Marc Redorta May 10, 2016
“We are not an open source company for a question of image, but because it makes us stronger as a business”. This phrase would not be of note if had not been spoken by the CEO of a company that in only 12 years has managed to achieve a turnover of nearly 100 million dollars a year, with 600,000 clients, and which provides work to over 150 employees1.
This is the story of Sparkfun. The story of a company that truly believes in open source as a strategic formula for rapid and sustainable growth in its business projects. This is the story that will make you look at open source with new eyes and which shows that being transparent is very good for business.
The story begins one day in 2003, in the Electronic Engineering Faculty of the University of Colorado. One of the students, Nathan Seidle, was working on a practical exercise when he accidentally burned out an electrical circuit. His project could not be finished without new parts and he began to look for what he needed on the Internet. What he found were extensive catalogues with no photographs and which offered no possibility of making an online purchase. In desperation, he ended up buying the parts from a distributor in Bulgaria after sending a fax.
Seidle believed that it was highly likely that many people had found themselves in the same situation and he created an easy-to-use web page to re-sell products from the Bulgarian distributor. He also decided to assemble some of the parts that were delivered separately and offer them as a new product. The seed of Sparkfun had been sown, and its growth was immediate and extraordinary (to the order of 10,000 orders in the first three years). In just 10 years, Seidle achieved a turnover of 75 million dollars, while the Denver Business Journal recognised Sparkfun Electronics as the second fastest-growing company in the state of Colorado.
However, the most impressive thing in this story is not what Sparkfun has achieved but how. There are two factors to this tale that are highly rare in business culture. The first is that Seidle never asked for a loan or any form of investment, i.e. he spent only the money he had earned before, and therefore he was creating profits from day one. The second factor that sets him apart from the herd is that the company is 100% open source. In fact today it is considered to be the largest open source hardware manufacturer in the world.
Having got this far, the next question is obvious; how do you create a successful technological company while giving away all of your know-how? Let’s take a look at the Sparkfun case. The company purchases components from 500 different suppliers and its product catalogue always lists some 2,500 products, of which 400 have been designed by in-house company engineers. Each week they introduce 15 new products onto the market and remove a similar quantity that have become obsolete.
What would be the cost of trying to protect the copyright of these products? In the U.S. a patent costs between 30,000 and 50,000 dollars (and only applies to the U.S.A.). Added to this cost is the time it takes to process documentation, which could halt product launch onto the market for a period of between 3 and 5 years (an eternity in the technological sector). Furthermore, legal expenses need to be added to seek and report those copies of new products that are more than likely to be made. Is it worth the cost?
In an interview for Wired magazine, Seidle was clear; “If your idea is unique, easily reproducible and has a place on the market, don’t doubt that it will be copied” 2. He also explained that on being an open source company, his only major concern is to launch products onto the market before others do. Seidle has in fact invented a concept to define the losses that protecting know-how involves for companies: IP Obesity, the obesity of intellectual property. The idea is that cloners will clone regardless of your business plan and that money invested in resolving a problem that has no solution is simply money thrown away. This is something that fat, lazy companies do, and it takes away any enthusiasm to move ahead and improve.
Not only does Sparkfun have 431 original, unpatented products, it also explains how it made them. Every Friday it publishes the section New Product Friday, on its web page, which involves a video that explains in vivid detail how an item has been designed, if you want to make it yourself at home or at work.
There is a final aspect that should also be noted in this success story. Sparkfun’s support for open source is not limited to the hardware that the company sells. Both the content that they produce and the software they use are free. Also worth a mention is the tool that has allowed them to create this extraordinary business; an ERP web they have named Sparkle that is being developed by the company’s own experts3. Sparkle aids them improve production, distribution, invoicing and after-sales services.
Having |open source management tools allows any company to maintain its growth rate without having to depend on an external manufacturer. The program can be modified to attend to specific needs and benefit from the development made or requested by other users. And of course, it means important cost savings, as no payment for licences (when many are often needed) is required.
Sparkfun is beginning to attract the attention of the main company-focused media sources, as well as technological industry giants like Intel4. And this interest does not just involve the product, but the company’s business model; one that is based on transparency and cooperation. A 100% open source model of success.
Article published on the blog of OpenExpo on January, 5th 2016