3 Pitfalls that Pose a Threat to your Hardware Startup

Written by Dana Madlem

Hardware is cool again. The decreasing cost of prototyping is making it possible for hardware startup companies to envision a bright future when they develop a profitable hardware business.

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 don’t know. Just because the cost of production has decreased, it doesn’t mean that prototyping and manufacturing hardware is suddenly easy. It certainly doesn’t get easy after you’ve built your hardware.  In fact, it only gets harder.

Randy Komisar, at Kleiner Perkins Caufield & Byers 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.”

Here at Rush Order, we’ve worked with several hundred hardware startups trying desperately to scale their businesses.  What we’ve found over and over again are after crowdfunding is done and production is running full steam ahead.

1. 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, many hardware startups miss the smallest of details and end up launching products that have flaws. In fact, empirically, over 70% of the hundreds of hardware companies we’ve worked with have required significant re-work on their product the products left the factory. In other words, Rush Order had to open up the products and perform some re-work or re-configuration in our global warehouses with at least 70% of the very well funded hardware startups.

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. There are two primary ways in which 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 ever 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.
  • Implement inbound ongoing quality control procedures at your distribution center(s) to ensure the outbound quality control results at your factory match the results you are seeing upon inbound receipt at your inbound distribution center(s).  This is why keeping your 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 even freight transport methods might all of a sudden cause an issue.


2. Customer Support Monitoring

Amazon is, without a doubt, one of the best e-commerce platforms. Its entire culture is built around customer service. Anyone who had the privilege of interacting with their customer service reps knows how helpful and flexible they are. And that’s exactly what you need. 

When you’re trying to build a brand from scratch, especially in an industry as fast-changing as 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 notice 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 the issue.

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 powers to fix the problem so that they can enjoy your product at its top performance.  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.

3.  Poor Sales Channel Strategy

After the initial burst of sales that come with a successful crowdfunding or pre-order campaign, hardware products invariably see their direct-to-consumer sales volumes fall off a cliff.  The reality is 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 issues when it comes to creating a new sales channel strategy: 

First, they don’t reload with additional sales channels fast enough after successful campaign is over or it starts to plateau. We call this phenomenon “The Post-Crowdfunding Hangover.” This happens when a company thinks just because they had a successful crowdfunded 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, that couldn’t be further from the truth. You can’t rely indefinitely on the direct-to-consumer model; you to have additional sales channels lined up.

You need to start thinking about additional sales channels when you are still planning your pre-order campaign. You want to 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.

The second problem we noticed when a hardware startups assumes that once their product is sold in retail stores, it will simply fly off the shelves, just because it’s there. But, 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 just 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.

Conclusions

Building a great hardware product is necessary but not sufficient when it comes to building a great hardware
 
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, and be prepared to make changes to your 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, customer support, 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! Visit  www.rushorder.com 


Learn more tips like this at HardwareCon 2018, the Bay Area’s Premier Hardware Innovation Conference on April 19th-20th.  Experience two full days of keynotes, panels and workshops focused on the most important topics around building a successful hardware company. Get" class="redactor-linkify-object">http://www.hardwarecon.com/">G... your tickets here now if you want to meet the hottest startups, investors and industry leaders across the global hardware ecosystem.

About The Author

Dana Madlem

Dana Madlem

VP of Services

Dana Madlem is VP of Services at Rush Order, a provider of global logistics, customer support, and accounting solutions to some of the worlds most successful hardware startups. He is responsible for developing solutions that enable startups to successfully launch hardware products and quickly scale their operations. Previously, Dana was VP of Business Development at Gerson Lehrman Group and Global Client Director at Gartner, the world's largest IT and supply chain research company.

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