On finding your first customers in high stakes business: Cesar Harada on setting up MakerBay

Archive Date: April 22, 2018

Officially registered in January 2015, MakerBay as Hong Kong’s first co-making space finished renovations and opened its doors to members by Spring the same year. Founded by innovator, environmental activist, and entrepreneur Cesar Harada, MakerBay has since evolved to become a community hub and incubator for makers, startups, and innovators. By 2018, MakerBay had expanded to Central’s PMQ, moved HQs to a multi-storey Tsuen Wan building, collaborated with the Hong Kong Jockey Club to open 6 young makerspaces, and designed maker workstations for schools throughout the city. Below is the story of MakerBay’s earliest days of business development to survive cashflow shortages and get operations off the ground.

Why start in the first place?

In the Fall of 2014, Cesar Harada had a happy problem with his first startup, Scoutbots: he had a new investor who put in cash to help him manufacture the latest iteration of his product, open hardware shape-shifting sailing robot called Protei featured on TED.com. Cesar’s problem was that he was working out of a small workshop that he had built in a suburb of Hong Kong — he needed a larger workshop to produce enough units.

As a cash-strapped solo founder, the seemingly simple solution was to share the workshop space with the other makers in the small Hong Kong community. The math seemed relatively straight forward to have a few additional tenants to either split or entirely cover the cost of the rental space. It seemed like a win-win situation where makers as members could finally share resources like woodworking tools, a laser cutter, or CNC machine. Cesar would also finally have a community to collaborate with, hub of ideas and positive, creative energy.

High stakes and cashflow crunches

The challenges were also just as easy to spot: the small upfront cash investment would at least help Cesar write the cheques to sign the lease, but his cashflow would run out within 2-3 months if he could not find enough tenants. As one of the most expensive cities to rent in the world, signing a lease is one of the biggest risks any Hong Kong startup can take. In addition, quick calculations on profits from office space and individual memberships quickly revealed a bigger math problem: even at full capacity, the profit margin was not high. On the flip side, increasing the membership cost too much would not be feasible.

Cesar was keenly aware of the cashflow risk and began to share his idea with makers even as he was looking for workshop spaces. Many expressed initial interest, but location would be the main concern. There was only one unit in a Yau Tong factory that fitted his requirements and budget, and it would be a tough location sell for most people living in more central areas of Hong Kong.

Co-creating a community space

The challenge of starting MakerBay quickly became a chicken and egg problem. Makers and even companies were not willing to commit until they knew the location and saw the renovations. On the other hand, MakerBay as a new company using cash from the Scoutbots investor, needed other tenants’ commitments to mitigate the risk.

As he hadn’t signed a lease yet, he instead took his own detailed unit measurements to create a 3D model render to share with the community. Counter to the typical co-working space business model of unveiling impressive facilities in central business districts, Cesar took the radically grassroots approach of inviting the community to the raw, unrenovated unit, for input. He shared plans for a woodworking space, a biohacking space, metal work, an open area with fixed desks, and one wall of smaller 50 square feet units.

In January 2015, Cesar had to bite the bullet and commit to the lease. Eventually, after months of discussion, Cesar convinced fellow entrepreneur and inventor Shawn Frayne, co-founder of Looking Glass Factory, to join as his first large tenant in January 2015. With the initial agreement, Cesar signed the lease to the Yau Tong factory unit and would receive the keys on February 1st to begin renovations.

Building From Scratch to Balance the Books

As an experienced maker and having built his own workshop from scratch (including cabling), Cesar lead the charge to do renovations for the Yau Tong unit to make ends meet. The 7800 square foot space he had just leased was in poor condition and needed a full renovation from tearing down walls to new ventilation and toilets. MakerBay solicited quotes from several local contractors, trimmed to bare minimum requirements such as the the AC and toilets and made do.

Cesar’s hands-on approach helped save on renovation costs, but was met with skepticism from many locals. Part way through renovation, Cesar was already running short on cash. Though other co-working spaces, startup networks, investors, and multinational corporations, and even the Hong Kong government were interested in MakerBay as a concept, but few were willing to sign up for a membership. They wanted to see what the finished space was like first. MakerBay would have to find investment to buy buffer time as basic renovation costs and rent continued to bleed cash.

Onboarding Partners

As Cesar was looking for a rental space, he was speaking to investors in parallel. In 2014, Cesar had better chances of getting financial support leveraging his global TED network than talking to local investors, few of whom had hardware, open-source, or grassroots maker experience. He had discussions with other maker communities, such as the founders of MakerBar in Taipei, New Lab in New York and MakerLabs in Vancouver to learn what revenue models worked for them (or didn’t) and how they managed their communities. Tapping into the global community gave insight and emotional support, but Hong Kong was an untested market. Cesar ultimately decided that his vision for MakerBay was not entirely aligned with some of the global makerspace brands that were interested in opening franchises in Hong Kong.

After his discussions with global investors fell through, Cesar eventually secured two local angel investment loans shortly after renovations began. They would help with cash flow for about another quarter as he worked to recruit more members.

Creating a Maker Ecosystem

Though MakerBay memberships covered its rental costs within a few months of opening, Cesar used his first company multiple times to pump money into MakerBay to pay salaries for program staff and keep the community space afloat in its first year. Instead, he didn’t draw a salary for the next 3 years and relied on other related channels to earn revenue and nurture a maker culture. Cesar was receiving requests to run workshops or corporate training events, while also teaching at an international school. He developed a trademark for designing projects that paired the latest technologies (such as an AR Sandbox) with at affordable approaches that use open-hardware and open-data. The products were relevant to locals and raise environmental awareness, such as a marine litter detective, or ocean plastic optical sensor, and ultimately incubated makers and entrepreneurs to pursue their passions.

The engagements outside of MakerBay raised interest in the space and attracted a trickle of members. At the same time, they built demand for a new product: lessons that taught people to be makers. As a result, MakerBay emerged with a hybrid income model that included offices, fixed desks, on-site workshops, as well as off-site educational programs.

In Spring of 2018, MakerBay had outgrown its old location and moved to a multi-storey building in Tsuen Wan. In 3 short years, it has also designed portable workbenches to put in schools or community spaces, advised and designed makerspaces, and built partnerships with local leading organizations such as the Jockey Club and been invited to organize events for spaces such as the Citizen Science Faire. Cesar has also spoken about his work at MakerBay in his TEDTalk “How I Teach Kids to Love Science”.