A Few Observations About Consumer Hardware

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Everybody says hardware is hard. But here is why. If you can spend a bit of time getting ahead of these challenges ahead of time, maybe your road will be a little less hard. If you have experienced other similar hardware challenges, please share them in the comments!

– There is an unhappy tension between demand and defensibility. If you build something for which there is either proven demand, or for which the demand is demonstrated in a very exciting way early on, you must recognize that there IS a manufacturer who can run your script with more efficiency and at lower cost than you can. Your gorgeous design and product will be reverse engineered and bootlegged in no-time, and sold in a market either where your patents are not operable, or frankly on-top of your existing protected IP (more on patents below). And if it’s a product for which there isn’t proven demand already, you will have to sell your product first, which requires retail relationships (where you can expect 15% to 75% of your gross margin to vaporize) or other paid acquisition. Consumer hardware is sold, not bought, because the cost of ‘trying it out’ is way higher than an app on your phone, which is way higher than trying out a new web service.

– Your crowdfunding campaign is not a proxy for your ability to sell the product at scale. Kickstarter and Indiegogo heavily over-index in forward-thinking early adopters who are interested in new sleeping pads, wireless charging stations, and vibrating sneaker insoles. Your ability to raise a seven-figure crowdfunding campaign should be used as a way to raise some non-dilutive capital, but not as a proxy for demand.

– Protecting your IP is not a launch strategy. It may deter start-up competitors from entering the market, but frankly, start-up competitors are never your start-up’s biggest risk. Cofounder disputes and running out of money before you figure out your unit economics are your startup’s biggest risks. And as for the big, very well-funded players. If one of them decides to enter your market, please explain to me how your provisional filings will protect you? The big players have litigated to the tune of tens and tens of millions against each other over stolen IP. Do you have the cash, or the guts, to fight that battle? File them, but recognize that that won’t save you until you’re big enough that you can buy patents anyway.

– Managing cashflow, if this is your first hardware startup, is going to be your most unpleasant surprise. The contract manufacturer will come back with a higher estimate than you expected. The design for manufacturing phase of your startup will require 4-5 trips to Shenzhen, or to Mexico, which may require visas, flights, hotels, that will run you thousands more than you have budgeted. You will find that the right materials are too expensive, the affordable materials are not durable enough, or that something doesn’t look right, and these critical decisions will burn critical months of runway. Raise more than you think you need.

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