About Hardware Startups

The way founders introduce themselves there seems to be a certain pride about being a “hardware startup” these days, resulting from actually creating and selling something real-world and not just writing code.

But any self-labeled hardware startup better be a software startup at heart, otherwise it will run into serious trouble. The core of you offering and innovation should not be the diodes / plastic / metal / whatever around, but the software running it. In a lot of fields (especially IoT) the hardware is more of a necessity to actually make a software model work, and this is how you should treat it.

The fascinating thing of selling a combination of own proprietary hardware and complementary (subscription) software can be the high margins resulting from selling the hardware component. Almost all startups with a hardware component to their offering benefit from this, resulting in high ramp-up revenues per customer and short cycles to break even on a CAC/CLV perspective.

At the same time there is a certain risk of getting hooked on these hardware margins and profits and not making the shift to a model depending on software revenues at the right time. The hardware margins will most likely erode quickly and competition will get fierce, leading to a situation where the software ends being the real differentiator. This is why the mindset of embracing being a software startup at heart is so important and will eventually make or break a “hardware startup”…

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