In the Next Industrial Revolution, Atoms Are the New Bits
By Chris Anderson
SolidarityEconomy.net via Wired Magazine
Jan. 25, 2010 – In an age of open source, custom-fabricated, DIY product design, all you need to conquer the world is a brilliant idea.
Photo: Dan Winters
The door of a dry-cleaner-size storefront in an industrial park in Wareham, Massachusetts, an hour south of Boston, might not look like a portal to the future of American manufacturing, but it is. This is the headquarters of Local Motors, the first open source car company to reach production. Step inside and the office reveals itself as a mind-blowing example of the power of micro-factories.
In June, Local Motors will officially release the Rally Fighter, a $50,000 off-road (but street-legal) racer. The design was crowdsourced, as was the selection of mostly off-the-shelf components, and the final assembly will be done by the customers themselves in local assembly centers as part of a “build experience.” Several more designs are in the pipeline, and the company says it can take a new vehicle from sketch to market in 18 months, about the time it takes Detroit to change the specs on some door trim. Each design is released under a share-friendly Creative Commons license, and customers are encouraged to enhance the designs and produce their own components that they can sell to their peers.
The Rally Fighter was prototyped in the workshop at the back of the Wareham office, but manufacturing muscle also came from Factory Five Racing, a kit-car company and Local Motors investor located just down the road. Of course, the kit-car business has been around for decades, standing as a proof of concept for how small manufacturing can work in the car industry. Kit cars combine hand-welded steel tube chassis and fiberglass bodies with stock engines and accessories. Amateurs assemble the cars at their homes, which exempts the vehicles from many regulatory restrictions (similar to home-built experimental aircraft). Factory Five has sold about 8,000 kits to date.
One problem with the kit-car business, though, is that the vehicles are typically modeled after famous racing and sports cars, making lawsuits and license fees a constant burden. This makes it hard to profit and limits the industry’s growth, even in the face of the DIY boom.
Jay Rogers, CEO of Local Motors, saw a way around this. His company opted for totally original designs: They don’t evoke classic cars but rather reimagine what a car can be. The Rally Fighter’s body was designed by Local Motors’ community of volunteers and puts the lie to the notion that you can’t create anything good by committee (so long as the community is well managed, well led, and well equipped with tools like 3-D design software and photorealistic rendering technology). The result is a car that puts Detroit to shame.
It is, first of all, incredibly cool-looking — a cross between a Baja racer and a P-51 Mustang fighter plane. Given its community provenance, one might have expected something more like a platypus. But this process was no politburo. Instead, it was a competition. The winner was Sangho Kim, a 30-year-old graphic artist and student at the Art Center College of Design in Pasadena, California. When Local Motors asked its community to submit ideas for next-gen vehicles, Kim’s sketches and renderings captivated the crowd. There wasn’t supposed to be a prize, but the company gave Kim $10,000 anyway. As the community coalesced around his Rally Fighter, members competed to develop secondary parts, from the side vents to the light bar. Some were designers, some engineers, and others just car hobbyists. But what they had in common was a refusal to design just another car, compromised by mass-market needs and convention. They wanted to make something original — a fantasy car come to life.
While the community crafted the exterior, Local Motors designed or selected the chassis, engine, and transmission thanks to relationships with companies like Penske Automotive Group, which helped the firm source everything from dashboard dials to the new BMW clean diesel engine the Rally Fighter will use. This combination — have the pros handle the elements that are critical to performance, safety, and manufacturability while the community designs the parts that give the car its shape and style — allows crowdsourcing to work even for a product whose use has life-and-death implications.
Local Motors plans to release between 500 and 2,000 units of each model. It’s a niche vehicle; it won’t compete with the major automakers but rather fill in the gaps in the marketplace for unique designs. Rogers uses the analogy of a jar of marbles, each of which represents a vehicle from a major automaker. In between the marbles is empty space, space that can be filled with grains of sand — and those grains are Local Motors cars.
Local Motors has just 10 full-time employees (that number will grow to more than 50 as it opens build centers, the first of which will be in Phoenix), holds almost no inventory, and purchases components and prepares kits only after buyers have made a down payment and reserved a build date.
Local Motors CEO Jay Rogers combined the power of crowd sourced design and professional experience to develop the Rally Fighter.
Photo: Adrian Gaut
Rogers was practically destined for his job. His grandfather Ralph Rogers bought the Indian Motorcycle Company in 1945. When the light Triumph motorcycles began entering the US after World War II, the senior Rogers recognized that his market-leading Chief, a big road workhorse, was uncompetitive. The solution was to make a new light engine so Indian could produce its own cheap, nimble bikes. He went bust trying to develop the motor. It was just too hard to change direction — and eventually he lost the business.
Today, Rogers’ grandson intends to do something even more radical — create a whole new way of making cars — on a shoestring budget. His company has raised roughly $7 million, and he thinks that’s enough to take it to profitability. The difference between now and then? “They didn’t have resources back then to enter the market, because the manufacturing process was so tightly held,” he says. What’s changed is that the supply chain is opening to the little guys.
The 36-year-old Rogers favors military-style flight suits, an echo of his time as a captain in the Marines, including action in Iraq, and he boasts both a Harvard MBA and a stint as an entrepreneur in China.
While at Harvard, Rogers saw a presentation on Threadless, the open-design T-shirt company, which showed him the power of crowdsourcing. Cars are more complicated than T-shirts, but in both cases there are far more people who can design them than are currently paid to do so — Rogers estimates that less than 30 percent of car design students get jobs at auto companies upon graduation. The rest become frustrated car designers, exactly the pool of talent that might respond to a well-organized vehicle design competition and community. Today, the Local Motors Web site has around 5,000 members. That’s a 500-to-1 ratio of volunteer contributors to employees. This is how industries are reinvented.
Here’s the history of two decades in one sentence: If the past 10 years have been about discovering post-institutional social models on the Web, then the next 10 years will be about applying them to the real world.
This story is about the next 10 years.
Transformative change happens when industries democratize, when they’re ripped from the sole domain of companies, governments, and other institutions and handed over to regular folks. The Internet democratized publishing, broadcasting, and communications, and the consequence was a massive increase in the range of both participation and participants in everything digital — the long tail of bits.
Now the same is happening to manufacturing — the long tail of things.
The tools of factory production, from electronics assembly to 3-D printing, are now available to individuals, in batches as small as a single unit. Anybody with an idea and a little expertise can set assembly lines in China into motion with nothing more than some keystrokes on their laptop. A few days later, a prototype will be at their door, and once it all checks out, they can push a few more buttons and be in full production, making hundreds, thousands, or more. They can become a virtual micro-factory, able to design and sell goods without any infrastructure or even inventory; products can be assembled and drop-shipped by contractors who serve hundreds of such customers simultaneously.
Today, micro-factories make everything from cars to bike components to bespoke furniture in any design you can imagine. The collective potential of a million garage tinkerers is about to be unleashed on the global markets, as ideas go straight into production, no financing or tooling required. “Three guys with laptops” used to describe a Web startup. Now it describes a hardware company, too.
“Hardware is becoming much more like software,” as MIT professor Eric von Hippel puts it. That’s not just because there’s so much software in hardware these days, with products becoming little more than intellectual property wrapped in commodity materials, whether it’s the code that drives the off-the-shelf chips in gadgets or the 3-D design files that drive manufacturing. It’s also because of the availability of common platforms, easy-to-use tools, Web-based collaboration, and Internet distribution.
We’ve seen this picture before: It’s what happens just before monolithic industries fragment in the face of countless small entrants, from the music industry to newspapers. Lower the barriers to entry and the crowd pours in.
The academic way to put this is that global supply chains have become scale-free, able to serve the small as well as the large, the garage inventor and Sony. This change is driven by two forces. First, the explosion in cheap and powerful prototyping tools, which have become easier to use by non-engineers. And second, the economic crisis has triggered an extraordinary shift in the business practices of (mostly) Chinese factories, which have become increasingly flexible, Web-centric, and open to custom work (where the volumes are lower but the margins higher).
The result has allowed online innovation to extend to the real world. As Cory Doctorow puts it in his new book, Makers, “The days of companies with names like ‘General Electric’ and ‘General Mills’ and ‘General Motors’ are over. The money on the table is like krill: a billion little entrepreneurial opportunities that can be discovered and exploited by smart, creative people.”
A garage renaissance is spilling over into such phenomena as the booming Maker Faires and local “hackerspaces.” Peer production, open source, crowdsourcing, user-generated content — all these digital trends have begun to play out in the world of atoms, too. The Web was just the proof of concept. Now the revolution hits the real world.
In short, atoms are the new bits.
Mark Hatch (standing center) and Jim Newton (far left, glasses) of Tech Shop, where members pay for access to sophisticated prototyping tools.
Photo: Leon Chew
It all starts with the tools. in a converted brewery in Brooklyn, Bre Pettis and his team of hardware engineers are making the first sub-$1,000 3-D printer, the open source MakerBot. Rather than squirting out ink, this printer builds up objects by squeezing out a 0.33-mm-thick thread of molten ABS plastic. Five years ago, you couldn’t get anything like this for less than $125,000.
During a visit in late November, 100 boxes containing the ninth batch of MakerBots are lined up and ready to go out the door (as a customer, I’m thrilled to know that one of them is coming to me). Nearly 500 of these 3-D printers have been sold, and with every one, the community comes up with new uses and new tools to make them even better. For example, a prototype head delivers a resolution of 0.2 mm. Another head can hold a rotating cutter, turning the printer into a CNC router. (CNC is short for computer numerical control, which simply means that the machines are driven by software.) And yet another can print with icing, for desserts.
Out of the box, the MakerBot produces plastic parts from digital files. Want a certain gear right now? Download a design and print it out yourself. Want to modify an object you already have? Scan it (a researcher at the University of Cambridge has developed a technology that will allow you to create a 3-D file by rotating the object in front of your webcam), tweak the bits you want to change with the free SketchUp software from Google, and load it into the ReplicatorG app. Within minutes, you have a whole new physical object: a rip, mix, and burn of atoms.
Other tools offer additional tricks. The $18,000 ShopBot PRSalpha can work door-sized pieces of wood. Or buy a smaller kit for $1,500 at buildyourcnc.com. If metal is your material, try a CNC mill for around $2,000. Or, if you’re more into electronics, use the free CadSoft Eagle software to create your own circuit boards, then upload the file to have it fabbed in a few days at places like Advanced Circuits.
So, too, for CNC laser cutters, plasma cutters, water-jet cutters, and lathes. You can make anything from fine jewelry to car chassis this way, and tens of thousands of people are doing just that. We’ve already seen this DIY creation movement boom around such simple platforms as T-shirts and coffee mugs, then expand into handcrafting at Etsy (which did about $200 million in sales last year). Now it’s moving to more complex platforms — like 3-D models and plastic fabrication — and open source electronics hardware like the pioneering Arduino project.
With the tools in place, the second part of this new industrial age is how manufacturing has been opened up to individuals, letting them scale prototypes into full production runs. Over the past few years, Chinese manufacturers have evolved to handle small orders more efficiently. This means that one-person enterprises can get things made in a factory the way only big companies could before.
Two trends are driving this. First, there’s the maturation and increasing Web-centrism of business practices in China. Now that the Web generation is entering management, Chinese factories increasingly take orders online, communicate with customers by email, and accept payment by credit card or PayPal, a consumer-friendly alternative to traditional bank transfers, letters of credit, and purchase orders. Plus, the current economic crisis has driven companies to seek higher-margin custom orders to mitigate the deflationary spiral of commodity goods.
For a lens into the new world of open-access factories in China, check out Alibaba .com, the largest aggregator of the country’s manufacturers, products, and capabilities. Just search on the site (in English), find some companies producing more or less what you’re looking to make, and then use instant messaging to ask them if they can manufacture what you want. Alibaba’s IM can translate between Chinese and English in real time, so each person can communicate using their native language. Typically, responses come in minutes: We can’t make that; we can make that and here’s how to order it; we already make something quite like that and here’s what it costs.
Alibaba’s chair, Jack Ma, calls this “C to B” — consumer to business. It’s a new avenue of trade and one ideally suited for the micro-entrepreneur of the DIY movement. “If we can encourage companies to do more small, cross-border transactions, the profits can be higher, because they are unique, non-commodity goods,” Ma says. Since its founding in 1999, Alibaba has become a $12 billion company with 45 million registered users worldwide. Its $1.7 billion initial public offering on the Hong Kong Stock Exchange in 2007 was the biggest tech debut since Google. Over the past three years, Ma says, more than 1.1 million jobs have been created in China by companies doing ecommerce across Alibaba’s platforms.
This trend is playing out in many countries, but it’s happening fastest in China. One reason is the same cultural dynamism that led to the rise of shanzhai industries. The term shanzhai, which derives from the Chinese word for bandit, usually refers to the thriving business of making knockoffs of electronic products, or as Shanzai.com more generously puts it, “a vendor, who operates a business without observing the traditional rules or practices often resulting in innovative and unusual products or business models.” But those same vendors are increasingly driving the manufacturing side of the maker revolution by being fast and flexible enough to work with micro-entrepreneurs. The rise of shanzhai business practices “suggests a new approach to economic recovery as well, one based on small companies well networked with each other,” observes Tom Igoe, a core developer of the open source Arduino computing platform. “What happens when that approach hits the manufacturing world? We’re about to find out.”
Not long ago, all this was impossible. To see how it used to be back in the 20th century, watch the movie Flash of Genius. The film, which is based on a true story, starts in the mid-1960s and tells the sad tale of the invention of the intermittent windshield wiper. A lone inventor — college professor Bob Kearns — tinkers in his basement until he finally creates a working prototype. Rather than sell the technology to a big car company, Kearns decides he wants to build his own company and make the wiper himself. Ford signs on to install Kearns’ wipers in one of its new models. That means he needs to build a factory. He leases a huge warehouse and starts outfitting it with assembly lines, forklift loaders, and other heavy equipment — a classic industrial-age scene.
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As Kearns is getting close to firing up his facility, Ford abruptly backs out of the deal. With no revenue in sight, the factory shuts down before producing a single wiper.
Eighteen months later, Kearns is walking home in the rain and sees a brand new Ford Mustang turn the corner. The windshield wiper sweeps, then pauses, then sweeps again. His brilliant idea has been stolen. Kearns is ruined and will soon go mad, thus the rest of the movie. (The real-life Kearns eventually sued Ford and Chrysler for patent infringement and, after years of litigation, won nearly $30 million.)
Today, Kearns would do it differently. As before, he would have made the first prototype in his basement. But rather than building a factory, he would have had the electronics fabbed by one company and the enclosure made by another. He then would have paid a wiper manufacturer in China to create a custom assembly with these components. They would have shipped straight to his customers, the car companies, and the whole process would have happened in months, not years — too fast for big companies to beat him. No factory, no lawsuits, no madness. He could have fulfilled his dream of turning his invention into a company without tilting at windmills.
To see this model emerging in the real world, you need only visit TechShop, a chain of DIY workspaces that offer access to state-of-the-art prototyping tools for around $100 a month.
On a recent afternoon at the facility in Menlo Park, California, Michael Pinneo, a successful former executive in the synthetic-diamond business, is machining a vapor- deposition chamber for his newest approach to creating colorless diamonds. Over in the corner stands the base of a rocket lander being developed by a team that’s competing in the Google Lunar X Prize. At another table, Stephan Weiss, vice president of Interoptix, and one of his colleagues are assembling circuit boards used to manage electricity grids. They’re doing 50-unit runs, which Weiss describes as “too small for a factory but too big for your garage.” The devices carry the badge of ABB, a giant engineering firm; the utility customers may never know that they were made by hand in a hackerspace.
This is an incubator for the atoms age. When TechShop founder Jim Newton went looking for an executive to run it, he quickly decided on Mark Hatch, a former Kinko’s executive. The analogy is apt: In the same way that Kinko’s democratized printing and, in the process, created a national chain of service bureaus, TechShop wants to democratize manufacturing. It now has two additional locations, in Durham, North Carolina, and Beaverton, Oregon, and has plans for hundreds more. One of the spots being considered is San Francisco, within the facilities of the much-shrunken San Francisco Chronicle. The irony is delicious: the seeds of tomorrow’s industry growing in the ashes of yesterday’s.
Over lunch, Hatch reflects on the arc of manufacturing history. With the rise of the factory in the industrial age, Karl Marx fretted that a tradesman could no longer afford the tools to ply his trade. The economies of scale of industrial production crowded out the individual. Although the benefits of such industrialization were lower prices and better products, the cost was homogeneity. Combined with big-box retailers, the marketplace became increasingly dominated by the fruits of mass production: goods designed for everyone, with the resulting limited diversity and choice that implies.
But today those tools of production are getting so cheap that they are once again within the reach of many individuals. State-of-the-art milling machines that once cost $150,000 are now close to $4,000, thanks to Chinese copies. Everybody’s garage is a potential high tech factory. Marx would be pleased.
Blogger Jason Kottke wrestled with what to call this new class of entrepreneurship, these cottage industries with global reach targeting niche markets of distributed demand. “Boutique” is too pretentious, and “indie” not quite right. He observed that others had suggested “craftsman, artisan, bespoke, cloudless, studio, atelier, long tail, agile, bonsai company, mom and pop, small scale, specialty, anatomic, big heart, GTD business, dojo, haus, temple, coterie, and disco business.” But none seemed to capture the movement.
So he proposed “small batch,” a term most often applied to bourbon. In the spirits world, this implies handcrafted care. But it can broadly refer to businesses focused more on the quality of their products than the size of the market. They’d rather do something they were passionate about than go mass. And these days, when anyone can get access to manufacturing and distribution, that is actually a viable choice. Walmart, and all the compromise that comes with it, is no longer the only path to success.
For a final example of that, swing to the Seattle suburbs to meet Will Chapman of BrickArms. Out of a small industrial space, BrickArms fills gaps in the Lego product line, going where the Danish toy giant fears to tread: hardcore weaponry, from Lego-scale AK-47s to frag grenades that look like they came straight out of Halo 3. The parts are more complex than the average Lego component, but they’re manufactured to an equal quality and sold online to thousands of Lego fans, kids and adults, who want to create cooler scenes than the standard kits allow.
Lego operates on an industrial scale, with a team of designers working in a highly secure campus in Billund, Denmark. Engineers model prototypes and have them fabricated in dedicated machine shops. Then, once they meet approval, they’re manufactured in large injection molding plants. Parts are created for kits, and those kits have to be play-tested, priced for mass retail, and shipped and inventoried months in advance of their sale at Target or Walmart. The only parts that make it out of this process are those that will sell in the millions.
Chapman works at a different scale. He designs parts using SolidWorks 3-D software, which can create a reverse image that’s used to produce a mold. He sends the file to his desktop CNC router, a Taig 2018 mill that costs less than $1,000, which grinds the mold halves out of aircraft-grade aluminum blocks. Then he puts them in his hand-pressed injection molding machine, melts some resin beads, and pumps them through. A few minutes later, he’s got a prototype to show to fans. If they like it, he gets a local toolmaker to reproduce the mold out of steel and a US-based injection molding company to make batches of a few thousand.
Why not have the parts made in China? He could, he says, but the result would be “molds that take much longer to produce, with slow communication times and plastic that is subpar” (read: cheap). Furthermore, he says, “if your molds are in China, who knows what happens to them when you’re not using them? They could be run in secret to produce parts sold in secondary markets that you would not even know existed.”
Chapman’s three sons package the parts, which he sells direct. Today, BrickArms also has resellers in the UK, Australia, Sweden, Canada, and Germany. The business grew so big that in 2008 he left his 17-year career as a software engineer; he now comfortably supports his family of five solely on Lego weapon sales. “I bring in more revenue on a slow BrickArms day than I ever did working as a software engineer.” Life is good.
In the mid-1930s, Ronald Coase, then a recent London School of Economics graduate, was musing over what to many people might have seemed a silly question: Why do companies exist? Why do we pledge our allegiance to an institution and gather in the same building to get things done? His answer: to minimize “transaction costs.” When people share a purpose and have established roles, responsibilities, and modes of communication, it’s easy to make things happen. You simply turn to the person in the next cubicle and ask them to do their job.
But several years ago, Bill Joy, one of the cofounders of Sun Microsystems, revealed the flaw in Coase’s model. “No matter who you are, most of the smartest people work for someone else,” he rightly observed. Of course, that had always been true, but before, it hardly mattered if you were in Detroit and someone better was in Dakar; you were here and they were there, and that was the end of it. But Joy’s point was that this was changing. With the Internet, you didn’t have to settle for the next cubicle. You could tap the best person out there, even if they were in Dakar.
Joy’s law turned Coase’s law upside down. Now, working within a company often imposes higher transaction costs than running a project online. Why turn to the person who happens to be in the next cubicle when it’s just as easy to turn to an online community member from a global marketplace of talent? Companies are full of bureaucracy, procedures, and approval processes, a structure designed to defend the integrity of the organization. Communities form around shared interests and needs and have no more process than they require. The community exists for the project, not to support the company in which the project resides.
Thus the new industrial organizational model. It’s built around small pieces, loosely joined. Companies are small, virtual, and informal. Most participants are not employees. They form and re-form on the fly, driven by ability and need rather than affiliation and obligation. It doesn’t matter who the best people work for; if the project is interesting enough, the best people will find it.
Let me tell you my own story. Three years ago, out on a run, I started thinking about how cheap gyroscope sensors were getting. What could you do with them? For starters, I realized, you could turn a radio-controlled model airplane into an autonomous unmanned aerial vehicle, or drone. It turned out that there were plenty of commercial autopilot units you could buy, all based on this principle, but the more I looked into them, the worse they appeared. They were expensive ($800 to $5,000), hard to use, and proprietary. It was clear that this was a market desperate for competition and democratization — Moore’s law was at work, making all the components dirt cheap. The hardware for a good autopilot shouldn’t cost more than $300, even including a healthy profit. Everything else was intellectual property, and it seemed the time had come to open that up, trading high margins for open innovation.
To pursue this project, I started DIY Drones, a community site, and found and began working with some kindred spirits, led by Jordi Muñoz, then a 21-year-old high school graduate from Mexico living in Riverside, California. Muñoz was self-taught — with world-class skills in embedded electronics and aeronautics. Jordi turned me on to Arduino, and together we designed an autonomous blimp controller and then an aircraft autopilot board.
We designed the boards the way all electronics tinkerers do, with parts bought from online shops, wired together on prototyping breadboards. Once it worked on the breadboard, we laid out the schematic diagrams with CadSoft Eagle and started designing it as a custom printed circuit board (PCB). Each time we had a design that looked good onscreen, we’d upload it to a commercial PCB fab, and a couple of weeks later, samples would arrive at our door. We’d solder on the components, try them out, and then fix our errors and otherwise make improvements for the next version.
Eventually, we had a design we were happy with. How to commercialize it? We could do it ourselves, getting our PCB fab house to solder on the components, too, but we thought it might be better to partner with a retailer. The one that seemed culturally matched was SparkFun, which designs, makes, and sells electronics for the growing open source hardware community.
The SparkFun operation is in a newish two-story building in an office park outside Boulder, Colorado. The first floor is larger than three basketball courts, with racks of circuit boards waiting to be sold, packed, and shipped on one side and some machines attended by a few technicians on the other. The first two machines are pick-and-place robots, which are available used for less than $5,000. They position tiny electronic components in exactly the right spot on a PCB. Once each batch of boards is done, technicians place them on a conveyor belt that goes into another machine, which is basically just a heater. Called a reflow oven, it cements the parts into place, essentially accomplishing what a worker could do with a soldering iron but with unmatched precision and speed.
The PCBs arrive from SparkFun’s partner firm in China, which makes millions of them using automated etching, drilling, and cutting machines. At volume, they cost a few cents each.
That’s it. With these elements you can make the basics of everything from a cell phone to a robot (structural elements, such as the case, can be made in low volume with a CNC machine or injection-molded if you need to do it cheaper at higher volume). You can sell these components as kits or find some college students on craigslist to spend a weekend assembling them for you. (I conscript my kids to assemble our blimps. They rotate roles, coveting the quality assurance task where they check the others’ work.)
SparkFun makes, stocks, and sells our autopilot and a few other products that we designed; we get to spend our time working on R&D and bear no inventory risk. Some products we wanted to make were too time-intensive for SparkFun, so we made them ourselves. Now, in a rented Los Angeles garage, we have our own mini SparkFun. Rather than a pick-and-place robot, we have a kid with sharp eyes and a steady hand, and for a reflow oven we use what is basically a modified toaster oven. We can do scores of boards per day this way; when demand outstrips production, we’ll upgrade to a small pick-and-place robot.
Every day our Web site takes orders and prints out the shipping labels. Muñoz or one of his workers heat-seals the products in protective electrostatic bags and puts them in shipping envelopes. The retail day ends at 3:30 pm with a run to the post office and UPS to send everything off. In our first year, we’ll do about $250,000 in revenue, with demand rising fast and a lot of products in the pipeline. With luck, we’ll be a million-dollar business by the third year, which would put us solidly in the ranks of millions of similarly successful US companies. We are just a tiny gear in the economic engine driving the US — on the face of it, this doesn’t seem like a world- changing economic model.
But the difference between this kind of small business and the dry cleaners and corner shops that make up the majority of micro-enterprise in the country is that we’re global and high tech. Two-thirds of our sales come from outside the US, and our products compete at the low end with defense contractors like Lockheed Martin and Boeing. Although we don’t employ many people or make much money, our basic model is to lower the cost of technology by a factor of 10 (mostly by not charging for intellectual property). The effect is felt primarily by consumers; when you take an order of magnitude out of pricing in any market, you can radically reshape it, bringing in more and different customers. Lowering costs is a way to democratize technology, too.
Although it’s shrinking, America’s manufacturing economy is still the world’s largest. But China’s growing production sector is predicted to take the number one spot in 2015, according to IHS Global Insight, an economic-forecasting firm. Not all US manufacturing is shrinking, however — just the large part. A Pease Group survey of small manufacturers (less than $25 million in annual sales) shows that most expect to grow this year, many by double digits. Indeed, analysts expect almost all new manufacturing jobs in the US will come from small companies. Ones just like ours.
How big can these small enterprises get? Most of the companies I’ve described sell thousands of units — 10,000 is considered a breakout success. But one that has graduated to the big leagues is Aliph, which makes the Jawbone noise-canceling wireless headsets. Aliph was founded in 1999 by two Stanford graduates, Alex Asseily and Hosain Rahman, and it now sells millions of headsets each year. But it has no factories. It outsources all of its production. And though more than a thousand people help to create Jawbone headsets, Aliph has just over 80 employees. Everyone else works for its production partners. It’s the ultimate virtual manufacturing company: Aliph makes bits and its partners make atoms, and together they can take on Sony.
Welcome to the next Industrial Revolution.
Chris Anderson (email@example.com) is editor in chief of Wired.