I’m back in the entrepreneurial ring.

A simple statement that has been anything but simple to arrive at. Starting 14 months ago I have traveled through anger, despair, anxiety, and fear to arrive back at happy.

Launching on Kickstarter last week, I got back into the ring.

I never imagined it would have taken this long. Having driven a startup for nine years with every ounce of energy I had, I never anticipated that it would take 431 days to regain the confidence it takes to again present my work to the world.

What I learned is that time was the most important ingredient in my healing. Like being in a massive accident, it took months for my heart, body, and mind to recover.

Unrecognizable at the time, I needed to unplug from the world. I needed to travel. I needed the startup community’s encouragement. I needed to talk about what I had been through. I needed to spend hours writing and days reflecting with the love of my life. I even needed a beautiful new baby boy to show me life’s simplicity.

I needed all of that to give me the confidence to stand back up and return to the ring.

Standing here again, it means more than ever before. And not because I’m more determined or hungrier to succeed.

But because this time I know what I’m standing for. I understand my purpose and why I’m here. I value the importance of living life. I appreciate the unwavering support of love. I deeply recognize that this time around, it’s about enjoying the journey.

There comes a point in everyone’s life where getting back up seems impossible. When the pressure of the world, seems too great to shoulder again. And although only you can pick yourself back up, I hope this provides a little bit of inspiration on your quest.

Overcoming The Fear
Someone recently asked me, “What happens if you fail again”?

I never thought about it that way. In all of my time at Contour I was never afraid. Like a teenager falling in love for the first time, I had never had my heart broken.

Which means I never protected myself. I went running into the relationship with everything I had, never expecting that the result would crush me. I trusted those around me, doing everything that was best for the business. Sacrificing both personally and professionally, I was all in.

I still remember my last day. Like a boxer getting punched in the mouth, I can still taste the blood on my tongue. Even after 14 months, it doesn’t go away and I’m not sure I ever want it to. It is a lesson I will rely on the rest of my life.

If you read about the best fighters, they always talk about fear. They recognize that every time they compete they have to overcome their natural instincts to quit.

Even for a big wave surfer, conquering fear is part of life.

“When you overcome the fear and all the elements that are working against you and ride one of those waves, there is a feeling of gratification and accomplishment that is beyond words.” – Greg Long

Getting back up as an entrepreneur is no different. You have to forget what happened in the past and be willing to put yourself out there again to compete. Especially the second time around, you have to find a way re-approach the world with the same naive spirit. Because it’s the only way to see an opportunity that you believe in.

Being Vulnerable Again
Willing to be in love again is really hard. Forgetting about the past, it takes even more to rebuild the trust that was lost. And yet to love again requires you to be vulnerable. It requires you to let down your guard and let people back into your life.

Being vulnerable is also the most important ingredient in creating and yet it can the hardest decision to make. Willing to tell the world what you believe in, even if others disagree, does take courage. The risk of being rejected is always there, no matter how much practice you have.

For me I started back at the beginning. I spent time reflecting on what makes me the happiest in life. Starting with lists of activities, experiences, and moments, it took a while to discover that what makes me happy, is building. I love starting from a blank piece of paper to imagine something new. I love being passionate about the people, problem, and brand we craft. I love the nervous feeling of putting myself out there. I love building things that people can believe in. I love to create.

And as Steve Jobs so eloquently said, “Being the richest man in the cemetery doesn’t matter to me … Going to bed at night saying we’ve done something wonderful… that’s what matters to me.”

One Small Step At A Time
The bigger the cliff grows in our imagination, the harder it is to jump off.

As a kid I used to compete in diving. Slightly terrified of heights, I can still remember the anxiety of moving from three meters, to five meters, and eventually to 10 meter platform. Constantly afraid I would slap the water, I eventually quit. Not because I didn’t love it. But because I had built the height up in my mind to the point that it became too high to jump.

Starting is the hardest part. The first step, the first idea, or even the first date. And yet taking one small step at a time is how you get there. Even if your vision far exceeds your ability to deliver on it today, don’t worry about it. Greatness is never an overnight success. It is always a journey woven with an unlimited number of experience that contribute to where you end up.

My first step back was writing. At first only for myself, I slowly started publishing. One post at a time I gained more confidence, week by week. I attended Startup Weekend to get my hands dirty again building products. I taught a class about turning an idea into a company, which gave me the confidence to create a series of workshops about building hardware startups. Which lead me to finding a new collection of builders to begin my next journey.

Opening my heart back up I have begun to create again. Starting in August, with a small team, we moved from ideas to sketches to prototypes to Kickstarter. Not knowing if we would fail or succeed, we jumped.

And it worked.

Our success in the first week is not a testament to our abilities as a team. Instead it is a reflection of our willingness to be vulnerable. We are perfectionist and yet we put our prototypes out there for the world to reply.

Onward.

*Image Credit: Schmeegan via Creative Commons.

Startups love to compare themselves to other startups. The race to win has resulted in a culture that copies, recycles, hurries, and defends itself with little thought to the question: How will we be remembered?

What Beyonce has shown us in the past few days is nothing short of amazing. Her willingness to challenge the music industry has resulted in unprecedented results. Even with record-breaking iTunes downloads it’s not the numbers that are the most inspiring part, it’s how she did it.

Her path wasn’t about differentiating from the competition. It wasn’t about launching her MVP, followed by more songs to come. It wasn’t about getting to market faster than an anyone else. It wasn’t about creating a new business model. It wasn’t about exclusive deals, marketing partnerships, or big bang PR.

Instead she did everything you aren’t supposed to do.

She took an unlimited amount of time to craft her record. She told her own story in her own way. She made her music only available through one store. She spoke directly to her own fans. She was completely vulnerable in her honesty.

And it worked.

Listening to her story has inspired me to remember that what we are building in companies is so much deeper than the products we create or the cultures we leave behind. They are imprints on the history of time.

Thank you Beyonce for reminding me of these important lessons.

1. Success Isn’t Overnight

“At the end of the day, when you go through all of these things. Is it worth it?” ~ Beyonce

The results of the last five days were 23 years in the making. As a nine-year-old, on the TV show Star Search, she learned a lesson I believe she has never forgotten.

“The reality is, sometimes you lose. You never are too good to lose. You are never too big to lose. You are never too smart to lose. It happens and it happens when it needs to happen. And you have to embrace those things.”

Losing my mom and my company are experiences I will never forget. They have forever changed who I am. And those experiences are so ingrained in my soul that they drive me to make every day matter.

Beyonce is here because she never gave up.

2. Be Willing To Share Your Story

”It’s important we made this a movie, we made this an experience.” ~ Beyonce

Starting a company is an incredibly vulnerable journey. It requires you to go against the cultural grain to create when everyone tells you that it can’t be done. And out of that drive comes a personal story. It’s a story you may not fully understand or even be willing to share, but nonetheless it is a story that belongs to you.

Beyonce’s album reflects her willingness to share the most personal parts of her story. Which makes the entire discussion not about the music or the features or the quality, but instead about her narrative. She captivates you with images and words that can’t be challenged, just accepted.

The best part is that her story is honest. She uses simple language in a conversational format that creates an instant connection with the audience. She knows not everyone will listen, but those who do, will be the customers she pours her heart into.

3. Have A Purpose

“At this point in my life that is what I’m striving for: Growth, love, happiness, fun. Enjoy your life, it’s short.” ~ Beyonce

Beyonce’s story comes full circle in this release. Through her victories and her struggles you learn that her motivations are both internal (love, happiness, fun) and external (changing people’s lives).

Having a purpose in the startup world is hard. The culture is built around ideas instead of meaning. Which is best exemplified by everyone’s two favorite questions: What do you do? and How big can this be?

Surround yourself with creators who first ask why you do it.

4. Your Customers Are All That Matter

“I didn’t want to release my music the way I’ve done it. I am bored with that. I feel like I am able to speak directly to my fans. There’s so much that gets between the music, the artist and the fans.” ~ Beyonce

I remember when our sales team used to tell me that GoPro’s strategy to focus on their customer first, and retailers second, was a mistake. Even though they committed high treason (selling on their own website before selling to retailers), they were right in making their product available wherever and whenever their customer demanded, regardless of what the retailer wanted them to do.

Beyonce did the same thing. She bucked the trend and demonstrated that if you focus on what is best for your customers, the rest will work itself out. Target is so angry they even went on record with a bullshit quote that if you read through the lines, can be translated to mean: All we care about is our bottom line.

“At Target we focus on offering our guests a wide assortment of physical CDs, and when a new album is available digitally before it is available physically, it impacts demand and sales projections,” ~ Target spokesperson Erica Julkowski

The people who buy and consume your product are the customer. Make every decision by putting them first, everyone else second.

5. Brand Awareness > Distribution
In an over-saturated society that communicates in 140-character sound bites, Beyonce demonstrated that brand awareness trumps distribution. By concentrating all of her marketing power towards a single store she proved that capturing consumer mind share is all that matters.

A lot of startups get hung up on partnerships and distribution deals that, on paper, promise incredible exposure for your small brand. These deals generally result in spending all of your time shouting at a partner that didn’t deliver. Instead, you can take that valuable time and those limited resources and use them to be obsessed with how to impact more customers.

It has taken Beyonce 23 years, but she has created a movement that is tidal wave in size.

Conclusion
If you are building something I challenge you to look outside the startup world to find your inspiration. Spend time with yourself, understand what really makes you happy, and from that your best work will emerge.

I’m just starting that path now and although I’m terrified about where it will lead, creators like Beyonce give me hope that if you put your heart on the line amazing things will happen.

*Image Credit: Asterio Tecson

“Reality is merely an illusion, albeit a very persistent one.” ~ Albert Einstein

It was well past 5pm and we were still at the office debating about how we should inspire our customers. We were debating the strategy to ‘be like Mike‘ or to ‘be like Joe.’

To be like Mike, meant we would only use famous influencers to inspire our customers to purchase the product. The videos would need to be jaw-dropping and amazing, filled with never-before-seen action by names familiar within the sport.

To be like Joe on the other hand, meant our customers’ personal videos would be the marketing. Instead of showcasing professionals we would make it easy for our customers to share their own videos online, resulting in their friends buying the product because they were so inspired by the timeliness [I would choose a different word here. “Timeliness” means “at the right time” or “in season”] of their videos.

Five years later and the category lost, it turns out the right answer was to be like Mike.

Over the years we came to realize that, for most of us, making an amazing video is really hard. Consumers are reluctant to share once they watch their own footage and realize that they rode a lot slower, their drops were a lot smaller, and the sounds were worse than they remembered.

In the end consumers were more inspired by the perception of what they could create versus the reality of their results.

So why is this?

You can find a wide variety of opinions about how perceptions are formed and why we create them. But the simplest answer is that perceptions are a form of stereotyping, which we use to recognize the patterns we want to see. These patterns can enable us to quickly draw conclusions that may or may not capture the truth of the situation.

Seymore Smith, an advertising researcher from the 1960s, found that people were screening what they saw based on their own expectations. In his research he noted that, “They do so because of their attitudes, beliefs, usage preferences and habits, conditioning, etc.” Seymore went on to conclude that people who like, buy, or are considering buying a brand are more likely to notice advertising than are those who are neutral toward the brand.

Seymore’s conclusion is powerful. It supports the notion that the more consumers that see your advertising in a favorable light, the more likely they are to buy. This helps to validate the old marketing adage, The Rule of Seven.

So does this mean that honest marketing doesn’t work?

Perhaps.

A recent study done by Alison Jing Xu and Robert Wyer asked men and women to rate beer and cleaning products after watching a series of commercials. What they found was interesting.

In cases where consumers were familiar with the category, gimmick advertising had a negative impact on their perception of the brand. While in cases where consumers were less familiar, they gravitated to commercials that used phrases they didn’t understand, assuming those phrases must be important.

In their conclusion they found that: “…puffery seemed to influence people who are not major consumers of your type of product, but it turns consumers away who are experts or have higher knowledge.”

The study didn’t conclude why this happens, but its findings begin to provide some insights into how you can engage your existing customers, while inspiring potential customers that have yet to hear about your brand.

If you are struggling with how to inspire your customers here are three things you can do.

1. Find Their Motivation
   Maslow’s Hierarchy of needs is a great tool as you think about what motivates your consumers to use your product. More often than not, they are driven by a need to belong or a need for esteem. Axe taps into the masculine need to belong, while Land Rover provides an instant status symbol.

2. Sell Emotion
   It’s easy to fall into a trap of telling people what you do. You’re so proud of your own product that you want to tell everyone the benefits associated with it. Instead, look at how brands like Red Bull, Patagonia, and Nike sell the emotion that their products are associated with. It’s not about the performance of the product, it’s about the lifestyle of the person using the product.

3. Stretch Their Imagination
   This is the hardest of all, but stretch consumers minds with all the ways they could use your product. Pencil’s new video shows people using their product in a variety of ways, while GoPro displays videos that are well beyond what the average user can create. People fall in love with the potential.

As you think about winning a category and grabbing consumer mindshare, get uncomfortable with perception. If you don’t care about being the largest in your market and you only want to market exactly what your product does, than you better consistently deliver the most amazing product in the category. Otherwise you will be fighting the battle over minute features that no one cares about.

Perception
Cell phones will better connect us.

Reality
They distract us from being present.

Perception
Fast food burgers are delicious.

Reality
They are a combination of bread and overcooked meat.

Perception
Drink this beer and you will be like this guy.

Reality
This girl to guy ratio is about right.

Perception
Your surfing videos will look like this.

Reality
When you aren’t the best surfer in the world and don’t have a professional video crew.

Perception
This car is for driving to amazing, desolate locations.

Reality
Most owners just take the car to Safeway.

Perception
Amazing athlete.

Reality
Teenager who also likes to party.

Perception + Reality
Capturing the essence of what people think will happen.

Image Credit: Joe Plocki via Creative Commons.

I can’t believe it’s been a year.

I can still remember the last Board call like it was yesterday. For the first time in my life I was out of options. There was nothing left to try. No person to reach out to. No ideas available.

It was the end of my journey and I knew it.

We were short two million dollars and the choices on the table were between awful and shitty.

Awful would have meant reducing the size of the company, immediately, and working hard to keep both our bank and suppliers on board as we forced ourselves to be profitable overnight. Shitty was accepting terms that basically sold control of the company for $2M.

Sitting on that call, I didn’t actually know what to do. Say yes, let the team fight another day, and move on. Say no, risk destroying the deal, and get removed anyway.

I said yes.

The call ended. I packed my bag and walked out the door to a crisp, sunny Seattle day. My day was done and my time at Contour was over.

When a relationship ends it’s so matter of fact. There isn’t a gradual ending, it just stops. There are no more emails, no more late night text messages, no more phone calls. No more collaborating on hard problems, stressing about tough decisions, or excitement from success. Like traveling alone on a dark night in a foreign country, nobody cares who you are. Nobody even asks.

It has taken me a long time to reflect on what happened that day. The following weeks were filled with emotion: Anger, disbelief, frustration, and longing. I was beyond exhausted, but I couldn’t sleep. My heart hurt while my mind kept replaying every wrong turn we took along the way.

I was lost.

The last time I felt this was when my mom passed away. Even though I watched her battled cancer for 15 years it was still incredibly hard to deal with her loss. She was always there, until she wasn’t.

I had so many chances to say goodbye, but I never did. As if I didn’t want her to know I had given up the fight, I never said I will miss you.

I wish I had.

Walking back into Contour several weeks later to say goodbye, was one of the hardest moments of my life.

After nine years, my ending was reduced to a rushed company meeting. Paying to park on the street like every other visitor, even the new admin at the front door didn’t know who I was. There would be no party and no celebration. There wouldn’t even be a sincere thank you.

All I was provided was a few minutes with the team, to say goodbye.

Holding back the tears I slowly told them the story about Contour, how proud I was of our accomplishments, and how thankful I was to everyone involved. The team in front of me was an incredible group of people, many of which I would never see again. In a few minutes I tried to express what the last nine years had meant.

Twelve months later I realize that being fired from Contour was one of the best things that could have ever happened. It forced me to end a relationship that I didn’t want to end, and with it, taught me incredible lessons I never would have learned.

Have a Purpose
I realize now that I didn’t have a clear purpose in starting Contour. I replaced my quest for being a professional soccer player with the emotional demands of being an entrepreneur. I wasn’t passionate about making videos. Instead, I became incredibly passionate about building a company.

Aligning the problems I want to solve with what I love to do is how I will start every company going forward. Life is too short to be solving problems I don’t care about.

Enjoy the Journey
I missed the ride. I spent my 20s behind a laptop so focused on the end that I missed everything in between.

Learning to surf has reminded me of what I missed at Contour. The struggle to get better is the journey. There is no trophy at the end, just a collection of memories.

Be Vulnerable
I always led with passion and although it can inspire people around you, it’s not the same thing as being vulnerable. Opening your heart to tell people what you believe in is way harder. Because having your beliefs rejected takes a lot more determination than hearing that your ideas suck.

If you are willing to share what you believe in you will find others who see life the same way. It won’t happen overnight, but slowly you will find a group of people you connect with. A year later I have a closer group around me than at any point in my nine years at Contour.

Prioritize Life
People talk about “work-life” balance. I still think that is a terrible way of saying what I think they mean to say, which is that life doesn’t have borders. There is no “work” and “life,” it’s all life.

You choose to start a company or take a job. You choose to prioritize emails over family time. You choose to miss your friends events for company assignments. You choose to skip vacations. You choose not to be present.

I made a lot of choices during my time at Contour that prioritized the work over everything else. I can’t say I won’t make these same choices in the future, but this time I will deeply understand that they are choices I am making.

Make choices that make you happy in life and the rest will work itself out.

It’s Not About You
It wasn’t until the music stopped that I fully understood that the success of Contour wasn’t about me. It was about a collection of people who poured their heart and soul into a company they believed in.

Don’t underestimate the people around you. If you don’t give them a chance to rise to the occasion, they never will.

A Year Later
I am incredibly happy.

I have an amazing wife whose unwavering love inspires me to be the best husband I can be. We have a beautiful baby boy whose ability to forget the past, constantly reminds you about the present. And we have a family of people who love and support us with every decision we make.

As an entrepreneur I get to start over. With a clean sheet of paper I get to take everything I learned in my nine years and make the world a better place.

Contour changed my life. And being fired will never let me forget what’s most important: Being happy.

This is my last post about Contour. Over the last year I’ve tried to share what I learned and going forward I will be writing about what is happening in the present, not the past. Thanks for reading.

The lights were low and the energy was high. Techstars demo day had finally arrived, and for the 11 Seattle teams it was their opportunity to finally share their vision.

You could see how nervous the entrepreneurs were. Having practiced for weeks, they had no idea how the audience would respond.

With each slide of their pitch, the entrepreneurs got stronger. Their nervous energy was replaced with confidence, as if they finally believed in their own words. Overcoming their deepest fears, each of them left the stage with a massive smile.

Not everyone believes in accelerators. Some have called them startup factories. Others claim they produce a high quantity of low quality companies. Some refer to them as popularity contests.

Regardless of your perspective about accelerators, there is something you can’t deny: They provide opportunity. They provide a platform, especially for first-time entrepreneurs, to gain confidence.

Because it takes incredible courage to stand on a stage, in front of people you don’t know, and put your heart on the line. To share how you want to make the world different is hard, all while being judged about your ability to deliver on it.

@Bryce is right, most people won’t. They won’t try to come up with a new idea. They won’t quit their job to start a company. They won’t make themselves vulnerable to others. Most difficult of all, they won’t stand in front of a room to be openly judged.

It’s true, most of the teams that went on stage won’t ultimately be successful. And it’s easy to tell them so. But don’t.

Being an entrepreneur takes incredible conviction and at the same time, unwavering confidence. Convincing customers, future employees, investors, partners, vendors, editors, etc., requires every ounce of energy you have. Because that battle doesn’t happen just once, it happens every day.

Sitting in the audience that day, I couldn’t help but be inspired. Watching a group of people put their heart on the line, it left me wanting to get up and stand on that stage again. To feel butterflies in my stomach and my heart racing, unsure how the world will react to what I believe in. It’s a feeling that can’t be explained, only experienced.

I miss it.

To the people willing to stand on a stage and tell the world what you believe in, keep going. Whether you turn your ideas into a successful company doesn’t matter. All that really matters is you are willing to do what most people won’t: Put your heart on the line.

Image Credit: Kelbycarr via Creative Commons

Hardware is a cash flow business. It takes money to get to market, and even more money to scale your company. This means that your funding strategy is second in priority only to creating an amazing product.

I got the funding strategy wrong at Contour.

Despite being a $30 million business with award-winning growth (#7 on the Inc500, we couldn’t properly fund the business. Being number two in a fast-growing category wasn’t enough as every investor wanted to lead the market, not follow it. In the end Contour ran out of money, which is still mind blowing when you consider that the company had hundreds of thousands of customers.

Contour losing the category wasn’t a result of the decisions made at the end. In reality Contour lost almost two years before when our competitor raised $80M to our $5M. It was at that point that we should have stepped back and re-thought our strategy, but instead we plowed forward and assumed number two could get just as much funding. We couldn’t.

A lack of proper funding prevented us from fulfilling customer demand, growing brand awareness, and staying in front of the innovation curve. Our lead in product quickly deteriorated as a lack of cash prevented us from moving the business forward.

In the end I learned a very painful lesson: Your funding strategy is critical to your survival. Get it wrong and you go out of business. Get it right and you can become super successful.

If you are building a hardware startup, here is a guide to help you think about how to fund your company.

Getting to Market
I’m a big believer that a successful minimal viable product (MVP) in hardware is all about the fastest path to cash. It’s definitely not about over promising features and under delivering on quality. Instead it’s about picking a single feature and not only delivering it amazingly well, but quickly.

A solid hardware MVP should cost $500K or less to get to market. That includes any tooling, engineering, design, brand, and people costs. If you are spending more than that, limit the features. This is true especially if you are a first-time hardware entrepreneur because you want to keep your MVP simple to limit your cash exposure.

If, during the process, you create enough momentum to raise more than $500K, then great. But most likely you will be scratching and clawing your way to complete this first round.

You can raise this initial capital in a combination of ways.

• Friends and Family: Finding $50-100K from close relationships is a great place to start. With this amount of capital your goal is to validate your idea by creating a solid prototype.
• Supplier: The costs of getting a supplier off the ground is your most expensive hurdle. Depending on the complexity of your product, tooling will run you $50-200K, engineering services could be up to $50K, and test fixtures another $25-50K. To help minimize your cash requirements you will want to negotiate with your supplier to roll these fees into your per unit cost. Without a track record, this isn’t easy, but if successful it can dramatically change the amount of capital you need to raise.
• Consulting Firms: You will need design and engineering services to produce a great product, which means if you don’t have those skills on the team you can outsource this to a consulting firm. Often this can be cost prohibitive, but it’s worth finding a firm that will be creative in cash requirements to help you get to market. With Contour we found a design firm that charged us $50K for the work and then a $3 per unit royalty until the bill was paid. It was a risky proposition for them, but it worked out as we paid them the full $350K over two years.
• Pre-Sales: Whether you use Kickstarter, Indiegogo, Dragon, or your own website, pre-selling your product can drive significant cash flow. Even after your campaign ends you can continue taking pre-orders on your own website to increase the amount of cash you raise. Only pre-sell your product once you have a supplier on board and a firm understanding of the schedule.
• Angel Investors: Are not easy to convince before you have pre-selling momentum. A lot of hardware entrepreneurs assume that angel investors will give them capital as they reach development milestones. The reality is most won’t, especially when most hardware prototypes look like crap. Unless you have pre-existing relationships, the best time to approach angels is after you have a prototype and momentum from your pre-sales.
• Crowd Funding Equity: Now that you can publicly raise capital, both Angel List and your own customers become potential sources of equity capital. This form of capital raising is still in its infancy, but the startups finding success appear to have solid momentum both in media attention and customer interest.
• Venture Capital: There are a handful of funds participating in seed rounds, based on the quality of your prototype and the momentum of your pre-sales. You often don’t get a second chance at the same funds so unless you have a previous relationship or incredible momentum, I would save these discussions for your next round of funding.

If you end up raising equity dollars I recommend using a convertible note that converts into your Series A round, using standard series seed docs. Be sure to give yourself enough time to complete the series A round (up to 24 months) with an automatic conversion for investors, as you can’t afford a massive cash outlay down the road.

To reward your earliest investors you can change the discount they receive off the Series A depending on when they invest. For example you can raise the first $100K with discount X to complete your prototype and the remaining $400K with discount Y, after you pre-sell your product. Whatever you do, keep it simple!

A few things to keep in mind:

• Terms with your supplier will be an ongoing discussion. If you can get momentum with investors they may be willing to give you better payment terms.
• Don’t over promise to increase your pre-sales results. It may help to increase the amount of cash you collect up front from customers, but if the product is poor quality or significantly late, you could have an even larger problem down the road.
• Build your financials projections and product pricing based on today’s costs. Don’t make decisions based on what your product will cost at volume, or you risk running out of cash as soon as you ship your pre-sales.

Reaching Market Fit
Now that your product is shipping you begin to control your own destiny. Although your actions are still dictated by how much cash is in the bank, you can begin to think about how much capital is required to reach product market fit, an important milestone in validating that you have a profitable, repeatable business model.

At Contour it took us two years, and two iterations on the hardware, to reach market fit. Not until our product was under $300 and High Definition (HD) did customer demand go through the roof. Overnight the company went from $2M and unprofitable to $7M and very profitable. Despite making dozens of mistakes, we reached market fit with less than $1.5M in capital raised.

The right amount of capital to raise depends on the complexity of your product and the cost to acquire new customers. As a general rule of thumb it can take from $0 to $10M in capital to reach product market fit.

You should consider the following to calculate the right amount of capital.

• Product: After shipping an MVP you need to follow up quickly with version 2 to fix all the bugs and poor customer interactions. You’ll want to calculate what it costs in people and production to make your existing product F*#$ing great.
• Customer Love: A key part to reaching market fit is having customers that can’t stop using your product. Understand what it takes to fully engage your existing customers, including offering amazing customer support.
• Cost to Acquire Customers: One of the hardest parts of making a successful hardware business is profitably reaching new customers. You need enough capital to try a variety of tactics with financial systems to measure which are and aren’t working.
• Limited Distribution: Reaching market fit has nothing to do with building successful retail channels. To be great in-store it requires experienced people and a heavy investment in training. On top of that, it will strain your cash with delayed payment terms and lower margins. Save retail for after you reach market fit.
• Working Capital: Your most important cash consideration is your working capital (the time between collecting cash and paying your supplier). Managing your cash flow is critically important as you try to grow from an interesting product to a profitable business.

When you are ready to look for capital you can consider:

• Cash Flows: You don’t have to raise money. If your business is driving great cash flows you can use that cash to fund the business.
• Debt: Banks will give you about 80 cents for every dollar in receivables and 50 cents for every dollar in inventory. The key is that you have to be profitable. If not, it will be hard to get bank debt.
• Factoring Receivables: If you have strong receivables, but are not yet profitable you can factor your AR. It’s insanely expensive, up to 20% interest, but it can work to move cash flow if you get stuck. This is a last resort option.
• Your Supplier: Continuing to work with your supplier to improve your payment terms is critical to minimizing your cash requirements. You can offer to pay more per unit in exchange for better terms.
• Angels: If you are raising a smaller amount, say $1.5M, then you can approach angels, but asking for more will be an uphill climb.
• Venture Capital: Find a partner with experience investing in hardware and a belief that founders can become great CEO’s. You want the right partner so don’t make this choice lightly. Once you raise institutional capital, the requirements change dramatically.

Scaling Your Company
If you survived this far, congratulations. Hopefully your cap table is still intact and you have some understanding of what is driving your business.

Your vision for the future, from this point forward, will dramatically change the amount of capital you need to grow your business. If you want to win a category, you need a minimum of $50-100M dollars. If you don’t, you need a highly profitable, cash flowing business so you can invest in product at the same rate as the category leader, without bankrupting your company. Otherwise you will suffer from the Law of Increasing Returns, a fateful result Contour experienced.

To provide some perspective on category leaders:

• Jawbone: $310M
• FitBit: $66M
• Roku: $127M
• Sonos: $300M
• Nest: $80M

After Contour reached market fit I never stepped back and painted the picture of what kind of company we wanted to become. Did we want to be the largest camera company in the world? Did we want to be the category leader for action video? Or did we want to make a small, kick-ass company that was highly profitable?

Because I wasn’t clear about the future, I didn’t raise the right amount of capital. Instead I raised $5M from two small funds, which essentially meant I wanted to win the category, except I didn’t raise enough money from deep enough pockets to do so. Instead I created a situation with mixed expectations and in the end a dynamic that made it very hard to raise future capital.

To calculate the amount of capital required you first have to decide IF there is a category to be won and IF SO, do you want to win it?

If the answer is yes, you need a serious amount of capital to become the brand of choice, and from investors that believe in your same vision. A venture return is not possible if you don’t win the category. Boxee is a great example, they raised almost $30M and in the end couldn’t win the category, so they had to sell for about the same amount that was invested.

If the answer is no, prioritize your business model to be highly profitable, raising as little capital as possible. Selling a $20M business with very little capital raised can be a larger return than falling short on a quest to be the category leader.

The places to look for capital include:

• Cash Flows: If you aren’t trying to win the category, continue to optimize your cash flows to keep the business moving forward. You have to keep innovating on the product and creating a sticky brand experience.
• Supplier Investment: Either through your existing supplier or through a new supplier, you can explore them investing in your business. Vizio did this early on and it fueled their growth.
• Venture Capital: Assuming you have a product, technology, and category advantage this can be the right group. You have to present a path to winning the category.
• Private Equity: If you have at least $10M on the top line and 20% on the bottom line, private equity can be an option. Just recognize that they are looking to resell your business in 3-5 years so you have to demonstrate category leadership with minimal technology risk. They want a business that is cash-flowing so they can multiply what is already working.
• Strategic Investors: Of all the types of strategic relationships, distribution seems to be the partnership of choice. Either from a brand that can take you into mass distribution (i.e., Monster investing in Beats Headphones) or from a brand that opens up new geographic markets (i.e. Softbank with FitBit).

Conclusion
Success isn’t binary with hardware, which means you don’t have to create a billion dollar company to be successful. Because hardware drives cash, you can create a fantastic company that is small, profitable, and produces amazing products.

All that really matters with funding your hardware startup is that you have a clear picture of the future. And from that picture, find the right capital to fulfill your dreams.

Image Credit: Aresaburn via Creative Commons

The hardware revolution is not only challenging the existence of billion dollar brands, but altering the very metrics we use to define their success.

Previously held hostage by retail, consumer hardware companies used to measure their business by the number of units sold, growth in revenue, points of distribution, and gross margins. Mainly because the hardware experience ended when the product was shipped to retail, hardware companies used the only metric they could track: Sales.

At Contour I got stuck in this same trap, and because of it, I build the company in the wrong order. We often prioritized our retail channels over our customers, and so we focused on channel growth without really understanding our customers, how often they used the product, and how to profitably reach more of them.

The good news for hardware startups is that these metrics are now irrelevant. The new expectation is that hardware ships with amazing software, and that means you can track your customers after they buy the product. This is new for hardware and opens up fantastic opportunities to measure lifetime customer relationships, metrics that were previously impossible.

The bad news is that this will expose hardware’s dirty little secret: Customers buy and then stop using your product.

If you are building or investing in a consumer hardware startup you should be thinking about the following metrics.

Cash Is King
Hardware is a cash-flow business. It takes cash to build your product and when ready, cash to build your brand. It’s why I’m a big believer that your hardware MVP is about the fastest path to cash.

When getting to market all you care about is how much cash it takes to start shipping your MVP. Whether you raise capital or pre-sell your product through Kickstarter, most hardware products should get to market for under $500K. If you have been around the block you can raise additional capital upfront to make a more robust MVP, but otherwise you want to get your MVP selling as soon as possible to start driving positive cash flows.

Once your product is shipping, and for the entire life cycle of your company, you care deeply about the cash float between when you get paid and when you pay your supplier. If your supplier provides 60-90 days of credit and on average you collect payment in less time (known as your average days outstanding), you are in good shape. But if not, this float gets very expensive to fund. Banks will only provide cents on the dollar against existing assets, while equity requires you to give up big chunks of your company just to fund customer demand.

Running out of cash is a very expensive problem to fix.

Reaching Market Fit
This is an incredibly important milestone for hardware startups. Not only is it the point people can’t stop buying your product, but it’s also the point you understand how to replicate a profitable business model.

Not everyone will agree, but growth is not the most important metric in reaching market fit. Although growth is great for getting investors excited, it doesn’t help you fully understand what is and is not working in your business. In trying to reach market fit you should care about deeply understanding your customers, why they buy the product, and what works to grow your customer base.

In addition to cash you will want to track three more metrics:

1. Customer Love
   I’m a big believer in Net Promoter Score (NPS). It is the single metric you should use to measure your customer even when you only have a few hundred of them.

2. Customer Engagement
   You want customers who can’t stop using your product because it will help you learn even faster about why they bought the product, how they use it, and which features you should be prioritizing. You can track this metric in a variety of ways, but make sure you pick a single metric that tells you how often they are/aren’t using your product.

3. Customer Acquisition Cost
   One of the most expensive parts in building a hardware company is reaching new customers. You want to understand what is and isn’t working in reaching new customers, especially early on when you are experimenting with every kind of marketing channel you can think of. Don’t make the mistake in ignoring how much it costs you to reach a customer through retail. Your true customer acquisition cost is what you spend in sales/marketing and the margin you give up in selling through retail.

Growing Your Company
Once you reach market fit you are ready to build a company. It’s a point that most hardware startups never reach and a point most entrepreneurs will find less exciting because once you get here, you spend most of your time repeating the same 18-month cycle: Introduce a new product, advertise it, repeat.

On top of the cash, customer love, customer engagement, and cost to reach a new customer you should care about four more metrics:

1. Market Share
   You have to be the brand of choice or you risk losing your very existence. Investors don’t fund number two without a clear path to how you become number one in the market.

2. Number of Customers
   You care about customers, not units. Reaching 100K annual customers with a single product is important, reaching 2M puts you in a small class, and passing tens of millions makes you one of the largest hardware players in the world.

3. Lifetime Value
   People get it wrong when they ask how much of your revenue is from hardware vs. software. The real question is how much is your customer spending with you over time? Whether it’s from buying another unit, accessories, or paying for your software doesn’t matter. What matters is that you can continue to drive more revenue (and profits) from existing customers. Apple and Amazon both demonstrate how important this metric is. The larger the number, the stronger the business.

4. Profits
   In hardware profits ultimately drive everything. Not only are they important for raising working capital, but they allow you to properly re-invest in the business. A handful of investors will fund losses as you build a massive empire, but most will demand you are profitable as you scale your business.

Conclusion
Picking the right metrics for your hardware startup matters. What you track will shape the decisions you make. Getting these metrics wrong, will leave you with a company you can’t fund.

No longer held hostage by retail, hardware startups can begin measuring their business by the only metric that really matters: their customers.

Image Credit: Louise Docker

Consumer hardware has a very simple business model: People either buy the product or they don’t. And although hardware has a very clear path to market, building a successful minimal viable product (MVP) is anything but obvious.

Thanks to Apple, the bar for consumer hardware is incredibly high. Even though you are a startup, everyone will compare your product to the phone in their pocket, which means you have to nail the experience right out of the box.

The enthusiastic flood of hardware startups are generally getting into trouble for three reasons.

1. They over promise and under deliver.
   Instead of selling a single feature, they sell everything their product will eventually do. They’re afraid they won’t be loved by customers or investors so they show a series of features they can’t possibly deliver on. The result is long delays, crappy product, or both.
2. They try to mass distribute their MVP.
   The first version is never amazing. Trying to mass distribute a product with average reviews and known quality issues is a fast path to irrelevancy.
3. They are too slow with version two.
   An MVP is supposed to be replaced quickly with a refined second version. Instead these startups spend so much time on everything else (customer support, distribution, brand awareness, raising capital, etc) they can’t iterate fast enough on their product.

Here is a short guide to help you build a hardware MVP that doesn’t suck.

Talk To People
In hardware you get one chance to solve the right problem. Even if you deeply understand the problem, it’s important to validate that others have the same struggles.

Customer interviews can be an informal process, but the key to them is to understand how people solve the problem today, why they chose the product they did, and what frustrates them. The goal is to gather customer insights by asking them questions and watching them use existing products.

If I was building an action video camera my interviews would go something like this…

Q: How do you capture action video today?
The goal of the question is to understand who is capturing action video and with what products.

Q: If no, why not?
Every time you hear a no, you want to understand why. You will either learn a series of problems you can solve or you will learn that your problem doesn’t exist.

Q: If yes, why are you capturing action video?
The goal is to understand the real reason they even record action video. This motivation is super important and will be the basis of your customer experience.

Q: Can you walk me through the experience you take from capture to share?
Ideally you watch people use the product from beginning to end, asking them why they took each action. If you can’t watch people, you can change this question to asking what frustrates them from capture to share.

If you skip this step you will create a product that either slightly misunderstands the customer or even worse, solves a problem they don’t actually have.

Map Out The Entire Customer Journey
Hardware is considerably harder than software because the problem is totally unconstrained. Starting with the customer need you have to first imagine a device that doesn’t exist today and then create software to make that device useful. To do this right, you have to understand all the customer problems from the beginning to the end of the experience.

A standard tool used in user experience research, a customer journey maps out the key interactions before, during, and after. Listing these key interactions at the top of the chart, you then brainstorm multiple ways to solve each problem, from easy to hard. Once everything is on the board you begin to draw a line from left to right, demonstrating what level of solution you will provide in your MVP for each core problem.

If done properly, a robust customer journey will provide you with a series of problems you can solve over time.

Only Ship the Core Need
Cash and time are your biggest constraints in building hardware. Cash enables you to hire large teams to make hard problems look easy, while time enables you to be patient as you craft and re-craft the experience.

Unless you can raise millions before you launch, your only option is to start driving cash by selling your product. Being forced to get to market quickly is a fantastic constraint that requires you to only solve THE most important customer problem.

To help you do this, you can borrow Maslow’s hierarchy of needs to refine your customer journey to what the product has to do really, really well. The bottom of the triangle represents THE basic (core) customer need. Any product you ship that misses the core need will result in poor reviews.

At Contour the core need was to capture action video, which meant the product had to be robust, easy to use, and capture amazing video. Except our first version wasn’t anything like you see today. It wasn’t even a stand-alone camera. Instead we combined a CMOS security lens, battery pack, and AV cable to create an accessory lens that plugged into your existing video camera. Sold for $250 we quickly built a $400K business doing one thing: Turning your camcorder into an action camera.

Even our competitor started small. The first GoPro cameras strapped to a person’s wrist and only captured pictures of the ride. But it didn’t stop them from selling thousands of cameras long before they could capture HD, and millions before they could even connect to a mobile phone.

Driving positive cash flow as quickly as possible is incredibly important because with that cash you can re-invest in the product to make it better. If we hadn’t created a $400K accessory lens business, we never could have paid a firm to design the iconic Contour product you see today.

Build On Your Foundation
Once you launch your MVP you should iterate quickly to introduce your next version within 12-14 months. It doesn’t mean version two should add a bunch of new features. More importantly it should perfect the features you already shipped, making the product robust enough for millions of customers.

Nest is a great example. Even though they raised significant amount of capital they were diligent about introducing version one, iterating quickly on the software, and introducing version two within 12 months. They could have added a lot of new features, but they didn’t. Instead version two did exactly what version one did, just better.

No matter the device, it takes a lot of work to bring the whole system (engineering, design, testing, packaging, supply chain, certifications, documentation, logistics, etc.) together into a product ready for mass consumer adoption. Starting basic and adding one feature at a time, is incredibly important.

• Fitbit started with a single pedometer that wasn’t wireless and didn’t have subscription revenue.
• The iPhone began as the iPod with up/down/left/right buttons.
• Skullcandy started with black headphones that didn’t have color until the supplier accidentally shipped the company a set of red headphones.
• The Kindle was first an e-reader that every editor blasted because it didn’t have a color screen, couldn’t browse the internet, and wasn’t a tablet.

Don’t be afraid to break up the system and ship one piece at a time. Despite being a hardware startup, the guys at SoundFocus launched their software first as a stand-alone mobile app. And now with thousands of customer downloads they are ready to take the next step, introducing hardware that makes their software better.

Just remember, every new feature multiples the level of complexity so think hard about what comes second, third, and fourth in your product.

Conclusion
A Minimal Viable Hardware Product is not about searching for a business model, smearing features on the wall until people buy the product, or promising something you can’t execute.

A true hardware MVP is about quickly delivering a simple, but amazing product that customers will pay for.

Because driving positive cash flow is the most important ingredient to making your product better.

Image Credit: Eigenes Bild via Creative Commons

Startups are about choices. Lots of choices. From small to big, short to long, cheap to expensive, these interlinking series of choices shape your journey and ultimately your level of success. But within the thousands of choices you will make along the way, there is one that is bigger than all the rest.

What is your company going to be the best in the world at?

I’m not just talking about what differentiates you in the market. I’m talking about THE one area in which you are going to deliver better than any company on the planet.

Amazon’s choice: to deliver the best customer service in the world. That’s bigger than e-commerce, marketplaces, cloud storage, grocery delivery, reading devices, or the dozens of billion-dollar businesses they have created. They have organized their people, resources, values, and decisions around how to deliver the best customer service, period.

At Contour we weren’t the best in the world at anything. We designed thoughtful, easy-to-use products, but they weren’t heads and shoulders above everyone else. We sold through every kind of retailer, but profitably building channels wasn’t our differentiator. We created a solid brand, but not a marketing machine of dominance. We supported our customers, but the experience didn’t leave them ecstatic with joy. We did a lot of things right, but unfortunately nothing world changing.

Instead we lost to a company that created one of the best marketing vehicles anyone has ever seen. A content generating machine that is bigger and more successful than nearly every brand on the planet.

So how do you decide what your company will be the best in the world at?

Understand the Lifecycle
Ideally a magnitude better than what currently exists in the market, most startups begin with a clear advantage in their product. Resulting in early customer traction and outside capital, these startups move from an idea to a company.

But in order to scale, these companies begin to invest in areas other than their core competencies. Spending valuable resources on people, systems, distribution, and customer acquisition, they begin to dilute themselves. Adding more capital, board members, and expectations along the way, these companies leverage their initial differentiator to feed the never-ending growth machine.

No longer owning a world dominating strength, they do a lot of things, well.

• Microsoft’s dominance in operating systems has resulted in cash they now have to spend just to stay relevant.
• InCase’s design focus turned into cheap product that maximized investor margins.
• Monster’s product engine has been replaced with a channel marketing machine that Beats abused to own the headphone market.
• Facebook’s existence is being challenged by a collection of vertical apps, while it tries to build walls around its one billion users.
• Cisco’s dominate networking products are being eaten by the cloud and a culture that isn’t scaling.

Being consistent about the unique value you bring to the world is hard, especially as the pressure to grow distracts your valuable resources.

Be Committed to One Thing
Entrepreneurs love to build, which means we generally fall into three traps. First we think our time is unlimited. It’s not. Second we treat one incremental objective on the list as equal to the next. It isn’t. Third we think growth is the true metric of success. Guess again.

What we often forget to realize is that every choice has a cost. Whether it’s mind share, cash, or energy, everything added to the list is a multiplier, not an addition. Especially as we learn how to grow from being a founder to a CEO, we have to replace our intuition of doing with thinking.

When Steve Jobs returned to Apple he made it very clear that their world-dominating strength was to deliver the best portable and desktop products in the world for both consumers and professionals. Drawing his famous diagram on the wall, he made it clear that the company was going to focus on a single solution in each quadrant, delivering a product experience that would forever be better than any company in the world. He did that.

IBM on the other hand, has survived 100 years because along they way learned how to shift their core competency. Even in the face of $8.1 billion in annual losses, they were able to pivot from making the best technology to creating a service organization, integrating existing solutions. Changing their focus from hardware to people, they have spent the past 20 years re-learning their focus.

Picking your superhuman strength is much deeper than identifying the technology or features in your product. It requires you to think hard about the DNA of your company and what competencies you want to build into your history from day 1.

• If you want to continue delivering the best products, then what do you need to be amazing?
• If you want the best customer service in the world, what does it require?
• If you want the best engineering in the world, then how do you accomplish this?
• If you want to create the most efficient distribution channels, then what should you constantly be investing in?

When you select the strength at which you want to dominate, you have to be maniacally focused on being the best in the world. As you constantly re-think your own experience, you have to resist all temptation to indulge in the team’s growing list of additional needs.

Even if your superhuman strength shifts over time, that’s ok. As long as you are clear about why and consistent about where you invest, you can develop core competencies that keep you dominating for a very long time.

Focus The Rest
An important element of defining what you will do better than anyone else, is deciding what you aren’t going to do. It doesn’t mean you can ignore key functions required to make your business sustainable. It just means you’re going to be incredibly selective about what areas you gain competency. Just because you can hire someone to execute a new function, doesn’t mean you should.

Beats headphones is a fantastic example. Focused on brand, they partnered with Monster, whose expertise in manufacturing and retail was the perfect complement. It would have been easy for Beats to spend countless cycles finding their own supplier, building retail distribution, learning how to execute in store, etc. But they didn’t. Instead they found a partner who overnight enabled them to blow past Skullcandy, Sony, Phillips, and every headphone maker in between.

Nixon watches, a $400M company that few in Silicon Valley have ever paid attention to, sold their business early on to Billabong. This enabled the founders to focus on their brand and product offering as the company leveraged Billabong’s capital and reach to scale their business. Eventually buying the company back, Nixon took a unique path to market.

Several successful software startups have followed a similar journey. Instagram relied on Facebook for distribution. Pandora built their customers on the back of Apple. Twitter accelerated their growth with a robust developer network. Kickstarter created a network effect with every project shared on its platform. Amazon’s marketplace encouraged 3rd party sellers to promote the platform, driving more customers back to Amazon.

Being the best in the world at product, distribution, marketing, systems, and service isn’t possible. But deciding what you don’t invest in enables you to preserve the few resources you have to be remembered for one thing.

Conclusion
Resisting the temptation to build is hard. I meet plenty of entrepreneurs who think they need to hire someone to solve their problem. I understand, because I tried to solve my problems at Contour the same way. I hired people.

Without a clear understanding of what we were going to be the best in the world at, we did a little bit of everything. Solving our problems by doing instead of thinking, we built a nice company that didn’t survive the marketing domination of our competitor.

Be incredibly amazing at one thing and the rest will work itself out.

*Image Credit: via Wikimedia

“Your Life is Going to Change.”

A piece of advice I heard over and over before our son was born, it became an amazing reality when I held his fragile body in my arms. An experience you can never prepare yourself for, his arrival instantly put life into perspective.

The past few days have been more incredible, emotional, and inspiring than I ever imagined. Watching the woman I love, give everything she had to our family, is something I can never pay back. The complete vulnerability of a new born is the purest form of honesty. While the undeniable connection the three of us feel, is like we were meant to be together.

One of the greatest experiences in my life, I am quickly realizing how being a father is going to make me a much better entrepreneur.

More Empathetic
I have never been very good at empathy. I understand it, I have read lots about it, and I have consciously worked at it. But it wasn’t until Tiago was born that I fully started living it.

Because a new born relies on you for everything, it leaves you with no choice but to put their needs first, everything else second. Even more important than taking care of their needs is predicting them. Trying to be one step in front I’m realizing how much energy it takes to constantly think about their needs before my own.

What has always made empathizing so hard is it goes against our natural intuition, which is to think about ourselves first. Especially as an entrepreneur we spend so many hours defending our companies, that we often fail at accepting another perspective. A bad habit I hope fatherhood helps me break.

Learning to surrender myself is an important requirement to creating amazing customers experiences and a thoughtful culture.

Limited Time
Unlimited time is an approach I took at Contour. Believing I could out work everyone, my actions told the company that I believed in quantity over quality. While not having kids of my own I had no understanding as to why people had to go home at 5pm, turn off their phones, and take care of their kids.

Now I understand.

Arriving with no set schedule, a new born is the ultimate priority reminder. Creating an unmovable time constraint, his existence is forcing me to be incredibly selective about what is important.

No longer able to approach entrepreneurship with an “unlimited” view, I will have to get very good at delivering high quality work in short bursts of time.

Not Taking it For Granted
Watching a new born learn the world is unforgettable. Experiencing sights and sounds for the first time, they quickly try to register what they mean and how to react. While their naked vulnerability reminds you just how precious these moments are.

It’s easy to take life for granted.

Focused on the end result, we forget that entrepreneurship is a choice. Not forced upon us by anyone, we are choosing to spend time on our company, to travel ridiculous hours, and to accept investor expectations. A choice that requires us to create our own existence in place of taking a regular job.

I made a lot of these choices at Contour. Prioritizing the company over everything else, I spent my twenties behind a laptop. Working six days a week I didn’t realize, until it was over, that I missed most of the ride. A mistake that fatherhood won’t let me repeat.

No comparison to the importance of family, I look forward to fatherhood making me a better entrepreneur.