The Rise of the Hardware Startup
How Hardware Startups Grew, Grow and will Rise
You’ve noticed it: the sudden flood of awesome new gadgets, crowdfunded ingenuity and beautifully designed pieces of aluminum, wood and plastic on the internet. If one market has really taken off in the past year, it’s been the hardware startup market. Thanks to the application of new technologies, hardware startups have managed to grow into the areas of the average Venture Capitalist’s heart and mind that formerly only software startups dared enter. In 2014, this market is only going to grow.
Growth was a Problem
This is all very ironic, because growth, or more specifically scale, is still the hardware startup’s Achilles heel. Unlike their software counterparts who are capable of near endless scale at the push of a button, the hardware startup isn’t easily capable of meeting the turbulent seas of internet trends and demand. Production costs, storage costs, prototyping costs and the planning required by each simply aren’t obstacles for the software startup, whereas they are big stepping stones for the hardware startup.
The traditional hardware startup has to essentially decide how many “users” it can service, and cut the rest off when the product goes out of stock. It’s a dangerous game: order too little stock and you miss out on customer momentum, order too much and you have suddenly have a bunch of product not making money that you have to pay to store. On top of this, you have to be able to secure enough funding to cover all of the costly prototyping materials and equipment. Plus the manufacturing bill so you can fill orders all while also covering the usual office and salary costs involved in running a startup. Us software folks have it easy.
Luckily, the landscape is changing, specifically thanks to Kickstarter and the crowdfunding revolution. Kickstarter allows hardware startups to secure guaranteed orders, test interest in their idea and gain momentum for their product, all before shipping, manufacturing or in some cases even finishing the prototype. This greatly reduces risk for the entrepreneur, as a lot less of the farm has to proverbially be bet before you find out if your product is a failure. They say the best entrepreneurs fail often, and this allows hardware startups to do the same. It allows entrepreneurs to show traction to VCs, reducing the VC’s risk while eliminating any doubt that demand exists before they hand over the cash.
Imagine a pre-kickstarter world where the Oculus team presented a prototype virtual reality headset, still an early prototype over a year from a planned release, to investors. Without the proven traction provided by selling $2.5 million in product before even launching, do you think VCs would have invested? Probably not. They’d probably be dubious about whether the market exists, question why a major player like Sony or Microsoft hadn’t already done it and then worry about the product being run out of business by Sony or Microsoft if the idea proves good.
Regulation is a Problem
Whether you agree with regulation or not, it creates roadblocks for startups in the hardware world. The software world doesn’t have to worry about starting housefires, crashing airplanes with interference or generally causing bodily harm. The gadget makers do. As such there’s boatloads of paperwork and registration, compliance testing and more to ensure product safety. The paperwork and hoops are sometimes costly and always time consuming.
On top of that, hardware startups eyeing delicious international markets have to jump through even more hoops as they now have to abide to the laws and certifications of multiple countries, all the while also worrying about international import/export rules, shipping disasters and various other unexpected catastrophes. These are the necessary evils of the hardware world, and are only solvable by the invention of the teleporter (unlikely) or changes in legislation (even less likely). There are few ways for startups to get around these problems. Luckily, they’re probably the least problematic. Unless of course your startup creates deathbots or medical devices, in which case these are probably your biggest problems. Sorry.
Resources will stop being a Problem
Hardware is, relative to software, hard. It’s punny, and it’s true. Most hardware startups are also software startups in a way. They have to write loads of code to get their products to work. On top of that, they have to be able to build prototypes and design circuits, neither of which are quite as easy as writing an app in Rails. Building the prototypes usually requires extremely expensive equipment, hazardous chemicals and lots of time. The plastic and the tidier circuits would have to be built off site, the messier ones with hard to store chemicals and laser printers on site. Circuit design requires the use of complicated schematics tools, and would largely have to be done from scratch. No open source projects to build off of, no widely used gems to import, the closest thing would be standardized components like processors.
If you wanted to take on circuit design or even mess around with hardware as a hobby, it used to take a lot of practice, expensive equipment and specific knowledge. It was not an easy thing, even with the simplest kits writing basic robots in STAMP used to be extremely expensive, especially when you have no idea what you’re doing. Luckily, this is all changing, and changing quickly!
First, there’s boards like the Arduino UNO and the Raspberry Pi. Awesome, powerful, easy to setup boards perfect for casual and serious hobbyists with pricetags so low it would be hard to find a reason not to own at least one. Oh how the ten year old me would have loved Arduino. I used to drool over Basic STAMP robot kits that cost hundreds (a lot for a ten year old). Now, there’s a $15 circuit board I can hook up to my computer and program to do anything, from blinking LEDs to controlling a robot.
Since the barriers then were so high, I did the next best thing thing instead: learned to program games. Arduino has torn down the walls, making hardware more accesible. This increase in accessibility draws in new hackers, increasing the innovation and creativity in the market. Following Moore’s law, as all good tech fields do, the barriers keep getting smaller. We now have Raspberry Pi, the $25 pocket sized Linux computer capable of being hacked into quadcopters, security cameras, robots and more. The inspiration is coming to people in droves.
Of course, I’m not saying people are going to use Raspberry Pis and Arduinos for their startup’s products, though there are some good examples. They are however great for prototyping and building that “minimum viable product” everyone is talking about. When people are able to get over those initial walls, test ideas and have some successes, they can quickly become interested in taking the hobby further, building original schematics, their own circuits and custom products.
Speaking of which, it’s now easier to make the leap to circuit design too! In software, we’ve had tools like SourceForge (do people still use that?) and GitHub bringing us awesome open source projects to contribute to, use and sometimes steal from. There’s never really been a tool like that for hardware. Alas, now there is, and its name is Upverter. Upverter kills two birds with one stone. It’s an awesome circuit diagram thing maker (I think that’s the technical term) that makes it a lot easier to design circuits. It’s also an open source collaboration platform like GitHub. They even have the entire Sparkfun open catalogue online for your hacking pleasure. That means you can make your own projects, collaborate with the wonderful, smart people on the internet and steal from projects that already have better solutions for things you need to do in your project! Just like we do in software! They’ll even professionally print your circuits when you’re done, which is both awesome and means less hydrochloric acid, which if you’re careless like me, means less melting of your skin cells.
That brings me back to prototyping, where the old days of having plastic components built off site are slowly dying, thanks to the 3D printer. 3D printers are quickly becoming incredible cheap too. For as little as $100, you can buy a device that will print you whatever (rough) components you need for experimenting with prototypes. This can rapidly increase the ability to not only test and iterate the product, but can also allow a lot more models and solutions to be experimented with. Admittedly, you’ll likely want to get your final prototypes professionally molded offsite, if only for more accurate reproduction of what your manufacturer will provide you. However, for rapidly building and testing prototypes the 3D printer’s affordability is as revolutionary as it is awesome. Look at Valve’s prototypes for the Steam controller: because they were able to rapidly test new ideas and concepts with a 3D printer, they could come up with a product that fits perfectly in the hand, while trying more button combinations, allowing Valve to explore more options and make finer adjustments.
The Future
A lot of progress has been made very recently that has allowed for hardware startups to really expand. There are still obstacles however: prototypes are still expensive, hardware is still a rarer skill, shipping from overseas manufacturing centers is slow and supplier relations are difficult. Companies such as Nest (which recently sold for over $3 billion to Google) and Oculus (which is really, really, really cool) have both shown what’s possible and how much space there is in the market.
So, this is the part where I present my predictions for the future. Obviously, 3D printing is going to grow more affordable, faster and be capable of higher quality printing. More people will pursue hardware as an interest and we’ll have more hardware hackers, likely with the same self-taught brilliance we see from software hackers. Manufacturing is going to be interesting. A lot of these items are premium gadgets and rather upscale. Their business models greatly favour a manufacture from orders received mentality, versus the traditional manufacture from predicted orders. As a result, I think it almost makes sense for assembly and production to come to North America, rather than be shipped overseas. For the upscale gadgets, the price isn’t a huge concern, and being able to receive orders faster, without waiting on slow international shipping could turn out to be worth it for startups working in the Kickstarter world. Perhaps we’ll see small shops specifically focused on rapidly producing batches of gadgets, relying heavily on automation to keep costs down. Apple’s famously producing the Mac Pro in the US. Perhaps others will decide to do the same, and a new type of manufacturer will form, focusing on speed of delivery and fast turnaround.
Whatever the future holds, if current trends keep up, it’s going to be really awesome. I can’t wait to see what cool gadgets, new technologies and awesome devices I didn’t know I wanted are in store. Gadgets for fixing my posture, telling the time, drawing on my iPad, experiencing virtual worlds, automating my home and making my drive home easier. I’ll be waiting, like many other consumers (“backers”) cash in hand, ready to throw wads of money at my screen.
