10 Secrets to Succeeding as a Hardware Startup

October 2, 2017

6:30 pm

Hardware is hard. There is a lot of truth in that simple statement. There are many obstacles to success, but here’s 10 secrets…

Accurately Estimate Product Development

Successful startups realistically estimate the costs, and time needed, for product development. Everyone wants their product on the market as soon as possible. That excitement is good, but hardware has some limitations. Successful startups realistically estimate the costs and time needed for product development.

Hardware development always undergoes a debugging process that requires several iterations to make it perfect. Every large product development company knows they won’t get it perfect the first time so they plan appropriately for this time.

You should plan for this time constraint too. Build into your development plan the engineering costs of the debugging process, because it is unavoidable.

Design for Manufacturing

It is essential that entrepreneurs design their products for manufacturing during the prototype stage. This is the fastest way to move from prototyping to manufacturing.

Your product’s plastic enclosure will likely be the hardest to scale to manufacturing. Be aware that you can produce plastic designs with 3D printing that can never be manufactured using injection molds.

Utilize engineers and designers who understand the limitations of injection molded plastic, and who design in the prototype stage for eventual injection molded plastic production. The earlier you do this the better.

Know All of Your Costs

If you don’t know all your production costs you may encounter problems in the future with low profit margins. Start by calculating your Cost-of-Goods (COGS) – which is the total cost to manufacture, package and ship your product.

Calculate your COGS at various production levels to understand your profit potential at different manufacturing volumes.

Expect low profit margins in the beginning. By manufacturing small batches you will minimize your risks, but expect low profit margins to hamper your cash flow.

You may even need to sell at a loss initially. This is okay, because you don’t want to overcommit to lots of inventory in your early stages. Get your manufacturing and sales running smoothly before you invest in large orders.

Gather Market Feedback ASAP

It’s never too early to solicit market feedback about your product. The most realistic feedback comes from examining actual sales. But the problem is that you have to invest considerably in your product to get to the point of having real sales data.

Start the feedback process earlier with a crowdfunding campaign before development even begins. With crowdfunding, people are voting for your idea with real money, so this feedback carries more weight. You’ll know if your idea/product is worth pursuing.

Also consider utilizing A/B testing, and survey feedback, based on a description of your product. However, these methods are extremely limited in their accuracy since no money exchanges hands.

 

3D Printing

Start Your Online Community Now

Creating an online community around your product is something you should start doing immediately. This community can grow organically while you proceed through your development stages.

The worse possible strategy is for you to hide away from the world while you develop your product. As stated above early market feedback is critical. Having a community is one of the best ways to get this feedback early. With a hefty mailing list established, you can succeed with crowdfunding and eventually with sales.

Prioritize Sales and Marketing from Day One

Every hardware startup ideally needs a cofounder team consisting of a maker (hardware), a hacker (software), and a marketer. Which one are you? Are you a Steve Wozniak without a Steve Jobs, or the other way around? Consider bringing on a cofounder with complementary skills.

Don’t Over Commit to Your Customers

Don’t promise your customers anything until your product is in your hands, have a production schedule and money to pay for it. Act conservatively since your development team may have unexpected delays.

If you are in the manufacturing stage, remember that producing molds takes time, and possible reiterations. You don’t want to turn off customers or retailers by failing to deliver on time as promised.

Optimize Your Cash Flow

Cash flow will likely be your greatest problem after you have manufacturing setup. This is due to having to make at least a partial upfront payment to your manufacturer before your product is shipped. Yet, your retail customers won’t pay you until a minimum of 30 days after they receive their order.

You’re left with a challenging period between spending money on your inventory, and finally getting paid for that inventory.

You can offset this lag time buy selling directly on your website, although there is no guarantee that you will sell more quickly than a retailer will pay.

Most likely you will need financial investments for your startup to run smoothly during these early days. Purchase order (PO) financing and invoice factoring can help. If you can get a significant size order from an established company you can take advantage of these financing methods.

Say “NO” to Feature Creep

Feature creep refers to an entrepreneur’s desire to keep adding features to their hardware product. Avoid this common mistake!

Your number one goal should be getting your product to market in a timely fashion while minimizing your financial risk. Save new feature ideas for future iterations, while you get the basic product to market.

I suggest a concept called “Minimum Viable Product (MVP)”, described by Eric Ries in his bestselling book The Lean Startup. The idea is to first develop the simplest version of your product. Stick to the core, required features. Get this simplest version on the market, where you can then gather feedback and improve accordingly.

Quality Testing is Important

Your hardware startup may not survive if you ship defective units to early customers. Quality testing is essential, even if it hinders your early profits. While you can never avoid a small percentage of manufacturing errors, aim for a defect rate no greater than 1 percent.

Read more about hardware startups at TechCo

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John Teel is an electronics design engineer, serial entrepreneur, and founder of Predictable Designs. He has developed products for tech companies that now sell in the millions of units. John now helps other entrepreneurs, startups, and small companies bring new electronic products to market. Download his FREE cheat sheet – 18 Steps to Market for Your New Electronic Product.

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