Audience Question #1:
What is your advice for blending an experienced team with an inexperienced team? How do you transition from the present phase to collaboration with the ODM or OEM?
Martin Lynch, COO at FreeWire:
We have a very, very young engineering team at FreeWire. The average age was probably 26 or so. There’s nothing wrong with that; I had some great, great engineers. I loved them. We just didn’t have the experience to make the choices, so we had to go out and bring on new department heads. We brought in new department heads in software and electrical engineering. I remember when I came in the door, and I looked at the product. It’s obviously an electrical product for the most part; a lot of mechanical moving parts, etc. The code is extensively complex, but in the end of the day, we were buying electrical components to put together. And I had one electrical engineer on my team that was two years out of school. That was it.
So, we had to do some massive hiring very quickly to bring on some skilled individuals. Today we have kept all our young engineers, but we coupled them with a lot of mentors and people who really understood design and development from a mature perspective, and it’s made the team really good. We’ve expanded by leaps and bounds. I see nothing wrong with mixing old and young; it’s terrific. I’m kind of an old fart, but I’ve got lots of young guys working for me, and they’re terrific. But I had to couple them with a lot of mature individuals. it’ll work out.
The second part of the question was the CM part, the Contract Manufacturer or OEM part. That’s worth a whole talk all by itself.
That is complex. You’ve got to find yourself a really good operations head that has done a lot of work with ODM’s and CM’s. There are very, very complex operations and requirements. You get very bad quotes. You get ripped off. You get a lot of ECO charges applied against you. There are enormous pitfalls in moving and outsourcing your product, which most of us have to go through at one point or the other. Hire a good operations head that has done these transitions and knows how to deal with them because it is highly complex to deal with them the right way.
I’ve seen a lot of companies move over to the CM and ODM world– big companies. And they just stumble and pull their manufacturing back in-house because they were unprepared for it.
Jay Feldis, Sr. TPM at Product Realization Group:
In terms of experience, I’ve worked with a lot of young teams and a lot of young founders. I think you can bring someone in who has been through this process a number of times– a Technical Program Manager. I say Technical Program Manager because I have done this kind of work. I’ve led engineering teams, so I can sift through the project, and when I see decisions come up and see things happening, I can ask the questions. I can say, “Hey, have you considered this? Have you considered that?”
If I see some weaknesses where we really don’t know how to solve a problem, I can usually identify and help bring up the issues to management. Then we can either hire or find short term resources that can help on a spot situation– bring in an expert.
If you’re not necessarily in a position to hire the most senior person, bring in someone on a short term basis or spot basis. That person can come in, educate your team, and help you solve that problem, so then you can move on.
Jeff Rosen, Principal at JSROSEN Consulting:
Let me answer the other part of the question which was the transition. I’ll take it one step back from manufacturing. A lot of people obviously want to engage with a tier one CM, or hire a large scale person to take this early on. It’s a very hard thing to do. As Martin said, you can stumble dramatically.
What I recommend is that you get some supplier capability into the process. Your engineers only have a limited amount of experience and scale. So to me, it’s getting those manufacturers– they could be cable and harness guys– they could be PCB guys, whatever– early on in your process. They’re going to give you an enormous amount of–call it free, nothing’s ever free– feedback in your process from their experience, their systems, their processes.
So if you’re only thinking about it as transition, transition is a point in time. For me, it’s going on all during the development phase– how you’re engaging these folks that have specialties. For smaller companies, you may not be able to engage and may not want to engage the large manufacturers, which is perfectly fine. Rather, it’s the ability to engage certain levels of expertise in what you’re trying to do. We’ve done this, and it’s critically important. It doesn’t matter that they may not become your largest scalable partner that you use down stream.
As Martin mentioned, this is how you overcome the “junior team” problem. You want to get a lot of your unfair resource from these manufacturers because if you only have one electrical engineer, and you are not going hire someone, the best thing you can do is engage a supply chain that has experience it can bring in. Even if not on your application, there’s a whole heck of a lot they can do to give you resources in the near term and some guidance and assistance to overcome your gaps.
One pitfall to be careful about is transitioning your product to a third party supplier when you’re doing a lot of ECO’s. They’ll want to charge you for every ECO, which is an enormous amount of money, and then they’ll eventually boot you out.
We had a tier 3 CM doing some sub-assemblies for us, and we just made too many ECO’s. We had to go down and repair the relationship and then pull a few things back in house to prevent that relationship from degrading. It was very expensive because the CM charges you an arm and a leg for every ECO you do. So be very careful. I’d rather see you manufacture in-house and get a couple of Ops people to go help you document what you need to assemble than be making changes every other week [with a CM].
[On that Mobi out there], to date from when I came on board seven months ago, we’ve done 150 ECO’s. That’s a lot. So you can imagine what our sub-assembly CM was thinking. Well, they were rubbing their hands together because it’s a lot of money. But at the end of the day, they don’t really like it. Their job is to manufacture product.
Audience Question #2:
My question is based on the challenges of the strategic investor. In my experience, they are all good news, bad news. The good news is you get a lot of good experience and a very active investor. The bad news is that you can get distracted with their requirements which are very specific. Could shed some light on how you manage those active strategic investor relationships, especially if there are multiple ones like you all have?
Jessica Ching, CMO at Product Realization Group:
When you have a strategic investor, how do you manage the relationships?
Martin did some very specific things early on. Trade offs are really hard when you have in the case of FreeWire, two strategic investors addressing two very different markets. There was this constant division in the company about which of these markets was the live market– which was the real market. Can we make products that bridge between the products because we don’t have infinite resources?
What happens is you compromise the real vision of what you’re trying to accomplish because you’re running along a wall. You’re trying to bridge both of these strategic investors.I t is never a good thing because then you make a product that sits in the middle between them.
That conflict between two strategic investors who had two different views of the market and the application of where that went was a huge divide in the company that we struggled with for many months.
That’s a great question. We had a lot of problems. Strategics are great. It’s unusual for a company like FreeWire to start out with strategics. You’re probably gonna start out with some angels first, friends and family and then hopefully find yourself a VC when you think you got some product out there.
Venture capitals look for valuation and traction. Strategics look for product and features that they want you to deliver against. When you go out there and get funding from the strategics, you pitch them the products they want. If you don’t deliver to them, there’s a lot of consternation. And we had to deal with it. I’m not gonna get into the particulars of who. But we basically had one guy really happy and another guy not as happy because at the end of the day we had to make trade offs.
We agreed to do two very different types of products that in many ways had some overlap. But they were different requirements and different market needs, and we couldn’t do both at the same time, and do them quickly. So there were a lot of trade offs that we had to make. There were a lot of communication issues. We had to deal with both strategics to let them know what we could and couldn’t do. We had to be honest with them.
What I urge you to do is when you get funded, if you get funded by a strategic, is be honest and be direct. You need to hit your milestone. If you go out and pitch something to anybody, VC or strategic, you better hit your milestones. Now they do expect slips. You don’t need to be perfect. But you really need to hit it, and if you don’t, you need to be honest with why and what you’re doing about it and where they can help you. And don’t be shy about those things. They don’t expect perfection.
The strategics are not aiming for valuation. They’re not aiming for financial metrics. They’re not aiming for traction. They’re aiming for features and products that meet their needs as strategic investors.
That can be a little distracting at times because you may want to pivot. We’ve pivoted several times as a company. And you’re gonna pivot. But now you’ve been wrangled in by a strategic that doesn’t want you to pivot. So it’s in direct opposition to what you need to do as a start up, which is to pivot. And you will.
I’m happy we have the strategics we do but, it’s a mixed blessing.