How Do These Keep Becoming Things?

Two weeks ago the Consumer Electronics Show (CES) gave its yearly insight into the tech we'll all be getting to buy in the coming months and years. Companies reveal major products like cool new TVs with more pixels and better colours, the latest phones, new processors and things we actually use - and then there are the more bizarre things which continue to show that for every joke idea an engineer can come up with, there's a marketing manager who is dumb enough to run with it.

This year had a high bar to try to beat the previous competition, with the likes of Juicero and the June Oven, but the tech world rose to the challenge and brought us toothbrushes with AI, mirrors to tell you that you are not the fairest of them all, and my favorite being the smart hairbrush to help you brush better. All these paled in my reaction, however, to the incredible wonder that was forwarded to me today - Moodo, the smart home fragrance box.

Moodo is an electronic air freshener, programmable with a variety of scents, and you can even create your own scent with it and then share with others. Who wouldn't want to create their own 'Gardens of Isphahan' or 'Cozzzy' scents and share them? It's an amazing package, and only took three years from concept to delivery (well, promised delivery), where you just pop your Keurig style pods in (yay for the consumable business model!), and use the wifi connection to your smartphone app (of course) to dial in the aroma of your dreams from anywhere! Who wouldn't want one?

Now, at least they aren't asking for $700 or $1500 for it, the Indiegogo campaign seems to have it listed around $230 retail for each unit (only moderately outrageous but still pretty expensive for an air freshener), but only $140 or so if you are an Indiegogo 'early bird'. It's the $20 per set of four fragrances for the consumables where the money likely is, following the printer model of giving the printer itself away at cost or small profit, but charging heavily for the ink. Except a printer is actually useful.

Normally I'd say I can see the pitch to the VCs, who really weren't paying attention to the product but saw the consumable sales, the hockey stick revenue growth, and the smartphone/wifi/app nature of it and the cheque was written - but in this case it may not be so ridiculous. The parent company seems to be Agan Aroma/ADAMA Agricultural Solutions which produce chemicals and components for the fragrance industry, and so if they can sell their products direct to consumers at whatever x000% markup compared to industrial purchasers then it's a good deal. So this is something that really seems like a pointless product, but you can understand why the company pursued it. What I can't understand though, is why a company that supposedly has between 1000 and 5000 employees (according to LinkedIn) would use an Indiegogo campaign to get $50,000 of funding to promote it? Seems an odd mix of approaches, and I don't follow the combination of bootstrapping and larger company product promoter. I'll keep following the Indiegogo numbers, as of now 44 people have put in $8,726, let's see if it hits the goal by the end of the month.

Before I leave this topic, there's an update to the Juicero story from the first "How is this a Thing?" Fortune reports that Juicero's new CEO has slashed the price on their product from $700 to $400, after he remembered his Economics 101 class where someone said that you sell slightly more of a useless thing at $400 than at $700. Or was it that you take a loss on each but then make it up in volume? Still, I laughed at the report saying:

Dunn and his team made the decision to cut the cost now after running a test on Black Friday. They priced the machine for less than $400 and doubled their current number of users in one day.

Great, you went from 1 unit sold to 2, (though maybe that was the new CEO's granny feeling sorry for him). Still, you have to wonder about the journalist who didn't follow up on this obvious statement and ask "How many have you sold in total then?". Even if they got a "Can't release sales figures" answer, it takes it from a marketing piece to something more akin to journalism. Come on reporters, how can you build credibility if you can't even take a swing at softballs like that?

More Things That Just Shouldn't Be

A few weeks ago I wrote about Juicero, the "Keurig for Juice", and how despite it being a $700 juicer that required $120 million in funding to realise, there were reasons that an investor would put money into it (dumb reasons, but justifiable dumb reasons). Now it's the turn of "June", the toaster oven. To quote the company:

June is a modern appliance company dedicated to bringing intelligence to the tools you use in the kitchen. Our first product, the June Intelligent Oven, allows everyone to discover the joy of cooking at home by enabling precision cooking and restaurant quality performance on your countertop. The June Intelligent Oven's unique features and brilliant design put an end to guesswork and pave the way for faster, better cooking. Our team of designers, hardware and software engineers is committed to transforming the kitchen experience.

Now, apart from the fact that the joy of cooking is the constant improvement and learning through experience to produce tasty food from imperfect ingredients and tools through skill, it's a nice idea. Maybe they can help the average Joe who doesn't have time to learn to cook prepare quick and nutritious food at home rather than dining out or eating salt and sugar laden pre-packaged meals. Looking at Target and Amazon, the price ranges for most toaster ovens are in the the $50 to $150 range, with the highest rated top-of-the-line ovens going for about $225, so a superior oven may go for $300 to be competitive. 

What does the "June" retail for? $1495 (yes, one thousand four hundred and ninety five dollars).

So what do you get for this $1250, or 500%, premium over the best of the rest? Well it comes with a camera that recognizes your food, and then uses its "intelligence" to cook it to perfection, all the while sending you updates via your phone, letting you know it's ready. Of course, it's got that "Apple look" so that's worth a premium too, but that's about as far as the innovation goes. 

And what did it take to produce this masterpiece oven? According to Crunchbase, near $30 million (yes, thirty million dollars), and from their own website, it looks like June has near 50 people working for them. Interestingly, of those 50, I only count around 6 who are potentially involved in hardware design. It's no surprise, then, to hear that the actual hardware design was outsourced to Ammunition (who designed the Lyft logo). Yes, June didn't even design the hardware, and likely just gave Ammunition a list of key features needed without remembering to include "and a Bill of Materials of no more than $100". That, combined with the founders who are software and not hardware people, is probably why nobody said "Um. This is going to be way more expensive than the competition and not deliver substantially improved performance in any area, maybe we should rethink this."

Even the company itself is really struggling to push its virtues - the website uses this as one of the leading quotes from a review in the Wall Street Journal:

The June Intelligent Oven is an Internet-connected countertop system that can recognize foods and automatically cook them for you.

Wow, I have to get myself one of those! An oven that cooks! Amazing! The co-founder then goes on to really sell it well in a Techcrunch article:

“It’s always surrounding your food with hot air,” Bhogal said. “What’s cooked in the corner will always taste like what’s cooked the middle. We spent a lot of time adding precise temperature controls, and that’s not usually seen in this space. We spent a lot of time fine-tuning the cavity. We used a cavity which helps with heat, we fine tuned our insulation, and even the door itself.”

So basically it acts like every other convection oven, but - and here's the real key differentiator - there was a team of Silicon Valley startup engineers who spent lots of time fine tuning components. Yep, that'll make your food taste better and your wallet hurt less. (BTW, the engineers who make ovens actually do spend time working on things like that, they just know they're on a budget)

And this is both why this product is ridiculous, and why a large portion of the world looks at Silicon Valley with contempt. This product is not about the customer, or serving an unmet need. It's about serving the egos and notion of self-worth of a couple of people in the top % of education and income. The customer doesn't care how much time you spent fine tuning things, what the technology is, or how much you need to believe you're changing the world - what they care about is a product that solves their problem, makes their life easier, gets things done faster, all at a reasonable price. That's it. While the privileged few can worry about their feelings of self-worth, most people just need to pay the bills and get through the day as best they can.

It's why the likes of Uber succeed and despite their sometimes dubious business practices remain popular. They take a useful and needed service like on-demand transportation, that is currently underserved, and then make it frictionless and easy to use, all at a price point that's highly competitive. They tapped into a need of the customer, and met it. It's why in the traditional layout of a pitch deck that is presented to VCs by a startup, there are a couple of slides on things like "Customer Need" and "Pain Points".

So what would June have presented to VCs in this regard, to show the market need, huge potential for growth, and ongoing revenue? Well, I've sat here for a few hours trying to come up with the pitch that, like with Juicero, would make this product make sense, and I've failed. Here's the only thing I could come up with: One of the co-founders was the co-founder of Lyft. That's it. He previously co-founded a successful startup and even though it is not even in the vaguely same space, software/service rather than hardware, that's all that's needed. Everyone knows the hardware part is easy, and you just outsource that anyway.

Now, to be fair, they may have been pitching the larger play, in getting into "the connected home", and becoming a brand name like Nest, and therefore willing to pay an upfront cost of an expensive first product to gain the skills needed to iterate and improve - the long game, as it were. Even there I just couldn't see where the money comes in. However even if that's the play they've made a basic mistake, and that's in the outsourcing of the hardware.

In not building the hardware themselves, they clearly fail to appreciate the interaction of hardware and software, the necessary back and forth between the engineering teams. The adjustments, the compromises, the understanding of how things work together, are all key to building a product that meets a need in a cost effective manner. It's a common mistake from people with a software only background, when leading a hardware project, to "black box" everything like modules and view it as a Gantt Chart rather than as an interconnected system where feedback between the components is an integral part of the design and development phases. Now, even after $30 million in funding, they don't have the skills to do their next product themselves, it's going to have to be outsourced again. 

I can't blame the outsourcing company for taking the gig, after all, payment is not based upon the product actually selling, but rather satisfying the ego of a startup founder with millions of dollars of other people's money. I can't even blame the founders for taking $30 million, if it's offered. That VCs funded this without someone really looking at their business model is just stunning, but hey, hardware is hard, and the guy did co-found Lyft, so what more do you need?

All the actors in this play are just acting in line with the incentives. Put the money out there, and they'll play whatever part allows them to get a share of it. Without that money, or with different metrics for award of it, the world of $1500 toaster ovens might actually become one where there are products made that customers need.

And how well does the product work? To answer that I'll leave with this quote from a product review entitled "This $1500 Toaster Oven is Everything That Is Wrong with Silicon Valley Design".

Cooking has always been a highly personal, multi-sensory experience, where trial and error is the only way to become the all-star cook most of us know as grandma. But as I put the salmon on the table 40 minutes later than projected, I had no idea what I should have done differently, other than to never have used June in the first place.

How Is This A Thing?

When talking about what sort of companies get funding from VC, I have a saying: 

Even when you take into account that VCs will fund companies more pointless than you can imagine, VCs will still fund companies more pointless than you imagined.

In that vein, I was amused today to read about Juicero, a company that makes juicers (the things that squeeze fruit and veg and make glasses of juice), and was funded to what was believed to be a total of $120 million. Yes, $120 million. I know it's been covered earlier this year but somehow I missed it, perhaps I assumed it was an April Fool's joke and ignored it, but it's for real.

So what is it? It's a $700 juicer that you buy (yes, seven hundred dollars), and then in the same way you buy different coffee pods for a Keurig, you buy different types of juice packets which range up to $10 each (yes, ten dollars). Hey, pre-cleaning and chopping organic (of course) fruit then putting it in a non-degradable packet is hard work! Pop the juice packet into the juicer, press a button, and a minute later you have a glass of juice. Then you throw away the packet, nothing to clean. But wait, there's more. The packet has a QR code on it (those square, 2D barcodes) and the system reads the QR code to compare with an internet database (it's WiFi connected of course) and see if the packet is in date - if you're in luck the system will press the juice for you just right. If not, or your internet happens to be down, no such luck and the $10 you spent will get you nothing.

So the skeptic in me sees:

• A solution to a non-existent problem. This solves nothing. No pain point other than a bit of washing up
• Vastly more expensive and environmentally damaging than the existing method
• Multiple points of failure and unnecessary complexity
• At best serves a tiny demographic

Buying the most expensive organic pressed juice in Whole Foods (you know, stuff someone has pre-cleaned and chopped and put in a plastic packet) and putting it in your fridge would be cheaper than this, wouldn't need an initial $700 investment, and you could still drink it when you the WiFi goes down. It's the sort of thing that you'd ridicule an undergraduate student for in their final year "Entrepreneurial Studies" final project, or congratulate them for the best parody startup you'd seen. But it got funded. For $120 million. How?

Industrial Design

The system looks beautiful. Just look at that sleek Jony Ive style design, it's like an iPhone on your countertop, how could you not want that? That alone makes it worth $120 million. OK, you think I'm, joking here? One of the things I've observed in the last few years of watching startup funding is this: Never underestimate the value of the mock-up, it's about the most important thing to show when fundraising. Not the prototype, the mock-up (but be sure to call it a prototype).

As an engineer, I've been more the "show something working even if it's a bag of circuits and wires, cleaning it up later is the easier part". More fool me. What I've learned is that such demonstrations press the 'off' button with investors - instead, show a mock-up or better yet the Industrial Design (ID). Best if you can put it into their hands, but an "artist's rendering" works amazingly well too. Seriously, investors seem to lose any ability to ask questions about the actual product when they're handed a piece of cardboard covered in plastic with a logo on it. "Hey, look how cool this thing is! It's amazing! All the hard work is done, all someone has to do is all the engineering/user design, validation, and testing to make it happen!"

I can see this having been part of the pitch deck to investors, a cool image and saying some ID firm run by ex-Apple designers is on it, and they'll think it's 90% done. Just be sure to accidentally say "prototype".

Market Penetration

Next I can see the slide showing some data on growth in juice bars, which if you live in places like SF or on Main Street in Santa Monica, there seem to be one every block running a 'special' of "4 for $30". I used to sit in the bar or ramen place opposite and count how many went inside during the day. If it got over a couple in an hour it was unusual, I've no idea how they survived. However, if you've got too much money then you all friends know people who 'juice', it's a health thing, and $10 for a juice isn't ridiculous so that's all OK.

Then we get the market equivalent - the Keurig. They'll have some curves showing Keurig's rise to around $4 billion in sales in 2014, and a tag line such as "The Keurig for Juice!". What's not to love about it? They sell the hardware, but then get the lock-in on the juice packets and receive ongoing revenue from that. Even better, the QR code means it won't work with third party packets, and unlike Keurig's failed attempts to create such a lockin, the fact the system is internet connected is the way they'll ensure that it can't be bypassed. Thought it was stupid that there was such a point of failure? No, to investors that's a positive! 

It's not even a system where they buy on demand like Keurig, nope here you go on a subscription and you get your supply sent every week. Better not miss your juice intake for the day, it's your health after all. They'll have that hockey stick curve of 1000 sales in year one, 10,000 in year two, and then a million in years three and out, with the consumables revenue from all those sales building nicely to make this a billion dollar company in year 5. Who wouldn't invest in that?

Supply Chain

Next they'll show how they'll corner the market in the consumable preparation, buying in vast quantities from the organic farmers and driving down the price, getting further margins there. They'll probably be something in there that shows how they can shift the content mix in each packet to use the cheapest ingredients available at the time. Something of a logistical nightmare, but it sounds great.

An Impulse Buy

It seems they aim for the "give away the razor, charge for the razor blades" approach of Gillette - except in this case they "give away" the first part for ~$700. Not a necessity and hardly in the impulse buy category, I have a sneaking suspicion they initially targeted a lower price point than this telling the investors it would sell for the price of a Keurig, with an entry level product in the $100 to $200 range, then just utterly failed to hit it. Right now I can imagine they're telling investors something like "This is the premium version, we've got a plan for cost down for the regular version!" when this probably was the standard version. It won't be the first time a CEO has demanded a product with every feature, in a really short timeframe, and then been shocked at the cost. When you're looking at time, cost, and quality, you only get to pick two, and time is never on your side as a startup.

That $700 may even be a subsidised number (though they claim not), but regardless if you assume that their COGs is around 30% of the price then you're looking at parts and labor of more than what an equivalent product retails for. They had two years to get this going, and while supply chain can take that long, without anything exotic in the design, time was not a restriction in getting this made, they should have had time to Design for Cost. Instead, I suspect a series of changing demands, feature creep, and failure to plan before initiating hardware builds made it take longer than should have been.

The Founder

And here we come to the main event, the CEO, Doug Evans. If ever you have a True Believer who is absolutely invested in this product and actually believes in what he's selling no matter how crazy, this is it. He compares himself and his product to Tesla, and that his method of squeezing gets more Chi, life force, and vibrational energy out of the juice. (Wait, vibrational energy? Maybe it can charge your phone at the same time!). 

How can you not believe in someone who can lead and inspire like this?

“Organic cold-pressed juice is rainwater filtered through the soil and the roots and the stems and the plants,” he said. “You extract the water molecules, the chlorophyll, the anthocyanin and the flavonoids and the micronutrients. You’re getting this living nutrition. It’s like drinking the nectar of the earth.”

He had the "Tenacity, Resilience, Perspiration" needed to never give up, so loved by investors. He even had Domain Experience, having run juice bars before. What does it matter this was a electro-mechanical system, consumer product, software app, supply chain, and retail play, none of which he had experience of. At least he later realised what a huge job it was to get it to market:

“I was just naïve,” Mr. Evans said. “I was like Forrest Gump. I had no idea what it took to make a piece of hardware that could ship to consumers safely.”

It's a pity more technically inexperienced founders don't listen to advice from those who tell them their timelines are ridiculous and that there are massive technical and safety concerns that shouldn't be ignored. 

What The VC Sees
Now imagine you're a Venture Capitalist, looking for somewhere to put your money for a possible 10x to 100x return and make your fund profitable, making up for all the other plays that tanked. Do you laugh this "Juicero" out the room, or do you make a mental list of all the positives and evaluate the risk versus the potential returns? If you did that, here's what you might get:

• A dedicated True Believer Founder
• A simple tagline, easy to understand 
• A comparison business model that shows billions in revenue
• Profit on the product, ongoing revenue from consumables
• A 'hockey stick' revenue curve
• No new technology needed, it's really an execution play
• Digital lockout of third party suppliers
• First mover advantage

Honestly, I look at that list and think "I can see why someone invested" especially if you can get them salivating over owning a part of "Keurig for Juice" early on and that it's going to be $200 a pop. If you even think there's a 10% chance it could match Keurig's $4 billion a year in revenue, a few million invested actually isn't totally ridiculous. 

So when you pitch your awesome idea to a VC and they don't invest, and then that VC pours a ton of money into a juicer company for a product that no-one is going to buy, have a look at how your business model compares to theirs. 

On paper, Juicero ticks all the boxes and makes sense as a VC investment. In reality, it's totally dumb. Do you see now why this is a thing, and you're not getting funded?

Update - Here's a link to a great Youtube video doing a breakdown of the Juicero. TL;DR - No cost constraints lead to lack of careful thinking, so overbuilt and clearly losing money on every one, to be made up for with the ~$2000 per year pack subscription.