Hardware Startup — Killing Beta
Those of us building hardware know very well that testing is important. Once you got to MVP, or a look-like, work-like prototype, it is nothing until it is tested by real users. We are advised to “get out of the building”, “sell prototypes”, “build-test-iterate”. It is not recommended to jump from an Arduino prototype to mass production, you can get into trouble like many Kickstarter projects. So many of us decide to build 20–200 beta samples, and even run a small pre-order campaign to cover the expenses. It is very correct and I believe it is an inevitable step. We took 100 pre-orders on our website in December-January 2015 and shipped them only in August-September 2015. I wouldn’t go through same twice and there a couple of things to keep in mind before deciding on a small beta testing campaign.
- It will cost you a fortune and pre-orders will not cover your expenses.
Anything under 1,000 will not cover all your expenses. And for most hardware everything under 5,000 is still unprofitable. You will need more money — if you do not have cash for 2–4 months runaway for the team, if you are going to outsource anything — go find investors before you place pre-order button on your website.
Our testers pre-ordered the devices at 59–69 euro and it cost us 130 euro to make each of them. Please mind that 1) we were at Buildit.ee and Highway1.io Accelerators so we had access to all the machinery; 2) iOS app, software, firmware, all design, assembly, testing, shipping was done in-house by my cofounders and I don’t include any “founder-manual-labor” cost or other indirect expenses into this number.
Common mistake for hardware startups (and ourselves) is to underestimate “non-hardware” components of the product:
- Software for the product — app development (iOS, Android, tablets, Apple Watch — do you claim all of them?), cloud and data handling, servers, etc. Most take pre-orders not for a limited functionality, but for the “all feature” prototype — which I bet 99% can’t built in-house.
- Packaging design and samples — unlikely to be done in-house, very expensive at small quantities, very hard to find a company to make 100 only;
- Shipping costs — worldwide shipping? Wow, even big companies ship to certain geographies;
NB: Make sure the BOM you have is calculated not based on prices for 1,000 pieces one OEM in China gave you. Components cost and PCB assembly of 50 PCBs, 100 PCBs, and 1,000 PCBs may differ for up to 100%. It was not our mistake, but the prices still changed as we changed some contractors.
So you choose between:
a) offering “limited functionality” product “only to US/Estonia/EU” and the huge effort to sell 100 of them — as conversion rate of visitors to website/pre-orders will be very low.
b) offering “fully functional” product and people willingly order it, and than you face all the above-mentioned issues.
If it is first or second generation of your product, start with a. If you have shipped it before and you have cash for all above-mentioned issues go with b.
2. Delivery will block your team from R&D and further improvement of the product for months.
While you are busy analyzing pre-orders, ordering components, making numerous surveys on all fancy colors and devices types you claimed (because of course you claimed all of them), looking for contractors, assembling samples, testing, shipping them, and even after shipping them — with collecting feedback — your small team will not be able to work on the next version. So after shipping the samples add 1–2 months and this is the time you will be able to start working on improvements and next generation.
It took us 3 months to ship the samples from the moment we got cash. Not bad, competitors still didn’t ship as they didn’t get follow-up financing. It also took us 2 months to get the App to App Store and will take 2 months more for Android, as you can’t develop both apps at the same time, only consequently. We started collecting feedback, and it will take me 2 months to run all the surveys and analyze it.
Our new version could have been born 5 months ago. But! We would make the same mistakes without testing — we wouldn’t realize the value of Design-for-Assembly and Design-for-Manufacture, we would have no idea about User Experience and UI issues. Our new version wouldn’t be a real improvement without us going through the whole process. Just be prepared to get down to it months after you ship beta-samples.
3. It is great R&D, team training, and beta-testing, but not tracking. Getting pre-orders doesn’t guarantee you investment. It is good to have third-party testers (especially paying), the more the better, and it is definitely some validation. But not all investors will consider anything before 3,000 pieces and 500k Kickstarter a Traction. And many investors I met do not think that not-yet-shipped pre-orders is an asset. It is actually a public offer and serious obligation.
4. When to charge the pre-order? Delivery will take you longer than you expect. It can have another downside you are not aware of. If you use trycelery.com or similar and plan to charge the pre-orders “when you are ready to ship”, keep in mind that already after a month some transactions can not go through, as it doesn’t freeze the money on the account and even doesn’t check the payment details. One tester pre-ordered 3 pieces, we built them and shipped and only when we tried to charge him, the system notified us that his Paypal email was incorrect. Same with Kickstarter — that’s why it is not recommended to run long campaigns — some start cancelling pre-orders. It is very tricky situation when charging pre-order means legal responsibility to deliver and not-charging has a risk to get no payment. In our case we got to know all testers by name and they are very adequate about payments, so we solved this issue.
5. This experience is only 1/3-relevant to mass production experience. Soft tooling in silicon proved to be closer to mass manufacturing than 3D printing, but it is still very far from it. The CADs you have for 3D printing or silicon molding have nothing to do with CADs for injection molding. When we shipped the device and started working on the next generation, it changed significantly. I would say completely.
5. Here is the checklist of questions you should ask yourself before deciding to take pre-orders for beta (20–200 samples):
- What is general purpose of taking pre-orders? Do not consider it as a source of cash, please. It is a cash drain, it is a time-killer, so what is the purpose worth it?
- What are the questions you want to ask the testers? You need to have certain questions, prepare surveys and get real value of everything you will have to go through. This will help define functionality of testing units.
- What is the status of your prototype? Be honest about both hardware and software (iOS, Android)?
- Do you have cash to build 10, 30, 100 the devices without pre-orders? if you do, do that.
- How much does it cost to build 1 sample now? Can you really reduce it if you make 100? What are the changes at 100 volume to what you have now? Make a full COGS and BOM, and include everything, even a double stick tape and taxi to the post office.
- Do you need to outsource anything (molding, PCB assembly, packaging, App)? Have you found the companies who can work with such small volumes at an affordable price? It is very, very hard. It took us most of the time. Make a spreadsheet with WHAT, WHO, and HOW MUCH for every single part of the product and every single task.
- How much will you sell it for? Will it cover your direct expenses at least?
- How long will it take you to make 100 samples? Do you have money to support your team during this period?
With the lessons learnt, we are going to open pre-orders for the new generation soon — this time after 1 year of R&D, finished design, visited in person Chinese manufacturers, and BOM and timeline checked by ODMs — with the clear purpose of the public launch to the market.
Ksenia Vinogradova is the Founder and CEO of FlipFlic. FlipFlic creates responsive natural daylighting solution. The add-on device automates ordinary window blinds with sensors as well as integrates them into existing smart home systems. Each device responds automatically to its environment, maintaining the ideal level of daylight, promoting optimal health while maximizing energy savings.