Sparkfun, the mail order electronics retailer was founded in 2oo3 by a Colorado college student named Nate Seidle (There is a great video on the subject here). The company was built in response to Seidle’s frustration with purchasing electronics components and in the intervening 8 years has become one of the largest and most successful companies in the “Make:r”  movement.

Seidle recently opened up to a friend who was doing a school report and shared a lot of interesting information about the business operations of the company:

• 2010, SparkFun revenues = $18.4MM.
• As of April of 2011 = 120 employees, up from 87 a year ago
• 2011 growth  expected to be 50% this year to around $28MM in sales. Expect to be $30-50MM range in the next 3-5 years.
• 500 suppliers located all over the world
• He shared the company org chart which shows heavy weighting to the production side of the business.

Beyond the really interesting financial numbers Nate shares a really cool quote and philosophy towards growth:

How big do we want to be? As large as is necessary while still having fun. As long as we are able to continue to innovate and adapt, enable our customers’ success, and so long as it’s needed, I have no preference for a company of 100 or 1,000 people. SparkFun must grow at a rate to fulfill these requirements.

Related articles

• SparkFun intros IOIO for Android, a hack-free breakout box to get your mind spinning (engadget.com)
• Radio Shack Decides It Loves DIYers After All (mt-soft.com.ar)
• SparkFun Electronics Creates Department of Education (prnewswire.com)

Disney has been ranked as one of the top 1o brands in the world by the agency Interbrand, and is far and away the most popular brand for children. The only problem is that kids don’t start demanding disney products until they turn 4. That is four years of lost profit in a wildly lucrative market (e.g. Babies “R” Us generates ~$6B a year in revenue). In order to combat this loss Disney has redesigned the “Onesie” and rechristened it the “Bodysuit”. The product seems like a fine incremental improvement, but the newsworthy aspect is that Disney sales reps are visiting Mother and Child in the maternity ward and giving away a free bodysuit in exchange for signing up to a mailing list. More background on the program:

Disney estimates the North American baby market, including staples like formula, to be worth $36.3 billion annually. Its executives talk about tapping into that jackpot as if they were waging a war. “Apparel is only a beachhead,” said Andy Mooney, chairman of Disney Consumer Products.

As such, the company does not intend to stop with bodysuits, which are playfully adorned with Disney characters like Simba from “The Lion King.” Also planned are bath items, strollers, baby food and an abundance of other products — all pushed with so much marketing muscle that Disney Baby may actually dent operating margins in Mr. Mooney’s division in the near term. But this is a long-term play, and it could have its greatest value far beyond the crib. Disney Baby is also intended to draw mothers into the company’s broader web of products and experiences. Mr. Mooney is working on a loyalty program, for instance, in which pregnant women might receive free theme park tickets in return for signing up for e-mail alerts.

“To get that mom thinking about her family’s first park experience before her baby is even born is a home run,” Mr. Mooney said.

There has been predictable criticism around the idea of marketing to newborns and their tired mothers, but it is a brilliant idea (As a shareholder I fully support it .  More importantly it is a sneak preview of the future. In this case a free sample is the start of a CRM relationship, but in the near future as more categories of product become “smart” there will be whole new ways to market to customers. Medical devices will advertise vitamins, toys will advertise cartoons and games, and any consumer product that can ping a server will somehow be designed to help sell more of itself. Disney’s latest move may make some uncomfortable, but it is the future.

Last week Disney executives held their annual Investor Relations Day and gave an update on all facets of their businesses: studio films, television networks, theme parks, and consumer products. The consumer product presentation was particularly interesting as the unit head, Andy Mooney, reported that in 2010 Disney made $7.3B in revenue based on licensed products related to Toy Story 3 alone. The number was particularly interesting because it was just a shade beneath the $7.4B Disney paid to acquire Pixar and all its valuable IP. For all the money that has been spent on digital media start ups, it is a clear illustration of just how valuable physical products can be.

Of course making products is hard. You will typically be dealing with people 12 hours ahead of you, without a common language. You will also be forced to deal with manufacturing complexity, international shipping, and the myriad of other difficulties that arise when peddling atoms.

To succeed it is important to have a passion for plastics and the desire to make great “Stuff”. Disney has John Lasseter, a Pixar founder that has a serious obsession with toys. The picture below is his office with a toy on every horizontal surface. His office is better stocked than any booth I saw at Toyfair. Clearly, he loves physical goods and can exert his influence over the direction of the company.

In an increasingly digital world, plagued by piracy, there is a lot of opportunity to profit by combining the digital and physical worlds the way Disney has.

Executives from Cheezburger inc. and Sparkfun have both recently published talks they gave on their respective businesses. If you are at all interested in the collision of media and eCommerce they are both worth a listen

Sparkfun CEO Nate Seidle

• Revenue of 10 Million in 2009. Based on past growth that probably means somewhere in the neighborhood of $15 Million in 2010.

• 80+ employees, totally bootstrapped.

• Started out manufacturing with a hot plate – have since moved to pick and place robotics.
• They usually launch new products small e.g. they might only make 10 of a new breakout board to test demand.
• They don’t invent new technology they make new technology accessible. They leave heavy duty R&D to big companies and make their products more accessible to hobbyists.
• Their primary marketing is education. They teach their audience how to be awesome. Made smart design decisions by including lots of pictures in their tutorials and using approachable language.
• Google is a key way to acquire customers. They produce high quality tutorials which rank highly in the index, usually just behind Arduino.
• Have taken up the slack from RadioShack which used to sell electronics equipment and now is basically a cell phone store.
• Have also branched out into services, buying time/space on fab machines and reselling that to users.
• Consider themselves a gateway drug. Average user makes 3 progressively larger orders and then disappears. Working theory is that Sparkfun educates its customers so they end up buying directly from manufacturers.

Watch the video to get the rest, it is well worth the time.

Cheezbuger CTO Scott Porad

The central thesis of Porad’s talk is the “Lazy/Messy/Backwards” method of development used at Cheezburger inc. In short:

Lazy - let other people do stuff for you e.g. find/moderate content

Messy – Get stuff done fast, have a culture of refactoring. It is better to get something out and learn than optimize a bad solution.

Backwards – Focus on some of the boring stuff first. e.g. If you are in the user generated content business, make sure you have super redundant backups.

Overall it is another take on the “Lean Startup” albeit with a high volume success story. The most interesting part of the talk was where Porad talks about the difficulty of making money with advertising. Considering the Cheezburger empire accounts for ~10% of WordPress traffic which is roughly 2.3 Billion page views a month, thats saying something. As an alternative Porad talks about the Cheezburger merchandise strategy. Basically, they are trying to take over the humor book category at major booksellers. It’s a smart move and one that shows off the power of “Bits & Atoms”.

Squid Ink QR Code

A restaurant in Boston is stamping edible QR codes (squid ink) on plates so smart phone savvy diners can see the ingredient list. This would certainly be an artful way of avoiding the requirement to put calorie information on menus.

Foursquare Receipts

I’m not sure if this is a proof of concept or if Great Eastern St. Coffe has actually set up their IT system to count the number of checkins and current mayor whenever they print a receipt, but it is a great example of “Web meets World”.

Lego iPhone Case

For a scant $19.99 your iPhone can serve as the staging ground for yet to be imagined Lego/MegaBlock masterpieces.

iPhone Screw Kerfuffle

Kyle Wiens over at iFixit continues to make product repair a political statement, this time firing off a harshly worded broadside against Apple’s decision to use a rare kind of screw in the iPhone to keep users from accessing the internal components e.g. for a battery replacement.

While I agree with Kyle in principle, I fall more in line with Marco Arment on this issue. My guess is that Apple’s use of the screw is less a “diabolical” decision to screw the DIY crowd and more a desire to stay off the evening news because a poorly installed battery caused an iPhone to catch fire, disfiguring the person using it.

In any case, it give iFixit the opportunity to launch the iPhone 4 Liberation kit.

Related articles

• What, Why, and How of QR Codes (marybiever.wordpress.com)
• How Apple Is Screwing Your iPhone (wired.com)

Quora is a question and answers site that has exploded over the last couple months. It is a great time suck and a way to learn the background stories of companies you like, get answers to odd questions, and find all sorts of interesting info. One of its greatest uses is for people involved in product design. Using Quora you can get:

Voice of the Customer

One question was “What do you see as the hottest restaurant technology companies for 2011“. A few folks proffered links to up and coming companies, but an actual restraunter jumped in with an answer very different than the product focused ones that preceded it:

“To be honest, I just don’t see it. The enthusiasm about new marketing technologies (because, let’s be honest, none of those technologies make better food or take stress off the back of the house in a meaningful way, they’re all means to drive more diners into a place) seems to mostly be shared by those outside of the industry, diners and makers of technology…

…There’s very little out there that helps me buy better ingredients, expedite my process, or even meaningfully link reservation, stock, employees, and cover reports (the nightly assessment of how much we sold). The latter would translate into faster service, lower cost, less time spent, and – by virtue of allowing me to charge less and server faster – make me money. The former, buying better ingredients, gets me repeat customers…

…That’s not to say I don’t find the new wave of foodie technology fascinating. On a grander scale, though, restaurants are already insanely social and engaging, we need less of that and more of the quiet, powerful, stuff that makes us work smarter.”

Perspective from Companies

Web retailer extraordinaire ThinkGeek uses Quora to interact with curious customers who want to know why an announced product never shipped or why they don’t ship to Mexico. In an age of KickStarter where customers are buying a story as much as a product, this kind of interaction is a very cool way to get customers involved in your brand.

Tribal Knowledge

Quora is also helpful if you want to try to emulate the processes of companies you admire. e.g. Early Etsy employees explain how they built up their customer base and the head engineer at Foursquare explains how the first version of the software got built. It is all interesting information that is hard to find elsewhere.

MailChimp is the world’s greatest email marketing service. The product works flawlessly, it is designed perfectly from the perspective of a small/medium business, and they are consistently innovative with their marketing. Instead of buying tons of AdWords they promote an API. Instead of providing bland documentation they create whimsical marketing guides. Instead of giving away schwag to random folks at a marketing tradeshow, they send it out to their customers. The resulting products of these efforts are great examples of “Bits & Atoms” marketing.

MailChimp Tshirt

As a holiday gift  the fine folks over at MailChimp printed and delivered TShirts to their customers. It is a nice American Apparel shirt and has a high perceived value. Of course it is easy to impress people when you give them something, especially physical products, but what if your budget is limited?

MailChimp Email Marketing Guides

Give them something that looks real, like the MailChimp email marketing guides. The guides are consistently well made, filled with great information, targeted to specific audiences, and designed to look like real books, often from a bygone era of design. The result is effective. When you download the PDF it feels like you are getting a valuable eBook rather than some self serving corporate document festooned with a generic logo.

The science behind it

There is a neuroscientific basis to my theory. Antonio Rangle a professor of neuroscience at CalTech performed an experiment where subjects bid on items based on a text description, a photo of the product, and the product on the shelf. Bids for the physical product were 50% higher than the other two presentations. It stands to reason the more physical looking a digital object is, the more perceived value it will possess.

Is it working?

It is easy to make cool schwag and design hip looking materials when you are a small company with a niche audience. MailChimp is a rapidly growing company with over 19,000 people using their API (including massive partners like SalesForce, Google, Twitter, and EventBrite). It is successful enough to give $1MM to partners that use its API. Clearly are doing well in business while maintaining a stunning, consistent, and quirky design ethic AND helping to bridge the digital and physical worlds.

I was in the hospital for a few days and while hooked up to machines that provided all sorts of vital signs, I got inspired. This collection of charts provides the vital signs for the emerging “Bits & Atoms” economy where digital services and physical goods are fused in commerce. The world of “Bits & Atoms” or “Web Meets World” is still developing, but a couple trends are popping up.

Faces & Knowledge Bases

The biggest trends I’ve noticed are that outsize rewards are going to companies that provide faces (images of kids on coffee mugs) or knowledge bases (dozens of Arduino tutorials). Recognizable images of friends and family or actionable learning tools seem to grow audiences better than cool tech or novel offerings.

3D Printing and “Products and Services” are other areas where interesting stuff is happening. The following charts should help provide some insights on what is happening in this new world.

Update: All the data is from Compete.com and it has been brought to my attention that their method of sampling sites hurts some of the less mainstream companies. As an example of inaccurate the numbers can be AdaFruit has shared their analytics. While Compete data shows hundreds of thousands of unique visitors AdaFruit has actually had millions. These charts provide good trend info and order of magnitude, but should be viewed cautiously.

Faces

Zazzle

Zazzle is the Walmart of customization allowing you to customize more product SKU’s than any other company. Keds sneakers, iPhone cases, and 3 ring binders are examples of the kind of product you can have produced. They combine good merchandising sense, impressive front end technology, and fulfillment to let customers print on almost anything they can imagine. Though they came to market later, Q410 marked the time they surpassed Cafepress in monthly unique visitors.

CafePress

Cafepress is one of the original companies to pioneer “Print On Demand (POD)” technology as a consumer service. Starting with simple products like cards, calendars, and coffee mugs, Cafepress has grown a large audience and revenues and shows no signs of letting up.

Vistaprint

VistaPrint has lost a decent chunk of traffic this year, but they are still, by far, the largest mass customization company in the market. Primarily focused on business cards and other B2B offerings they have branched out into B2C with holiday cards and wedding invites.

Moo

Moo is like VistaPrint for the “creative economy”. It provides the same print on demand offerings, but with substantially higher quality (and cost). Considering how massive VistaPrint is, it is a little surprising to see such flat growth from a company that really gets high quality execution.

Knowledge Bases

Makezine

O’Reilly Media shows itself as a great prognosticator, again. Their flagship DIY blog Makezine.com has doubled in size this year. Along with a strong move into ecommerce there is big opportunity to be seen in 2011.

Ravelry

Ravelry is a social network and knowledge base for knitting and fabric arts enthusiasts. Their traffic is flat, but impressive considering the company costs of 3-4 people. It is an amazing thing to think that 4 people can generate 10-20% of the traffic that Martha Stewart’s $250MM empire does with hundreds of people.

MarthaStewart.com

Martha Stewart’s empire has fared better stock wise, but it is interesting to see how seasonality impacts web visits. Visits spike by nearly 1MM users during the holiday season.

Instructables

Instructables is the biggest of the credible DIY sites (as opposed to SEO content farms like eHow) and has grown steadily. It is an impressive company and one that seems to have a lot of growth potential as pure media businesses move into ecommerce.

Fine Woodworking

Fine Woodworking is part of the Taunton Press, a niche publisher which has 4 magazines that generate more than $20MM a year in revenue. Their traffic numbers won’t impress fans of high volume websites, but they clearly know how to monetize their base.

iFixit

iFixit is creating the Wikipedia of instruction/repair manuals. Their growth has been organic and impressive considering most of it comes from word of mouth or from their brilliant “tear downs” of the hot new consumer electronics gadgets. They generate revenue by selling repair kits and components and currently have ~30 people on staff.

Sparkfun

Sparkfun is generating $10MM+ (and likely much more) in revenue by selling electronics components to hobbyists and prosumers. Their growth has come largely from teaching customers how to use their products via web tutorials. Knowledge base companies + ecommerce offerings seem to be a smart way to grow businesses without a lot of capital required.

Adafruit

AdaFruit is similar to Sparkfun though it has a more pronounced philosophical position on open source. Adafruit is also wildly impressive in that it is largely driven by founder Limor Fried. Adafruit is also notable in that it consistently uses web video to interact with its audience on the weekly show “Ask an Engineer“.

TheRPF

The Replica Prop Forum isn’t usually discussed as a “Bits & Atoms” company, but they have built up a very impressive audience of enthusiasts who like to make replicas of movie props. Currently, they generate revenue with ads, but it is very easy to imagine them starting to sell components ala Sparkfun or AdaFruit.

DIYDrones

Wired Editor-in-Chief Chris Anderson finds time between putting out an industry leading magazine and books to curate a community of DIY aircraft enthusiasts called DIY Drones. The community is a little “nichey”, but its membership is big enough and importantly willing to open their wallets to buy components from the site to build their DIY drones.

3D Printing

3D Printers

The top 3 3D printing companies don’t generate a lot of web traffic because they are largely B2B sites for expensive capital equipment. ZCorp, which is probably 3rd place by revenue has a clear lead in web traffic due to the unique nature of their technology and its fun, arty applications. Stratasys (NASDAQ: SYSS) and 3D Systems (NASDAQ:TDSC) are both big companies, but drive little traffic to their sites.

Makerbot

MakerBot demonstrates the power of PR and community by having 2X the traffic of ZCorp and 4X the traffic of publicly traded Statasys. To put this in perspective, Stratasys has commanding market share and $100MM+ in annual revenue. MakerBot’s revenues are likely in the mid-high single digit millions putting them in an impressive place relative to other 3D printing companies.

FigurePrints

FigurePrints is a service that 3D prints World of Warcraft characters for a fee. Their traffic seems to have taken a bit of a hit in recent months, but with a new WoW expansion pack that sold 3.3 million copies on its first day, brighter days might be ahead. Additionally, it probably makes sense to expand into some adjacent markets soon in case the WoW market is saturated.

Services

KickStarter

Kickstarter is a site where creative people with ideas can turn to the crowd to fund their vision. Kickstarter burst onto the scene during Facebook’s privacy controversy by helping four young hackers raise $200K to create an open source alternative and closed the year by raising close to $1MM to help make iPod based watches a reality. I wouldn’t be surprised to see another 3X+ growth in 2011. Kickstarter is a truly disruptive company.

Shapeways

Shapeways is a 3D Printing service that allows customers to develop a 3D model and have it printed with a number of high end rapid prototyping machines. Shapeways has raised venture capital from consumer web kingmaker Union Square Ventures. It is too early to tell if they are too early or just right re: market timing, but they are executing very well.

Ponoko

Ponoko is similar to Shapeways, but offers more manufacturing options for makers. They started out offering laser cutting services, but have expanded to offer electronics components and 3D printing services creating a “Personal Factory” for DIY enthusiasts.

Products & Services

Threadless

Threadless, the Tshirt crowd sourcing experts have had a great year, doubling traffic to comfortably clear the 1MM visitor a month hurdle. They reportedly had $30MM in sales last year, so it seems like 2010 was very good to the Chicago based etailer.

Build-a-Bear Workshop

Build-A-Bear Workshop has done a nice job building up a web property to compliment their retail customization offerings. Considering how crowded the kids gaming industry is and the fact that they are a retail organization at their bones a 1MM customer user base is pretty solid.

Quirky

Quirky designs and launches an new physical product every week. If there is enough excitement about the product it will be manufactured and sold to customers via retail and ecommerce. It is an interesting business and has roughly doubled its traffic in a year. Not bad considering their sales aren’t directly tied to the web. With a breakout product or two they could become a brand to be reckoned with.

Michael’s

Craft retailer Michael’s has a surprising amount of web traffic considering their main shoppers aren’t tech enthusiasts. I’m not sure how much ecommerce they do, but I’m sure a big part of their traffic is generated by coupons for their retail stores.

Blank Label

Blank Label is one of the best companies arbitraging low cost tailoring in Asia to serve the custom shirt needs of young western business men. They haven’t seen “Hockey Stick” growth yet, but the median age of the team is 20 so they have some time to figure it out. I’m not sure if a “custom dress shirt” start up will ever be a big success, but I’d bet if it does it is at Fan Bi and his teams hands.

Gemvara

Gemvara allows customers to tweak high end jewelry via a web interface and have their designs produced on demand. The Gemvarians are approaching a big market, have a good technical solution for customization, and are being rewarded with impressive growth.

Robot Chess – Building on the Shoulders of Giant (Robots)

There are a lot of interesting robot projects that you can find in Make: or other blogs and magazines. I remember a couple years ago, a Lego powered robot made the rounds on blogs because it could autonomously solve a Rubik’s Cube. This project takes the the same problem solving concept to a whole new level. More robots, interaction with the environment, and multi-robot communication. This seems like the product of ambition combined with the bedrock that has been formed by all the amateur robotocists that preceded it.

KopyKake Projector

People are going NUTS about the MakerBot and 3D printers generally. I’m a huge fan of both, but their ability to reshape the way we make things is dwarfed (in dollars and lives touched) by the development and impact of crafting technology. The CriCut personal paper cutter is a $250MM a year product. Now specialized technology is starting to move into the kitchen. In this case a projector that shines designs onto cookies which can then be traced by confectioners. Even if the designs aren’t your cup of tea it is hard to argue with the quality of craftsmanship in these cookies.

Core-Toons

Core77 is the best blog on industrial design and a recent addition to their content have been very funny cartoons (Core-Toons) lampooning design culture, products in particular.

Johnson & Johnson Donates Garbage to Make Custom Made Footballs

Johnson & Johnson is one of the largest companies in the world, they make health care/wellness products that could make a difference in the lives of millions of the world’s poor, and are bragging about giving them garbage instead. In their JNJBTW blog they use the World Cup as a way to bring up how many people in developing nations make their own footballs out of trash so they can emulate their heroes and play the beautiful game. I thought JNJ would be talking about providing real balls, maybe Band Aids to help cover up the inevitable scrapes, but not their waste materials! It is better than nothing, but I would not be bragging about it if I was a corporate citizen of their size. While JNJ’s actions aren’t classy the story of the world’s poorest using waste material to build products is inspiring. We shouldn’t forget that “personal fabrication” was a common event for people across the globe prior to the industrial revolution.

Hershey’s Customization

Mass customization holds a lot of promise, but hasn’t been an engine for a lot of high growth companies, yet. Part of this is due to the fact there is still a lot of experimentation with business models going on. Hershey’s is channeling Disney by making a customized chocolate bar creation station part of their factory tour. The economics of mass customization aren’t as good as mass production, but charging for the experience might close the gap.

Many mass customization businesses are started with a “Wouldn’t it be cool if ?” statement. Dozens of entrepreneurs saw advances in web based software and imagined a future where you could design custom dress shirts or sneakers online. So far, there hasn’t been a breakaway hit ala Google of Facebook that has led to a massive financial gain.

A smaller group of companies looked at things another way.  They asked “What are big, lucrative markets that operate inefficiently because of manufacturing constraints?”. They then proceeded to use custom manufacturing technology to address these massive, “hair on fire” problems, and are starting to build successful companies on those insights.

Amfit produces a suite of CAD/CAM technologies that allow podiatrists to produce orthopedic inserts for their patients in a traditional office.

These machines can scan foot imprints made in foam or can capture data via a pin like “interface”…

This is converted into CAD data…

A foam “Blank” is inserted into a small mill…

Which drives a CNC mill that carves the custom foam insert…

The insert is then given a little finishing…

Covered in a top layer of foam…

And presented as a final product, equal to or better than anything Dr. Scholl’s could provide…

There isn’t a market less “sexy” than podiatry, but it is a large and rewarding opportunity for those willing to consider it.

Broken teeth are another market that doesn’t have the glamor of custom apparel. 3M’s Lava division has built a large business fixing that problem, while not fashionable, creates a great sense of urgency in its customers. Their system scans teeth, recreates broken teeth with a custom CAD packeage, and creates 3D printouts of the repaired teeth that can be turned into crowns and other dental repairs.

These businesses aren’t fun, but they have potential for scale and are the best bets for a massive success in mass customization in the near term.