The blogs of Chris Gammell and Silicon Farmer were going back and forth on the issues of starting a small tech company back in the 1950′s as compared to now. Having been down the path with success and crash and burns a few times, plus an era as a chief engineer of a small contract manufacturer, I think I can see both sides. A buddy started a radio company back in the 30′s… I’ll throw some of that in there as well.
1. Startup costs
On the plus side
Startup costs are not necessarily that bad… a local contract manufacturer has 3 pick and place machines w xray equipment running 8+ hours a day in his barn with 2 employees. Granted, such is not state of the art by any means, but mid 90′s equipment is more than adequate for many jobs, and its often available for microcents on the dollar. Granted, service expertise, and the ability to have, or to fab your own replacement components is a must.
Also, component stuffing whether through hole or SMT via contract manufacturing is everywhere here in the Midwest, and likewise throughout much of the US. Its a similar deal with injection molding, metal stamping/forming, die casting, composites all within a 40 minute drive of my location. Vertical integration only pays if capital equipment and expertise can be found at a real bargain… but in my buddies case, the 1930′s, vertical integration was really his only option.
Inventory is and has always been a real pain, even more so today where JIT is the focus, and most mainline disty’s carry a minimal amount of inventory. All it takes is an entity that is running 500K/year to jump up 20%, and all disty stock is now pulled to support them. Of course, if you bug enough factory people you can get a handle on the sales mix, and how much of a risk this really is. One could also choose to work with a smaller more localized disty, they are out there. In the 1930′s, manufacturers were going out of business left and right, components could be bought for a song.
Cashflow is and has always been a problem. On the other hand, one can factor accounts receivable if need be, or ideally get an operating line of credit. The entities that operate on a cash only basis are a rare breed indeed, albeit back in the 30′s cash really was king. Also as others mentioned, you don’t open the door and ship 50K units a year… 1K or even a hundred is often more realistic. There are thousands of companies shipping 1K-10K a year and doing quite well at it.
Another thing to consider, is many contract manufacturers offer to take on inventory and cash flow risk (but you will pay / risk a significant amount to do so). Also, if the idea is too out there, and/or you dont have some decent sales growth over time, this option is likely off the table.
Having caught the very tail end of vacuum tube manufacturing… you haven’t had fun until you deal with a gear and cam driven vacuum tube glass envelope welder. Sure it wasn’t as expensive as a fab, but the skill level of techs needed to keep it happy was another matter indeed. Things pretty much had to be vertically integrated, and people had to learn on the job… labor was inexpensive, but training was a long term and huge investment. On the other hand, to build one of those machines today, while easier due to CNC gear would be anything but inexpensive.
Today, as contrasted with years ago, there are any number of fabs that will produce silicon to spec. I dont know how many times we had contract wafer runs of just one or two during a process development project a few years back. Yes, it is expensive.. but if you can live with an older process/lower yields, its not bad at all.
On the downside
Regulatory barriers are massive… if you dont have Osha, the EPA, or the FDA to deal with, you have local zoning. Egads, just to comply with NFPA 70e is a hassle for EE’s who understand it 10000 times more than your insurance company.
2. Offshore competition
On the upside
The distribution chain is vastly shorter. You can respond to customer requests or fubars with ease. You can run small batches, and catch errors early on. Far too many bet the farm on lucrative off shore deals,only to have a seemingly minor ECO put them under when a 6 month supply of inventory shows up and it requires near 100% rework or in other cases is not even salvageable.
On the downside
This can be a problem, not that it exists, as often offshore vs onshore direct costs are near identical, but that onshore capital cannot compete with foreign govt subsidized offshore capital. Throw in the tax advantages of offshore manufacturing, and the corresponding tax disadvantages of having manufacturing on shore, and its really demoralizing.
I would say funding is near the same issue as it was back when. Its an apples and oranges deal to compare a single audio oscillator offering with an entire product line. The bigger costs today are not in the engineering and manufacturing sector as they are in marketing… but the online world is making inroads in that arena.
Considering they were starting out at near zero, ie their was nothing else even close on the market coming out of a garage they had to be fighting complexity at every turn that the big firms already had a handle on. Consider that a sophomore at college today could design a product with a 50000 gate FPGA in their dorm, I think its more apples and oranges deal than a huge barrier. In addition, I think we’ve been conditioned to think of innovation as evolution, rather than breakthrough when it comes to process issues.
5. Mega Corporations
Then as now they are for the most part non-issues, until you have significant visibility. And once you have significant visibility, you can afford the legal team to deal with them. On the other hand, there are lots of squabbles of $5M firms trying to dick with other $5M firms, all the while both sides lawyers get rich.
The big deal is anti-competitive regulations which protect the mega corp and kill off startups (unless they have huge pockets to either work around or buy their way out of them). Case in point, it takes a full team of people just to deal with the FDA paper work when in the medical arena (short of pre-1976 grandfathering). While not as bad, the FCC and CE headaches are a huge expense before one even gets rolling, all the while its pretty obvious many FCC and CE compliant products if tested in real life situations would crash and burn. Throw in zoning and shipping restrictions that reach out to a 2032 battery, as well as any and all process chemicals and its a real mess.
Its it easier today… sort of, its more so things are so very different. The big thing imho is to find an arena where regs and such have yet to have a great impact, and for those, the sky literally is the limit.
The biggest thing I think is that todays society is exceedingly risk averse. I dont know how many folks walked away from their business when they were unwilling to bet the farm to to speak. In some cases, such was probably a good call… but in others, far too many promising startups who had products, had a market, and even had sales, just walked away as the risk seemed to high.