Hardware Startup strategy: Think “retail shelf space”

[Article initially published in August 2015 on another platform]

At C4 Ventures, we invest in early stage startups within two themes: eCommerce and Hardware. For the latter, our investments include Nest, Netatmo, Anki, ISKN etc…

Yes, I know… “Hardware is Hard”, but I believe with the right skills and mindset, it translates into exciting opportunities.

One of the required mindset is to remember that a physical product needs retail distribution to scale and therefore, a hardware startup’s long term strategy must incorporate retail shelf space right from the start of the thought process.

Retailers, big or small from Apple Stores to Target, via Colette have limited shelf space. They are constantly making arbitrage, monitoring carefully their Sales per Linear Foot of Shelf Space. Of course, customers are highly sensitive to the position and packaging of the product but let’s focus on the retailer’s perspective.

From my point of view, retailers’ relationship with connected objects or smart hardware has so far seen two phases but we’re already entering a third.

First products (2009–2012) Withings’ body scale, Fitbit, Dropcam…
Retailers were not familiar with connected devices and it required a lot of education to make headways, the entrepreneur had to rely on the retailer’s individual buyer’s appetite to secure shelf-space for its product because it wasn’t part of the retailer’s strategy. At this stage, the Internet of Things was still quite early on Gartner’s Hype Curve (it made its first appearance in 2011) and market was mostly made of early adopters.

Hype (2013–2015) Nest’s thermostat, Netatmo’s weather station, Misfit’s Shine, Parrot’s A.R etc…
As new products combining better functionalities and appealing design appeared, a few retailers set up dedicated “connected object” shelf space, like Fnac’s “objet connectés”, Curry’s “smart tech” or Home Depot’s “innovation aisle”, new dedicated retailers launched like Lick in France. It’s now much easier to secure distribution contract for hardware start-ups but turn over is high and products that don’t sell don’t stay on the shelves very long.

Overcrowded? (2015-…)
These days, relevant retailers are approached by new connected object start-ups every week (like us at C4 Ventures). But unlike VC, they’re looking for today’s consumers and don’t always have the resources to evaluate all products nor –more importantly- the willingness to deal with too many suppliers.

So what does it mean for a hardware entrepreneur?
First, as IoT is about to fall down the “peak of inflated expectations” of Gartner’s hype curve and security concerns rises, the constraints imposed by retailers will increase. Only product with a well defined use case and a professional approach to security will make the cut.

One possibility is that retailers rely on reputable framework like Apple HomeKit or Samsung’s Smarthings to filter reliable opportunities. Consumer will rapidly trust product approved by such reputable firms so retailers will ignore those without the coveted stamp.

Also, both for efficiency and to maximise customer experience, most retailers will progressively rationalize their suppliers and restructure by verticals. E.g. if they keep doing great products, Nest, Netatmo or Philips will “own” Home Automation; Fitbit, Jawbone or Withings will grab Health and Fitness etc… Other products will still have a chance of course, but only the very best will make it to the shelves.

This means that two aspects will take more importance in the coming years: brand and product range consistency. Branding will need to fit product offering, not just the name but also its message, colour palette, tone of voice, etc… Products offered will need to be consistent, offering similar set up (e.g. Netatmo’s Welcome Camera reprises the successful weather station form factor and its Thermostat uses the Weather station’s sensors to be even better) etc…

This is what I regularly say to promising young startup with a first exciting product who are drawing their long term product roadmap: an entrepreneur’s vision and story telling needs to reconcile with retailers constraints. Focusing on a given vertical, embarking industry framework and keeping a professional approach to customer experience and security will be key.