The success of any start-up depends upon various factors, each of which has a strong influence on how the business would eventually shape out. The initial idea, gathering of resources, investment strategies, developmental phase and scaling - every step has its challenges.

You will hear no arguments from the entrepreneur world when you say ‘Managing hardware start-ups is relatively harder’. Their complexity surpasses that of conventional software start-ups that are easy to handle.

But, why are hardware startups difficult? Why do entrepreneurs struggle to keep the boat floating?

This article will give you a comprehensive insight into the hurdles that block your success in the hardware start-up space. Once you identify the reasons contributing to the setbacks, it is a matter of time before you can arrive at pragmatic solutions.

What Percentage of Hardware Start-Ups Fail?

Let us consider a wider scenario. About 90% of start-ups fail because of a lack of market demand, poor product-market fit, quality issues, and ineffective leadership. Out of these, about 60-70% of the businesses start off fine but eventually take a fall because of strong competition, inadequate planning, scaling issues and failure to pivot.

Hardware startups also seem to follow the same trend. According to a CBInsights study, about 97% of Consumer Hardware Startups fail to deliver their product.

Does this mean that starting a hardware business will eventually bring only losses? Absolutely not.

Let's understand the reason why most Hardware startups fail and how it is possible to find solutions to manage the financial, operational, and organisational issues that threaten the business.

Why do Hardware startups fail? (With Solutions)

Here is an overview of all the crucial challenges that can affect Hardware start-ups. By understanding where things are going wrong, entrepreneurs can narrow down the solutions to avoid trouble.

Problem 1: Having an inefficient team

When it comes to Hardware Development there are a lot of initial steps that when left unattended can shut all doors before you can fully open them. For each of these phases of development you require distinct skill sets to prosper. Hence, hiring the right team for your Hardware startup is one of the most crucial steps in driving your business to success.

First and foremost, the business needs a lot of creative acumen to stand out from the competition. Then you would need people in your organization to come up with systems and processes that speeds up your operations and improves efficiency.

But unfortunately, most young start-ups have a very limited team with improper planning or they burn out faster in the process.

Solution:

While working with multiple Hardware Startups, we've found that the solution to this is guiding your founding team to shift their focus on the client chart, the market demand and how they can customise their products to suit the target buyers’ needs.

It would also be wise enough to outsource some of the tasks of Design for Manufacturing to a skilled team. DFM will give you an idea of the best product with the right functionality, productivity and design within your budget range. Underestimating what DFM can do can cost business owners heftily. A proper DFM can save you additional costs and delays during production.

Problem 2: No focus on defining your MVP

Once you decide on a minimum viable product (MVP), it becomes difficult to make changes to it. This is because of the high production costs that are necessary to introduce new features. The young hardware startup owners don’t realise that pivoting is a drawback when it comes to this field. The best thing to do is deal with the loopholes and add features during the PoC stage itself, meaning, prototype everything you can.

Once mass production starts, it is arduous to bring back batches and include new changes. This will involve a lot of money and the return on investment figures don’t look impressive. Eventually, the hardware startup will be forced to make compromises in crucial areas and the overall quality of the product will be affected. When it comes to hardware startups, pivoting is slow and can be expensive.

Solution:

At the designing stage, hardware startup founders must spend more time defining their MVP. It is always good to reduce the initial features to a bare minimum, the ones that truly provide the value you want to deliver. In case there are any more additions to be made in the future, the developmental costs that they had saved in the past can come in handy. It is always helpful to do efficient prototyping of all subparts of a hardware component so that no issues arise in the future.

Problem 3: Initial Hardware Costs

The production costs involved in hardware startups can be overwhelming. This will only keep growing proportionally with the batch volume. With limited funds in hand during the initial stages, the cost of production of the early products can be very expensive. The team usually ends up producing a large volume of products in the beginning.

The cost involved will also be high. If the eventual sales are not satisfactory, the profit margin decreases significantly. But the batch size remains the same and more money goes into production. The monetary cycle dips towards a losing scale and the burden on business owners is too much. The next feasible option is to decrease the batch volume. However, if this sudden change doesn’t sit well with the market demand, there is pressure again. Either way, hardware startup business owners will end up in a pile of losses.

Solution:

It is important to study the market demand and current trends to decide on the productional size of the batches. Spend enough time and energy on deciding the ideal batch size for the initial production. Will this be enough to get back the investment and profit margin? What is the cost involved in producing one batch? What is the marketing and sales scenario?

It is good to keep this data ready before the developmental phase. Alternatively, pay more attention to the MVP. Only include those features that will call out to potential buyers. Keeping the features to a minimum will reduce the cost drastically. Adding extravagant features with minimal value to the clients will serve no purpose.

Problem 4: Lack of Experience

Hardware startups need to understand that the hardware business in general has been around for a long time. There were experts who spent a significant amount of time and resources to understand the trends and make products that provide value to the buyers. While doing this, they have also considered the challenges, costs of pivoting and engineering techniques. The field is established with a strong foundation. However, hardware startup owners forget to reach out to this source of ‘experience’.

Solution:

It is true that the production costs in the hardware business are high. But, experience can teach you a lot of things. It is good to pair up with an experienced partner who will be able to guide the processes effectively. Both in the developmental and operational stages, the hardware business tends to be very cash-intensive. An unforeseen quality issue or delay in production can increase the monetary numbers to a depressing high. An experienced partner will help you avoid these issues. They can guide the process in the right way so that the DFM is implemented properly with the funds being used in the best way possible.

Problem 5: Operational Challenges

Once the hardware is produced, the operational challenges knock on the door. Why are hardware startups difficult, you say? The operational phase requires the team to introduce a new organisational structure to operate the product in the field, follow the functioning, deal with quality issues and answer client queries. Keeping track of things at this stage is a task. Any quality issues will create doubts about the product in the market and the team must reprocess the components again. More loss of funds.

Solution:

An experienced partner will help you create a realistic timeline of events. You can plan the design, development, production, operations and scaling way ahead of time. This will reduce stress and also give you a good picture of how things may turn out in the future.

Problem 6: Manufacturing Partners during Scaleup

When hardware startup companies decide to scale up, they tie up with third-party manufacturing partners who will take up at least 60% of the workload. Therefore, it becomes very important to choose a manufacturing partner who is diligent, sincere, and trustworthy. It is not uncommon to hear that businesses had to shut down because of ceased manufacturing and lack of commitment. Founders usually communicate with a middleman who acts as the point of connection between them and the manufacturers. This is a big drawback considering that the hardware start-up owner won’t be able to reach out to the manufacturer when he strongly needs to.

It is possible to experience similar hurdles when it comes to suppliers. There can be a component that is of paramount importance to make the hardware but the supplier no longer provides it. There could be a quality issue so they had to recall the component for redesign or recertification. This can delay the production of the startup’s hardware.

Solution:

When it comes to suppliers, it is better to choose components that have been performing well for a long time. Suppliers should provide prior intimation to the businesses if unforeseen quality issues arise. This will help the team find an alternative or choose to change their batch size for the moment. Hardware business team must choose such reliable suppliers.

It is crucial to look for proper referrals and documentation when choosing a manufacturing partner. Are they capable of delivering what they promise to do? The communication gap must be bridged immediately. Do not rely on middlemen who often fail to deliver messages in time. Make some space in your schedule to meet the manufacturing team on the ground and see the progress of things firsthand.

Problem 7: Differentiate between what customers want and what truly drives value

It is important to understand what the target customers want. But hardware startup founders must also know that you cannot give them everything they want. There are financial constraints to consider. If the product has too many features, there is the possibility of more things going wrong. Similar to how you cannot stuff a lot of things into a box of limited capacity. Items will eventually fall out. Big companies can afford to deal with changing features when something goes wrong, startups can’t.

Solution:

It is always better to go with a specialized design and create a brand image around the same. A flexible design can invite a lot of future problems and the trust of the clients will also start to waver after a point in time. The pivoting costs can prove to be too costly for young startups. Having the main features function perfectly in a specialised design is much better than having a flexible design with compromising features.

After understanding why hardware startups are difficult, note down a few important points that will help you design a successful business in the hardware field.

Points To Remember To Create Successful Hardware Startups

1. Work with experienced people to design the best-selling plan to introduce the hardware products to the buyers. Do not completely rely on marketing and selling the hardware directly to the customers without thinking about expanding the scope to a wider audience.

2. Scaling at an early stage of your business can reduce the design and engineering costs significantly.

3. It is best to work with manufacturing partners and suppliers who are more efficient, reliable and committed to their work. This will prove to be a good investment during scaling.

4. The main focus of the founder must be on the clientele, what they expect to buy, how to sell and gather more funds. Leave designing, and production to a team that has expertise in those fields.

Why are hardware startups difficult? They seem very challenging because business owners do not pay attention to the reasons for failure beforehand. The main product is not the biggest concern at first. The planning should be focused on what you want to offer to the clientele, how to sell, and the funding that follows.

At Voxdale, we aim to help hardware-focused startups reach their target customers without falling prey to field pressures. We help to bridge the gap between planning and success so that new hardware startup owners can dwell in safe waters. Reach out to us today to know how Voxdale can give you the needed push to reach the pinnacle of success!