November 21, 2014

Why Hardware Manufacturing Startups Should be Leary

gofund1It can be said that the smart startup is in software and not in hardware. Not only because this positions a tiny startup against the global powerhouse of hardware producers, Apple Corporation, but there a number of other good reasons, as well as other monstrous competitors. So the large competitive marketplace of global giants may be the top reason traditional venture capital firms shy away from the hardware new guy, but why the boost from crowdsourcing platforms?

From the hot performer Kickstarter to crowdfunding giants like Razoo (Startup 500) who’s site claims to have funded over $152 million to startups, to the opposite type like GoFundMe, where anyone can try and raise money for anything, there are more and more choices every day. But all of these various crowdsoucing sites seem to follow a trend that is opposite the traditional venture capital investment trends, they all have funded successful projects and startups that include or manufacture hardware.

If one consults Chris Anderson and his latest book, “Makers: The New Industrial Revolution,“ it’s all about the small manufacturer, or to say that it will be all about that.  So why are people listening to Chris Anderson? Well for those who don’t recognize the name they will likely remember reading his first New York Times non-fiction bestseller, “The Long Tail”, or his more recent “Free:The Future of a Radical Price”, then most would be safe in betting his latest work in 2012, Makers is likely as close to on target as his former reads.

Also proving what he preaches with the success of his latest startup, 3D Robotics, a manufacture that creates an autopilot series named ArduPilot, a name play off the gofundArdunio platform, one could say that he knows of what he speaks.

To quote Chris Anderson there is a “peace dividend of the smartphone war”: he is referring to the inner workings of smartphone components such as GPS, camera, ARM core, sensors, processors, battery, memory and wireless being driven by Apple, and Google.  With that technology being available to buy largely inexpensively, as opposed to only ten years ago when such technology was only possessed by the military.

He breaks down why it will be difficult for hardware startups in the market after those that have been successful so far such as Leap Motion, Jawbone and Nest.  He focuses on three distinct possible stumbling blocks.

1-The difficulty that arise during the planning phase, and compares the ease of testing software in the open market, as opposed to being able to test hardware with the same process.  That it’s not uncommon to only identify significant problems with functions that are revealed to late in the game.

2- Manufacturing and its realities that accompany hardware from the prototype to a big scale production order.  That it takes new entrepreneurs moving to China for six months  to a year in order to oversee the usual problem filled process, and the need for those individuals to have significant experience before undertaking such a task.

Defense of design and market, meaning once you have concluded a significant proof of market, the items have become obsolete, or have instant lower priced competitors. His recommendation is for hardware manufacturers to have a software component that accompanies the product(s). Anderson prophesizes that startups may rely on hardware to bring in revenue, but the only startups to reach their intended margins will have a software element.

 
 

 

    A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit". The only essential thing is growth. Everything else we associate with startups follows from growth. Paul Graham, Y-Combinator