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