hardware startup wins & fails
TRANSCRIPT
Hardware Startup Logistics for Growth
Dana [email protected]
Hardware Startup Wins & Fails Realities After Production Begins
Topics What’s happening in hardware Lessons learned: Why hardware is hard
o Product qualityo Sales channel managemento Returnso Existential crises
Stories from the front lines Q&A
What I / Rush Order do
Make the
product
Product storage
Ship to custome
r
Customer Support
Get paid for the order
Handle all
returns
Global warehousing
Order Fulfillment to consumers and retailers.
Reverse Logistics
Accounts ReceivableCredit Card Fraud Mgmt
Contact Center (phone, email, live chat, social)
2016+ 20102005200019951990 ?
The Flexible Back Office of the World’s Best Ideas…Time and Time Again.
My Window into the Hardware Startup Landscape
No VC pitches. We see the unvarnished data and help clients manage real-life operations. And put out fires.
“A good friend will help you move, but a true friend will help you move a body.”― Steven J. Daniels, Weeds in The Garden of Love
Sample Profile from Active Clients
65+ hardware startups actively shipping in 2015o 85% are still operating as independent businesseso 8% died this yearo 7% recently had major liquidity event or exito Of the remainder operating independently, there is a fairly clear
trajectory (up or down)
All Founded Between 1999 - 2014o 0 founded in 2015. Why?o Average Founded in 2011.
Sample Profile from Active Clients
Mostly consumer products. A few enterprise IT. Funding ranges from $100k in seed round to $725M
raised in private markets (unicorns). Total funding raised: $1.7B Average private funding, including unicorns = ~$30M Average private funding, excluding unicorns = ~$14M 76% raised more than $1M to date. 33% raised more than $10M to date.
Lessons Learned: Why (Post-Production) Hardware is Hard
Hardware is hard. How hard?
0% shipped in the same year they were founded Average timespan from founding date to actual customer ship
date = 31 months Over 70% of clients’ products required “significant re-work”
after leaving the factory.1. Firmware flashing2. Batteries – all sorts of issues3. Packaging (e.g. product mounts and trays, adhesives, scuffing,
barcodes)4. Other component failure (e.g. wheels, motors, plastics, wrist straps,
etc.)5. Sensors
“Everyone has a plan until they get punched in the face.”
-- Mike Tyson
Sales channel management is also as hard
After the first crowdfunding / pre-order campaign, 0% consistently reached those direct-to-consumer sales volumes again.
(Some second attempts at crowdfunding campaigns went well, some not.)
How do the best do sales channel management?
The old school stuff… Large marketing and PR budgets Successful channel strategy and execution – it’s not accidental.
VP of Sales role is critical. Every client is selling product on Amazon (90% are selling product
to Amazon) Every successful consumer product we manage is going to other
major retailers too (online and brick & mortar) Direct to consumer channel should be viewed as one tool in your
Swiss Army knife
Return rates are dictated by nature and nurture
8%10% - 25%
3% - 8%
Product quality (duh) Connectivity (bluetooth vs. wifi vs…) Moving parts Other product complexity (e.g.
installation) Brick & mortar retail sales US is highest. Asia is lowest.
Product quality (duh) Certain market categories like toys Direct online sales and etailer
dropships No connectivity Low complexity in product US is highest. Asia is lowest.
More on returns
Consider design for test, and design for repair in your product NOW.
The ability to create refurbished units can help soften the landing. How?
Use refurbs for warranty replacements Sell refurbs / open box units through creative sales channels
(this is what you see on Woot, Groupon, Overtsock, etc.
What variables are common across the success stories?
Awesome product / market fit. Good luck. Market size (mass vs. niche) – hardware needs scale, or needs to
be expensive, or both. Price point – (a proxy for market size) What type of investor do you attract?
Only relying on Family / Friends / Bootstrap = lower odds Emotional investors (empowering a certain group) – this is also tends to be
the Kickstarter backers. Traditional big money VC and private equity = better odds Incubators / Accelerators are not necessary, nor sufficient, but they might
help you a lot. Return rate Organizations nimble enough to survive crises Ability to jump from B2C (web sales) to B2B (retailers)
What variables are common across the success stories?
Sales & marketing. It does take money to make money.
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Ellen / Today Show /
Shark Tank appearance
Acquired for hundreds of
millions $
Inbound phone support approaches 75,000 minutes per month
Existential threat #1
Spikes driven by holiday
marketing push, or follow-on pre-order campaign
The Dream
The Reality
Existential threat #2
Units Shipped
First Retailer Shipment
Stories from the Front Lines
(Mostly) Recoverable mistakes we see Manage all your crowdfunding backer data on
spreadsheets. Promise a specific delivery date. Embrace “seasons”, not
“months”. o “Crowdfunding scammer speaks out at SXSW”
Be surprised by credit card fraud when you become successful.
Insurance? What insurance? – Theft, inventory lost at sea, hungover forklift driver, smelly product, etc.
Retailer chargeback surprises.
How to avoid certain death Recoup quickly from the “crowdfunding
hangover”o Queue up retail channel partners in advance
How to avoid certain death Sell in is not sell-through
o Get your marketing machine readyo Manage credit risk… “Hurray! We finally made it! We
just signed on GoodGuys, Circuit City, and Sharper Image!”
o Inventory management and sales forecasting are hard…
6 months later… “Hey, what are those pallets being offloaded on the dock?”
Hurray! We signed a major retailer!
How to avoid certain death Manage Returns
o Talk to customers – spot the problems earlyo Create access to returns data – watch trendso Have access to your inventory in the warehouseo Capture serial numberso Retain great relationships with your suppliers (CMs,
logistics, etc.)…
How to avoid certain death Don’t be caught off guard by 1 to 3 existential crises.
Easier said than done. o Be agile – Can you run 24/7 shifts with a small army
charging batteries or flashing firmware or repackaging product (or all of the above at the same time)?
From the headlines:o “Owners eligible for full refund, can keep the troubled band”o “Have you contributed to this health product scam?”o “Company advices rash sufferers to remove device for a while”o “Company misled consumers about battery life”
"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," he continued.
"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.“
― Randy KomisarPartner @ Kleiner Perkins Caufield & ByersThe Wall Street Journal – March 2014
Closing thoughts
“The only way to win is to learn faster than anyone else.”
― Eric RiesThe Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses
