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Inside Tony Hsieh's Quiet Plan To Bankroll Hardware Startups

Posted by samzenpus on from the rise-of-the-machines dept.

curtwoodward writes "Tony Hsieh made a fortune turning Zappos into a customer service-obsessed online shoe store. But as an investor, his newest obsession is ... robots? Welcome to the hardware boom, where startups making connected gadgets, smart vehicles, and drones are catching investors' eyes. A combination of cheaper components and crowdfunded pre-orders are behind the surge. But as the woman running Hsieh's hardware investments can tell you, getting those grand plans actually built overseas is the hard part."

40 comments

  1. So why not build them in the US, then? by WilliamGeorge · · Score: 3, Interesting

    "But as the woman running Hsieh's hardware investments can tell you, getting those grand plans actually built overseas is the hard part."

    So lets build them here (the US, for this writer) instead of overseas? Or if someone in Germany comes up with a startup idea, build it there. Why must everything be outsourced? Keep production local with design and management for faster communication, better quality, and better paying jobs in your area!

    --
    William George
    1. Re:So why not build them in the US, then? by mythosaz · · Score: 3, Informative

      Because your job running a corporation nowadays is solely to provide a return to your investors soon, and little else, with little regard for anyone's long-term best interests.

      I hate being all, Coprorations are evil, maaaaaaaaaan, but well...

    2. Re:So why not build them in the US, then? by m00sh · · Score: 1

      "But as the woman running Hsieh's hardware investments can tell you, getting those grand plans actually built overseas is the hard part."

      So lets build them here (the US, for this writer) instead of overseas? Or if someone in Germany comes up with a startup idea, build it there. Why must everything be outsourced? Keep production local with design and management for faster communication, better quality, and better paying jobs in your area!

      It says right in the article:

      “We faced this kind of valley of utter despair that most hardware companies face,” McCabe recalls. “You realize that you can’t make many more products in-house, and you can’t do it in the United States—you have to go overseas.”

      OK, it doesn't say in the article. Someone should elaborate on that "despair of the hardware companies".

    3. Re:So why not build them in the US, then? by WilliamGeorge · · Score: 2

      After reading the article in more depth, the person interviewed apparently just gives up on the idea of making stuff here in the US:

      "You realize that you can’t make many more products in-house, and you can’t do it in the United States—you have to go overseas."

      I would disagree. You may not be able to make or source every little component here in the US, but the overall product certainly could be built here. It would cost more, that is true, but in many cases the benefits will outweigh the costs IMHO.

      --
      William George
    4. Re:So why not build them in the US, then? by Jane+Q.+Public · · Score: 1

      OK, it doesn't say in the article. Someone should elaborate on that "despair of the hardware companies".

      Yes, and particularly this bit about "you can't do it in the United States." That seems a rather outrageous claim to me, especially now that many corporations are moving their manufacturing and production facilities back to the United States.

    5. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      I'd guess the lack of industrial scale robot-building infrastructure, from base materials to high tech components to assembly. You need factories, materials and people and they all have to be ready to take on your new/daring project.

      Unless there is some magical part of the USA that can do this all cheaply and is ready to make it a reality why wouldn't they go elsewhere? Maybe some pioneer can start that industry here but this group doesn't strike me as the empire building type (more the quick profit-making type.)

    6. Re:So why not build them in the US, then? by Ice+Tiger · · Score: 1

      And yet the Rasberry Pi which has enormous cost pressure managed to be manufactured in the UK.

      --
      "Because we are not employing at entry level, offshoring will kill our industry stone dead."
    7. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      [Citation Needed]

    8. Re:So why not build them in the US, then? by i+kan+reed · · Score: 1

      Not jobs, just the facilities. We've got robots!

    9. Re:So why not build them in the US, then? by mythosaz · · Score: 1

      They do this China vs US breakdown every time a new iPhone teardown happens.

      It costs Google about $4 more a unit to make Motorola phones here:
      http://www.forbes.com/sites/timworstall/2013/09/25/if-apple-brought-iphone-manufacturing-to-the-us-it-would-cost-them-4-2-billion/

      ...with Apple, apparently, it's not the $4 a unit that's the biggest deal, it's tax "loopholes" of having those monies all happen in other countries. The $4 extra a unit is only .6B, a paltry $600M.

    10. Re:So why not build them in the US, then? by mlts · · Score: 1

      There is a difference between making stuff cheap, and making stuff good.

      If you want to make it cheap, then China is your go-to place.

      If you want to make quality items, then you have a choice from a lot of countries. The US is one of the best choices for anything robotics, Germany and most of Europe is good for high tolerance manufacturing (high security tumblers for locks), and so on.

    11. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0
      I find it interesting that we can't outsource lawyers, accountants or politicians. Seems to me human beings have been organizing into cities and societies for ten thousand years and I don't see how having someone in Montreal tell me that 2$ + 2$ = 4$ or someone in India is any different.

      Engineers, both hard and soft, are the redheaded stepchild of professions. Our societies have no problems outsourcing technical and engineering work but don't you dare try to reduce costs by getting lawyers from overseas.

    12. Re:So why not build them in the US, then? by boristdog · · Score: 4, Interesting

      I work for a semiconductor factory in the US. We have factories in Japan, China, Taiwan and Malaysia as well.
      Which one actually makes the lowest cost and highest quality parts? The one in the US.

      Yes, the average salaries are far lower in most of the other countries. But their quality is crap and we have to fly our engineers over there to supervise their engineers all the time. Innovations and changes only come from the US factory. The rest are content to do it the way they always have and fight us on making any change. It's a cultural thing, really.

      If we had been as resistant to change here in the US we would have closed down a decade ago and all our manufacturing would be overseas. But we're pretty dynamic and we change the way we do things fairly regularly to stay efficient.

    13. Re:So why not build them in the US, then? by TubeSteak · · Score: 1

      "Russian Components, American Components, all made in Taiwan!"

      The difference between assembled in the USA and assembled in China is that in China, you can roust several thousand people out of bed at 2 AM and have them start assembling by 3 AM

      I would disagree. You may not be able to make or source every little component here in the US, but the overall product certainly could be built here. It would cost more, that is true, but in many cases the benefits will outweigh the costs IMHO.

      The benefits don't outweigh the costs, or everyone would have moved their manufacturing already.
      China's main benefit is a critical mass of manufacturing that's all in one place.
      They have industrial zones where you can find/spec almost any component you need.

      But, as Chinese wages are increasing, the gap is closing with Central/South American countries like Mexico, which share a US timezone.
      It makes visiting the factory for quality control much easier and you don't have a 2-week lead time for shipping.

      --
      [Fuck Beta]
      o0t!
    14. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      in the American south, semiconductor foundries, silicon refineries, and manufacturing facilities are popping up fast. This is due to lots of cheap power available by the TVA, flat land that prevents smog buildup so environmental concerns are easier to mitigate, a cheap and accessible workforce, cheap land, an already existing transport network by land, sea, and air, and business friendly local governments.

      your bots and iphones are going to be built in dixieland. Your cars and industrial goods already are.

    15. Re:So why not build them in the US, then? by GameMaster · · Score: 1

      From a practical standpoint, it's about liability. All three of those jobs perform duties that society considers important enough that we need to be able to "reach out and touch" them with the legal system (either civil or criminal) if they screw it up badly enough. Foreign nationals are notoriously hard to punish with US laws. This is, of course, ignoring the legal reality that (at least in the case of politicians) the legal system doesn't seem to apply to them much of the time. Right or wrong, most companies don't consider most engineering/programming jobs to be that important. The ones they do consider important enough (nuclear hardware/software design; civil engineering; etc.) don't get outsourced as they require governmental certification and/or much more advanced/anal design process control and experience than is likely to be found while shopping for bargain-basement outsourced talent.

      --

      Rules of Conduct:
      #1 - The DM is always right.
      #2 - If the DM is wrong, see rule #1
    16. Re:So why not build them in the US, then? by jrumney · · Score: 1

      Because while getting them built overseas is hard, getting them built in the US is impossible.

    17. Re:So why not build them in the US, then? by taniwha · · Score: 1

      here's a link to a Sparkfun blog article on the "pit/valley of despair" that small hardware companies face: https://www.sparkfun.com/categories/20

      Basically you make a few things by hand for yourself, and your friends, or you go to China and Manufacture (with a capital "M") there's nothing in between the two that's economical, though I do think that's changing with the arrival of cheap pick and place machines (another fallout from the 3D printer revolution)

    18. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      I thought all that gloopy old stuff will be done with a 3D printer nowadays? I've been assured by some very positive and enthusiastic people that 3D printing will change everything.

    19. Re:So why not build them in the US, then? by 50000BTU_barbecue · · Score: 1
      Your link takes me to a page of PCBs. But I didn't give in to despair, I just searched a bit...

      https://www.sparkfun.com/news/909

      Is this the article?

      --
      Mostly random stuff.
    20. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      I am unemployed and I live in Las Vegas where Tony Hsieh is based. I will gladly assemble robots. I can be downtown with my screwdriver and pliers in 20 minutes.

    21. Re:So why not build them in the US, then? by ebno-10db · · Score: 1

      I do think that's changing with the arrival of cheap pick and place machines (another fallout from the 3D printer revolution)

      Pick-and-place machines were not terribly expensive to begin with, there haven't been any recent big cost reductions, it has little or nothing to do with 3D printing, and pick-and-place machines cost the same here or in China. For many years now even small job shops (fewer than a dozen people) have had their own pick-and-place and reflow equipment.

    22. Re:So why not build them in the US, then? by ebno-10db · · Score: 1

      "You realize that you can’t make many more products in-house, and you can’t do it in the United States—you have to go overseas."

      I would disagree. You may not be able to make or source every little component here in the US, but the overall product certainly could be built here. It would cost more, that is true, but in many cases the benefits will outweigh the costs IMHO.

      Building everything in China is a mindless reflex. These startups are often only looking to make a thousand pieces or so at first. I can tell you from experience that it's not worth making that in China - the headaches, other costs, delays and quality and communication problems vastly outweigh the small cost savings. Just the airfare will kill you. If you're making millions of pieces, it's another story.

      The problem from my experience is that American manufacturers, including small contract manufacturers (which is what you need for a few thousand pieces), have pretty much given up. I'm not sure I blame them, but they don't even try as hard to be competitive as they did in the 80's and 90's. Their attitude is that if you're making more than 10 pieces, and don't have some mandate to make it in the US, then some genius will insist on making it in China anyway, and they're probably right. It's a vicious cycle.

    23. Re:So why not build them in the US, then? by ebno-10db · · Score: 2

      Even as a damnyankee I recognize that the South is part of the US. Actually our position has always been that states can't secede, so despite the late unpleasantness, you never left the union. Language can be a problem, but an English speaker can usually get the hang of it more easily than Mandarin.

      All joking aside, I would love to see more of this stuff built in any part of the US. I pray this is not some overly hopeful perception on your part.

      As for semiconductor foundries though, Dallas and Austin have long been big, North Carolina has some specialty fabs, but what are you referring to?

    24. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0
      EXCUSE ME!? Do you doubt the technological paradise and cornucopian utopia that 3D printing represents????

      Seriously, I am also amazed by the amount of outright baffling 3D fanboyism I've seen lately. "fallout from the 3D printer revolution"? There was a revolution? Fallout? I mean sometimes I think I've shifted into an alternate universe or something.

      But I'm glad I'm not the only one with some sort of grip on reality. Now get ready for your -1 mod for daring to question the 3D printing revolution.

      Sometimes I wonder if I'm too old to work in the tech field. I can't delude myself anymore and I know the actual history of how technology got here. Seems there are plenty of ignorant people who think that the world only started existing 20 years ago and of course all the technology we see is because of 3D printers!

    25. Re:So why not build them in the US, then? by ebno-10db · · Score: 2

      Because while getting them built overseas is hard, getting them built in the US is impossible.

      And on what experience do you make that statement?

    26. Re:So why not build them in the US, then? by ebno-10db · · Score: 1

      in China, you can roust several thousand people out of bed at 2 AM and have them start assembling by 3 AM

      Only if you have Apple's clout. They're not going to do that for some outfit that needs a measly 100k units/month.

      The benefits don't outweigh the costs, or everyone would have moved their manufacturing already.

      That doesn't follow - the costs and benefits depend on a number of factors, including production volume. Not everyone produces in Apple's quantities. Also, you seem to think that businesses always make cold rational calculations, and never follow fads. Nothing could be further from the truth.

      China's main benefit is a critical mass of manufacturing that's all in one place.

      You mean like the US used to? That's the vicious cycle of American stupidity in letting everything be moved to China.

      the gap is closing with Central/South American countries like Mexico, which share a US timezone.
      It makes visiting the factory for quality control much easier and you don't have a 2-week lead time for shipping

      A return to the past - Mexico was the place for much of this manufacturing before the US was stupid enough to ship everything to China. I'd rather see the stuff in Mexico (those trans-Pacific flights are a bitch and it's a lot easier to learn Spanish).

    27. Re:So why not build them in the US, then? by recharged95 · · Score: 1

      Why must everything be outsourced

      Cause that's how they were taught in MBA school.

      Are there other ways? Yes. Do a lot of folks know them? No. Hence, would you take a risk to an alternative business approach (e.g. Zappos doesn;t make anything, just aggregates from the real manufacturers... in Asia)? Hell no.

      It's much like SpaceX keeping manufacturing in the US. Surely they could go overseas, but they did find a way to keep it local.

    28. Re:So why not build them in the US, then? by Grishnakh · · Score: 1

      Except in Mexico, you have to worry about cartels kidnapping your employees or shaking down your factories. Mexico is a failed state; they now have vigilantes who are so sick of the corruption they've taken up arms and seized towns, shooting at both cartels and Federal police and arresting the latter. There is no rule of law in Mexico, and the situation is getting worse. You'd have to be insane to set up a factory there.

    29. Re:So why not build them in the US, then? by Grishnakh · · Score: 1

      From what I've seen, the American contract manufacturers generally have extremely high prices, because they get most of their business from the military sector where they're happy to pay $600 for a toilet seat. If you're not doing military-funded work, it generally is just too expensive to get anything made in America.

    30. Re:So why not build them in the US, then? by Jane+Q.+Public · · Score: 1

      "Not jobs, just the facilities. We've got robots!"

      Either way, it's still "production capacity" which is a boost for the local economy. While more jobs might be desirable, for the overall economy the production capacity is still a good thing.

    31. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      Man you are really trying hard to pose as many different jobs. In this post, you are trying to sound like you are a manager type. In other posts, you have tried to sound like a programmer. Then in other posts, you claimed to be a sysadmin/IT guy.

      I'm guessing the code one is true and the other ones are BS. I'm also guessing that your claim of US being the cheapest is BS (or, at the very least, non-evidenced). Better yields & process control? Most likely. But cheapest? No way.

    32. Re:So why not build them in the US, then? by i+kan+reed · · Score: 1

      I don't know if you've noticed, but "the economy" when taken as a widescale, averaged thing is doing just fine, and has been since at least 2010.

    33. Re:So why not build them in the US, then? by Jane+Q.+Public · · Score: 1

      I don't know if you've noticed, but "the economy" when taken as a widescale, averaged thing is doing just fine, and has been since at least 2010.

      I would have to take issue with that. 0% prime interest plus QE plus huge deficits plus inflation plus low employment doesn't equal "fine".

    34. Re:So why not build them in the US, then? by Anonymous Coward · · Score: 0

      I can see cheapest too. If the US plant is, as described, the master where all process improvements are trialled then the others by definition will lag behind regardless of the skill of the local technicians. There are known issues, particularly in Japanese companies that increase resistance to change. Other East Asian countries have these to some extent too although they are not alone in this. It's part of the business culture that the boss is always right and companies that want to avoid that have to carefully work around the issue of hierarchy. Very few truly succeed and even fewer can translate what works to others even between company divisions.

      What's more, it's well known that in semiconductors yield is mostly dictated by process control and in turn dictates unit cost. Chip making is high-skill, low staff work on the factory floor. Take Fab 32, Intel's 45/22nm fab in Arizona. 1000m2, 1000 workers at two shifts per day, 4 days on 3 off. The equipment cost is over a billion dollars. That's enough to pay 1000 workers at $50k+overheads for a decade before they make up even 1% of the cost of product.

  2. Businesses (and people) I don't get by Anonymous Coward · · Score: 0

    The success of this man's business is obvious; but I have to admit I "dont' get" it or him.

    First, I would never buy shoes online. You've got to try them on in the store. Second, there are a lot of articles out there talking about how you have to be the right kind of person to work at Zappos. Long story short, you have to be a happy-bouncy ball of fun all the time who likes to party with co-workers off the clock. Yuck. Even if the business made no sense, I'd rather have a life.

    The world has room for all kinds of people. There's room for Zappos I suppose... and people like myself who think it's stupid, wouldn't touch it with a 10-foot pole as a customer or investor, and have no desire to work there.

    Live and let live, I guess.

  3. Customer service versus Order Fullfilment by fermion · · Score: 1
    Order fulfillment is where Amazon gets in trouble. Low paid workers. Warehouses that are not air conditioned. Every worker treated like a criminal, having to pass extensive security. Or at least those are the stories.

    And while we want jobs that are not critically dangerous, like mining, or just morally wrong, like selling psychotropics to kids, the jobs that Amazon provides are not considered ethical. I can certainly see the point. Amazon should spend more on wages for workers and providing a comfortable working environment.

    Or they could just use robots, which is what the situation will be like in a generation, if Amazon is still going to exist. Order fullfillment by robots. Pull the truck in, robots unload the truck. Robots pick the products. Robots pack the products. I think that investing in robots makes a lot of sense.

    Investing in customer service also makes a lot of sense. This is where robots and scripts are going to take a long time to take the place of a human. I think that if Google had a call center staffed with customer service agents, they would have much better reputation. I think their Android phone would have been better. But they chose to model themselves on MS. Too good for the peasant end user.

    --
    "She's a scientist and a lesbian. She's not going to let it slide." Orphan Black
  4. Not evil, they're facing senior citizens by Xaedalus · · Score: 1

    If you're a CEO of a moderately-successful medium-to-large publicly traded American company, then your largest shareholders are going to consist of three groups: 1) Momentum-riders, who will jump on your stock -if- it's rising and then dump you the moment you don't hit your quarterly earnings; 2) Long-term angel investors, who will do their best to save your butt every time in the short term because they're in for the long term; and 3) investment groups primarily serving retirement accounts. Of the three, the retirement-based investing groups have the most clout and are the ones pressing for immediate returns these days, because the majority of their clients are boomers hitting retirement age. So when you complain about Wall Street wanting returns now, bear in mind that this is due to the boomer population retiring and wanting their money right away. Those investment companies HAVE to demand gains, as the greatest wealth transfer in recorded history is going on right now. It's not the 99% to the 1% as we like to think; it's the younger generations paying off the Boomers, and it's going on around the world.

    --
    Here's to hot beer, cold women, and Glaswegian kisses for all.
    1. Re:Not evil, they're facing senior citizens by ebno-10db · · Score: 2

      So when you complain about Wall Street wanting returns now, bear in mind that this is due to the boomer population retiring and wanting their money right away.

      Of course, it's the evil boomers! Never before has Wall Street concentrated on short term gains. The 80's and 90's never happened.

      the greatest wealth transfer in recorded history is going on right now. It's not the 99% to the 1% as we like to think; it's the younger generations paying off the Boomers, and it's going on around the world.

      So there's something wrong with retired people cashing in on the investments they made so they could retire? If it's happening on such a vast scale, it should mean there are some great deals for younger generations to invest in. BTW, which cliche is correct, the one that says boomers didn't invest for their retirement, or the one that says them cashing in on those investments they didn't make is a problem?

      P.S. You're falling for the oldest trick in the book - letting your attention from the actual responsible parties be distracted by a convenient "them". After Bacon's Rebellion the colonial authorities helped push the idea of racial conflict. In the rebellion it didn't matter if you were black or white, which made for a dangerously united front. Of course racism is rather passe these days, so you're helping to foster the diversion to a different group to be referred to as "those people".

  5. Robots are the way to go. by Stoutlimb · · Score: 1

    I wish someone would fund my robot invention. The profit in this industry is stupidly crazy for the right design. Alas I don't have the business skills to go along with my technical skills.