The Future of Manufacturing and Hardware is Happening Today — in Shenzhen
If you are in hardware, all roads lead to Shenzhen.
In the US, we lament about how it’s hard to back hardware startups; it’s not uncommon to hear VC’s exclaim, “we don’t do hardware.” This is because an overwhelming majority of hardware startups take much longer and end up requiring much more capital to come to fruition than what entrepreneurs or investors would expect. Hardware startups are costlier on every dimension — building a prototype, setting up manufacturing, fixing quality issues, or iterating on product.
So why is Shenzhen so far ahead of the US? Shenzhen used to be an unassuming market town with a population of 30,000. In 1980, the Chinese government designated Shenzhen as the first Special Economic Zone and it has since changed rapidly. Today, the city boasts a population of 20 million, many of whom are migrant workers that power this manufacturing powerhouse. A number of major high tech companies also call Shenzhen home, including ZTE, Huawei, and DJI —they manufacture hardware, unsurprisingly.
A month ago, I decided to check out Shenzhen for myself and discovered undeniable advantages.
HAX Accelerator and the Huaqiangbei district
I met up with Duncan Turner, the Managing Director of a hardware accelerator based in Shenzhen called the HAX Accelerator, and he kindly hosted me for the day. HAX is located in the electronics district, Huaqiangbei. I was instantly surrounded by electronics malls — tall buildings for the sole purpose of selling electronic stuff. There were floors dedicated to selling cables, capacitors, circuit boards, surveillance cameras, computer peripherals, drones, and a dizzying array of electronic gadgets. The components are production grade and most vendors are directly affiliated with factories in and around Shenzhen, so they mean serious business.
Reportedly, you can even find unofficial iDevice repair manuals, with detailed documentation of every component of a given Apple device and how to replace and repair anything. I wonder where they got them.
HAX invests in 45 hardware startups each year and supports them in every way possible: prototyping, industrial design, supply chain, Kickstarter campaigns, marketing videos, you name it. I had the pleasure to meet with a few teams and I was instantly floored — they were able to make so much progress in a short amount of time and with little financial resources. The production prototypes looked sleek and unit economics even at minimal production volume were incredible compared to the metrics I’m used to seeing in the US.
Why? Because startups could just go downstairs to the malls for most components and return to their labs to quickly build their prototypes. When they are ready for production, they can work directly with local factories and resolve issues quickly, without time zone or language barriers. Iteration cycles of months and days get reduced to hours and minutes in Shenzhen.
From AR glasses to smart coffee machines
I met Aaron Rowley, cofounder of Vue Smart Glasses, and he gave me one of his AR glasses to try. Their a-ha insight: AR doesn’t have to mean vision, it could be audio, i.e., bone conduction audio built into the arms of their glasses. When Aaron’s cofounder called, he didn’t need to physically pick up his phone and could hear through his Vue glasses. He showed me that you can also tap specific patterns on the right arm of the glasses in order to hear the number of steps you’ve walked during the day. Incredible.
Another team made a coffee maker that can make coffee just the way you like it, called Orenda Coffee. You can start with any coffee bean. Brew a cup and tell the Orenda app any changes you’d like to make: more bitter, stronger, more of a kick, and so on. The coffee maker will then adjust all the possible parameters like an expert barista — grinding method, water temperature, coffee-to-water ratio, brew time — in order to make you the perfect cup of coffee. Where have you been all my life?
“In the past two years, we’ve taken five weekends off.” One of the cofounders proudly announced. Maybe that’s part of the secret.
*The* ecosystem for hardware and manufacturing
In all seriousness, startups in Shenzhen are able to get so far and so quickly. It’s the value of the ecosystem. The entire package would be hard to replicate here in the US, with our differential wages, labor force, and a host of other reasons.
However, as we are building and backing companies that we hope eventually will go global, we should leverage the best and most cost-effective resources and talent available around the world.
How would it work in practice? If you are building a hardware startup, here are some ideas:
- If you’re just starting, spend at least a day, if not a week, a month, or a year in Shenzhen. You’ll find that you can make progress in leaps and bounds.
- If you’re prototyping and iterating quickly, consider locating your engineering and R&D team in Shenzhen. Ironically, some founders I met with were not sure they’ll ever hire an US-based engineering team even as they plan on moving the company to the US, due to cost.
- If you’re starting or scaling manufacturing and you’re looking for a supply chain/ops manager, perhaps source talent based in Shenzhen. They can be on the ground working with local factories day-to-day vs. flying engineers back-and-forth. Plus, compensation benchmarks are lower.
One thing to note if you do visit: do not jaywalk in Shenzhen. The surveillance cameras on the streets can recognize who you are and text you a ticket to your WeChat account (and you can also pay your ticket in WeChat as well). What did I tell you? The whole city is on the cutting edge of hardware-software innovation.
If you want to read more about my thoughts on manufacturing and supply chain, here are my other posts.
