(Originally posted on Medium)
Evaluating consumer hardware startups
3 Things hardware startups should focus on
As Marc Andreessen famously said; software is eating the world [1]. VCs consider hardware startups riskier than software startups. Hardware startups involve higher costs and have lower margins. The availability of programming tools and internet based services make it easy for software startups to build and validate potential solutions with customers, making them a lower cost, lower risk investment.
In spite of the risks, hardware startups have a unique advantage; it’s easier to get people to pay for things they can touch. Connected devices enabling new business models like hardware as a service and subscription models can be highly lucrative. For hardware startups, emphasizing vision and execution strategy is key:
Create a solution, not a gadget
The focus should be on solving the customer’s problem rather than on new technology. A hardware only product is easy to “rip off,” whereas a solution creates a defensible business. Apple, Tesla, Nest and Fitbit all succeeded because they provided a solution.
Find your unfair advantage
Like any other startup, be clear on the value provided and the core competence. Instead of making everything, focus on building the core and partner with a specialist to form a complete solution.
Iterate faster and cheaper
The hardware world needs to embrace the “fail fast” mantra. Hardware tends towards a formal development process, making it slow and tedious to engage with the customer. Multi-project wafer service or 3D printing are excellent means of building cheap prototypes. Creating a ‘minimum viable product’ that can be validated quickly is the key to success.
References
[1] http://a16z.com/2016/08/20/why-software-is-eating-the-world