Since its designation as a Special Economic Zone, Shenzhen has earned its reputation as the ‘Silicon Valley for hardware.’ 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 that’s hard to find elsewhere.
However, jumping into hardware and getting hands-on with product manufacturing isn’t 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, ‘We’re two guys and we want to make some products’, and found out really fast that that just does not work.
We started BS-ing a lot – ‘Oh yeah, we’re a big company, we’re going into a new range of products.’ We told people we were in the organic food and health product space. We made some business cards. We didn’t have a company name – we just made something up. At the start, we’d be like, ‘Oh we actually have another colleague who’s in charge of manufacturing, but he’s 出差 (on a business trip) in the US. So we don’t know much about this – he’s the expert – so let’s just tell me what the process is.’
Of course, we made it sound much bigger than it was – new product line, we have a lot of existing companies, a lot of existing clients. We would just list off clients we didn’t have, just to get the foot in the door. In China, if you try to tell them your story, ‘Oh we’re small, but then we’ll be big’ – China doesn’t 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, he’d 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 is…when 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, 没问题， 没问题， 可以做，可以做，没问题 (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, “Oh, that’s 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.”
Of course, the natural instinct is to go with the one with modern equipment that says like yeah, we can do this. But that would’ve 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.
It’s very Chinese [to say] 没问题， 没问题， 没问题 (No problem, no problem, no problem)…and then you get [the product] finished and are like uh, that’s not what I wanted.
How did you negotiate prices at the factory?
It’s like if you’re talking to VCs, right? If you want to get money from Sequoia, you’re probably not going to go to Sequoia first. We would go to maybe three other people that we don’t 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 didn’t 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, we’re 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 we’d 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