On Tuesday, Jan 10 2012, the Tbird 2012 Entrepreneurship Winterim group (#EWinterim on Twitter) visited some exciting companies in the San Diego area, all involving a Tbird founder or driving force. First we met with Zuumcraft President, Jim Scott, who talked with us about his product (an electric scooter that is between the scooter and electric bicycle space) and gave us a demo. He already has a product built, and is leveraging a manufacturer he met through a third party to produce the initials, with investment from friends and family. He is currently in the fundraising phase, and has some interesting thoughts on the type of investors he wanted. For Jim, one big donor is the ideal situation, rather than lots of smaller donors. The obvious benefit of one big donor is removing complexity introduced by adding stakeholders to deal with and report too, but the chief negative is the likelihood of that one donor to want to meddle in the day to day issues of the company (not that the small donors wouldn’t also have a propensity to meddle). However does it really matter where the money is coming from? Sure, it is good to target a specific type of investor (big daddy or small fish), and if you have the network to get what you want (like Jim probably does) that is the ideal situation. But if you are a small-time player, first-time entrepreneur, do NOT discount any source of money! All money is green after all.
We also spoke about overseas plays, including manufacturing in zero tax zones, and serving markets like India and China. The main issues that came up revolved around the price point (the unit is currently priced at $2499 in the US, and would be introduced around $800 in the Asian markets), and how he priced the unit (cost pricing). Will $800 be low enough in China and India? A lot of international students in our group seemed to think that the pricepoint needed to come down further still for it to really take off, and that infrastructure problems may limit the mobility of the unit in these countries. For example, the robustness of the machine may be in question on less than perfect roads. Certainly additional suspension is needed and more testing required before introducing the product to developing markets. From a cost side also, a local manufacturer would obviosly be required to reach a lower number (probably even to reach $800), but luckily Jim already has manufacturers overseas that can be used. More important than Asia, though, is the European market since it is the most mature in adopting green transportation solutions. And of course he can charge more in Europe than in the US because there is a higher demand, and because costs (including manufacturing in Europe) would be higher (and of course the currency differential). What is the bottom line? While BRICS may be sexy, you still have to cater to your core market.
The second visit was with Tbird alum Pekka Laine, CEO of Photon Solar Power. This talk brought back memories of Global Political Economy (GPE) at Tbird, where one has to stay ahead of the regulatory changes by the government to stay viable. This can’t be more true in the solar industry. Government incentives to consumers (and producers) can make or break a company’s product. The ecosystem is so fragile elastic, that even a small change in consumer subsidies or ta rebates one way or the other dramatically changes demand. Nevertheless, there is a lot of excitement in the solar and alternative energy domain, including from conventional electric companies, who can also benefit through installations of more electric power docking stations etc. for consumers to plug-in to. It is an industry with a widening pie.
According to Pekka, “Solar business is nothing more than glorified construction.” Because of this outlook, his default position has been to outsource everything that he can–in fact Pekka is the only full-time employee in his company (even though he started with 5 employees). Typical to the construction industry, he works on a regular basis with 10-12 sub-contractors. This is the game of construction management, and also relates to regulations. Apparently, CA labor laws dictate, to some extent, the decision between hire or outsource; the law is such that you can’t have a sub-contractor when you are their sole source of income. Question to the readers: are there other states with more lenient labor laws in this regard, perhaps with more favorable terms for the founder?
Finally, Pekka discussed his decision to incorporate, and the decision on where to incorporate. His biggest takeaway, and I have heard this fro many entrepreneurs, is that incorporating (or doing business) in CA needs a very good CPA because CA has too much paperwork to deal with and stay on top of over time. In fact, CA, while the breeding ground for startups, is one of the most unfavorable places to incorporate a business. High on the list in 2011, for the best overall states to do business, (http://www.cnbc.com/id/41665883) are Virginia, Texas, North Carolina, Georgia, and Colorado. While CA tops the list for access to capital, costs of doing business are high, both in paperwork and resources. Personally, my company is incorporated in VA, which offers a very simple incorporation and renewal process. However, the proximity to investors still often outweighs all else–many entrepreneurs I have known has physically incorporated in one state, and set up shop in CA to be closer to the capital. Pekka, for example, is incorporated in Delaware, with an office in CA. What is the best state to incorporate?