Since its designation as a Special Economic Zone, Shenzhen has earned its reputation as the โSilicon Valley for hardware.โ Many hardware startups such as DJI choose to base their headquarters in Shenzhen, and hardware accelerators, such as Brinc and HAX, leverage the city to offer entrepreneurs a proximity to manufacturing thatโs hard to find elsewhere.
However, jumping into hardware and getting hands-on with product manufacturing isnโt easy, especially as a foreigner in China. Navigating Chinese factories and negotiating with factory bosses can be a sink-or-swim experience for expat entrepreneurs, depending on their cultural fluency, language skills, and chutzpah.
We sat down with Liam Bates, the co-founder of Origins Technology, at ChinaBang Awards 2016 to discuss his experience in China as an expat running a hardware startup. Mr. Bates has lived in China on-and-off for a total of ten years, and used to film travel documentaries in China, an experience that surprisingly proved useful when he started Origins Technology without any previous experience in manufacturing hardware.
How did you start learning the basics about the manufacturing process in China?
We started meeting with people [at factories] and talking to them. At first we were like, โWeโre two guys and we want to make some productsโ, and found out really fast that that just does not work.
We started BS-ing a lot โ โOh yeah, weโre a big company, weโre going into a new range of products.โ We told people we were in the organic food and health product space. We made some business cards. We didnโt have a company name โ we just made something up. At the start, weโd be like, โOh we actually have another colleague whoโs in charge of manufacturing, but heโs ๅบๅทฎ (on a business trip) in the US. So we donโt know much about this โ heโs the expert โ so letโs just tell me what the process is.โ
Of course, we made it sound much bigger than it was โ new product line, we have a lot of existing companies, a lot of existing clients. We would just list off clients we didnโt have, just to get the foot in the door. In China, if you try to tell them your story, โOh weโre small, but then weโll be bigโ โ China doesnโt have many stories like that, why would anyone believe that?
What did you look for in the factories you were choosing from?
My other partner, Ken Ying, he has a background in manufacturing steel, which is very, very different. But it gave him enough of an idea, like how to talk to people in factories, how to bluff. The point is, heโd done enough business with large factories to know what to look out for, what kind of people are the kind we want to work with.
So an easy example isโฆwhen we were on our second product, the laser egg, [and we were] choosing a factory to do the steel molds for. I went to this big, Chinese factory, [which had] all the most up-to-date, modern technology in the world there. We showed the designs, and the guy was like, ๆฒก้ฎ้ข๏ผ ๆฒก้ฎ้ข๏ผ ๅฏไปฅๅ๏ผๅฏไปฅๅ๏ผๆฒก้ฎ้ข (No problem, no problem. We can make it, we can make it, no problem).
We went to another one, a Hong Kong-run company, and the chief engineer, he looks at our design and says, โOh, thatโs going to be really hard to do well. This is not going to look good, this is probably not going to come out well. Your design is very hard to work with.โ
Of course, the natural instinct is to go with the one with modern equipment that says like yeah, we can do this. But that wouldโve been the wrong choice. The right choice was to go with the guys who had the older equipment and told us where all the problems were so we could fix them.
Itโs very Chinese [to say] ๆฒก้ฎ้ข๏ผ ๆฒก้ฎ้ข๏ผ ๆฒก้ฎ้ข (No problem, no problem, no problem)โฆand then you get [the product] finished and are like uh, thatโs not what I wanted.
How did you negotiate prices at the factory?
Itโs like if youโre talking to VCs, right? If you want to get money from Sequoia, youโre probably not going to go to Sequoia first. We would go to maybe three other people that we donโt want to work with first, work out how much it should cost. You need at least three numbers to get an idea of market. You have to know what you should pay and then you can start talking.
How has bootstrapping forced you to be resourceful as a hardware startup in China?
Our first product, for example, we basically used a whole lot of tricks to get around not needing tons of capital. For the outside mold, we didnโt create a mold from scratch. We went to all these factories and we found a product which we liked that looked good. Then we were like, okay, weโre going to order some massive quantity, we need some samples first.
Of course, the samples turned out to be the products we sold. But we were like, yeah, we like your product but weโd like to change the filter inside. So we changed the filter. [Then] we changed the fan. We changed every single piece other than the outside case, and even then we got it made in new colors. So it was basically a totally new product, except we saved the 1.5 million molding cost.
Image credit: Origins Technology
Update: A section in this article related to gift-giving in Chinese factories was removed for legal reasons
