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Wielding little more than their brilliant ideas, a new generation of inventors is turning imagination into reality thanks to a reimagined supply chain and a little help from China. Nathaniel Wice’s office is a three-foot stretch of desktop at a long, communal table partitioned among dozens of fellow entrepreneurs. His shipping-and receiving department sits beside him in the form of a young woman hand stamping envelopes. His warehouse for this office is a stack of boxes in the closet (there’s another, real one in New Jersey). His partner’s name is Josh Hochman, whose busy writing software somewhere else — it doesn’t matter where, really. And their company’s name is miShare. miShare’s first product is an eponymous gadget for connecting Apple iPods to share music, movies, pictures or what have you between them, no computers necessary.
Neither partner — Wice is the CEO, Hochman is the top programmer— has a background in consumer electronics, not that they let that stop them. miShare begins from the proposition Wice heard ad nauseam in business school: No one necessarily needs a quarter-inch drill — what they want are quarter-inch holes. Likewise, the pair didn’t start out seeking to break into the gadget business; they wanted to share music with friends they ran into on the street, and from that blinding flash of inspiration, miShare was born. There was just one problem: Who was going to build it for them?
The image of the solo inventor working out of his garage occupies a hallowed place in American folklore. But for every William Hewlett and David Packard, who built a corporate giant to last (and became the godfathers of Silicon Valley, no less), there is a Preston Tucker or Nikola Tesla, men blinded by flashes of genius who lacked the means to realize them. Tesla bested Thomas Edison in the so called War of the Currents by perfecting AC electricity, which today runs the world. But he sold his patents to George Westinghouse, because he didn’t stand a chance against Edison’s General Electric on his own. Tucker designed a car with safety features decades ahead of his time, but lost his lease on the world’s largest factory when he tried to go head-to-head with Henry Ford. Tucker built a better car than Ford, but he couldn’t build a better supply chain. Neither man was equipped to handle the hassle and expense of building an industrial behemoth from scratch. All they wanted was to make their inventions as quickly and cheaply as possible. They wanted holes, not drills. But the impulse ran counter to the economics of the time — Tucker couldn’t just rent his own assembly line by the hour.
Today, that capacity exists in China, where miShare is made. Wice didn’t go there looking for rock bottom prices, but for expertise unavailable elsewhere. “The whole reason to be there is this amazing infrastructure,” he says. “It’s not that labor is especially cheap, it’s just that there’s a lot of capacity and capabilities,” in the form of injection molding machines and workers who know how to use them. What’s been overlooked in the story of China’s rise to industrial super-stardom are the incredible opportunities it offers a new generation of garage entrepreneurs.
Wice and Hochman can afford to launch a company with nothing more than a credit card and an idea because they can find someone to handle the intricacies of production for them in China. Making it possible is the unprecedented Access would-be inventors have to the greatest concentration of manufacturing prowess the world has ever seen, located near Hong Kong in the Pearl River Delta. Using tools as simple and as inexpensive as Skype, e-mail, Excel and instant messaging, Wice is able to manage a supply chain spanning half the world by himself from his laptop. “This is how I communicate with China,” he says at one point, pointing to an IM conversation with his contact in Hong Kong. The trickle-down of these and much more powerful tools for integrating sales, manufacturing and supply chains into one tidy package has made it possible for inventors to stay focused on what they do best: seek inspiration, innovate and create. Wice explains that taking your invention to China is a little like working in a neighborhood with a lot of office support centers: “You don’t have to be an expert on binding a presentation; there’s a place on the corner that can do that for you. It’s just that in China, the place on the corner prints circuit boards.”
The cost of the circuit boards, batteries and various components used in each of the 4,000 units sold so far adds up to about $35. miShare wholesales for $65 and retails for $99.95, meaning a third of its value stays in China while another third accrues to retailers like Amazon. What’s left is pure profit for its inventors, whose own contribution is the secret sauce of software that makes the formerly dark art of sharing music possible (while respecting copyrights, of course). miShare and its retail partners perch in the dimples of what’s been called the “smiley curve,” named for the U-shaped smile of the ‘70s cartoon happy face. Coined by overseas manufacturers, the curve graphs the value (and thus the profits) of products over the life cycle of their manufacture. First there’s the brand, then the idea, the look-and-feel and the industrial design. Next are the components, manufacturing and assembly. Then there’s shipping and distribution. At the end is retail. If you follow the money, it starts high on the left with the brand and idea, dips low in the middle where sourcing and assembly happen and then rises at the end, when retail channels add their tidy markup.
The dimples, manufacturers say, are where the money is. Farming out miShare’s construction to China has been a win-win for all involved, especially on the American side of the ledger. miShare’s story isn’t one of outsourcing — no manufacturing jobs were won or lost on either side of the Pacific — but of pure creation. An idea that might never have found expression otherwise was willed into being by a combination of entrepreneurial pluck, the ultimate economies of scale and access to each other bridging the two. China’s share of miShare’s profits will actually fall as volumes increase, costs fall and the smiley curve’s dimples deepen. “The factory’s hope is that you’ll turn into a larger customer,” Wice says. He hopes so, too. But even the big customers are making themselves smaller.
miShare may have been launched on credit cards, but the savviest venture capitalists in Silicon Valley don’t see much of a point in owning factories, either. One of the Valley’s smartest bets at the moment is chumby, which sells what might be described as a clock radio capable of surfing the Internet. The $199 device looks like a touch screen iPod crossed with a leather clad beanbag. Try to imagine one sitting on your kitchen counter flashing Facebook updates, Internet radio playlists and just about anything else you can digitize. chumby is based in San Diego and has 31 employees, of whom “maybe two-and-a-half are focused on hardware,” admits its CEO, Steve Tomlin. He isn’t one of them, having apprenticed at AOL and Disney. “To the outside world, we look like a consumer electronics company, but we’re not,” he explains. chumby is a media and software company — they intend to get rich selling digital widgets, i.e., tiny packages of digital content, for a new generation of devices like chumby, made by another company like Samsung or Sony. The chumby 1.0 is only meant to prove what they’re capable of and to seed the much broader market they see coming. Until then, they’ve turned to a factory in Shenzhen to help create one.
I first heard of chumby a few years ago while touring that factory with its owner, an Irishman named Liam Casey. Dubbed “Mr. China” by The Atlantic, Casey is the rare Westerner who understands a landscape most foreigners find bewildering. What sold chumby on enlisting Casey’s company, PCH International, was its ability to handle worldwide shipping and handling from Shenzhen. Anyone purchasing a chumby from the company’s Web site can watch via FedEx tracking number as his or her order moves from Hong Kong to Anchorage to home. “People are tracking them every step of the way,” Tomlin says. “They’re delighted once they understand it’s being made on demand especially for them.” I got to take a peek behind the curtain in Shenzhen. As I watched, orders for another client placed 7,800 miles away in America appeared on screens, automatically generating packing and address slips. Next, they were applied to boxes and sent down the assembly lines, where Casey’s employees picked the orders, sealed the boxes and added them to pallets for FedEx pickup. The end result: a supply chain that never touches the hands of chumby employees, which is just as well considering they’re busy crafting digital widgets. “If you’re a startup with only so many millions of dollars in funding and you’re trying to break into a market,” Casey asked me rhetorically one morning in Shenzhen, “is it better to have it tied up in a factory or a warehouse, or in your designers? Or in new technology?” This is Casey’s sales pitch, and it’s a compelling one. He’s built a better supply chain than Henry Ford’s, and it’s yours for a very affordable price. The fact that it’s in China doesn’t matter — it’s accessible from virtually anywhere. Tucker and Tesla never had the chance to control their own inventions, but as Wice and Tomlin have discovered (and anyone with a great idea and an Internet connection can find out for themselves), it’s a pitch that’s turning ideas into household names.
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