Hardware is the New Software, only Harder
In the last post, I wrote about how the Israeli ecosystem is getting better at marketing digital goods to consumers. Moovit, GetTaxi and 90MIN are examples of such companies, following the footsteps of local legends such as ICQ and WAZE. But who will continue the legacy of M-Systems and Mobileye who created real-life, physical products?
Unlike building Web or Mobile products, building physical products is more complex which makes starting a new venture more difficult. Making physical products ultimately requires manufacturing, logistics, assembly, shipping, installers and other elements that do not exist in the digital world. Investors shy away from these extra risk factors until they see proof that local entrepreneurs can mitigate them, but the latter can’t even start without proper funding. Let’s face it, without criticizing anyone, there is no single Israeli fund in Mobileye…
But the status quo is being challenged by a small group of pioneers who are attracted to the magic, yes magic, of touching the lives of millions. Check out their products and you’ll notice the burning passion to change the world, one consumer at a time. They want to change the way we grow plants at home (TreeK), the way we water our gardens (GreenIQ), shower (SmarTap), sleep (EarlySense), control indoor temperature (Sensibo), take care of out pets (Oggii, Hachiko, PetPace), and even the way we experience our coffee in the morning (Ripple).
What’s common to all those Israeli CE pioneers, is not only that they all want to be Dov Moran (M-Systems) or Amnon Shaashua (Mobileye), but rather the fact that they are having a hard time raising money. They need to invest more out of pocket, take bigger risks and face many challenges all on their own. The runway for this kind of ventures has not been built yet, at least not in Tel-Aviv.
Among the special challenges these guys face, apart from difficulties in fund raising, they note the lack of local resources for prototyping, shortage of hardware engineers, electrical engineers, embedded engineers, challenges with logistical services for small companies, and more. Dealing with all these challenges takes time, creates stress, reduces ability to focus on the product and costs more money. Oh, did we mention difficulties raising money?
According to one experienced entrepreneur now venturing in the CE world, some of the difficulty in fund raising can be attributed to an expectation gap between investors who are used to software company models, and the reality of hardware based consumer products companies. The differences in manufacturing cost, as well as sales and marketing through partners and distribution channels create margins that are significantly lower than what investors expect to see and using benchmarks from the software world may create tension and misalignment.
(If the links don’t work, search “iotisrael”)