I have never taken a hardware product to market, but I did have key roles at VC-funded companies, co-founded a company we got funded, and in 2005 did the VC tour on a hardware product.
What I'll say --- and again, don't take my word for it --- is that what you're saying may be the opposite of true. Hardware companies have a higher cost of sales, supply chain issues, worse margins, and must carry inventory (sometimes millions of dollars worth) to fulfill customers. The "hardware" part of what we were doing was, for the VCs that got into real due diligence, the least attractive part of what we were doing.
You may have a resume that is a mile long in hardware, and that may mitigate some of the concern.
Hardware startups have been bought before. This isn't a unique event.
I worked for a hardware startup for a couple of years and VCs being cautious about the category is very well deserved.
It is easily an order of magnitude harder to develop a successful hardware product than a success software product. And even after you've sold a million of them a design defect could show itself that makes all million of them break and destroys your entire company overnight.
The problem with hardware business is that it’s capital intensive: large, expensive product runs needed. Not many are happy to upfront the bill for a new, unproven, company. Whileas in software business, the upfront cost is fractions, and thus VCs love it more.
Thus, in hardware, funding comes from the existing players who already know the hardware business with its cyclic business and other associated risks.
Hardware is an order of magnitude (or nine, twelve) more difficult than a software startup. Expensive rev'ing, long turn arounds, supply chain mayhem, overseas production, profits thinner than the paper they are printed on.
The hardware graveyard of kickstarter is chock full of dreamy eyed hardware guys for good reason.
(this is from a throwaway to avoid naming the company I worked for)
I worked at a startup with a hardware product in 2011 (nb: I didn't work on the hardware personally, but was aware of the difficulties we faced), and the issues you describe are all very familiar.
It may be the case that the technologies you describe allow you to push the problems to later in the product development cycle, but from what I observed, they all still happen once you try to transform that product into a consumer product that can be manufactured and sold at a viable price-point.
It's true for example, that the hardware engineer founder built a prototype relatively quickly using off the shelf components, but the resulting product was so large, the housing so ugly, and those components so expensive that it would never have been economically viable.
Once they were past the prototype stage, they faced all the problems you describe: parts manufacturers and suppliers only willing to deal in huge quantities and make sales well in advance; finding manufacturers who can make plastics that are of high quality and meet safety standards is surprisingly difficult and slow [1]; much of the tooling for small, cheap, low-power-consumption microcontrollers seems to be from the dark ages [2].
What made it even worse was that many VCs we spoke to seemed to be unfamiliar with or unwilling to take the risks associated with hardware startups: much higher up-front costs to scale the business, and much longer product development times. It's possible the company I worked for didn't take advantage of all the modern developments available to hardware startups, or that they had the wrong strategy (trying to scale too fast or seeking the wrong customers, for example), but I certainly have enormous respect for the challenges hardware startups must overcome, even in these times.
1: Some anecdotes I remember from the plastics saga: the first overseas manufacturers they tried in an early attempt to make the housings cheaper absolutely would not, and maybe could not produce a housing in the correct shape. We would send them models in a form designed to be structurally sound and aesthetically appealing, and they'd come back as basically ugly square boxes. We ended up using a much more expensive US-based manufacturer for a long time because of this. (IIRC, they were more expensive mostly because their facility was really meant for rapid development and not mass production.)
I also remember a significant delay at a crucial time because we couldn't get the fireproof coloring agent we needed in the right color.
2: One of the hardware engineers spent a grueling couple of weeks hunched over an oscilloscope looking for a particular pulse that would indicate that the microcontroller had found and booted our company's software on the chip.
I agree completely, but I still think it's interesting to explore the data behind WHY hardware is hard. As a hardware founder who went the Kickstarter path (along with 56% of hardware companies), a lot of what the article says about early funding resonates - crowdfunding isn't enough, unless you're wildly successful (and even then, not always). It may seem obvious to you, but it's something most aspiring hardware founders I talk to don't understand (and I didn't really grasp either).
The crowdfunding platforms bill themselves as just that - funding platforms. Once you raise on Kickstarter or Indiegogo, you're supposed to be able to take off like a rocket. The only problem with the story they sell you is that most startups don't take off, even after a successful campaign. You could say maybe they didn't raise enough money (and in most cases, I think you'd be right), but that still doesn't solve their problem - they raised what they could. If they couldn't raise enough money through crowdfunding, is crowdfunding really a viable option for hardware? And if not, why do over half of hardware startups choose to go that route?
On the other hand, maybe the horrible survivor rate for hardware startups is partially due to crowdfunding. After all, it allows companies to raise funds without being vetted in the same ways that a VC-backed company might be. Maybe it allows a lower quality of product/company/founding team through the gates, and as a result, we see a lower success rate for hardware.
The bottom line is I have no idea, but it's interesting to get a peek at the mechanisms behind "hardware is hard", rather than just falling back on the mantra and ending the discussion there.
The reasons that these products fail is usually feature creep. Whether due to Kickstarter stretch goals, or pressure from VCs, people don't know when to draw the line and ship. That's followed closely by underestimating costs and under-pricing products. After that you have the risk of developing the product you want, not the product that everyone else needs. I would never suggest anyone starts a hardware business until they've worked in one to get a feel for cost estimation.
This is no different to software, but it's a lot more problematic with hardware. Unless you plan very well, patching hardware is expensive and/or impractical. You're often much better off releasing a basic, but very functional product (i.e. your MVP) and iteratively addressing customer demands with later version.
The second is that selling complex products to consumers is really hard. If you sell stuff to industry the benchmark for smartness is often much much lower.
This. The going understanding is that hardware companies are high risk, requiring large upfront capital with long market delivery time frames and one-off sales and continuous costs (support if not cloud). There have been some successes where ongoing revenue streams based on a cloud service make companies far more viable and profitable. Everyone thereby wants that and the VCs frequently prioritize that.
This is not surprising to me. I've worked in this space, and I think consumer hardware startups are just incredibly hard. I just finished my stint at one (https://www.electricobjects.com/) last year after we failed to raise series B.
Why are consumer hardware startups hard?
- Consumers have high expectations and want high quality products from the get go.
- Quality products are incredibly capital intensive, resulting in much shorter runways.
- Building a quality product often times means partnering with an expensive design firm + hiring the engineering talent to back it up.
- Margins are much lower than a typical SAAS. This makes it less appealing for VCs than a pure software play.
- Scaling hardware is harder than scaling software. Lead times are long. The right decisions have to be made ahead of time. Any missteps or problems with your suppliers will delay your launch. If this happens around Black Friday / Christmas -- it's a big deal.
- Not only do delays impact your sales, they will also delay fundraises for much needed cash infusions.
I don't think it's a problem with how much capital hardware requires. Biotech startups require an order of magnitude more capital with tons more risk with regulatory approval yet the biotech VC industry is huge - the amount invested annually frequently exceeds all of tech VC. Most of the startups that go public do so with zero revenue, let alone profit, and everyone is perfectly fine to bankroll them through clinical trials even though they're all or nothing.
I think there's two problems with hardware: first the marginal profit per unit doesn't scale so to make more profit you have to sell more widgets. The same is mostly true for biotech but the profit margins on a drug are usually >95%, with a much higher ceiling, and are heavily recurring, often for the life of a patient. Since biotech customers are mostly insurance companies, the value of a drug is easy to calculate based on its quality of life improvements and past deals.
Second, success is very all or nothing for hardware companies. Each hardware startup will have a limited number of possible acquirers who specialize in their field so they either become profitable and go public or fail. On the other hand, failed tech companies get acquihired by the tech giants and pharmaceutical companies acquire tons of companies before they even finish clinical trials. Any startup that makes it past phase 3 trials has a 99% chance of getting acquired by a pharmaceutical company so the economics of investing are very enticing, despite the massive capital outlays.
Hardware companies have (1) greater costs to get off the ground (2) longer periods of development (3) higher incremental cost per sale (so harder to scale) (4) slower iteration speed, and (5) just overall a lot riskier than pure software. A VC fund is going to see a startup with a groundbreaking innovate hardware device next to one building a cookie cutter SaaS app and still invest in the latter, because it just makes more business sense for them. No one outside of Apple/Google/Microsoft and the like is pouring 10 years and billions of dollars towards releasing a new device.
I can see how hardware would benefit from someone taking a risk with investment. It's better to sell hardware at the price point it would be at if you are doing it large scale to test the market, even if you are selling it at a loss. However, it sounds like you are almost beyond that point and know there is a demand and at what price, but it was probably hard to compete for investment (and talent) when investors were willing to throw money at zany schemes with hopes of unicorns. I hope for you, once investors become more careful again, that a business with something more proven and where the cash was managed sensibly will be exactly the type of company that most investors will be keen on. This was roughly the situation after the dotcom boom, except investors were poorer and less confident (well, I hope). I also think investors will have to increase their appetite for hardware, because IoT and autonomous vehicles are showing a lot of promise. I also think money that would normally go to unconventional oil and gas projects would be seeking something new. Good luck!
I had a hardware company a few years back. It was a disaster even though we sold it to companies like CNN, Princeton University, Stanford, UCSD, UC Berkeley. If you want to do it as a hobby business, go ahead. But it's incredible how quickly your hardware supplies will change and impact your offering and you have to consider returns and the margins you will make.
I would recommend offering a software package and let the users buy their own hardware if I did it again. That's still a difficult business but at least you don't have to carry physical inventory.
Ask me more if this is relevant to you and you have questions.
Normaly me neither. In that particular case so it makes sense. Hardware development costs tons of money, especially when done by throwing highly paid engineers at the problem as the only idea. And when it is easier to get funding through a listing, but not enough yet, the company doesn't have a product yet but is public. Not an ideal place to be, for sure.
I was part of a hardware startup for nearly a decade.
Most real hardware companies that I recall failed for reasons other than hardware. Which fits with the author's overarching argument.
When people imagine a hardware company failing, I think most imagine something going terribly wrong with prototypes, some failure in the field, manufacturing failures, overbuying, etc, etc. But I think those events are rarely fatal for real hardware companies.
I say "real hardware companies" because those kinds of failures are endemic with crowd funded hardware startups. And I think that's why most people assume that all hardware companies fail for those reasons, because crowd funded hardware startups get so much public attention.
But outside of the crowd funding bubble, my experience has been that those kinds of events are just normal bumps in the road. We were on razor thin angel funding, and we hurdled all those kinds of problems. What really kills hardware startups is what kills _any_ startup. Bad product-market fit.
Over the decade of my involvement with my previous hardware startup, we watched _tons_ of fellow hardware startups die. Not because they hit some manufacturing snag, or shipped a million units of explosive doorstops. Every single one died because no one wanted their product. The classic startup tale.
Perhaps I have a unique perspective on the whole software startup versus hardware startup thing because I'm a jack of all trades. I'm just as comfortable working software as I am hardware (and boy does that duality come in handy). So I've seen both sides from the trenches. Hardware people will tell you it's harder, because they don't know how frustrating real software development is and assume it's some kind of greener pasture. And software people will tell you it's harder, because hardware is a mystery to them.
I've wasted days dealing with Google Cloud's SDK issues. And I've wasted just as many days chasing a defect in a board remotely with a customer half way around the world.
In other words: The grass is not greener on the software side.
I agree with Qdot. The common problem with most hardware startup is manufacturing. You need lotz of upfront money. Most VCs don't invest in hardware startup. The only available option is kickstarter. If you notice, even with lotz of money, most of kickstarter projects are delayed.
Making prototype and hacking hardware is now easier compare to 10 years ago. But it's still challenging.
We do own pre-order site, http://www.vibease.com
I have worked in a number of hardware based startups, still do, and most have been product led or at least try to be. There isn't a one size fits all answer for what I think you are asking, and without more details it is unlikely anyone can give you great insights.
Generically, most hardware based companies today are really software services or data companies that have a hardware "interface" product. e.g. pick a consumer wearable product, what's really the product there? the hardware? or the users data? The answer is generally the user's data and insights that can be pulled from that data. So product led there generally starts with the insights and data, the hardware is just a means to acquire it.
My main point is unless you are selling primarily disconnected hardware, e.g. a non-connected toaster, you almost always are focused on the software services and data around the product and the hardware is just the bow you wrap it in to get what really is your product. So being product led for hardware isn't so different than SaaS or others. The one key difference is part of the user experience is the hardware, so you spend more time around optimizing the hardware and convincing customers why your shiny object is the one they need to buy. In the end though, usually those reasons to buy still boil down to the insights that come from the software. Hence you are still looking at all those growth metrics, engagement etc that most SaaS or software based business are watching.
If you are a truly non-connected or have severely limited software in the product then I'd have some different comments, but those are pretty rare in today's market.
There are tons of successful hardware startups in recent history.
You just don't hear about them because they're not selling to you. They make business, commercial, and industrial hardware.
Consumer hardware is very hard because consumers are extremely demanding of hardware. Just look at how difficult it is to convince people to spend even $5-10 on useful software or sign up for a $100/year SaaS product with near zero marginal cost per customer. Consumers are really hard to please and consumer price points are difficult to serve.
Please do not take the following as criticism, just observations based on my own experience and hopefully guidance for others wishing to venture in this direction.
First, to state the obvious: Hardware is hard. I have been doing hardware for forty years. I know. The cash requirements to build and sustain a hardware business can be brutally painful if you are bootstrapping.
One of the problems I see when reading about solo founders in the hardware domain is that they launch into the business without having 100% of the skills necessary to deliver the product.
When I built my first hardware startup I was able to complete all of the electrical engineering, firmware/software engineering, mechanical and had a pretty solid grounding in manufacturing. In looking at the profit statement for the OP's startup, I see $360K in costs that could have been avoided. That is, payroll, electrical engineering and web design. That's a ton of money.
My guess is the raw materials costs ($330K) likely is high as well. Hard to say without having greater visibility into the design. I'll say this, I would not be surprised if the cost could be cut in half by going to a reputable contract manufacturer in China. That's just reality, sorry.
The first quarter my product went on the market we (I) sold $650K of that product. The website didn't look particularly great, but it worked. I got better at web design over the years and improved it, eventually handing it off to someone else. At that point we were nicely profitable and I had several employees. The point is, if the product solves a problem the website almost doesn't matter. I always think of Craigs List as and example of that.
It looks like the OP devices sell for, rounding it, about $400. Which means 2022's sales amount to about 2,000 units. That's great, but the profits got eaten-up by having to pay people for skills. A device like this can be assembled and delivered 100% without having to hire a single person.
I recently had a case where I had to redesign a board three times due to component availability issues. It cost me nothing to do that work (in terms of cash), just a few nights and weekends of my time. That's the power of being able to do the work yourself.
My take is that solo founders, particularly if bootstrapped, must restrict their venture to whatever their competencies might be. If they don't, they will have to use cash to buy that expertise, which can make the difference between a nice grow path and extended pain and agony.
That said. Good job! Hardware startups can be horribly painful. I am currently helping a hardware startup that has to spend a million or two building prototypes before they can even hope to sell their product. Very different from being able to code-up a web product on a laptop in the dorm where pizza might be your greatest expense. It takes a special kind of personality to endure entrepreneurship in general, hardware entrepreneurs are on a different class altogether (which could mean we are amazing or we are absolutely demented...I think I am demented).
What I'll say --- and again, don't take my word for it --- is that what you're saying may be the opposite of true. Hardware companies have a higher cost of sales, supply chain issues, worse margins, and must carry inventory (sometimes millions of dollars worth) to fulfill customers. The "hardware" part of what we were doing was, for the VCs that got into real due diligence, the least attractive part of what we were doing.
You may have a resume that is a mile long in hardware, and that may mitigate some of the concern.
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