Moving To NYC

Case I wake up in the morning and it’s all gone
Best believe I’ma get it right back
Thats the hustler in me I know you like that

– Young Jeezy (Leave You Alone)

With 4th of July upon us, I felt it was time to be a little more public about my next moves. As many of you know, I’m in the process of moving to NYC to launch a new company. There is a deep love in my heart for Colorado, and Boulder in particular. In many ways, my closest friends and family have found it hard to believe that I’d leave a place that I love so dearly. At the end of the day there are 3 reasons that I’m going: 3D printing, a new startup opportunity, and family/friends.

For many years, I’ve had a fascination with the intersection of the physical and digital worlds. How do things we create digitally get manifested in the real world. Card Gnome was my first experiment. Over the last couple years, and more intensely over the last few months, 3D printing has become an obsession. NYC is the epicenter of this new technology. Not just for the US, but for the world. Makerbot, Shapeways and 3D Systems are 3 of the largest players in the space and all have headquarters in the NYC metro area. Stratasys, the other behemoth from Israel, recently acquired Makerbot to be it’s consumer brand and they aren’t moving from NYC. Makerbot and Shapeways even have their manufacturing facilities within the city limits. 3D printing changes the manufacturing cost calculus, allowing producers to optimize for geography rather than labor costs. What better location than metro NYC to show the world that labor cost optimization is dead.

About 1 month ago I was doing due diligence on a company that I was interested in and met Kegan Schouwenberg. She is an amazing entrepreneur and the former head of US operations for Shapeways, a true thought leader in 3D printing. She had this crazy idea that she could use 3D scanning and printing to create custom orthotics that aren’t just functionally better, but are better looking and easier to buy. She’s an industrial designer by trade and was looking for a business partner to handle distribution and business operations. I was really intrigued and after about a month of thought have decided to join full time as a founder and COO for the new business we’re calling Sols.

Lastly, my family and many of my friends still live in the tri-state area (Philly, NJ, NYC) and I’ve been neglecting those relationships for many years. I can’t remember a time when I was close enough to home for casual visits since I left for college and I’m looking forward to being closer. My heart is stil in the outdoors and NYC and its environs just cannot fulfill that need (although I’m still going to try). My hope is that in the future I’ll be able to move back to Colorado (or California) where I’ll have easier access to the backcountry adventures that I love.

At the end of the day, I’m not “leaving Colorado”, I’m just living in New York for a little bit. If you are around Boulder next week on the 11th I’ll be doing happy hour drinks at the West End Tavern starting at 4pm. Come say hi.

Moving To NYC

Start With Distribution

Yeah, and half them bitches sold ‘fore they off the table
Gotta look, nigga wantin’ my half, I’m gonna split it

– 50 Cent (Major Distribution)

Every few weeks I talk with someone who is thinking about leaving their corporate job, or graduating from their MBA program, and starting a company. More often than not the product idea and space are decent but their ideas around distribution are complete crap. It has been helpful to lead them down a thought process around different potential distribution models and the cost structures around each.

When you think about this, it’s not a huge surprise that they have trouble with distribution. Normally they are coming from big company environments where any product that is created gets instant users, global distribution and some press. Here are a few basic distribution models that are common in technology startups.

  1. Inside sales – You create a funnel to capture contact information from potential customers (usually this is through a content strategy or buying prospective customer lists). You hire a young sales team to call the customers and get them to purchase the product.
  2. Outside sales – You create a list of your potential customers and hire national, regional or local sales managers or contractor representatives to go “door-to-door” to their connections and sell your product.
  3. Freemium – You build an amazing product and give people a taste of what it does and sell a premium package to users who want the true value. Don’t get stuck giving away all the value in the free product and expect people to upgrade for piddly add-on features that you created just for monetization.
  4. Classic eCommerce – You have products and sell products while trying to do some fun things to differentiate yourself and your buying experience
  5. Advertise on your massively popular website – You’ll experience The Struggle more than most, but power to you if you can make it work
  6. Viral – Your product has inherent “virality” which whenever it is used gets your name and value proposition in front of new prospective clients. Think about when you sent your first email from your iPhone and it had “Sent from my iPhone” at the bottom of the message, you were part of Apple’s viral strategy.
  7. Arbitrage with digital advertising spend – If it costs you less to acquire a customer through search engine and/or social media marketing than each conversion then you can exploit this and grow your business by purchasing customers. In most cases where this is true, the total potential revenue from this channel isn’t huge, so you’ll likely need other channels to really gain scale.

I didn’t talk about Franchising even though it’s the subject of the introductory lyrics because it’s not that common with startups that I’ve seen, although I’m sure it’s used (and probably in some very interesting ways). In any case, let me know if there are some other models that should be covered here.

Start With Distribution

Who Makes The Money in 3D Printing

He who knows when he can fight and when he cannot will be victorious.

– Sun Tzu (Art of War)

In my vision of the future, the world of manufacturing is optimized for geography rather than labor cost. In addition to in-home systems, there will also be a network of local manufacturing facilities (think Kinkos) with high end machines and trained staff. Manufacturing is one of the world’s largest industries and this shift will be seismic, disrupting traditional supply chains and opening up new business opportunities.

The question for the entrepreneurs is what part of the industry to be in and which will take the lionshare of the profits. It’s a complex question which I’m still working out in my own head. Here are some of the different models and my thoughts on each:

  1. Equipment manufacturers – How do the patent portfolios of the established players inhibit the market for new entrants? Are there new technologies that emerge that surpass the capabilities of patented technologies?
  2. Raw material suppliers – How will demand for new raw materials shift the market and distribution for commodities. Will it create new commodities?
  3. Equipment repair services – Service contracts for independent manufacturing facilities and home systems. This would likely look a lot like the classic service contracts that GE Aviation and Energy sell as add-ons to their systems. GE Energy and Aviation built their businesses by selling the machines at cost and profiting on long-term service contracts and financing deals. Will today’s equipment manufacturers monopolize this market or will there be space for 3rd parties to provide services?
  4. Equipment financiers – Will the current manufacturers offer in-house financing or be content letting a 3rd party lender (or many lenders) into the space. Personally I think they’ll create preferential partners in order to remain focused on their core competency in a fast moving space.
  5. Outsourced manufacturers (distributed versions of Foxconn) – Margins are razor thin for contract manufacturers already, will that change in the 3D printed era? If this is a game of sheer volume and efficiency you’ll need to get into the game before an Amazon (Shapeways?) monopolizes it and their efficiencies of scale are insurmountable.
  6. Real estate holdings – Will there be a resurgence in prices for industrial zoned property?
  7. Workflow software – Software packages that run the manufacturing facilities workflow that is optimized for large runs of unique products going to unique places.
  8. Glue – There will be a software layer that sits between product companies and makers and the facilities that produce their items. There is no use in a digital supply chain if the communication process is still manual!

With the market in its infancy and growing 12x over the next decade, it’s the right time to entrepreneur’s to be thinking about these different models. Some of these businesses aren’t executable until the market is more developed, so the real question is how do you build something now that is profitable and be in the right place to profit as the market evolves. Feel free to reach out to me if you have some thoughts or want to talk about these ideas.

Who Makes The Money in 3D Printing

Signing a Deal is Like Dating & Other Startup Metaphors

Drop it like it’s hot

-Lil Wayne

I’m a huge fan of metaphors. In fact, they are so prevalent within Card Gnome and the wider startup scene that it’s easy to forget that you are even using them. Has anyone else caught themselves projecting a metaphor onto reality? Literally imagining “getting up to bat” before a presentation?

In any case, it seemed fitting to write a post about a few of the ones that fit startups well:

Startups are like rock bands: Much like a new company, a new band needs to find its product market fit, communicate with fans and find repeatable ways to build their base. If they want to make their band something more than a “lifestyle” enhancer, they must be able to scale it.

Entrepreneurs are like surfers: Each wave is an opportunity. You need to learn how to pick your waves and be comfortable that even if you do everything perfectly you still may get absolutely pummeled by it. You can’t ride every wave and once you’ve committed it’s not easy to bail without some pain.

Signing a deal is like dating: There is a highly choreographed dance that happens with each potential deal. When do you call? What do you say? How should you say it? Who initiates what? Just like dating the girl/guy of your dreams, all of these things are extremely important to how things work out and how power is eventually leveraged in the resulting relationship.

I know there are a ton more, drop them like they’re hot in the comments.

Signing a Deal is Like Dating & Other Startup Metaphors

Distribution is the only obstacle

Hi, my name is, my name is
(What? Who?)
My name is Slim Shady

Ahem, excuse me
Can I have the attention of the class
For one second?

– Eminem “My name is”

Distribution is the ability to get a product in front of its target audience. Hopefully most of the people in it. This is the hardest obstacles for startups, and plenty of companies build amazing products but fail because they lack distribution.

We don’t need to reinvent the wheel to do it successfully. There are plenty of examples that entrepreneurs can adopt and tweak to their own unique needs. Over the past year we’ve seen a lot of strategies, but most of them fall into a few high-level categories:

The PR machine – Constant attention from traditional and non-traditional media. Constant new “events”, “deals”, “scandals” keep the companies name in popular discourse and bring in a steady stream of new users.

The Social Virus – A product that by its very nature, or through added game mechanics, incentivizes you to share it with your friends. Twitter, Facebook, Quora, Groupon and Zynga have exploded into public consciousness through intelligent use of this strategy. You’ll find some of the top minds in the tech startup world, from Dave Morin to Tom Higley amongst many others, are working on mastering this new strategy.

We’re Mad Men – You can pay someone else to give you millions of target market eyeballs on your product. Its expensive, but if you can successfully acquire customers for less than you make from them in the lifetime that they are a user, then keep spending money.

The Partner – The idea here is to find a partner that has the right eyeballs, but wants additional ways to monetize them. The startup offers the company a cut of its profits in exchange for help getting them to adopt the new product.This is one of the most popular strategies, because it normally requires less up-front costs and improves a new company’s brand.

Word of Mouf – It needs to be included, because nearly all new companies think that if they build a cool product people will instantly get the word out. The truth is that most startups take time to get product/market fit during which time their product isn’t something groundbreaking. Its an avenue for growth, but companies will normally run out of money before it gets them enough traction.

At the end of the day, the right distribution method will likely be a combination of a few of these strategies. Have you used any of these strategies? Have any pros and cons you can share? We’d love to hear what you (our awesome readers) think.

Distribution is the only obstacle

I’m an Entrepreneur (just don’t call me a startup)

This is a guest post by Patrick Stinus, a co-founder of Seventh Element , a management consulting firm that provides “Fortune 100 tools to small businesses” to help them grow and increase profitability.

I was recently on the phone catching up with Joel and it dawned on me that while we’re both entrepreneurs, we operate in completely different worlds. If you were to ask, 99.9% of people they would see very little differences in our stories. We both worked in the GE “fast track” program which promised us lives of success and the “the American Dream”. We both left it behind to start our own businesses, take a shot at changing the world and do work that makes us truly happy. The difference is that I’m not trying to launch a startup, I’m starting an agency.

Start”ups”, especially ones that focus on technology, are what most people envision when they think about when you quit your job to “follow your dreams.” They’re typified by years of living on Ramen noodles, working 70 hour weeks, bootstrapping and sometimes pimping yourself to private money. They are designed to cheaply and quickly create a completely new (or incredibly better) product or service. It takes time without revenue to develop new products.

Agencies are businesses whose core value proposition is the skill set of its employees. I co-founded Seventh Element to bring the business management tools we perfected at GE to small businesses. We skipped the long, costly, and iterative product development phase and went straight to clocking billable hours to our clients. We can leverage our corporate pedigree to potential clients and make money within the first month of existence.

If you graph the profits of successful startups, they follow an exponential curve, where they bumble along for a long time making very little money and then get traction and “pop.” Since these businesses have such high-profit margins, which aren’t tied to hours available to bill, they have the potential to create hugely scaleable businesses which can be sold for hundreds of millions of dollars. The agency model theoretically starts with respectable profits on day one and grows in a modest, linear, path as it bill more hours and hires more talent that can be billed. An agency is far less risky, but is much less scaleable.

I am not trying to oversimplify the challenges our agency has faced, or imply that leaving a steady job for an agency is more (or less) respectable than a startup. The fact is that agencies have a good chance of making reasonable money, and startups have a low chance of making stupid money. If you do the rough math, the upside is similar. Owning a business is a personal decision, and the money is just one piece of the puzzle. Their isn’t a right or wrong way to do things, but keep this comparison in mind if you are deciding on starting your own business.

I’m an Entrepreneur (just don’t call me a startup)

5 lessons before launching your startup

“Nine to five is how to survive – I ain’t trying to survive… I’m trying to live it to the limit and love it a lot”

-Jay-Z

Last week I had a discussion with someone considering leaving their job to launch a startup.  They wanted some honest feedback on their business model. It occurred to me that objectively evaluating a startup idea is a skill that can only be learned through experience and that I finally felt marginally comfortable giving advice on the topic. After 8 months of making mistakes, listening to great mentors and thinking through many ideas it felt great to give back. For those of you I haven’t spoken with, I wanted to jot down some of the key lessons I’ve picked up along the way.

1 – Understand your goals – You need to be honest with yourself about whether you want a massive business or a lifestyle supporting income source.  All your thoughts about the startup must flow through the answer to this question.

2 – Passion – If you are creating the next big thing, realize you’ll need to have the passion to devote 70+ hours a week for 3-5 years to make it a success. Is this an industry and product you will stay excited about? Note that I’m not saying the product has to be sexy, plenty of people make huge profits on products others didn’t even consider working on.

3 – Test instead of talk – Try to test your idea without spending money and time on development. If your core-product is a consumer website, there are ways to test your prototype extremely cheaply. Once its built, give it to customers and ask them if they are willing to pay for it. Try to avoid the echo chamber of your friends and family. Their support will carry you through the tough times, but they are terrible judges of what constitutes a great business idea.

4 – Financial resources – You need to eat, you need a roof and you need to provide for your family. If you can’t do this while devoting the time and effort for a startup, then its not for you. Getting funding is a long and arduous process and will likely require that you’ve already gotten traction with your product.

5 –  Product-Resource Fit (Viability) – What resources do you need to make your company successful? Do you have, or can you acquire, the skills, money and other resources needed to implement your idea? Be optimistic but honest. In order to make your dream a reality you will need to fully believe you can do it.

A lot of you are founders of companies, use that comment box to talk about your own lessons or expand on mine.

5 lessons before launching your startup

What kind of company culture are we building?

Over the past few weeks Chad and I have been recruiting engineers to join our Card Gnome team. It has forced us to be introspective and verbalize our company culture to prospects. It has been illuminating to look at how our personal belief systems have manifested themselves into an operating entity. It comes down to 4 core tenants:

Passion/Motivation: Life is short so we believe it should be spent doing things we are passionate about. We truly believe that intrinsic motivation produces the best long term value and we foster that in ourselves and others. Money by itself is not a motivator, only an indicator that your business has added value. We are trying to build an amazing organization of passionate individuals, therefore acceptance of mediocrity is unacceptable.

Independent Debate: Chad and I are both fiercely independent thinkers with nearly opposite personalities and core skillsets. Our debates are epic but always respectful. We put all the details on the table and force each other to justify our thinking. It has given us a deep appreciation for how the other person thinks, which only serves to make the debates more honest. At the end of each debate though we come to a conclusion and agree on a path forward. I cannot, at this moment, think of a situation in which we were not in complete agreement on the correct decision. There is very little grey area, we both agree that a decision is the correct course or we keep talking. Compromise has its place, but it generally doesn’t build a compelling product.

Experimentation: We  are wiling to implement our ideas purely to learn what will happen. In fact, adding printed cards was originally one of these ideas. A few people had asked whether we could print our eCards for them and so we decided to give it a try. A week later, after receiving amazing feedback from consumers and artists, we decided to change our core business. Other trials have been failures, but the freedom to try something new is what makes us entrepreneurs, and heck its fun.

Respect for others: Our company is not just about profits, its also about meaningfully improving the lives of our customers, employees, partners and ourselves. When we make decisions we think deeply about how the decision will effect our stakeholders.  Making them happy and treating them fairly is the only way to build a great company.

We haven’t written a formal values statement yet, and there are certainly things I’ve left out, but this post is a good start. Use the comments below to let us know what you think about it.

What kind of company culture are we building?

Timing is what makes us different

Almost anything you build on the web has already been tried in one form or another. This should not deter you.

-Chris Dixon on “Timing your startup

We are asked a lot of questions about CardGnome everyday. My favorite is “how are you different.” To which the answer is not a litany of product features or marketing strategy, although both do differentiate us, but rather a conversation about the timing of the market. We’re not the first to try “we mail it for you” greeting cards, but unlike the previous companies, the printing technology is finally good enough that we can print one-off cards as cheaply as large companies can print in large runs.

Current print-on-demand presses, like the one we use, can print thousands of unique cards in a single run and can be programmed to work alongside other machines to automatically stuff the envelopes and stamp them. Its cheap. This is how Barack Obama printed personalized appeals to you for money and votes during the election. The systems have improved so much in the last few years that the cost compared to factory presses is comparable. Previous companies could only feasibly offer bulk customized cards at a reasonable rate, so they weren’t able to do the mailing of just one card for you.

So why doesn’t a large company switch to our model? To be successful in the greeting card market today means being great at choosing the right mix of cards to offer. Stores have about 250ft of card space to offer you cards for hundreds of occasions and personal tastes. Psychologists, market researchers and retailers work together to maximize the space with the cards that will sell.  They leave money on the table because some customers will not like the options offered or didn’t go to the store because it was a big pain in the butt. eCommerce sites like ours solve this problem by offering hundreds of thousands of cards and the tools to quickly find the ones that fit what the customer needs exactly. On top of that our site can schedule cards to be sent at a later date and set to remind you of important dates in time to send the card.

Can our established competitors learn to operate in this new model? Probably, but changing the company culture from large scale printing of a few hundred cards to the lean print-on-demand model demanded by an eCommerce distribution model will not be easy. In my experience, old-school factory managers don’t readily give up their budget or adopt new methodologies. It will take them some time just like it did with Blockbuster. In the meantime we’ll build our content library and customer list.

Timing is what makes us different

Pivoting to success

A pivot is the term for a company that changes its business model in order to take advantage of an opportunity.  The opportunity is often only visible after the founders have progressed with their initial concept enough to learn about their market and its needs. Many of the hottest companies today, from YouTube (which started as a dating site) to Flikr (which was a videogame) are examples of great pivots.  The founders in these companies tested their hypothesis and realized they wouldn’t work, so they moved in the direction that would. The affectionate name for this is “failing fast” and its a good thing.  Chad and I did just this about 3 weeks ago when we changed our underlying business model.

Our previous idea was a marketplace for creative messaging services, from funny eCards to custom phone calls from voice impersonators.  What we found was that people wanted ways to interact, but our product offering was too wide.  We were talking with too many different target markets. We needed a much more narrow product offering which would enable us to target just one demographic and build a core user group. Our customers and artists told us repeatedly that they were interested in printed cards.  We heard “I love the eCards but I want you to mail it as a real card” and “I hate going to the store to buy cards, I end up not sending them! Can you make some of your eCards available to print?”

We started researching the greeting card market and realized that it is massive. Over 7.5 billion greeting cards are bought each year in the US, representing a $11B market with over 3,000 independent publishers. Only a handful of small companies currently print and mail cards from a web marketplace and none of them are executing the concept particularly well.  Chad quipped that we could do to greeting cards what NetFlix did for videos, bring the card buying process online.  As soon as that came out of his mouth, we both instantly realized the market potential.  We were hooked.

That was 3 weeks ago.  Since then we’ve repurposed our website and launched the new features as a minimum viable product.  Try it out, you can actually have us print and mail a card for you right now. Don’t forget to let us know what you think of this new direction in the comments.

Pivoting to success