Are You Missing the Hardware Startup Golden Age?

the golden age

Have you noticed? We are in the golden age of physical product (hardware) startups, and it has never been easier to prototype, produce, and sell your dream widget. Take full advantage of this opportunity before the golden age passes you by.

“Until recently, the ability to manufacture was reserved for those who owned factories….What’s happened over the last five years is that we’ve brought the Web’s democratizing power to manufacturing. Today, you can manufacture with the push of a button.”- Chris Anderson, author of Makers: The New Industrial Revolution

Right now, you have maximum advantage when launching a hardware startup – but it won’t last forever as you’ll see in a moment. First, let’s take a look at the landscape.

INVESTMENT INTEREST

Over the past couple of years, there has been increased investment in hardware startups. While not a requirement, investments can be a positive indicator for what is to come.

Tomasz Tunguz, venture capitalist at Redpoint, crunched some numbers based on Crunchbase data and observed a drastic increase in seed funding for hardware startups.

TOMASZ TUNGUZ data on hardware startups

“Overall, though, there’s no question hardware startups have witnessed a recent surge, particularly in the seed market, both in number of seeds raised and the average sizes of those seeds. In 2013, these hardware startups raised nearly twice as many Series As as the preceding few years, a strong positive signal.” – Tomasz Tunguz, Redpoint

CBInsights looked at the financing trend of VC-backed Kickstarter and Indiegogo hardware projects, and found similar results:

cbinsights kickstarter vc funding

Ok, so more deals and more money are out there to take advantage of. What else?

DEMOCRATIZING FACTORS

Technology has lowered the barrier to entry for hardware startups like never before. There has never been a better time to make your dream widget.

Easy Access to Capital

Starting capital, or a lack of it, has always been an argument against physical product startups. No longer.

Kickstarter brought crowdfunding to the mainstream, and is any entrepreneur’s dream come true. The platform is especially favorable for hardware startups, and the top 3 most funded projects are all widgets: The Coolest Cooler, Pebble, and OUYA, for a combined $32 million dollars raised. Advantages of crowdfunding include:

  • Raise money via pre-orders without taking out a loan or giving up equity
  • Test product-market fit and validate the idea with little risk
  • Get investors’ attention and show them you can deliver post-campaign

A crowdfunding campaign gives entrepreneurs the opportunity to “talk to customers, track return and/or failure rates, and then fund expansion with real data,” said Barry Schuler, managing director at DFJ Growth

Fast & Cheap Prototyping

Remember the days when you had to smash all of your piggy banks and withhold employee salaries, just to open up a prototype mould? Worse yet, most products require multiple iterations, which means multiple moulds. Before the product even launches, thousands, if not tens of thousands of dollars, are already gone.

Fortunately, those archaic days are no more. With 3D printing, prototyping can be done with your lunch money at great efficiency. Plus, you don’t need to worry about material domain knowledge until much later in the manufacturing process because the cost to experiment via 3D printing is so low.

When Stratasys surveyed over 1,000 3D printer owners, they found almost 1/3 experienced a 25% or greater improvement in product launch times, with more than half of respondents reporting a product launch time improvement of at least 10% or more.

3d printing faster launch for startups

Design & Manufacture

Alibaba.com has made it incredibly efficient for physical product businesses to connect with manufacturers. In the latest SEC filing, Alibaba revealed that it has 279 million active buyers and 8.5 million active sellers on the platform, with $14.5 billion in annual orders.

You used to have to find a sourcing agent, or fly to China directly for a few weeks in order to meet potential suppliers. Now, with Alibaba, that connection is only a quick email or phone call away. The best part is that many suppliers are used to working with small- to medium-sized businesses, and offer low minimum order volume.

CEO Jack Ma says “At Alibaba, we fight for the little guy, the small businessmen and women and their customers” and “Our proposition is simple: we want to help small businesses grow by solving their problems through Internet technology.”

No Coding Needed

You can setup an eCommerce shop on platforms like Shopify, BigCommerce, and Volusion in minutes. No programming skills are needed, and everything works right out of the box. In 2013, there were over 80,000 stores on Shopify for a combined $1.7 billion worth of products sold.

In addition, you don’t have to worry about managing or maintaining your web hosting – these platforms do it for you. A test on one of our stores on Shopify reveals that this site is faster than 82% of all websites tested. Not too shabby.

shopify speed test

The result of all this? You get more time to make kickass products and serve your customers, rather than worrying about the technology behind your business.

SO WHAT? HARDWARE HAS BEEN AROUND FOREVER

You might be thinking, so what? Hardware is nothing new, and has been around since the first caveman picked up a stick.

And that’s exactly the point.

Until the day we are all hooked into virtual reality, we live in the physical world and our lives are driven by real objects. Come to think of it, even when that day does come, someone still needs to make the machines to hook us in.

Never before have small businesses and independent designers had access to technology that puts you in the same competitive space as behemoths like Google and P&G. The opportunities for innovation are endless.

Also, we are psychologically hardwired to get a kick out of touching physical objects.

In a paper published in the Journal of Consumer Psychology, Professor of Information Systems James Gips and Associate Professor of Marketing Stevan Adam Brasel found that simply touching, or imagining touching, an object produces a feeling of ownership. And ownership makes you more likely to buy something.

People are excited about hardware upgrades, like getting the new iPhone. But when was the last time you were happy to pay for an app upgrade? Like…never.

DiResta of O’Reilly AlphaTech Ventures commented: “There is something that’s really appealing about hardware. When someone says download this app, there’s really only so much you can get excited about. But when you see someone in the park with a flying robot, people want to know more about it. People are drawn to physical things.”

IT WON’T LAST FOREVER

We have money coming into the space. We have democratizing technologies in place so anyone with an idea can realize it. We know hardware is evergreen and psychologically appreciated. And we are entering a “New Industrial Revolution” as Chris Anderson argues.

Awesome.

But, the golden age with readily available money, an abundance of opportunities, and low competition won’t be around forever.

Already, we’re seeing a steady increase in interest from the startup community. Rik Myslewski of The Register plotted the growth of a SF Hardware Meetup.com group:

sf hardware community growth

Thought leaders are also concerned about “crowdfunding fatigue,” where customers just get tired of the barrage of widgets on Kickstarter:

“My fear at this moment is that the growing popularity of crowdsourcing is attracting too many gold diggers, and it will become harder in the future to find anything left of value.” – Boris Veldhuijzen van Zanten, Co-Founder of The Next Web

Nonetheless, we are still relatively early in this hardware revolution. A look at AngelList shows approximately 34,000 registered software startups, but only 3,000 hardware startups – there is still a lot of room for growth.

angel list hardware startups angel list software startups

“There’s a lot of stuff going on in the hardware space. A huge wave is coming, and we aren’t even at the beginning of it yet. The sea is just beginning to swell,” says Scott Miller, former manufacturing lead at iRobot and founder of Dragon Innovation.

WHAT’S NEXT?

If you’re excited about the maker movement, and are passionate about hardware and physical product businesses, sign up below to receive a FREE COURSE on how to start a profitable hardware business in 90 days.

No time to waste. Take advantage of the golden age and start hustlin’.