Coffee Talk: Nate Ramanathan – I wish I had more to offer

Each week, we sit down with a different member of AEye’s leadership team to discuss their role, their view of challenges and opportunities in the industry, and their take on what lies ahead.

This week, we talk with SVP of Operations, Nate Ramanathan.

1. As SVP of Operations, you cover a lot of ground. Can you tell us about your role?

You’re right – it’s a lot of ground. Let’s start off with the supply chain. That includes sourcing, inventory management, purchasing activities, negotiation of contracts, master supply agreements, and then the cost management associated with the components leading into manufacturing, product quality, product reliability, compliance activities, product lifecycle management – the PLMs and the systems ERP. New product introduction is a large bucket by itself – taking a product out of R&D to productization. After product launch, it’s managing the production continuity, deliveries, and cost leading to revenue and gross margin. Then there are other things like facilities management, audits, and any new equipment purchases and agreements. In a startup, we wear many hats.

I can boil my role down to two key activities: negotiation and risk mitigation. I’m negotiating 24/7, either with our CEO, CTO or CFO, my supplier and my customers, or my internal customers such as Business Development or Engineering. I’m negotiating on the delivery quantities and timelines, design tolerances, and pricing. Ultimately it comes down to negotiations and trade-offs. I’m also constantly doing risk identification and mitigation. I see a potential risk like the current situation with COVID, and I look at how to mitigate it. Everything flows from that: I look to make my CEO, CTO, and CFO’s life easy – to make sure the systems and product are humming so that they can focus on their priorities.

2. You’ve nurtured the supply chain as AEye has transitioned from prototype to production design for automotive grade manufacturing at volume. What’s it like building and scaling the supply chain for a nascent market?

It’s very exciting. Tech startups are all about speed, nimbleness and agility. I came from a large, multibillion-dollar company. When I walked in here in January of 2018, AEye had a prototype. From that first prototype to ramping production, you need to have supply chain stability, product reliability and quality – all at a low cost. The first thing I did was to step back and look at where we were going to be in 3-5 years. From that standpoint, I could answer the question, what do we need to do today? My job was to transition from prototype to production at scale.

Very quickly, we made the decision to set up to be automotive-grade, with all of the rigor that entails. From that starting point, it’s easy to expand into other markets. We made prototypes geared towards automotive, tested those prototypes against automotive test standards, and set up the ERP, PLM, and document control systems early on.

Today, we are an automotive company selling an automotive product, and the discussions have moved into production and volume. We are negotiating with large corporations on volume price points. We’re looking at a ten-year outlook, good gross margins, and solid revenue growth.

We have a solid go-to-market strategy. We work with Tier 2 automotive-grade supply chain/manufacturing partners who build to our design and IP. We then license to our Tier 1 partners, who productize and take the system to automotive OEMs. For adjacent markets such as rail, industrial, and ITS, we work with our contract manufacturing partners and system integrators to bring the product to market. We focus on what we do best – innovation and design – and our partners focus on what they do best – sourcing and production – which enables us to deliver reliable, competitively priced products, which can easily scale and meet stringent automotive and industrialization requirements.

I enjoyed the scaling aspect, and we are still scratching the surface in this market. When I started, few knew about LiDAR. Now, anyone who watches CNBC knows, and I get calls from people saying, “I remember you using this word, LiDAR. Are you still with that company?” During this two-and-a-half-year journey, while we were working through the productization and setting ourselves up for success in the automotive market, the market suddenly matured. Now it’s clearly a growth market.

3. Prior to AEye, you were a senior executive at Benchmark, a multibillion-dollar contract manufacturer. How has that experience influenced how you approach your role at AEye?

During my career, I have switched between the supplier and customer side. Before Benchmark, I was Benchmark’s customer, and I consciously took the role at Benchmark to learn that side of the business. The contract manufacturing world teaches you one thing: how to bootstrap. Startups know it because they don’t have a choice. Contract manufacturers (CMs) do it willingly. If they don’t, they’ll be out of business because they have razor-thin margins. The contract manufacturer world teaches you how to take a very low margin product, and make it at volume: how to scale successfully.

At AEye, the first thing I said was, we’re not going to manufacture in-house. The manufacturing business is not for the faint of heart. There is operational excellence driving the profitability of the product and continuing to drive the product cost down. It’s better for us to work with a CM and let them figure out how to do that, while we focus on our core competency, building the best, most reliable product, a product that meets and exceeds customer expectations.

With CMs as my primary suppliers, I’ll always keep in mind how they run their business. To keep them successful, I need to have a product that is scalable and profitable – at low cost. Now I’m sitting in a different seat, but I know what they do and how they do it, and it helps me do my job better here at AEye.

4. You touched on it, but you have a pretty strong opinion about AEye’s design for manufacturing approach. Can you expand on that?

Early in my career, I was the founder of a startup: the engineer who “knew everything” and tried to design something. When I started to manufacture it, I couldn’t – everything fell apart. That’s where I learned about design for manufacturability, and I’ve been preaching it ever since.

It’s important to design for manufacturability – to design for quality, cost, and future product iterations. If you don’t have a design that is manufacturable, a supplier or contract manufacturer will gladly charge you to do those changes, which is expensive and will disrupt your schedule. At AEye, we have worked to instill that design thinking into the culture.

The bottom line is: anything that you design has to meet all the reliability and quality standards, and should be manufacturable at the lowest possible cost – especially in automotive. There’s no way you can win the market without reliability, quality, and cost efficiency.

5. What macro trends do you see happening in this space, and in the supply chain in particular, and what do you see on the horizon in 2021?

LiDAR is becoming a mainstream product. Two-and-a-half years ago, when I went to suppliers or contract manufacturers around the globe, they would say, “Oh, well, Tesla doesn’t use LiDAR,” or, even better, “Why do you need LiDAR when there are other forms of sensors such as camera…” I had to sell my market and my company to them. Some of the vendors didn’t want to touch us because it’s a nascent market and we were a startup. Now everybody wants to work with us, to build on this emerging LiDAR market. That is a huge shift. What I see in 2021 is that it’s the year of supply chain maturity. If we align this to the product life cycle & adaptation curve of an industry, we are entering the growth phase of the LiDAR Industry.

As the vaccines are administered in mass and we accustom ourselves to the new way of living, we are going to be in a place where the autonomous industry is very real and a true value-adder to the new way of living. The subcomponent suppliers in this supply chain will be looking at, “How do I invest in additional lines, putting in new facilities?” They have to scale up quickly to capture the lion’s share of the market because economies of scale will be a huge driver of cost. The automotive industry runs in long cycles, 5-7 years for a program or a particular component, and if these suppliers want to play in this game, they need to have production lines that can scale up rapidly, yet be lean, extremely efficient, and agile enough to adopt new changes in designs. We’re talking about 92 million vehicles being produced throughout the world. If we add the adjacent industries that will benefit from LiDAR sensors, that number will grow by an order of magnitude. To handle such a large demand, the supply chain maturity has to come first.

One thing we know from the history of the automotive industry over the past 100 years: they make the supply chain lean, efficient, and provide reliable products at the lowest cost. The LiDAR industry is in that path right now. Consolidation of downstream companies will start happening in mid-2021. As the cost pressure increases, sub-tier suppliers will try to vertically integrate themselves to become cost efficient. In that process, they will “lean out” the supply chain and remove inefficiencies. Some of this has already started happening in the third and fourth tier of the supply chain.

Sometimes people throw in numbers like $100 LiDAR hardware. Is it doable? Of course, it is doable, but sub-tier suppliers have to become efficient, scale up, and be ready for it to make it a reality. As the industry is looking at pricing the product in 2032 and beyond, the sub-tier suppliers in this industry are looking at all possibilities to reduce cost and provide the market with a reliable product. This consolidation process can take several years. As the market matures, the supply chain will be very strong.

6. While you’ve made a career in Operations, you also dabble in Venture Capital, and have a degree in law. What drove these decisions?

I don’t know if it accidentally happened or I’m just a constant learner. I would say I love to learn new things, and new things come in all different forms.

I was fresh out of mechanical engineering when I launched a startup, and I was very excited to raise money. I went out, and nobody would give me money, literally nobody, not even my parents. It was a heavy mechanical industry, which meant that I had to buy equipment, so I went into debt, not even a convertible debt, just debt. I was paying interest on it. I remember those days, and how hard it was to raise money.

When I exited that business and went on to other things, I knew I wanted to invest. My interest was in helping somebody bring their dream to reality. Nobody had trusted my dream, but I could do that for others. I started investing, and slowly, that passion grew into a family office. It keeps me on my toes reading about and understanding various technologies.

As for the law degree, I finished with my MBA, and was working for Medtronic, running their product development. We were negotiating a contract with a startup – they were filing a bunch of patents and I couldn’t understand a lot of it. I decided to jump in and get that knowledge. I specialized in intellectual property. I never thought that I was going to practice law – it was more about my intellectual curiosity, but I use it every day. I’m not going to get another degree, though it’s kind of a joke in my family: “What’s next?” We have extremely intelligent folks at AEye, and they keep my learning quest satisfied.

7. Speaking of wearing a lot of hats, most people wouldn’t know that you are also a movie producer. How did you get into that?

I grew up in southern India and my house was right next to a movie studio. India has a large movie business, Bollywood, and it feels like every other person works in the industry. Growing up around that, it was always in the back of my head. Engineers think differently than creative types, but the creative side always appealed to me. At some point, I went to acting school and dove in. That was how I got away from the stress of the tech world and recharged my batteries, so to speak. I started writing and then producing and it just grew. Even now, it’s a hobby, and I talk to producers and look at finances for movies on a periodic basis. My goal is to do short film direction or something in the creative industry at least once every five years. It keeps me balanced.

8. Finally, what’s your favorite mode of transportation?

I’m a driver. My first startup was in the automotive industry, and ultimately, I raced cars, so cars are my favorite mode of transportation. When my family drives back and forth to L.A., I never let anybody in the family drive, because I love to drive. Will I let the car drive me around? That is going to be the toughest decision of my life because I cannot sit as a passenger. I’ll have to conquer that fear!

Coffee Talk: Nate Ramanathan —

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