MacroFab: Manufacturing Digitized

Estimated reading time: 10 minutes

One of the ways we give them that certainty is by controlling the production kit. That production kit for large jobs includes everything they need to produce, including PCBs and all the components. If there’s secondary assembly, it includes all the assembly instructions in the right language for whatever country we’re building this in, all the way to test rigs. If a customer says, “Here are my test instructions. I need a flying probe and a functional test done,” we’ll replicate those test rigs and ship them out to those factories as part of the production kit.

Matties: What about before that in the design phase?

Govshteyn: We get involved in the design stage, but primarily as an assembler. The biggest benefit people get is that they let their engineers move much faster. Imagine you’re an engineer, and you work in a large company where you have to go through your purchasing team to get prototypes built. With us, that’s not the way companies work. Their engineers have credit cards, and they let those engineers order as many prototypes as they need to. Our turn time for prototypes is about 10–14 days. We have engineers becoming self-service customers. That’s where a lot of our self-service order flow comes from, and those people become our champions into those companies. They come to the purchasing team and say, “This works really well for me for small volume. You should really consider this for production as well.”

Matties: Is your team in a physical building, or are you a virtual company?

Govshteyn: We’re a physical company. We have a factory that we run in Houston. It’s a factory that has a lot of software engineers in it. There are customer success teams, account management teams, etc. From a customer perspective, we look like a very friendly EMS provider.

Matties: How many people do you have?

Govshteyn: 55 currently.

Matties: Where are the board being produced?

Govshteyn: We have about 40 factories that we work with in North America only. This year, 80% of everything we build is going to be in the U.S.

Matties: There’s a lot of incentive now for the U.S.

Govshteyn: Lead times are driving it in that direction more than anything else right now.

Matties: How do you make your money?

Govshteyn: We primarily make money on component markup and a small cut of the labor value. What we don’t do is margin stack. When we present a job to our factories, it’s a labor-only job. We usually keep the component margin and a small piece of the labor margin, which is similar to the way Uber operates. Uber gives 80% to the drivers and keeps 20%; we do the same thing.

Matties: Are you acting as a sales agent for the EMS? Are they coming and saying, “We want to hire you to be our rep?”

Govshteyn: No, it’s a bit different. The EMS looks at us as a source of incremental revenue. They’re really dealing with MacroFab, not with customers directly, even though customers can go on the factory floor and work with them. We can arrange those visits, and those visits happen all the time.

Matties: If I’m an EMS company and you’re doing all this work, why wouldn’t I come to you and say, “I want to put you under contract, and have you fill up my house?”

Govshteyn: Here’s the way that our partners look at us: They have fixed costs and stranded costs that are already deployed. They’ve already bought all the machinery. They have people on the line. When a CFO looks at our value proposition, we’re basically incremental revenue that wouldn’t be there otherwise. If you’re asking, “Why don’t we get dis-intermediated?” we have very strong agreements with our partners. For our partners, we are a bigger source of revenue than any individual customer. There’s not an incentive to go steal our customers.

Matties: Well, it’s not a question of stealing your customers, but hiring you to represent me, so I don’t have to think about sales.

Govshteyn: Yes, maybe in the future, that’ll be the way things work. I think people want a blend of revenue. They get more margin from the jobs that they sell through their own sales teams. This is a model that works for them.

Matties: They probably have more headaches, too.

Govshteyn: Sure. I would love for people not to have salespeople anymore. But for us to be a giant sales engine for all of the manufacturing capacity in the U.S. and Mexico, I don’t think we’re ready for that yet, and I’m not sure that’s ever going to be the way it works. My impression of the way that most companies want to operate is they want to have 10 high-value customers; they don’t want to have to go look at cats and dogs. They would like the work, but they don’t want the headache associated with getting small customers in there. We’re a great channel for those smaller projects that we can aggregate, make repeatable, and take all the headaches away. Do they love their top 10 customers? Of course. But I don’t think they want to get rid of that relationship, nor do we want them to.

Matties: Thanks for sharing your story with us.

Govshteyn: Thank you.

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