Hardware Start-UpsSimilarities, Differences, and Difficulties
Agenda A Brief History of
Manufacturing 5 Phases of Hardware Hardware vs. Software
Start-ups Jobs
Target Markets Traction and Sales Margins and BOMs Intellectual Property
Manufacturing Capital Pricing Competitive
Advantage Case Studies Resources Available
Brief History of ManufacturingPro
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ion
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Brief History of ManufacturingPro
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Moore’s Law Number of Transistors per sq.in. doubles every two years or so
5 Stages of HardwareSketching, Prototyping, Production, Manufacturing, Scaling
Sketching
Sketching
Push Tech Problem
Pull Problem Tech
Prototyping
PrototypingPR
Funding
Software Dev
Pre-Order
Batch Manu
12+ Month
s
Prototyping
Batch Size
PricingCustomer Acquisitio
n
Production
ProductionTooling
Packaging
Manuals
Manufacturing
CertificationPre-Sales
Marketing
Customer Management
Financing
6+ month
s
Manufacturing
ManufacturingQuality
User Support
Production
Logistics
Supply ChainSales
Marketing
Customer Manageme
nt
Financing
Ship Here
ScalingProduction
Distribution
Capital
Supply Chain
Sales
Marketing
Customer Manageme
nt
Financing
Legit Compan
y
Hardware vs. SoftwareWhy They Are the Same, Why They are Different
Hardware vs. Software - Overview
Hardware ≠ SoftwareHardware = Software + Lots of Other Crap
Software = PM, Soft Eng, UX, UI, Support, Sales, Marketing, Finance
Hardware = $$$$$$$$$$$$ + Tik-Tok * ∞
Hardware vs. Software - Overview
Big Company
Small Business
Hardware Start-up
Software Start-up
Hardware Eng
Hardware Eng
Design Eng/Industrial Designer
Industrial Designer
Industrial Designer
The “Make-it-Sexy”-ersRequires many, many
iterations = $$$$$$$$$$$$$Integration with UX, UI,
Engineer, Product Dev, Supply Chain
Design Eng
Design Eng
Industrial Design
Design Engineerin
g
Hardware Engineerin
g
Finished Prototyp
e
Firmware Eng
Firmware EngSoftwar
e
Firmware
Hardware
Firmware Eng
Firmware
Hardware A
Hardware B
Hardware C
Logistics
Logistics
Product Logistics Customer
Product Logistics Customer
&
Certifications
Certifications
Production
Production
Time
MoneyExperience
Production
Product
Sourcing
Tooling
Pricing Lead Times
Payment
Timelines
Target MarketsWho Actually Gives A Crap About Hardware
+ =
Target Markets
Consumer
Usability, Design Tech
Business Utility Usabilit
y
Business to Customer (B2C)
UI, UX
Cool Factor
Robust
Business to Business (B2B)
Robust
Utility
Design
Business to Tech (B2T)
Tech
Robust
Design
Traction and SalesHow do we evaluate Hardware? What changes from Software Start-ups?
Early Adopters
Traction
Sign-ups = 5%Reservations = 65%Pre-orders = 90%Sales = 100%
Total =Comparable Values
Hockey Sticks in Hardware?
Hockey Sticks in Hardware?
Virality = X Y Z
where Z>Y>X
X
YZ
Hardware “Hockey Sticks”
Margins and BOMsHow Many, How Much, What Kind, From Where, From Who, To What?
BOM = Bill of Materials
BOM = Bill of Materials
BOM = Bill of Materials
Bill of Materials (Actual)
Margins
Margin = Selling Price – BOM (Supplied Cost)
Revenue with 0% Margin = No $$$$
Margins! Hardware Software
Customers 1,000 1,000,000
Price $100 $10
Margin 30% 100%
Retention % 100% 3.6%
Lifecycle Monthly Yearly
Total $360,000 $360,000
Margins
30%
Manufacturer
30%
Supplier30%
Distributer
IPShould you file? Why or why not?
IP
Not “Is it patentable?”Rather, “Is there anything
patentable, and how much will it cost?”
EU ≠ US
Start-up IP?
Bad Idea
Types of Patents: ProvisionalTemporary (<1 year)Before Public Disclosure1-year grace period in US~$100 USD in each country/regionCan claim ANYTHING (no audit)
Types of Patents: PCT International Filing, by regionTemporary, 1 yearBefore Public Disclosure~$5000USD Drafting Fee, ~$1000 USD
Filing in each regionAuditedDoesn’t become “real” until filed in
each region
Types of Patents: Actual Patent Regional Filing Permanent for X years, depends on cost Follows Provisional (usually) ~$15,000USD Audited, Revisioned, $$$$ Only holds by region Goal
Broad enough to cover all possibilities
Specific enough to be unavoidable
Be a “Linchpin”
ManufacturingImportant Details on Making Cool Shit
Manufacturing
Manufacturing
Volume
TimeQC
Manufacturing: Time
Iteration = Time + MoneyGas ($) < Plane Tickets ($$$$$)
Min. 6 Time Zones18 hr. Flight
Manufacturing: QC
30+ Suppliers = QC Clusterfuck 30+ Suppliers = Lots of little details to go
wrong Shit going wrong = Many trips to Suppliers Close by >> Oceans away
Manufacturing: Volume
Initial Costs: Tooling, Production Templates, Production Runs, Testing
Initial Costs = Pricing Complications Batch Sizes start at 1,000 Suppliers min. at 10,000 Batch Cost not constrained by location Variable cost difference between China and
Local is negligible
Manufacturing: Don’ts
Capital RequirementsTalkin’ Bout Dem Dolla Dolla Billz, Yo.
Capital
Margins = f(BOM, Volume, Materials, Market, Dev)
More units, lower price per unit
Capital: Initial Costs
Capital! Hardware Software
Initial Tools $10,000 per tool $0
Tooling Time 4 weeks 0 weeks
Test Run Costs $100k - $300k $0
Test Run Time 4 x 1-2 Weeks 0 weeks
Other Costs Forklift, QC Equip Nothing
Capital: Working Costs
Capital Again! Hardware Software
Units 3000 1,000,000
Cost per Unit $100 0
Margin 30% 100%
Capital Required $210k 0
Bank Fundable? Yes Yes
Other Costs Tooling, Production, Certification, Etc. None
Capital: Production
Extremely Rare: Just-In-Time Batches
Very Likely: Order in BatchesLead Time: 8-12 WeeksMust Finance 2 Cycles ahead to
avoid loss of Market Share
Capital: Fund-Raising - Seed
$25k-$250k3-6 months salary10k-100k usersDesign EVERYTHINGActually Need: 6-9 months + Initial
Costs$500k-$1MM
Capital: Fund-Raising – Series A
Second Gen ProductFigured its Shit outSales, Marketing, Optimize Supply
ChainSoftware: $3-5MM = 18-24 monthsHardware: $3-5MM = 9-12 months or
less
Competitive PositioningSo… Why the hell would you ever want to start a Hardware Start-up?
Competitive Positioning
Competitive Positioning
Positioning! Start-ups Big Companies
Advantages AgilityFirst Mover
Supply ChainExperience
Disadvantages No Market Control Slow and Stupid
PricingThe Mother of All Hardware Problems
Pricing Models – One-Off
Manufacturer (Distributor) Customer
Pricing Models: Keurig
Big Hardwar
e
Product System
Software or Small Hardwar
e
Recurring
One-Time
Pricing Model: Keurig
Pricing Model: Keurig
Hardware-like Customer Acquisition
Software-like Recurring RevenueGenerally <15% of Hardware Cost
Pricing Model: Keurig
Pricing Model: Keurig
Pricing Model: Keurig
Pricing Model: Keurig
ExamplesPeople Doing Good Shit
Resources AvailableI don’t know how to do that!? What the hell do I do now!?
Resources
Resources
Resources
Resources
Resources
Resources
Resources
Local Manufacturers Local Grants Local Suppliers Local Mentors Local Resources Local Talent Local Connections
Further Reading