Hardware Startup Wins & Fails

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Dana Madlemdmadlem@rushorder.comHardware Startup Wins & Fails Realities After Production Begins

Hardware Startup Logistics for Growth

TopicsWhats happening in hardwareLessons learned: Why hardware is hardProduct qualitySales channel managementReturnsExistential crisesStories from the front linesQ&A

Startups that were acquired (LSI, Google, Seagate, Intel, etc. etc.)Startups that flamed out, petered out, etc.Ive learned very little from the failures. Not a lot to be learned, other than I know what they missed. Constantly amazed by the successes.

What I / Rush Order do

Global warehousing

Order Fulfillment to consumers and retailers.

Reverse Logistics

Accounts ReceivableCredit Card Fraud Mgmt

Contact Center (phone, email, live chat, social)

Startups that were acquired (LSI, Google, Seagate, Intel, etc. etc.)Startups that flamed out, petered out, etc.Ive learned very little from the failures. Not a lot to be learned, other than I know what they missed. Constantly amazed by the successes.

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The Flexible Back Office of the Worlds Best IdeasTime and Time Again.

My Window into the Hardware Startup LandscapeNo VC pitches. We see the unvarnished data and help clients manage real-life operations. And put out fires.

A good friend will help you move, but a true friend will help you move a body. Steven J. Daniels, Weeds in The Garden of Love

Sample Profile from Active Clients65+ hardware startups actively shipping in 201585% are still operating as independent businesses8% died this year7% recently had major liquidity event or exitOf the remainder operating independently, there is a fairly clear trajectory (up or down)

All Founded Between 1999 - 20140 founded in 2015. Why?Average Founded in 2011.

Startups that were acquired (LSI, Google, Seagate, Intel, etc. etc.)Startups that flamed out, petered out, etc.Ive learned very little from the failures. Not a lot to be learned, other than I know what they missed. Constantly amazed by the successes.

Sample Profile from Active ClientsMostly consumer products. A few enterprise IT. Funding ranges from $100k in seed round to $725M raised in private markets (unicorns). Total funding raised: $1.7BAverage private funding, including unicorns = ~$30MAverage private funding, excluding unicorns = ~$14M76% raised more than $1M to date. 33% raised more than $10M to date.

Startups that were acquired (LSI, Google, Seagate, Intel, etc. etc.)Startups that flamed out, petered out, etc.Ive learned very little from the failures. Not a lot to be learned, other than I know what they missed. Constantly amazed by the successes.

Lessons Learned: Why (Post-Production) Hardware is Hard

Hardware is hard. How hard?0% shipped in the same year they were foundedAverage timespan from founding date to actual customer ship date = 31 monthsOver 70% of clients products required significant re-work after leaving the factory.Firmware flashingBatteries all sorts of issuesPackaging (e.g. product mounts and trays, adhesives, scuffing, barcodes)Other component failure (e.g. wheels, motors, plastics, wrist straps, etc.)Sensors

Everyone has a plan until they get punched in the face.-- Mike Tyson

Startups that were acquired (LSI, Google, Seagate, Intel, etc. etc.)Startups that flamed out, petered out, etc.Ive learned very little from the failures. Not a lot to be learned, other than I know what they missed. Constantly amazed by the successes.

Sales channel management is also as hardAfter the first crowdfunding / pre-order campaign, 0% consistently reached those direct-to-consumer sales volumes again.

(Some second attempts at crowdfunding campaigns went well, some not.)

How do the best do sales channel management?

The old school stuff Large marketing and PR budgetsSuccessful channel strategy and execution its not accidental. VP of Sales role is critical. Every client is selling product on Amazon (90% are selling product to Amazon)Every successful consumer product we manage is going to other major retailers too (online and brick & mortar)Direct to consumer channel should be viewed as one tool in your Swiss Army knife

Return rates are dictated by nature and nurture8%

10% - 25%

3% - 8%

Product quality (duh)Connectivity (bluetooth vs. wifi vs)Moving partsOther product complexity (e.g. installation)Brick & mortar retail salesUS is highest. Asia is lowest.

Product quality (duh)Certain market categories like toysDirect online sales and etailer dropshipsNo connectivityLow complexity in productUS is highest. Asia is lowest.

More on returnsConsider design for test, and design for repair in your product NOW.

The ability to create refurbished units can help soften the landing. How?

Use refurbs for warranty replacementsSell refurbs / open box units through creative sales channels (this is what you see on Woot, Groupon, Overtsock, etc.

What variables are common across the success stories?Awesome product / market fit. Good luck.Market size (mass vs. niche) hardware needs scale, or needs to be expensive, or both. Price point (a proxy for market size)What type of investor do you attract?Only relying on Family / Friends / Bootstrap = lower oddsEmotional investors (empowering a certain group) this is also tends to be the Kickstarter backers. Traditional big money VC and private equity = better oddsIncubators / Accelerators are not necessary, nor sufficient, but they might help you a lot. Return rateOrganizations nimble enough to survive crisesAbility to jump from B2C (web sales) to B2B (retailers)

Startups that were acquired (LSI, Google, Seagate, Intel, etc. etc.)Startups that flamed out, petered out, etc.Ive learned very little from the failures. Not a lot to be learned, other than I know what they missed. Constantly amazed by the successes.

What variables are common across the success stories?Sales & marketing. It does take money to make money.

Ellen / Today Show / Shark Tank appearanceAcquired for hundreds of millions $Inbound phone support approaches 75,000 minutes per month

Existential threat #1Spikes driven by holiday marketing push, or follow-on pre-order campaignThe DreamThe RealityExistential threat #2Units ShippedFirst Retailer Shipment

This is the trajectory point (after the hangover), not here (pre-order)

Stories from the Front Lines

(Mostly) Recoverable mistakes we seeManage all your crowdfunding backer data on spreadsheets.Promise a specific delivery date. Embrace seasons, not months. Crowdfunding scammer speaks out at SXSW Be surprised by credit card fraud when you become successful.Insurance? What insurance? Theft, inventory lost at sea, hungover forklift driver, smelly product, etc.Retailer chargeback surprises.

http://www.dailydot.com/technology/savannah-peterson-sxsw-kickstarter-scam-instacube/

How to avoid certain deathRecoup quickly from the crowdfunding hangoverQueue up retail channel partners in advance

How to avoid certain deathSell in is not sell-throughGet your marketing machine readyManage credit risk Hurray! We finally made it! We just signed on GoodGuys, Circuit City, and Sharper Image!Inventory management and sales forecasting are hard

6 months later Hey, what are those pallets being offloaded on the dock?

Hurray! We signed a major retailer!

How to avoid certain deathManage ReturnsTalk to customers spot the problems earlyCreate access to returns data watch trendsHave access to your inventory in the warehouseCapture serial numbersRetain great relationships with your suppliers (CMs, logistics, etc.)

How to avoid certain deathDont be caught off guard by 1 to 3 existential crises. Easier said than done. Be agile Can you run 24/7 shifts with a small army charging batteries or flashing firmware or repackaging product (or all of the above at the same time)?

From the headlines:Owners eligible for full refund, can keep the troubled bandHave you contributed to this health product scam?Company advices rash sufferers to remove device for a whileCompany misled consumers about battery life

"You can lose a lot of money fast in a hardware business if you do it wrong, and most people do it wrong.

"But building it is not the hardest part," he continued.

"It's making it, distributing it, managing inventory, managing distribution through the channel, understanding the market and supporting the productThis is really difficult stuff.

Randy KomisarPartner @ Kleiner Perkins Caufield & ByersThe Wall Street Journal March 2014Closing thoughtsThe only way to win is to learn faster than anyone else.

Eric RiesThe Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses

Dana Madlemdmadlem@rushorder.comHardware Startup Logistics for Growth

Hardware Startup Logistics for Growth