This is Episode 1 of The Next Big Thing. A series where we chat with hardware companies about what has worked and what hasn’t on their path to success.
We are aiming to discuss topics that other entrepreneurs will find useful, such as the process for prototyping and manufacturing, tools the companies use to keep them moving, sales channels that have been effective (and useless), and managing cash flow.
Our first episode is with Matt Vroom, the CEO of Henge Docks. The audio and transcript of the interview are below.
Product: Connectivity solutions for the Apple ecosystem
Founded: 2009
Sales channels: Almost entirely online / Direct to consumer
Margin: 60%-70%
Location: San Francisco
Team: 8
What does Henge Docks sell?
Primarily we sell connectivity solutions for Apple notebook computers and iOS products. Things like docking stations, cables and adapters. But our primary business and what we’re known for is our vertical docking stations which take your Macbook and dock it in one smooth motion to all of the accessories on your desktop – your monitor, power and all of the hubs that you typically have to plug in manually. We take that entire operation to make it a seamless experience.
You were involved in product design and manufacturing before you started Henge Docks. What was the story behind switching from designing roof racks to computer accessories?
I started off out of college in a graphic design job and quickly realized that the only way that I was ever going to get to develop products that really stuck to my original vision, that weren’t just getting handed off to an engineering team, or working for 20 years in the same job designing sneakers over and over again and actually see something that I’d created come to market in an unadulterated fashion was going to be if I started my own business.
“That was a total disaster and I lost a lot of money personally on that venture.”
The first attempt I had was a rather complex electronics product. It was in a good market, but I had brought on an external firm to do all of the development and they had the manufacturing relationships to bring it to life. So I was heavily relying on this external resource to make this vision come to life. That was a total disaster and I lost a lot of money personally on that venture. The lesson I took away from that was don’t hang your business on an external resource, it will eventually come to bite you.
The next thing I tried was a roof rack business for Nissan sports cars. I had a Nissan 350Z at the time and I was into kayaking. When I bought the car I thought, surely somebody makes a roof rack for it. It turns out they didn’t. So I ended up building my own hatch-rack. I knew that there was some interest in this product because I had people flag me down at gas stations and I even had a cop pull me over one time to ask me what was on the back of my car and I figured there’s probably a market for it. I could bring the product to market, get experience with selling it and doing at least the first round of manufacturing myself, which is a very inefficient way of doing it.
It was all about iterating. I built the first dozen or so myself and built the website out. I found a market but it didn’t take very long for that to get saturated because there was only about 150,000 350z’s on the roads at the time. But it did get me the experience of launching a product end to end, what it was like to interact with customers and do small batch manufacturing.
While that business was on autopilot I went down the list of ideas that I had and things that I thought I could design and develop myself and hand off to a manufacturer. This idea for vertical docking station was right at the top of the list. The day that Apple launched the unibody Macbooks back in 2018 my Powerbook died. I went to the Apple Store. And on the way home I realized that once again the docks were on one side and this idea was a possibility – up to this point we had been doing horizontal docks.
What was the prototyping process that you had to begin with?
At that point in time I was the only designer in the company. It was myself and two co-founders. Originally the idea was to figure out if we could get the ports to line up because we needed a lot of accuracy. I ordered a 3D printer and I remember being pretty upset with myself taking such a speculative risk and buying an $800 3D printer so I can just prove the concept out.
The prototypes worked perfectly the first try, which was amazing. Then it came down to finding a manufacturer and that was very difficult because this was in 2008 and there was no Kickstarter and very little documentation online about dealing with mass manufacturing. I started by trying to find a US-based manufacturer but we couldn’t find anybody to provide us a full solution: packaging, cables, plastics and everything that goes into a product.
We’d almost settled on doing a lot of the manufacturing in my lawyers apartment in Arlington, Virginia. Finally, a friend of a friend intro’d me to his uncle who runs a manufacturing organization in China. So a little bit of serendipity there in terms of getting that manufacturing relationship established.
How did you make sure your manufacturer was able to meet your tolerances?
We didn’t know that at the time and that was a fairly big risk. We saw the products that they had been making and we knew that they had the engineering expertise to do the “Design For Manufacturing” process through to the end. We also knew by just looking at other products what we could roughly expect in terms of injection molding and ABS parts. The initial concept that we had for the product actually held very true from 3D print to manufacturing with only one or two modifications.
“I was really paying attention to the limitations and not letting the scope grow. That’s what allowed us to get it manufacturable. If we had tried for a more complicated product it never would have seen the light of day”
I think a lot of that was applying limitations early and not trying to hit the dream product. Instead of having a massively integrated electronics power supply, this was just cable holders. But we kept true to the function, which is ‘what do people need?’ – the ability to connect and disconnect laptops super easily. Anything beyond that is a bonus. I was really paying attention to the limitations and not letting the scope grow. That’s what allowed us to get it manufacturable. If we had tried for a more complicated product it never would have seen the light of day.
How do you work around the lack of information from Apple’s design process?
As blind as we are to the details of what Apple is going to do, they do stick to very particular ethos and set of principles. You have a pretty good idea of what they’re not going to do. There’s also a fairly well established rumor mill that you can use to guide some of your decisions.
Things like connectivity standards (USB-C and Thunderbolt) get outlined early on. So it’s actually the physical dimension of the products that is the biggest unknown. The way that we have found to work with these unknowns is to develop modular architectures that we can carry forward, off the Apple update cycle. That way we aren’t developing new technological pieces at the same time we are trying to design a form-fit for a new product. We’ll never have accurate enough information to warrant the capital expense and taking that risk of cutting tool before we have the computers in hand. When the computer comes out we’ll do the final adjustments and then “press go” to reduce our time to market.
But it’s probably the biggest barrier to entry in the docking station industry for Apple is dealing with that uncertainty and being able to react quickly.
“Cash is King! We’ve had experiences where we’ve had an extremely successful product come to market and then almost kill the business because of the agreements that we have with manufacturers”
Outside of working around Apples release schedules, what are the other challenges you face?
Any hardware business is just cashflow. You’ll hear it so often that it makes you nauseous. Cash is King! We’ve had experiences where we’ve had an extremely successful product come to market and then almost kill the business because of the agreements that we have with manufacturers. You can design them best product in the world, but it doesn’t matter if the investment in componantry starts multiplying your cash needs as you scale.
You read about it in the business school text books but until it happens, you can’t really believe it. It can all make sense in your projection models but when you just start having to invest more and more into work-in-progress inventory you go through this mind blowing experience where everything’s going right but the business is going to fail by its own success.
How do you work around cash flow issues?
Payment terms with manufacturers is a really important thing but we have found those to be harder to come by than they used to be. We found traditional financing options for your inventory to be relatively limited. There’s a lot of companies out there who’ll offer factoring for invoices but are amazingly expensive. Also, most of our business was direct to consumer. We didn’t find it any solutions for this until Kickpay came along.
One of the biggest benefits of selling direct to consumer has been the ability to control customer acquisition. What acquisition channels work for you guys?
Amazon is becoming more and more of an important piece of that business. We say about a third of our Amazon business is just cannibalization from our website, but increasingly, Amazon’s becoming its own channel. We’re starting to see the ability to inform people that our product exists through Amazon is becoming a more important activity.
Retail was a priority for us up until about 2016 and then we realized that you need to have salespeople to manage those relationships and there’s a lot of weight on the back end since a lot of retailers don’t pay you on time, which is really frustrating.
Now we just rely on a handful of distributor partners to deal with retail for us. That cuts down a lot of the overhead costs and stress of having to deal with those uncertainties.
What have you found to be the most effective methods to drive consumers to your website?
Our vertical docs work extremely well in advertising because they have a visual stopping power. We don’t really need to do anything flashy. We just have to show a photo of the product and the Macbook. It’s a very striking image even from the corner of your eye.
Organic traffic is still pretty powerful. As Apple continues to claw away pieces of the PC market those ex-PC users came from a world where they were using docking stations. So they’ve already recognized the need and they have ended up on Google where we are one of the only people out there that offer a fully functional docking station for Apple.
Have you had any acquisition channels that have been disastrous?
We had a distributor that did a really long con on us. Unbeknownst to us, they pre-sold a bunch of our products to their partners, which they weren’t authorized to do, at a certain price point. But we hadn’t finalized all the details of manufacturing so we had barred them from selling that product to anybody ahead of time. When the product came out, it ended up costing more than we initially had told them (we stated up front there could be some movement with the price). They were excited about the product, agreed to the pricing and placed a bunch of POs. We shipped them a lot of inventory. Enough inventory that if they had failed to pay on it, it would have killed the business full stop.
“We got played. That has been the only case where I dealt with a truly bad actor in the entire history of this company.”
They ended up holding that inventory hostage until we agreed to give them limited payment terms. Of course we were dealing with a ticking clock. We had to pay our suppliers or they weren’t going to ship any more inventory to us. And that causes cascades through the business – they knew what they were doing. In court we could’ve settle all of this out but it would have taken months. They knew that and we got played. That has been the only case where I dealt with a truly bad actor in the entire history of this company.
That was a little bit challenging, but you’ve really got to know who you are dealing with. Again, don’t let your business be 100% reliant on a single party. It’s always better to go into any deal, especially with somebody taking inventory, slowly. It hurts to leave money on the table. It hurts to leave customers waiting. But what hurts more is when you’re in a position where you don’t have options and that’s a lesson I keep learning over and over again.
Was this distributor screwing over a lot of their suppliers?
I haven’t heard any stories of them doing that specifically, but they don’t have a great reputation. Of course I only really came to find out about that after we got into the mess and started digging into it. We’ve also had people who’ve had bad reputations and they turn out to be fine or awesome. The key is just don’t put all of your chips on the table at once if you can avoid it.
What tools does Henge Docks use to keep the business running?
Kickpay – inventory finance really is the only tool that I would say the businesses is dependent on. For everything else there’s another path.
Slack – communication.
Dropbox – every time somebody has a computer go down, cloud-based computing enables any company that uses a lot of data to get back up and running quickly.
Was it a big risk of starting a production run with a new manufacturer in China you’d never met face to face?
It was (I didn’t know it at the time) but it turned out well.
How do you plan your product roadmap?
Our core products are all driven by Apple’s product cycle. We have more ideas than capital to bring them to life. In every business you have to pick and choose what you’re going to do so we have a priority list of usually two to three projects that are ready to go to manufacturing. Depending on market conditions and capital availability, we’ll choose to pursue those. Then we have another half a dozen or so that are in a pre-development phase either as a concept or prototypes in the office. So that list constantly shifts around. There’s stuff that’s been on that list for years and then sometimes there’s products that come to market within a matter of weeks or months.
An example of that would be when the USB-C Macbooks launched. That was when it became apparent that USB-C was a tangible future and the architectures from the sub-suppliers started coming out. That was one that went from non-existent to being at the forefront of the list because it’s going to be the future of Apple users connecting to their desktop setup.
“Everything is going to take 2.5x longer and costs 2.5x more than you think.”
What have been the biggest learnings that you’ve incorporated into your everyday processes?
Everything is going to take 2.5x longer and costs 2.5x more than you think.
Don’t let anybody hang your business. At some point you have to rely on external resources, but if it’s something that’s critical to make your business work, that needs to be internal. So if you have to have a better designed product than anybody else in the market, and you don’t have a huge bank roll to hire one of the top firms you need to have that capability on your team or else it’s going to come to haunt you.
That could be anything from how you develop customers all the way through to how you handle your manufacturing relationships. That expertise needs to be in house and you need to own that process.
“Designing margin into your products from the very beginning is really important. If you don’t have the margin built into your products, it restricts the number of possibilities that you have to be able to sell them.”
What’s Henge Docks’ unfair advantage over the competition?
Apple itself is a great barrier to entry. Their product cycles are really hard to keep up with and until you have the infrastructure and the modularity built up, the response time to bring a product to market can be too long. You saw this in the initial phases of the iPhone market when a lot of entrants into the case and accessories market were great ideas, but from a business standpoint, they couldn’t keep up with the yearly cycle.
Internally, our IP portfolio is really important. We had a storybook launch where we were in stealth mode and we didn’t announce until we had products in the warehouse. We launched on Engadget and Gizmodo and sold three months of inventory in three days. We got hit with a patent lawsuit right after that happened. Fortunately one of the three people that founded the company had just graduated from law school with a specialty in intellectual property and that saved us. Since that, filing patents has been a core strategy. Having a lawyer on board as an equity holder is also a really valuable thing when legal expenses can just spiral out of control.
If there was one piece of advice you had to pick above all else that you can give to either: someone who’s looking at starting a hardware business or is just starting out, what would it be?
I think I heard somebody else say this once: “Don’t do it… Okay, since you’re not going to listen to me anyway…” I would say designing margin into your products from the very beginning is really important. If you don’t have the margin built into your products, it restricts the number of possibilities that you have to be able to sell them.
If you are a company that sells physical goods and are interested in learning more about how Kickpay can help you grow by financing your inventory head over here to get more details.
