How to Build a Successful Hardware Startup in 3 Stages - ArabNet Beirut 2016
If software is a very tough field, hardware is even tougher. Indeed the pitfalls of the industry give more sense to the question, "Why risk starting a hardware startup?"
Sure, there is less funding available in hardware, and pitching for investment is strenuous and time-consuming. On the other hand, what was virtually impossible in the 20th century, is not anymore today.
During the Design and Code Day at ArabNet Beirut 2016, Rami Alhamad, CEO of PUSH, gave an insightful talk on the key stages for hardware startups to avoid common mistakes.
Stage 1: Passion Coupled with Competent Partnership
One tip for hardware startups is to conduct early market research and think globally. Because of the need to scale, you must be aware of what's out there in the world because your product can turn out in foreign markets very quickly.
“Your product has to be ten times better than what's available, or a brand new concept - which is much harder because you would be challenging people for a new form of interaction. People don't switch their behavior except when there is an offering that is dramatically better, or easier,” said Alhamad.
His company developed a product that was already available - a physical exercise monitor for athletes - but developed the hardware to become better in size, design, and price than any of its peers in the market.
In addition, he said hardware startups are too risky to be launched single-handed. The key is to have a team that is passionate about the idea and that leaves no gap in technical or design talent.
“It will take a startup at least 3-5 years to become a business. The people involved must learn to translate their passion while talking about the idea as much as possible. Do not worry about others stealing your idea, because that would be too difficult to execute in hardware. Most hardware startups who fail are limiting their thought process to the financial return,” he added.
Stage 2: The Buildup Is a Question of Time and Cost
On average, it takes a hardware startup 2-3 months to build a prototype at a cost of $1,000-$5,000. Incubators and grants are the best bets for funding this important first step.
“Whatever your hardware is about, people will feel engaged if asked for feedback of your prototype. It does not have to be pretty, just interesting enough for users to interact with it and segregate their thought process along with what's between their hands,” explained Alhamad.
This is followed by a more polished DIY model stage that takes 3-6 months at a higher cost of $15,000-$20,000. Accelerators and grants would be ideal for funding this stage.
The full test production run might take two years to get the product out at a cost of $500,000-$1,000,000. This involves lawyer fees, factory contracts, and the expensive initial molding stage. It might take a startup a year to make the first 100 units, but scaling up is easier.
Upon hitting the final full-run stage, startups ought to take a year to consider matters such as hiring full-time staff as well as customer service and support. Startups are advised to use crowdfunding and angel investors to fund their production.
Stage 3: The Sales Pitch
One key business approach that sits well with investors, is to think of hardware as a key to sell software. Alhamad puts it bluntly: “Pure hardware is a bad idea, it has to be a gateway for software updates.”Moreover, customer service is the absolute key. The advantage of small businesses that allows them to overcome big corporations, is their ability to quickly get in front of a person and respond in order to guarantee things are done faster.
“Whether you are selling the product yourself, or you hired a full-time team, make sure to plan for this carefully beforehand. I'd rather take a financial loss than lose any customers. They will be my good shot to getting into the mainstream market.”