revenues

Office 365 has seen very strong growth in its early stages. Microsoft reported, for example, that Office 365 Home Premium has collected 3.5 million subscribers during its most recent earnings call. A fine figure, but one that only points to a third of a billion dollars or so in revenue.

Microsoft also sells Office 365 to businesses large and small, governments, and educational customers. What isn’t clear — and may not come to pass — is whether there is enough market space for Microsoft to replace its traditional Office revenues completely, and then grow the sum. So far, Microsoft has shown good momentum, but Nadella could find himself with a substitute product that can’t generate as much cash as its predecessor.

Azure could slip against Amazon’s AWS with Nadella’s leadership tied up elsewhere

Windows Azure, Microsoft’s IaaS and PaaS cloud computing could services slip given that Nadella’s attention will be now more broadly distributed. Nadella is synonymous with the cloud for a reason.

If Microsoft cedes ground to Amazon, or more precisely fails to grow its share of this market, it could harm its ability to promote its own software products, not to mention see a key new revenue source stagnate.

Another economic slowdown could harm business buying cycles that have been key for Microsoft’s growth

The economy remains fragile. That is a material risk for Nadella. For example, it was corporate spend that kept Microsoft’s OEM revenues from falling heavily in its most recent quarter. As TechCrunch reported:

Critically, Windows OEM revenue for the period only declined 3 percent, a figure that was cushioned by 12 percent more OEM revenue to commercial customers. So, large companies offset weak consumer demand, mostly.

This is a more general risk, but a portion of Microsoft’s recovery thus far is due to macroeconomic conditions outside of its control. That flips and Nadella has a new problem on his hands.

Poor integration of Nokia’s tens of thousands of workers

The Nokia deal is about to bring a huge chunk of new staff into Microsoft’s business roughly at the same time that it is picking up a new leader. That could go poorly. Nadella will have to welcome droves of people into a culture that he will be only freshly in charge of.

And, given that Stephen Elop was tipped as a leading CEO candidate, some could be unhappy that their guy did not win.

Nokia’s hardware division drags on Microsoft’s margins and net income

Nokia, when whole, was not a particularly profitable company. The piece that Microsoft bought isn’t much better. I’ve done most of the leg work already on what impact Nokia could have on Microsoft’s earnings, and it looked slight.

But, in the harsh afterglow of Google’s Motorola purchase and sale, you have to wonder what might happen.

Executive exits

And finally, it has been an assumption that Nadella will have full avail of Microsoft’s cadre of executive vice presidents. That may not be the case.

Now that the dust has cleared on the CEO question, those who hoped for the role and did not get it could exit. Also, while Nadella is generally considered to be well-liked internally, he can hardly be universally popular. If key talent departs, he could find himself lacking down-ticket leadership in key areas.


Much of the above is completely theoretical. But so is the future. Nadella is a strong CEO pick, but his job will be industrial strength. Let’s see what happens.

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Why Makers Fail At Retail

By   /  February 3, 2014  /  Business  /  No Comments


2014 is starting off with a bang for hardware. The $3.2B acquisition of Nest, a four year old company, is great news for makers. The question is, then, should you be starting a hardware company rather than the next mobile app? In previous columns we covered the first steps: from prototype to production as well as early stage financing. Let’s now look into another trap: distribution.

Software vs. Hardware

When you get traction with software, you fire up new servers and scale your infrastructure. It is fast and cheap. And traction alone can get you funding. With hardware, traction is sales, or at least demand. Unfortunately, sales of physical things happen months after production. How do you finance it? How many units should you build? Can you afford to lose money or time?

There are two persistent myths for hardware startups. The first is that the end game is selling at big box retailers like Wal-Mart or Best Buy. The second is that once your amazing gizmo is on the shelves it will sell itself. Those two ideas are dangerous.

Wal-Mart is a problem because servicing retailers is not easy. And the bigger they are, the more cash and time you will need. The Startup Genome project documented that the number one cause of failure for startups was premature scaling. This is even truer for hardware. So before working with larger chains, startups had better get their act together on a smaller scale. It is also questionable whether your product is suitable at all for big box retailers, where your margins are lower and costs higher.

The second is a variation of “build it and they will come.” Sadly, retailers are not in the business of creating demand. You are. If your distribution exceeds the demand you created, it will result in unsold inventory. And we all know what that means.

Crossing the retail chasm

Hardware projects on Kickstarter belong to the “technology” and “design” categories. By the end of last year, 3,009 of them had been successfully funded. 384 (13%) were between $100,000 and one million dollars, and only 16 (0.5%) were above a million. And that is among projects funded successfully! If you can’t demonstrate demand with the novelty and tech-hungry kickstarted crowd, it is questionable if your product will have enough demand, and if you’re the right team to sell it (we’re not even talking about building it). Some say you can sell a thousand of anything on Kickstarter, but even that is easier said than done.

Now let’s assume your kickstarted project succeeded (over $100k). Once it’s over, your monthly pre-sales are likely to be in the range of 1/20th of your crowdfunding total. That means if you got $200,000 on Kickstarter now your sales are at $10,000/month. Obviously not enough to support a team long term. You are thus entering the “retail chasm” or “bridge of death” until demand and distribution pick up. Financing this gap is difficult as innovators (the Kickstarter crowd) bought your product but you are still far from the mainstream. Early adopters might be waiting for your product to be ready but will only pay later, if they hear about it.

Two key aspects of crossing the chasm between a crowdfunding campaign (where you get paid up to a a year before shipping) to retail (where you might need to finance up to 6 months of inventory) is demand creation and distribution.

Positioning and demand creation

Demand creation is a result of your positioning (which covers your target user profile, pricing and branding) as well as your media, community and marketing activities. If your products are consistently in demand and fly off the shelves (even if you have limited shelf space), you will find ways to finance growth.

Venture funding will not solve the problem of selling products at a loss, it will just dig a bigger grave faster. Learn how to sell profitably before you scale.

Once you’ve crossed the bridge and demonstrated demand, financing becomes a lot easier. From factoring to bank loans or venture capital, money will beat a path to your door!

Distribution: when and how to scale?

You need distribution, but not any distribution. And not in any order. Among the options are direct sales online and selling via others either online or offline. Each channel has to be evaluated carefully and larger retailers might have to wait for a later phase. Build your retail skills and more demand first.

According to Charles Huang, co-founder of Red Octane, creators of the Guitar Hero franchise and of the gaming hardware startup Green Throttle: “Startups should know their return and defect rates before they try to scale. They can learn this through online sales or small boutique store sales. Maybe the second version is when the scaling should happen.”

So the advice is to learn about retail by doing it first on a small scale. This will give you enough time to learn the ropes, maybe until you get the second version of your product ready.

As Marc Barros, co-creator of the Moment mobile lens (currently on Kickstarter) and founder of Contour Cameras says: “Retail is not a sprint but a long slow build, so take one step at a time.”

Possible steps along the way are: direct sales online, specialty retailers (online and offline), Amazon and other large online retailers, then big box retailers. You need to understand the hidden costs of servicing each of them. In the case of offline retailers, it includes a laundry list of expenses related to in-store marketing, demo products, sales events and more.

The key points to remember are: keep demand higher than distribution, remember that your customers are your best investors, take one step at a time, and keep cash flow healthy.

If you can do that, you might become the next Nest, Square, GoPro or Xiaomi, or a flourishing hardware SME!

 Cyril Ebersweiler is the founder of the hardware startup accelerator HAXLR8R (apply here) and Partner at SOS VenturesBenjamin Joffe is an expert on startup ecosystems, angel investor and Advisor at HAXLR8R. Both spent over a decade in China and Japan and invest in startups around the world. This is the third part of a series on Lean Hardware.

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Amazon Wants To Include Peer-to-Peer Payments In Its “Real World” PayPal Competitor

By   /  January 30, 2014  /  Tech  /  No Comments


Earlier today, the WSJ published a report on how Amazon is building a Kindle-based point-of-sale payments service for local merchants using technology it picked up via its Gopago acquisition –something we actually reported on back in December. In fact, this looks like just part of what Amazon has in mind. The e-commerce giant is also developing a solution for person-to-person payments — bypassing banks and other payment networks — putting it in even closer competition with P2P payment giant PayPal.

The P2P payment system, as it’s being conceived, would have a mobile component to it, and it would be cloud-based, so presumably usable over desktop, too.

Those Amazon phones we and others keep talking about could be coming soon — the latest that we’ve heard, by the way, is that they may get announced in the next 60 days and ship this summer. Building in a P2P service to sweeten the deal, and help differentiate the phones from the rest of the pack, could be a smart move.

Amazon describes the P2P solution as being part of a bigger strategy to build “products and services which will delight billions of customers as they buy and sell things in the real world.”

The company is currently looking to hire a number of developers for new payments services beyond those that it already offers online, through its own site and now on other sites. Some of the roles specifically are to develop products that will extend Amazon’s reach “from e-commerce to commerce in general”, and some are specified to work on products for local commerce.

One of the ads, for a position as a Senior Technical Program Manager in San Francisco (there is another, identical role in Seattle) is for someone to build a P2P payment product. It reads like this:

Our team is charged with extending Amazon’s value proposition (price, selection, and convenience) from e-commerce to commerce in general. We are building products and services which will delight billions of customers as they buy and sell things in the real world (as opposed to online). One of these products is person-to-person (P2P) payments.

As part of this ambitious new initiative we need experienced Senior Technical Program Managers to help us deliver a set of innovative mobile and cloud based products. The customer experiences we are building are powered by secure, scalable, and highly available cloud services.

You will work with multiple technical teams to deliver solutions, and will be the driving force that orchestrates all the moving pieces as needed to ensure successful and on-time delivery.

If you are focused on delivering exceptional products and services that provide exceptional value to end customers, and like to be part of team that likes to have fun… JOIN US!

Among the qualifications, applicants are requested to have computer science backgrounds, seven or more years of software engineering experience, mobile app experience, as well as evidence of having cut teeth  product delivery and startup experience.

There are a few reasons why it makes sense for Amazon to build a P2P payment platform. For starters, in a side-by-side feature war with PayPal, offering a solution to enable people to send each other money — the basic service that got PayPal started — would be an essential product for Amazon if it hopes to win business away from eBay’s payment leviathan. And PayPal is not the only one playing here. There is also Square with its Cash service and, just earlier today, Ribbon.)

Why match the features? Because making a payments platform as ubiquitous as possible makes it also more convenient. In payments, I can’t help but think that the solution that will be the most seamless to use will be the one that wins out. It’s the reason why so many mobile payments services have been such a flop: they’re just simply not as good as what is already in place, between cards and good old fashioned cash.

Apart from enhancing Amazon’s overall position in payments, and adding another mobile payment service into the mix, a P2P service would be useful for Amazon on a number of levels.

Developing world

As Amazon has grown, it’s been building out business into developing markets, where there are still a high proportion of “unbanked” consumers — that is, people without financial profiles in the forms of current accounts or credit histories. Creating a P2P framework is one way that Amazon can start to become a bank for these people and potentially bring them into Amazon as would-be customers. One person can transfer money into another person’s Amazon account. That money can then be cashed out, or it can be used to buy goods on… Amazon.

Of course, such a solution could also be applied in developed markets, too. Think here of parents topping up their kids’ allowance, in the form of an Amazon accounts, which can be used to buy books, for example.

Small merchant relationships

While a point-of-sale solution would help Amazon expand its relationship with merchants who sell in physical stores, a P2P solution could be used to bolster relationships with even smaller vendors who could use it to make and accept payments. This potentially expands the kinds of sellers that might appear in Amazon’s marketplaces, not just for goods but professional services, too, perhaps as a micro complement what it already offers with its Flexible Payments Service for developers.

We’ve reached out to Amazon for comment and will update this post as we learn more.

Photo: Flickr

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The Daily Dot Acquires The Kernel As Euro Tech Media Starts Motoring

By   /  January 29, 2014  /  Tech  /  No Comments


A number of changes are afoot in the European tech media scene and it’s worth us pausing for a moment to take stock. The first item on the agenda is the news that London-based site ‘The Kernel‘, lately a ‘tabloid’ style news site about online culture, has been acquired for an undisclosed amount by Daily Dot Media (DDM), publisher of The Daily Dot, an Austin, Texas based pop/tech/culture news site.

Kernel founder and editor-in-chief Milo Yiannopoulos – a former tech columnist for the UK’s Telegraph newspaper – is departing forthwith, though not into a new role. He will “continue in an advisory role while pursuing new projects,” he said in a statement. He says he also plans to “take time off”.

The Kernel was owned by BERLIN42 (a major shareholder), Yiannopoulos (who owned 25% of The Kernel at the time of sale), and unnamed private angel investors. BERLIN42 operates Hy!Berlin, a German startup demo conference series which perhaps thought it might get more traditional tech coverage out of The Kernel than actually came about, though Yiannopoulos says BERLIN42 was supportive throughout.

The Kernel’s eight staff are to come under the editorial direction of the US-based operation, though we understand individual negotiations are taking place with all The Kernel’s writers. The site only recently hired a COO, Cat Navarro, who joined January 6, but she is not staying on as part of the sale.

This was the team photo on Jan 6:

On October 27 last year, the site said it was expanding and hiring a full-time investigative reporter.

DDM CEO Nick White said: “The Kernel and The Daily Dot will produce hard-hitting news, features, and investigative reports from all corners of the brave new digital world.” However, no mention has been made of whether The Kernel will survive as a standalone site. Pressed on this, DDM replied that the Kernel would continue “for the immediate future” but would “ultimately be integrated into the Daily Dot Media family” in some way to be determined. In other words, The Kernel brand is almost certainly ear-marked for closure.

The Kernel clams to have hit 500,000 uniques a month, with a roster of eight permanent editorial staffers in its London offices.

Typical recent Kernel headlines included:

The Kernel was launched at the start of 2012 by Yiannopoulos to “fix European technology journalism” and gained a reputation for – somewhat counter-intuitively – going after both tech scene individuals and initiatives to promote tech startups, such as ‘Tech City’ in East London. It shuttered in early 2013 after unpaid writers, in turn, went after it.

The company was forced to close, after being sued by former contributors who had not been paid for their work. Yiannopoulos says he later settled the £24,000 debts personally.

The latest incarnation of The Kernel came about when German venture capital vehicle BERLIN42 acquired The Kernel’s assets. This “new” Kernel had better success with stories of more mainstream appeal, such as an investigation into the sales of rape pornography ebooks on Amazon, stories picked up by BBC News and the Mail on Sunday. Although clearly this success was more editorial than commercial.

Yiannopoulos has at times been a controversial figure in the UK tech scene and appears to attract both fans and detractors in equal measure, though lately he has eschewed the tech sector for more mainstream debates such as Gay marriage.

Speaking to the Evening Standard newspaper in London, Yiannopoulus said: “I have a dangerously short attention span. That’s not to say I was bored of The Kernel – far from it – but I only really enjoy launching and leading things.”

Elsewhere in European tech media, the scene has been changing quite a bit.

Robin Wauters, a respected former writer with TechCrunch and The Next Web, launched his own project – – with a number of other players in the scene. The site has mostly avoided breaking news to bring longer think-pieces to the industry, and video interviews.

Meanwhile, Informilo, an editorial outfit founded by veteran journalist Jennifer L. Schenker best known for producing well-regarded magazines for numerous technology conferences, brought on board the outgoing tech editor for the Wall Street Journal Europe, Ben Rooney. Schenker and Rooney now form a team I like to call “The Kara and Walt of Europe”.

And at the same time the English language news sites covering tech regionally have grown. They include TechCity News covering the London tech scene and RudeBaguette in Paris, alongside older site like Arctic Startup in the Nordics and the many English language tech news blogs in Berlin. Even Poland now has a new English Language tech news site in the shape of Bitspiration.

As I predicted back in 2011, the tech scene in Europe deserved more and better media to cover its growth. It looks like it’s getting it.

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Imaginism Studios On Building Niko And The Sword Of Light, Reimagining Digital Narrative

By   /  January 26, 2014  /  Business  /  No Comments


Back in February 2013, Toronto’s Imaginism Studios launched an ambitious crowdfunding campaign for a new type of app that combined full-scale animation and comic books for a novel, mobile device oriented kind of storytelling. Niko and the Sword of Light is the app that was built using the funds from the successful Kickstarter campaign, and it earned a featured spot on Apple’s App Store as well as strong global download numbers on iOS, Android and the Amazon Appstore.

Imaginism’s Niko project was a bit of an experiment for the studio, since it generally does character design and animation work for external clients, which include Disney, Blizzard, Warner Brothers, Sony Pictures Animation, Dreamworks and many more. The Imaginism crew is currently working on character design for an upcoming blockbuster feature, and has already created some of the characters you’d likely recognize, including those from Disney’s live-action Alice In Wonderland adaptation.

Niko has opened the door for Imaginism on a number of tie-ins and other opportunities for the young firm in terms of creating and growing its own intellectual properties – the meticulous, hand-drawn animation used in the creation of the original app clearly has a lot of appeal. Imaginism may soon get a chance to show off its animation skills to an even larger audience, as it has just entered into an agreement to option Niko to Amazon Studios for the creation of a series based on the character and world introduced in the app.

Imaginism is a perfect example of what a small startup (consisting mostly of friends who went to school together and didn’t know what to do once they graduated) can do by satisfying an industry need that many don’t even know exists. The studio has made itself indispensable to some of the biggest creative brands in the world, and now they’re using that positioning, as well as innovations like crowfunding, to build the things they always wanted to for themselves, too. If you haven’t experienced Niko and the Sword of Light, it’s definitely worth checking out, especially now that the brand could be on its way to becoming the next big thing.

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