A conversation with Andy Butler & Larry Tsai of Instacube & D2M

Instacube: An Open Letter To Our Backers – Update #23 · Jul 3, 2013
Dear Backers,This update is to directly address the recent comments, concerns and questions shared by many of you prior to and following our last update.
DJ: Great, i’ve been patiently waiting since i paid my $350 in September 2013, you did promise that i would have my instacubes in March this year….
Instacube: We will address key topics, give you detailed visibility into the many challenges and difficulties that we have faced, and outline the key steps to move forward. No single challenge ahead of of us is insurmountable, but there are many things happening concurrently and it’s been a difficult situation for us to work through.
DJ: It’s about time.
Instacube: We recognize that some of you are angry, feel cheated, and are disappointed. For those of you in this group, we’re sorry we’ve disappointed you and we’re working to correct the real and perceived missteps. We hear you loud and clear and you have our word that we are 100% committed to completing this project.
DJ: hmmmm the “real and perceived missteps” line does not feel too good… should be something more like: “massive stuff up this thing is” – but go ahead, i’m all ears.
Instacube: For those of you who have experience with startups, product development and manufacturing, and who have continued to offer your support, we appreciate your continued understanding.
DJ: I have experience in startups and running business and keeping my word, hope that counts for something too.
Instacube: Yes, D2M has been in business for many years and yes, we have helped many of our own clients successfully navigate issues like the ones we are facing. Today, we are humbled by this Kickstarter project and the problems we have faced. We want you to know that we are as committed now as we were on Day 1. We will get there.
DJ: You are humbled today? what is so special about today? were you also humbled for the past 4 or 5 months while hundreds or your backers asked you what the heck is going on and you never really gave us any answers? Anyway, i’ll keep calm and i am happy for your commitment, but last time i checked i paid for a few instacubes, not for your commitment.
Instacube: Also, before we detail the next steps required to get Instacube into your hands, we do want to remind you that we have already accomplished a huge amount on this project. This past effort makes the upcoming challenges manageable. We have machined ‘tools’ in China for molding the plastic parts. We have working, functional EVT prototypes in house. Our software is very close to Beta-ready. In short, a lot of the effort required to build Instacube has already been made.
DJ: Ok, that’s cool. But i gotta tell you that that last statement sounds a lot like my 9 year old son when he fails at a project royally because he was being lazy but then whines “but look at all my preparation, all the work that i did!”
Instacube: Now, onward with our full explanation. Money. Where did it go and how was it spent? Right now, the Instacube project is on hold because we need to raise more funds and we need to lock in a new manufacturing partner. It is true that we had a very successful Kickstarter campaign, but to make Instacube a reality, at the level of quality we require, we need more funds to finish this product successfully. Its a hard reality, but we want the community to know this. We are aggressively fund-raising so we can get Instacube into your hands as fast as we can.
DJ: Wait. Wait… What the hey now? My paid for instacubes are on hold now? But you told me that you needed only $250,000 to make them and we all gave you $621,000 – ummmm – we gave you well over double what you asked for…. well over. On hold? what the heck does on hold mean? It is a “hard reality” ?? It feels like a huge con job guys… but you know what? i want to believe you, so i’m gonna keep it together right now and keep hearing you out….
Instacube: This project was incubated internally at D2M and we started to invest our own time and money into Instacube months before the Kickstarter campaign. We then spent the net funds we received from Kickstarter in the following areas: Full-time design, engineering and manufacturing staff (Industrial Designer, Packaging Designer, Mechanical Engineers, Electrical Engineers, Firmware Engineers, Software Engineers, Supply Chain/Sourcing Manager, Quality Engineer, Project Manager, Social Media Manager, Administration);
– Manufacturing tooling;
– Manufacturing testing;
– Travel to factories and suppliers, and
– Prototypes, samples, materials, misc.
DJ: Ok, let’s break this down a bit more, you had multiple Engineers, including a “Quality Engineer” – just a heads up guys, whoever that Quality Engineer is – they must have the best job ever because checking quality on a device that does not even exist yet must be amazing. Also the Project Manager and Social Media Manager need to be fired immediately, they obviously have no clue on managing a project like this or doing anything on any type of Social Media. I mean seriously, you paid someone to do “Social Media” for you?? Please show me one thing they have done to be worth any cash whatsoever. Anyway, i’ll keep calm, but i am amazed at that list and feel like you have blown all of our money on hiring some mates and laughing together at how cool Kickstarter is….
Instacube: By far the biggest category of expense was paying the wages and overhead for professional staff who worked part-time on the project throughout the program. Most of the staff were in-house resources and we paid salaries for all the people that worked on the project as well as a few contractors. Unlike many entrepreneurs who pay themselves little to nothing to work on a Kickstarter project, D2M is a company with employees. We must pay our staff to work on the project, including this one. All hours and dollars were tracked carefully and we only paid for expenses and time worked on the project.
DJ: So what you are saying is that you took our money for the instacubes and paid your employees wages? yeah?
Instacube: D2M, post Kickstarter, has continued to invest its own available time and monies to advance the project. When we launched Kickstarter we expected that we could self-fund financial requirements above and beyond the Kickstarter funds from our own profit streams. The reality is that developing a product is tremendously expensive and takes a large team. Here, we underestimated the time and budget required. In hindsight, we also made overly optimistic assumptions about being able to self-fund. When we realized that this plan was not viable we formed a separate company, NuMatter, in order to raise additional funds. Again, we were optimistic about raising capital in parallel to development, but the lack of funding stalled us.
DJ: Holy gut punch batman. That feels like middle management speak for “we had no idea what the hell we were doing, made up a bunch of crap and lied to you all… plus we spent all the money and now we are broke.”
Instacube: So what’s next? We are out actively speaking to investors and financing partners to raise sufficient funding to complete the project and get Instacube launched. We are targeting $250,000 to $350,000 for development and about $600,000 for the first production run.
DJ: But didn’t we give you over $621,000? Oh that’s right you blew it on all those engineers and managers and social media stuff that no one has ever seen any proof of. Honestly, how the hell are you going to get that money? If i was an investor and i did a casual google search on yor instacubes etc it would take me 45 seconds to start seeing the enormous amount of public outrage and disgust for your project. Why in the world would i want to invest in that? How can you recover? What in the world could you tell an investor after you have majorly annoyed most of the 3000+ people who already invested in the Instacube?
Instacube: Additional money that we raise will be put directly towards completing the manufacturing engineering, software development, tooling and testing, and then towards buying components and materials for production and shipping the final goods to you.
DJ: I just read that this is “never going to happen”.
Instacube: The process is hard, but we focused on getting there. In the meantime, D2M continues to invest available free hours and budget to work on the project.
DJ: “available free hours” what the flying figtrees does that mean? “Available Free Hours” This is NEVER going to happen.
Instacube: Difficulties and Changes. What were the critical issues and setbacks that hit us? Due to the financial difficulties described above, our project timeline slipped. We shifted our manufacturing strategy to negotiate with a new factory partner who offered us more favorable financing terms. This was specifically to help us get through to production.
DJ: Hang on – this is more middle management gobbledygook speak- “our project timeline slipped” – seriously. Thanks for the heads up, it’s not like you promised me in September 2012 that i would have the Instacubes in March and here we are 4+ months later and, let me check, yep, still no instacubes. “timeline slipped”??? how about phrasing like this- “we totally screwed up everything and we have no idea what is going on”
Instacube: Selection and negotiation with any factory partner with the right experience, capabilities, financial health, equipment, process, supply chain and quality is a critical step and this takes a lot of time.
We thought we found a good new partner who was eager to work with us, who wanted to support our financing, and who had the right experience and supply chain. We negotiated in good faith with that factory and agreed to key business, payment and manufacturing terms. Regrettably, the factory pulled out at the last minute, reneged on supporting us, and left us without a compatible partner. Does this happen often? No, it seldom happens at that late stage, but we got caught off guard.
DJ: Here is my guess at what you mean by this: you found a manufacturer, they were all excited and then they looked at your kickstarter page, read some comments and your complete lack of transparency and they dropped you like a rotten potato.
Instacube: Since then, we immediately initiated a recovery plan and have been speaking to several alternative factory partners. Normally, the process of identifying, qualifying, auditing a factory and then negotiating and finalizing a MSA can take anywhere from 4-12 weeks. We have identified a few possible options, but it has taken time to qualify and negotiate the right agreement and terms. This time, we really want to make sure to pick a partner that will help us successfully complete production.
DJ: So right now there is no-one willing to work with you and make these things. great.
Instacube: The other manufacturing issue is that LCD supplies for the size we are using, which is an 8” 800x-600 display, are very tight right now. This means that our factory partner has to have the right relationships with the LCD suppliers to ensure good quality, supply and price. This has been an important part of our selection process.
And finally, the manufacturer has to be large enough and in good financial health to be able to finance and buy all the material and components we need to build the Instacubes.
DJ: So no one out there hey? whew.
Instacube: We believe we have identified the the right options now, but in China and in business, anything is possible and nothing is done until its done. We also want to reiterate that we need to continue to raise the necessary funding in parallel to signing up a new factory partner in order to finance the production. We expect to update you again after we have finalized and signed up the new factory.
DJ: So you will update us when? timeline? How long will that take? Hang on, don’t worry about it, i can hear Steve Miller now “time keeps on slipping slipping slipping….”
Instacube: Schedule. When’s it shipping? A factory “reset” doesn’t mean we have to start from scratch though. We have paid for most of the tooling and we already completed a lot of the mechanical, electrical, firmware, and software work. None of the work we’ve done is throw-away. Progress has been delayed by exhausted funding, which we believe is temporary.
DJ: i’m glad you believe that. that’s great.
Instacube: We plan to do a better job of updating you on the manufacturing process and the schedule going forward. Until some of the critical steps below are completed though, we cannot accurately give an end date.
DJ: Trust me gang, if you set your office on fire and sent smoke signals out of the windows, that would be a better job than what you have done over the last 7 months.
Instacube: Here are our next steps in the process and schedule.
1. RFQ Process – This is what we call the Request For Quotation. Right now, we are in the middle of this step to find, qualify, audit and pick the right factory partner. At this stage, we are also submitting the engineering specifications and Bill of Materials (BOM) for a quotation and are also evaluating the factory based on other criteria. This is a critical step and we are targeting to finish this process by mid-to-late July and to finalize on our decision by then.
DJ: So we can expect an update on this in 3 weeks? 4 at the most right? We can hold you to this yeah?
Instacube: 2. MSA Negotiations – Once we pick the factory, we anticipate immediately signing a Letter of Agreement (LOA) and Manufacturing Term Sheet, which outlines all of the key business and manufacturing terms that are necessary for a manufacturing relationship. These two documents should be the precursor to a much more detailed Manufacturing Services Agreement (MSA) which can take weeks to negotiate due to its length and detail. However, once the LOA and Term Sheet are signed (2-3 weeks), we should be able to continue the manufacturing process of the Instacube immediately while the MSA is negotiated in parallel.
DJ: OK…..
Instacube: 3. DVT Build – This is called the Design Verification Test phase and it’s the second assembly and test phase of the Instacube. You may remember that we already completed the EVT build. Based on the EVT test results, we need to make further modifications to the tooling, hardware and software and then implement those changes in this build. We anticipate building around 30 units for testing and further refinement. We will also run environmental, reliability and performance testing. We will also plan to allocate a number of units for external beta testing and to submit samples to the lab for FCC testing. This should take about 4-6 weeks.
DJ: 4 to 6 weeks sounds like a an awfully short time to do all of that, but sure ok.
Instacube: 4. PVT Build – This is called the Production Verification Test phase and it’s the third assembly and test phase of the Instacube. In this phase, we plan to build 100 units on the production line to validate the assembly steps, quality control plan and process, assembly workstations, test fixtures, and overall production process. This is a dry run before going into mass production and should take about 2 weeks.
DJ: uh-huh… wait, why wasn’t any of this outlined in the video to sell the instacubes? this is all news to us.
Instacube: 5. Software Development – The development and testing of the software is happening in parallel to the manufacturing steps above. We still have to finish implementing and testing all of the features, fine-tune the touch, improve power management, and improve responsiveness. Software development may become the critical path task for us, but we are aiming to finish the software to align with Mass Production.
DJ: Aim away kids. Aim away.
Instacube: 6. Mass Production – This is when the design is completed and production processes are ready. This will only happen after we feel 100% confident that we can build a high quality product and that the mechanical, electrical and software systems are ready to go. If everything goes according to plan and there are no more surprises, then we hope to ship product mid-October. But we want to remind you that the critical manufacturing gate is to settle on a new factory partner.
DJ: So that’s over a year after funding and 7 or more months late…
Instacube: Refunds. Can I get one? The short answer is yes, we plan to issue refunds. But, we will issue refunds only after the Instacube starts to ship when we are able to sell your unit.
DJ: Can i be honset with you Instacube, i want a refund. i want my $350 bucks back. Can you please detail exactly how that can happen? I don’t want you to send me any devices? just the money. So i should be getting my money back in October? Is that right?
Instacube: International Shipping. What’s the plan for international backers? We’ve been negotiating with Fedex and other shippers for the best rates and its difficult to set a single international price since each country has different tariffs and duties. At this time, our best estimate is that the average cost is about $40 to ship internationally. We plan to honor the commitment to cover the difference between international and domestic rates.
DJ: Even though i’m in Australia, that doesn’t matter to me anymore because i am getting a refund. No shipping for me, no $40 dollar extra charge thanks, just my money back. yay.
Instacube: Video Support. Can we include it? Technically, the hardware supports video clips. We’d like to include it at launch, but can’t commit to it right now. Our priority is to finish the software with photo support first, make sure the UI is fantastic, and that the performance is great. That being said, if a video appears in your feed, we will definitely show the static ‘preview’ image so you can get a glimpse of it. This will not be a problem.
DJ: It’s taken you so long to NOT get your device to us, that the entire platform of Instagram has changed and has now outgrown you.
Instacube: Final Thoughts – We understand many of you have been frustrated and angry, but some of the negative comments we have seen on our boards not only hurt our process and ability to complete the project successfully, but also negatively impact the personal and professional lives of hard-working people on the project who are not responsible for the delays, decision making and financial situation in any way. The staff were assigned to the project and should not be singled-out, threatened or harassed. Everyone has been working especially hard under the circumstances and we all remain committed to successfully delivering the Instacube.
DJ: So that basically confirmed what i said before that you are finding it crazy hard to get investors or people to partner with you because you have over 3000 backers and most of them are wanting a refund? Can i be honest with you guys? Do something about it. You have been silent, and basically lying to us from day one. a little honesty and communication goes a long long way.
Instacube: As owners of D2M and the Instacube project, we are giving all of our backers our assurance and commitment that we will continue to push forward with the project and get it launched. It’s been a rocky road with a lot of setbacks and surprises, but we promise to keep pushing on this until its completed and in your hands.
Thank you, Andy Butler & Larry Tsai
DJ: Thanks Andy & Larry, but i just want a refund as soon as you can. Don’t send me anything other than my money back. All of this is way too little and way way way too late. Your Backer / Former Investor, DJ Paine

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