Common Hardware Pitfalls to Avoid from Valery Komissarova
Advice from an experienced investor
Hardware entrepreneurs are getting tired of hearing that “hardware is hard,” particularly over the last few years as the technology and investment landscapes have started to get less and less rough. But there are still a lot of bumps in the road, and Grishin Robotics principal Valery Komissarova has seen the wheels fall off quite a few wagons on the way to market; fortunately, she has some tips for savvy hardware co-founders:
- Manage your cash flow carefully, both from a manufacturing perspective and when dealing with retail. Your device can easily have upwards of 200 components, all with different suppliers who have different ideas about timing and payment terms. Couple that with the payment terms you might get from a retailer (online or otherwise) — when are they actually going to pay you for the units coming out of your factory (hint: not too soon)? In addition, some retailers charge very high margins (you know their names), and often startups fail to account for this in the early stages of figuring out their BOM / COGS. All of these factors can combine to create a cash flow “valley of death” between the necessity to manufacture units to sell and the point at which you actually get the cash for what you’re selling (and hopefully earn some decent profit margin on your hardware): plenty of companies have died in this place.
- Be mindful about expanding your product line. Having a couple of different products certainly helps at retail: you can create highly visible displays, command more shelf space, promise your retailer higher volumes of product, that sort of thing — but many startups do it too much, too soon. If you make the mistake of having too many product types from the very beginning, there’s no way you’ll be able to manage the supply chain and SKUs and deliveries; it’s too difficult a task. Find your beachhead market where there’s clear product-market fit and expand from there.
- Consider scaling from day one, even if you don’t know whether you’ll get there. This should inform your thinking whether you’re choosing a manufacturing partner or a particular component for your product. Imagine you’ve chosen a particular chip for the core of your device: what if your supplier runs out and they can’t find anymore, or the company that makes it goes out of business? You were fine when you had to make 50 units, but now you need 200,000 and the supply just isn’t there. This is not the type of situation you want to find yourself in.
- Pay attention to your industrial design. Standards for consumer hardware have become so much higher: your device has to look like it was built by Apple. Customers are now used to iPhone levels of industrial design and user experience, and they’re going to request the same level of quality from you if you’re trying to sell them a consumer-facing electronic device; this part has to be done impeccably well.
- Beware the recurring revenue model; it’s not one-size-fits-all. The idea, of course, is to augment and hopefully complement your hardware sales with things like subscriptions, premium features, and anything else you can sell through software, like consumables. One of our portfolio companies, Petnet, makes a connected pet feeder and bowl, but they’re also partnering with somebody to deliver the pet food to your door: the feeder can tell when your dog is running out of food, and you don’t even have to push a button; the feeder just knows the type of food you like and it gets delivered when you almost run out of it. It’s a very interesting additional revenue stream for them, but not every hardware device is conducive to this kind of model. Often startups come to me having heard from people like me that they’re supposed to be talking about recurring revenue and software, but very often it’s a product where I don’t believe they’ll actually be able to charge their users for any kind of additional features. It might be an amazing device that they can build a good $10-15M/year business out of, but that’s not the kind of outcome any given VC is looking for — they’re always chasing that billion-dollar exit.