We all know that hardware is cool again. The decreasing cost and increased speeds of prototyping and production is making it possible for hardware companies to launch and scale.
More than that, almost everyone has access to high-speed internet, creating a network of connected devices. Additionally, it’s never been easier to launch a hardware product via crowdfunding and even through major retailers who are hungry for cool new technologies on their store shelves.
But, here’s what you may not know. Just because these costs have decreased, it doesn’t mean that making hardware is suddenly easy. Worse yet, it certainly doesn’t get easier after you’ve built your hardware. In fact, hardware gets much harder.
Randy Komisar, Partner at Kleiner Perkins Caufield & Byers may have stated this best:
“You can lose a lot of money fast in a hardware business if you do it wrong, and most people do it wrong. But building it is not the hardest part. It’s making it, distributing it, managing inventory, managing distribution through the channel, understanding the market and supporting the product…This is really difficult stuff.” — Wall Street Journal. March 2014.”
At Rush Order, we’ve worked with several hundred hardware startups trying desperately to scale their businesses. Here are a few key lessons we see repeated over and over again in the course of building a successful hardware company.
- You will Rework your Product
Consumers are all-mighty in today’s connected world. They click, type, and swipe their way to the products they want, looking for a great deal. If you are a hardware startup, your success will depend on the quality of your devices.
Unfortunately, most hardware startups miss the smallest of details and end up launching products that have some minor or major flaws. Emprically, over 70% of the hundreds of hardware companies we’ve worked with have required significant re-work on their product AFTER the product left the factory. In other words, for over 70% of our clients, Rush Order had to open up ALL the products in inventory and perform some re-work or re-configuration in our fulfillment warehouses around the world.
Commonly, the rework is required as a result of packaging issues, firmware problems, battery issues, and other component failures, all of which can lead to a poor customer experience. High return rates and recalls can be catastrophic for a hardware startup at any stage.
So, how can you avoid this problem?
If you’re one of the 70% that has to re-work a product after it leaves the factory and before it reaches the customer, you better have a supply chain in place that supports this “multi-touch” model. That is table stakes. However, there are a few ways we’ve seen the other 30% of our clients avoid these pitfalls:
- Launch a bigger beta program than you think you should. Receive detailed feedback from a large number of users and don’t overlook what might seem like obvious user-error. Analyze all the different customer use cases during the beta programs and be extra certain you’ve tested the product for every possible scenario. For example, asking “what do you think about the product?” is insufficient. Asking “what part of the Quick Start Guide was least clear?” will give you actionable insight.
- Implement ongoing inbound quality control procedures at your fulfillment center(s) to double check your contract manufacturer’s work, as well as to ensure your products are surviving airline flights and ocean cargo journeys as well as you hoped. This is why keeping your fulfillment warehouses geographically near to your engineering teams can be a wise choice.
- Don’t stop monitoring inbound quality at your warehouses until you can demonstrate a consistent history of high quality. You never know what new packaging configurations or freight transport methods might cause an issue all of a sudden.
- Customer Support’s Mission Must Extend Well Beyond Customer Experience
When you’re trying to build a brand from scratch, especially in an industry as fast-changing as internet connected hardware, you need to make sure your customers are delighted by their experience with your company. By actively tracking customer issues through platforms like Zendesk, you can spot early warning signs of problems customers are experiencing. Spotting a problem with your first 500 customers is much less painful than finding it after shipping to 5,000 customers.
In addition to product defects, it’s important to learn what customer expectations are not being met by the product and how you can address those issues.
If you notice a problem with your hardware, make sure to connect with your customers and let them know you are doing everything in your power to fix the problem. Minimizing the impact of returns in terms of hard costs and impact to your brand is critical. These customers are your early adopters and evangelists. Make sure you have the mechanisms in place to spot pain points early and avoid negative Amazon reviews and social media comments.
One of the biggest pitfalls we’ve seen is when companies ship hardware they think is “ready” only to find out too late in the game that it wasn’t ready. Your customers are your lifeblood from a cash flow perspective, but also your early warning system.
- Poor Sales Channel Strategy is a Death Sentence
After the initial burst of sales that come with a successful crowdfunding or pre-order campaign, hardware startups almost inevitably see their direct-to-consumer sales volumes fall off a cliff over the next few months. The reality is that no matter how much buzz you can generate in the early stages of your product life-cycle, that buzz won’t sustain you indefinitely. With that said, we’ve found that most startups run into these two challenges when it comes to creating a new sales channel strategy:
First, many startups are not prepared to reload with additional sales channels immediately after a successful pre-order or crowdfunding campaign ends or plateaus. We call this phenomenon “The Post-Crowdfunding Hangover.” This happens when a company thinks just because they had a successful crowdfunding campaign, it will lead to a successful direct to consumer sales model over the long term. They assume the traffic and exposure they received during the initial campaign will create a snowball effect that will allow them to sell their products without having to implement any additional channels. However, this couldn’t be further from reality. You can’t rely indefinitely on the direct-to-consumer model. Get those other sales channels lined up.
Start connecting with retailers as soon as you see pre-orders rolling in. Talk with retailers early and often to learn what they want from your product, packaging, pricing and co-marketing efforts. Retail buyers are smart. Some of their feedback may actually inform your pre-order marketing as well.
The second problem we noticed is that many hardware startups assume that once their product is sold into retail stores, it will simply fly off the shelves. What they don’t understand is that retailers only help you capture demand; they don’t generate demand.
You need to implement an awesome marketing and PR strategy to get the word out about your product and gain exposure. Your prospects need to know the value of your product before they go to the store to purchase it. Otherwise, you are missing the opportunity to generate more revenue and risking large volumes of returns from retailers. This is also precisely what makes bootstrapping a hardware startup extra difficult. It takes a lot of cash to generate marketing and PR campaigns that can pull consumer demand through retailers’ store shelves and e-commerce sites.
Building a great hardware product is necessary but not sufficient when it comes to building a great hardware company.
If you truly want to build a successful hardware business and avoid these pitfalls, make sure to learn as much as you can as fast as you can. Then, be prepared to make changes to those plans.
If you’d like to learn more about these pitfalls and how to plan a successful hardware startup launch, contact Rush Order for a free consultation. We provide order fulfillment, logistics, customer support, and retailer accounts receivable solutions for some of the fastest growing hardware brands in the world – and we’d love to do the same for you!