This week, I came across a great article on the True Ventures blog about hardware-focused startups – why we see more and more of them these days, why True Ventures loves to invest in them, and what founders of hardware startups need to do differently.
According to True Ventures, several technological trends are converging that makee it easier than ever to form a hardware-based startup:
“Cheap processors, cheaper memory, and even cheaper sensors means it’s a great time for people who like to tinker with hardware to tinker. Platforms like Kickstarter and Quirky de-risk production, identify features and customers, and do so before the first tool is made.”
However, hardware startups face unique challenges and the article provides a quite extensive discussion of these challenges and possible solutions.
My top 3 challenges from that list include:
- “Hardware is the double black diamond of startups. ….. Innovation curves are longer in hardware, and you’re dependent upon a huge host of suppliers and partners. Off-shore manufacturing means dealing full time with multiple and different business cultures, languages, customs, ….
- Experience counts . . .really. … Poor supply chain creation and management or weak demand planning will kill most companies that make a product. …
- Capital, and lots of it. Costs are high and more cash is needed, at all stages, to build a device. Not only is the cost of building a physical product much higher than in a software only business, but in today’s hardware world, you need to build both a hardware company and a software company. Today’s devices extend the power of the software world to incredible places, and your startup needs to do both well, which means higher burn rates. Cash also gets consumed by WIP, inventory, shipments in transit, returns. Even small failure is very expensive.”
Nevertheless, True Ventures loves to invest in hardware startups: they believe we are just at the beginning on the hardware revolution and True Ventures definitely wants to be part of that revolution.
A very insightful article, and I believe the discussion of challenges and possible solutions could be very helpful for the many hardware-focused startups we see here in Germany, and in Southern Germany in particular.
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