THINGS is a coworking place with a hardware, B2B and industrial focus. Founded in 2015, it is a space where startups and industry meet. THINGS Wall of Fame award is presented each year to an exceptional individual who has built a successful business empire based on pioneering innovative hardware technology.
We had the pleasure of meeting three of our hardware heroes during a fireside chat in October 2018 at THINGS KTH located coworking place! Martin Gren, co-founder of Axis Communication, recipient of the award in 2015, was there in spirit but could not join us this time.
John Elvesjö, Nicolas Hassbjer and Stina Ehrensvärd are recipients of the award in 2016, 2017 and 2018 respectively and all three are inspirational role models within the startup community in Sweden. Their shared breadth and depth of experience set the fireside chat up to be a riveting and insightful evening of different perspectives.
- Stina founded Yubico in 2007 and is still very hands-on operational with building the business.
- John founded Tobii in 2001 and has just given up his executive role to be a member of the board so he can focus on investing in venture capital.
- Nicolas founded HMS founded company in 1988 and after 25 years (21 as CEO/ 4 on the board) he has for some years pursued a non-executive role in currently 8 companies.
A summary of the evening’s discussion is outlined, followed by a detailed article of the fireside chat, which took place with an audience was drawn from our extended community and represented a cross section of Swedish business, industry and government.
1. Startup journey:
“Serendipity moments that just changes everything”.
- Securing the first customers
- Product development
- Hiring hardware talent
2. Retrospective learnings:
“There are several critical occasions where HMS could have failed”.
- Becoming over dependent on a single demanding customer
- Having the wrong owner set up
- Managing investor expectations
3. Future trends:
“I am often struck by how dumb machines are”.
- Internet and device reliability and security
- IoT interoperability
- Intelligent machines concept
- Delivering value to a more demanding user
1. Startup journey:
THINGS is a meeting place for startups and corporates and we try to help our members to secure customers. Has serendipity or strategy a bigger role to play in securing your first customers?
“Serendipity moments that just changes everything”.
Stina described meeting a journalist at a San Francisco trade show, having no customers, partners or investors - a serendipity moment that would lead to a podcast about the “coolest authentication hardware ever!” and set in to motion Yubico’s first customers. A chance encounter perhaps, but it can be argued that Stina had created that chance, in putting herself in the right place at the right time. It was after all, part of Stina’s first business plan to be in California and to make her connections directly in Silicon Valley. Executing it took drive and courage, in her own words, “sometimes you give up or become angry and bitter, but you find that 6th gear and do whatever it takes… You are forced to be creative and focus on who (customer) has the best leverage”.
For Nicolas and HMS, it was the combination of servicing a demanding customer and market access to new potential customers which lead to Yaskawa Robotics: HMS’ biggest customer for over 10 years and at the time the “Google of Robotics”. Similar to Stina securing Google as part of her first business plan, Nicolas realized also the potential volumes for HMS were not 10K, but 100K to each customer after a business trip to Japan: securing the biggest player in a marketplace means you can sell to all the others.
A self-professed tech nerd, John founded Tobii on the back love for the technology and set about a very analytic approach to writing the first business plan by mapping out an adoption curve and analyzing: what customers will be more demanding, who could use and what value, who will pay most, be most forgiving of flaws, limited features set etc. The resultant first business plan was pulled out every year and the adoption curve scrutinized as he first saw it.
THINGS is the leading hardware hub in Sweden. What were the challenges of scaling a hardware product, which is notoriously difficult?
“Difficult in that it’s not just pressing a button and it’s a million users. We actually need to build product, components and sourcing. Months.”
Nicolas illustrated perfectly the virtues of a demanding customer and scaling as it became apparent that HMS needed to develop its own competence in production and quality in order to fulfill the toughest demands. During a 10-year period, HMS grew 50% year per year. Scaling that production is no easy task and without their own production competence, they would not have been able to outsource the volumes to the right subcontractors.
Despite the challenges and maybe because of them, Nicolas built HMS to be a hugely successful business and describes with joy the building of other companies and in particular, hitting that sweet spot of 25-50m SEK revenue when the company is really starting to expand rapidly and internationally. He even jokingly admits that the board room is never as fun as in the management team when a company takes off!
THINGS members range from early stage/seed to A round startups. What is the importance and time frame of product development, continued research and expanded product offering?
“You can end up developing an electronic system forever, so it is important to sell”.
Nicolas shared his philosophy on a 5-year product development cycle. To listen to customers and fine tune the product. The process needs to be repeated in cycles, otherwise you can end up developing an electronic system forever, so it is important to sell and when you have revenues then you can do the next step of bigger innovation.
Stina agreed in terms of needing to focus on what you have, otherwise you have nothing. It’s about finding balance between finessing an existing product and developing a new innovation.
THINGS members and alumni consist of 26 different nationalities. Where is the hardware talent in Sweden and why is it so difficult to find?
“Finding good hardware talent is difficult”
John expands further that hardware is hard and laborious and so is not as sexy compared to software. It involves set up, manufacturing, production and logistics and is the reason why homegrown talent has not been growing. So, he advises that if you are really growing, consider importing talent, hire people and have them more here. It’s possible as Stockholm sufficiently attractive on the startup scene with a fantastic ecosystem thanks to good incubators, startups and unicorns.
Tobii’s Stockholm office consists of 48 nationalities and the R&D team of 350 people is made up of 30 of those nationalities. Stina quipped in support that 60% of staff in Yubico’s Stockholm office is non-Swedish and that it is actually an asset when recruiting good international people.
Nicolas too could not over emphasise the importance of real hardware wizards and pointed out that it is ultimately the hardware engineers who determines the cost of the product. So, the whole future profitability comes down to their ability and how innovative they can be to press down cost. Critically it can also determine the future success of the company to reach the really high-volume applications: “Many startups make a great product, with outstanding software, but they fail because is too expensive and there are no margins for the whole chain.”
2. Retrospective learnings:
THINGS members are keen for concrete tips on how to avoid the pitfalls. Is there a specific past failure that comes to mind and what was the lesson learnt?
“There are several critical occasions where HMS could have failed, but some could be turned into opportunities”.
Nicolas reiterated the importance of having a big demanding customer and all three panelists agreed that revenues from a demanding customer is more important than the amount of venture capital. He did caution however against becoming too dependent that it is critical to search for more customers and sees this problem with companies when they scale as an investor. He cited an example in 1993 where the combination of high interest rates and a customer with a thin balance sheet went bankrupt, almost taking HMS with them.
For John, there were definitely a few moments when everything could have folded for Tobii, but the example which came to mind and which John coaches friends and founders is his experience of having the wrong owner set in a previous company in 2001 - 2002. It was a tough time to be caught with the wrong owners and wrong agreements and to not be able to get out of the situation. The company was eventually sold and the lessons learnt were taken to the next company.
Finally, all three panelists agreed on the importance of managing investor expectations. They should be on the same side, have an aligned agenda and share the same mission and ambition. Of course, investors should challenge and have requirements, however promising more than you are comfortable with and then failing on them can lead to an unhealthy spiral.
3. Future trends:
THINGS hosts a ‘Get On Top Of’ event series currently focused in four areas: LPWAN, Machine Learning, Robotics & Low Power Systems, important technologies that are shaping the future. What current trends will have a significance in the long term?
“A free, open and secure internet will play a vital role in the protection of democracy in modern society”.
This realization came with Yubico’s work with Freedom of the Press Foundation in securing communications and to protect the confidentiality and integrity of information sources. Further collaborations with payment providers, IoT, encryption means Yubico’s code is getting in to the foundation for a future free, open and secure internet for everyone. To be safe, secure and potentially untrackable means the technology can also potentially be misused. So, it will be interesting to see how the area develops and what role Yubico will play.
IoT mega trend: “There is plenty of time to start new IoT companies, the projection of 50 bn devices by 2020 will not develop so quickly”.
Nicolas broke down the IoT megatrend further:
- Concern about interoperability. Closed systems they can’t interact with other systems. No real solutions so interesting areas.
- Many IoT solutions do not currently provide enough value to customer. Where they provide real value to the customer, you get almost addicted to that.
- Device reliability and security. More critical systems being connected and in 5-10 years it will be devices that talk to each other so reliability of systems an issue and security.
Intelligent machines concept: “I am often struck by how dumb machines are”.
Identified by John as a trend that has barely started, is the need of machines to be more intelligent: by knowing unobtrusively and using at a pragmatic level the fundamental answers to who you are, where you are, what you are doing and what you will like to do. This will be the basis of product design going forward and sensors will play a huge role. Like Nicolas, John agrees that there is a gap for new companies with a more demanding user in mind, with the potential to sweep big entrenched companies to the wayside.
Stina Ehrensvärd and her husband started Yubico in 2007 with a vision to make internet security both user-friendly and secure. Yubico has since become a new standard for secure computer log in to computers, mobiles, private networks, and services. Today Yubico has an impressive customer list of the biggest international digital corporates with 120 employees and €50 million revenue forecast for 2018. With a strong vision, healthy stubbornness, innovative technology, and complementary founder skills, Yubico has become the true world leader in user-friendly and secure internet login technology.
Nicolas Hassbjer founded HMS in 1988 as a result of his student project at Halmstad University, with a passion for electronics and embedded software, HMS was an early pioneer of the Internet of Things and is today a world leader in industrial communication. HMS has over the years achieved rapid annual growth to over1 Billion SEK in revenue and 500 employees. With professional management, continuous innovation, and a successful IPO, HMS has developed into a success story within the Internet of things area.
John Elvesjö is an innovator and entrepreneur with a passion for the core technologies of sensors, optics, digital design, and algorithms. Tobii, one of the companies he has founded, is today the global leader in eye tracking. Tobii has pioneered research in many fields and enables communication for tens of thousands of people with special needs. The Tobii group has some 1,100 employees and has achieved rapid annual growth since it was founded in 2001. With professional management, continuous innovation, and a successful IPO, Tobii has developed into a success story.