Four Steps to the Epiphany: the Moby Dick of start-up books

Image: Front Cover; Source: Amazon

If your experience of Moby Dick was that you were constantly aware that you were reading one of the best books of all time that was opening your mind to new ideas if only you could keep your eyes open, you understand.  Four Steps to the Epiphany is the great white whale of start-up books for a reason.  Although it is not nearly as easy to read as his disciple Eric Ries’s more famous book, The Lean Start-up, it is much more systematic.  This books has some profound insights about understanding why some start-ups can do it one way and others need to do it completely opposite.

Instead of abstracting and generalizing the insights, Blank focuses on the issues of managing under extreme uncertainty in their native context.  He tackles every aspect of the non-engineering side of the business.  Most of the book is about how to systematically eliminate the market risk for your product, this will be somewhat familiar to you if you’ve read the Lean Start-up.  However, seeing the original idea and seeing it laid out in full detail, in the context it originally sprang from adds a lot of richness and practicality to the idea.  Blank devotes a good deal of time to understanding how to make technology push and market pull work together.  He covers when to go for broke spending money to enter a market and when to hold back and let the customers come to you.  Most importantly, this comes with some practical steps to discover when to do each.  He even covers how to start converting to mature company once you’ve almost made it.

Much like Melville, Steve Blank will say something really profound and insightful, then launch into a description of whaling–er, uh–start-up processes that are needed to implement that idea.  This can make the book a tough slog, because reading a process description around bed time can definitely have soporific effect.  However, this tough slog is absolutely worth it if your a practitioner in the world of technology start-ups.  You can’t hand it to your cousin that works at a big company and expect him to read it.  This is meant for the start-up community.  If you are a start-up practitioner, get this book and make yourself read it.   You will not be disappointed.  I expect my copy to become much more dog-eared than it already is before it gets confiscated for some future company museum.

So how does this relate to robotics…

Reading this book will further persuade you that many if not most management teams of robotics companies don’t have a clue.  You’ll even be able to look at robotics success stories and realize–wow–compared to software our industry’s state of management practice is pretty dismal.  Many successful robotics companies just fell bass-ackwards into their success.  Many were product driven companies to a fault that were able to expensively keep trying until they finally hit a success.  This is not the same thing as systematically eliminating and consciously balancing market versus technical risk to produce the greatest chance of creating successful business that uses robotic technology to make money and make the world a better place.

We’ve got a long way to go as an industry.  Luckily, now that we know that there’s nothing inherently ‘capital intensive’ about the robotics industry we can start addressing why we have so often screwed it up before.

Newsflash: Business School Professors Wrong, Delaware is Not Always the Answer

I’m working on incorporating a start-up and I discovered something very interesting, Delaware is NOT necessarily the best place for initial incorporation of your start-up.   If you are profitable, public corporation, Delaware is almost a no brainer.  However, there is no tax liability associated with moving to Delaware and most start-ups are not profitable or public.

Being incorporated in Delaware adds complexity and several fees and expenses that you might not incur when incorporating in your home state.  Especially if your state follows the model corporation act, you might consider incorporating there.  If you are not profitable, the corporate income tax rate of your state is irrelevant, you save a bunch of fees, the complexity of having registered agents, and having to qualify as a foreign corporation in your state.

The advantages of being in Delaware are in legal provisions that only apply once you have many classes of stock, the taxes on profits once you have them, and the power of officers and directors, particularly once the corporation is public.  None of these matter if you are pre-seed stage and may not matter at all until an IPO.  If the VCs demand that you be a Delaware corporation, okay, no big deal it can get done in less time than it will take them to finish their paperwork, but in the meantime, you’ve saved some money and most importantly some headaches of dealing with a state that is constantly trying to put its hand in your pocket.

I had been told by several entrepreneurship professors that Delaware is the only choice for incorporation of a start-up.   I was surprised to learn that this is not necessarily the case.  Others seem to think so as well.  Pass it on and consult with your counsel to  make a decision that is right for your circumstances.

Hizook 2011 Notes

Be on the look out for a forthcoming analysis of the Hizook 2011 VC in Robotic List on Hizook about the funds that invest in robotics.   I’m publishing my research notes here so they don’t foul up the article.  Most of this was sourced from company websites, CrunchBase, local media, or whatever I could find using Google with my limited attention span, I think I even remembered to cite a few as I was making this.

The only thing I’d really like to call your attention to, dear reader, is the complete lack of transparency in the private markets.  You’ll see that there are places I could find a round, or an amount, or fund but nothing else.  A lot of the poor citation is me trying to find a better source.  Private transactions have no organized data so if this can be the faintest candle for finding funding for robotics, then I’ve done my job.

As always, I’d love feedback.  I’m hungry for data!

What cluster does a company with HQ in Boston but more offices in Silicon Valley belong to?

I’ve got more comprehensive data on public robotics companies due to some updates suggested over at hizook.  However, I’m at a loss as to how to classify Brooks Automation and Cognex.  They both make automation components for various kinds of industrial applications and they both have corporate HQ outside of Boston with two offices each (probably the legacy of acquisitions) in Silicon Valley.

At a loss as to how to classify them, I’ve made a new category for them on my charts.  If you have thoughts about how to get good acquisition data–especially as a lot robotics companies can be acquired in a transaction that is ‘immaterial’ to a 10-K/Q for public company–I’d love to hear them.

And here is the raw data.  Not all market caps were taken on the same day.

East Coast Chauvinism in Robotics: Time to Face Facts, Silicon Valley is Kicking Our Ass

A cleaned-up version of this article became my first post on Hizook.  http://www.hizook.com/blog/2012/06/25/east-coast-chauvinism-robotics-time-face-facts-silicon-valley-kicking-our-butt#comment-971

_______

I have lots of love for Pittsburgh in particular, but it really pisses me off when people on the East Coast repeat a bunch of falsehoods (See #8) about how Boston and Pittsburgh compare to Silicon Valley and the rest of the world.  Many people in Pittsburgh and Boston—including people I call friends and mentors—smugly think that the MIT and CMU centered robotics clusters are leading the world in robotics.  This is demonstrably false.

If leadership in robotics means forming companies, making money, or employing people, then Silicon Valley is crushing everyone—no matter what the Wall Street Journal editorial page says about their business climate.  I’ve previously published an analysis of the Hizook 2011 VC Funding in Robotics data that shows that the Valley gets 49% of total VC robotics investment worldwide.

I’d now like to add an analysis of U.S. public companies (see bottom of the page).  Basically, the ‘Pittsburgh and Boston are the center of the robotics world’ story is even more ridiculous if you look at where public robotics companies are located.  Silicon Valley is crushing the other clusters in the U.S. at creating value in robotics and in building a robotics workforce in public companies.  (A forthcoming analysis will show that this true worldwide and if you include robotics divisions of public companies not principally engaged in robotics such as Boeing and Textron.)

77% of the workforce at public robotics pure plays is in Silicon Valley companies.  An astounding 93% of the market capitalization is headquartered in Silicon Valley and even if you exclude Intuitive Surgical (NASDAQ:ISRG) as an outlier, the Silicon Valley cluster still has twice as much market capitalization as Boston.

The public companies that I deemed to meet the criteria of being principally engaged in robotics, that they had to make and sell a robot, and not have substantial value creating revenues from businesses not related to robotics are listed in the table below.

The one company that I believe might be controversial for being excluded from this list is Cognex (NASDAQ:CGNX).  However, while trying to do decide on whether to include them, I found their list of locations.  They have three locations in California including two in Silicon Valley.  That means that this ‘Boston’ company has more offices in Silicon Valley than in Boston.  I’m not an advanced (or motivated) enough analyst to find out what the exact employee breakdown is, but combined with the fact that they make vision systems and supply components rather than robots, I elected to exclude them. I acknowledge that a similar case could be made about Adept (NASDAQ:ADEP) that just made a New Hampshire acquisition, but I have decided to include them and count them towards Silicon Valley.   I do not believe that either of these decisions, substantively impact my finding that Silicon Valley is the leading cluster when it comes to public company workforce and value creation.

I’m hoping the people who are spreading the misinformation that Silicon Valley has to catch-up to Boston and Pittsburgh will publish corrections.  I believe that this is important, particularly because I want to see Pittsburgh reclaim its early lead in robotics.  So many robotic inventions can trace their heritage back to Pittsburgh, it is a real shame that Pittsburgh has not used this strength to create the kind of robotics business ecosystem that one would hope.

It is impossible for communities to take appropriate action if they do not understand where they stand.  I hope that this new data will inspire the Pittsburgh community to come together and address the challenges of culture, customer access, and capital availability that have been inhibiting the growth of Pittsburgh’s robotic ecosystem before they lose too many more aspiring young entrepreneurs—such as me—to the siren song of California.

Company (1) Ticker Employees (2) Market Cap $M (3) % of Employees % of Market Cap Robotics Cluster
Accuray NASDAQ:ARAY

                   1,100

  463

20%

2%

SV
Adept NASDAQ:ADEP

                       183

43

3%

0%

SV
Aerovironment NASDAQ:AVAV

                       768

  577

14%

2%

SV
Hansen NASDAQ:HNSN

                       174

 135

3%

1%

SV
Intuitive Surgical NASDAQ:ISRG

                   1,924

  21,840

36%

88%

SV
iRobot NASDAQ:IRBT

                       619

  606

12%

2%

BOS
MAKO Surgical NASDAQ:MAKO

                       429

  1,110

8%

4%

Other
Stereotaxis Inc. NASDAQ:STXS

                       171

 13

3%

0%

Other
Total

                   5,368

24,787

100%

100%

(1) Companies are U.S. public companies that have been identified by Frank Tobe’s or my own research as principally engaged in robotics
(2) Employee Count as of Last 10-K Filing
(3) Market Capitalization as of 6/24/2012

Who are the top 20 academic roboticists?

In trying to compare the clusters, one of the most important and difficult to measure factors is the quality of the academic pipeline in each of the three clusters.  I thought about looking at patent filings, but that seems too hard and not truly indicative enough of what we are trying to measure.

A single lab, without a single patent could potentially blow the doors off company formation and economic impact in robotics.  I’d like to propose a different measure, the top 20 (or some other number) roboticists in academia… then lets see where they are and where their knowledge is creating value.  On the Pareto principle, we expect most of the useful output to be from the top researchers.  Also, I’d like to call attention to the fact that I don’t have criteria for what makes a researcher “top.”  I promise it is less trying to curry influence than the RB50, but I fully admit to not having the full insight especially into Boston, Japan, and Switzerland.

So here’s the start of my list in no particular order with blatant bias towards CMU:

Sebastian Thrun; Stanford; http://robots.stanford.edu/ Corporate Work and Spinouts: Google Car, Google Glass, Udacity

Red Whittaker; CMU; http://www.ri.cmu.edu/person.html?person_id=339 Spinouts: Red Zone Robotics, Astrobotics

Rodney Brooks; MIT; http://people.csail.mit.edu/brooks/index.html Spinouts: iRobot, Heartland Robotics

Henrik Christensen; Georgia Tech; http://www.hichristensen.net/ Non-spinout: National Robotics Initiative

Homayoon Kazerooni;  UC Berkeley; http://www.me.berkeley.edu/faculty/kazerooni/ Spinouts: Ekso Bionics (Formerly Berkeley Bionics)

Rich Mahoney; SRI; http://www.sri.com/news/expertsources/mahoney.html License Arrangements: Intuitive Surgical, others

Sanjiv Singh; CMU; http://www.ri.cmu.edu/person.html?person_id=290; Spinouts: Sensible Machines

Hagen Schempf; CMU; http://www.ri.cmu.edu/person.html?person_id=267; Spinouts: Automatika (Acquired by QinetiQ-North America)

Howie Choset; CMU; http://www.ri.cmu.edu/person.html?person_id=47; Spinouts: Medorobotics

Behrokh Khoshnevis; USC; http://www-bcf.usc.edu/~khoshnev/; Spinouts: Contour Crafting

Incubation in the Clusters

Once again, Silicon Valley is showing the rest of us how its done (see “Incubation” for the data).  Robotics only feels like it is poorly incubated in the Valley, because it doesn’t have incubators with multiple branches in the Valley like biotech and software do.  At least traffic sucks so bad in the Valley that when robotics gets going in the Valley it will need multi-branch robotics incubators just so people won’t have to drive.

All jealousy of California’s good fortune aside, robotics businesses are hard to start.  Not only do they have all the complexities of a software business (with a much more challenging test cycle), but they also have other parts that are equally challenging.  They are a hardware business, a manufacturer, and often a distribution or operations company as well.  I don’t see too many 22 year old college drop-outs running manufacturing and distribution businesses–they are too complex and require too much capital to just let them fail like a VC can do with a mobile app company.  Hence these kinds of companies are run by people who know what they are doing.  How do we create more entrepreneurs who ‘know what they are doing?’

For robotics to take off, we are going to have to find models that produce profitable companies with much less wasted capital than software venture capital does.  Incubation and mentorship are probably going to be really key to making this happen–good job to the Bay Area for getting on this.  If community leaders want to lay the foundation for something really extraordinary in their community, get a robotics incubator going in your community.