Hardware is hard, and, ironically, crowdfunding services make it even harder. I always feel bad for Hardware startups who go through crowdfunding services like Kickstarter. They almost always underestimate the cost of development of the final product, while at the same time giving (deep) discounts on that final product to early backers. In this way, they build up a huge amount liability because they burn through the Kickstarter cash real quick.
I worked with both Kickstarter and Crowd Supply, and I have to say that the latter can help you significantly.
Cashflow is certainly an issue. In our 1st KS we definitely did significant discounts. Thankfully we remained profitable, but what we didn't really considered well enough was the amount of money you need to build inventory AFTER the campaign.
Rule of thumb now: 3x your production cost. 1x for manufacturing, 1x for various expenses including discounts, 1x for next batch.
That's a great perspective. I actually think Kickstarter could be great, if backers really treated it as a way to fund projects they like, instead of a pre-order of a final product with an early-bird discount. That is, if you're building hardware with a target price of $100, early backers should be paying $300+ for that product (or $x no-string attached donation + small $ amount for the right to be first to pre-order to be used against the final price of the product) because otherwise, yeah, like you said, you're going to use the Kickstarter capital to finish development and have no money left over to fulfil orders.
That squares pretty well with the old rule of thumb for the cost of opening a restaurant or bar: Figure out what you think it will cost, then triple it and add a third.
I work on (embedded) hardware and completely agree with you, with a couple of addenda. Hardware crowdfunding is a great way to check for some product-market fit, and access early adopters; it isn't a great way to fund hardware R&D, especially for commoditized goods (where pricing is dictated by competition).
As someone who has developed hardware for >10y now, there’s one crucial mistake a lot of startups make:
- Thinking that making hardware is profitable.
Don’t get me wrong, there’s some markets where hardware is profitable, but they are niches, and the prices might surprise you.
As a reference, check the mechanical keyboard scene. Check out how much the components cost, and at what price those keyboards are sold.
When it comes to general consumer hardware, a cursory look to hardware companies will show you that the margins are razor thin, the risk is real, the problems are many.
You don’t build hardware to make money, nowadays you make hardware because it enables you to sell software. That’s a better approach for most “hardware” companies.
This may be true, but i think keyboards are a bad example. Keyboards are generic, there's been very little innovation in a long time, everyone knows how to make a basically equivalent product. The only real distinguisher between competitors is cost. That's going to drive margins to be razor thin. But not because its hardware but because the type of product a keyboard is. You would probably see the same thing in the market for hammers, cutlerly, etc.
I started Framework to build an fourth option, which is to monetize the longevity of consumer hardware through a marketplace for repair parts, upgrades, and used product/part re-sale. In this way, we align incentives between the OEM, the consumer, and the environment. If a consumer is not using a product, we want to incentive them as much as possible to input it back into the marketplace where it can find another consumer (and we capture another transaction). If a consumer is using a product, eventually some part of it will wear out, break, or go out of date, and we want to enable that user to keep using the product by getting them the part and/or service they need to keep using it.
The goal ultimately is to bootstrap a large enough install base on each product category we enter to make it worthwhile for third party compatible part/product makers, refurbishers, and service providers to participate in the marketplace. The resulting ecosystem of providers makes the product and marketplace serve more consumers better, fostering network effects.
I have a totally boring "financial engineering"-related dream every time I need to replace a major appliance: I would gladly pay $X/mo for one appliance in perpetuity that I never have to think about it again. Give it a replaceable facade and no one would ever know when it's 10+ years old.
I don't need fancy apps, or screens, I don't want the internet on my fridge... Just give me enough space for my food and keep it the right temperature! Same with the dishwasher, just make it work well and don't build everything out of plastic and I bet it would last a lot longer...
>I would gladly pay $X/mo for one appliance in perpetuity that I never have to think about it again.
That's a very common model. For example, our business didn't buy a printer/copier - rather it is pay-per-use and ostensibly under perpetual warranty while we're paying. If something breaks, a tech comes in and fixes it or replaces the unit. Coffee machines and commercial dishwashers are another example. All these can be leased and serviced for a monthly cost and typically don't require any up-front capital. It's very convenient but more expensive than an outright purchase.
This model works well for commercial enterprises, but it just isn't worth for consumers. It's like car leases - bad deal for consumers, but attractive due to flexibility for businesses.
That's the thing tho. Make it cheap enough to not be more expensive. Make it a quality product so there's little maintenance cost.
Don't replace it every 10years and there's less overheard across the board.
Furnace longevity depends on how good the owner is at maintaining clean filters, and water heaters depend on water quality. I'd find it difficult for either of those to be offered as-a-service at a reasonable price considering the aforementioned volatility versus just selling them since they're not that expensive in the first place.
I just bought a dishwasher and the whole tub seems to be stainless steel. You just have to look at the higher end ones I guess. This one was a Bosch 500 series one.
But "they" can make more money if they sell a better product than their competitors for the same price.
There's no monopoly on dishwashers and other appliances. People simply choose to save money and go with cheaper items, or they can't afford ones that come with a 10 year warranty. Or maybe they don't exist. I know miele products exist, but not everyone wants to spring for Miele or Speed Queen washers or other higher quality builds that offer longer warranties.
I know I'd rather save $1,000 or more, invest it, and take my chances with an appliance from Costco since I can get it with a 4 year warranty anyway. If it breaks after 4 years, I'll get a new one. Over the past 10 years, I haven't experienced any appliances breaking.
Having some experience in hardware engineering, I can tell you that I'd never touch consumer hardware. Far more profitable to build for industry, B2B sort of stuff. Sell pickaxes.
I think the hardest part of hardware is that its development is essentially an optimization problem - find the cheapest way a factory can make a widget with the features you're trying to sell.
The hard part of this problem is that there's an immense amount of information asymmetry between factories, designers, and marketers.
This will get better with factory automation. Right now you can upload CAD files to get a quote. The issue for designers is you want the quote to tell you why something is expensive (eg, a feature requires three tools for machining a part instead of one, or it's slightly too large/small for a process that is way cheaper, etc). Normally you work through this with engineers, designers, and factory staff iterating together on designs before tooling. That process is expensive and time consuming - it's a very human problem that can and will be automated soon.
I don't see "hardware as a service" coming into vogue for markets that are a race to the bottom (except if the service is sold to advertisers, like with Rokus). I see the service being manufacturing the hardware itself. It's already turning that direction.
I've seen plenty of companies get screwed by thinking they need to optimise BOM cost above all else. They make decisions that save a couple of dollars / unit but blow out their NRE costs and shipping dates by months or even years.
HaaS was my goal with http://www.gameref.io (selling/renting to eSports tournament organizers) -- unfortunately, and as others say in this thread, I couldn't raise enough money to move out of the prototype/MVP stage. Hardware is hard, and even with working my butt off to get covered by PC Gamer, Tom's Hardware, Vice, and dozens of others, I couldn't get enough nibbles.
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Cashflow is certainly an issue. In our 1st KS we definitely did significant discounts. Thankfully we remained profitable, but what we didn't really considered well enough was the amount of money you need to build inventory AFTER the campaign.
Rule of thumb now: 3x your production cost. 1x for manufacturing, 1x for various expenses including discounts, 1x for next batch.
- Thinking that making hardware is profitable.
Don’t get me wrong, there’s some markets where hardware is profitable, but they are niches, and the prices might surprise you.
As a reference, check the mechanical keyboard scene. Check out how much the components cost, and at what price those keyboards are sold.
When it comes to general consumer hardware, a cursory look to hardware companies will show you that the margins are razor thin, the risk is real, the problems are many.
You don’t build hardware to make money, nowadays you make hardware because it enables you to sell software. That’s a better approach for most “hardware” companies.
The goal ultimately is to bootstrap a large enough install base on each product category we enter to make it worthwhile for third party compatible part/product makers, refurbishers, and service providers to participate in the marketplace. The resulting ecosystem of providers makes the product and marketplace serve more consumers better, fostering network effects.
I don't need fancy apps, or screens, I don't want the internet on my fridge... Just give me enough space for my food and keep it the right temperature! Same with the dishwasher, just make it work well and don't build everything out of plastic and I bet it would last a lot longer...
That's a very common model. For example, our business didn't buy a printer/copier - rather it is pay-per-use and ostensibly under perpetual warranty while we're paying. If something breaks, a tech comes in and fixes it or replaces the unit. Coffee machines and commercial dishwashers are another example. All these can be leased and serviced for a monthly cost and typically don't require any up-front capital. It's very convenient but more expensive than an outright purchase.
This model works well for commercial enterprises, but it just isn't worth for consumers. It's like car leases - bad deal for consumers, but attractive due to flexibility for businesses.
What's different about a furnace vs a fridge or dishwasher?
But they can make more money if you buy a new one every 8 years instead of every 10.
There's no monopoly on dishwashers and other appliances. People simply choose to save money and go with cheaper items, or they can't afford ones that come with a 10 year warranty. Or maybe they don't exist. I know miele products exist, but not everyone wants to spring for Miele or Speed Queen washers or other higher quality builds that offer longer warranties.
I know I'd rather save $1,000 or more, invest it, and take my chances with an appliance from Costco since I can get it with a 4 year warranty anyway. If it breaks after 4 years, I'll get a new one. Over the past 10 years, I haven't experienced any appliances breaking.
The hard part of this problem is that there's an immense amount of information asymmetry between factories, designers, and marketers.
This will get better with factory automation. Right now you can upload CAD files to get a quote. The issue for designers is you want the quote to tell you why something is expensive (eg, a feature requires three tools for machining a part instead of one, or it's slightly too large/small for a process that is way cheaper, etc). Normally you work through this with engineers, designers, and factory staff iterating together on designs before tooling. That process is expensive and time consuming - it's a very human problem that can and will be automated soon.
I don't see "hardware as a service" coming into vogue for markets that are a race to the bottom (except if the service is sold to advertisers, like with Rokus). I see the service being manufacturing the hardware itself. It's already turning that direction.
C'est la vie.