Andrew: In this interview, you’re going to hear the very entrepreneurial
thing that today’s guest did one week before his first daughter was born.
You’re also going to learn how he got investors for his startup even though
the dude was way outside of Silicon Valley. If you’re going for funding,
if you’re outside Silicon Valley, I want you to specially pay attention to
that section. And you’re going to see how his company turned down customers
and why doing that can help you build a better business too. All that and
so much more coming up. Three messages before we get started.
First, do you need web design work? Go to LaunchTower.com. It’s run by Alex
Champagne, who has helped me with a lot of last minute projects at Mixergy.
Now he’s running a design company at LaunchTower.com.
Second, do you need a lawyer who actually understands the startup world
that you live in? Go to WalkerCorporateLaw.com. I’ve known Scott Edward
Walker for years so tell him you’re a friend of mine when you go to
WalkerCorporateLaw.com.
Finally, what are the big challenges that you have as a founder? Go to
MixergyPremium.com and take courses thought by proven entrepreneurs who
want to help you get through your toughest challenges. MixergyPremium.com.
Let’s get started.
Andrew: Hey there, freedom fighters. My name is Andrew:. I’m the founder of
Mixergy.com, home of the ambitious upstart. How do you build a thriving
community of over 194,000 engineers? Hardi: is the co-founder of GrabCAD,
which has a goal of becoming the largest mechanical engineering
collaboration platform. They’re well on their way to do that. I want to
find out how he built his community, how he got so many engineers to engage
in it and so much more and we’re going to ask him that. But before I do, I
got to say thank you to TechStars and specifically to David Cohen for
introducing me to Hardi. This is part of my series of interviews with
founders whose companies were funded and helped by TechStars. Hardi,
welcome.
Hardi: Welcome.
Andrew: Hey, I want people to understand how effective your site is or how
important your site is to engineers. I was wondering if you could start off
by telling the audience the story of the motorcycle designer who was using
GrabCAD because I think that’ll help the audience understand your business.
Hardi: Yeah, happy to. So we have one mechanical engineer called Terry
Stonehawker. And it was summer in Midwest in America. I don’t exactly know
where he lives but we’ve communicated many times and he was really
struggling in his life. His passion is designing and building motorcycles
but he didn’t have work because he joined GrabCAD during the recession and
in his area there really wasn’t a lot of jobs for him.
Andrew: I’m sorry. Before you continue, let me just see if I understand
this. There’s people who just design motorcycles. Is it for fun or is it a
job that he has designing motorcycles?
Hardi: So he had, half of the time he was free-lancing designing
motorcycles and selling those and half of the time he was just day to day
mechanical engineer. Worked in a company before he was laid off.
Andrew: OK. All right. So he’s designing motorcycles. He was laid off. He
comes to your site. He registers to do what?
Hardi: So what we’ve built is a way for mechanical engineers to express
themselves through the great work they’ve done. So Terry was actually one
of our first users and what he did is, he designed one custom motorcycle
and he spent six months modeling in the computer aided design system that
motorcycle. And after that he manufactured that. But before you manufacture
something, you design it and he spent six months designing that and he
uploaded full six months work to GrabCAD and he did that for all the work
he had designed.
Andrew: So he designs a motorcycle. He uploads all the full design to your
site, where anyone else can see how he designed it. Where anyone else can
basically follow the instructions that he uploaded to your site and
recreate this motorcycle that took him a long time to design, right?
Hardi: Yes. They can manufacture it or students and not-so-experienced
Engineers can actually download to pull the models and learn how he
actually graded Decath [SP] on this.
Andrew: Before you tell me what happened to him, what’s in it for him? Why
would he upload all of his designs to your site, the GrabCAD?
Hardi: There are different motivations. For him, he really wanted to get
the word out about his passion as well as give back to the community and
help those young Engineers. There have been many peer-to-peer relationships
between experience and young Engineers that have already happened on
GrabCad. So there’s many different motivations to people who actually share
their work.
Andrew: OK. So he uploads it and then what happened to him?
Hardi: First of all, about fifty thousand Engineers have downloaded and
gained benefit from seeing his work. However, one other special thing
started to happen. He suddenly started to get a lot of phone calls from
people wanting to hire him. Today, when I last spoke with him, he’s working
with the top aviation and automotive company in Germany designing a
submarine. He’s helping people all over the world to design and manufacture
custom motorcycles. So he lives his dream, having more work today that he
can do from home that he can actually handle.
Andrew: So, Software Developers share code on a regular basis. It’s part of
the culture. What about Mechanical Engineers? Is it a part of their
culture?
Hardi: It wasn’t a part of the culture when we started. The whole idea why
we started GrabCAD Library and Profile was that we saw that to be an
inefficiency in the design process. When you’re designing a bicycle frame,
you will design first the frame, then the wheels. But you do not need
wheels, you could use work other people have done. One idea of how we see
that GrabCAD can make Mechanical Engineers work more efficiently, is to
offer them a way to share their cad files like Software Engineers do.
Andrew: Where is the revenue going to come from or where is it coming from
now?
Hardi: Right now, we’re monetizing through challenges. So if there is a
customer who wants to solve a difficult engineering problem, they can post
it as a challenge to GrabCAD and all of our user base can solve that. This
is how we’re making revenue right now, but we’re also working on a
collaboration product that helps Engineers to work more efficiently using
modern internet. We haven’t launched that yet, but it to come soon.
Andrew: Do you know what actually? It looks like I got my number wrong.
It’s not over 190 Engineers who are a part of your community, that’s the
number that it was when you and I were supposed to do this interview a few
weeks ago, but something had come up for you. I’m looking at your site
right now, it’s over a quarter million Engineers who are a part of the
community, right?
Hardi: That’s true.
Andrew: In addition to recruiting them, you had to convince them that is a
new way to work and that it makes sense for them to do it. You also have
over forty thousand free Cad modules and lots of downloads for them. So I
have a sense now of where you are now. What I want to know, is how you got
here. Let’s go back to what I had said you did around the time your baby
was born. What was that?
Hardi: So before we started GrabCAD full time, I had a day job. I went to
work every day as a team manager for consultants and I worked on the
GrabCAD idea at night. So I really lived two lives.
Andrew: Sorry, was the business up and running then? Or were you just
working on the idea of it?
Hardi: So we had a mechanical engineering consultancy company. We had
customers ordering services from us and we work on the weekends and the
nights if were not doing our day job. And it wasn’t called GrabCAD then.
Andrew: Ah, so you’re day job was this mechanical engineering consulting
company.
Hardi: Actually, my day job was a software engineering consulting company
where I was a team manager. My work in my own company with my partner was
where we did the services for mechanical engineering.
Andrew: So you had this software engineering job, and you had a part-time
business that you were launching, and somehow that evolved into GrabCAD, a
product that’s up and running on GrabCAD.com, right?
Hardi: Yes, that’s right.
Andrew: And you then quit your job, so you could focus full-time on
entrepreneurship, even though you had a baby on the way. Why?
Hardi: I quit my software engineering job a week before my first daughter
was born. I realized that life really cannot continue the way it was. I
felt that every time I went to work I was really miserable. It paid the
bills, it was an OK job. But every time I went home and was working nights
on the GrabCAD idea, that was the most exciting. I felt that if I had a
baby coming, I needed to enjoy life more. I felt that doing both of these
really doesn’t [??] that well. So, I decided to quit my day job, I
convinced my wife that it was a great idea, although she didn’t think that
at the time, and I started working on the GrabCAD idea full-time. I did
think that after making that decision a lot changed.
Andrew: I can see that a lot changed. We’re going to find out specifically
what changed. But first, I’ve got to ask you, what do you say to some
people, even some people in my family who say that’s irresponsible. That
you have to first focus on your child if you’re going to have a child, your
personal happiness happened before you had a child, it might happen after
the child goes to college, but you can’t take a risk with a new child on
the way.
Hardi: I think it’s less risk.
Andrew: It’s less risky to give up a salary and pursue your own happiness?
Why?
Hardi: I think that when you are being an entrepreneur, it might sound hard
but you can always get a day job.
Andrew: You mean you can always get a day job afterwards if it doesn’t work
out.
Hardi: Yes, exactly.
Andrew: Is it true only of engineers like you? If an entrepreneur is that
idea guy, salesman type of person who has a vision and is going to launch
his business and it doesn’t work out, he can’t just easily go and get a job
the way an engineer can, right?
Hardi: I think you can. I think entrepreneurs are the kind of people who
get a lot of stuff done, and every organization needs that kind of person.
I don’t think there is a huge risk involved in quitting your day job if you
have some financial cushion.
Andrew: That’s a pretty confident attitude, I tend to agree with it. At the
moment, though, when I’m starting a business or taking a big risk, I’m a
little shakier about it. Do you get that nervousness too, do you get that
insecurity?
Hardi: Not anymore. It was a very hard decision. The first time I spoke
with my wife about it, I wasn’t 100% sure. Of course, everything seems
easier once you’ve done it. I was nervous about it, but when I thought
about it rationally, I knew that I could always go back to live that life,
although I wasn’t very excited about that thought.
Andrew: [laughs] So you had a service company, the service company was
called ‘Futech’ [sounds like]?
Hardi: Yes, it was Futech. What we found in Futech is that we were doing
this work for customers in Estonia where we started, and that wasn’t the
most exciting thing that we did. We wanted to go international and start to
get customers from the U.S. and Germany, and everywhere in the world. So in
order to get those customers we thought, what if we built just a solution
where customers can order (?) services or modeling services, or rendering
services for their ideas and we offered them to deliver those CAD drawings
and models in 48 hours.
Andrew: So if I have an idea for say an new iPad stylist, I come to you
guys and I say this is the way the stylist should look, it should feel like
this pen, and so on. And what you do is you would turn it into a
computerated [SP] design. Something that I can use to create it.
Hardi: Yes.
Andrew: That was the service business that you were running.
Hardi: Exactly. And then we launched and we branded it differently. We
launched that from GrabCAD.com. And that was the first version of GradCAD.
Andrew: Oh I see. But when you were doing FewTech (SP) before this new idea
where you’re going to take other people’s design visions and turn them into
real designs, what was FewTech doing? What kind of consulting work did you
do?
Hardi: It was exactly the similar rate but it wasn’t through the internet.
It was manually. Customers called us or emailed, and we met them and we
talked a lot about them, and then we tried it back and forth. (?) working.
So all the interactions were manual, not through the internet.
Andrew: I see. OK. By the way, how does the cost of living compare in
Estonia to the US? Is it easier to get by with less money as a entrepreneur
there or is it tougher?
Hardi: It’s much easier. The US is a very expensive country compared to
Estonia. The only thing that’s more expensive in Estonia is fuel.
Andrew: Is what?
Hardi: Gasoline. It’s like two times more expensive.
Andrew: Oh. Gasoline is more expensive.
Hardi: Yeah.
Andrew: All right. I could live without that.
Hardi: But other than that it’s a very, very cheap country. So you can
easily, if you save some money, you can easily live six months without
needing (?) or more money.
Andrew: All right. That’s encouraging to hear. All right. So let me see.
You start out this business where you were going to just pick up the phone
and talk to customers, and turn their ideas into real designs. Then you
say, huh. This is great but it’s local and just like my expenses are not
very high here because it’s local and my ability to charge isn’t very high
because it’s local. My ability to reach a lot of people isn’t very strong
because it’s local. So I’m going to turn this company FewTech into a global
operation. I’ll call it GrabCAD.com. Anyone can come online and give me
their ideas and I’ll turn it into real design. How did that work out for
you?
Hardi: So it was a very nice experience first. The nice experience was that
we really didn’t have any clue what we were doing. Starting from price, for
example, we didn’t know we wanted to have a fixed price because we wanted
that experience in ordering the service to be very (?). We thought, OK. How
much should we charge. We just came up with an idea, and by that time in
(?) I had never been in the US, so we didn’t know how much a Starbuck’s cup
of coffee will cost, or something like that. So we came up with an idea of
asking $25 for one drawing. (?). The lab built the prototype and threw it
out there, and wanted to see what happens, and surprised for ordering one
drawing was $25. Somehow we’re still not sure how that happened. We
suddenly started to get orders from people who wanted to design cupcake
ovens, ATV (?), motor engines, and all sorts of weird stuff.
Andrew: All right. I can see how it happened. It’s because you were
charging so little, $25.
Hardi: Yeah. That might be one of the reasons. But still they found us
somehow and ordered work from us, which was great. It was a very good
feeling.
Andrew: OK. How long would it take you to turn someone’s cupcake oven
design into a, what do you call it? Do you call it a CAD design?
Hardi: Yes. CAD model.
Andrew: OK. CAD model. So how long does it take you to turn their idea into
a CAD model?
Hardi: The stuff that people ordered from us wasn’t very sophisticated. It
probably was two full days of working, but the trick was that those orders
usually came Friday afternoon, U.S. time, which was Friday night at
Estonian time. We promised 48-hour delivery, so basically we would forget
our weekend plans and start designing for our [dear] customers in the U.S.
Andrew: As you know, part of our research process here at Mixergy is we
look into your background and we also do a pre-interview with you. So, when
Jeremy Weiss, our producer, talked to you about this part of your life, he
said that you thought, “All right. We can’t keep doing this anymore.” That
it’s great to get a lot of business in the door, and you celebrated when
you first got it, but you had to just move on. When it was time to move on,
what did you do?
Hardi: So, we thought, “OK. That’s great. People are ordering the
services.” But when we asked our service, “Do we want to do those CAD
models every night?” the answer really wasn’t yes. Then we thought that
there are two ways to do it. One is just start hiring people in Estonia who
will be designing those products, but this was actually exactly what I’ve
just been doing in a software engineering company. I had great consultants
who were doing software engineering work for customers, and I really didn’t
want to go back on that track anymore.
Andrew: Why not? That is the job that you had before you started your
business, and that’s the job that you quit when you had a baby coming. What
was it about that that you didn’t like about hiring people? What was the
frustration that made you say, “I’m never going back to that”?
Hardi: In that particular company, I think it is a totally different
experience when you’re building a services company that just builds the
stuff that other people are interested in. It’s a totally different company
when you have a product company, when you have a vision of one product, and
you can grade that product, you can shape that product, and see how other
people use that. So, that was one of the reasons why I didn’t get to
excited about going to the services one. That was the reason moving to that
direction with a company where we actually decided, “Hey, let’s build an
internet solution, where engineers can find work from customers who are
already there.”
Andrew: I see. I see. It’s also pretty hard to hire people like this. We’re
not talking about hiring someone to set up a WordPress blog. This is pretty
complicated stuff, and if you were going to start hiring for this, it would
take a long time, it would be a tough process. Then you’d have to keep
those people happy. All right. So, you came up with the smarter idea, which
is to just put those design jobs online and let engineers come it?
Hardi: Yep.
Andrew: What did that first version of your site look like?,
Hardi: Before we launched that part, really the first version of GrabCAD
was a quite ugly one-page, three step, you submit the design, describe what
you wanted, and we calculated the price. Then you inserted your name and
pressed “submit”. That was absolutely the first version of GrabCAD. How it
happened? Indrek, who is also a mechanical engineer and I’m a mechanical
engineer, Indrek did a HTML and design. We’re two mechanical engineers, and
we hired one that’s also an engineer to do PHP code for us. He was trying
to build that in three months, and couldn’t finish that. So, he came to us
and said, “It’s too complicated for me.”
Andrew: That three step process is too complicated for him?
Hardi: Yes.
Andrew: I could do that for you in four seconds.
Hardi: Good. We learned that later on, that software engineers can grade
that in half of the day. Yeah. He came to us and said, “I will not charge
you money, but I cannot do that.” He delivered the code for us, so I
actually all night learned the PHP. I finished the product and I pushed
that live. So, two mechanical engineers created the first version of
GrabCAD. So that was really the first version of what we did.
Andrew: What year was this?
Hardi: This was 2010.
Andrew: You guys could use the woof, woof form to do that. But you didn’t
know? I’m not laughing. I’m laughing at the situation. So here’s the thing.
You’re coming at this space. You’re coming as a mechanical engineer from a
place of confidence, from a place of knowledge and experience but when it
comes to software, you just didn’t have that. You were just willing to go
in and learn and put whatever took out there and figure it out.
Hardi: Yeah, and by that time when we were building the first version, we
didn’t know the term venture capitalists. We didn’t know what VC meant.
Andrew: All right. You didn’t know what venture capitalist meant. You were
in Estonia so you weren’t part of the tech community and didn’t know about
things like minimum viable product but still you created a minimum viable
product.
Hardi: Yes. Now when I’m reading the books, I see the [??]
Andrew: It’s not a minimum viable product. It’s the Estonian launch. That’s
the way you did it. I always ask this of people who say things like you
did, which is you told us this is an awful, crappy site which was the first
version. The question that I often ask is why did you release it that way?
How did you get yourself to overcome the feelings of insecurity that are
natural to an entrepreneur who says I’m in business because I want to
create something that I’m proud of. That’s the way you want to feel.
That’s the reason you got into business and then the first thing you launch
is something that you yourself call crappy. How do you get yourself to go
from that to that?
Hardi: I actually, this is the problem. We never had because one of the
core values of the company’s learning and you don’t think that we are the
smarter people in the room. We think that we can learn quickly and during
the whole process of building GrabCAD we always listened to our customer
and we always experimented by throwing stuff out there and seeing how
people actually used that. And I think the first version of GrabCAD
illustrated that we didn’t, everyone said this idea is not going to work.
There wasn’t anyone who said ‘That’s a great idea. You should do that’. And
we just wanted to try and that was the smallest thing we could do to try if
it could work or not and I think it was a great experiment and that thought
us a very important lesson that you should really experiment and see how,
what people think rather than listen to criticism of people saying that
will never work.
Andrew: So is the only way that you knew that this was going to work, the
rest of the world didn’t but you did, is the reason why you knew it was
that you had a hunch or was it also that you talked to people who needed a
CAD model? You talked to people who had these visions for products and
didn’t now how to create CAD models and you understood their frustration
and their desperate need. Was it anything like that or just a hunch?
Hardi: I would be lying to say they were talking a lot of customers saying
that ‘Do you want this product?’. Like, we didn’t know anyone in the U.S.
We didn’t really have a clue. But we had a hunch and we knew that it’s
actually very hard to order very small services and there are a lot of
overhead. So we knew that’s the problem we saw everyday. And we knew that
but we didn’t knew who are our exact customers. Are they from the U.S.?
Germany? Out of big companies or small companies? That was just the
experiment throughout and find it later.
Andrew: I see. So the document, this three part process built in PHP that
you learned overnight or on the evenings, that was your way of figuring out
that there was a market for it. There was no conversations with customers.
There was no heavy market research. It was just ‘Hey, I’m putting this out
there and if people come in and fill out this form, even though I’m not
marketing it like an SEO guy, then it means that there’s something to
this’.
Hardi: Yeah.
Andrew: OK. All right. So there was something to it. You couldn’t keep up
with it. It was time to find a way to open this up to the world and the
engineers who are out there creating this CAD models. What’s the next step
that takes you there? What do you do to launch that business?
Hardi: So we learned that the hard way. We were in Eastern Europe, in
Estonia and we had second time which was, the problem we had is in order to
do this work with all the [??] we need lot of engine and the idea was that
in order to get these engineers, we would create this repository where
people can share CAD files. Engineers can share CAD files and that’s how we
would get the engineer using the product. But based on our skills and
creating the first version of GrabCAd, we already knew that that’s not
something that we can do. And then we read a couple of books and learned to
turn [??] and it was time to raise some money. And so we met a couple of
investors in Estonia and really the feedback was ‘OK, you have some
customers. That’s nice. And you have some product and you have vision. OK,
that’s very nice but now what we need to start, what you need to start
doing is creating a business plan’.
Andrew: A business plan.
Hardi: Business plan so what we did is we created a five year or seven year
financial model. We did market research. We found out exactly how many
engineers there are. We found out all these facts that they’re totally
useless and I think the business plan was like 50 pages long and we stopped
finding new customers, just creating business plan on a Word document and
spreadsheet, because investors asked that. So that’s what really invent. We
raised money with that business plan from Eastern Europe.
Andrew: You did?
Hardi: We did, yes. That was our first seed run we did. Very small run but
we convinced investors that we can write a great Word documents.
Andrew: But it took you six month to write this business plan. You lost
customers along the way. How much money did you raise with it?
Hardi: We raised $360,000.
Andrew: OK. All right. From what kind of investors? Professional angels?
Hardi: One angel and one institutional BC in Eastern Europe in Estonia.
Andrew: What about the issue that you guys weren’t software developers? How
did you address that?
Hardi: It wasn’t an issue. If I see back at the time, I would really raise
the red flag but this wasn’t an issue for investors by that time. I think
maybe one of the reasons why it wasn’t an issue was we actually
demonstrated that we can actually build the product.
Andrew: I see. And you hired someone to do it, too. I mean, you were going
to hire developers to do this for you.
Hardi: Yeah. So we hired actually a fantastic software engineer to start
working for us. He’s a very smart guy but then we made our second mistake
which was that he decided to move to Brazil and we were in Estonia and when
you have a startup, you really need to be in one room. So he’s unfortunate
enough not to with the company anymore because it was very hard for us to
work together in different time zones and we didn’t have money so we
couldn’t afford traveling back and forth. So that was the mistake but he
laid out the great fundamentals because he was the best [??] engineer.
Hardi: So you raised a few hundred thousand dollars. It was going to go to
software developers and I’m guessing also to designers of the site. The
site, if I understand it right, that next step for the site was to create a
repository of CAD models so people can share them and when engineers came
to share them and to submit them and to look at them and so on, some of
them would end up doing the work that your customers we trying to hire you
to do, right? Create CAD models based on people’s visions.
Hardi: Yeah, exactly.
Andrew: OK. So how far along did you get with the three hundred or so
thousand dollars that you raised?
Hardi: We actually, how far away we got? So I think we managed to build
that product that get about 3,000 mechanical engineers and about 100
customers.
Andrew: OK. So 100 people who were willing to pay you for CAD models, and
engineers who can do that work. How was the pairing going, were people
actually getting hired?
Hardi: Yep, they were. Our model was different, so we were always, on
GrabCAD, obsessed about the quality of the content and the engineers. In
mechanical engineering you can just make mistakes. If you make a mistake
and design a bridge that fell apart when you were walking on it, and you
got killed, then you are in trouble. So we focused a lot on the quality of
engineers and models, so we created a model where customers can say to us
that they have a certain kind of project, and we actually went to our 3,000
users and find the right engineer for that customer, and we really like the
project managers of that process to make sure that all projects will be
done in a good way and a quality way.
Andrew: At that point, what were you charging and how much did you guys get
to keep?
Hardi: By that time, we were not charging $50 any more, I think the average
project value was around $1000. The work amounts were really quite small
again, so we raised prices I think four times. Our margins were actually
80%.
Andrew: 80% goes to you, 20% goes to the engineer who develops the model.
Hardi: Yes, because we put a lot of work into that.
Andrew: OK. And because you’re vetting the process throughout, I see, OK.
Hardi: Yep, and we always did the quality control and everything. We
actually did most of the work in-house.
Andrew: By the way, you say that creating a business plan was waste of
time, but was there any part of it that was helpful to you? Like
understanding how many engineers there are in the world? Or one of the
things that I remember business plans have in them are the risks to your
business. Does having to confront your risks help you deal with them
somehow? Was there any value in creating that business plan?
Hardi: When you think about something, there is always value.
Andrew: I see.
Hardi: There might have been some value. When you’re creating something new
that nobody has really done before, how could you possibly know what the
risks are? You can make your best guess, but they will always be best
guesses. Instead of focusing on creating a nice, 50-page long thing on
paper, you should really focus on talking with customers and trying to get
your product out the door. You will get actual feedback from the market
rather than your own ideas of what the market will look like. There are
usually big gaps between those things.
Andrew: For you, what were those gaps in what you thought market needed and
what it ended up needing?
Hardi: I think we totally overestimated at the beginning how difficult it
would be to get engineers. We thought that we would have 100,000 engineers
in two months. I haven’t looked back at the spreadsheet, but we really
didn’t have any data to make the best guess. We weren’t very accurate doing
that, because we didn’t fully understand the motivation of why someone
should sign up for GrabCAD. I do think that if we would have spent that
time actually talking to engineers we would have a much better outcome.
Andrew: What else do I want to know? So you said you’d be better off
talking to customers than creating a business plan, did you eventually talk
to customers in the early days, and if you did, what did you learn from
them?
Hardi: The good thing is that with our services business, we already had
customers, so we knew about the customers, but it wasn’t very helpful,
because when we actually introduced the new product that you could order
services online at much cheaper price, they all said why would I use the
internet to talk to you? Why shouldn’t I just call you up and get together
and start working and that. So there was some learning, but it wasn’t at
the same time.
Andrew: All right. Why did you come to the U.S.?
Hardi: So we launched GradCAD library and repository, and then we started
to look around. So what’s going on in the world? And we found that, I
think, in Estonia, I don’t have exact data, that there are maybe 1000
mechanical engineers, maybe a little bit more. Around a couple of thousand,
a thousand to a couple of thousand.
Hardi: And then we looked at looked at Long Island in New York, there are
more than 1000 mechanical engineering services companies. And that’s really
helped us a little bit of [??] And we always have been talking with
customers, even in the early days, and we just wanted to be very close to
the customers. That was really a totally different scaling in the U.S. So
we then decided to come to the U.S. and we didn’t know much about that.
Andrew: You know what, again you said, talk to customers, be close to the
customers. I got to ask again, what did you learn from talking to those
customers? You have this constant conversation with your customers that I’m
concerned as an interviewer, what you learned from that process becomes
almost invisible to you because it’s just part of your day. Just like you
don’t think of how many times you took a breath in and out today, you also
don’t think of how much you learned from talking to your customers. That’s
my theory, you tell me. What do you think of that?
Hardi: I think maybe you’re right. Maybe that’s so deep in our company
culture is to listen to what people are saying, that I take it for granted.
But I think one of the main assumptions when I’m trying to remember is that
we thought that… Now I remember, one other idea is that we thought that
customers in the U.S. are actually much more sophisticated and more eager
to use that service, because people are using more internet than they were
in Estonia. And that was one of the assumptions we made, which have been
true but we also estimated that part as well. Our industry is very
conservative.
Andrew: All right, and did you move to Boston specifically in the U.S.?
Hardi: As I said, never been in the U.S., never know what to expect. So, in
Europe, Boston doesn’t exist.
Andrew: People in Europe don’t talk about Boston?
Hardi: They don’t talk about Boston.
Andrew: OK.
Hardi: They talk about Silicon Valley. So, when I started to do some
research I saw that three big CAD companies are in Boston, and one in
Silicon Valley. So I bought the plane ticket… We didn’t have a visa, so
only a tourist not a business visa, so I couldn’t work in the U.S. and I
could only stay here for three months. I was a month a half in Boston and a
month and a half in Silicon Valley, and the idea was that after these three
months I would go back to Estonia and we will decide, should we move to the
U.S.? Where? To Silicon Valley, or in Boston?
Andrew: I see, and what’d you come up with?
Hardi: We came to Boston, we actually find some very good customers who
were ready to give great feedback, we found a lot of advisors who were
ready to give advice. And we really didn’t find that good connection in
Silicon Valley. We found it a little bit more in different places, and it
wasn’t that tight community. So we decided that Boston is a better place to
build our company than Silicon Valley.
Andrew: All right, and you met a bunch of people like you said, one of them
is Jon Hirschtick [SP], who’s he?
Hardi: So Jon Hirschtick is a founder of SolidWorks which is really one of
the great success stories, CAD success stories and he built the company
that creates software for mechanical engineers and is currently probably
the most widely used among engineers.
Andrew: Solid Works is the name of the company, right?
Hardi: Yes.
Andrew: He sold the business?
Hardi: Yes, he sold the business. It was a great exit for everyone and
really a great story. I met one consultant who works in Silicon Valley and
he said to me, “Before you come to the U.S. try to schedule meetings two
months before because people are so busy, we’ll never get a meeting, so try
to schedule it two months before.” I didn’t do that, but what I did is I
listed three people I would like to meet and who were famous in Boston and
in CAD community. One was Jon Hirschtick, on the top, and I thought if I
would meet him, that would be really great. I came to Boston and the first
week we needed to find an apartment; the second week I was meeting him and
I think I spent four hours in our first meeting with Jon Hirschtick. That
was truly amazing, he’s a very inspiring person.
Andrew: What did you learn from him in that four hour meeting?
Hardi: I learned so many things. I learned about messaging, I learned
experimenting, I learned about communicating, I learned about investors, I
learned a lot of things. I really cannot put that into words.
Andrew: I got to tell the audience that you didn’t want to start this
interview until you grabbed a pen. In fact we disconnected the Skype call,
you came back with a pen and paper, and said, “Now I’m ready.” You’re a
note taker. Do you still have your notes from your first conversation with
Jon?
Hardi: I do.
Andrew: How do you save it?
Hardi: I’m using a regular notebook and I’m stacking them on bookshelves.
Andrew: I see, so you just walk in, you ask him about investors or he
starts telling you about investors, you write it down; what do you do with
your notes afterwards? Beyond, obviously, putting them on the shelf, what
do you do to make sure that you use them? Do you do anything to ensure that
you use what you’ve learned?
Hardi: The process I’m using is that every Friday afternoon I go through
all the notes that I’ve taken. I write them in my computer so [??], the
most important ones and the ones that I feel are so important. Then I start
to think about them in the near future or in a year. I make sure that I see
them every single week so I have this process of capturing those notes.
Andrew: What do you mean, where do you put them to make sure you see them
every week?
Hardi: During that Friday afternoon I go through the old important
projects that I’ve been thinking of starting and I’m deciding if that’s the
right time to start. Once a quarter, I go through all the projects that
have come up in the last two years to see maybe if these are the things
that we should start working on.
Andrew: You said that you take your notebooks on Friday and you type into
your computer the key ideas that you’ve learned. Why not just start off by
writing them in a laptop or writing them into an iPad? Why not use
something digital as opposed to what I’m using right here, which is a pen
or pencil?
Hardi: Actually, two weeks ago I started to use my iPad for that and it
does save a lot of time, but when I’m using my pen I will never just write
down sentences. There are a lot of arrows and you really cannot do that
with an iPad. I do fear that you are having a conversation with someone and
you take your device out, and although you’re making notes, it disconnects
you a little bit with the other person, so that’s why I like notes. So it’s
a trade-off, efficiency versus keeping engaged.
Andrew: You know what? I found that too. For years, I would pull out my
phone, whether it was the old Trio or the iPhone, and take notes in
conversations, and it was always awkward. I had to either announce it, and
say, ‘Look, I know this sounds weird but I’m not texting, I’m typing some
notes,’ or just put it away. Something about paper makes people feel like,
‘Whoa, you’re really paying attention. If you just got out a piece of paper
and a pen, you must really care what I say.’ For some reason I’m really
interested in how people capture ideas and how they use them.
Hardi: I can see it.
Andrew: Sorry?
Hardi: I can see that.
Andrew: Yeah. [laughs]
Hardi: Nobody has ever asked me before.
Andrew: As an entrepreneur, do you feel that this was an unnecessary
diversion? Did I pick on some random fact in your life and get carried away
with it? Or is this something that you would be interested in if you heard
someone else talk about it?
Hardi: I actually think it’s very interesting. I just recently joined a CEO
group where a small group of CEO’s share their experiences and share some
of their action plans, what they’re planning to do. I’ve found that very
helpful in understanding how other CEO’s think of running their companies,
and that’s actually helped me rethink how we are doing things here. The
only reason why that happened is that I actually saw under the hood what’s
really going on. So I think it’s very interesting and important.
Andrew: What’s the entrepreneur group that you’re a part of?
Hardi: It is called High Grove [sounds like] CEO.
Andrew: All right. Why did you go to TechStars after having already raised
$300,000, after being in the U.S. and getting to know some really smart
people, why’d you go to TechStars?
Hardi: When I’m thinking back, first of all I really like the managers of
TechStars. I’ve met Brad Feld and the Boston TechStars managers Katie Rae
and Reese Southerburn [sounds like]. They’re just amazing people. I thought
that having, for three months, these people helping us in building CrabCat
[sounds like] would be just an amazing experience. It was true, it was a
great experience.
Andrew: What did you get out of it? What’d you learn or do differently as a
result of TechStars?
Hardi: That’s the question that I’ve had asked so many times. I would
actually not do anything differently. What I learned was that speed
matters. This was the first time I saw how others’ [??] actually worked. I
could benchmark CrabCat execution to twelve other startups. And they were
all executing at amazing speed. This is one of the things we learned, that
in three months you get so much stuff done. I’m trying to remind myself
every now and then to ask are we executing with the same speed as we were
when we were in TechStars. If you’re not, let’s start thinking about why.
We should execute that same speed in order to be successful.
Andrew: What about the way that you structured your deal when you were in
Estonia? How did that influence your ability to structure a deal with
TechStars and future investors in the U.S.?
Hardi: The deal structures here in the U.S. are very different than they
are in Europe, and they’re even more different when you’re in Eastern
Europe. The whole deal structure wasn’t the greatest to go and raise money
from the U.S. But luckily, our first investors really understood that in
order to really build a business we need to be flexible and they needed to
be flexible. They’ve been actually very, very helpful and very flexible in
adjusting so we … [??]
Andrew: So they restructured their deal so that it would be more of an
American structure? Just so you could grow?
Hardi: Yes, that happened, but it was really a win-win solution for
everyone.
Andrew: What’s a way that they had to restructure it?
Hardi: Not to go into the details, but one of the things we needed to is
bring our headquarters from Estonia to the U.S. During that process, the
legal structure of the board is very different that it is in the U.S. There
were some negotiations, and in the end we found a solution where everyone
was happy but that wasn’t the solution that we started with.
Andrew: What about that in Estonia investors would get a bigger piece of
your business than in the U.S. right?
Hardi: Yeah, that’s true. Usually the valuations in Estonia are much
smaller than in the U.S., so luckily we didn’t raise too much money
initially, so we still had an opportunity to come to the U.S. and raise
money with a little bit better valuation.
Andrew: How much money did you raise?
Hardi: We raised, after that, $5.5 million.
Andrew: Wow. So, we understand where the business is at this stage in the
story, then you made a big change. What was that?
Hardi: One of the things we learned was that focus really matters. This is
something we keep learning all the time. In January of this year, we looked
at what we were doing. We were building challenges, we were building
services, we are helping people order these services, we were building [??]
community, and we started to build this collaboration for the…there were
all so many different things on our plate, and we really sat back and
thought what kind of company do we want to build? Do we want to build a
marketplace and be a police in the connection between the engineers and
customers, and both engineers and customers were saying maybe you don’t
need to be involved. We really asked ourselves what kind of company do we
want to build, and are we offering a really true value by being the police
between customers and engineers. We decided that what we were good at is
building products for mechanical engineers, so we did a quite big change by
closing down the whole services part of the business. We took away
customer’s ability to order these services, and we closed that part where
we were booking engineers by being the middle-man in the collaboration. We
built the functionality that actually helped customers contact directly to
engineers, and we started to promote that functionality more. We set the
focus on building the collaboration product.
Andrew: So you gave up a whole lot of customers, and how much in revenue,
in order to make this shift to a more focused business?
Hardi: I would not like to share the revenue numbers, but we gave away
about 200 customers by that time. And that was a hard decision, but we
don’t know if that was the right decision or not, because we’re still on
the journey, but as of now it has been the right decision. Our product got
much better because we focused more and we do one thing good, not five
things OK.
Andrew: What are the challenges that you mentioned in the interview a few
times, the product of challenges, not the challenges you face as an
entrepreneur?
Hardi: We have a challenging product. One of the things, as I’ve said
before, is that we constantly experiment with different models, and think
about all the things we can do with this big crowd of mechanical engineers.
We came up with an idea. Imagine if you had tens of thousands of engineers
that could solve one problem, or give feedback on the ideas on the next
iPad 4 or 5 in a very short period of time, a week. That would be something
very volatile [sounds like]. We reached out to a couple of customers,
saying we have this idea, what do you think, would you be interested? And
the first customer we reached out to was a Canadian company who was
building electrical superbike. There was just one guy who was a mechanical
engineer, he had one other guy, I think he was a manufacturer, and he
raised himself as well. He said in order to win this international North
American superbike championship, I needed a lighter bike. So I have this
one piece here, and it’s really heavy. I bought it from one big company,
and I need it lighter. We both [??] said just come in and design this
lighter piece for this person trying to win this championship. And in two
weeks he received 200 design ideas from engineers, actual CAD ones with
stress coloration he could just manufacture. He was so impressed by that
model, and we thought, ‘There is something here,’ and we made a product and
started to offer that to other companies as well.
Andrew: So they pay to run a challenge, and the engineer who has the best
solution that the customer wants to pay for is the one that’s picked and
gets paid.
Hardi: Yes. That’s our old idea, in reality we of course get paid, but
we’ve had so many different challenges. Usually five engineers would get
paid. Sometimes the company who organized the challenge hires all the
engineers to continue working with them. One challenge that we did, 40
engineers got paid, because the customers decided to use every single
design that people [??]. So there are a lot of different models, and our
customer and engineering community is helping us to figure out exactly the
right model for us.
Andrew: It seems a little bit like this is similar to 99Designs for
Designs, where you put up a design challenge, and you decide that you’re
either going to pay for the top design that you use, or maybe for a couple
of designs. It’s similar to that, right?
Hardi: Yes, and actually the 99Design founder is our Asian [sounds like]
investor.
Andrew: Who, Matt?
Hardi: Yes, Matt.
Andrew: Oh, cool. Is he the one who opened you up to this idea?
Hardi: Actually he contacted us later, once we already did that.
Andrew: So he saw that you did it, and he talked to you about how to do it
right, or does he automatically say, ‘Hey, I want to invest in you.’
Hardi: He said that he would like to help do it right.
Andrew: OK, then he came in as an investor afterwards.
Hardi: Yes.
Andrew: I’ve met him a few times, he was one of my early interviewees. I
remember once we were talking when we were both on this week in startups,
about where else could his crowd sourcing idea apply, and for some reason
neither one of us though of mechanical engineering. Maybe it’s because we
were both so focused on software and design, our world. Looks like you
found a whole other world to apply some of the ideas to.
Hardi: What I’ve seen, and I’ve found is very disappointing, is people are
thinking that those great iPhones or iPods (I actually have an Android) or
iPads or MacBooks, they’re [recording cuts out] somewhere. Then you can
start coding and using them. But there are a lot of people building
products that are around us. I’m sitting on a chair, and a lot of engineers
put their heart into designing and making sure you can manufacture that
chair. People take those products for granted.
Andrew: We do.
Hardi: In reality there are a lot of people, a very big industry, working
very hard and not really using great tools and are not that [??] so that’s
where our [??] is.
Andrew: All right, I’ve got two other questions to ask you. The first is
about how you bring people in. How do you get mechanical engineers to come
in? They’re not like teeny-boppers; they’re not like teenagers; they’re not
like social media experts who are flitting around, waiting for someone to
create a new community for them to be a part of so that they can chat on
it. They’re serious people with a lot of work to do who aren’t exploring
similar sites to yours. How did you recruit a quarter million of them to be
a part of your community?
Andrew: Sorry, one sec, it looks like our connection just went down for a
moment. And I see you’re smiling, so I feel like I just missed a great part
of the answer. Can you take it again from the top? How did you get them to
be part of your community?
Hardi: The truth is that, yes, they’re not using Twitter. They are on
Facebook, but they don’t really know what social media is. They’re giving
their social media time to GrabCAD, not to Twitter or Facebook. And the
point of this community is that it’s a very tight community. People talk a
lot. And our growth has been all about word of mouth. So we don’t have any
[??] functionality. We don’t have anyone marketing on it, though, to be
honest, we’re just about to hire someone. It’s all about people saying,
“Yeah, I found this on GrabCAD, you should check it out” and then sending
emails to the whole engineering department saying, “You should check it
out.” And people really are Googling great content. So that’s how our user
base came to be. We are one of those lucky companies who have not worked
very hard in order to get a lot of people using our program.
Andrew: Are you in any engineering magazines or blogs? Do you do any of
that? You do.
Hardi: Yeah, we are, people are writing about us.
Andrew: Without you soliciting them and building a relationship to
marketing?
Hardi: Yeah, we’ve been extremely lucky with that. I think one of the
reasons is that we’ve really been focusing on how to create value for the
individual engineer. And because of that, they’ve been sharing some really
great content, and that gets people excited.
Andrew: All right, I want to say something and then I’m going to ask you
that final question. And I think your answer to it is going to be a little
controversial. That’s why I saved it till the end.
Hardi: I have three minutes of battery.
Andrew: Oh, three minutes of battery? All right, so here’s what I’m going
to say. Guys, go to Mixergypremium.com, where we offer courses by real
entrepreneurs who can teach you what they’re especially good at.
Mixergypremium.com. All those courses are yours once you join. All right,
here’s your final question. Your video’s frozen, you’ve got less than three
minutes left, so here it is. You say you have to commit as an entrepreneur
full-time to your business. You can’t do it part-time while you’re doing
something else. Why?
Hardi: Because in order to build a great business and great product, you
have to fully commit to it. Building something new that nobody has ever
done before – it’s not something you can just do part-time. It doesn’t work
like that. It’s hard work, it’s a lot of rethinking and thinking all night,
and you cannot do it by doing two different things at the same time.
Andrew: All right, let’s leave it there before the battery completely dies
out. Hardi of GrabCAD.com, thank you for doing this interview. Everyone
else who’s out there, thank you all for watching. Bye.
