This is the second piece in a 4-part opinion series for and about hardware/software businesses.
In Atoms and Bits’s first interview, I sit down with Sanjay Dastoor to talk building and scaling hardware products, the changing landscape of micromobility, and extreme sports.
Sanjay Dastoor co-founded Skip, which operates shared electric scooters for reliable, last-mile transportation, and Boosted, who built the world's lightest electric vehicles — the electric longboard — and was one of the companies that popularized Light Electric Vehicles (LEVs) and micromobility. Alongside his co-founders at Boosted, Sanjay participated in the Y Combinator and StartX incubator programs.
This interview is about an hour long, and is best consumed in video or audio. That said, if you’re looking for the Cliffs Notes, read on, and further down we’ve included a transcript of the interview.
Atoms & Bits will alternate between essays and video interviews like this one; tell us what you like and dislike as we’d love the feedback for future issues and episodes.
The Rise and Fall of Boosted: Sanjay and his team created a high-demand product (the Boosted Board, a high-quality electric longboard) that had a successful launch on Kickstarter and sold well. Boosted was a solid business, but one whose business model (selling skateboards at a margin) wasn’t a great fit for venture capital investors, who drove the company to grow quickly. Ultimately, Boosted fell as a result of tripping a covenant from a debtor whose money they took to fuel growth, which led to a downward spiral and eventual collapse of the business.
Skip: Sanjay dives into how micromobility developed into an industry whose winners and losers come down to how well companies in the space partner with regulators; it’s created some interesting dynamics very unique to micromobility, which continues to be an exciting but very challenging industry.
Overall perspectives on HW/SW businesses: Selling widgets under a traditional hardware purchase business model is not necessarily the best way to create a high-growth business.
Sanjay (00:00): So, we met Tony Hawk. And we went to X Games. And we were trying to meet all these people who were in action sports. And right under our noses, the reason Casey loved it is because it was like an ultimate filmmaking tool.
Zach (00:14): Hi, everyone. My name is Zach Supalla. And this is Atoms and Bits. We're here today talking to Sanjay Dastoor who is the founder of Skip and Boosted. Sanjay, thanks for joining us.
Sanjay (00:22): Thanks for having me.
Zach (00:23): Well, you are our first guest on this video podcasting that we're doing. So, we're going to be figuring a lot of this as we go. But to start, I'd love to just give you the chance to tell us your story. Who are you? What have you done? What got you into this stuff in the first place before we start picking up all the details?
Sanjay (00:43): Yeah, sounds good. I'd say I started working on startup stuff accidentally in hardware. So, my background, I grew up in the South, went to college in mechanical engineering, electric engineering, wanted to do robotics work basically from starting late high school. So, I took a lot of classes in between embedded systems and EE and ME and went to grad school.
I got to intern at some cool places like SRI and at JPL done in LA. And then accidentally ended up working on a project that turned into a startup and have been working on startup-related hardware projects ever since.
Zach (01:17): Okay. Was that Boosted?
Sanjay (01:18): Yeah. So, Boosted was the kind of accidental project that turned into a company.
Zach (01:22): This is while you were in your PhD program, is that right?
Sanjay (01:24): Yeah, two of us were still working on our PhDs. And one of us had finished our master's and was working. And we were doing this on the side until we raised our first little bit of funding and went through YC. And then it finally became like a company within full-time founders. And that was where that really started.
Zach (01:42): Okay, interesting. So, before Boosted was a Kickstarter campaign, there was a project. Tell us a little bit about what did it start as? What were you first working on?
Sanjay (01:50): Yeah. So, there were two parallel projects. So, my c founder, Matt, have had this idea. So, we'd become friends in grad school, snowboarding and riding motorcycles. And he lived in San Francisco. I was still living near campus. But he was living in San Francisco and wanted to basically combine those two things as a way to get around.
So, he was envisioning a snowboard for the road that you could get from one place to another with and needed some help on commercializing it. And we were friends and he was like, "Hey, can you help with some of the circuits and some of the code?" I said, "Sure."
And so, we worked on it together. In the meantime, one of my labmates, John was, like many of us, we were going back and forth between buildings on campus especially to check on machines or check on processes and see, does this thing dry yet or is this thing done being cut yet or something? And right then, we were seeing these motors and batteries that then enable other industries like drones and e-bikes first become commercially available.
And John was using a longboard. He's like, "Man, if I could add this to my longboard, it would be amazing." And so, he was solving a problem he had to get between buildings on campus very quickly and not have to spend 40 minutes round trip walking to this other building and back. And Matt and I were working on this side project with a similar goal but designed for Matt's neighborhood environment in San Francisco.
Zach (03:11): So, I'm trying to picture what is a snowboard for the road look like? What was the ...
Sanjay (03:15): So, Matt's prototype that he had in mind was actually ill-conceived. I mean, it was a good idea, but the implementation that we had was really that which was designed around a freeboard. So, it was a skateboard with two casters on it and so you could actually pivot from one edge to the other like a snowboard. So, super dangerous, really hard to ride, incredibly hard to ride.
But the idea was basically, we would just carve back and forth a board like a longboard. And so, a Boosted board does feel like that when you're riding it. It feels like you're carving on a snowboard. But that was the original idea was Matt had this idea for how he wanted to get around, wasn't sure about the architecture. And then John had his architecture figured out, but was thinking very much about like a small use case or on campus and Matt was thinking much bigger. And so, the three of us ended up working together.
Zach (04:04): Got it. So now, how did you go from working on that as a project to YC Kickstarter ... Which of those happened first?
Sanjay (04:13): So, we started working on together I'd say around the summer of 2011. We did YC in the summer of 2012. We did Kickstarter in September of 2012 so right after YC. So, for the first year, we were just working on it as a side project. We were all still either in school or working. This was just evenings and weekends thing. We just put a little bit of our own money.
And we didn't expect it to be like a startup or a venture-backed startup, for sure. It was really just something fun we were trying to build, maybe sell a few of them. That was the idea. So, we looked at how do we file a patent or how do we work with somebody who is willing to work with our low budget on the industrial design or on graphic design for some pieces of it?
So, those were the early challenges that we had. We're really just doing this as broke students. And then only once we got into YC and we had $100k in the bank for the first time which was this incredible amount of money, then we said, "Okay, we can go on this full time. We can still pay our rent. We can try this out for three months and see how it goes." And then we just kept going.
Zach (05:12): When you applied to YC, how similar was the thing that you were applying with to the product that you ended up actually bringing to market?
Sanjay (05:19): It was pretty similar. I'd say the biggest thing we learned in YC from testing between the beginning when we applied and when we shipped it was that people cared about reliability. There were two types of users. There were people who viewed it as a toy. There's people who viewed it as a vehicle. And the toy people were willing for it to break all the time, but they didn't really care if it broke. They didn't care the way the vehicle people cared. The vehicle people said, "I need this to work every day."
And so, that became a framework we thought about later in making decisions like are we designing for the nice-to-have or the need-to-have type of user or a feature. We were always thinking in terms of those two groups. So, what we applied with was not reliable. It would break constantly. We built a few and tested those. And that really reinforced for us that the people who wanted to work, we had to do a lot of engineering to go from a prototype to actually a reliable everyday vehicle.
Zach (06:09): Got it. So, when you eventually launched the product on Kickstarter, I was looking at it earlier, the framing you had around how you described the Boosted Board was really interesting because you didn't describe it as an electric skateboard.
Sanjay (06:24): Yes, that's correct.
Zach (06:26): If I'm remembering correctly, it's the world's lightest electric vehicle.
Sanjay (06:29): Yes. We never mentioned the word skateboard on Kickstarter.
Zach (06:33): Right. It's definitely a skateboard.
Sanjay (06:35): It is.
Zach (06:36): Talk about why you framed it that way.
Sanjay (06:39): So, we actually learned that lesson from Eric at Pebble. So, when we had applied to YC, there weren't that many hardware companies that had gone through YC. And Eric was one of the few with Pebble. And so, we talked to him and wanted his advice just on launching Kickstarter. They've done a really successful campaign with Pebble.
And he said, "You could think about the people who you're speaking to like your audience on Kickstarter in terms of concentric circles. And you've got this inner circle of folks, the smallest circle of people who will immediately get it and they will immediately understand how this thing works. But then there's another circle around that that's a bigger group of people but that it won't be immediately apparent how they would use it."
And he talked about on the Pebble video how they showed the way people would use it and not just what the features were, they would show use this in a sports situation, use this for meeting. In the early, early days, they invented the smartwatch, what are all the different ways you could use a smartwatch. You could track fitness. You could track reminders. You could use it for reading texts on your phone. You can do all sorts of things.
So, we thought about it in those terms of everyone's going to know it's a skateboard. And so, people who really love skateboarding or longboarding will already get it. But I had never skateboard him. And so, for me to even consider this as something I would use, I wouldn't be like, "Oh, a skateboard and it's electric, well, that makes me want it more." I would have to think about like, "Oh, I can use it to get on the bus. I could use it to ride around my neighborhood. I could use it to get to class."
And so, the way that you would use it became how we framed the narrative on Kickstarter as opposed to just like what the product physically was.
Zach (08:14): Right. It's funny. I remember when it went live, falling very much in love with that product, also never having skateboarded.
Sanjay (08:21): Yeah.
Zach (08:21): And I think that framing helped because I wouldn't necessarily see myself riding a skateboard, but I can see myself getting around on this thing.
Sanjay (08:30): Exactly.
Zach (08:30): And so, it makes sense.
Sanjay (08:33): Yeah. And we heard that from a lot of people that some people said, "I never longboarded before but this made me want to learn," or, "I could envision myself." So, we've learned later, GoPro people call this I think the moment of inception which was people wake up in the morning and think, "I want a cup of coffee."
And so, if you're starting a coffee shop, then you're already dealing with a need but people didn't wake up going, "I need an action camera." So, how did you create the sense for someone learning about GoPro that they would use this and it would be part of how they snowboarded or went scuba diving or whatever they use it for? And so, we tried to create that. And it turns out, yeah, a lot of people who didn't skateboarded or longboarded still felt this was appealing.
Zach (09:11): Yeah. So, you did about a half-a-million dollars of sales via Kickstarter campaign.
Sanjay (09:16): That's right.
Zach (09:16): How did that compare to what you thought was going to happen?
Sanjay (09:18): So, we actually designed it that way. We wanted to make sure that we didn't sell too many. And that actually was a lesson we got from Eric at Pebble again which was if you are building 100 of something in hardware and all of a sudden you have to make 1,000, most of your processes will break. But if you set up your process for 1,000 and you only make 100, then you're paying a lot more for overhead or it's just a lot of extra work.
So, we said, "Okay, well, if this is successful on Kickstarter, we want to create an incentive for people to get up to the first few 100 units, but we don't end up with 1,000 and then take a much longer period of time and actually need a lot more cash to buy the parts." And that just becomes a huge issue to try to scale up your production systems ahead of time.
So, we designed the tiers in terms of the discounts or when you could get it earlier or when you would get the boards where there's a decreasing advantage to doing Kickstarter versus just ordering it after Kickstarter was over. And so, we probably could have gotten more if we'd offered like a deep discount earlier but we purposely didn't.
Zach (10:24): So, how many did you end up selling? How many boards?
Sanjay (10:27): It was around 350.
Zach (10:28): Okay. That's not a crazy number.
Sanjay (10:29): No, it's not crazy. But I mean, to us, it was. We only built five. That's a lot. And we were committing to not just sell 350 but also take care of the people who had bought them after they bought them. And that was one of our big lessons during YC was we sold five and realized there was at least as much work if not more to take care of them after they bought it than it was to make the devices in the first place.
Zach (10:49): How much do you think it costs you to design and manufacture? If you accounted for the whole cost of those first 350 units and support and so on, how much did that cost versus your half-million dollars of revenue?
Sanjay (11:05): So, it was probably about $2 million to go fully through to production and start supporting the people after Kickstarter.
Zach (11:21): There's no world in which ... If you imagine a world without venture capital, is there an alternate universe you could have created where that product could have existed in some similar form without venture capital or was it just not possible?
Sanjay (11:36): I don't think it would have been possible with the engineering work that we did. I think there are types of products like, let's say, soft goods — like Peak Design is another really popular set of products on Kickstarter where they're machined metal pieces or they're backpacks, it's a lot of camera equipment. But there's no circuit board that can blow up. There's no battery. There's no motor. There's not a safety critical product in that sense.
Sanjay (11:59): And so, you don't need to do a lot of testing in the expensive way you would need to. It's something that you're going to get on and go 15 miles an hour on the road with. And we had to design certain things like regen braking where we had to push a lot of current back into the battery when you slow down. And those things didn't exist.
Sanjay (12:18): So, I think there is a way to do it without VC and there are electric skateboard companies out there that do this, but they have to be very disciplined about what challenges they take on. Whereas we said, "Okay, this is the product vision we have. And in order to realize it, we have to spend this much to get there."
Zach (12:33): When did you raise money for the first time above and beyond the sort of Y Combinator?
Sanjay (12:39): Right after YC. It's at the end of YC Demo Day. And then probably for another six months or so after that, we had a rolling close of at that point convertible notes (basically the SAFE way).
Zach (12:53): So, you went into the Kickstarter Campaign already having some financial backing so that that was like theoretically possible to accomplish?
Sanjay (13:00): Yeah, we didn't know it would cost us that much to develop it. And frankly, if we had not raised money and adjusted the Kickstarter money, we probably would have been exactly like a lot of other Kickstarter projects that failed to deliver or that deliver something way below what people are expecting.
Zach (13:12): Yeah. So, it costs you $2 million to do in the end. What would you have guessed? If I'd asked you the day your Kickstarter campaign closed and you had half-a-million dollars in revenue, how much this is going to cost to make? What would you have guessed at that point?
Sanjay (13:26): Probably around half-a-million to maybe a million.
Zach (13:29): Okay. So, you need like a little bit extra cash but not a crazy amount of extra cash.
Sanjay (13:33): Exactly. And then we learned, "Oh, there's this limitation with a subsystem," or, "We need to certify this thing for FCC and that's going to cost $15k." We never accounted for all those little things.
Zach (13:44): Was there any one ... Is it just a bunch of little things or is there one thing you're like, "And we just totally underestimated this one problem?"
Sanjay (13:52): Yeah, the battery was a big thing that we underestimated the cost of. Batteries, the reason Tesla's work in terms of the battery pack because you're only getting a little bit of energy from each cell but you have thousands of cells. The Boosted Board is different because you still need a fair bit of energy, not as much as a car, but you're getting potentially hundreds of watts of power from each cell. And that's far beyond the standard capacity of a standard let's say Tesla cell.
Sanjay (14:18): So, Tesla couldn't make a car that only went 20 miles using those cells. They need a lot of cells in parallel to get enough power to accelerate the car. So, range and power go together. Because this was a super compact battery, we needed a lot of power per cell. So, that limited our options. We needed to do regen braking back into the pack. And we wanted the pack to be really safe and we were very conservative about battery pack safety.
Sanjay (14:42): And this is pre-hoverboard. There were no standards out there that ... There were no rules about what you could and couldn't ship really. The further along we got with the battery process, the more we realized we have to take a lot of that in-house or do a lot of extra work to test it for us to feel comfortable shipping it. And so, the R&D cost was higher. The timeline to ship it was longer. And the per-pack cost, the cost of actually making the pack was much higher than we expected.
Zach (15:07): How delayed off of your initial shipping timeframe were you?
Sanjay (15:12): If I had set the shipping timeframe, we would have been really delayed. John, my co-founder had been much more concerned. He's like, "No, we have to tell people." I think it was maybe 12 months. And I think we shipped in 15. So, we were close.
Zach (15:26): That's not bad as far as Kickstarter Campaign.
Sanjay (15:28): It's better than most campaigns. But we took on a lot. I mean, if we had known, we probably ... We learned a lot about how hard it was by doing it.
Zach (15:39): Right. So, Boosted Boards went on to be ... I mean, sometimes you created an industry that didn't exist before or a category I suppose-
Sanjay (15:49): Yeah, we were one of the early ones to use modern components in that category which opened it up a lot.
Zach (15:54): At the end of the day, about how many boards do you think ... Cumulatively, how many Boosted Boards are out there?
Sanjay (16:01): Probably over 100,000.
Zach (16:02): And what did the shape of that look like? Was it a sort of a growth curve that sort of looks the way that, I don't know, you expect startups to grow? Or is it-
Sanjay (16:14): At the beginning, yeah. Our first year, we sold around 2,000 boards. So, we had the 350 from Kickstarter. I think we finished those up ... We started shipping them around January of 14th. We were building five a week. That's the pace we started at. We finished shipping those in the first quarter of the year so by the end of March. And then, we ramped up production through the year. And we were doing all the final assembly in Mountain View, locally.
Sanjay (16:43): So, by the end that year, we did about 2,000. The next year, we did about 6,000 or 7,000 units. And then the next year, we ended up doing around 8,000 or 9,000 but because we have stopped shipping our second-gen product because of a battery recall that we did, we probably had demand for about 20,000 or so. And then, the year after in '17, I think we did about 25,000 or so that year.
Zach (17:10): Was that organic? Was that because of marketing? What was driving the increase?
Sanjay (17:14): Yeah, we tried everything. We tried digital ads. Initially, we were direct to consumer and then we went into stores like BestBuy and skate shops and Amazon once we could afford to give them some of the margin on the product. We worked with influencers, Casey Neistat, probably the most famous, although that wasn't really an intentional marketing choice where he just really liked the product.
Zach (17:37): He really liked the product.
Sanjay (17:37): And a lot of it was word of mouth. A lot of it was test rides and really happy riders telling their friends and their friends trying it and then buying one as a result.
Zach (17:50): Yeah. I think the first time I rode one was you guys had a test ride that was in Hayes Valley. And there were folks that were going around that little area. And that was the first time I hopped on one. And I was about to tell you I was floored which I literally -
Sanjay (18:04): Did you actually fall?
Zach (18:06): I didn't fall on my ass, but yeah, I fell. I stepped off the thing.
Sanjay (18:10): Yeah, you stepped off. That's totally fine.
Zach (18:13): It was a blast, yeah. Incredible amount of work. So, you talked about your margins improving and being able to bring on channel. What margins did you guys have on a product once you were operating at scale?
Sanjay (18:24): Once we operate at scale, so we did three generations of the board. I was there for the first two. The first generation ones, we really struggled to get above when we included blended margins for like channel sales. We struggled to get out of the 10-20% range which is really too low. You need to be higher than that.
Sanjay (18:44): Direct sale margins were great. But we found that especially Amazon and having a somewhat trusted set of reviews of third parties, we weren't influencing reviews and we couldn't edit which reviews showed up. So, the fact that I think we had 90% five-star ratings on Amazon, that was a huge driver for us. And for us was, in a sense, selling an Amazon was much better marketing spend than buying an ad because the value of those reviews was so high in the purchasing process.
Zach (19:09): What margins were you guys taking when you did a direct sale?
Sanjay (19:13): More like mid-30s, mid to high-30s. So, we were giving channels anywhere between 15% and all up to 25%.
Zach (19:21): Right. Okay. Yeah. And that was enough because I know that the margin expectations generally of brick and mortar are usually higher than digital Amazon, things like that. Is that enough to get brick-and-mortar folks selling your products?
Sanjay (19:32): Yeah. So, what was interesting for us was that our price point was so high. So, the average skate shop was selling $100 item at most or even like $5 items on stickers or skate wheels or something. And so, their expectations for margin on those items were much higher. Whereas you wouldn't pay for ... A car dealer doesn't take 30% margins on a car. So, the higher the price the item is and especially the more it's moving, the more they're willing to tolerate lower margins for themselves.
Zach (19:59): Got it. So, as you improve margins, where did it sort of max out? What was the best?
Sanjay (20:06): The best we got blended was probably around 20 or low-20s. That was going to get fixed with a third-gen. And actually, we learned much later, and I think Tony Fadell talks about this as well with Nest, where you want to be deliberate about generations of your product and not just think of your product as shipping like a single thing but choosing what to validate with each generation.
Sanjay (20:31): And so, in the first generation of let's say an iPod, when he talks about this or I think the Nest thermostat, you're really validating that people want the product but you're optimizing around the product and not around the margin. And then, you can start to optimize for those things in Gen 2 and Gen 3. And I think his rule is like three generations to really dial everything in.
Zach (20:48): Right. So, that was sort of on the road, the third-generation was where those economics ... That was after your time at Boosted, is that right?
Sanjay (20:54): Exactly, yeah. But the target for those when I was there was that we wanted to get to blended mid 30s to high 30s.
Zach (21:00): And that was where the business would have felt like comfortable like this is a good margin. You can put money back into the business. You can feel growth. So…now, let's talk about the end times at Boosted which was after your tenure there. But tell us, from your perspective, what happened at the end? What drove the demise of Boosted? And what are the lessons that you take away from it?
Sanjay (21:24): So, when I left, we had done about $29 million revenue that year in 2017. We hired a new CEO. He had come in with really good experience out of larger tech companies, but he'd also come out of the same robotics doctoral program that we had left to start Boosted. And so, he had good context for what the problem was and for how we thought about things.
Sanjay (21:51): The biggest problem I would say and it's hard to tell because also, I wasn't there. I was involved on the board for a period of time, so I don't have all the details. But one of the things that helped us a lot was we always had trouble building enough boards. And so, we never were making huge inventory commitments in the first few years of selling the product. And that turns out to be an easy thing that kills companies when they have a physical product is they have cash but it's not cash, it's actually inventory.
Sanjay (22:20): And they can turn that into cash. But if let's say they build a bunch of units in anticipation of holiday sales that don't happen, not only did you not get the revenue from those sales, you're also sitting on inventory that then messes up your supply chain commitments in the first quarter of the next year. And sometimes you can even get stuff returned.
Sanjay (22:39): So, if you work with a bigger like a big-box Best Buy-type of company and they don't sell all the stuff they got for Christmas, sometimes they have the right to give that back to you and you can get a refund.
Zach (22:52): Pebble had this challenge, right?
Sanjay (22:53): Exactly, yeah. This is what happened with Pebble I think. So, in the first few years, we always were ending the year with almost no inventory. And then, after I left, I think we got more aggressive as a company about the expectations we were setting with investors for growth. And continuing that trajectory that I talked about earlier, we got more aggressive about maturing our supply chain which we had to at that scale, but maturing the supply chain then working with partners who expected larger MOQs, minimum order quantities. They expected more of a financial commitment from us.
Sanjay (23:24): And so, the capital requirements for the company grew substantially. So, at the time that I left, we had raised I think $12 million between the seed and the A-round and then a $5-million note from our existing investors. And then, the company raised an additional probably $80 million or so past that before the company closed.
Sanjay (23:45): And so, the capital needs just got really large. The commitments like the amount of cash tied up in the supply chain became quite big. And then, there are a few cases where the company missed forecast or misforecasted and as a result, there was a lot of cash tied up in inventory. And that created issues around less with the investors but more with folks that you would work with to get debt and venture deadlines to help fund inventory. They're usually happy when everything's going according to plan. As soon as you your cash turns out to be different than you expected, then that can become a different relationship.
Sanjay (24:20): So, what I think happened is that over the last year of the company, there were issues with not having enough cash. And there being this kind bad feedback loop of then not being able to get product out of the supply chain into the channels and selling it. And then that causing more nervousness or consternation from especially the lender groups that were involved with the company. And then that restricting cash flow further and it was this bad feedback loop.
Sanjay (24:49): So, I think at the end, what happened was the lender foreclosed. I think they had pursued M&A trying to sell the company that didn't work out in the end but it was a last-minute thing. And as soon as it didn't work out, they foreclosed to prevent somebody from spending more cash and sold the assets, like sold the IP and everything.
Zach (25:06): So now, you at that time have started your second company Skip. So, why don't we talk a little bit on Skip and both in terms of what Skip was on its own and also how it was similar to and different from a business model perspective from what you were doing at Boosted?
Sanjay (25:23): Yeah, it was very different. So, I had left Boosted in the summer of '17. My co-founder from Boosted, Matt, was starting to work on scooter sharing. At the time, he was saying, "People are going to ride scooters. This is going to be great." And I was skeptical. I was like, "No one's going to ride these scooters. They're going to ride bikes. They're going to ride skateboards but I don't know about scooter."
Sanjay (25:45): He was totally right. And he sat on the corner on this. And the insight that he had was that cities were going to get really involved in how these work. It wasn't like Uber where there's not use of public space. You could imagine giving someone a ride in the city not really even knowing that that was happening. But if the scooter is sitting on the sidewalk, they're going to know and they're going to want to regulate the public space that that scooter is taking up.
Sanjay (26:07): So, the insight that he had along with our other co-founder Mike, they realized they need to work with the cities. And so, their idea while I think this is like right when Bird was first testing their idea in Santa Monica. Their idea was to get a permit to operate a fleet of scooters in a city. And they had convinced Washington, DC which had a really forward thinking DOT, local DOT, to let them try this.
Sanjay (26:34): And some local DOTs are very restrictive about trying new ideas like bike-share or sidewalk delivery robots, things like that. DC's DOT was very friendly to just trying that idea out. And they already tried the bike-share. And so, they were happy to allow them to operate under a scooter permit that was similar to bike-share.
Zach (26:52): So, it's interesting because ... So, Bird was the first one to do the kind of like "let's drop these everywhere and figure it out later" kind of a thing.
Sanjay (27:01): Yeah, that's right.
Zach (27:01): But before that, you'd had I guess what the sort of early versions of micro-mobility is like all the bike-sharing programs with the docks and things like that. And so, what you're describing is a little bit of an in between where we're sort of taking some of the permitting and the permission structure that exists with a dock system, but also the flexibility that exists with a dockless system and trying to find the middle ground. Is that right?
Sanjay (27:22): That's right. I would say the first wave of innovation there was around docks. And that required not just permission from the city but partnership with the city around who's going to pay for the docks, where you're going to install these things and-
Zach (27:34): Right, construction.
Sanjay (27:35): Yeah, construction costs and power routing and everything. Then I would say probably the first folks to do dockless bike-share successfully in the US, especially electric, was JUMP. And they had been running docked biking systems for a while but had come up with this really amazing electric bike that had an integrated U-lock. So, you could lock it to a rack or you could lock it to a pole or something like that. And they were already working closely with cities.
Sanjay (28:04): So, on the bike side, things were very not chaotic. There was a lot of clear partnership between the cities and the operators. And then JUMP was saying, "Hey, here's a product innovation. We'd like to use this in the city environment." On the scooter side, it was, one, the innovation was you didn't have to pedal at all. This is really just like a hop on this thing and go. And it was small enough that you could ride it on the sidewalk which we really couldn't do with the bikes.
Sanjay (28:31): And so, it let people get comfortable on a sidewalk before they went in the bike lane but it also create a lot of chaos on the sidewalk if you're riding on sidewalk. And number two, it opened it up to a lot of people who maybe felt the bike was too much work. And so, the scooter, you could just stand on this thing and go with a throttle and you didn't really have to adjust the seat or get the pedals to feel right. If you were wearing a dress or if you had heels, it might work a lot better than a bike would. So, it opened up the number of users quite a bit and also opened up the chaos quite a bit.
Sanjay (29:00): And so, that combined with "put these on the street and don't ask for permission." That came from a lot of ex-Uber and Lyft folks who had seen that work in rideshare like ask for permission, or sorry, ask for forgiveness later. Those two things together made that grow much, much faster than the bike-share programs do.
Zach (29:18): Yes, grow much faster but then also eventually, that growth got the brakes put on it.
Sanjay (29:23): Yeah. I mean, the city's eventually stepped in and said, "We will require permits."
Zach (29:27): So, you talked about Matt's insight there which turned out to be 100% correct. And at the end of the day, even if they weren't at the very beginning, the cities were going to be the gatekeepers for who's allowed to actually play this game. Did Matt see that? Was that a thought that came up pre-Bird and pre that raised our strategy? Or was it seeing what was happening there and being like, "I think I know where this is going to go. I feel like I know where this is going to go?"
Sanjay (29:55): Yeah, he wasn't seeing that with Bird. I'm speaking for Matt here. But if I remember correctly, I think he saw that with the China bike-share companies because Mobike and Ofo have ... And there are others. There was like Bluegogo. And there are a few other people in China. I think Bluegogo had actually launched in San Francisco.
Sanjay (30:12): And initially, they had launched and the city said, "No." Then they moved to parking spots. So, they would rent a parking spot in a parking lot, just technically private property. And then you'd have to drop the bike back off in another parking spot. So, it was sort of-
Zach (30:24): So, it was sort of Zipcar-ish.
Sanjay (30:26): Yeah, it was kind of Zipcar-ish. But you couldn't just park it randomly on the sidewalk and block the sidewalk. And city had still said, "Nope, we're going to clamp down on this. That's not like an approved use of a parking spot." So, the insight he had was that watching this dynamic happen a couple of times and watching these China bike-share companies try to launch in different US cities. He said, "The US and the Europe will regulate permits for bike-share and scooter-share very tightly."
Sanjay (30:53): So, that was insight number one. And the other insight was that the hardware that people were using for scooter sharing was all this commercial, off-the-shelf scooters that were not designed to live outside. They were not designed for high-duty cycle. They weren't designed for ease of maintenance or swapping batteries out.
Sanjay (31:10): So, the insight was you would need a custom-designed piece of hardware that was designed around security and safety and environmental protection and environmental impact and recyclability. All that would have to be ... Someone has to make that.
Zach (31:25): Right. So, the products that you create when you're doing a shared vehicle is very different because of all those, right? You're maintaining a fleet. And so, you have to think about it differently than a sale of a product like a Boosted Board.
Sanjay (31:39): Yes.
Zach (31:40): The business model and the economics are also fundamentally different because you're...I mean, you're monetizing this thing in a fundamentally different way. The way that that aligns with your cash flow is totally different. So, talk a little bit about the business model differences between Skip and Boosted. And what are pros and cons of those different models?
Sanjay (32:03): Boosted's business model at the beginning was build a piece of hardware and sell it for more than we paid to build it. And over time, we started to look at financing options. We were pretty early ... I think one of the earlier partners with Affirm around financing this product. We found a lot of people that opened up the market to a lot of people who otherwise didn't have $2,000 or $800 to spend on.
Zach (32:30): I think the closest I ever came to pressing the buy button was right when you guys launched the Affirm partnership, and I was like, "Oh, I feel like I can almost justify this."
Sanjay (32:40): Yeah. And the funny thing is we found people who view ... One of the things we found about consumers is that financing a toy feels irresponsible. If you were to get a loan on a jet ski, people would think, "What are you doing?" But a loan on a car sounds totally normal to people. No one would be like you're being financially responsible by taking out a loan on a car tour.
Zach (33:00): Sure. Well, you're looking at how much you spend like how much you're spending on the BART per month then you're comparing that.
Sanjay (33:07): That's not even how they're thinking about it. It's really that there's societal acceptance for financing things that you may be spending too much money on. You might be buying too big of a house or unaffordable car. But if you finance it, that's normal. But financing toys is not normal. There's like what's okay and what's not okay.
Sanjay (33:29): So, financing was something we looked at. And then we looked at ... What was interesting about Boosted was that certain people really wanted the thing to work reliably and we're willing to pay to make sure that parts availability was there or that they could get it fixed and it was going to be working the next day. And so, we started to explore some ideas around like an AppleCare type of program where you could pay to get a loaner board if your board was in the shop or that you could get expedited service if you were commuting on this daily.
Sanjay (33:57): We actually had people offer and say, "I'll pay you extra to get this thing fixed today versus getting it fixed tomorrow." So, we started to explore that. And then, we also looked at resale of refurbished product. And often, an area that people don't think about when they sell consumer products is that something will get returned. And if you offer no return policy, people are really upset. And if you offer a really generous return policy, then you might get a potentially a lot of units back and you have to do something when you can't sell them as new units.
Sanjay (34:26): So, we started to have a refurb program and start to look at where we could use those. We started to look at like fleet sales of selling like 10 or 20. But again, it was very much like a motorcycle. It was not a thing where ... Google wasn't going to buy like 100,000 Boosted Boards to put out around their campus. It was not like that.
Sanjay (34:44): With Skip, it was very different. With Skip, it was there's an asset and we're earning a certain number of dollars each day in ride revenue than we're paying to recharge it, to move it, to process credit card fees, to buy insurance and all the other pay permit fees of the city, all those things. And then, we get to keep the rest. And as long as the amount that we're keeping every day adds up to more than the scooter was worth, now we're making positive cash flow off the scooter.
Zach (35:06): So, what do those numbers look like? What does the revenue per day look like? What does the cost per day look like? How does the math make sense?
Sanjay (35:13): So, today, it's very different than it was at the beginning. At the beginning, there was a novelty factor. At the beginning, people were even ... I remember people were running around trying to find them like it was almost like Pokemon Go trying to find a scooter and then ride it. People didn't really care much about the cost of the ride, like 10-20 bucks to take a ride, who cares? You're going on a date or you're having fun with your friends. People were happy to spend that. They weren't thinking about it as a utility product.
Sanjay (35:39): Today, the numbers are roughly around $10 to $15 per day, closer to $10 in terms of revenue per scooter per day. And that's averaging for summer season. And in winter seasonality, you might get a lot of rides July 4th weekend in DC. But you can't extrapolate that to the rest of the year. You might have a lot of ... We saw a lot of impact if it rained. We'd see huge revenue impact if it was raining. So, weather forecasts were one of the inputs into our model for what our targets were for any given week.
Sanjay (36:10): So, right now, you're seeing like $10, maybe $12, maybe $15 per day in revenue. And then, we were seeing in the best case about 30 cents on the dollar in terms of positive cash flow once you pay for all those other costs, not including the cost of replacing the scooters. And so, steady state, we were expecting maybe around like 15 cents on the dollar in terms of gross margin on the revenue we're making.
Sanjay (36:36): And then, the other limiting knob that you could turn but only so much was how many scooters you could deploy in a city. So, at the beginning, you could put out 100. And often, cities were capping the permits at small numbers to make sure they can manage the program before expanding it. But at some point, you hit like a certain number of scooters per 1,000 people in the city. Maybe that number is higher for high-tourists type of cities like DC. You might have a lot higher tolerance or much higher number of people daily in DC than people who live there. But there's still a limit. You can't just put out a million scooters in DC and expect them all to get ridden two or three times a day.
Sanjay (37:12): So, overall, the numbers end up being about a 15-point, maybe 20-point gross margin on the business and you've got a cap depending on the city that you're in of how many scooters you can reasonably deploy. And then, that divided up among however many players you have. So, if a city can tolerate 10,000 scooters but you've got three operating permits, then your max is going to be 3,300 scooters in that city. And then let's say you're earning 10 bucks a day then you just do the replacement math on buying new scooters in 18 months or 24 or 36 months.
Zach (37:42): So, you're excluding ... When you talk about those gross margins, you're not including the amortization of the scooter over that what it costs per ride based on the replacement or how many rides it can do before its replacement?
Sanjay (37:52): Well, so I think you can get 30%, maybe more than 30% not including the cost of the scooter. And then once you include it now, you're down into the 15%.
Zach (38:00): Got it. Okay. All right, which is pretty tight.
Sanjay (38:03): Which is very tight.
Zach (38:04): And especially I have to imagine city to city variation given that you've got places that are tourist centers. And so, you might expect a certain rider profile there. You've got places that are rideable all year like San Francisco. They're going to have a certain economic profile. Cities that have worse weather are going to have a different economic profile. Less tourism are going to have different economic profile. But also might have very different numbers of people who are allowed to participate that also probably drives the economics a lot.
Zach (38:34): It's been I think recently announced that they were not going to deploy in cities that didn't have limitations on how many companies could-
Sanjay (38:40): Correct.
Zach (38:41): So, the economics there get driven. Early on when you're building your model for what profitability looks like, how right were you in terms of building a financial model here in theory-
Sanjay (38:56): Mostly not. And it was for a bunch of reasons. One was we didn't know where the limits were in each city. It was not just that they said, "We have to give you permission," but we'll also create a bunch of requirements on where you can and can't operate.
Sanjay (39:10): And so, the most profit maximizing decision might be put all the scooters in a touristy area. But the best option for making sure everyone has access to the transportation network might be to put them in non-touristy areas where you're going to earn less per scooter. And so, that tension that exists is I believe why if you look at the history of private systems like the trolleys and the train systems of the United States, eventually they all became public transit. Those were all private systems back 50 years ago.
Sanjay (39:40): And as a result, the city can dictate, "Okay, we're going to make sure that we're serving all neighborhoods with buses not just the profitable routes…
Zach (39:48): The profit-seeking outcome does not match the social goods-seeking outcome. And so, you're either going to end up with like a profitable bus system that does not serve many, many, many people ... or you're going to have a system that serves everybody and is not going to be profitable. And there's no way to solve that problem. That's just the way ... You're going to end up in one of those two places.
Sanjay (40:14): Well, I think what will happen is either the city subsidizes the cost of running those systems, like eventually you want to run them at a loss. Essentially like in order for them to be a subject of social good, eventually they should be free. And for that to happen, they have to be operated at a loss or subsidized by the city.
Sanjay (40:29): But if you're subsidizing a system, it's not a venture-backed massive hit. And so, you have this tension between those two. So, that's one of the things we didn't realize was the cost of we might win in San Francisco permit, but now we might be losing money operating that city.
Zach (40:46): Yeah, that's interesting. It's like the problem with the postal service, the economics with the postal service. But on a city by city -
Sanjay (40:54): Exactly. You have to pick what you're optimizing for. And so, that was one thing we got wrong. Another thing was where density landed like what was the max. So, I think some cities in Texas were much more, "Hey, put as many scooters as you want." But then, all the companies put as many scooters they wanted, you would end up with the consumers choosing which one is the most common because that's the one that's most likely to be in front of you.
Sanjay (41:21): But that company that has the most scooters out is also doing the worst economically because ... I mean, they have a lot of demand but they also have a bunch of unused scooters. They have too many. And so actually having some constraint probably helped which is why maybe Spin made that decision.
Sanjay (41:34): So, there were a lot of things we got wrong about the model. I think it can work potentially like Lyft, for example, is getting a lot of people using a combination of the city bikes or Bay Wheels bike-share systems and Lyft. So, if you think about it as customer or rider acquisition and as a substitute for that, then maybe it works to operate that system at a loss. Or you might be able to put it in a smaller subset of markets like very touristy areas like beach towns, but then you're not going to have the scale of operating it in Brooklyn and all the boroughs in New York or all the neighborhoods in San Francisco.
Zach (42:11): Right. Now, that you've done a couple different businesses with a couple of different business models, what's your perspective on how one should monetize these things? You're building businesses that have stuff. You're making stuff and you're selling stuff along with these services you're providing alongside within like ... Is there a right version for Boosted or Skip or whatever? Is there a right version in general? What's your perspective?
Sanjay (42:39): So, I generally get annoyed by people trying to change the business model to fit what they want and have it not match what the customer wants. And so, that could be forcing you to pay a subscription for your Boosted Board to work correctly.
Zach (42:58): Was there a world where you guys talked it? Was there a future where Boosted had a subscription model?
Sanjay (43:05): I think there could be but it would have to be delivering something of value. It couldn't just be, "Here's a board on a subscription." And I mean if you look at cars, people offer cars on subscriptions but it's generally so much more expensive than just leasing a car.
Zach (43:21): They're crazy expensive.
Sanjay (43:22): Yeah. And there's a reason for that because the cost of running the subscription service and offering everything on top of that and taking on all the liability of the residual value is so high. So, there's a reason that a subscription for something that costs the same as buying it and financing it means like someone is subsidizing that cost, that the true cost is actually much higher.
Sanjay (43:44): So, yeah, we talked about what we could do in that area, but we were always very pragmatic. Whenever we got an investor asking like, "Hey, could you make this a subscription," we always push back. Our discussion internally was always what can we deliver to the customer, and how do we make that something that they would want and where the subscription fits into that.
Sanjay (44:07): The other framework that we learned was there's a list of things that as a consumer, for purely as a consumer product, there's a list of things that you own that if they broke, you would replace them today. And you can make that mental list in your head and that might be your smartphone, it could be your appliances in your house like your front door lock or your refrigerator. If you refrigerator broke, you'd go buy a new refrigerator tomorrow.
Sanjay (44:35): And a lot of products don't fit into that category. So, people buy them or people start to use them, but they're a nice-to-have and not a need-to-have. And then when they do break or when something new comes out, the novelty has worn off and you may not see the same engagement from that user.
Sanjay (44:53): So, once I was having a good conversation with someone, "Would you rather sell 10 products, 10 units of something to people who six of them or eight of them weren't going to use it a month from now or would you rather sell two or four units to people who were?" And on one hand, you're getting all this revenue from those 10 users. And that can help pay for the development costs to get those two or four years of super happy.
Sanjay (45:19): Or you could say, "I don't want to have to build a support infrastructure as a company and the supply chain and everything to support those six or eight casual users because they're not going to be here next year. They're not going to be continued to buy. So, I think both with scooter sharing and with Boosted, our most valuable customers were the ones who needed the product and who really use the product on regular basis. And it's very easy to build for the people who are not using it on a regular basis.
Sanjay (45:50): And you need to be careful because you don't know how people will use it. So, you have to accommodate, you can't force people into that. But whatever the business model like if you just sell something and it's the most basic non-defensible, no subscription whatsoever like the way that a VC investor would think about a hardware product but they're going to use it and they're going to buy new ones like people buy new shoes, people buy new cars. Tesla is not a subscription business. There's aspects of it you could add to it. Or like your phone, you can just buy a phone. The phone is a really good product. And when a new phone comes out, you want a new phone.
Sanjay (46:27): And so, you essentially turn into a subscription customer in that sense. So, I don't think there's necessarily bad models as much as there are products that either have this tacked on or where the product actually isn't fulfilling a real need. And then, that's when things start to fall apart on the business model.
Zach (46:47): What's next?
Sanjay (46:49): Working on new stuff, exploring a project with a couple of friends from Boosted and Skip but not very much in the early stages of figuring out if it will work.
Zach (46:57): Cool.
Sanjay (46:58): Yeah. But it's still hardware-related.
Zach (47:01): Not getting out of the space.
Sanjay (47:03): I thought about it. I mean, I frequently think about it and I think the way that most people who build hardware think about it. We see our friends building software and go, "Oh, this seems easier," or, "At least less stressful. Less gray hair."
Sanjay (47:16): But it's also really fun to build stuff, build physical stuff. So, even just trying to prototype something and watching that come together and then getting to use it is very rewarding.
Zach (47:30): So, what's your advice to somebody who's at the beginning of the road that you've walked down, either a founder or an aspiring founder or an innovator who's thinking about this stuff at a bigger company and sort of thinking about trying to create the kinds of products that you've created over the last few years? What's your advice for them?
Sanjay (47:50): With physical products, there's a lot of ways for it to go sideways that you won't know at the time. You can think you're going to sell a lot of ... You're going to want to sell a lot of something or you're going to want to make a lot of something, but you might make commitments now that then become real liabilities for you later. And those generally are less dangerous in software. You're not having to pre-pay or pre-commit to your AWS bill for the next three years and the way that you might have to buy products or work with a supply chain partner.
Sanjay (48:29): So, my advice for people early in this is to find ways to keep your footprint small. I think there's ... A lot of people try to build, for example, consumer hardware products like Apple. It's like you can't do that. To do that, you need to have a lot more infrastructure in place. And if so, if you spent a lot of time on packaging, you're spending time on the wrong thing. Whereas Boosted, we found that people who we really needed to appeal to and design for didn't care about the packaging, they care about the product.
Sanjay (49:04): So, my advice would be number one, yeah, don't try to play big company, really focus on making a few people happy which is something that we learned with YC. And the second is really focus on usage, really focus on how people ... Because I think that the siren song of physical products is that everybody was like, "Oh, a new shiny thing."
Sanjay (49:30): And if you think about downloading something on your phone, the cost to let someone try that and get that experience is basically zero. But the cost to you at the early days of building something physical is a lot of work to deliver something to somebody. And if you focus on that moment, instead of are they still using it a week later, are they still using a month later, are they telling their friends about it, the concept of retention and churn and all the things that have become standard practice in software have not really come to the hardware world yet and need to.
Sanjay (50:06): And if you look at really strong hardware companies, they have very strong retention data and very strong retention metrics. So, think about Peloton or think about Apple, those are products that they very religiously measure how people are using them after they buy. And it's very easy when you're building physical stuff to focus on the moment of purchase. That's when you get all your revenue. That's when people are the most excited. That's when the thing is the shiniest. And if you just forget about it after that, you're forgetting about a lot of other things.
Zach (50:37): I think the fact that understanding what customers do with your product after you ship it to them for a physical product is by default so much harder than it is to do that for a website.
Sanjay (50:48): It is.
Zach (50:49): Which once these things become connected, they become more intelligent. Then all of a sudden, you can start to actually learn about how your product is used.
Sanjay (50:56): Yes.
Zach (50:57): But if you're used to not knowing that, then you don't ask the questions that any web service is going to ask about what product engagement looks like. Those things are knowable even for offline products, you just have to talk to your customers and do research and it's hard but you can still figure it out. And it matters even if you can't measure it.
Sanjay (51:23): Yeah. You almost have to be unreasonable about it. If you look at stories from the software startup world, so-and-so went to someone's house and installed their software on their computer or they would go and watch over your shoulder as you use their website. There's like stories like that. And those, you have to do that with the hardware products too.
Sanjay (51:44): And to your point, it's even harder sometimes to watch them use it. But I think it's really important to do that because ... And if you're not getting it right to be intellectually honest with yourself that you haven't figured it out yet. Just because they bought it doesn't mean it was successful. That would be like saying just because they downloaded my app, this is a successful app. And that's no longer the metric for success.
Sanjay (52:05): So, the other piece of advice I'd give to people looking at this is around budgeting. It's very expensive and it's very easy to want to do everything with the physical things you make. One of the wise things we did out of constraints at Boosted was we actually only made a couple of custom parts. Not a couple, but most of the Boosted Board Gen 1 was not made by Boosted. The deck wasn't ours. The wheels weren't ours. The axles weren't ours. We made modifications to make sure that-
Zach (52:40): I was going to say it's surprising because that product feels like a product that's fully-custom.
Sanjay (52:44): It does. And that's some of the magic is to make it feel custom out of pieces that aren't. But for example, the cost to us to go to a custom deck from a deck that we were using from someone else that we already knew, we had to figure out how to reliability test it. We had to get samples of it made. We had to worry about supply chain quality control instead of just saying, "Hey, we want to order 100 decks at a time from somebody already making 1,000 decks of that type."
Sanjay (53:08): And so, constraining the problems you're trying to solve. And I think especially for people who are entrepreneurial and want to create new things, it's easy to "your eyes are bigger than your stomach" kind of happening. But being very disciplined about picking the things to solve at first. And knowing that ... For example, I remember the first time somebody explained to me how to actually calculate cost of goods in a hardware company from a financial perspective included the cost of the warranty that you were going to provide for the product.
Zach (53:44): Even if you don't know actually what the odds are that somebody's going to call that warranty or you have to guess.
Sanjay (53:48): Yes. But you have to think about how many people will buy it and return it? How many people will have it break and need a replacement? Mature companies have warranty accruals. But we didn't know what warranty accrual meant when we started doing this. We just maybe like, "Oh, we just had a bunch of costs come out."
Sanjay (54:03): So, I think especially for Kickstarter projects, it's easy to think about my job is over once I ship it. And actually, your job includes are people using it and do I have that feedback loop? And also, am I taking care of people? And if I say I'm going to give you a return policy, am I now fighting with you over whether I'll fix it?
Sanjay (54:20): And there's definitely companies we've all had experiences with where you're trying to cancel a subscription or you're trying to get something fixed and you're arguing with them over whether they'll honor what you thought was the promise that they made. So, budgeting for that is important.
Zach (54:35): Yeah, cool. Well, thanks for joining us and thanks for sharing your wisdom.
Sanjay (54:39): Yeah, thanks for having me.