Technology For Technology’s Sake

This semester, I’ve been taking an entrepreneurship class to supplement my engineering schedule (and also to pad my credit hours). The class, taught by Gary Durack, is all about the theory and practice of entrepreneurship, especially entrepreneurship in emerging technologies. Durack uses The Lean Startup by Eric Ries as a textbook and manual for the process, and it’s got some really interesting things to say.

Something that both Durack and Ries stress over and over again, is that technology itself is not a business. A project that presents a technical challenge is not necessarily a project worth bringing to market. In the age of the app store, though, the costs of building and distributing virtual products is rapidly approaching zero, which makes publishing things like fart button apps increasingly attractive.

Some businesses are founded with the goal to “disrupt”, a lame buzzword that most often means “doing things differently for the sake of doing things differently”. The founders, in these cases, believe that their competitor’s product is being made poorly out of stubbornness; that Big Industry is avoiding a trivial change in order to increase profits. This is a common thought process used when crafting a bad startup, because it allows the creator to excuse his or her own lack of creativity and immediately paint the competition in a negative light. Rarely, if ever, is this actually true. The same reasoning is used to construct fraudulent Kickstarters, like the recent Arist scam or the still-running Skarp scam. For both the naive entrepreneur as well as the scam artist, the concept plays on a few key social engineering strategies:

1. Second option bias
2. Underdog fallacy
3. Sunk cost fallacy

Second option bias is, in simple terms, the advantage a response has over a statement. The refutation is allowed to take the flaws of the statement into account, as well as espouse it’s own point. When Gillette markets a razor and says “this is the peak of razor technology. It has six blades, a pivoting head, and self-lubricating pads”, then all of their cards are on the table. Skarp, being con artists, can look at this, and promise one-upsmanship of every element. Skarp says they have no blades, a flexible cutting edge, a battery that lasts for a year, and that they can literally melt the hair off your face. They can insist that Gillette is holding out because they don’t have any competition. They can say any number of things, and Gillette can’t respond without Skarp twisting that response into a sign of fear. Second option bias says people are more likely to believe what they are told when it contradicts the norm, which directly contributes to poorly-contrived “disruptive” products.

… Which brings us to underdog fallacy. This is a psychological appeal to people who tend to take pity on the “little guy”. This is the other half of the Big Industry conspiracy theory so popular with new entrepreneurs. Most humans don’t like to kick down the ladder, or be perceived as fighting on behalf of an oppressive force. This works in both directions. Those who support a startup are more likely to be vocal proponents of their underdog champion. Conversely, those who feel negatively about the startup are more likely to hold their tongue for fear of doing the corporation’s work. This theme is played on heavily by the Arist and Skarp campaigns, which both make references to their industry competitors as monopolistic and unchallenged. Arist told their backers that the $1500 price for an entry-level espresso machine was a scam constructed by some kind of nebulous barista cartel. They told their backers that there was an of evil force that only a suspiciously new, suspiciously well-funded startup in Hong Kong could possibly defeat. With your support, they said, Arist could build a $300 espresso machine that’s smaller and outright better than the $1500 market model. If you backed Arist, I hope you’ll be happy to know your money was put to good use buying a company boat and enjoying all the benefits the Hong Kong legal system has to offer rich thieves.

The third factor, the sunk cost fallacy, is the only power not directly wielded by the startup. Sunk cost is a feeling of loss when exiting an endeavor. If you buy a new car but need to sell it shortly thereafter, you feel a sense of resentment when you discover that you can only recoup 70% of its new price. Was that 30% worth the time you used it? What if you had just leased? Would you get more value out of just keeping it and making up the money elsewhere? Investment is stressful, and it’s often impossible to weigh a cash loss against a qualitative gain, so people just try to avoid costs in general. Once someone has gotten behind a project, it feels like a net loss to walk out on it, because you haven’t stuck around to reap the benefits at the end. However, when “sticking around” means hemorrhaging money on a wild goose chase, it’s logically not a good idea. The problem comes in when the goal is obscured or a gamble. There is no intuitive way to weigh the value of gambling against a pipe-dream, however this is exactly what crowdfunding campaigns require of their backers.

So, what do all these scams have to do with being a startup founder? The reason I give these particularly nasty scams as examples is that they operate on the same reasoning that prevents startups from assessing their own flaws. These biases, in turn, are why an honest startup can lie so readily to themselves and their audiences. Disruptive startups believe that their option is better, because it does something better than what’s on the market. Startups are small and seeking breakout growth, which characterizes the underdog story. Startups are funded by investors who want to make money, so they need to prove that their sunk costs will be worth it in the long run.

In The Lean Startup, Dies cannot emphasize enough how important it is to pivot and course-correct in the early stages of a startup. There are an infinite number of ideas, but only a small subset of them are both feasible and marketable. The problem I see with startups around me is how many of them go for something that is just feasible and not marketable, or even something that’s neither feasible nor marketable. I have particularly strong feelings about the abuse of the nonprofit/charity model as a way to excuse non-performance.

Before I continue, I should say that my opinions regarding these startups are harsh, but they do not reflect my opinions of my peers. Great people can make bad products, and even good products can fail. Despite this, I will definitely judge my peers for wasting public time and money to invent do-nothing machines.

In the last two weeks, I’ve seen three presentations from a local startup called Psyonic. Psyonic is a charitable startup which aims to tackle the difficult and expensive problem of upper-limb prosthesis. Their operating premise is that prosthesis manufacturers are charging people an arm and a leg for replacement appendages. (Get it? It’s an amputee joke). Since 80% of amputees live in developing nations, these $30,000 robotic hands are almost certainly out of their price range. Psyonic’s team believe that they can make a better prosthetic hand for only $3000 shelf price and get charities to pay for them. It’s a noble cause – giving the downtrodden an opportunity to be fully functional again – but it doesn’t really make any sense.

Without even diving into the feasibility, it irks me that their argument always starts by calling out Big Prosthetics. They begin building the underdog mythology right off the bat, and take the appeal to pity one step further by tying their work to the third world. They push the second option bias by suggesting that their hand will be better, simply because it will be. The argument is a tautology, requiring the audience to accept that either the team is superhuman or that prosthetic hand manufacturers are supervillains, preying on the disabled and shunning the poor.

Then we look at the numbers, which don’t add up in any meaningful way. Psyonic targets $3000 because that’s supposedly the typical price that medical insurance will cover. If that’s the case, then who is in the demographic for the $30,000 hands? Who in the world is buying these things that cost more than a car and supposedly barely work? Additionally, if Psyonic’s product is targeting the third world, then why is their pricing based on insurance payouts for Americans? Why is it based on insurance at all when their target market is composed of international, likely uninsurable disabled workers? As their mechanical lead admitted today, the cost of production should be around $1000, so what justifies a 200% profit at a charitable company? That’s a lot of questions, and I’m starting to feel like Alex Jones here, so I’ll step back and answer them from Psyonic’s perspective.

$3000 for a cheap insurance plan in the US seems reasonable, so I won’t debate that. $30,000 for a prosthetic hand is a joke, and it’s the most patronizing, verifiable lie they tell anyone who will listen. A cursory google search reveals the high-end Bebionic hand is only $11,000. The i-Limb hand, launched almost a decade ago, was $18,000. These are not low-end devices, either. Finally, with respect to their market, I don’t believe they have any idea how they want to actually sell their product. No charity is going to spend money to give disabled third-worlders barely-working robot hands. $3000 is a ridiculous price for an off-the-shelf medical device. Selling a product at three times the cost is not charity just because it’s done with charitable organizations’ money, it’s price-gouging no matter who you’re ripping off.

This brings me to my third and final point. The Psyonic hand is barely functional in a laboratory setting, and it will never be anything more than barely functional. Because they insist on using cheap plastic parts and gumdrop-sized motors, the grip strength will be forever in the “wet noodle” zone. They don’t talk about this, nor about any plans to fix it. The reason they avoid this topic is because they know (at least subconsciously) that i-Limb and Bebionic are not their real competitors. The real competition is the century-old claw design: a practically one-size-fits-all hand replacement that’s as strong as the user’s trapezius muscle. Claw prostheses are perfect for amputees who need to perform physical labor or be away from electricity for extended periods of time, or who don’t want their fingers breaking off on a regular basis. Speaking of, here’s a University of Illinois prosthetics nonprofit that actually solves the problem they set out to solve: Illinois Prosthetics Technology

In summary, Psyonic plays every trick in the book to convince themselves and their investors that their product is worth time and money, and it works. They’ve won at least six major cash prizes in startup competitions in the last two years. The way audiences respond to their presentations suggests that the company is practically immune to criticism. They have no business plan besides “sell it to charities”. While everything they say suggests they want to become a nonprofit, everything they do speaks to the same greedy goals they accuse the high-end market of having.