00:35:17 · CJ Gustafson, Kevin Hettrich
AdThey've got 5.0 start... Five zero. Wow. Five zero stars on g two. They're backed by a 16 z and Sequoia, heard of them, and CPA led implementations that get you live in forty five days. That is simply unheard of in the ERP space. If your books aren't running as fast as your business, check out Rillet. Book a demo at rillet.com/cj. That is rillet.com/cj. That's me. Is there a point where being asset light becomes we gave away too much? [00:35:42] S0: It can be, and kind of the devil's in the detail. If you think about the first kind of partner or partners who are building those first of a kind type levels of scale, candidly, they should be compensated more. [00:35:56] S1: Yeah. Gotta incentivize them, otherwise they're not gonna get out of bed in the morning. [00:35:59] S0: At any given time, the whole thing has to work. We need to create enough value so that each partner has a very compelling risk adjusted business case, and that can also change over time. I use the example of someone who's early to commercialize. After several years in the marketplace as the differentiation on an individual product node falls, our command of that should fall too. So it's dynamic, and you try to be fair, and ultimately it's tied to what the next person can do. To the extent that it's, like, differentiated and compelling, we're in a strong position to kinda capture value. To the extent that it's proven, all the more so, and then the opposites, of course, are true.
00:35:59 · Kevin Hettrich, CJ Gustafson
[00:35:59] S0: At any given time, the whole thing has to work. We need to create enough value so that each partner has a very compelling risk adjusted business case, and that can also change over time. I use the example of someone who's early to commercialize. After several years in the marketplace as the differentiation on an individual product node falls, our command of that should fall too. So it's dynamic, and you try to be fair, and ultimately it's tied to what the next person can do. To the extent that it's, like, differentiated and compelling, we're in a strong position to kinda capture value. To the extent that it's proven, all the more so, and then the opposites, of course, are true. [00:36:39] S1: Kevin, a lot of our listeners are familiar with ARR type businesses where it's recurring revenue over time. Does a licensing business at scale effectively become a royalty business where you can depend on this recurring revenue stream? [00:36:54] S0: In automotive, that's certainly the case just because of the high investment to first develop a model and then to put the factory infrastructure to make it. Often, those contracts are for five to seven type years. So once you have a win, if the technology works and you're able to kind of produce it to plan, you have pretty good visibility into that factory ramping up and then to continue to produce for a set of years.
00:36:54 · Kevin Hettrich, CJ Gustafson
[00:36:54] S0: In automotive, that's certainly the case just because of the high investment to first develop a model and then to put the factory infrastructure to make it. Often, those contracts are for five to seven type years. So once you have a win, if the technology works and you're able to kind of produce it to plan, you have pretty good visibility into that factory ramping up and then to continue to produce for a set of years. [00:37:21] S1: I got a question for you just on capital allocation because most people aren't building batteries. Right? But I do think that everyone is making bigger bets than they were five years ago because of AI. What is building a capital intensive business like this one taught you about capital allocation? [00:37:39] S0: It's kinda from the eye of the of the beholder. We've been spending something in the ZIP code of, like, $40,000,000 on initial kinda research and then later stage develop and kinda pilot line. I would hope that listeners can demystify that, that those types of expenditure levels, and especially when you also add our longer product cycle, that these are possible if you're pointing to a big market and what you're doing is compelling. I [00:38:04] S1: wanna switch gears for a second just to talk about the relationship between product and finance because you... You've seen both sides of that coin. And you had an apt term for it. You said that they're both tension clearing functions. I'm curious what you meant by that.
00:38:04 · CJ Gustafson, Kevin Hettrich
[00:38:04] S1: wanna switch gears for a second just to talk about the relationship between product and finance because you... You've seen both sides of that coin. And you had an apt term for it. You said that they're both tension clearing functions. I'm curious what you meant by that. [00:38:17] S0: Imagine you get a new piece of data. It probably means that you should rethink all of those different kind of four pieces, like from a sales and customer point of view, from a of a product development point of view, from operations or finance. If you move one piece, it tends to kinda jolt the other ones around. For example, like, if you if you wanna do another piece of development to get a little extra kind of product feature, maybe that makes your product more compelling. You can command some higher margin, but then maybe you you created a delay in ramping up your lines, you need to incorporate that, and then you've put some pressure on your finances because you just spent money and kind of shortened your runway. It forces you to think from a company point of view every individual decision, and That's actually one of the values that product manager and the finance team does, is that an individual employee in one of the functions will kinda see their perspective of it, and we try to bring the rest of the business whole for the the good trade offs and the bad ones to help make better decisions. Oh, I preach that all
00:38:17 · Kevin Hettrich, CJ Gustafson
[00:38:17] S0: Imagine you get a new piece of data. It probably means that you should rethink all of those different kind of four pieces, like from a sales and customer point of view, from a of a product development point of view, from operations or finance. If you move one piece, it tends to kinda jolt the other ones around. For example, like, if you if you wanna do another piece of development to get a little extra kind of product feature, maybe that makes your product more compelling. You can command some higher margin, but then maybe you you created a delay in ramping up your lines, you need to incorporate that, and then you've put some pressure on your finances because you just spent money and kind of shortened your runway. It forces you to think from a company point of view every individual decision, and That's actually one of the values that product manager and the finance team does, is that an individual employee in one of the functions will kinda see their perspective of it, and we try to bring the rest of the business whole for the the good trade offs and the bad ones to help make better decisions. Oh, I preach that all [00:39:20] S1: the time in this podcast that finance has this view of the p and l. You can't just try to argue for something for your team or see the world through a myopic departmental view. You have to be able to see the full picture and how it's all connected.
00:39:20 · CJ Gustafson, Kevin Hettrich
[00:39:20] S1: the time in this podcast that finance has this view of the p and l. You can't just try to argue for something for your team or see the world through a myopic departmental view. You have to be able to see the full picture and how it's all connected. [00:39:32] S0: It's easy to say no to things when there's a lack of consistency, but often we're seen as neutral arbiters because we're effectively just running a process. Like, what are the things that we're trying to do? You come to me with your kind of proposal and all that. We'll kind of poke holes at it to make sure it's got a quality but then, just kind of how they line up. Usually running good process and kind of quality control across the company, and then we make collective decisions. [00:39:57] S1: Product decides what the company is or is not going to build, and finance decides what the company is or is not going to fund. I hate when we're called the no police, but at the same time, saying no one of the highest leverage things that those functions can do? [00:40:11] S0: Absolutely. Just focus is such a scarcity in a developmental organization. If you can say no, it focuses attention and capital and teams. But it's important to say no and to articulate why, so that you kind of put in the back of your head, Hey, if something changes, we should come back to this. It's so easy to add 10 things on the plate that kinda crowd out the three or four that are most important. [00:40:38] S1: Asking for a friend, Kevin. Have you found ways to say no more gracefully over time as you've been in the role?