Need help/idea/advice from Veterans

[Rah_H]

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A long-time follower of EEVblog but first time posting anything. I will start a little intro.

I finished my EE BSc (electronics major) in early 2017 and got head hunted to a design firm and joined just 2 weeks after I left the university. I ended university with poor grade (2.63/4). I wasn’t one of those students who attends for grade or certificate. In my final year thesis/project, I designed an eight channel datalogger, did multilayer double sided PCB in Altium designer 16 (later in Cadence Allegro as per a senior faculty’s request), C code for AVR in CodeVisionAVR, casing in Solidworks and a program to analyze the datalogger data in Matlab (datalogger records RTC time and ADC data in SD card).

Anyway, I loved the job and the engineering team who appreciated me, however, the firm had also hired a group of douchebags and placed them in a department called Human Resources. I often kind of say things on people’s face without any sugar coating (my professors also told me that I need to be more diplomatic). Long story short, I did not sit well with them and ended up quitting. I checked with my friends in other firms and all of them confirmed HR to be proper dheads.

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So, I decided to open my own firm and also enrolled in a Master’s degree in Electronics and Telecommunication Engineering in Feb 2018. Since quitting job in 2017, I have designed multiple devices to sell. The products include

1. Programable Resistance box: (1ohm to 999999ohm, 1-ohm step min). Up to three resistive modules can be connected to a single control unit. Multiple resistive modules enable options like POT and sweep (sweep can be used with a single module as well).

2. Programable timer module: The module has RTC in it. User needs to provide the time at which the relay activates and the duration of activation. The control logic takes care of the rest. 25 entries on my experimental model. The device can be used as an automated residential water pump controller.

3. Morse code generator: User can place parallel (SPI in progress) 8-bit data on the device and press Play. The device can also record user defined string by using Record and Play the string. Play and record buttons are connected to headers so that an external MCU can operate the whole device.

4. Timer/counter module: A module that can be used as a time/event counter and as stopwatch. Both counter and stopwatch can be in either millisecond (20ms min) to hour(s). Device contains RTC to enable long duration functions. On/Off/Pause/Trigger signal can be provided by an external signal on dedicated input pins. Output pin shows logic 1/0 when it times out.

5. Terminal tool kit : My best creation. A UART command-based tool that generates user defined signals. Tools includes, a 8-bit binary parallel bus that generates user defined bits, pattern generator (128 sets of 8-bit pattern), digital frequency sweep generator, morse code generator, 7-segment display tester, servo/stepper/dc motor drive signal generator, SPI bus generator, random 8-bit pattern generator, digital oscillator (1hz to 70KHz @ 1Hz step, 70KHz to 150KHz @ 10Hz step) and clock generator 1MHz,2MHz,4MHz,8MHz for mcu.

These are some of 20+ devices I made. So, what’s the problem you ask. Here it is. I thought I could get some local investors to help me out. I thought wrong, no one wants anything to do with a startup. I can’t use any of the big-name international crowd funding platforms as they don’t like (or maybe trust) my country, which is Bangladesh by the way. I designed almost everything in through-hole as I intended them to be sold as kit. I optimized all devices in code and in the BOM. I designed everything myself and so the labor cost is literary zero which makes these products cheaper. But I can’t get a start. I opened a Teespring account last month and raised a whooping 0$ USD in like 40 days (feel free to visit https://teespring.com/stores/arclight  , I’m still dropping designs). I don’t use social media as they are a gigantic waste of time but look like they have uses somewhere i.e. teespring.

So like almost everything in my life I am overthinking this and getting negative feedback to a point where I am ready to pop a vent like a 16v electrolytic cap connected in reverse with a 50v source. I can’t get a start and I will be damned if I have to take a job cause I think I will most likely break some HR nose.

Therefore, the problem is I cant get a start due to lack of funds. So any help/idea/waypoint/advice from veterans are highly appreciated. I really need a starting point. Please keep in mind that I m from a developing country.

P.S.1 The devices are not open source. I spent countless hours, days of sleepless nights, soldiered through exhaustions to a point of almost passing out to make these and last thing I need is some Chinese manufacturer selling my sweat and blood at a price I can’t even compete with. Sorry but NO.

P.S.2 And also sorry for the bad English and poor writing format. My writing skill is limited to writing research papers. MSc required original thesis and I published them on IEEE & ACM, not that anyone asked.

Regards,
  H Rahman

[fourfathom]

I'm an old-timer and have participated as both design engineer and founder in a couple of telecommunications equipment startups.  These startups had (if I say so myself) ground-breaking products that met the evolving needs of a changing marketplace.  We had no legacy products to support (or worry about protecting), and had no entrenched deadwood employees (staff or management), and we took advantage of new technology.  So, we were able to develop products much more rapidly than the entrenched equipment providers.  We had amazing sales and marketing teams who were well-known and respected by the customers, so we could get our new products considered.  There was a big opportunity for a big return in a big market, and because of all this we had high-profile venture capital.  This also helped to give our customers some comfort that we wouldn't die from lack of financial support (hardly a guarantee, but it helped).  This was in the 1990's (1997-2000 for the last startup), the era of the "exponential growth of the network", so timing was a huge factor.  This is the situation that a VC (venture capitalist) is looking for -- the 10X or 100X return on the investment. 

As a hobby, I also design and build clever little boxes that help me in my electronics design work.  I am considering selling some of these.  I am proud of these designs, in come cases they are more elegant than the equipment I helped design in the startups.  But these clever designs are very unlikely to see an exploding market.  If I were a venture capitalist I would not invest in a company building this stuff. 

The products you describe are probably well done, and worthwhile, but they sound more like my hobby projects than the kind of thing a VC would consider.  You need to have something that *can't* be cheaply duplicated -- simple and off-the-shelf, and mature markets, are not what VCs are looking for.

This isn't to say that you can't successfully build and sell your products, just that they are unlikely to attract VC investment.

[coppercone2]

venture capitalist needs insane claims etc (kickstarter). I think you would need to be a good liar to attract one of those. That's going to be about something looking sellable, those guys are hustlers.

show a rich guy a PCB and he thinks something along the lines of 'oh so you used a drill or something'. I.e. treez, 95% of design effort goes into making an appealing shape and size box, no matter if it works for 30 minutes on a street pole, with the overload settings being used for normal operation.

[fourfathom]

venture capitalist needs insane claims etc (kickstarter). I think you would need to be a good liar to attract one of those. That's going to be about something looking sellable, those guys are hustlers.

show a rich guy a PCB and he thinks something along the lines of 'oh so you used a drill or something'. I.e. treez, 95% of design effort goes into making an appealing shape and size box, no matter if it works for 30 minutes on a street pole, with the overload settings being used for normal operation.

You couldn't be more incorrect, at least in my experience.  I've worked with many Silicon Valley VCs; as a member of VC-funded companies, and as an engineer called in by VCs to evaluate potential investments.  I was invited to be "Entrepreneur in Residence" at a couple of VC firms, so I've seen how they operate.  The partners and associates at the big VC firms usually have engineering backgrounds, and if not that's why they work with people like me.  But often they had been founders of successful companies before they became VCs.  The VC who funded my last company was one of the founders of Sun Microsystems, and the other partners in that VC firm had similar backgrounds.  They collectively know virtually everything about the design and manufacturing process (and financing, marketing, sales, etc) and will not be thinking "Oh, you used a drill?" 

Sometimes when things get "frothy" and there is more money available than there are legitimate opportunities, the VC firms will be less selective about who they fund, and the lower-tier VC firms may fund some very questionable companies.  And sometimes VCs will fund a business not because they expect it to turn into a successful independent company, but because the technology being developed will make the company a valuable acquisition for a larger company (or for other strategic reasons).

Coppercone2, you may be right about the "Angel" investors, who usually provide moderate amounts of seed money to early-stage startups (much like the OP "alart", I presume).  I was an angel investor for a few startups (some successful, most not), and I only looked at people doing things I was at least somewhat familiar with.  Other angels may come from a completely different field, having made their money outside of technology, and may invest based on a good pitch rather than a proper evaluation.  I've seen this happen (even when the VC should have known better), and thought "What in the hell is he doing???".  Perhaps the VC thought he would find a "bigger fool" to sell that company to before it ultimately crashed and burned?  I don't know.

[Rah_H]

Well, you are right. Some of these devices did start as a hobby project. Take the Programmable Resistance box for example. First version has two ATmega16, one for display and buttons and the other drives all of the 28 relays. But I improved it to use a single ATmega32A, the relays are driven by 4 cascaded 74595, GLCD128 instead of 20x4 LCD and I can control the whole thing from my computer using Putty (I suck at making PC software). I thought it can be a good product for university labs (which EE lab doesn't use any form of POT). If I could manufacture it, I am sure it would sell. Even the manual resistance box costs a lot in my country because the only people buying it are universities.

And you are also right about VC not wanting lab equipment. I can easily make some ridiculous inefficient product like a LED light that requires a cellphone sorry smartphone, Wi-Fi and firmware update to turn ON, or some scam product like batterizer. In fact I do have some products for the gullible general population. My biggest problem is I can't find funding in my country and I can't even go for international crowd funding. The curse of living in a developing country.  If I could make them, I could sell them to shops like sparkfun or local equivalent. Is there any specific way to deliver pitch? Or should I try making a nice box for the general purpose product as coppercone2 suggested and try my luck with some big name manufacturer? After all 98% of the tech products manufactured in my country comes from Shenzhen (they buy the technology no matter how basic).

My University professors always demanded honesty. I had to go through a course named "Society and Ethics" where I had to memorize IEEE canons for EE. Should have warned us that University doesn't match reality.

[coppercone2]

what I was getting at is you will have higher success if you build a enclosure with a defined purpose. For example : highly successful product is those stupid cell phone repair power supplies. It is very limited in range, and likely simple inside, but its actually a box that someone with little knowledge can buy, connect cell phones PCB to with adapters, etc. Appealing no-brain solution instantly empowers someone to follow all sorts of easy repair guides on the internet.

Cosmetics + application.

Buying lab equipment is highly stressful. Buying something that shows you cool things you can do is not. Sparkfun is successful because she shows you projects and ideas on what to do with circuits (applications), so you feel like you are buying a capability. I have all sorts of jigs and fixtures and stuff that I made with no idea how to market it. Usually selling stuff like that you end up dealing with hagglers, since their not really sure why they need it either, so it instantly feels like a dubious utility purchase to them.

Coming up with applications is ALOT of work.

Really simple example: I bought a set of picks for my work bench. I got the nicer ones out of habbit and more then a few times I wondered do I really need this set of picks and it took a long time to figure out that they are invaluable. But all I can say is that they are really convenient sometimes for random situations. Does that make you want to buy a set of stainless steel picks from me? i.e. multi channel data logger is really situational, people don't like making so many hook ups, its typically annoying and typically people don't have complicated sensor networks. But if you found a interesting reason to sell a 10 channel daq... I would probably buy it. (I own a fluke hydra system and a multichannel thermometer system and I have not really used them often, they are a hassle to use, much like a logic analyzer), all I can say is usually I am pissed off when I it comes to that, and its not being used to develop some cool control system, more like find a annoying problem.

*most people don't like spending money on having any sort of contingencies and engage in reckless behavior. Look at how much effort gerber and leatherman spend to actually make you want to buy multitools with cool videos, as handy as they are.

I.e. marketing for a 10 channel data logger that is cheap, you might want to try to figure out how it can be used by RC hobbyists (boat, plane, etc), that has alot of things people might want to pay to measure at the same time.

As for cheap equipment, you need like Keysight to sell your thing as a low end model so they can put their name on it to calm people down because rich people won't buy non name brand stuff, then eventually you can get a name brand.

[Electro Fan]

Rah_H,

Your English and writing are fine.  And you show good focus and hard work.  Two things that might need more attention:

1. While you provided a nice summary of your products there is no mention of a business plan.  A business plan must address a range of considerations including the target market/market segments, a description of the typical customers, their problems with existing products, the advantages of your products, and how you intend to market and sell your products. These items and perhaps another 40 pages about your vision, plans, and strategy for building your business in a word doc are probably going to be needed by an Angel or VC, in addition to 10-20 summarizing .ppt charts.

Even more important than the ~50 pages of Word and 20 ppts is the spreadsheet that is the kernel of the business plan.  This needs to show your proforma (forecasted) income statement, balance sheet, cash flow statement, and probably more (hiring plan, cap ex, cap table, etc).  Of this the most fundamental is the income statement that will forecast the volume of sales you expect for your products.  Investors will need to see how much revenue your business expects to win and secure month by month for the next 36-60 months, and then how much SG&A and COGS will be required to support the forecasted revenue.  Why do investors need this revenue, cost, and P/L info?  Because unless they have some way to begin to quantify it they will have no way to place a value (valuation) on your business, and without a valuation for the business they cannot figure out what the ROI might be for any amount of investment, or for any percentage of the equity they might ask for or that you might offer.  So that’s item #1.

2.  The investor looks at item #1 as the horse.  They need to be excited about the horse and they will think they know a good horse (the business plan) when the see it - because they have seen well prepared business plans before and those plans have had the xls, doc, and ppt info described above.  Sometimes they will let some incomplete docs slide by, but then they will want even more favorable terms and conditions for what they will perceive as extra risk.  (At some point if they think they have gone from risk to uncertainty they will bail out.)  So what is #2?  # 2 is actually more important than item #1.  You the founder/CEO/President are item #2.  While the investor must be intrigued and compelled by the clear and thorough business plan, the investor(s) will be betting on you more than the business plan (because they know no matter how good the plan is change will be continuous, and you are the constant.). So the investor looks at the horse but they are betting on you as the jockey.  The point here is that if you thought the HR people were particular about your communications skills wait til you meet investors - they will want to see excellent people skills.  Investors will run from someone that doesn’t listen, or sufficiently defer, or diligently follow through, in a pretty reasonable and pleasant manner.

Long story short you have done a fine job so far but you might be half way to being ready to secure an investment.  Either you need to do the rest of the business plan work or you need someone to help you.

One more thing - making the spreadsheet show sales every month is easy, finding and selling the customers might be harder than designing and building the products.  One of the other posters noted his successful company hired previously successful sales and marketing personnel.  Keeping costs down is easy, you just discipline your self or command your employees or vendors to stick to the budget.  You can’t command a customer to buy or do much of anything. 

Net, net:  unless you can show how the revenues, costs, and profits will flow with specificity in $ and timing there is no sense in designing or building anything else.  The spreadsheet either exists and makes sense or it doesn’t.

So you either need a solid business plan that shows how your company will make money and how your investor will get their return, or you need to get a job building your career as part of some other company.  Either way you need to make friends and work hard to never have anyone permanently shut any door on you.  As you gain credibility by doing what you say you will do, and in the process build and maintain relationships, and gain outstanding references, new opportunities will arise.  So if now isn’t the time to start your own business maybe later will be.

[Circlotron]

My suggestion is go look for someone that already has their own small business and has customers going in and out all the time. Maybe some kind of specialist repair or service kind of business. There will be some sort of problem that they see all the time and they understand perfectly what is needed but they don't have the skills to make something that they could sell for this problem. For example, many years ago I came in contact with this auto electrician shop and they did a lot of work on farm equipment. There was this old tractor, a Ferguson Grey and you couldn't get a good voltage regulator for the DC generator, only this thing made by Lucas in Bombay and they would fall apart all the time. They were the old fashioned three relay type. I ended up making about 100 electronic ones that gave him something new to sell. Also, I only made the pcb and let him do the final assembly. That gave him more work and a lower price from me and made my job simpler too. As time goes on they will likely think of other projects for you too. Don't try to sell once only to many different people - sell many to just a few people.

[fourfathom]

Also look for ways to get your products out into the world without requiring outside investment.  To do this you have to start small.  Look at how others have created small but (I hope) prosperous business selling useful and/or interesting products.  Leo Bodnar (here on eevblog) sells some very nice items.  For ham radio, look at Hans and his "QRP Labs", or Ashhar Farhas's uBITX (hfsignals.com).  These guys have each found a niche and have gotten very good at it.  Look at Tindie.com -- lots of people selling neat stuff there.  You don't want to be trying to develop your business by offering lots of unrelated products.

As has been mentioned, venture capital types are looking for a big profit -- that's what it's all about, and there's nothing wrong with that.  Keep working at what inspires you, and perhaps along the way you will find a product that has that big profit potential. In the mean time, get your feet wet with smaller-scale devices.

[pidcon]

Hi Rah_H, I understand the predicament that you are facing now. When I was younger it was hard to start anything up without much capital. I too am from a developing country, but now I am based in a developed country, and trust me when I say it ain't easier. There will always be a way, but what is it and how it fits your circumstances, is something you have to discover on your own. From your www link, I guess you're also going into other directions as well, which is great to see. Look at the websites of established US-based VC's, they have funds that focus exclusively on Asia, particularly India.

People in USA have better options since their financial ecosystem is built for startups and entrepreneurs. It's basically part of the country's DNA. Selling electronics products on its own is tough, whether it is hobby kits or slightly more sophisticated ones too. Just look at Alibaba/AliExpress, and compare the price of hobby kits selling for less than US$10. How does anyone compete with that? Sparkfun and Adafruit does really well using value-added tutorials and being wholesalers of their products. Also, I found that most hobbyists will just build their own kits, rather than buying finished hobby-style products. Regular consumers, of course, go for established brands. I hope I express it correctly, but there is a saying. "it's all about who you know." It's true to a certain extent, since you need to know who is willing to buy so that you can sell (or build something for that sale). 

The advice from your professor on being diplomatic is essential. It might not seem that way when we are young, but we have to walk long and far on this journey; and, we will meet a lot of different kinds of people, offline and online. 

I do wish you well and I hope you find success, because we need more people like you who are both doers and leaders.

[Electro Fan]

Further thoughts (for the OP and anyone starting a business):

1. You probably don't need an investment, you need sales.  How are you going to get sales if you don't have an investment?  That is a good and difficult question, but the reality is that most investors don't like investing in businesses that don't have sales.  So if you don't have sales, then you need to find users, happy users, very happy users, users who will say your product is so much better than any others they have used.  And then they will have to explain why if your product is so good they only use it for free as opposed to paying for it.  Bottom line - unless you create enough value that someone wants to use and purchase your product you won't have much of a business for very long. 

2. So, let's say you can get some users to try and like your products.  At some point after proving that you have happy users you need to get paying customers.  How many customers do you need?  That will depend on things like your projected selling price for each product.  That price times some volume will equal your revenue for that product.  And likewise for each other product.  When you add up all the revenue from all the products for a year that will be some number.  You need to get a grip on what that number is.  If that number is X your own personal income (salary) will be something less than X.  In addition to your salary and other expenses (Sales, General, and Administrative), you will of course have the Cost of Goods Sold (for parts and labor).  All of that will need to be subtracted from the total revenue.  If there is any money left over that is your profit, of course.

Revenue - SG&A - COGS = Profit

How much profit can there be in the first year, second year, third year?  Whatever profit there is, over time or at some time, some % of it will eventually have to go the investor to pay for their investment.*  How much $ do you want the investor to invest?  How much will they get back as a return on their investment?  When (and how)?  Is the ROI big enough for the investor to take the risk and spend their time studying your business plan and trying to manage/keep an eye on you.  Without some idea of these numbers you have no frame of reference for whether any of your products are big enough to be meaningful to the overall revenue and profit targets.  You have to at least chop with an axe to get some idea of these numbers and then iterate. 

If you go to an investor and say I want you to invest $10,000 or $50,000 or $1 million (or any amount) they will ask “how much are your revenues now?”  And you will say zero.  They will then ask “if I give you the investment you are seeking how much will your revenues be in a year, and two years, and in three years?”  If you can't answer these questions the discussion will end without an investment.  If you can answer these questions the investor will ask “how much profit you will make on each of these annual revenue numbers?”  If you can't answer that with compelling information the investor won't be able to determine how much of your company's equity they need in order to get a ROI.  If you can answer these questions the investor might then say "OK, your revenue projections seem plausible, and your profit projections seem plausible, so I will need "N" percent of your company's equity in order to get my ROI.”  That would be the start of a good negotiation but before the investor wires you any funds the investor will ask "how do I know you can sell that much of your product?"  To which you will say because it's better than all the other products and because you have some users who are happily using the product but you don't yet have any revenue producing sales.  To which the investor will say "Sounds like you have some good ideas and a good start so come back and visit me when you have some sales where the customer actually pays for the product."  And when you go back with a report on your first revenue producing sales the investor will say "Congratulations, that's exciting, come back to me when you have some more sales - and by the way, how much revenue do you think you will have this coming month, the next month, and the month after?"  To which you will say, "it says right here in my spreadsheet, I will have A, B, and C revenue for the next three months".  To which the investor will say "ok, if you get on that pace and trajectory, come back and see me and we'll talk about an investment."  Investors like to see a plan so they can determine if the founder can operate to the plan (because they will be entrusting their investment $ to the founder’s performance, so they have to be very confident in the founder’s ability to consistently execute).

(And by the way, when you show the spreadsheet to the investor, you better be very sure those first 3-6 months are sales numbers that you will meet or exceed - because closing the investment might take roughly that long and if you miss any months during the closing process the investor will either renegotiate to account for your misses or worse yet the investor will bail out because they will figure if you can't make the early and usually lower projections on the front end, what are the chances you are going to make the later and usually much more challenging projections later in the plan?)

In the end, the purpose of the business plan is to i) set your investor's expectation in a way that you can meet and exceed their expectations but also to ii) help you figure out how to run your business in a reliable manner.  Without a plan it's like building a building without a blueprint.  You don't want to disappoint the investor and you don't want to disappoint yourself.  You want to be able to reasonably forecast and then reasonably perform to the forecast.  If you do this, the investor and other investors will probably give you more chances with more investments on ever more favorable terms.  If you whiff there might not be any more help from any investors.  This is your track record, build it well.

At this point, you might be thinking "wow, this is a bunch of work beyond designing and manufacturing products."  To which you should be happy the light bulb came on sooner than later.  Designing and manufacturing can be very complex and challenging, but so can selling and marketing (determining what to sell as well as how to promote it).  The first part is "production", the second part is "distribution" (either with direct sales, or indirect sales).  Unless you have a grip on both production and distribution you might only have half a chance for success.  Either you need to step up to managing production and distribution, or you need someone to help you, or you need to go join another team where you can play the role you enjoy playing.  This last part is really important.  If you enjoy something it won't feel like work; if you don't enjoy it could become overwhelming to the point of being a significant impediment to the success of the business. 

You need to find something you can not only design and build but that people will buy often enough and for a price that will give you a chance at success and happiness.  No sense in kidding yourself about any of this.

In summary, you either need a) revenue producing customers before investors, or b) some very happy users before investors, and then in addition to a or b, you also need c) some very clear answers on what your revenue will be for the next 36 months or so.  Without clear and fairly specific answers to questions about customers and revenue, nothing else will get you there unless you find some investor who doesn’t care about their ROI (in which case they might be a philanthropist).  With a few exceptions, most investors probably didn't accumulate their $ without having some ideas about how to manage their $.  So you need to have some good answers that can only be derived from good planning and analysis - almost certainly in a spreadsheet.  Further, the fewer good answers you have the about these matters the more risk the investor will assume and the more expensive (to you and your company) will be the investment.  More risk requires more reward; your job is to minimize the risk (for you, your company, the investor, and your customers) by building a business plan that can be reliably executed.

Net, net:  you must be able to project your revenue, costs, and profit in order to give an investor any chance at determining if there is any particular likelihood of ever getting their investment back along with some return.

PS, when you call for "Veterans" to help you, you should probably acknowledge that you saw and received the help.  Investors will want timely and succinct feedback on any Q&A as will anyone who might help you.

*PSS, these are the simple basics.  It's a little bit like ideal vs lumped elements.  Until you get a grip on the ideal it's hard to figure out the lumped.  So, there are more layers to the process of building a business plan and a business, and securing investments, but this is about as basic as it gets.  Having great products is great, but now your top priority needs to be figuring out how you can reasonably forecast and actually secure revenue, or at the very least get some very happy reference users - because eventually, without the topline (revenue) there is no chance at a good bottom line (profit), and without the prospect of a good bottom line there isn't much chance of providing an investor with a ROI.  However with a clear and concise view of the future topline and bottom line - and how they will be attained - there is a chance for an investment.

   Revenue
   - SG&A
   - COGS
     Profit

It all starts with revenue and flows from there to profit, to a potential ROI for the investor, to a chance for you to get an investment.

PSSS, if this was easy, everyone would be doing it

[fourfathom]

Further thoughts (for the OP and anyone starting a business):
[... some excellent advice and observations ...]

This is good stuff.  It doesn't always apply, but in "normal" times it generally does. 

Some places and times, profit is less important than growth and market share.  In the late 1990's this was the case with my start-up (I say "my startup" because I was a founder, but I was one part of a larger team).  When we began, we had the traditional business plan where we had our "burn rate", a plan to reach profitability within two years, and had a plan for growth beyond that.  But along the way it became evident that investors were valuing growth more than profitability -- the strategy being to capture a larger share of a supposedly expanding market.  If we structured ourselves for quick profitability we would have been losing future market share and limiting our ultimate return on investment.  So we poured money into speeding our planned product expansion, and winning customers.  This cost money, but the investors were more than willing to fund this growth at fairly reasonable terms.  We gained lots of customers (this was a piece of networking equipment, not vaporware), and developed quite a presence in our space.  We were about to go public, at what was probably near the peak of the networking craze, but were acquired before the public offering, without ever turning a profit.

But with this expensive acquisition, the company that bought us filled a large gap in their product line, one that had been costing them significant system sales, and we definitely helped their bottom line.  So the "growth over profit" strategy worked at that time.  I don't think that this strategy is appropriate now, in general, but it might still work in some cases.

I know this sounds like I'm patting myself on the back, but I will confess that I didn't really understand this until we were deeply into the new strategy.  Our CEO and VCs were the ones who were steering the ship.  And our company's value wasn't just in the hardware and software we had developed, but it also was in our sales and marketing team, and the customer relationships they had.  It took a while for me (as a hardware engineer) to appreciate that.

[Electro Fan]

Further thoughts (for the OP and anyone starting a business):
[... some excellent advice and observations ...]

This is good stuff.  It doesn't always apply, but in "normal" times it generally does. 

Some places and times, profit is less important than growth and market share.  In the late 1990's this was the case with my start-up (I say "my startup" because I was a founder, but I was one part of a larger team).  When we began, we had the traditional business plan where we had our "burn rate", a plan to reach profitability within two years, and had a plan for growth beyond that.  But along the way it became evident that investors were valuing growth more than profitability -- the strategy being to capture a larger share of a supposedly expanding market.  If we structured ourselves for quick profitability we would have been losing future market share and limiting our ultimate return on investment.  So we poured money into speeding our planned product expansion, and winning customers.  This cost money, but the investors were more than willing to fund this growth at fairly reasonable terms.  We gained lots of customers (this was a piece of networking equipment, not vaporware), and developed quite a presence in our space.  We were about to go public, at what was probably near the peak of the networking craze, but were acquired before the public offering, without ever turning a profit.

But with this expensive acquisition, the company that bought us filled a large gap in their product line, one that had been costing them significant system sales, and we definitely helped their bottom line.  So the "growth over profit" strategy worked at that time.  I don't think that this strategy is appropriate now, in general, but it might still work in some cases.

I know this sounds like I'm patting myself on the back, but I will confess that I didn't really understand this until we were deeply into the new strategy.  Our CEO and VCs were the ones who were steering the ship.  And our company's value wasn't just in the hardware and software we had developed, but it also was in our sales and marketing team, and the customer relationships they had.  It took a while for me (as a hardware engineer) to appreciate that.

Thanks

It is of course hard to condense all conceivable scenarios into what is already a long post but yes, in some (many) cases growth is prioritized over profitability.  But even then it is generally an emphasis on growth in revenue (or at least users) as costs can only be reduced so far and then growth requires accelerated sales volume as a multiplier for whatever the profit margin might eventually be.

In almost any scenario the valuation will be a function of not just profit margin but the rate at which (eventual) profits will grow as accelerated by sales volume; the greater the sales growth times the margin the more future value.  Additionally there can be strategic acquisitions of products, technology/IP, talent, etc as you describe to fill the needs of other larger organizations.

This all gets to what is the end game?  Is it to be a self-staining business (in which case the investor will want to know about dividends or other methods of getting their initial investment and return back out), or is it to become acquired, or is it go public?  Each of these and more variations are possible but in the same way we had a recent thread saying that it might not be good to pile on too many lumped model concepts vs ideal model concepts for someone just getting started, I think it's important for a new founder to understand that ultimately someone is going to ask about how revenues turn into profits so they can turn into a ROI for the investors - whether those are financial investors or strategic investors.  Even if there is no profit to be had by the initial company and it is going to be acquired with a negative cash flow by another larger company, the larger company is going to have some people who are going to ask "if we acquire this money losing but innovative and high growth super selling smaller company, at what point are we going to start making enough profit from our combined sales to pay for the acquisition?"  Point being that while there is always the upside potential of the future, someone is eventually going to have to quantify revenue from somewhere to enable some resulting profit to pay for the investment.

What I think we have with the OP is a high focus on products and what is needed (if the OP resurfaces) is a reasonably high emphasis on how to win customers and secure revenue (by someone at some time), with some quantifiable projections and analysis of what that might that look like and what it might mean for everyone involved.

And yes, some companies will acquire other companies for their ability to find and win customers in both existing and new markets, not just for their new products and technologies.  This just further amplifies the importance of being able to address sales and marketing in addition to product engineering.  But even in this scenario someone is going to have to fund the pioneering company and if there aren't enough customers generating enough profitable revenue, then the founder is going to have to explain to the investors why they need to fund bigger, deeper, longer lasting hole digging until an acquiring company is so eager to acquire the hole digging enterprise that the acquiring company will pay the requisite price.  This can be a dangerous game for all but the deepest pocketed investors as some not so benevolent acquirers might be willing to wait for the current investors to pull the plug and then buy the assets for pennies on the dollar.  So I think the main message should be not to play a game of strategic chicken but to make money the old fashioned way - find an underserved space in the market and create or add enough value that customers happily buy enough products (or services) to pay for the start up and recurring costs of doing business.

I'm sure we can find some companies, whether in largely self-funded organic growth mode, or whether in externally funded land grab M&A mode, that folded due to too high a cost structure, but I'm thinking what ultimately gets most companies in trouble is not enough revenue to cover the costs.  Investors know this and that's why they want to hear about revenue projections, and then see some earmarkings of progress toward the projected revenue ramp.

[CatalinaWOW]

I will comment that as I read about your products I find it really hard to see why I would want to buy your devices.  And that isn't saying that they aren't prime exemplars of their kind.  Just not compelling to own.  So here is what it looks like to me, as a potential investor.

1.  Small to modest market.  There will be literally thousands of cell phones, TVs, dishwashers, phone chargers ..... for every one of these that sells.  Even if it totally dominates its market.

2.  New entries in an existing market.  With small variations all of your products already exist.  The programmable resistance box can be purchased from major electronics suppliers (admittedly for very high dollars).  There are also programmable resistors in silicon format.  So this product is carving a small niche out of a small subset of the small market described in 1.  (How many hobby applications for a programmable resistor are there?  Maybe if you configure it and remarket it as a programmable attenuator you can increase that number, but it is still small).  Programmable timers are a commodity, as are timer counter modules.  Morse code generators have been available in many flavors since the 1980s and can also be downloaded as free software on a PC.  Your terminal tool kit is the most interesting sounding of the devices you mention.  But how hard would it be for a Chinese firm to copy the functionality (and possibly the design) and undersell you?

3.  As an investor I need to see the possibility of making more money by investing in you than I can make in the stock market or any number of other investments.  This is the business plan others have mentioned.  And that business plan has to take 1 and 2 into account.  I would offer an outline if I had one I believed in.  I have a friend who came up with a really, really good sensor device.  Smaller size, better resolution, easier interface and lower cost than other devices in the market.  He had savings that allowed him to self invest, but even as superior as his device was it was several years before he was doing much more than just paying the bills.  I believe he is doing fairly well now, but not so much as would excite an outside investor.

[Rah_H]

WOW, so many voices of experience with so many awesome advices, suggestions and guidelines. Didn't realize things are already more complicated than I could even imagine but I am glad I know that now, sooner than later. Thank you, thank you and thank you. I will take all the advices to heart and try my best. On my first job interview, I followed Dave's job interview tips (he has two videos on that) and it really worked. I guess it's only fitting that on my next big step I will again take advice from the EEVblog.

So again, thank you everyone for sharing your experience and valuable advices with a newbie like me.

[Electro Fan]

Rah_H,

Glad to hear the info resonated well.

Sometimes this all gets netted down to people, process, and technology.  Sounds like you are getting the technology dialed-in and you are ready to learn, apply, and develop the process(es).  So that just leaves the people.  Be sure to give the people just as much if not more attention than the technology and process.  The people include  investors, employees, partners and supplies, and especially the customers.  Everyone in the eco-system is going to be looking for personal as well as business wins, so keeping everyone happy is not easy.  The key is to never get any door permanently closed on you.

Good Luck, and Good Technology and Business Building!!

PS, let us know when you have built your business plan spreadsheet that forecasts the first year of sales, and then again how the actuals look compared to the plan at the end of that year