When Nathan Seidle blew up some electronics in late 2002, he began to scour the internet for replacement parts. But the results disappointed him. “The state of online electronics stores was pretty horrible,” he recalls. “I remember just wanting to see a picture, any picture, of what it was I was trying to order. But with that frustration came the clarity that there was an opportunity. Maybe, just maybe, I could start a website that sold electronic bits and pieces — and they would have pictures. Non-blurry pictures! And maybe even a picture of the back of the electronic device. In 2002, this was blasphemy. Electronics were ugly — who would want to see the back side? But I knew I did, and I figured there were a few other people with similar needs.”
So in 2003, he started brainstorming business names. He realized making sparks is really what started him down this path. “Any time I’m frying things, I’m always having fun and pushing the limits of my abilities. When I found the SparkFun.com domain available, I knew it was perfect.”
Not knowing what to sell, Seidle (right, in a photo from CNNMoney.com) originally purchased just a handful of products. The orders started coming in immediately, but at a slow pace — one or two per day. “Over time, I was able to write more tutorials and build more projects using the parts we sold,” says Seidle. “It was not until 2004, once I graduated from University of Colorado that I had time to design original SparkFun products. Ever since, we’ve been growing our design and production abilities.”
Now, SparkFun helps customers assemble all kinds of projects, from an earthquake data logger to a high altitude balloon to a touchscreen mouse. Products include things like resistors, LEDs, humidity sensors, and LCD screens which are sold to crafters, designers, artists, DJs, teachers, professors, and engineers. In addition to online tutorials, SparkFun now offers classes too.
Starting from scratch
The business began with about $2500 worth of credit card debt, according to Seidle. “I believe about $2000 went to inventory purchases and $500 went to infrastructure including $25 for a scale, $15 for a tape gun, etc. I forgot to buy boxes to actually ship product to customers. How I made it this far is good fodder for pundits.”
This Arduino Mobile Camera by “Dr_Speed” uses Bluetooth control from an Android phone, a Canon A530 Camera, and a Vex mobile base.
After the inventory sold, it was a matter of repeating the process. “You take all the money you make and buy more inventory with it,” Seidle says. “You continue to do this until either you have enough inventory to cover the number of incoming orders or you want to eat. I think it was more than 3 years before I was able to buy a new winter jacket. A growing, bootstrapped business is a cash devouring machine.”
Things worked out. Two months ago, SparkFun assembled its 1,000,000th widget in Boulder. It’s now got 120 employees. And the company has been in the black since the beginning.
“This does not mean we made heaps of cash,” warns Seidle. “Instead, we’ve been internally bootstrapping and spending nearly all available cash on more inventory and infrastructure to try to keep up with demand.”
Taxes were also a major obstacle. Seidle: “It took a long time for me to realize that taxes have to be paid on profits, no matter if those profits were re-invested to purchase additional inventory. I cried that day.” The problem? “We cannot claim the product on our shelves as an expense until the product is sold. Therefore, we have a ton of cash (past profits) tied up in our current physical inventory.”
But there have been lucky breaks along the way too. Case in point: the commercial building SparkFun uses. Seidle: “We initially rented 25% of the building with another tenant taking 75%. That tenant (a very large corporation with many facilities) decided to close up shop in our building, leaving 75% of the building empty while their remaining five year lease ticked away. Had we been in any other normal situation, SparkFun would have had to move every year as we expanded rapidly. Luckily, we were able to take on more space as we grew. I can’t emphasize enough how crucial this one piece has been to our growth.”
“I made work a place I wanted to be”
Seidle has never worked at a real company, which he views as “both a benefit and a problem.” “When I started SparkFun, I didn’t have preconceived notions of what a ‘real’ company did,” he explains. “I didn’t own khaki colored pants and I couldn’t afford new ones. I like comfortable shoes. I like funny t-shirts. So I made work a place I wanted to be.
“Then someone asked if they could bring in their dog. I’m not a dog person, but I respect people’s enjoyment of their dog. So once they assured me their dog wouldn’t be a problem, I let people bring in their four-legged friend.
“Then someone asked if they could bring in their skateboard. Why not? I don’t skateboard, but I like people who skateboard.
Focus. Do one thing well. You may be good at many things, but the free market is a harsh place for amateurs. Find the thing you are best at and drive that product, service, or talent home. We are best at designing our own products and producing our own products. When SparkFun began, we tried doing consulting work and wasted a lot of time and energy. As soon as you establish something is not your core, quickly leave it behind.
FISI = screw it ship it. I stole this term from a friend of mine named CTP. He was referring to engineers’ constant want to revise something. How often do we find ourselves saying: ‘Give me two more days and I can add so much functionality!’ Whether you are a programmer, graphic designer, or chef, at some point you have to ship the thing. Remember FISI, or else you will very quickly hit the bankruptcy wall.
Seek help. I ignored this in the beginning, but ultimately I searched out business groups and other business owners that I could talk to. Once your business starts to groove, you’ll discover all sorts of problems you never knew where coming. Wild success can feel paradoxically lonely at the onset. Fellow peers in the business world can help a lot for moral support and problem solving.
“Pretty soon you’ve got cool people, who are happy, that you may not completely relate to. This diversity leads to some really interesting conversations! SparkFun is not the place for close-minded individuals. Everyone is a little different, with different backgrounds, tattoos, and interests. There’s plenty of horseplay and jokes, but we all work towards a common goal. In general, if you work hard next to me, I’ll respect your fascination with kitchen utensils. Because of our unorthodox work environment, we are much more diverse, colorful, and productive.”
The unorthodox workplace has led to some interesting scenarios. For example, there was the time employee Gordon Koch broke his leg on the production floor when he fell off his skateboard. “That was a fun day!” Seidle recalls sarcastically. “We called up the company that carries our workman’s compensation insurance and kindly let them know about the situation. We were a bit worried that we would get our insurance dropped. But by making skateboarding a priority at SparkFun — it’s part of the culture — we were able to convince our carrier to specifically add skateboarding as a ‘form of transit’ within our policy. With a little patience and discussion, the accident was properly covered by insurance, Gordon got a cast, and life was just fine.”
Growing with friends
Seidle has also veered from the conventional wisdom that you shouldn’t work with friends or family. “Everyone told me not to hire friends or family. I did exactly that,” he says. “My first hire was a good friend of mine. He needed a job between college and applying for law school. We negotiated a salary during a hike up Mt. Evans. At the time I wasn’t even sure I would have the cash to pay his unbelievably low salary. Later I hired more of my friends, even my brother and mother.
“I hired any friend I could talk into working at SparkFun. Soon, we were asking our friends if they had friends, or siblings, or anyone they knew that would want to work at SparkFun. It seems silly to say, but of course they recommended people they wanted to work with. If you start with good people, they tend to multiply.
“If you start with good people,
they tend to multiply.”
“I’ve had to grow from being an engineer, to being a manager, to being a cat herder, to being something they call ‘CEO.’ The entire time it’s important to remain friends with the people around you and to not allow the next challenge to engulf you.”
What’s the goal for SparkFun moving forward? “To have people flex their creativity again,” answers Seidle. “I see electronics as the gate-way to cool stuff. If I can show people that they can build a widget that allows them to fulfill a need or a dream, then we can solve a lot of problems. Electronics aren’t hard, people often just get caught up in the details. Dream big and let SparkFun help with the details.”
New Product videos, accompanied by humorous intros, show what’s fresh at SparkFun.
This is part of our “Bootstrapped, Profitable, & Proud” series which profiles companies that have over one million dollars in revenues, didn’t take VC, and are profitable.
Note: Nathan Seidle answers reader questions in the comments.
Nathanon 03 May 11
If you switched your company to cash-based accounting, instead of accrual based, wouldn’t that solve your tax issue above?
GregTon 03 May 11
That wouldn’t solve his problem. Cash vs. Accrual is about when revenue is recognized and only really matters when you have a lot of long-term contracts and accounts receivable and that sort of thing. I assume SparkFun is almost all small one-off cash sales.
His problem is, he doesn’t want to pay tax on reinvested profits. There’s not really any legal way around that.
If anyone is interested in the electronics side of this post, check out the BMOW (Big Mess ‘O Wires) or Magic computer web sites. Totally awesome stuff.
Jackieon 03 May 11
Just a little suggestion that could have huge positive revenue impact.
When I went to SparkFun, I thought the site was a blog and not an ecommerce web site.
It might be best to have the front page be something more like your product page as the front page. That way people clearly understand Sparkfun is an ecommerce site.
SparkFun Nathanon 03 May 11
@Jackie – I totally understand what you mean, but this is sort of fundamental to who we are. We are hackers and educators at our roots. We’d rather share a ‘wow that’s cool’ moment than try to close a sale.
Jackieon 03 May 11
37signals has a totally different domain (37svn.com) for it’s blog and their blog (this site) easily was their biggest driving force to educate people who then turned into customers.
So their were able to keep the two sites (blog & ecommerce site) separate and do fantastically well.
Just something to think about.
Dick Kusleikaon 03 May 11
Even if you choose cash basis, inventory is treated as accrual basis. Non-inventory expenditures are still deducted when paid, but inventory expenditures are only deducted when sold. It’s an exception to the cash basis rules, probably because someone abused it once.
Jon Hutheron 03 May 11
Great info Nathan. I like how your not pushing the sale right on the home page, kinda makes you seem more like a reference source that also sells stuff…more believable to me.
Matton 03 May 11
Have you had any experiences dealing with friends or family not living up to work expectations? How do you deal with friend or family member that is good person, but just not a great fit for the company?
Michelon 03 May 11
If anyone is wondering, FISI means “fuck it ship it”, someone forgot to change the acronym after changing “fuck” to “screw”.
David Andersenon 03 May 11
If you start with good people, they tend to multiply.
I’ve seen the truth in this more than once. And the converse is true as well. Hiring well is one of the most critical things a business owner needs to get correct. A lot of good things happen organically from that.
Anonymous Cowardon 03 May 11
You should setup an affiliate program so that folks like Make Magezine, which is a dominant web site in this field, help promote SparkFun.
Victor Hon 03 May 11
Did you build SparkFun from scratch or are you using a commercially available ecommerce engine to power your web site?
Rishion 03 May 11
Hi Nathan – Awesome business!
Where do most of your customers come from? Google, referrals, online ads, traditional ads, etc?
It looks like inventory has always kept you guys cash strapped – how come you never wanted to shift to a “Services” business?
Keep up the great work! Rishi
Jeffon 03 May 11
I work in Boulder (and live just outside) and it’s great to have SparkFun so close by. I’m a software guy by day who just started to tinker with hobbyist electronics/robotics last year.
I’ve placed a number of orders with SparkFun and pick most of them up locally. It’s clear right away that they have a cool environment—but it was made very clear when I took my 11 year old daughter to a soldering class they held in March. We had a blast! More importantly, it got her excited about the hobby as well … now we’ve got projects we work on together as we both learn.
EVERY person I’ve come in contact with there goes beyond “nice” and genuinely wants to help you build cool stuff… their priority seems to be solely on “how can we help?” rather than “what can we sell you?”.
Nathan – I’m glad you guys are having the success you are and hope it continues for many years.
Anonymous Cowardon 03 May 11
@ Rishi: “It looks like inventory has always kept you guys cash strapped – how come you never wanted to shift to a “Services” business?”
A physical widget proposition is more simple in my mind: “I have this thing for $20. Would you like one?” A service business requires time to cultivate, people skills, and delivering that service on time (under budget). Let’s just say we’re better at the widgets business.
Merleon 03 May 11
I like the advice sidebar. Good stuff there.
William Coxon 03 May 11
Loyal SF customer of 4 years here. @SparkFun Nathan, it seems that everyone and their mother is starting a hardware hacking/kit business. Do you think this is a good or bad thing for your business? Do you think this is a passing fad or a revolution?
John Gaudioon 04 May 11
Congratulations on your considerable sucess. We’ve missed you at EntConnect, and hope to see you back for an update next spring. Keep up the good work.
Did you ever build that “smoking” project we discussed? ;-)
Steve Adamson 04 May 11
SparkFun has provided me with a platform to actually begin this hobby – Without making electronics so clear and simple, I probably would have still found it fascinating as hell but still totally beyond me.
I think that’s the best strategy I’ve seen in ages. There is nothing elitist about the way they present electronics and their products, everything is very clearly explained, and they encourage absolutely anyone to do it. In a matter of days I was ready to buy stuff from them. I’m an incredibly hard sale, too.
@SparkFun Nathan – Thanks for creating an accessible outlet for a hobby that is quickly becoming the coolest thing I’ve experienced in a long time!
Anonymouson 04 May 11
Thanks for creating a great company and making electronics accessible to all. Your kits and instructions make it easy for anyone with interest to jump right in to making something.
I’m very interested in starting a program for high school youth where they would learn electronics, design kits and then sell them online.
Do you currently work with youth in Colorado?
Chris @ SparkFunon 04 May 11
@Anonymous – Thank you for the compliments. We have recently created a new Department of Education that is working exclusively within the realms of education. I am positive that we have something that would work for your needs. We have already worked with several schools in Colorado and around the country.
Contact them at email@example.com.
Iain @ Hotsolderon 04 May 11
Hello, Is there any chance you could stop doing such a great job so we can grab a piece of the action… ;o). I mean seriously how are we supposed to compete.
Andyon 04 May 11
120 employees seems a lot for just of $18m in revenue. Looking at the company employees one thing pops out, young, enthusiastic and cheap !
Lucyon 05 May 11
Hey, Nathan, do you know me? haha ….. I like the web site of Sparkfun, it is quite different from other dealer, I haven’t seen a company who post a CEO’s photo on its web site, also the whole company’s employees’ name and job title.. I think it’s fantastic indeed! feeling so good!
This discussion is closed.