Startup Sofa: The Hard Talk about Hardware with Jerry Yang

TSS is excited to present the Startup Sofa, a new video blog interview series created for the Taiwan startup ecosystem! In this episode our guest is Jerry Yang, General Partner & Hardware Lead at Hardware Club. A full transcript of the interview can also be found below:

TSS: How do Taiwanese Hardware Startups stack up with their foreign counterparts?

Jerry Yang: In Europe, in the United States, we've seen a majority of founders, actually they're not from the hardware industry. The’vey brought in a very different perspective compared to let's say hardware native founders when they create companies.

Whereas in Taiwan, just by the nature of our history, we have a lot of hardware industry, electronic industry, semi-conductor people, so founders that usually have a hardware background.

I think the major difference there is what I see is that the Taiwanese founders, many of them actually do incremental innovation. This is basically, whatever they were doing in their previous companies, they were not comfortable with and believed it can be done better. As a result, they improved maybe 10-20% more and create a new company, which is not exactly what innovation should be.

Basically, I think quoting something that is kind of cliché, “People think inside the box too much.” So that's the first signature and I'm still looking for entrepreneurs, whatever their background are, basically that could really come up with something that is really outside of the box and try to break through that first wall.

And the second thing is that, because we have a very complete ecosystem here, so you tend to rely on that ecosystem a lot. As a result, when you first set out, whether it’s market development or business development, you tend to rely on the things you are comfortable with, which unfortunately is not big enough.

So if you’re doing hardware businesses, it's sort of like if you're trying to take a small cut of the value chain system inside. If you think about before, we had semi-conductor industry when you design a chip, you're trying to sell to all the OEM companies, but their clients are huge clients. They usually deploy to that.

But now if you are doing an IOT startup, you say I can actually help big companies like Pegatron, or Quanta, improve a certain part of their business but that stops there. It's not a solution that gets them through their clients. So if that's that kind of innovation, then you’re severely limited in terms of the market size even though you are dealing with really world class, really big potential clients.

The same solution might be able to find much wider and more scalable industries elsewhere, but just by the fact that it's easier and more comfortable to get potential clients here. We see founders spending lots of time just going back and forth in Neihu and in Hsinchu and just focusing on that.

They feel that it is low hanging fruit, but actually not it's like. If you are work in Taiwan, you know that most of the companies are not that interested in spending money on things that can help improve the efficiency more or things like this and that.

That's not the nature of Taiwanese companies and as a result, even though they are close to you, it's the same language and they view is hardware, it's not the necessarily best kind if you are doing b2b.

So I think those are the two things that I observed in the past 2 or 3 years after hearing many pitches especially on the b2b side.

Q. You’ve mentioned that two key defenses for hardware startups is “community” and “brand.” How do Taiwanese startups improve these two things?

Jerry Yang: Specifically when I referred to community and branding, I was referring to consumer electronic startups. If you are doing consumer electronics, today luckily we do have a lot of, let’s put it this way, for example, we have a lot of open-source communities. The open-source community like Github or the Raspberry Pi community is very active.

In Taiwan, because we traditionally have very mature development environments, so our engineers tend to stay inside the system. They ask their senior engineers, they ask their colleagues. They think that they didn't need to go to the open-source community which is kind of a shame because that's actually where all the brainstorming and things that build there.

I think that's the first step, whatever you're doing, whether you're doing or software or doing hardware, there are a lot of open-source communities that very big. If you’re doing blockchain, that's by default an open-source community - you have to get in the community to talk to other people.

From there, you will get to know people that are working on the same things as you are and be able to build that thing. Maybe you can leverage something out of it, and build a brand, at least within the developers.

Another thing, if you are going to ask Taiwanese founders to do whatever American young people can do in terms of branding on kickstarter or Indiegogo, I guess it's asking a little bit too much.

I wouldn't dream that growing up in Taiwan, you will be able to execute the marketing campaign as well as a native American.

But on the other hand, we do have the strength where we are all developers and so you can leverage on those sort of developing community, and get to the next step.

Branding, again it’s the same thing with community, where after years I really feel that this is something by nature I think Taiwanese people have a hard time doing.

Most of the problem we see is that - OK, you might have some idea, but then the execution is not there. Execution is like 80% or 60% or 40%. The one thing about branding is that if you’re missing even just 10%, you're not there. The 10% mistake can just wreak havoc.

For example, you could have a very beautiful website, you could have a very beautiful app, you could have a very beautiful package. And then, because the back-end system people are not really engaged or not really motivated to keep it working, and then users, they click on thing and it's broken. Don’t underestimate that it's “Just a web page. My product is awesome.” But that's the overall branding.

It could be a very simple things, like filling out a type form and click submit and nothing happens. User experience is part of the branding, it has to be there. The same thing is like when you open a box and things fall out in the wrong way, and drops on the floor.

Another simple mistake is if you are doing branding and you are selling consumer electronic products - we see that kind of mistakes in American founders as well - they ship to UK and they give you an American plug. “It's nothing, just buy an adapter,” but that's not the point. The point is these are your consumers, you have to really care about them.

That kind of things can be avoided with extra care, if they’re not taken care of, you can do 95% good job and 5% bad job and it pretty much will just ruin your brand.

Q. How can Taiwanese Startups up their marketing to be more on-par with American Startups?

Jerry Yang: I think in terms of marketing campaigns, we are not very familiar, in terms of marketing tools that we can use, we are still like one generation lagging. Most of the Taiwanese spend their time online and on PTT. Yes, we do spend some time on Facebook but very few people create content on Facebook.

As a result, if you’re doing consumer electronics, your first market should be the United States. As a result, most of the natural social networking skills, we acquire here, they’re not directly applicable - the languages, the methodologies - they are not directly applicable in the United States.

This is one of the reasons why we've seen very few kickstarter campaigns successful. By successful, I mean more than 1 million dollars here in Taiwan. I think that's one of the reasons. Those jobs cannot be outsourced - either you do it and you do it right, or you don't do it.

Q. What are the differences between startups in San Francisco, Paris and Taiwan?

Jerry Yang: Actually Silicon Valley has been leaning heavily now towards deep technology startups - I wrote about that. There was some signs a year and a half ago but now it's like super clear that all the Tier-One VCs that I’ve been talking to them, you can call them Anti-LEAN. They’re actually moving money back into the things that used to characterize Silicon Valley back in the 90's.

Which is kind of nice for us because we are based in France and France has always been doing deep tech innovation, even so much so that even because of that trend, now financial times, the economies, they are talking about Paris being a good place to do investment because of all the deep tech tradition.

That's one thing that's very sure in San Francisco, where the mood is now shifting towards. But obviously, you have to apply the new methodology, but then the core tech, now the people care about it more and more.

Paris pretty much has been doing that for a while so we’re now seeing Silicon Valley VC’s coming to Paris quite often, a little bit too often.

Taipei, I think you guys have done a good job here motivating the entrepreneurs. We are playing a catch up game, that’s for sure. A lot of the PC ecosystems are still not there.

On the other hand, some of the seasons throughout the past few years, every time I give a mentorship here or I gave a speech here, they remain valid. Methodology is just part of the picture. You can learn methodology everywhere, whatever kind of startup you are doing, but the scale or the size of market is always the number one priority.

If you try to scale a business in Taiwan, let’s say consumer service business or e-commerce company, you should be aware that's probably not a VC target. Because the scalability, the size of the market is not there, and you just  have to find a market that you can scale internationally, sort of like country-agnostic in a certain way.

That pretty much defines the Taiwanese startups to be more B2B than B2C actually. By all means, I always say that there are types of entrepreneurship - you can do exponential scale or linear scale. Linear scale is more like bootstrapping.

You can bootstrap for like 5, 6 years, have a good business and make some money, but it's not VC target. It's not a bad thing, it's just different type of startups.

Q. How are things going with Tokyo Startups?

Jerry Yang: Tokyo last year, everyone was talking about FinTech. I think what's interesting is San Francisco has always been the center of attention so people know what's happening there.

Tokyo has been playing catch up and the environment now is quite nice. The result is still pending. We are still seeing very few fast growing startups, really few.  Compared to the sort of atmosphere of entrepreneurship, the results are sort of paling in front of the atmosphere.

The reason is because that atmosphere features heavily the corporates. You see all the corporates doing open innovation, corporates ventures, and all that which is very different from the situation in Silicon Valley or even Paris. So I think that kind of friendly environment driven by corporates might philosophically limit the growth of the startups.

We tend to see startups in Tokyo that got into comfortable funding situation with a corporate VC at a decent valuation, but no money from independent VC. But then they started to hire people and grow very slowly. They hire a lot of people, they try to manage the team, took them one year to ship the product or ship their services. They forgot that they have to focus on the growth matrix.

They talk about the ecosystem all the time as if ecosystem can make a startup successful. Those kind of problems, it’s a different problem compared with what we been seeing here in Taipei. Result-wise, it was a little disappointing the past year in Tokyo, actually.

Q. What hardware trends in 2017 should Taiwanese pay special attention to?

Jerry Yang: So, this is very important to Taiwan. We are a hardware country, so we see a lot of startups trying to do IOT products. They talk about IOT and there's big data and there’s a play.

The whole question has always been “How can I monetize the data?” That's always been a big question. A lot people fail to monetize the data. Very, very few people worry about monetizing the data.

The real important question for the Taiwanese, not just the startups but the big companies as well, is that yes, now you have the cloud, now you have all the sensors sending everything to the cloud. One thing missing in this country is that the capability of processing the data.

4 years ago, no one had that capability outside of Google and maybe a little bit of Facebook. But now, all the startups in the US and Europe, they're using machine learning to sort of process the data and give a constructive feedback model that can allow those data to be used.

Think about a smart building, if you have a lot of sensors, that's fine but who is going to deal with the data? But now, all the startups are using machine learning to train for the model.  

The model will allow the cloud system to preempt, or not just to notify that there is something wrong. It will preempt and learn about the evolution of the building in terms of energy consumption, in terms of activity in different rooms

Which is kind of dangerous in the sense to Taiwanese companies because we have so many IOT startups, but I haven't seen many that really implement this part. They talk about it, but in terms of implementation, it's kind of green. I think that's something that people have to put in more effort.

Q. What kind of investment should Taiwanese startups focus on?

Jerry Yang: One principle very, very important even at seed stage, you need to get independent VC's money. There is good money, and bad money, and there's smart money and dumb money. But one thing that's very clear - whatever money you get, if you don't you get the real VC to invest in your seed stage, it's very difficult to raise Series A. By Series A, you’re starting all over again.

If you couldn’t get any VC’s to do investment in Series A, you can pretty much kiss goodbye to VC money from Series B and onward. This is not a secret. People know that, but somehow people keep ignoring that, some people delay the process.

The independent VCs are very different from corporate VCs or from other let's say strategic investors. Strategic investors and corporate VCs, their angle is not financial return, so when they come in, they might want something else. They might want you to work with them on business, they might give you a valuation that is generous because they don't know how to do valuation.

This blocks you from raising money from real VC’s that seek financial return and be able to invest in a disruptive startup. We see that over and over again. It's the same thing in Silicon Valley because there is so much corporate VC money chasing them from Japan, from China and from United States.

You almost always see every time, if you have cooperate VC that actually did your Seed Round almost completely, that's actually a bad thing because by the next round you start over, and people realize that already you have a high valuation from the previous round and we don't want to get in, and it gets kind of ugly.

So whatever you do, which ever kind of way you get the money, try to raise from real VC’s as early as possible.

Q. What should Taiwanese hardware startups focus on this year?

Jerry Yang: In general, still the scalability. If you are doing something, it’s the way you do it  that's more important than that thing itself. Which market that you’re trying to scale? Why are you doing it?

Some of the entrepreneurs I talk to they say they are deploying the data system in this kind of environment and when you question them why are you doing it there, what happened there? Sometimes it’s just random.

In Taiwan it's very common that it's random - “Oh, we just happen to run into someone at a tradeshow they said they want to try the system.” Yes it's good to have someone try your system and deploy that, but every week, every month you spend on them, and if that's not a scalable market, you're wasting your time.

You’re getting some proof that it works, but why don't you prove the same in a more scalable market? You tried it in one vertical, but that vertical is not the one you're going to scale eventually.

I’m not a big fan of pivoting. I think usually pivoting is basically you just couldn't figure out where to sell your product and that's what you're changing.

But if you're doing B2B solution, which might be the natural habitat of Taiwanese startups, then make sure the first market you’re attacking, that you are experimenting, that that's a scalable market that has the right target market size globally, so that everything you do is not wasted.

Q. Do you have any words of encouragement for our startups?

Jerry Yang: Stop complaining that it's difficult. Everything is difficult. The startups are difficult, the hardware, software are the same, VCs are difficult. I mean, VC’s have their own challenges. I think complaining doesn't really change anything. I heard complaints more than I heard pitches, which is kind of weird.

Your mindset determines how you execute and how you define strategy. If your mindset is trapped in negativity and feeling that you are being betrayed by the whole world, or something like that, that won’t lead you to a very good strategy.

As an entrepreneur, there will always be shitty things happening, and there will be some crises. You have to keep finding new strategies and lead your team.

One thing that I really want Taiwanese founders to stop doing is to stop complaining on Facebook. I think this is really childish. Look at Travis Kalanick (founder of Uber), he got caught on a video arguing with a driver and now overnight it’s around the world.

It doesn't really help anything. It might get your friend to give you a like or you know a pat on the back but everything is out in the public. You don't know the kind effect that has on your team, on your investors, and all that.

It doesn't really get you anything. You would never hear real founders complain about “How come people don't like my products?” or you know ”This is so hard,” and stuff like that.

At least not until they are successful. When they are successful, they can look back 10 years ago it was super hard you know, to get that first. That's when you publish books and that kind of thing.

Stay positive. You are the leader of the team, so you have to keep fighting. If you stop fighting and start whining, it's mostly negative for your team. It won't be positive for your team.

About Startup Sofa

The Startup Sofa is video blog interview series created to provide practical knowledge and valuable know-how to the Taiwan startup ecosystem. We've sat down with successful startup founders, industry experts, mentors, and guest speakers to have honest discussions on overseas sales & marketing, breaking into new markets, differences with Taiwan's startup ecosystem, etc. Please let us know what you think at ask@startupstadium.tw!