TSP059 | David A. Rosen – Transcription
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John:
Welcome to The Successful Pitch. Today’s guest is David Rosen, the CEO of TechX Foundry. He is all about what’s going on in innovation. In fact, he won Innovator of the Year around robotics, drones, and 3D printers. David talks about the need to really figure out which way are you going to manage your company. Is it through the product, is it through the process that you’re going to do, like what your culture is and what customer satisfaction is, or is it customer-centric and focused that way? When you can explain that to an investor, you automatically are able to set yourself apart from the other founders that are pitching. He said, “You know, you really need to have an a-ha moment or a so what moment; that’s the first litmus test when you’re pitching,” and what he does is help innovators innovate by saving them time and money. Enjoy the episode.
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John:
Hi, and welcome to The Successful Pitch podcast. Today’s guest is David Rosen who’s the CEO of TechX Foundry, which was founded in 2013 and TechX is all about creating startup teams to build the most advanced innovation center for designing, prototyping, new tech hardware systems and software. I think there’s probably a great story in there about robotics but David also concurrently does something where he won Innovator of the Year for receiving awards for national manufacturing days so we’re definitely going to want to hear about that. As if that’s not enough, he also is involved with a company called Acrelic Group where he’s been providing leadership and coaching development, helping people get funded and knowing what is involved with M&A transactions. He sits on the board of more than five advisory boards and developed critical mass to get a company from 5 to 10 million to over 100 million in 5 years. David, welcome to the show.
David:
Thank you, John. I appreciate being here and look forward to our discussion.
John:
Yes.
I always like to find out how did someone like you get started? I mean, you’ve done so many amazing things and you’ve also been involved with Signal Lake, which is an adviser to them to a VC. Did you know when you were in college that this is where you wanted to end up or was it a happy accident?
David:
You know, I kind of just connected one opportunity to the next throughout my career but I’m kind of a bootstrapper and I’ve worked since I was 11 and a half years old without working papers.
John:
Child labor, right?
David:
So, I’ve always worked and I’ve been very fortunate and very lucky. I grew up in the Midwest in a farm town without any real network connections. I just had a good family and good parents who kind of told me I could do whatever I wanted to as long as I worked hard.
John:
How great is that? You know, you can never underestimate the value of being told, at a young age, to believe in yourself.
David:
I was very lucky where they told me to believe in myself but they also gave me the foundation to actually test that out as opposed to a little bit of overpraising which, I think, can actually end up putting you in the wrong direction. You think you can do anything but don’t understand that it takes work. That can be more challenging than having to work for it but —
John:
Right.
David:
Yeah, I’ve been working and I’ve gotten very lucky. I’ve worked for some great people in my life and I started working even when I was in college. I worked my last two years full-time because I was at Boston University but then worked in Harvard where I was kind of an IT guru helping the internal IT department put in PCs and systems to the various schools and colleges at Harvard. I found myself in the middle of all that.
John:
What an exciting place to be: Harvard and the beginning of the internet. That’s great. So, what is it like — let’s just jump right into one of these many jobs that you have. What’s it like being the adviser to Signal Lake, which is a venture capital? What kind of things that you see that they look for when people pitch them? What makes them stand out from other VCs? Any insights you can give on that would be really interesting.
David:
Yeah, what I like about Signal Lake, John, is I sold my last software company. I started a software company back in 2001 and it was an enterprise application for marketing and inside sales in sales. So I had to cut my teeth on really before AWS and a lot of the cloud services were there. We had to figure out how to provision ourselves. We’re in the cloud with our own tools and technologies but also used my foundation of understanding how large companies like to buy — so after I sold that software company about three and a half years ago, I started looking what to do next and I ran into Bart Stuck, who was one of the founders of Signal Lake, and Bart is a very interesting former Bell Labs thinker and very strong technical guy and, in my career, I’ve been involved in hardware and software evaluations and evaluation and assessments. Signal Lake is very technical in how they look at companies. They’re not looking at viral software application plays as much as they are looking for new industrial solutions to bring to market.
John:
So, they’re very specific, it sounds like?
David:
Well, they’re very specific and they don’t mind looking at the potential that comes from highly complex technologies or products that are typically not consumer-driven but more industrial-driven.
John:
Interesting. But that still requires the founders to come in and pitch them even if it’s a complex product which, oftentimes I find, is even more challenging to take something so complex and be able to explain it to somebody in a way that they can simply understand it.
David:
Well, that’s the first litmus test. If it doesn’t have an “a-ha” or a “so what” for anyone, I don’t care how technical they are, it has to have some value and that’s the first litmus test, right?
John:
Great.
David: If there’s no economic value or if there’s no productivity value or if there’s no shifting change to a current marketplace then why just invest in technology?
John:
That’s great, and so many people fall so in love with their product that they don’t know how to talk about anything else, including themselves. What are some of the qualities you think investors look for in founders and what qualities did you have when you were an entrepreneur that has led to your success?
David:
You know, there’s three ways to look at managing a company. You can manage a company for its product, you can manage a company for its process, or you can manage a company for its customers and usually a company chooses one of those three dimensions to dominate how they think about their business. So, when you’ve got a product or a technology-driven company, you still have to think about it from the process or customer perspective but you’re trying to differentiate yourself based upon beating out the functionality and features of another solution but it still requires an understanding of the customer and my bias is always bringing the customer viewpoint in as opposed to looking at things from an internal perspective.
John:
Yes. I mean, I just want to talk about that for a second because it’s such an important point you brought up, David, which is if a company’s focused on engineering leading the way as opposed to being more marketing focused, then the engineers keep developing things and telling the marketing and salespeople, “Go sell this,” and the salespeople are saying, “Well, the customers don’t need it or want it,” so there’s all that conflict going on. So you’re saying if you listen to your customers before you add bells and whistles or develop something completely new, it’s a much easier way to manage your company, right?
David:
Exactly. Now, the customer is always king in my mind so I tend to focus more on customers before I focus on technology and product and, in my early days of my career, IBM might not have had the best solution from a technical perspective but the way they marketed for their customers, they always ensured that they made it clear about what their value proposition was.
John:
Right, I used to sell against IBM in the early ’80s with Amdahl and Control Data and I remember their acronym, FUD, fear, uncertainty, and doubt. If you bought anything that wasn’t IBM, they would point fingers and blame the other vendor. So, they ruled and got people to buy for a lot of variety of reasons besides the product.
David:
You’re exactly right, John, and the reality was the saying used to be you wouldn’t get fired by going with IBM.
John:
Right, and now, of course, I don’t think anybody really has that kind of dominance anymore, and what’s the second one? Let’s talk about your second way of managing the company, which is process. Describe to us the pros and cons of that.
David:
Well, that’s where you distinguish yourselves based upon how you go to market. It might be your culture of service, it might be your customer satisfaction, it might be the way you approach the market. McDonald’s is a great example of a process-oriented business. They have you thinking and they ensure that they deliver so that when you go to McDonald’s in Tokyo or you go to McDonald’s in Burma or you go to a McDonald’s in Chicago that the burger is — you know, their burger is always the same, their service is always the same, and their food is always consistent and that’s from a very strong process orientation.
John:
Got it. Starbucks is another example, I think, that does that worldwide. It’s great. Alright, so we have either being product-focused, process-focused, and then, of course, customer-focused, which is all about making the customer right. I would think, would Amazon be an example of a customer process or a based way to manage?
David: Yeah, they’re very effective at their process as well but they really mine the data of their customers to anticipate or to target which customers are going to be likely consumers of something next.
John:
Yes, if you liked this, you’ll like that. Well, I think just you giving us this insight, David, is so valuable. I’ve done many interviews and you’re the first person to spell it out like this and so for the listeners, the big takeaway is before you go pitch for an investor, figure out which of these three ways you’re going to manage your company so that you can articulate it to the investors and then get a sense of what your culture is and is not, right?
David:
Exactly. I think having clarity about which of those three is going to provide your success is very critical to your future as well.
John:
Because what I hear time and time again from investors is we really look to see how a founder thinks and are they flexible and so having these things thought out makes you stand out against all the other pitches they hear, don’t you think?
David:
Yes, I absolutely agree.
John:
Well, let’s hear about you winning Innovator of the Year. First of all, congratulations, and tell us what that was like and what did you innovate?
David:
Thank you. You know, I feel a little bit like Obama when he got the Nobel Peace prize two weeks into the job and I feel like, “Okay, now I have to innovate on something.” What’s interesting and what’s been very — what’s been driving me over the past few years is after I sold my last software company, I tried to figure out what to do next and what I found was that a growing increase in the investments going into tech hardware companies because I think there’s a lot of people out there with app fatigue and that software isn’t the only option going forward and between the four or five mega trends out there from the economics of manufacturing close to demand as opposed to manufacturing close to supply and raw materials and low cost labor that there’s an opportunity to reshore manufacturing because the US is still the largest demanding country in the world as far as I know and the fact that personalization and the demand for more unique products as opposed to, “I want one of the five million black cellphones that are being made,” people want a phone with their own picture on their back and a green ring around a red button that that supply and demand for personalization is, therefore, driving the need and demand for micromanufacturing, which plays right into smaller viands meaning an opportunity to manufacture again, locally and closer to the consumer with more personalized products so all these things are coming together around localized manufacturing and what I’m addressing is going after those opportunities, trying to make sure we’re not going to miss the next revolution in technology hardware systems and software manufacturing. You know, John, I can tell when you and I were growing up, we thought of IT jobs as the – and the white collar jobs of IT – as our nirvana and where the US was going to be going, correct?
John:
Mm-hmm, yes.
David:
We all felt that that was our wave and that’s what we were going to be good at and, in fact, during that period of time from the ’80s from 1986 to today, manufacturing companies in New Jersey, as just one example, went from 115,000 manufacturers located in New Jersey to less than 13,000 today and so those kinds of numbers are indicative that, yes, we are going to be an IT culture and we didn’t want to do manufacturing so we relegated it to offshore options. If we look at how we outsource our IT today, probably more than 50% of our IT is outsourced, right?
John:
Right, everyone thinks they can get it done cheaper, less labor costs and — well, that brings up a really great point, which is a lot of people think, “Well, I don’t need to have my tech CEO with me here in America. I can outsource that,” and I keep hearing from investors that they do not like that.
David:
So, you’re absolutely right. At some point in time, people have been outsourcing beyond the flesh and into the bone, which is a difficult thing to do. I know that’s a terrible analogy but —
John:
No, I get it. Let’s jump back to what you’re saying about personalization, which is what you won the Innovator of the Year award for. You know, I recently went to a Nike store and they allow you to customize your shoe on the computer. You know, what color laces do you want and then while you’re doing all that right at the store level. Talk about getting people to come into the store versus buying it online and then while you wait, that all magically happens so you walk out with a pair of — with the name on the tongue of your show if that’s what you want It’s amazing to see how that really is a big, big part of the trend in the future, I think.
David:
Exactly right, and that’s why I started TechX Foundry because I believe that if you look at the investment dollars from CB Insights, you’ll see that the market for hardware investments is growing faster now than the software investment marketplace and so if you also look at the new trends, New York is now the second largest market for investments in the world next to San Francisco or the west coast and Massachusetts is now number 3 so the New York metropolitan area where I’m located is right with the money backing from New York but very few companies, especially tech hardware companies, can afford to be located in Manhattan, especially now that the average cost of a condominium or the average sale of a house in New York is well over a million dollars again as the recovery’s turned in, right?
John:
Right. Well, there’s three areas that you do at TechX that I’m completely fascinated by and would love to have you talk about each one a little bit if you wouldn’t mind. One is robotics, the second is 3D printing, and the third is tech fashion. So, pick whichever one you want to start with and tell us a little bit about what you’re doing with those.
David:
So, there’s a common thread here and the common thread, John, is that all the applications, whether it’s robots that are being immigrated, robots and autonomous vehicles and even drones are all solving the same problems, right? They’re trying to interpret what’s in front of them in order to function and to do something, to accomplish something, they all need to sense whether something’s in the way or something needs to be moved and to know that a piece of grass is something to be avoided if you’re driving and so robotics and autonomous vehicles, they’re all multidisciplinary functions that integrate with software that are just going to grow in terms of number of opportunities out in the marketplace and so all these things require an ability to pull together everything from metalworking and woodworking to plastic molding and plastic forming to electronics and sensors and devices that sense things and tell a machine that’s moving to move away from it or to grab something that may be necessary and so what we’re doing with TechX Foundry is enabling people to have access to all those tools and technologies in a gym membership kind of model where you have to pay for the capital costs of that equipment. So, if you’re starting a robotics company today, you’re typically going to need a quarter of a million or a half a million dollars in technology equipment to get that business off the ground into upwards of millions of dollars and what we’re doing is we’re helping inventors and innovators and startup companies have access to those tools and technologies and eliminate those capital costs.
John:
Basically, helping innovators innovate?
David:
Helping innovators innovate but they can do it without capital cost. They’re going to do it much faster than doing it offshore because the other problem and challenge that we’ve heard from a lot of technology hardware companies is that they have three-week turnarounds from a design review before they get their next iteration or prototype iteration back and if you consider that you’ve got six or ten iterations before you come up with a prototype that you can validate, that’s potentially a half a year delay of time to cash or time working that you’re missing because you’re going offshore.
John:
That’s lost revenues, that’s competitive market share. There’s all kinds of issues that you’re fixing there.
David:
Exactly, first to market, all those issues. So, one, minimizing capital’s an important aspect for a tech hardware company, two, minimizing the amount of time it takes to develop a prototype is critical. The other thing is when you prototype offshore, you’re also losing out on the knowledge gained during the process of prototyping. So, if you are — and I know one of the 3D printer companies is experiencing this today because they – Solidoodle made its first product here in the US and they went to their version 2 and they made it outside the US and they’re subjected to a six month delay because the manufacturer that they were working with had, one, some problems and, two, a much larger customer came in and consumed the manufacturing space for their products and put the other thing on hold.
So, here you are with an order of 10,000 units and you’re not working with somebody who just got a big order from somebody 10 to 50 times your size and you just got pushed aside to get that order done for the other customer. You’ve got 2,000 out of your 10,000 units and you’re told, “Tough luck. It’s going to take a while.”
John:
Right. Wow.
David:
Manufacturing locally, people don’t know that there’s a lot of local people who can help whether they’re in Massachusetts or whether they’re in New Jersey or whether they’re in Ohio or Indiana. A ton of companies that the ones that have survived in manufacturing are very good at what they do and very efficient in what they do, they just don’t market themselves well so you don’t know how to go find them and that’s what needs to happen in terms of innovating that supply chain and I’m bringing this story background to innovation and my Innovator of the Year award.
John:
I love it. Yeah.
David: I didn’t mean to not answer that directly but how I got there is part of the reason why I got that award because I’m starting to bring more companies into local manufacturers who are having successes on developing products locally and mitigating their risk, reducing the capital to market, and increasing their time to market, which are three important aspects any tech hardware startup or any innovator, inventor who wants to get a product to market.
John:
Those are such great lessons for everybody to keep in mind when you’re pitching to get funded or running your own business. It’s really, really helpful.
David:
And how you’re managing those three things as well, right?
John:
Oh, yes, yes. It’s all about execution. That’s the other big thing that investors seek all the time and do you have any suggestions on how to prove to potential investors that you and your team are the right people to execute an idea?
David:
You know, that’s a very good question and I don’t want to sound pedantic or rote but sometimes you find startup teams of people who have barely had to manage their lunch money as their biggest responsibility before they start their companies, right?
John:
Right.
David:
So, when you take a team of two people and you now ask them to add a third person to the equation, sometimes that becomes one of the most difficult challenges and that’s where startups and founders have to really step aside and understand what are they truly bringing to the table in their startups because it’s one thing to have great inspiration and perspiration to bring something to market, but at some point in time, you’ve got to divide and conquer and you’ve got to collaborate and we’re not always being brought up in a collaborative atmosphere today.
John:
Well, you can’t do everything yourself and almost everybody brings passion and inspiration and sweat equity so you need to differentiate yourself with your skill sets being complementary. That’s what you’re saying.
David:
Exactly, and you know, the other thing, for a startup team is to always put your ego aside and that’s very hard to do when part of what’s gotten you to where you are today is your persistence and belief.
John:
Well, it’s confidence without arrogance is the way I like to look at it.
David:
I think that’s a perfect way to put it, John.
John:
Okay, great. David, is there any book that you would recommend founders to read either about business or even life?
David:
You know, I wish I was a — you know, as a bootstrapper, I haven’t always been the most academic and yet, I’ve been able to go at par with some of the top academics in the world and have some really strong debates and conversations but there’s a couple of things that come to mind: one is Lean Startup. I’ve spent half of my career advising the tech – the tech 200, tech 300 and so I’ve adapted to the phased gate array investment processes that are put into place and I bring, again, more of a market viewpoint to that strategic thinking in terms of identifying new markets for large companies to get into or for different ways to look at the portfolio businesses that they have and figure out which ones belong and which ones don’t belong. But, at the same time, Lean Thinking and The Lean Startup is starting to really break through the new ways of working and bringing technology businesses to market. I sat down with the CTO of GE appliances about a month and a half ago and GE is one of the founders of the 9-box and the strategic thinking methods that have been ingrained in companies for many years, right?
John:
Right.
David:
And they now have partnered with a MakerSpace because they realized that the 24 phased gate array process of going from a good idea to marketplace has to be changed and radicalized.
John:
Wow, if GE needs to partner and collaborate, everybody does is what I’m getting.
David:
Exactly. I mean, they had one of — the CTO said, “Why are my engineers spending time between 5 o’clock and 3 in the morning working at this MakerSpace across the street from us? And what they found was that one of their engineers devised a new product that could be applied to their refrigerators and was able to crowdfund $250,000 for that new product to make, I think it was square ice cubes and he said, “You know what? I’m not going to care about the intellectual property and I’m going to give this engineer a royalty for bringing in this product to market and we’re going to add this product to our product line.” Now, that’s not the GE I knew of the past.
John:
No. I love it. What a great story to end on, you know? It’s all about collaboration and innovation and the desire to make a difference and express yourself will keep us all at the forefront of leading interesting and creative and successful lives.
David:
And that new thinking and new ways to identify new products and bring them to the market quickly, there’s good value propositions behind them and testing them through crowdfunded methods or other methods is going to be a more pervasive way to look at product innovation, even for the largest companies.
John:
Fantastic. David, how can people follow you on social media? What’s your Twitter handle?
David:
I’m @DavidARosen at Twitter. I’m @DavidARosen at TechX Foundry. company/techx-foundry in LinkedIn. I’m @DavidARosen on LinkedIn and at techxfoundry.com on the web.
John:
Fantastic. It’s been a pleasure having you. Thank you for sharing your innovation and your insights. You are quite an inspiration to everybody.
David:
Thank you, John. I hope I wasn’t too inspirational but I’m very passionate about what I do and I’m very lucky to be around some great people in watching a new revolution of what I think is manufacturing 4.0, which is going to drive a lot of great opportunities for US manufacturers to go to market in the US and to take their products elsewhere.
John:
I’m excited to see what the robots and the 3D printers bring to all of us. Thanks again, David.
David:
Thanks, John. Be well.
John:
You too.
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