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Will Your Hardware Startup Make Money?

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Re: Will Your Hardware Startup Make Money?

#41

Post by compumike »

This is a great article and the estimates are decent for what it is. The ultimate point is absolutely right: you will not make money on your first production run. But there are three big warnings that should be in BLINK tags under the headline:

(1) This is a decent estimate for a completely commodity product (Bluetooth headphones). No iOS/Android app development, no content development, very little custom firmware or electronics development required. (That correspondingly means you face the least differentiation and the most competition.)

(2) This is for a "plastic and PCB" product build. That's as simple as it gets. Any product that goes beyond a PCBA inside a plastic enclosure is usually going to have significantly greater design and engineering challenges, not to mention COGS costs. Moving parts? Temperature? Water? Cameras/lenses? Sensors? etc.

(3) The marketing / customer acquisition cost is either ignored or assumed to be some laughably small number. Even at its highest, this article assumes $3/unit customer acquisition cost. That's ridiculous (go look at Fitbit or Gopro or any other filing statements). If it were true, a lot more people would go ahead and get that initial capital to make their own Bolt-o-Phones.

(Disclosure: co-founder of a hardware startup https://www.pantelligent.com/ and about to ship our first production run.)

Re: Will Your Hardware Startup Make Money?

#42

Post by dvt »

I did a hardware startup earlier this year (http://gameref.io) and tried to fund it via Kickstarter. I need to write a post-mortem one of these days, but even after significant media coverage (including PC Gamer, Vice, Polygon, etc.):

- http://www.pcgamer.com/introducing-gameref-the-anti-cheat-ha...

- http://www.redbull.com/en/esports/stories/1331720277392/game...

- http://www.pcgamesn.com/gameref-is-a-prototype-anti-cheat-sy...

- http://www.polygon.com/2015/2/23/8090221/onling-gaming-cheat...

- http://motherboard.vice.com/read/can-this-little-device-fix-...

.. it failed to get funded. Failure is part of the game and I wasn't too phased by it, but it still sucks. Unlike a software start-up where I can build and launch a working alpha/beta, you NEED some money to pour into a hardware start-up right at the start. It's not easy and, as the article mentions, the margins aren't as great as software. The sentiment of hardware being tougher than software is ubiquitous from what I can tell.

Props to the people that make it though.

See the KS page here: https://www.kickstarter.com/projects/1094040691/game-ref-the...

Re: Will Your Hardware Startup Make Money?

#43

Post by myth_buster »

melling wrote: post #18

You're software start-up probably won't make you money either. At least for hardware, people don't have so many free options. The barriers to entry are also higher. Someone won't be developing hardware after a 12 week online course. To me it looks like a great time to build hardware. Kickstarter has really changed the game. These guys launched today, for example, and they'll probably be funded within 24 hours: https:…

The barrier for entry (intellectual & financial) and the risk are higher. The upfront investment is perhaps the single most important reason why people moved to software (myself included) as all you needed was a couple of $100 and you can get going. I think Makerspace is helping a lot to even out this gap and I couldn't be happier.

Interesting product... they are almost there and the traffic from here should do it.

Re: Will Your Hardware Startup Make Money?

#44

Post by officialchicken »

I'm having trouble with this article and I hope someone from HN will help clarify for me: why was an initial run of 5000 units selected? This seemingly arbitrary number seems too important in HW development to be relegated to a single non-explanatory bullet point.

If my understanding is correct, product dev teams seem to aspire to an initial 500 - 2000 units for that initial run as the symbolic point of reaching this "finalized" level of development. Any production at this level is considered a finished good ready for the sales/supplier pipeline.

Once a product has reached this level, my understanding is that subsequent runs is typically for 10K to 25K widgets per run ("lot") that see anywhere from 10,000 to 250,000+ widgets for a single SKU per production run.

Above 1 million units, everything changes, but the 5K first-and-only run seems abnormal.

Re: Will Your Hardware Startup Make Money?

#45

Post by aylons »

Kiro wrote: post #25
lpolovets wrote: post #12

This article made me think of Betteridge's law of headlines ( https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline... ): "Any headline that ends in a question mark can be answered by the word no." On a serious note, it surprised me that the BOM listed the shipping materials as being about as expensive as an assembled and flashed PCB. It's interesting that a cardboard box (which feels pedestrian) costs about a…

I haven't downvoted you but I think people are because they're tired of references to Betteridge's law of headlines in every single submission ending with a question mark. I personally don't think this is a good case of Betteridge's by the way.

Actually, I think the Betteridge's law was used as a device in the writing, making the reader assume from the beginning that the answer is "no".

Re: Will Your Hardware Startup Make Money?

#46

Post by subliminalzen »

dvt wrote: post #42

I did a hardware startup earlier this year ( http://gameref.io ) and tried to fund it via Kickstarter. I need to write a post-mortem one of these days, but even after significant media coverage (including PC Gamer, Vice, Polygon, etc.): - http://www.pcgamer.com/introducing-gameref-the-anti-cheat-ha... - http://www.redbull.com/en/esports/stories/1331720277392/game... - http://www.pcgamesn.com/gameref-is-a-prototype-an…

How much were you trying to get funded? And who was your target audience? Congrats on getting as far as you did though. I'm sure you learned a lot. As the Buddhist saying goes: nothing is ever wasted.

Re: Will Your Hardware Startup Make Money?

#47

Post by officialchicken »

jkestner wrote: post #30
officialchicken wrote: post #5

Earlier quoted context omitted.

Finding an injection mold with tooling for 5K is also in the realm of impossible (and probably unusable if found), certainly for PCB enclosures.

For one part? You can get tooling for less than that at Protomold in Minneasota (the higher per-part cost is often worth the lessened risk if it's your first go-round), and easily in China.

I know and you know that 2-piece molds are cheap around the world - but does the buyer/typical HN reader know the difference between, say, O-2 and 6063 when tooling?

Can Protomold in Minneasota rotoshill my parts?

Re: Will Your Hardware Startup Make Money?

#48

Post by pkapur86 »

Great read and sums up a lot of my experiences. As a product manager who launched a niche consumer hardware product recently, I came up with the same analysis. Plus, manufacturing state-side (boston) had its own perks (quality control) and cons (labor cost and freight from china for components). Even after you factor in all the costs, there is cost of acquire customers which can be quite a lot for a product that is new in its category, where a lot of startups aspire to be. What is tricky is seeding customers, organic growth through hackathons, co-marketing, and customer stories.

Thanks for the post.

PS: Full Disclosure, i launched a robotic haptic device (cubify.com/touch).

Re: Will Your Hardware Startup Make Money?

#49

Post by drzaiusapelord »

compumike wrote: post #41

This is a great article and the estimates are decent for what it is. The ultimate point is absolutely right: you will not make money on your first production run. But there are three big warnings that should be in BLINK tags under the headline: (1) This is a decent estimate for a completely commodity product (Bluetooth headphones). No iOS/Android app development, no content development, very little custom firmware or…

What's your estimate for item 3?

Re: Will Your Hardware Startup Make Money?

#50

Post by drzaiusapelord »

pkapur86 wrote: post #48

Great read and sums up a lot of my experiences. As a product manager who launched a niche consumer hardware product recently, I came up with the same analysis. Plus, manufacturing state-side (boston) had its own perks (quality control) and cons (labor cost and freight from china for components). Even after you factor in all the costs, there is cost of acquire customers which can be quite a lot for a product that is n…

>What is tricky is seeding customers, organic growth through hackathons, co-marketing, and customer stories.

How did Cubify handle these things?

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