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How to grow your Hardware Startup
Lately, many entrepreneurs are switching their attention from the traditional software and web market towards the very promising hardware market.
A growing access and a growing ecosystem of startups and bigger companies are, in fact, starting to reach that tipping point in which you have products and services growing on several of layers and eventually composing a rich, diverse and bubbling landscape.
There’s a growing differentiation: some companies are focusing on building low level modules (a lot of people, considering that there are hundreds of versions around) that are targeted to different markets such as makers and designers (like Arduino and the likes) or even professional integrators and product companies (such as the openpicus Flyport).
Other companies are creating modular building frameworks, finished products (both really simple ones or very complex ones giving you a whole lot of possibilities).
All this companies have a serious problem at the start: it’s about overcoming the initial phase where prototyping means investing money (hardware typically costs more than software to build) both in materials and knowledge. An interesting, recent, post by Paul Graham put this in a very clear manner:
“Hardware startups face an obstacle that software startups don’t. The minimum order for a factory production run is usually several hundred thousand dollars. Which can put you in a catch-22: without a product you can’t generate the growth you need to raise the money to manufacture your product. “
(Note: as the post in question goes forward, it points out several good points for hardware startups and we really suggest you to give it a read).
Among the alternatives you have, to ramp up with financials and capital availability, you should obviously consider Crowdfunding. In fact, crowdfunding (or preorders, as effectively Paul Graham himself points out in the post) demonstrated a great capacity to support the initial incubation phase of hardware startups. We also published recently a recap post on this very topic that we suggest you to read.
That’s interesting, since crowdfunding also works as a really powerful “incubation” strategy itself: being so radically and directly connected with your target audience helps you a lot in understanding if you’re on the right direction.
Some months ago, an interesting video from Justin Wilcox went out about the power of using CrowdFunding as an MVP testing strategy: that’s something that hardware startups must consider even more than Software startups since building something nobody wants to use can be painfully costly and long with hardware:
Crowdfunding can be a great MVP testing strategy but, at the end of the day, the quality of execution and the level of commitment to your entrepreneurial vision keep being the key aspect to build a successful startup. Many good stories in fact, tell of game changing startups that bootstrapped and built ultra successful products thanks to this approach.
One great story is that of GoPro, founded by Nick Woodman whose story have been recently published by Forbes (see this recap post here).
Let me past a great passage that explains what I mean with hard work and commitment
Taking dedication to the extreme, Woodman, then 26, gave himself four years to make something of his idea. He didn’t waste a single minute of that time. He recounts many hours sitting at his desk, switching from a sewing machine for the wrist straps to his drill to carve out bits and pieces of raw plastic to develop the model he wanted.
Without the engineering chops to develop a camera from scratch, Woodman outsourced, searching for an already-developed device at camera trade shows that he could license and modify to his liking. He settled on a $3.05 film camera from Chinese manufacturer Hotax, mailing back and forth with the company to ensure that they could develop the specifications to his liking. “We did the whole deal by Fed-Exing designs back and forth,” says Woodman. “I sent plastic models with drilled designs because I didn’t know how to use CAD [computer-aided design].”
Among many, another great stories is that of Sparkfun. Sparkfun was totally bootstrapped and literally built from the founder’s, Nathan Seidle, bedroom. In an interview we did with Nathan on Open Electronics few months ago, we took the chance to ask him about bootstrapping and Nathan told us:
“There is a time and a place for investment. Many companies need external capital to get their dream off the ground. When SparkFun started 10 years ago, we had the good fortune of being in the right time and right place. We had discovered a niche market where we could grow the business by being very thrifty and scrappy. DIY is of course part of our DNA and I’m happy to have limited money – I think it made for a stronger company.”
The fact is that limited money often ends up helping you to build a stronger company because focusing on revenues and cash flow from day one helps a lot in focusing on customer’s true need and creating really marketable products.
How could we forget that Arduino itself, the flagship of all the (open) hardware startups has been bootstrapped with no funding at all? To say the whole truth, Arduino wasn’t actually built thinking as a startup itself but, instead, as a tool for learning electronics and experimenting with it (mostly for designers).
Despite bootstrapping can give several advantages in terms of product focus, verification of the actual appeal of the product and grant you an organic grow of the user base, incubation and investments still represent an option in some cases, especially with particularly complex products.
A recent post from Mathilde Berchon on Making Society made some clarity about the major opportunities for Hardware Entepreneurs and it’s really worth reading: could be your starting point to understand what possibilities do you have. The post, that is unfortunately quite biased toward the Bay Area and China (Shenzen) is available here. Another interesting post where you may find some good advices – especially if you’re active in the Asian continent – is this one here from Terence Lee (Singapore seems like a good spot on the industry).
Another interesting approach that you should consider, is joining special ecosystems and initiatives. Particularly interesting and emblematic is the ecosystem that is growing around Nike+.
NIKE Accelerator (see: http://nikeaccelerator.com/), is an initiative that Nike took to favour the self-emergence of a community of startups around its Nike+ hardware/software architecture. This ecosystem will be able to deliver some real use case innovation, thanks to the fact that a small startup, and the founders, can surely have a better glance of the real expectations of the user base:
We are looking for people who share this vision and want to create companies that build upon the success of NikeFuel, the Nike+ FuelBand, and Nike+ Running to make the world more active.
The Nike+ Accelerator, powered by TechStars, will host 10 companies for a three-month, immersive, mentor-driven startup accelerator. The focus is to allow companies to leverage the Nike+ platform, and NikeFuel, to build offerings that inspire and assist people to live more active, healthy lifestyles.
Obviously, joining such a program could be a great help for startups since they actually build for an existing and very well defined and interested customer base (Nike customers and Nike+ users) and they’ve access to the natural potential buyer for their products, Nike.
In perspective, every company will be interested in similar initiatives: what in the past has been about publishing APIs and Developer Support will soon move towards incubation and acceleration. Especially companies with a substantial cash flow that had no previous experience with APIs (maybe because non-software centric) will be likely starting to look for startups and product development incubation. This will be an opportunity that you shouldn’t avoid to consider so start looking for such programs in the field you choose to disrupt and innovate!