Launching a hardware-based startup is hard, but the Internet, social media, and open-source movements are making it easier.
NEWCASTLE-UPON-TYNE, England -- Launching any kind of company is hard, but launching a hardware-focused company is doubly hard.
In an ideal world, a company would develop a product, soft launch it to test the market, and implement any tweaks. It would then raise some serious investment to scale up and start to generate some serious revenue. If only it were that simple. With hardware products, there are a plethora of expensive obstacles for those hoping to graduate from the proof-of-concept stage that is the graveyard of so many companies.
An initial prototype can cost thousands of dollars -- and here I am talking about equipment, rather than an IC. I know that developing chips costs millions of dollars, but I'll restrict myself to hardware based on standard components. There are still PCB runs. There can be software to be written, and getting into the realm of injection mold tools and initial stock runs can still be eye-wateringly expensive. All of this happens before a single customer has parted with real money for your product.
It's no wonder hardware has traditionally been left to the big firms, and small startups and one-man bands have tended to favor software with its lower barriers to entry. When listening to a hardware idea being pitched, it must be hard for investors to justify kicking in $500,000 to a company with no traction when they can invest the same amount in a software startup that already has customers, a proven business model, and a clean balance sheet. And scaling up software is relatively easy.
However, all that means that the marketplace is inundated with software competition. Fortunately, the prospects for hardware entrepreneurs are improving, thanks to the Internet and some awesome tools. If you want to launch a hardware company this year, here is how the cool kids are doing it.
- Build a basic prototype. You no longer have to invest in expensive development kits at this stage. Open-source hardware stacks such as Arduino and mbed are allowing professional engineers and amateur tinkerers alike to build functioning systems quickly for a couple hundred dollars. CAD packages and 3D printing are now cheap enough for anyone to build a system that not only is functional but also looks great without the long-term commitment of tools and expensive licenses that may be obsolete in version 0.2. Make sure you know how much it will cost to develop a scalable, manufacturable version to avoid a common pitfall, which we will discuss next time.
- Build a following, and use the Internet and social media to test the water. Crowdfunding platforms such as Kickstarter and Indiegogo make it possible to avoid the chicken-and-egg situation of needing money to prove the market but not being able to get money without a proven concept. With a great YouTube video, a working prototype, and some well-targeted PR, it is possible to come up with all the money needed to get to market. Balancing public disclosure with protecting sensitive intellectual property is tricky, but it's no more so than at any other stage. Be sensible with what you reveal, and protect what you can. Intellectual property doesn't have to cost the Earth.
In my next article, I'll look at a tricky stage 3, delivering on what you promised, and achieving scale while addressing the fundamental shifts that have allowed this all to happen.
Simon Barker is chief technology officer of Radfan in Newcastle-upon-Tyne, England.