Podcast #131 The Open Manufacturer

Good day,  I'm pleased to host Harinderal Hanspal, or simply Hans, founder, and principal at Thing company LLC, where he advises global enterprises and startups on how to design and execute on the revenue customer and product roadmaps. Hans is a technology industry veteran and entrepreneur driving technology-enabled business and product transformations in technology, industrial, telecom, and media companies. His technology and operations experience spans over two decades of turning scrappy startups and corporate innovation ideas into a growth-oriented and profitable business based on transactional and recurring revenue models. Hans co-founded Nurego in 2013, to help industrial IoT platforms transform their legacy quote to cash systems to support subscription pay peruse and pay per outcome revenue models for their IoT and software-enabled products and services. He sold the company to GE in 2017. And went on to lead GE digital platform monetization and customer development strategy. Early in his career, Han held global sales, Product Management, corporate strategy, and customer success leadership positions at several enterprise software and hardware companies including pivotal VMware and EMC Corporation. Now, Dell EMC, in his spare time, Han’s lead Seattle's 4100 member IoT Hub Meetup group. Hans, it's a great pleasure today to welcome you to our digital industry leadership podcast.

2:13
Thank you, Ken, I am very honored to be here. And thank you for the opportunity. I'm looking forward to this as well.

2:20
It’s not often I get somebody with such a deep bio, and so many areas that we could take in terms of going deep on, but I think if there's a common phrase that we're hearing in all of this, it's, it's monetization. So, I think it'll be a pretty interesting conversation. Perhaps starting with that, I always like to understand a little bit about, one's professional journey, what would you consider to be the red thread through your journey.

2:48
I have spent my entire career in front of customers. So, the red thread for me is customers, customers, and customers. I went to college and studied chemistry and ended up doing computer science as well because I started hacking at 16 and decided that was going to make me a better hacker. But at the end of my first year, I ended up in an internship at Armdahl or working in the field service group. And at the end of that summer, I realized that I preferred being out and about in front of customers, playing with computers, instead of sitting in a lab mixing chemicals and hoping I don't blow things up. I carried on in my internship role throughout my college and eventually when I ended up in a real job post-college, I actually joined a European Support Center for a Unix server manufacturer, which eventually led to some consulting work. And after a brief stint doing consulting ended up in sales because I wanted to be in the front end of helping customers define solutions, instead of being on the back end, having to support solutions that didn't exist or in constant break-fix. And so, I've spent much of my career in sales and business development, not just in the US, but also in Asia, and Europe as well.

I am a geek through and through. I've been fortunate to work for companies that have represented the entire technology stack, from enterprise hardware to developer platforms and SaaS applications, and grown a few gray hairs living through multiple computing waves, technology disruptions, and of course, Gartner hype cycles.

4:45
One of the things I realized through all of this was that companies and products die because of a lack of customers, not because of lack of product or technology. Regardless of the shiny new toy’s capabilities, for me, I always try and answer three questions to figure out if it's really valuable or not, starting with whose daily job does it change and how, if they're not engaged with your product, it's useless. Who cares enough to pay for it, and what value you create for them, the person using it may not be the buyer?

5:24
And then the last one, which a lot of people miss is, what or who could help or hinder you? This includes things like switching costs, if the switching costs are too high for them to adopt your technology, you might as well move on as they are most likely not going to buy your technology. So yeah, as I said that, for me, the thread red thread starts and ends with the end-users and buyers and customers know.

5:50
The themes of business development as you said, and I'd have product strategy are quite pronounced in your experience up through co-founding Nurego. What was the origin story for Nurego and what problem you set out to solve?

6:08
So, within Nurego, it was actually spun out of EMC and VMware. During my time there, I got involved with a couple of just pure cloud businesses. One was a backup as a service business for Mozy, I called Mozy was part of EMC and was a company that they had acquired, I joined that group to help with recruiting telecom and media, Calico, and cable operators as a channel. We ran into a lot of issues in just operating the business while trying to sell products the way we wanted them to.

6:54
And then at VMware, I was part of the Cloud Foundry group and had the responsibility to go to market for cloud service and the on-premise managed service and also ran into a lot of issues there. Essentially, we were hiring coders, engineers to enable the back office, and constantly competing for engineering time. I'd be sitting in an engineering manager's office requesting for engineers to do something related to enabling the back end, and they would kick me out. At the time, EMC and VMware, we're competing with Amazon, essentially, as tool providers, enabling companies to build out the services to compete against Amazon. One of the things we realized that most of them were dealing with the same issues and everyone was assuming that we just need a subscription building. But we had learned that that's not what it was. So, there were basically three things that we set out to solve.

8:06
The first was, that in a recurring revenue business model, you make money over time, your gross margins are based on the cost to serve every customer. And you process multiple transactions over the lifetime of that customer, for a subscription business you're going to do signups, upgrades, downgrades, add-ons, they might pause the subscription, they might restart it, they might even cancel it.

For pay-per-use outcome models, you need to meter and rate the usage and outcome. Your legacy quote to cash systems is not built for this. In the case of EMC, for example, those were built for selling a physical product that came with a warranty, then after that, we sold services and your aftermarket services and parts, they weren't really built for these multiple transactions. Those systems are optimized for a single large transaction, where the customer pays upfront.

9:09
And they're responsible for maintaining and operating the product. In a service model, you as a vendor, are responsible for all of that. So, it has quite an impact on your margin. And prior to that, we were in EMC's first pure-SaaS business with Mozy, which was founded in 2005. So, everything in the back-end in terms of how we managed subscriptions or tracked usage was all hardcoded. We had a whole engineering team just working on that. With Cloud Foundry, we decided that we're going to get an off-the-shelf billing system because that's what we needed. And instead, we discovered we were still hiring engineers because we needed engineers to go add code to the product to manage and enforce entitlements and quotas, they had to track the usage, and we had to build our own mediation system.

So, it didn't really take us away from having to add engineers with a product group just for the back office. We had multiple services, and at one point, almost 15 people out of a total of 70, engineers, who would just focus on the back office. And so, with Nurego, we solved this by making it very easy, we provided code that an engineer could very quickly drop into their code. GE had some of the most complicated scenarios that we had to deal with. The most complicated one, we came across, took an engineer, two hours to go through their code to get us integrated because they needed to figure out where they were tracking a resource.

Once they drop the code, they don't need to do anything from that point on. The product manager could manage how the product was rolled out, they could manage the pricing and packaging and, we metered usage, we rated the usage, and all the things that you expect the subscription system to do.

11:33
The second problem was very unique to software, where you have multiple deployments in a day, some many, we used to have multiple deployments in a day. And because we were running our own infrastructure, in co-located data centers, each time DevOps deployed a feature or a new service, we'd end up in a situation quite frequently where a deployment, would require more servers or storage.

And we'd be scrambling, and there was no way to control when that product or feature was available once DevOps deployed they went to everyone. And so, with Nurego, we solved that by essentially providing a set of tools to the product manager, where they could actually once the code is deployed by DevOps, they could actually take that, put it up into a package, could roll it out in front of a single customer or segment of customers, even a whole distribution channel. They could AB test pricing and packaging, frequently. When you test A/B test, packaging, and pricing it usually with a static web page. With us, not only did we enable the A/B testing, but we also actually made sure that all the plumbing was in place in the back end, so that if a customer signed up for a particular package, we'd be enabling it to manage the subscription correctly. Otherwise, you're basically going in and getting more engineers to go and add that package.

13:17
And then the last thing that we were solving, which we eventually were going to get to, but when we focused on industrial, it became pretty prominent, and that was the need to integrate into existing corporate systems. So, companies like GE have spent hundreds of millions of dollars across all of their business units to optimize the quote-to-cash process, they have hundreds of people sitting out in the Midwest who are responsible for invoicing and collections across all of their business units. And when introducing new billing systems, or subscription billing systems, at least most of the time, you ended up with a completely separate process, if you wanted to send a single bill, you couldn't bring in engineers who could do the integration, or you could bring in an SI to do that as well, to get the single bill. One of the things that that we discovered with the industrial customers was the finance guys were super conservative, they did not want to create any of these additional processes because, for them, you're talking about processing billions of dollars in invoices and collections. And this really just added more risk. So, one of the things that Nurego did was to manage the subscription, we rated the usage, we knew exactly what the customer owed. We integrated with the existing invoicing system, so you didn't have to change your process. But you could introduce recurring revenue into your ERP systems. So those are basically the three things.

15:07
It's pretty clear why GE acquired you, because at the time, of course, Predix was, the centerpiece of GE digital. To what extent has the industrial IoT industry adopted advanced monetization models such as 'pay per outcome'?

15:28
Well, so I would argue that they're actually at the forefront of these models, right. In fact, if you listen to a lot of presentations on outcome models, the aviation industry's power-by-the-hour revenue model for aftermarket services is used as an example. In aviation, at least it's, it's been going on for 25 or 30 years, and it's also what led to them putting sensors on their engines because they needed to track inventory not just be able to do predictive maintenance, but actually, it helped them increase the margins on their on the services because it helped them reduce inventory, even when an engine could fail anywhere.

16:20
And by being able to predict, they could consolidate inventory. Same thing with consolidating skill set. I'd say, the models are already out there. The renewables industry is another example. Utilities are not putting in the infrastructure, they're not building out the solar farms themselves. They're signing power purchase agreements with third-party providers, and only pay them based on the amount of electricity that's generated. So, it's already out there. The ones where it's failed, in my own experience of watching that traditional enterprise technology companies try to transition to this model, the lenses they use to create these new businesses is the lens of the legacy business. We just need to put up a product, we'll get some subscription billing system and we'll just go sell it. But because your margins vary, you make money over a period of time, it actually affects every single part of your business operations, one of the things that we used to deal with was, again, DevOps deployment.

With DevOps deployments, a variety of features had something in the terms and conditions that needed to be changed. So, it even actually affected the lawyers. Because they were used to once a year, once every six months, you update the terms and conditions in this case, where you're deploying multiple times, it needed to be done multiple times to update the terms of service.

So, I think most of them that fail, don't make the necessary changes that they need in the business operations to support a recurring revenue model, which requires efficiency from how you acquire the customer all the way to when you first recognize the first penny in revenue.

18:26
Through a digital transformation that digital is simply the catalyst. The transformation, of course, is redesigning your business. So, around the enabling capability of digital and so and as you say, it even touches the lawyers. After a self-described long tea break, you started Thing company, what is your focus there?

18:53
So, the tea break was much needed. After leaving GE, I wanted to take time off because I wanted to connect, reconnect with my family, whom I hadn't seen much of during the Nurego, and before that, I had roles that were my customers, my partners, and people I work with were elsewhere. So, I was constantly on a plane, domestic and International trips. So, the tea break was needed. But it wasn't really a full tea break because I started to just informally advise a handful of companies, startups, bigger companies. And then a couple of months ago decided to just formalize that in the form of a Thing Company and a consulting business.

The focus is recurring revenue models, I got a lot of gray hairs from operating and building out these businesses and it became quite clear at least in the last two few months that we're still in that transition. Even though I've been in my tea break, a lot of the things that came up in the past are still the same. Why do these projects fail? A lot of times companies, at least in my experience will jump into this. And typically, somewhere between 18 and 24 months later, shut them down, because they realize that it costs too much money to get into this. You're spending a lot more money upfront than even traditional business, spending money to not just build a product, you're spending money to acquire the customer, when you sign them, get them to the contract.

20:40
If you have a pay-per-use or pay-per-outcome, all you've done is spend money and now you have the right to charge them, and you can't charge them unless you deliver the outcome. So, it's a, it's a very different model. And so that's essentially what the focus within Thing Company, is to help companies that are in this transition to recurring revenue models and help them figure out, what, what does it mean for product organizations, customer, and even revenue.

21:12
A simple, problem set, right? When you when you're not advising companies, I would say it's probably a direct outcome of the monetization work you've done. I know you've been active in thought leadership, including co-writing a book on the future of manufacturing. I think this where you and I reconnected recently, in one chapter, I've seen you refer to the open manufacturer describing how industry for open source and the gig and sharing economy are shaping the post COVID manufacturer, I believe you also referred to this as a buyer prior version as OEM x. So, can you say a little bit more about this thesis?

22:00
Yeah. So that when I joined GE, the role that I was asked to take on was to figure out how we could make sales more consistent. And on the other side, we had a bunch of services that were not really being used. And figure out how could we actually drive-up usage for those or turn them off. I set up the prefix customer advisory board and partner Council and got to spend a lot of time with not just inside of GE's business units, but also their customers, in factories, talking to people, designing the skin on a wind turbine blade, which is fascinating. And I would notice that people were still running around with clipboards and tracking things like inventory and schedules on whiteboards on the factory floor.

These are, big global companies and so, it became quite clear that the manufacturing industry is far behind and in terms of digital adoption, and so I wanted to focus on that. And one of the things that I came across at GE was the fact that they started reshoring manufacturing in 2012 for their appliances. And I was curious because GE was at the forefront of offshoring and outsourcing. I was curious why they did that. And it turned out that by moving manufacturing back for their appliances back to Louisville, not only did they save a lot of money, but the product was also cheaper after they moved.

I wanted to go figure out what would it take, why isn't everyone doing this already? And what would it take? And this is actually how I came up to this because, in my last couple of years, I've been spending a lot of time making new friends in the manufacturing ecosystem here in Washington and Oregon. One of the things I discovered was that in the US 98% of manufacturers have 500 employees or less, 75% have 20 or less than 20 employees are less, and this is data from the US Census.

24:52
GE reshoring is very different from a little company reshoring. There are basically three hurdles. One was that you're going to need a lot of investment in the manufacturing and supply chain infrastructure and capacity, the need to add capacity need to build in factories warehouses, and outfit them with the state-of-the-art automation.

A single factory can cost billions to build. There was recently a report that thanks to COVID, everyone's interested in reshoring, there's a recent report that estimated that to reshore the world's supply chains over five years, so to shift all foreign manufacturing in China, meaning stuff that manufactured there, for outside of China, but not to be consumed in China, the CAPEX cost is expected to be a trillion dollars.

26:08
And, again, when you have the majority of your manufacturers are small. This outfitting and upgrading is most likely a nonstarter. In the software world, cloud services made access to expensive resources like compute, storage and network, pretty cheap. 20 years ago, you needed skills, you needed some money to even buy a PC for under your desk, you could build the code, build an application, you don't need that today, within an hour, you can have it up. And so, I went asking, why can't manufacturing be the same?

The second thing was, I mentioned earlier, manufacturing is a laggard in terms of digital adoption. When you look at a lot of the industry 4.0 initiatives, a lot of the automation initiatives, they really are aimed at the 2% of companies, the big manufacturers, or as World Economic Forum calls them, lighthouse companies. They have money to hire people to bring in the skills. And, again, another report recently just said that, even there, only 20% of these industry leaders are actually driving the growth. Again, pattern matching with software, where open source brought the cost down significantly. Cloud services wouldn't exist without open source. I looked at what automation technologies are out there, all of it is proprietary, there's really nothing, very little in terms of open-source that's very targeted at manufacturing.

And then the last one, which was really the biggest hurdle, there's a massive skills gap. So even before COVID, there were reports that were predicting that by 2028, there would be over 2 million unfilled manufacturing positions in the US. The average age of an employee in manufacturing is higher than the general labor force, and it's actually rising. Declining birth rates, lack of vocational training and apprenticeship and the perception of manufacturing being a dirty and dangerous job, have led to fewer younger workers entering manufacturing, then, piling in the new technology and all the automation, the stuff that we push, that also needs new skills. Again, if you are thinking about a 500-person, company, 20-person company, this is an impossible task.

29:08
With the pattern matching with the software and the technology industry, today, you can go to Upwork, you can go to Turin, find the skills that you need. My question was, why isn't manufacturing, why can't that be for manufacturing as well, not just for designing stuff, but for everything for production, for development. So those are basically the three things. And in terms in terms of the open manufacturer, it's not a new thing. It's actually something that I came across a while ago. It was a concept that was put out over a decade ago by the P2P foundation. And the idea is basically, if you look at our ecosystem today, for manufacturing. Manufacturing lines are privately owned, even when you have a contract manufacturer, typically when you sign with them, they will dedicate a line to you. And it's not really shared. Investment happens when the company decides it needs to invest, not what the general public, I guess, community needs. And the idea of open manufacturing is to promote a flexible system based on Open Knowledge, open software, and open communities where they can come together to actually build temporarily or even permanently, to design and manufacture physical products.

30:55
That's the basic concept behind open manufacturing. But I should also point out that there is an open manufacturing platform under the Linux Foundation umbrella, which was created a couple of years ago. It's an alliance of manufacturing companies and the tech ecosystem. And again, the problems that they appear to be solving are more for the 2%, not for the 98%.

But in some of the work that they're doing, at some point will be valid for the vast majority of the manufacturing companies that are out there as well. But that was, in nutshell, what the idea with the open manufacturer is, it's still a thesis that's in development. And there are more questions than answers right now.

31:39
As I predicted, at the very beginning of this conversation, there is so much depth, and we could take this in so many different directions. But unfortunately, we don't have the time in this podcast to do it. But you've hit on so many aspects that I think would be really, interesting. Look, before we kind of close things up, I want to give you a chance to talk a little bit about the work you're doing in the set Seattle IoT Hub meetups to tell us a bit about that.

32:08
Yeah, so the meetup group was actually started as part of Nurego and has been in existence for about five years.

We know we're now actually at 4200 members. And it originally started out when Nurego, we decided to focus on industrial companies, we were spending a lot of time talking about use cases. Because use cases are what you monetize. And we needed to make sure that we could support the models, and it wasn't just, one company, in particular, that was trying to do something special. And, as a startup, we needed to make sure that anything we're building is applied to more than one. So, at the time I went looking for IoT groups here in Seattle because IoT at that point for me was just another buzzword. It was a way for me to connect to other people in Seattle.

So, we generally tend to focus on three different areas. One is obviously we talk about all things IoT, digital twins, edge computing, pick your buzzword. But in addition to talking about best practices for how to use the technology, we also cover use cases in specific industries. One of the things that I learned at GE, as part of running my customer advisory board, was that as technologists, we want to create these horizontal solutions that can apply in any industry. But the challenge with especially in industrial is, you have assets that have replacement cycles that go from years to decades, they vary from industry to industry. Regulations are different from industry to industry.

And so, one of the things that we try to cover as part of that is also looking at how these technologies actually impact different, jobs within different industries. The other area that we cover is what I call IoT-enabled industry or industry 4.0.

This is actually something that many of our members have been asking for. I'm in Seattle, so, majority of our group is technologists, and now we have more and more of the local manufacturing ecosystem as well. But the thing that we realized that that is, what many of our members told us was that they don't really get the opportunity to talk to somebody whose job is actually changed. They don't really get to talk to somebody who can explain to them, how the whole manufacturing process works.

So, we're, we're doing more of those around, for example, discrete manufacturing process manufacturing looking at, how is IoT and industry 4.0 type of technology impacting different innovation, processes, industrial processes, manufacturing, for example.

35:14
And then commercialization as well, it impacts how you commercialize as well. And then the last thing which we started in October of last year being an IP group, we have a lot of people who are building physical products as part of their value proposition. And there's a huge skill gap here like this, as I mentioned, with reshoring, many of them struggled to figure out how to get it built without having to go to Shenzhen.

35:43
Last year, we started a series of meetups to specifically help connected hardware startups on their journeys. So, we've been bringing in folks who talk about, how do you take your idea and turn it into a product? How do you design for manufacturability? How do you negotiate when you're looking for contract manufacturers? And then, most importantly, how do you fund your startup? So those are kind of the three areas and, it's a, it's been fun for me, I've learned a lot met with the better a lot of very smart and knowledgeable people.

It sounds like a great meetup. And the name is a bit of a misnomer in the sense that I thought you get around, talk about Arduino boards and things like that. I mean, this is like an industrial IoT conference in some sense with all the values. So, it's a shame that, that Lucerne Switzerland is so far from Seattle, but hopefully, you'll start doing virtual versions of these that we can all participate in that way, as well.


37:00
Well, they are online. So, thanks to COVID, we switched to online, and it's actually been really good for me because most of my network is elsewhere. And before, it's dependent on somebody being here in Seattle, having the time to come out and speak and now we in some cases, we've been doing weekly meetups, and yeah, it's an annual probably stick with that format. Because we're getting members, new members, we're not in Seattle, all over the place, I think at this point, in every continent has somebody at some point is called in.

37:33
So, the next and final question, is really apropos, then, what is the next big thing for you Hans?

37:44
As I mentioned earlier, I decided that, at least for the rest of my career, I want to focus on manufacturing, it's an exciting space, there are obviously a lot of opportunities. I'm a product guy and eventually, I want to get back into a product business. I enjoyed the process of figuring out what to build, finding customers and how to grow it. But in the meantime, I'm going to continue with Thing company and the consulting. So, I think the only thing that I can say is the next thing written for me is the focus on manufacturing. And then we'll see what comes out of that.

38:30
Well, sounds like a timely topic, and yet another simple topic to solve. So yeah, what well deserves your attention in that regard, especially post COVID, as you've said, So, well, Hans, thank you for this insightful interview today.

38:46

Thank you, Ken, I feel very honored. I was talking earlier before, this was actually a pretty good exercise for me coming out of a tea break to look at them, what I wanted to be doing, and just reflect on my past as well so, thank you!

39:00

Thank you, very happy to have you. And I think the challenge, I think given your own background, and what you've expressed here is the choice which of these directions that you could possibly go in because you've got such a depth of knowledge when it comes to monetization and manufacturing and, and so right well, then, event planning.

You've got the next thing. There you go. Well, especially if you're going to go global with it. I kind of see a conference series, coming up so this has been Harinderpal founder and principal at thing company and thought leader on monetization, open manufacturing, event planning, and all kinds of good stuff. So, thank you for listening. And please join us next week for the next episode of our digital industry leadership series.

[End]