[topic]The Beginning [/topic]
Om: How would you describe yourself, Liam? Are you a businessman? Are you a creator? Are you a troublemaker? Are you all of those things?
Liam: A lot of those things, but mostly I think about creativity and about helping people bring ideas to the world in a physical form.
Om: That’s a big statement. Let’s just start with something simple. Why do you have three iPhones?
Liam: When I started the business many years ago, I was based out of Ireland but traveling to China and to the U.S. I had an Irish cell phone, and my telephone bill was crazy. Now my U.S. phone is the busiest. I spend a lot of time in the U.S., but I still travel a lot, so I have three phones. At the moment I’m going to probably two continents a week.
Om: Are you an international man of mystery? Some of us still don’t know what you do.
Liam: Yes [laughs]. You still don’t know what we do?! What we do is — In 1996, when I started the company, the opportunity was to take confusion out of the supply chain. [I started out] working (for Tricot Marine) in fashion and retail [in Cork City, Ireland].
My friend was working for a company where 80 percent of their business was computer hardware. I said, “Wow, you sell these tech products to all the big PC companies.” I was intrigued and wanted to know more. I’d also picked up a magazine called This Month in Taiwan. They had a trade show called Computex in May or June of ’96. I’d never been further than Paris.
I said to myself, “Hey, go check it out.”I spent 10 days in Taiwan, 5 at the trade show and then 5 at the factories. Around the third or fourth factory I thought, “This is similar to the fashion industry. You have raw materials coming into the manufacturing process. Then you have finished goods, and you have packaging, and then shipping.” For a while, I moved to California and where I learned about the technology industry.
I knew there was an opportunity to cut through all the confusion and find the production.I went back to Ireland and started knocking on doors, trying to get customers. Our first customer was AST Computer, and our first product was a unidirectional desktop microphone for a computer.
Hardware, the Hard Way
Om: You started in the personal computer business, even when the internet was exploding? So you didn’t know about the first wave of the internet?
Liam: We watched it carefully. We saw it and made all of these modem cables [laughs]. One of the big challenges as the internet was taking off was that every computer had to have a modem. The RJ11 telephone jack just plugged into the wall and plugged into the computer like a telephone. Same in Ireland, and the same in Spain.
In Europe, there were probably 20 different connectors, all controlled by local telecom regulators. As computers were selling in these countries and they all had modems, they all needed this cable. The PC makers couldn’t ship the computer without the cable. They could build the computer and they could build the modem, but they didn’t have the cable. The cable became what we call the “flavoring” part. So all the computers were vanilla down to a certain stage, and then you added the flavoring. The flavoring was the important part. So we sold the modem cable and power cords.
From ’96 to about 2000 I started to add a lot of engineering. Back then you could do stuff in China in a day that would take you six days [in Ireland]. The first products came from Taiwan to Ireland so it was “foreign” to Ireland, but early on we went “foreign to foreign.” We were supplying companies in Singapore, Shanghai, Mexico — all over the world.
Om: In other words, not being too focused on the internet helped you at the time?
Liam: It was interesting as we watched the growth of the internet. We saw the 2000 bubble, and our business kept growing. In 2008, same thing. Business kept growing, because the fundamentals of our business are safe. It’s essentially global trade. What happened in the downturn — trade shifted to different geographies, and for us it was OK. We didn’t care about the geography: If business was there, we went there.
Om: What have you learned in the past 20 years that is applicable today, especially to the new tech ecosystem that is focused on physical devices and manufacturing?
Liam: Today the world is smaller and more connected. You literally can have a production line anywhere in the world and a consumer anywhere in the world, at the farthest-away point, and you can connect them. You can join them, and you can do it in a controlled way.
I can take a product from the production line in China to a consumer in San Francisco in 4 days, 5 hours, 14 minutes. We’re 3 hours from all the factories we work with, and we’re 3 days from 90 percent of the consumers around the planet that buy our products. The other 10 percent of people live where they live by choice. They’ll wait an extra couple of days. What we’ve learned is that inventory is completely evil. You should never have it. You should always be looking for it, not looking at it.
[topic]Why Hardware Startups Fail[/topic]
Om: What do you mean when you say, “You literally can have a production line anywhere in the world and a consumer anywhere in the world, at the farthest-away point, and you can connect them”?
Liam: A key metric for the health of the company should be days of inventory. Sales into a channel should not be an indicator of health, because that is essentially money stuck in the channel. Getting a product into the hands of as many consumers as possible should be the goal of all hardware companies.
As a CEO of a hardware company, one of your worst nightmares is having demand for product in one geography and product sitting in another. A great outcome would be the ongoing sellout of a product with less than a week of finished goods anywhere in the world. Inventory should never stop moving from when it leaves a factory production line to when it is activated by a consumer.
We are close to that point now; we’re moving from an economy of “build to forecast” to “build to demand.” And the implications are pretty big. Warehouses of the future are the wide-body, long-haul aircraft. By eliminating warehouses and reducing fulfillment locations, you reduce inventory and you need to produce less product. That saves energy: energy to produce and transport raw materials and finished goods, energy to store and transport finished goods, energy to recycle unsold and excess finished goods. This is the future, and it’s why I’m excited about our next 20 years as a company. In 2016, we will have been in business for 20 years, and we know that the level of mass customization of products that we will manage will greatly increase.
Om: You have a different way of thinking about hardware than most people. On one hand, I can feel your enthusiasm, and yet you are a little skeptical and cautious about a lot of things, one of them being inventory. Where does all of this duality come from?
Liam: Some of my excitement comes from just engaging with entrepreneurs and creators and startups. As you go through the cycle of building a hardware company, there are a few moments of magic that are really important. One of those is that first prototype. You get the answer, you work with the entrepreneurs or the engineer to start up and they actually get that first startup. That’s an amazing height.
Where does that [thinking] come from? When I spent 10 years in the fashion industry, I could go to a fabric mill, buy 60 meters of fabric and take it to a manufacturing facility. Last minute, before deciding to cut the fabric to make the garment, I could change the pattern from being a jacket to a trouser to a suit, all using that same piece of fabric. That created creativity and flexibility.
I’m not an engineer, but I saw huge challenges for product road maps in the tech world. That’s what created a huge amount of this lack of innovation. Then we saw a change in 2008, when we saw people working with Arduino Linux differently. Today you’ve got Raspberry Pi. You’ve got Edison. You’ve got Galileo from Intel. You have Android and you’ve got 3D printing. You’ve got crowdfunding. These are what I call the new fabrics of technology. That’s creating innovation, because of that moment of truth when you give somebody the first prototype and they go, “Wow.” And, that’s when they get creative.
Why There Is a Hardware Renaissance
Om: How long would it take to make a prototype 10 years ago?
Liam: Months. It’s not even how long it would take. It was that you would never even think about trying to make some plan. We’ve run hackathons over weekends where people come out with great working prototypes. Then there’s all of this excitement and they have more confidence about taking it to the next stage and building a company.
I’m a huge fan of Y Combinator and what they’ve built over the years. I was in there once a couple of years ago, and they had the TechCrunch bump on the wall. Similarly, in hardware, there’s a lot of spikes, and there’s lots of drops. We get the calls usually when they’re at the bottom, the drop-off, asking for help. It is an exciting time, because you know how to help them.
We work with companies as they go through that process. What we try to do with the company is, when your VC is sitting in their Monday-morning partnership meetings and a company comes in to present, we would want them to look at the company the same, whether it’s a software company or a hardware company. Then to do that with a lot of work on the platform to get it right.
The biggest roadblock in Silicon Valley is that if you come up with a great piece of hardware and you’re working with a VC or industry experts, they’re going to tell you, “Oh, you have to go to the big box retailer and get them excited.” Now you have crowdfunding to get started. But at some stage, the company is going to scale and you’ll want to bring a bigger channel to market.
In the old world, the big box retailers will give you a contract; they want consigned channel inventory, potentially a deal where they can return inventory. They also want core marketing, and also want you give the money to be spent on advertising. They want extended payment returns, which is somewhere between 60 and 120 days. The right to return product. Accommodation for buyers. Everything. And they push everything back on the startup. That scares any intelligent investor in that startup.
Om: Right, even Amazon does that. You are suggesting that one of the biggest risks for hardware startups is that they have to take on inventory, which is essentially dead money.
Liam: I always looked at it like, equity should never go into inventory.
Om: But it’s happening more and more. What is the recourse?
Liam: When you look at companies that are fulfilling direct from close to the source of the product, [it’s clear it] doesn’t matter if the product is produced in China or elsewhere. Once you have your global fulfillment close to the production site, then you avoid the whole risk. In the fashion industry, it’s called “fast fashion.” Companies like Zara can turn products around the world in two weeks.
Logistics Isn’t a Four-Letter Word
Om: But Zara has its own stores, so it can predict the inventory for a demanded product.
Liam: They see the demand, they build the demand and they never repeat products, so they sell up.
Om: Is that what you want to do with Fab, to become the Zara of —
Liam: Technology. Wouldn’t that be fantastic?
Om: Do you think you will get to a point where you don’t have to make 1 million units? You can get away with only making 5,000 units of something?
Liam: Absolutely! We talk about building better business. That means making less products, not more products. You can come give us an order for massive quantities, but that’s not necessarily going to be good business.
Om: Inventory is obviously a problem, this three- to four-day shipping you were talking about. I guess that can work from China to America, right? That’s an easy process.
Liam: Actually, it can go anywhere point to point, around the planet.
Om: Will it go any less than that, or is three days the lowest?
Liam: We are able to do it in two days.
Om: That’s a lot of fossil fuel consumption, right?
Liam: We are always concerned about the carbon footprint. But look at all the warehouses full of products that never sell. What’s worse: $300 million worth of inventory that they have to scrap or a carbon footprint of air freight of just what’s needed?
Om: So you want to essentially go from a capex to an opex model?
Liam: Yeah, we only assess when it comes to the packaging, because we want to manage that out-of-box experience. We want to make sure when you open that box, the experience is fantastic. And we can control that. We are a fully stacked hardware company, end to end. You go to the lab downstairs and come up with the idea all the way through: production, packaging, delivery.
Om: Our conversation has been about manufacturing in China. Should I assume you are not much of a believer in renaissance manufacturing in places like North America?
Liam: Great question. There is a renaissance in prototyping, which is creating a renaissance in hardware. It’s not creating a renaissance in manufacturing. Maybe in the future it will change. When you look at the kind of products that we work with, the expertise and skill set is where it is. It is in China for the production, right?
Om: Yeah. I had a conversation with a guy a few months ago, and when I was talking to him about manufacturing, he said that there is a sense of delusion in North America that manufacturing is going to come back, because we have lost all the ancillary factories and the ecosystem.
Liam: Raw materials. The skilled workforce. I wouldn’t think that it’s gone forever. I think there’s opportunity. What they’re doing in Detroit is great. I think what GE has done with FirstBuild in Louisville is fantastic. But it takes strong individuals. It takes people who have passion and really want to do this. It takes people who want to try and be disruptive and to think different.
Om: You talk a lot about making the information around products and sustainability transparent. The tech industry is a huge consumer of global resources. Whether we have our computers running all the time, lithium in our batteries — whatever we are doing, we are impacting the planet. How do you think we as consumers and we as champions of innovation and disruption can talk about these things in an understandable way?
Liam: If you know the location of the factory that’s producing a product, you can measure energy use. You can track where the product is being produced and where it’s going. But you have to have the data to make improvements.
Next Retail Revolution
Om: I have seen your sustainability report, which is fairly detailed and even lists the names of the people who were involved with making a product. It is a small but important gesture, and it reminds me of what Brunello Cucinelli said in our interview about the dignity of work.
Liam: Consumers care about that. But we have to show consumers a path to make a better decision. If you can help consumers do that, then they’ll do it. That’s why we only work with companies that are passionate about design and the consumer experience. Because if it’s a good brand, they will want to make sure their product is made in a responsible way.
Om: Do you think that manufacturers will have to become more transparent about where their products are made and that that transparency will become part of the retail ecosystem?
Liam: In a couple of years, you will go into a store. You will pick up a product. You will look at the back of the product. You will see a bar code on it. You will scan it, and a map will show you where the product was made. Then people can make a decision. If you scan it and it doesn’t come up, hang on a second. Where is this made?
Om: And you recently bought Fab. Why? You just wanted the domain, right?
Liam: We think the domain is great.
Om: Do you want to create a new Hammacher Schlemmer or the Sharper Image online essentially with that?
Liam: Yeah. But it has to have a strong design focus. And I don’t want to limit it to electronic products. We work with great designers that are creative. They want to bring products to market that are not necessarily electronics. It’s about finding those products.
You and I have a great conversation about needs and wants. I’m not interested in the needs. I’m interested in the wants. I’m interested in creating beautiful products that people have always wanted. We love doing this in an efficient way. Teaching companies how to do it.
Why He Doesn’t Live in One Place
Om: Let’s talk about some more fun stuff. You’re completely stateless, and you don’t own a home. Why?
Liam: I’ve spent the last almost 20 years traveling. I love it. It’s my life. I’m comfortable with it. Uber came along and made it acceptable for me not to have a car. I live in hotels. I don’t have an issue with that for now. When we were in New York, I didn’t have a return flight. I knew I was going back, but I wasn’t sure when. Knowing I’m going to get on a 12-hour flight sometime in the next couple of days is great. Travel energizes me.
Om: I find it pretty impressive. My dream has been to do that, reduce all my wants to so little that I can pick up and go whenever I want, wherever I want to go, and wherever I sit, that’s my home.
I think of the streets of New York as my home not because I own a place there. I was born in Delhi. But Delhi is not home for me. Delhi is a place where I was born, where my parents make home. New York is my home, mostly because when I walk the streets, there are memories associated with street corners. That’s my idea of a place. I don’t have a physical bond; I have a bond in my head. I go back to New York to find myself, and then I have to go somewhere else. I don’t think, “I’ll probably be able to live there.” I feel I need to come to San Francisco, but I don’t feel like living here all the time.
You are constantly traveling. We are all animals that have been conditioned to want more and more and more, and accumulate. You’re just a one-suitcase guy. At what point do you learn to live with so little?
Liam: Well, no, I do have a suite in a hotel in China somewhere [laughs]. Even more than one suitcase. I don’t have keys. Keys stress me out.
Om: The biggest problem if I lived stateless would be, where will I put my shoes? I love shoes, and that would freak me out. But seriously, what happens to relationships, friends and family?
Liam: I have three great friends. They say, “He’s just crazy, he’s gone traveling somewhere.” They understand it, that’s the way it is.
Om: My passing last comment is, nobody will ever get to know you. You will always be a mystery.
Liam: In what sense?
Om: I’m just telling you, my friend. You tell, you talk, you share everything, and yet, you don’t tell anything. That’s your superpower!