3 Strategies for Hardware Startups to Minimize Risk

April 5, 2016

6:22 pm

Creating a new hardware gadget and bringing it to market is not for those adverse to taking risks. Regardless of how spectacular your product may be, or how confident you are that it will be a massive success, you should still strive to reduce the risks.

Fortunately there are ways to minimize these risks and I'm going to share three of the most important methods.

1. Begin Developing Your Audience Immediately

To be successful, you need to start gathering market feedback as soon as possible. You can't develop a successful product living in a cave! No matter how perfect your product may be, I can almost guarantee that what the market really wants is somewhat different than what you think they want.

Also, once your product is finally ready for market, you need to make sure you have customers lined up to purchase it. Don't make the mistake of waiting until your product is ready to sell before you start thinking about how to sell it.

You can accomplish both of these goals by building your audience now. First, your audience will be able to provide you with quick market feedback. Secondly, you'll have a large audience of customers ready to buy your product once you have it ready to sell.

2. Get Your Design Reviewed by an Independent Engineer

No engineer is perfect and it usually takes multiple revisions of a product to get it just right. I highly recommend that you hire a second engineer to review the design developed by your primary design engineer.

You can bet that any new hardware device developed by a successful company has been reviewed by many engineers. To be competitive you need to emulate their process as much as possible.

When I was a design engineer for Texas Instruments it was required that all engineers hold presentations called design reviews. These presentations allowed other engineers to review your design and to point out any potential problems.

I never saw a single design that didn't have issues pointed out in these design reviews. This is because problems are almost guaranteed when developing anything complicated, no matter how good the designer.

Always strive to gather as much feedback as possible. This holds true regardless of where you are on the path to bringing your product to market.

3. Ramp Up Production in Stages

Setting up manufacturing in Asia and ordering a large quantity of your product will reduce your unit cost and increase your profit. That sounds great, right? Well, not so fast. There are some big downsides to this approach.

Offshore manufacturing significantly increases your risk. Manufacturing in Asia will take longer and cost more to get set up, and your product quality may suffer without proper quality control measurements in place. This likely means you'll need to visit your Asian factory several times to be able to ensure your product's quality.

You'll also have to order a larger quantity than you would if manufactured locally which opens you up to even more risk.

The better choice is to begin manufacturing small batches using a local (i.e. in your country) manufacturer. Your per unit cost will be higher and your initial profits will be lower, but your total cost to market will be much lower as well. The quality of your product will also usually be better because you are more easily able to monitor manufacturing quality.

The worst case strategy is to rush into manufacturing a large quantity from an offshore manufacturer. You may find yourself stuck with a huge inventory that you simply can't sell. Or worse, you may be burdened with a large amount of defective merchandise that you can't return or sell.

Not your product, right? I know, I know, your product is beyond fantastic and will immediately sell like hotcakes! But, this scenario happens all the time with new startups so be very careful.

An important rule to remember is that profit is something you should focus on after your product has had some significant sales success. Maximizing profits is pointless if you run out of money before you get your product to market. Always focus first on minimizing your risk, then later worry about increasing your profit.

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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.