KP Unpacked

KP Unpacked explores the biggest ideas in AEC, AI, and innovation, unpacking the trends, technology, discussions, and strategies shaping the built environment and beyond.

All Episodes

KP Unpacked

Lease the Bot, Dodge the CFO

October 06, 2025 • KP Reddy

In this episode of KP Unpacked, KP and Nick break down one of the toughest choices for hardware and robotics founders in AEC:
Should you sell the equipment, offer it as a service, or self-perform the work?

We cover how to size distribution and reduce friction, when CapEx vs OpEx tilts the deal, what risk transfer really costs, and why your choice is not static. We also get into channel pitfalls like exclusivity and rights of first refusal, and share field lessons from companies building real robots for construction.

What you’ll learn

A simple way to map distribution size vs friction before you pick a model
When RaaS wins due to OpEx and risk transfer
When to sell equipment because the interface is mature and buyers have CapEx
When to go Prime/self-perform for fast payback and control
How maintenance, spares, and uptime reshape your margins
Why channel exclusivity and ROFR can box you in
How to use customer conversations to validate the model early

Examples referenced

Lumina: electric construction equipment and why self-perform can align incentives
Okibo: drywall finishing robots and why RaaS speeds product learning

Timestamps

00:00 Intro and warm-up
03:05 Why cheerful, constructive podcasts work
04:45 Founders Podcast and dense learning
07:06 The big question: sell, service, or prime
09:20 Framework start: distribution size vs friction
14:35 Leasing, risk transfer, and unfamiliar tech
17:20 RaaS realities: maintenance, spares, support
22:35 Heuristics for RaaS, sell, and prime
25:20 Incentives when you operate your own machines
28:36 Okibo case: production scale and feedback loops
33:26 CapEx vs OpEx and incentive alignment on projects
39:44 Channels, exclusivity math, and distribution maturity
40:39 The ROFR trap and how it kills deals
42:19 Ask customers early and often
47:39 Wrap

If you’re building in AEC and wrestling with go-to-market, send us your scenario. We’ll pressure-test it on a future episode.

Sounds like you? Join the waitlist at https://kpreddy.co/

Check out one of our Catalyst conversation starters, AEC Needs More High-Agency Thinkers

Hope to see you there!

SPEAKER_00: 0:01

Do we have him?

SPEAKER_01: 0:03

Yep. It's working. Yes, it's working. Sweet. Internet.

SPEAKER_00: 0:08

You're gonna make me redo the intro. Hey everybody, welcome to KP Unpacked. We got a great episode for you today.

SPEAKER_01: 0:16

How's that? I think so. That's pretty good. That's pretty good. I think it's acceptable.

SPEAKER_00: 0:22

Could be announcer in another life.

SPEAKER_01: 0:24

Yeah, you're no uh TVPN, but I cannot I cannot recreate that.

SPEAKER_00: 0:31

It gets better every day.

SPEAKER_01: 0:33

Those guys are good. Oh, they're great.

SPEAKER_02: 0:35

How can you how can you not like those guys? You know, um I was talking to a friend of mine who does like PR messaging kind of stuff, and she generally has created a disdain for podcasts. And I was like, just just listen to one episode of TV PN. Like I think these guys are like very positive, they don't take they don't have a lot of hot takes really. They'll troll people a little bit, but it's mostly like tech people, right? Like around um different things. But I was like, and she was like, you know what? Like she was like, it was actually kind of nice, it was kind of nice, like compared to all these uh podcasts that are very issue driven. Yeah, but uh I think I was talking to you earlier, it's very tasteful.

SPEAKER_00: 1:20

They do a really good job of being cheerful and constructive. You know, it's actually um it's quite impressive how they navigate not getting into the weeds on politics and you know, hot hot button issues and and stay positive. Like pretty hard to avoid that in most conversations today, especially when you're doing interviews with a wide range of people. And they do like it's really impressive, seriously.

SPEAKER_02: 1:46

Yeah. I mean, actually, like their um their interview with uh Alex Carp from Palantir, it was like it was I think it was like one of the better interviews because of them, right? Because of them. Um, they didn't encourage him to get more wild. I feel like sometimes, you know, he's the type of personality if um he's already kind of wild. And if you encourage him to go like next level, he'll hit he'll hit next level, you know. I don't think they really encouraged him to be next level about everything. But um what's funny? I was telling you, you know, last night I did this uh book launch for Hammond uh Tanaja at General Catalyst, his new book launch. And um it's interesting because they had Free Zakaria kind of hosting, and someone asked the question about like how social media has become so divisive, um, and all that. And so Freeze Zakaria had I think this is from I'm bringing it up. It's I thought he his take was pretty interesting. He's like Twitter or X is where you go to like troll people that you actually like, and podcasts you listen to for people that you actually dislike. And I thought it's kind of interesting, right?

SPEAKER_00: 3:05

Like, like you so the the thought there is you listening to Joe Rogan and you not liking Joe Rogan, but did and to guess is good, so you're gonna listen to him. Is that what he's yeah?

SPEAKER_02: 3:16

I think it's you know, he's he just said as many as he gets common, you know, he can be controversial as he is, you know, as a public figure. He was like, people say all kinds of stuff to me on X, but I meet them in person and they're wonderful. Oh, okay, yeah, yeah, yeah, yeah.

SPEAKER_00: 3:30

Yeah, and he's like, I mean, X is a troll, it's the trolling platform for sure.

SPEAKER_02: 3:34

Yeah. Right. And he was like, for some reason, people will listen to podcasts from people they actually don't like, but they'll actually listen to them.

SPEAKER_03: 3:44

Yeah.

SPEAKER_02: 3:44

Which I think, which I think was kind of funny. No, the TBN TV PN guys, I you know for one for those who don't know one day we'll grow up and be them.

unknown: 3:54

Yeah.

SPEAKER_00: 3:56

Good goal. Uh yeah, good good goal to reach for it. They um the so for yeah, people who don't know what we're talking about, TV PN is uh it stands for Technology Brothers Podcast Network, and it's basically just a it's a sports center for tech, is I think the best way to describe it. It's um it really is. It's three three three-hour show per day, and they interview um founders, investors, um, builders, engineers, and in the world of technology, and it's like the biggest names that you know you'll you'll see across the industry. So yeah, highly recommend. Obviously, we're giving a glowing recommendation for the hosts, but they yeah, they they seriously do a great job. Um good stuff, cool.

SPEAKER_02: 4:36

I think especially too in a world of like just trying to keep up with stuff, it's it's a good spot, right? You can keep up with what's going on.

SPEAKER_00: 4:45

Yeah, one other podcast recommendation. You ever listen to the founders podcast with David Sinra?

SPEAKER_03: 4:52

Yep.

SPEAKER_00: 4:52

I've really gotten into it recently. I was kind of a late bloomer with it, but um the episode that drew me in, I think it was his 400th episode on Elon. What what he what what CINR does, um that's different than other podcasts, is he actually just uh so he writes out a full script of lessons from autobiographies and biograph biographies that he reads about famous founders. And so highly curated bits and pieces from those books that are really meaningful. And he has the mentality of a founder, like he's basically studied, he's spent his entire life and career studying these founders and knows and can pull from you know this wide swath of uh of data that he's seen from other entrepreneurs. And so he he really makes a lot of connections. Like he's talking about Elon Musk in this episode, and he's like pulling in Steve Jobs, he's pulling in, you know, James Dyson, he's pulling in, you know, L VMH and basically all you know, all the world's great founders, uh, and constantly giving examples. Um, that and sometimes in books, like you know, it takes a long time for you to slog through and get through them, especially nonfiction books. It's just like a highly distilled, like high, high dense, high density uh podcast. If you're looking to understand, yeah, like how a founder operates. Definitely recommend that.

SPEAKER_02: 6:14

It's funny, it's funny you bring that up. You know how people talk about inbox zero. Um, I did that with my podcast. I deleted, I unfollowed all the podcasts I listened to for like a day. Okay. And then I went back after just kind of walking away from it for a minute, I went back and added ones that I actually wanted to, you know, like I think you just you end up just having a bunch of them, right? Like you just keep adding them, adding them, adding like so you know you've got like your following 20 podcasts. Um, and I kind of just did it to be a little bit more intentional, like to say which are the podcasts I actually want to listen to and stop cluttering up my phone with all the random ones that I maybe I listened to a while ago or whatever. So right now I have us and TBPN and I haven't added any new ones yet. I'm just like letting it letting it sit around for a minute.

SPEAKER_00: 7:06

Yeah, let it marinate. Two top, two top uh podcasts in the world right there. There you go. There you go. So I pinged you earlier today. I have one one topic that I really want to drill into. We can um obviously take this in many different directions, but it's been something that has come up quite a bit on the investing side for us, and a lot of our portfolios are asking this question. And it's it's a difficult question for a startup to answer. And so the question is if you are a hardware startup, should you sell equipment to customers? Should you perform as a service, essentially offer um the product as a service? Think of like you know, the concept of a lease or you know, software as a service, for example. Um or should you be the prime? Should you actually do the work? And you know, in the context of the AEC industry, um, should you be a subcontractor? Should you be you know the engineer architect on record? Obviously, that entails you know, being the prime, being the the subcontractor and doing the work entails a whole new um series of risks and forces you forces you to have an entirely different business model, right? To to support that. And you know, that and we've talked about this on the past episodes, that's the services model, which now potentially can be venture fundable because of the scale that AI enables. And I think, you know, uh in the context of hardware, deep tech enables because of the margin increases. Um and so that question of if I'm going to market with a hardware product that I think is transformational, when should I, when should I sell equipment? When should I do as a service? In robotics, it would be called RAS, robotics as a service. Yeah. And then when should I be the prime? When should I perform the work in the field? Yeah. Um, that's the that's the frame of of what I want to talk about. And I've done a lot of research and like a lot of thinking on this. Um, but I know you have, I I I think from just our conversations, you have really strong instincts on where to point people to when you're thinking of uh about this trade-off. So I'll let you riff on it for a second.

SPEAKER_03: 9:20

Yeah.

SPEAKER_02: 9:21

The answer is always and never. Um so so here's how it, I mean, I think uh it was kind of funny. I was at lunch with Devin today, and I was like, there's a word that keeps coming up every day for us. And it's not a new word, it's just a word, right? But I think it when you keep hearing it, the same word being brought up every day, I think you have to kind of pay attention, right? Um the universe is telling you something, and that word is distribution, right? So if we think about distribution and vectors of distribution, there's size, right? Size quantification of distribution, how big can it be? But I think these the second one, the second vector to be very deliberate about in our industry specifically is friction. So you can go after a massive market and say, oh my God, I got a huge market, I'm gonna build massive distribution. But if there's too much friction, it's not gonna matter, right? So I think in the world of sell equipment, generally you can probably build pretty big distribution quantity, you know, quantify large distribution. If you're going pure product sale, I'm gonna sell you a robot, great. You I'm gonna go sell a bunch to United Rental, they'll rent them to people, I'm gonna sell them on eBay, like whatever it is, right? So you can you can maybe like come up with a very sizable distribution model. However, if there's too much friction, who cares? Right. So we talk about Tam Sam Sam and all the fun stuff, right? But we never factor like the coefficient of friction in in these in customer acquisition. So I think what you're kind of alluding to is we live in an industry where some behavioral aspects of it are more simple or more complicated. As a GC, there is the least amount of friction is to hire you as a subcontractor. Bid on my job. In fact, you can go to a hundred portals out there where GCs post, I'm looking for a drywall sub, right? Hey, bid on this job. So you can automatically have a lot of distribution, right, with very low friction. However, the idea that your hardware product can do everything, right? There's a question mark there, right? There's a question mark if it's drywall, if it's brick laying, can it lay every brick? Can you take on the entire subcontractor relationship? Maybe, maybe not, right? Um, and that's a different business. Then when you look at that business too, you have to say, okay, what are you what are the unit economics of that? And I think those unit unit economics vary once again, two variables there. One is if you can do most of the work automated with a robot, you're probably gonna have decent unit economics. The minute it is, well, I can do 60% of the job with a robot, but 40% I have to have people laying bricks on you know manually, your unit economics get really hosed, right? This the second model you were talking about is like, you know, RAS rent rent rent a robot as a service. That's a low friction model too, in many ways, right? Because like I don't have to get capex when we think about project-based businesses like construction. Um, that project engineer, project manager has full autonomy to buy things for the project, right? And rent things for the project. They can rent a cherry picker, right? They can rent things very easily and build it into the project and do it. The minute they have to buy something, then they have to go to the company, go to the CFO, go through some purchasing process, which might even invite, you know, in put out an invitation to bid from you know, so so the friction gets really big through the purchasing, which is you know kind of the last one. So um I think if you mapped all those out, there's probably a sizing of distribution against friction to market. Now selling product, every founder's dream, right? Just sit here and let some third-party contractor um manufacture your stuff, right? And just ship product all day long, right? Just sit at your desk and watch the numbers run and not do anything, right? Um I think that's a lot harder in our industry. Yeah, that's a lot harder in our industry. Um now, I think if you look at all three models as an in state, um, that's fine, right? As as a business model. But I don't I don't think our I think as as a founder, I don't think you should get too caught up in the in state versus getting involved in the now state because you get to change your mind. You know, think think about, I mean, um, you know, I remember when car leasing first came out, and there was just like a lot of negativity to it. It was just like, oh, lease a car? Why would I lease a car? But we both know if you if you run the math, it's the math work. Right? The math works.

unknown: 14:34

Yeah. Yeah.

SPEAKER_00: 14:35

I mean, I think the le the leasing dynamic, you know, obviously there's the there's the cost comparison, but and you, you know, you might there's a chance you actually, you know, today you can find leases that are much cheaper than you know uh an actual car payment given the high interest rate environment that we're in. But you know, really what you're doing is is like the reason I would choose to lease a car is because of the risk transfer. Like I don't own the car, like I don't want you know, the the burden of my car breaking down and it not being under warranty. And um, if I can, you know, outsource that risk to someone in the context of robotics, that's actually really important because robotics is not, you know, for most people is not, you know, it doesn't feel mature, it doesn't feel like a mature interface. They don't understand the core mechanics of it. Like if it breaks, they're not going to be able to fix it, right? And if you sell them, if you sell them the robot, you know, it's on them to you know to actually service it in most cases. So like unless you are very sophisticated and the interfaces are are known and understood, um, that trade-off in most cases, I think I think, you know, seems pretty bad.

SPEAKER_02: 15:43

Yeah. I also think um if you're a robotics company, you you have you can't underestimate what maintenance cycles look like, spare parts. Now I had a robotics company in the apparel industry, and that was one of the biggest things we learned is like the minute you start selling robots, someone needs an 800 number to call, right? Because the impact on production is massive. Are you gonna keep spare hot spares on site, or are you gonna have distribution, some distributor that can drop ship spares? And then are you gonna train certified mechanics, so to speak, to um to fix them? And and when you look at that, you say, well, the the right answer is I don't know, right? The answer is for a startup is probably I don't know. Um and what that means is like you might need to know, and no better way to need to know is by doing maybe robots as a service, right? Because then the the customer is not dealing with the pain and suffering you are. In fact, in my robotics company, we shipped two, two, two of them, which basically ship two robots. We said, if that one breaks, just use the other one and we'll come pick up the like we we didn't even know, like we didn't and we weren't we didn't have people to fly in and do all this. Like we would just say, like, hey, the the trucking company is gonna be by in the morning to take off the one, take away the one that broke, go ahead and put in the one that um the the spare. We had a fully you know, we had a fully functioning hot spare. Because for us it was like almost easier, right?

SPEAKER_00: 17:20

So at that point you're basically already doing robotics as a service. Yeah, yeah, pretty much, right? No, yeah. Um, okay, so I've I have written out a few different heuristics of when to choose each model, and I'm curious to see if you agree with this.

SPEAKER_02: 17:36

Okay.

SPEAKER_00: 17:38

All right. So robotics as a service or hardware as a service, when customers want opex and risk transfer, and your capital charge is truly covered. And what I mean by that is the budget, um, so so your operating expenses, the uptime guarantees, the metered output, and the cost of capital that you have either to, you know, to that, you know, to finance the finance the robots. And the and you know, you're also considering the cost of capital involved in your next equity round for, you know, um, if you're if you're a startup raising equity, essentially you're operating your cost of capital is like what is it going to take for you to meet your investors' IRR, or you're not gonna raise a new round, right? And the I the rough IRR in venture is 30%. Um you basically have to be beating that cost every every year. And so that hurdle rate is actually pretty high. Yep. Right. And if you're and if you're selling into a small margin industry that's like very, you know, very cost sensitive, it doesn't give you much room to you know pull up and down on the levers. And so really um you're entirely dependent on, you know, with with robotics as a service, you're dependent on the output, the variable output that that comes out of the machines, basically how what's the what's the usage rate of the machines in the field? If the if the rate is good, definitely pencils out, you can probably beat the cost of capital easily. You can beat all your, you know, all your service-oriented costs, um, all your maintenance costs. And then uh, but if but if if output is low, if people are not using the machines, it's gonna be really hard to hard to beat that whole hurdle rate from from what I've seen.

SPEAKER_03: 19:19

Yeah.

SPEAKER_00: 19:20

Okay, okay, so that's RAS. You sell equipment when the interface is productized, the buyer has CapEx, and committed committed demand covers a year of burn. Right. So, um, and I think that what that means is like, so a stranger can follow the spec and get and get a promised result. The boundary of responsibility is clear. So, like in your, you know, uh in your software days, you know, the boundary is maybe not clear where you're saying, like, hey, here's a spare, and like, you know, we know you're gonna have to call us, so don't be afraid to pick up the phone. Um, uh, you know, unclear because you want them to be successful, right? But you haven't set hard boundaries because the interface isn't there yet. Um, and then the and then the third factor is like the buyer actually wants to own the asset and has the budget for it. That's a that's a huge thing. With robotics, they can be quite expensive. So um that you know that that variable has to be met. So, and then the reason to sell equipment, like when equipment wins, is that the interf the interface is codified, certifications and inspection workflows are predictable and and you can you can meet them. Uh, we talked about buyers, but by yeah, buyers have CapEx, uh they have CapEx cycles and they actually prefer ownership. They're actually asking you to own the machines. I think that's a key, that's a key thing. In most cases, like I think you're gonna find uh when your your customers actually want to own or lease the equipment. Um then and then channels, distribution partners are actually already reaching your ICP. I think that's another key thing. Like, can't are there established channels that you can sell that equipment through, or is it gonna be like way too cumbersome to talk to that channel and get you know, uh get reasonable leads because they don't understand how to sell your product, right? How mature is the channel? Um, okay, so then prime. So you prime or you do the work, you self-perform when neither of those variables is true. You can't eat the cost of capital on on RAS and the interface is not codified enough, um, and the capex isn't there for selling equipment. And um, and you can still get a past uh a relatively fast payback in the field. So call it like under 24 months, right? Um if payback from doing the work is under 24 months, um, something you should look into is actually doing the work. The reason 24 months, uh, and we're talking about the context of a seed investment, right? It fits the the seed to series A window. Usually it's about a two-year, two-year race cycle. Um, the 24 months limits exposure to shifting standards also. It returns capital fast enough that you can pivot scope customer route without basically sinking years into a bad bet. You know, if if something something doesn't go right with performing the work, um, you know, that that payback period is tight and confined uh and makes that mistake it basically makes that mistake reversible. Um, all right, so I'm gonna read these again. So RAS when customers want opex and risk transfer and your custom and your capital charge is truly covered. Sell equipment when the interface is productized, the buyer has capex and committed demand covers a year of burn, and you prime when neither is true, but you can get fat past fab uh fast payback in the field, typically less than 24 months. Where do you agree or disagree with that?

SPEAKER_02: 22:35

I think that I mean, I think that's a fair construct, right? I I think you've hit on a couple of things. One is like the deliverability of the product, right? Like maturity model of the product, and then some of the financial thing. I think I think the the only thing like is that some of this stuff isn't static, right? So when you think about the value capture, as a founder, you should be just a absolute pig when it comes to value capture, right? I'm gonna give the the customer enough value so they make the purchase, but really I need to create, I need to capture most of the value. So that's one thing. So I think you have to look at those things too. Secondly, technology is generally a depreciating thing, right? It's it's not inflationary, it's deflationary, right, in terms of price. So as your costs come down, like I I read this great stat years ago was about iPhones and the form factor, right? When they issue their first iPhone release, it's a certain form factor with a certain you know equipment set, you know, the OEMs and all that are involved with it. And the margins are pretty low. But by the time they launch that, you know, they used to have their SE version, the cheap version of the form factor. That thing's like all margin because all the components that are in there that were in the first phone are so cheap now compared to the first version. Yet they're able to charge, you know, they're they're capturing most of the value. So I think that's something else to think about. Is do you believe your V1 versus V2 that the feature set um is going to create that much value? I don't think, you know, I think we all joke around with the iPhone. Oh, did we get a new camera, a different camera? Like nothing's changing, right? This new iPhone, it's like, oh, it's so slim. I'm like, is it so slim? Once you throw a case on it, it's probably the same, right? So Apple does a good job of not creating a ton of value, but still selling a new product. Um, but I think there that's some that's a variable to think about, whether you're thinking about selling, um, because um, and you know, because if your costs to your cogs go down, right, you want to be able to make sure that you're able to still charge the same. And then how much, you know, how do you start adding features to it? So I think the the feature refresh lifecycle could make a difference as well. Because when it's your when it's your equipment and you're delivering the work, you want to run it till it dies, right? So maybe my feet, my my version refresh or my feature refresh refresh is um is um is slower if I'm doing the work than if I'm selling a product.

SPEAKER_00: 25:20

Yeah, the incentives are entirely different when you're responsible for the upkeep of your machines. And like you engineer them differently, right? Um and I think it's yeah, it, I mean, that that's a pretty fascinating trade-off. I mean, we've explored this a lot with um with Lumina, um, knowing that they're gonna be running their so Lumina, just jog everyone's memory, electric bulldozers, electric construction equipment, bulldozers is their first um their first piece of equipment, and they're gonna run them in the field and not sell the machines. So, like taking them through this context, they basically have said prime is the most interesting to us given where the industry is, um, and because the payback period is incredibly fast, and um basically there's the there's also no the like the the the the other variable here that's like not covered in my heuristics is like this instinctual variable. And the instinctual variable here is there's no competition, um, no one's running superior equipment in the field, right? And I think that actually is a an another thing to address, but like um, you know, so so anyway, Lumina is gonna engineer their machines to make sure that the durable life cycle of the of of the product is um is in line with one of their RD cycles. You mentioned like you know, V V1, V2, V3. They don't need to like their first gen two dozers don't need to uh that they're gonna run in the field this year, they don't need to last eight years because there's gonna be another generation that actually is gonna you know far far outpace and outperform what they're able to do. But maybe they but you know, like maybe that cycle is four years, right? And so um they need to be able to like run them into the ground in that four-year period, right? And get us get as much as much as possible out of them. And that, you know, for better or for worse, that mentality, that skin in the game alignment, I think is really compelling versus like, oh, if I like I basically just have to max out my warranty period if I'm selling equipment, right? Yeah, planned obsolescence. Warranty period, who who cares?

SPEAKER_02: 27:26

Yeah, yeah, it's like planned obsolescence, right? Yeah. I I think um, I mean, you saw it like car industry, you know, BMWs used to be terrible. No one would buy them because the maintenance costs were so high, warranties were terrible. And then when they took off, was when they said, Oh, we we'll include all the maintenance in the first 50,000 miles. For the first several years, you still had to take your car in and get it. It was always getting fixed, but didn't cost you anything. But when those real costs manifest themselves on the manufacturer's bottom line, it's weird how they all of a sudden start building a better product, right? Like I now own the reliability for 50,000 miles. It better get to at least 51,000 miles, otherwise, like I'm paying for it.

SPEAKER_03: 28:09

Yeah.

SPEAKER_02: 28:09

Whereas before, if it was like a three-year warranty, maintenance isn't included, blah, blah, blah, do I care? Like, I don't ever I don't ever see quantifiably what it's costing me to deliver a product that doesn't function. But like to Lumina's point, right? Like now you have to um make sure, right, that you're very deliberate around feature development because there may not be that much benefit to you if you're operating it yourself.

SPEAKER_00: 28:36

Yep. Yeah. Uh okay, so let's give people another concrete example. So we have um we have another another company uh in the portfolio called Okibo that does drywall finishing and and painting. So full wall finishing, fully autonomous robots. They have this choice to sell their machines, sell their robots, or they can you know lease them out as rope, you know, robots as a service. Where how do you how do you think about that trade-off and choice for them?

SPEAKER_02: 29:09

Um I think the challenge there, I mean, I I think it's a little bit too soon to tell, right? I I think the biggest challenge, quite honestly, they have with selling the robot is producing enough of them, right? So the the problem is if they sell one robot, great, then they gotta go get another one. And ultimately their their go-to-market is let me show you, right? So that means they have to produce a fleet fast enough to keep up with market interest. The benefit right now of them like renting them is they can pull it off a project once the project is over, they can redeploy it to a different customer and you know, have them experience it, right? And so I think that's one of those interesting dynamics they have, but also they're going. Through a lot of product innovation, and uh I think a lot of the product innovation that they're experiencing is by being there and you know renting them versus selling them. It's it's an amazing thing. It is so difficult in in any industry, specifically our industry, to get really good product feedback or to improve your product, it's like pulling teeth, it's very, very hard. And so I think the benefit of um you know the renting them, you know, RAS is that they they're there, right? They're getting feedback, real-time feedback to improve their product. If you sell them, you may, I mean, you may not know. I mean, client might buy it, they might use it for two projects and then park it in a garage and forgot about it, right? Park it in a warehouse and then they forgot about it. Or the person that was a big fan leaves the company and never to be heard from again. So I think from an early product development, I think uh for them, I really think the renting them is the right model. But as they can scale production, then I think you give people optionality.

SPEAKER_00: 31:13

Yeah. We were um we were with one of their customers last week and I had a specific conversation about this. I actually asked them this question, not um for the podcast, but just for my my uh intellectual curiosity. And one of their I just was like, hey, what's your preference? Like you if you have the option to do either, like what would you rather do? And they're like, oh, well, we don't we don't actually want to buy them because we don't like want to think about this as a capex expense. It's just like easier financially for us to get over the burden of you know a higher higher upfront cost. And um, you know, like we're not budgeting for robots yet. And I think that's like we're getting to the where we are on the on the S curve in terms of product buying maturity in our industry. No one's like used to buying robots. They're they don't have the capex budgeted for that. No. So when you're selling, like when like like back to your point on distribution friction, when you're selling and you're trying to sell them, you know, a seven-figure capex expense that they're that's not planned for and that has a risk tied to it. The interfaces are new, no one understands how to operate them yet. Um, really hard sell, like you're going against the grain to get them to actually buy the robots. Um, so that's one example, but so they were their main answer was like, hey, I want to I want to rasp them because of the opex, you know, we want to treat this expense as an opex. Um, but I've actually heard and I think we've seen evidence that there are other buyers out there who have said the exact opposite that where they're like, hey, we see the value of these and we don't want to pay a premium on leasing and and renting them. We want to own them and learn how to operate them. And I think like one thing that is unique about Okibo's machine is it's like the interface is actually pretty mature. It's not, you know, it like it's fairly straightforward once you have a few days of training to operate it in the field. And I think there's a level of comfort that, you know, there's like essentially a computer screen, you know, where you select the mode and then it does its own path planning. And you you don't really have to, you know, uh unless the thing breaks down, I don't think they're gonna run into issue, any any usability or user experience issues. And so I think that's another key dynamic with them.

SPEAKER_02: 33:26

Yeah, I think there's also um maybe this is more nuanced, right? Is uh incentive alignment and a lot of that's driven by ownership structure. Um, I know a lot of businesses that if they're family-owned, single shareholder, single owner, they kind of like CapEx, right? Or they know it's a preference. But the thing is, if your teams are paid based on project profitability and the rental is a direct cost to your project, it's more likely that if it's a direct cost from the supplier, it's um more expensive than call it a capex from corporate. Like, how does if if corporate buys it and then cost allocates it to the job, my quick math is it's probably cheaper if they if they actually did charge it back to the job, which is a question mark, versus like a direct cost from the vendor. So I might want my company to buy it so that it doesn't show up on my project profitability, doesn't ding my project profitability. And if my incentives are based on project profit, I mean, think about how many employee bonus pools are based on CapEx, based on balance sheet. It's really us finance dorks that care about balance sheet and appreciation of assets, right? Most corporations, most companies, employee incentives, executive compensation, et cetera, if there are incentives, are mostly aligned. It's all profitability, profit and loss, right? So one would argue that there is some financial engineering to be had that if you did buy the equipment and it was a capex purchase, i.e. on the balance sheet, that whatever my CFO decides or doesn't decide to charge back and allocate to a project, it's still going to be cheaper than if I bought it from the vendor. Sorry, not not trying to get everybody to math while they're listening to the podcast, while they're on their treadmill list today. But there's there's some mathing around there.

SPEAKER_03: 35:41

Yeah.

SPEAKER_00: 35:42

Yeah, I think that you're you're highlighting the trade-off of why you should if you if you're in the customer seat, why you should um consider owning the equipment. I think that's like a good perspective. Like the economics will be better if you if you if you if you can't own it, if you and you have the cap and you have the capex. Um when you're eating into project profitability. You know, it's like um we we're talking to an excavation company in the last few weeks, and their large the largest line item is renting equipment. If they were if they own their equipment, it's like definitely not their, you know, it's like it's it's far, it's far far lower in terms of their their like total bomb for the for the project. Um and so I think like yeah, you're just trading you're trading you're trading risk for for enhanced margins.

SPEAKER_02: 36:32

Yeah, and I think there's you know, so so anyway, I I mean I think if you look at vehicles are a good one, right? Um I worked for a company one where once where we owned all of our trucks, we self-insured ourselves. We didn't even use outside, we you know, we had for catastrophic catastrophic risk, we had insurance, but we self-insured our car policies. We tend there was a lot of pride around we own all our stuff, we have no debt kind of thing. But we all know like cars depreciate so fast, like it doesn't make a lot of sense uh as a company to tie up capital in cars if you can redeploy it, you know, in in growth. So, but there are I mean there's those are weird like little cultural things that come up. The other thing that I think is interesting that we talked about that came up with a conversation I had this week on distribution, and that is if you have a a company that wants to be your distributor, and you know, and I think we're mostly talking about tech startups, right? And if you have something truly novel that a big company says, Hey, we really love what you're doing, it's truly novel. We want to be your distributor, we want to be your partner, um, and we want exclusivity. Now, and the reason I bring it up, I guess for founders, right? There's just such eagerness. You know, if a Fortune 500 company says, We love what you're doing, we want to be your distributor, we want to sell for you, we have massive distribution. And no, by the way, we just want to be exclusive. And that's just like that exclusive thing to me is just math, right? Fantastic. Um, so exclusive for how long? What's your buying commitment? Like this idea that I think it's tough for founders, they just get excited, right? They just get excited, they big companies interested in them. But you really have to do some, you have to be able to be willing to um you gotta do some math, and then you gotta push back. Like, oh, exclusivity without buying commitment. Like, what is that? There's no parody in that, but a lot of founders can't push back. Then, oh, by the way, like, what's the other, you know, without buying commitment, that doesn't mean that they don't find a competing product a year from now and swap you out for that competing product. And so I do think um my experience has been founders, whether software, services, whatever, they love the idea of a channel relationship because they think it's cheaper. And I'm always like, channel relationships are not cheaper, they're actually more expensive, but they only make sense if you have a product that has the right margins and you have no friction to sell. In other words, they can actually sell for you. Then it kind of starts to make sense.

SPEAKER_00: 39:28

Yeah, I think that's a great, that's a great point. That comes up. I mean, the ch the the the distribution problem set for each of these scenarios, I think is definitely worth consideration when you're making this choice. Yeah.

SPEAKER_02: 39:44

Um another side, another side note to exclusivity if a CVC or any VC ever asks you for a right of first refusal, do not sign it. Do not sign it. Ropers are like the death nail for so many startups. And I've seen some of the big company CVCs that are genuinely interested in buying the companies, string out startups till they run out of cash, till they finally say the board decides, like, oh, we have I think we just need to sell the company, we can't raise any money. And then, of course, oh, we have a right of first refusal with one of our strategic investors, and they pick it up for a penny.

SPEAKER_00: 40:28

It's crazy.

SPEAKER_02: 40:28

Founders get excited, those big name CVCs say, Hey, we're gonna lead you around. Shame on their lawyers for not telling them, but yeah, yeah, I think those are all good points.

SPEAKER_00: 40:39

Um sounds like hard-earned wisdom right there.

SPEAKER_02: 40:44

Yeah. Dodged many bullets in my career, but have also taken a few.

SPEAKER_00: 40:52

All right. So to wrap to wrap up, so the the the summary, the takeaway from this conversation is, you know, um, one, that choice, this choice is not static, it's a dynamic, evolving quite, you know, evolving question. For a seed stage company, it's probably not black and white. What was what was your initial uh yeah, always and never. Always and never. Um, and I think it's like what's the yeah, it the the the choice is what is the what's the best um what's the best option for me to to have durable success over the long term, right? And um I think that you know, a lot of considerations on maturity of the interface, um, on the maturity of the product, you know, the the the market's understanding of your product, um, the the risk and the complexity of actually, you know, with the with Prime, um, you know, we mentioned the payback period, but the risk and complexity of operating a you know a construction company um or you know, an engineering services company and stamping, like that's a you know, that that's an entirely different ball game. And yes, there are a lot of reasons to do it, but um, you also have to understand the the the trade-offs on the other side. And so constantly evolving, always and never, but there are some good rules of thumb at seed and at series A when you're when you're making these choices, and some of it's economical and some and some of it's more strategic.

SPEAKER_02: 42:19

I think also this is why I'd see just having great clients, like ask them, right? I mean, I mean, I like the way I like the way you framed and organized it. You know, rewind this podcast, take notes on what Nick just put out there, and go talk to your customers, right? Like, you know, I always say that dumb thing, like, whoa, go ask your customers, right? Like, go talk to your customers and say, hey, like I want to take care, like I know you have problems that need solving. I think I have a solution. Now, how I deliver it, I have some latitude because I I haven't figured it out yet. I'm still working on that part. I'm still I'm too busy building a robot, right? I'm too busy solving tough technical challenges. But here's how we kind of frame it. What do you think? Right? What do you think? And I think the right partners will have that conversation with you. They'll they might have internal nuances of how they think about things. So don't take it, you know, take it as one data point of the next 99 you need to go get. But I think it's it's important because not all, you know, we we operate with a a moderate level of finance sophistication. But if you're selling a project engineer, they may you ask these questions, they may not know, right? They may not know. So I think it's important to kind of say, hey, here, there's three ways you can buy this, right? There's three ways you can buy this. Let's talk about which bit which way do you prefer and what the risks and opportunities are are to your to what you pick. Yeah.

SPEAKER_00: 43:52

I also think like best to have that conversation as soon as possible. Like despite like the earlier the better, because if you're gonna have if you're let's say the market tells you path of least resistance from the market is to go perform work in the field because no one is able to support even, you know, even renting your product. Um you gotta, you, you gotta, you gotta build the infrastructure for that company right now and set the strategic vision for that company, which is vastly different than churning out and being an OEM and churning out machines after machine and you know, doing doing asset back backed financing and whatnot. So yeah, the earlier the better. Like start that conversation. And I I I also think like, you know, we we got into the weeds here, but the c I I think I think if you have enough customer conversations, the answer should be fairly obvious. It's my take. Yeah.

SPEAKER_02: 44:40

I I also think when you talk to us dirty VCs, so to speak, like just say I don't know, because guess what? We know you don't know. Right? We get somebody start like, oh, we're gonna do X, Y, and Z. I'm like, maybe. You know, they they tell us very different especially at seed stage, founders show up with such a definitive idea of what they're doing. We're gonna sell it, we're gonna do it. Like they, and I'm like, guys, I'm ignoring all your words right now because the answer is you don't know, because we don't know, right? I think and and raise capital appropriately. You know, the best thing about kind of being kind of very basic in your thinking as a founder is when you don't when you commit to things that you truly don't know as a fact, and you raise come you raise capital that way, you get yourself into trouble. It's a lot easier to say, hey, we're raising a million and a half dollar round. Uh, we're allocating a million towards this and 500 towards that. And when we say, like, well, do you know what your go-to-market motion is, right? Which is kind of what this is, if you're very definitive about it, we'll approach you differently. Then it's just okay, what do they know what they're talking about? If you say, like, hey, I'm not sure, then we might actually say, you know what, don't raise a million and a half, go ahead and raise two. Because you mean you might need 500k extra to navigate finding the truth, right? Finding the facts. And I think a lot of founders don't, it's almost like they wanna, I don't know, you know, they think we're wizards or something. We don't have answers.

SPEAKER_00: 46:20

We don't have answers, like, we don't know, like we're not, we're not the market. I mean, I do think that I think it's worth calling out that dynamic, the dynamic here as well, is your V your VCs and you know, any financier is gonna always try to optimize your financial equation. And like, there's gonna be a choice where the fine, the, the financial picture is very is is very clear and obvious that you should choose like this specific path. However, the market may not agree with that choice. Like, like operating in theory land about the the economic, you know, optimal path is does not mean that you know, like, for instance, if RAS is your most profitable selection just based on a financial model, that doesn't mean you should choose it, right? That just means it's it's economically most optimal. That doesn't mean that the market wants it. That doesn't mean that strategically it makes the most sense for your business. Um, that doesn't mean that, you know, um, yeah, I mean, all like all the above. So it's it's one part of the equation. Yeah. So your your VC's feedback, like we're all gonna be single threaded in what we think is best. And I think the other, like, so you can come to us for the economic bias and you know, have your have your strategic bias about how you went in the market. I think that's really important.

unknown: 47:36

Yeah.

SPEAKER_02: 47:37

Yep, yep.

SPEAKER_00: 47:39

Cool. All right, signing off. That's another good one.

SPEAKER_02: 47:44

Another good one in the can. All right, I'll see you next time.