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How to Start a Hardware Startup in 2024

How to Start a Hardware Startup in 2024

In a recent mentoring session with industry veteran Bert Bruggeman, we highlighted key strategies for hardware entrepreneurs to refine their approaches and accelerate success.

27 June 2024

Voxdale BV

Voxdale BV

The Hardware startup ecosystem has seen remarkable growth in recent years. According to data produced by Startupblink, the share of Hardware & IoT startups has shown significant growth, increasing from 6.48% to 10.6% since 2020, marking the highest growth rate recorded in the period.

As hardware startups and scale-ups enter into the field of innovation and growth, the guidance of seasoned industry veterans can be invaluable. In a recent mentoring session with Bert Bruggeman, a former Tesla VP automotive manufacturing and with over 25 years in founding, scaling and mentoring hardware companies in the US, we highlighted several key takeaways to help hardware entrepreneurs refine their strategies and accelerate their paths to success.

Tips to Start a Successful Hardware Startup

1. Focus on Core Competencies

"Do not try to be big and successful by being small in everything."

One of the most critical pieces of advice for hardware startups is to avoid spreading themselves too thin. It's easy to get distracted by trying to excel in multiple areas simultaneously. Instead, focus on core competencies and invest resources where you can make the most significant impact. This targeted approach helps build a strong foundation, ensuring the company grows sustainably.

2. Understanding Investor Expectations When Planning Funding Rounds

"Rule of thumb: investors want to make 2.5x on their money between rounds."

When planning your roadmap, keep in mind that investors typically look for a significant return on their investments, aiming for at least 2.5x their initial capital between funding rounds. This expectation should shape your strategic milestones and financial projections. Demonstrating clear, achievable growth targets will make your company more attractive to investors.

Also check out our Hardware Board Advisory Program by Bert Bruggeman where we help Hardware start-ups like yours reach new heights of innovation and success.

3. Creative Deal Making in B2B Sales

"Many startups fail to recognise and develop the need for creative deal-making capabilities."

In the B2B sales landscape, especially for startups, creativity in deal-making is crucial to de-risk your startup in an early stage. The focus must be to create partner traction, partner engagement, some revenue streams and other forms of value exchange that show the partners' long-term commitment. This phase is not about profits as costs are typically far from optimal. This involves understanding the unique needs of your clients and designing flexible, innovative solutions that add value beyond the product itself. Consider reverse tendering to attract early clients. 

4. Strategic Sales Focus

"Spend your time with the people who bring you very close to your milestones."

A common pitfall for startups is spending too much time with clients who are interested but cannot significantly advance your product development, marketing and sales milestones. Instead, focus on clients who can help you achieve the volumes necessary to prove your product-market fit and your support claims about your long-term unit economics. This is particularly important in hardware, where scale is essential to reduce the Cost of Goods Sold (COGS) and improve margins.

5. Building Towards a Billion-Dollar Valuation

"How to become a €1 billion company?"

Achieving a billion-dollar valuation is a milestone many startups aspire to reach. Learning from the last five companies from your field as well as from other fields that successfully exited, it’s crucial to understand the multiples involved. Look at their revenue models, market strategies, and growth trajectories.

6. Proving Value Creation

"Sales is not about understanding that people buy for their reasons, not yours.”

To increase your company's valuation, you must prove that you can capture the value your technology creates for clients. This involves:

  • Proof Points: What evidence do you have that demonstrates your value proposition? Case studies, user testimonials, and third-party validations can be powerful.

  • Value on the clients’ P&L: How much of the additional value can you capture on the client’s Profit and Loss (P&L) statement? Showcasing tangible benefits like cost savings, increased efficiency, or new revenue streams will be compelling to investors as it drives pricing and margin levels.

7. Crafting a Compelling Story for Investors

"If investors seem conservative, it might be in response to your story."

If you find that investors are hesitant, it may not be their risk aversion but rather the clarity and compelling nature of your story. Ensure that your narrative is clear, compelling, and backed by solid data. Make sure to:

  • Articulate the Vision: Clearly outline your vision for the future and how you plan to get there.

  • Show Traction: Provide evidence of market traction and growth potential.

  • Highlight Key Achievements: Emphasize major milestones and successes.

Strategic Action Plan for Hardware Startups

According to the points provided above, here’s a complete blueprint that will guide you towards acing the Hardware Startup industry in 2024.

Identify and Strengthen Core Competencies:

  • Conduct an internal audit to identify your company’s core strengths.

  • Allocate resources strategically to these areas to build a strong foundation.

Align Roadmap with Investor Expectations:

  • Develop a detailed financial plan showing how you will achieve 2.5x returns between funding rounds.

  • Set clear, measurable milestones that demonstrate progress towards these returns.

Enhance B2B Sales Creativity:

  • Invest in an expert sales team on creative deal-making strategies.

  • Develop flexible business arrangements tailored to the unique needs of different, first mover clients.

Focus Sales Efforts Strategically:

  • Identify key clients who can help achieve significant volume targets.

  • Prioritize engagement with these clients and streamline efforts to close deals.

Plan for Billion-Dollar Valuation:

  • Research and analyze the last five successful exits in your industry to understand valuation multiples and growth strategies.

  • Apply these insights to your business planning.

  • Be ambitious, be bold. Dare to dream big by solving big problems and move in that direction with determination and understanding of the value chain and be confident in telling the story.

Demonstrate Value Creation:

  • Collect and present robust proof points that highlight the value your product provides.

  • Quantify the impact on clients’ P&L statements and communicate this effectively to investors and clients.

Craft a Compelling Investor Narrative:

  • Refine your pitch to ensure it is clear, compelling, and supported by data.

  • Focus on key achievements, market traction, and a visionary roadmap.

By incorporating these insights and actions into your strategic planning, hardware startups can better navigate the complexities of growth and investment, ultimately paving the way for success in a competitive market.

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