In recent years, the hardware industry has witnessed an explosion of innovation in fields like robotics, the Internet of Things (IoT), 3D printing, wearables, and extended reality (XR) devices. But hardware startups face unique challenges and opportunities due to the complexity of their products and the diverse markets they operate in as well as funding problems. In this post, I explore best practices for hardware startups looking to succeed, and how to be a true startup business and not a single-product single-market company, as Kevin O’Leary says on Shark Tank “You’re a product, not a company”. So what should hardware founders do when they only have an idea for a single product?
Having a Demonstrable Prototype or MVP is paramount to showcasing their products’ viability. For hardware startups, having a tangible product prototype or minimum viable product (MVP) is crucial. Investors want to see that the technology is not merely theoretical but has been put into practice and exhibits promising potential. Having a strong IP portfolio, including patents, trademarks, and copyrights provides a competitive edge, prevents imitation, and enhances the startup’s valuation as well.
Investors are always on the lookout for opportunities with significant market potential and scalability. Hardware and AI startups must present a clear plan on how their technology can scale to meet market demands and reach a broad customer base. Understanding the target market, identifying potential competitors, and having a compelling go-to-market strategy are essential elements that investors closely scrutinize.
Single Product: Depth Over Breadth
For some hardware startups, focusing on a single standout product can be a compelling strategy. By concentrating all efforts and resources on a single offering, the startup can ensure deep expertise, quality control, and a focused value proposition. This approach is particularly suitable when the product fills a unique and unmet need in the market. Additionally, it allows the startup to streamline manufacturing, reduce complexities in marketing, and build a strong brand identity around the core product.
VCs invest in a company that may have a core product/set of products but they also have other products that bring in cash flow as well. A consumer brand can’t be built on a single product alone. When you show a VC a single product they don’t see how other products can be built from what is being presented thus making it only a product, with likely no chance of being a big brand or company.
How to attract Investors: This product must be big and costly, aimed at B2B customers, while targeting a huge market. This is why warehousing robots became all the rage when e-commerce took off even though we had warehouses before that but those did not need the manpower that the e-commerce giants needed to constantly access massive shelves lined with all kinds of products. These robots solved the problem of frequently accessing warehouse shelves.
Multiple Products: Diversifying for Resilience
Alternatively, some hardware startups opt to develop multiple products within the same domain. This approach provides diversification, reducing the risk associated with relying on a single product. By offering a range of products, startups can cater to different customer preferences and capture a broader market share. However, careful attention must be given to resource allocation, as developing multiple products can spread thin the available funding and expertise.
Your products in this case might depend on your different customer profiles within the same market.
How to attract Investors: Have a long-term vision of what the market will look like with your products. Typically these products must also be fairly costly, aimed at B2B customers while targeting a huge market. If, for example, you created lawn mowers, you would have a fleet of lawn mowers of different sizes and features to suit the different types of customers from homeowners to lawn care providers. Now, you may not have all the lawnmowers designed and prototyped right now, but you should be able to show that you have everything figured out, whether it’s your supply chain to the point that manufacturing another one will not be too difficult, or how you will go from manufacturing the first one to expanding your product range and how many versions will that include.
Suite of Interlinked Products: Creating an Ecosystem
Developing a suite of interlinked products can be a potent strategy for hardware startups. By designing products that work seamlessly together, a startup can create an ecosystem that enhances the overall user experience. For example, a robotics startup might offer a robot, a dedicated mobile app, and a cloud platform to manage and monitor multiple robots at once. This approach fosters customer loyalty and can result in additional revenue streams through cross-selling and upselling opportunities.
How to attract Investors: Once again, have a long-term vision of what the market will look like with your products even if you do not have all the future linked products prototypes ready to show, you can show ideas, mockups, and plans of what you will be coming up with in the future, with your supply chain fully figured out. Typically these products may be cheap to slightly costly, and aimed at B2C or B2B customers while targeting a huge market. Once again if you created lawnmowers, you would also have shovels, garden hoses, rakers, etc. targeting either 1 type of customer like homeowners, or multiple customer segments.
Operating in Multiple Markets: Identifying Synergies
Expanding into multiple markets can open up new opportunities for hardware startups. However, it is essential to identify synergies between the markets to leverage core competencies effectively especially if you have a single product with no aim of creating a line of products. For instance, a wearable technology startup can target the sports and healthcare sectors as both markets share common needs for accurate biometric data collection and analysis. This shared technology can be adapted to cater to both customer types.
How to attract Investors: These products are usually B2C consumer-facing and if fairly affordable can be spread widely in multiple markets quite quickly. You want to also show that your profit margins are 20% or higher.
Catering to Multiple Customer Types: Personalization and Modularity
If you have a product that can be customized for B2B or B2C customers to address different needs you can increase either your customer segment in a single market or across multiple markets with a single base product and multiple add-ons while maintaining economies of scale during production. Customer feedback and market research are vital in understanding the specific requirements of each customer segment.
How to attract Investors: Show how your product can be customized for various use cases and that you understand all big and small customer segments you can possibly target with the plan you have laid out for the company.
Beyond the Product: Pricing, Operations, Logistics, Distribution, Marketing
As a general rule of thumb, if you have a low-cost product that’s considered affordable and is not in the high-end range for that type of product then you want to show that your profit margins are more than 20%. If however, you are creating a product that is really costly or considered high-end, or where the profit margin on the product itself may not be high, you want to showcase how you plan to reduce costs in other parts of your business to increase business profits overall.
Typically in hardware, your product’s retail price = 2x your manufacturing price. This allows you to offer 10-25% discounts to distributors if you do not have your own extensive supply chain while also being able to maintain good profit margins after operational costs.
Make sure you always highlight to investors your plan of achieving economies of scale or economies of scope by keeping the long-term vision of the company in mind and highlighting everything you have thought about which can increase profit margins or lower operating costs, partnerships you have or are looking for which the investor might even be able to help you with, important highlights in how the manufacturing, logistics, distributorship or delivery of the products will work, and equally important marketing activities in the case of consumer products because your early adopters may not be your ideal customers.
So think beyond the product itself to show that you have put some thought into how this product will turn into a full company even if you haven’t achieved it yet.
To do this, create your Business Model Canvas as a starting point and fill out everything you can keeping the long-term vision of the company in mind. So, for example, if your key partner is not going to be one you reach out to immediately but would like 5 years down the line, still write it down because:
- It assures your investor that you have a long-term vision in mind for the company and that makes it easier for them to know that you have thought about all the risks that can come up. If you reach out to me I can help you think through and foresee those risks and how to solve them when they arrive.
- Your investor might be able to get you the partnerships and resources much faster than you could on your own, which speeds up your timeline for success.
Use the business model canvas to generate a business plan document. If you want you can use AI for it like this one which you don’t have to use BUT it will expose any weakness that might exist in your idea which you can work on fixing as you start working on your startup. In startups, business model canvas should typically be updated every 3 to 6 months, so if you are failing fast you should be seeing that the canvas is updated almost every 3 months whether it is big or small pivots.
Track ALL Metrics
Robotics specifically is a field that aims to be prevalent in fields where the tasks fall under one of the 6D’s.
Dirty: Robots used for dirty or unclean tasks
Dull: Robots used for repetitive or monotonous tasks
Dangerous: Robots for hazardous tasks that pose a risk to human safety
Domestic: Robots used for tasks in the home
Dextrous: Robots used for fine motor skills or precision
Dear: Robots that perform otherwise expensive or highly skilled tasks
So while you are in the early stages of your company, doing R&D of the prototype and using it for a pilot run, track every metric you can, not just on the usage and performance of the product itself, but also the impact it has on your customers. How much money, time, and manual labor it saves your customers, how many dangerous situations it helps them avoid, or how many ways your customers have used your product that you did not originally think of or even promote.
Demonstrating traction and achieving significant milestones are powerful indicators of a startup’s potential for success. Investors seek startups that have made progress in terms of user adoption, revenue growth, or successful partnerships. Such accomplishments validate the startup’s value proposition and reduce perceived risks for investors.
Team
Make sure your founding team has a strong engineering background with all skills required in electronics, mechanical/product design, and computer science, but also business acumen. A well-rounded team that can adapt to challenges and execute the business plan effectively and implements the right culture from the beginning, is a significant driver of investment decisions.
In closing, your success lies in making informed decisions about product strategy and market positioning, staying attuned to market trends, and always prioritizing innovation, reliability, and more importantly customer feedback and satisfaction. Whether choosing a single product, diversifying offerings, or creating an ecosystem, each approach comes with its advantages and challenges. Furthermore, operating in multiple markets and catering to diverse customer types demand adaptability and flexibility.