For hardware startups, it’s getting less hard
When most people think of a Silicon Valley startup that makes a hardware product — a real, physical thing instead of just an app or a website — a crowd funding campaign on Kickstarter for some new gizmo might be the first thing that comes to mind.
That’s not always a good thing.
For years, hardware startups throughout the tech industry struggled in part because the industry shoehorns them into a one-size-fits-all business model. The hardest hurdle was often the first: Any company hoping to manufacture hardware had to be well known, established and have a lot of money.
That’s no longer the case today. In the past two years, hardware experts, ranging from accelerators to supply chain experts and consultants, have come out of the woodwork. And they’re all focused on helping small companies bring their gadgets to store shelves.
“The flexibility is amazing,” said David Austin, who heads up PCH Access, a startup-focused arm of design and manufacturing firm PCH International. “In today’s world, startups can create extremely beautiful products that are highly capable.”
One of the latest to take advantage of the new help is GoTenna, a seven-person startup founded by siblings Daniela and Jorge Perdomo. The New York-based company makes a device that creates a private wireless network anywhere on Earth, letting users of a pair of the gadgets text message one another right from their smartphones.
To bring their product to market, GoTenna decided not to use crowdfunding sites like Kickstarter or Indiegogo, or rely on a so-called hardware accelerator, a startup lab of sorts that mentors entrepreneurs in exchange for equity.
The Perdomo’s also opted not to manufacture their device in China, in part because they wanted to avoid having to learn how to communicate around the world.
Instead, they found a consultant who knows manufacturers in Mexico to help them create prototypes and ultimately produce the device.
Daniela Perdomo, GoTenna’s CEO, said investors told her initially that making the product within a couple years and within the budget they had wasn’t possible. “People told us it couldn’t be done,” she said. But her consultant and manufacturing partners, now a short plane-ride away, helped GoTenna scale up its prototyping and testing. The company plans to begin shipping this summer.
GoTenna’s timing is good, too. It’s popular to make hardware in Silicon Valley these days, be it a tiny robot, a smartwatch, a connected thermostat or a computerized coffee cup. Venture capital investment in such Internet-connected hardware devices rose to $1.48 billion last year, a 76 percent increase from 2013, according to market researcher Pitchbook.
And all of them are finding they don’t have to go to China or follow the typical strategy that companies ranging from smartwatch maker Pebble to iPhone maker Apple have used for years.
“People are increasingly realizing that the offshoring model isn’t for everyone,” said Elaine Chen, the former head of engineering at Rethink Robotics, who teaches at MIT’s Sloan School of Management.
Hardware horror stories
It wasn’t always this way. A common refrain within the tech industry is “hardware is hard” — and for good reason. A few high-profile companies have failed in the past several years, in part because they weren’t able to navigate the complex world of manufacturing and supply chain management.
There’s the Kreyos smartwatch, which took in $1.5 million on Indiegogo’s crowdfunding website in June 2013. But the company’s products didn’t meet expectations, and its relationship with its Chinese manufacturing partner quickly soured. A year later, the company imploded.
“With software, you can push out a new update,” said Scott Miller, CEO of Dragon Innovation, which helps companies, including Pebble, manage and scale their manufacturing. “With hardware because you actually have atoms and they don’t change quickly, when you ship it it has to perform and not burn down somebody’s house.” That means it takes time to make sure everything works.
That’s what happened at Coin, a company that promised to slim down wallets with an electronic credit card that could merge many cards into one. The device was announced in November 2013 and was expected to ship 10 months later. The pre-orders rolled in. But Coin underestimated how much money and time it would take to ship the product. In August 2014, the company delayed release of the device by nearly a year so that it could keep working on refinements.
Coin has yet to say when it will begin shipping to customers.
Getting a product out the door isn’t just a challenge just for small startups or crowdfunded projects. Established companies regularly run into issues making hardware products. Wearable maker Fitbit’s Force activity tracker caused skin rashes for some users in early 2014. That resulted in a widespread recall.
Competitor Jawbone’s first crack at wearables back in 2011 flat out failed, with a wristband that died soon after arrival. This past fall, Jawbone’s latest product, the UP3 fitness band, was delayed by more than four months. Jawbone needed the extra time to try and make the device more water-resistant to live up to its marketing, but ultimately failed. The UP3 starts shipping this month.
Water resistance is just one of many issues that can occur in manufacturing, said Tom Dinges, the CEO and founder of supply chain consultancy Carriage Group International.
“It really doesn’t really matter what it is,” Dinges said. “It can be a half-a-cent screw. But if that thing is bad, the product goes out the door.”
It still ain’t easy
While a growing army of consultants, cheap software, rapid prototyping tool and other technologies have made it simpler to create hardware products, it’s still not easy to bring a device from a sketch on a notepad to a customer’s front door.
Experts say part of the reason is that startups often forget that mass manufacturing in a timely and cheap manner is hard. And manufacturing, while improved from ten years ago, hasn’t undergone the rapid evolution that prototyping has.
“It’s relatively easy to make one of something,” said Robert Brunner, CEO of design firm Ammunition and the former head of industrial design at Apple. “You can build this amazing prototype that works and demonstrates a product and everyone gets excited — that’s about 10 percent.”
The rest, he said, requires refinement to such a degree that small imperfections made during mass manufacturing can ultimately ruin the device.
Brunner’s common refrain to clients he doesn’t think are ready? “You have a fantastic idea but that’s just the beginning.”
Consider Apple’s iPhone 5S, which featured an aluminum and glass backside. Apple devised a technology to photograph those pieces and match them together so they fit together within several microns, or within the width of strand of a spider web.
“Machines are not perfect,” said Jorge Perdomo, GoTenna’s CTO. The company invested tens of thousands of dollars in specialized testing machines that resemble what manufacturers have right on the assembly line, so that it can ensure its prototypes are easily reproduced.
That’s why so many consultants and established companies are now helping startups. They typically charge a fee, like Dragon does, or they do it in exchange for a small ownership stake in the company.
“The way I look at it is there’s expertise; you have to have in-house or buy it,” said PCH’s Austin.
PCH has become a hotbed of this type of work. One of its division is called Highway1, a school of sorts to help startups learn how to navigate the world of making and selling products from the beginning. (Austin’s PCH Access is a comparable program focused more on later-stage products ready for higher production.)
Chipmaker Flextronics, which makes products for Apple and Microsoft, in 2013 began offering Lab IX, a service that connects startups with manufacturing partners. There’s also HAXLR8R and Wearable World, both based in San Francisco, and Bolt in Boston, all of whom have launched in the few years and do similar things.
The end result of all this activity is that once-arcane secrets known only to those with years of experience, oodles of cash and pre-built relationships overseas are helping to fuel Silicon Valley’s hardware startup craze.
Take Drop, a startup that makes a $100 iPad-connected kitchen scale and software app so even inexperienced cooks can pull off complex baking and cooking. The company was founded by two Irish designers in 2012, but instead of launching on Kickstarter, the team refined its prototype and eventually joined PCH’s Highway1 accelerator in 2013. From there, it was able to set a timeline, launch its product, take pre-orders and eventually meet its deadlines.
Now, you can buy the Drop scale in Apple Stores around the country or from the iPhone maker’s website.
“That tells you what a startup can do,” Austin said, “with the tools right now.”