Greg Mader: So, how do you tell people what you make? How do you describe what you do to a family member?
Chris Anderson: We make drones.
Greg Mader: How do you feel about the “drone” word? That’s controversial within the community isn’t it?
Chris Anderson: I created a site called DIY Drones, so obviously I’m okay with it. Like many similar words, it starts with military connotations and turns out to be tamed for civilian uses. Remember computers used to be scary, the internet used to be ARPA-Net. There is a long tradition of taking military technology putting it the hands of civilians, and reclaiming the words.
Greg Mader: You mention how you got started building drones in your book “Makers”. Can you tell us a little bit more about how you got started?
Chris Anderson: I started with my children, building Lego Mindstorms robotics kits and I was blown away by what you can do with the parts – my children were getting bored and I was trying to get something that would impress them, that they hadn’t seen before, like a robot.
I thought “what would I like?” So, we built a Lego Autopilot, it kind of almost worked. It did not impress the children, but it impressed the hell out of me. And the rest is history.
Greg Mader: How long did it take you to develop your first autopilot and — and were bumps in the road, or places where you thought, “You know, I need to try different approach.”?
Chris Anderson: I think that every day, you have one of those moments. I had a lot to learn.
It turns out that it was not a very good autopilot, But, it was going from kind of a bad autopilot out of Legos, to platforms we could use, and along the way, learned about embedded computing and physical computing platforms, ending up with what we know now.
Along the way, we learned about embedded computing, and physical computing platforms, ARM processors, sensors, and GPS.
I think every day, it was like, “Oh, yeah it turns out it’s a lot more complicated, that one particular thing is a lot more complicated, I think that’s where I need to switch gears.”
But, you know, the good news is that, it was really easy to switch gears.
The tools were getting better.
When we started, accelerometers were cheap, but gyros were expensive. A couple years later, accelerometers and gyros were both cheap together on the same chip, and the GPS got better and cheaper, processors got faster, and, hey, wait 6 months and this industry will churn out another version, and then you have the next miracle, and, that problem would get easier.
The stuff I was doing was impossible ten years earlier, incredibly difficult five years earlier, by the time I got there it would be easy, and getting easier by the day.
So although we made lots and lots of mistakes, and had to change course all the time, we were able to do it. There were no brick walls.
Greg Mader: How did you figure out your manufacturing process?
Chris Anderson: I’m the wrong person to ask, I’m afraid. Jordi ( Jordi Munoz) really did all of it. I’m up in Berkeley. The reason I quit my job, and came on as CEO is because Jordi kept sending me updates, “Here, we moved into a new space,” or “Look at the new machine.”
Every update was more jaw dropping than the last. Like, “Here’s our book keeper,”. Okay, we have a bookkeeper, and then he telling me, “Here’s our inventory system.” Okay, we have an inventory system, and then “here’s our pick and place machine,” and I ask, “What’s a pick and place machine?” He’s tells me, “I bought it on eBay.”
I think it was the day that he showed me a picture of the forklift that we had, so I thought, “Okay, this is a real company, it’s time to get serious here. I’ve got to quit my job.”
Greg Mader: [laughter],
Chris Anderson: I guess, Jordi was 21 at that time, with a team of other 21 year olds. Maybe it’s just something that 21 year olds just can do. They just have to go on Google, and they ask questions, and they dig around, and they just do stuff. But they got themselves ISO 9001 quality engineering and production, by studying on the Internet.
I stand in awe, because, the average age at the company is less than half my age.
I knew nothing about Mexico, until I met these guys, randomly met Jordi on the internet, and I thought Tijuana was full of drug cartels.
What they’ve opened my eyes to is that this is the future of North American manufacturing with electronics.
That this is where these kind of world class manufacturing skills now exist.
We’ve lost so many people in US manufacturing, but Mexico has only grown them.
What we want to hire somebody that has been working for a world class multinational for 10 years like Samsung or Foxconn? The answer is we’re not going to do that in the United States, we’re going to do it in Tijuana.
So, we have, we’ve learned from our employees, we’ve hired people on the production line who have spent the last 5 years at Samsung. And we ask, “how did you do at Samsung,” and they’re like, “this is how: this goes here, this goes here, this goes here.”
We hire employees, and they keep up. [laughter]
Greg Mader: How did you find the capital to get started? That’s a question, a lot of people have? “I have this idea and I want to make it real but I don’t know how to talk to people about money or what kind of risk I’m willing to take myself.”
Chris Anderson: It didn’t take any money.
Over 3 years, we ended up putting like $50,000. It’s basically credit card.
We started small, we started organic, and we had cash flow on day one. I think we’ve been basically profitable every month of our existence because it’s so easy with hardware.
We have a model to charge 2.6x raw materials cost. A little margin for us and a margin for the retailer, and we grew organically.
The simple answer is that we didn’t raise venture capital until we were three years old at which point – I’m going to round off here – but at that point, we were a business, we were already a large-ish, (well I guess small by global standards) but large for our industry. We were a large, successful company, and we were able to raise venture capital with good valuation.
Had we tried to raise money first, before we had even been in business, we would not have been able to raise as much money or at nearly that valuation.
So the good thing about this kind of business is that it doesn’t take much money, and the money is at Kickstarter rates of money. You can build a manufacturing business for $50,000.
Greg Mader: That’s profound statement. Would it possible for a Maker to go cheaper, if he could send the design abroad and have at least to have an initial run?
Chris Anderson: Oh, absolutely. If you can outsource, you can do it even cheaper but you know the reason that you can build a factory so cheaply now.
Part of this trend are tools like OpenERP. So much of the software is open-source for free. The tools are getting faster and cheaper.
It’s just like everything else in technology, the cost of entry is falling so rapidly, as the internet and innovation model kicks in.
In my book, I talked about that poor story from Flash of Genius from the guy that tried to build an intermittent windshield wiper factory.
And I talked about how you would do it today and, you know, the answer is, you probably would have started a factory initially, you have the ability today, and when it was time to start a factory, it would just be so much cheaper.
The supply chain around them got that much better, the services on the web got that much better, the software that we use got that much better. If it’s hard now, wait 6 months and it’ll be easy.
Greg Mader: If you could go back in time five years ago and talk to yourself at the beginning of this what would you advise yourself to do? Would there be anything you change?
Chris Anderson: I think I probably would have gone even faster. At a certain point, I said, “You know what, I need to focus on one thing and quit my job and run this.” And, the moment I made that decision, it went really quickly, and I realized I probably should have made that decision earlier.
I had to think about 5 kids and a wife, and I had to convince her that it was a good bet as well. If business was ready to be taken to the next level a year earlier, I wasn’t ready, so I blame myself.
Greg Mader: That’s fair. I actually think that’s a problem with every entrepreneur I’ve ever met. It’s easy to talk other people, it’s often harder to believe in yourself and say “this is the moment we got the right solution. Let’s go for it.”
Chris Anderson: Yeah and, you know, I also had to convince my wife.
Greg Mader: In your book, you talk a lot about technology- your company is using ERP, you are using pick and place machines. Do you see the balance using machinery versus people who do assembly?
Chris Anderson: Yeah we talked about that every day. For example, yesterday, we were trying to decide whether to invest in these optical quality checking machines versus people. So, these machines cost like, you know, $60,000 and they optically inspect circuit boards, to see if there are any mistakes.
These machines, when they’re properly set up, they’re very high accuracy, and they have very high throughputs. Their costs go down over time, they can be amortized.
Whereas the people, they’re lower up-front cost, lower accuracy, and are a continuing expense.
And so, we had to model the business out. How many people would it take – here’s people doing the job, versus here’s machines doing the job.
Then, we asked “What do Year 1 costs look like, what do Year 3 costs look like?”
In the end, we decided not to go with the optical quality machines, we decided to go with people, because we were concerned that the machines would be hard to set up, and that, we would actually have to hire at least one person just to run the machine.
That was just yesterday, and we’ll do the same thing today. And we also do an in-source/out-source calculation. You know, injection molding, wire cutting, packing – we are constantly trying to decide if this is our core competence, the place where we can add value, or should we try the job with someone else around us.
For the injection molding, we considered buying our own machine, but then we realized that the capacity of the machine was so high that we would be able to satisfy our entire yearly demand in one week, so the machine would sit idle for 51 weeks of the year. And that was an easy decision, but you know, we go through this every day.
Greg Mader: To switch gear slightly Chris, what’s the worst advice someone gave you as you were building your business?
Chris Anderson: Everyone, I mean, everyone told me that it couldn’t be done and that they were all these regulatory barriers and legal risks. Everyone told me all of these all these reasons starting companies was hard and risky.
I kind of chose to ignore all of them.
Partly because I thought that they didn’t understand our model, and we had actually built a model where we could diminish a lot of that risk.
If you call up a lawyer, and you explain what you want to do, the lawyer will come up with these explanations to death. He will tell you that there’s high risk here, or that they can’t vouch for this, or that the law is unclear on this and you should pay extra for this additional insurance, or whatever.
If you call up people who are focused on risk, they will tell you that what you’re doing is risky – and sometimes you just need to ignore them. Or you need to take that advice and say, “I understand that there’s a probability involved here, I’m willing to take that risk, let’s go for it.”
Greg Mader: I’ve certainly heard all the doom and gloom-sayers, too, over the years. The funny thing is I keep seeing businesses that choose to ignore it and innovate instead and they come up with something amazing or beautiful and — and they did it because they didn’t listen to anybody.
Chris Anderson: Right, take Paypal. If Paypal had gone to a lawyer –( I’m making this up, I have no if they did or not – but I bet you,) if they had gone to a lawyer and said “we want to start this, like, currency, this like, money trading but we don’t want to regulated like a bank, is that okay?”
I’m sure the lawyer would have said, “No, that’s not okay, you need to go through the whole banking process to do what you’re doing. “
But they didn’t, and they’re not regulated like a bank, and as a result they’re labeled to be innovative, banks are not.
And, at the end of the day, it was a gray area, and they chose to innovate in a gray area, and all great innovation happens in a gray area.
If you’re waiting for the answer to become black and white, too late.
Greg Mader: What’s the relationship between your customers and fans and your innovation?
Chris Anderson: We are community driven company so, our customers are the innovators.
We have an open platform which doesn’t just work, but also makes it easy to modify.
Then we have a cultural and licensing process that encourages innovation to come back into the community for the benefit of all.
So that’s what, you know, I mean if there are – we’re the Android in our marketplace, and there are iPhones in our marketplace, and, you know, if you want something that’s closed and polished there’s certainly that in the marketplace. If you want something that’s open and nearly as polished, maybe not quite as much because of the sake of the openness, then that’s what we offer.
We’re a platform, and the great thing about platforms is that they make innovation easy by sort of extracting all the hard stuff and recreating a layer where anybody can add something, add their own ideas, their needs, their passions or whatever it is. There’s a really easy way for people to contribute.
Greg Mader: One last question: Where do you see your product and business being in three to five years?
Chris Anderson: I think the Android example is relevant. Android is something that started, kind of Linux-y, which is to say, very open but hard to use, lack of polish. Eventually gained the polish, but it retained the openness, and beat iOS, beat Apple, for the top spot. That’s our inspiration, if you will.
We’re in that transition phase, we basically have a very functional product and it’s open but without polish, but as it will soon be, so we’re focused on adding that polish. Polish meaning, easy to use, reliability, non-expert.
So that’s the big pivot we’re going through right now, to kind of get that sort of out-of-the-box experience.
In terms of our company size, we’re building an aerospace company. Pretty different kind of aerospace company, we’re a bottoms-up aerospace company, we don’t sell to the government or the military. We don’t carry people, so we don’t go through that regulatory process.
But we think this is the shape of the 21st century aerospace company. We think a 21st century aerospace company looks like a Silicon Valley company, in the same way Tesla, a 21st century car company, looks like a Silicon Valley company. You know, it’s a laptop with wheels, we’re a laptop with wings.
And we think that being able to take the innovation model that worked so well with computers and the internet will apply to aerospace. Aerospace is an exciting opportunity, a disruptive opportunity and I think we’re even pushing through that.