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The Best Hardware Startups Build Communities And Software

By Christopher Steiner  •  Jan 25, 2017

A cliché that everybody acknowledges with a smile in tech circles: Hardware is hard.

But that declarative statement is being challenged. Creating anything great is hard, but creating great hardware has become easier. Yes, it's hard to build a circuit board, especially for somebody who's never done it, but today's tinkerers and hardware founders have advantages in prototyping, manufacturing and iterating that creators of the past had to do without.

Startups can arrive at a prototype with a solid design and proven demand, thanks to opportunities available through sites like Kickstarter, where hardware companies can suss out the first wave of users and extract capital from them before soldering the first circuit board or forming the first mold.

Major contract manufacturers, many in China, such as Flextronics, cater to startups and smaller businesses, allowing founders to quickly produce thousands of beta products. Smaller runs of product can be pushed out by 3D printers that allow founders and engineers to iterate on a form factor several times in a day.

All of these things together mean that the market should expect more hardware startups than it has ever seen—and more good ones. For investors, this new reality will require a more critical eye when vetting hardware companies, knowing that competitors can gain speed quickly and that the natural advantages that go to a first-mover in hardware space have eroded.

Investors, when examining potential hardware investments, need to do so with an openness and understanding that none of this is as hard as it used to be.

And founders should hold the same idea in their minds: yes, you can get started more quickly and more cheaply, but your advantages can be usurped that much faster as well.

Knowing how the hardware game has changed, we've spoken with acute observers of the market, both investors and founders, to come up with three essential truths about the new realities for hardware startups.

Both founders and investors should keep in mind:

1. Cultivating a community is as critical as building the hardware

Hardware that's closely connected to the web and into other devices, as well as with a large network of users, has increased potential for defensible network effects, key in warding off competitors.

This effect starts with a community. Founders who have managed to create a piece of hardware that has risen in tandem with a connected and dedicated community around it have hit upon the perfect mix of viral growth and built-in defense against competitors.

"Community is a bigger and bigger part of what makes companies successful," explains Mike Farley, CEO of Tile, which produces a popular Bluetooth tracker that can be attached to keys, phones and wallets. "If you build bridges that connect people, you win their hearts and minds."

Tiles that have been marked as 'lost' by their users can be spotted by any phone that has the Tile app installed, and a message is relayed through the Tile network to tell the original user where the Tile was last seen.

Farley says the Tile network of users, which he calls the ‘world's largest lost-and-found network,’ makes his product far more powerful, able to ward off competitors with the scope of its user base. "It truly creates something larger than the product itself," Farley says.

IP is good, but for new hardware companies, the expense and time of filing for a new patent can be consuming in more than one way.

Heather Russell, co-founder at Biscuit Labs, an AI-infused building sensor and control company, makes the argument that building a barrier to entry with the software side of the product is almost always a better solution than relying on IP.  

It's important to remember, she says, that hardware is easily and quickly copied these days, and that big tech players have almost certainly applied for patents in a startup's relevant space.

2. These devices will create large amounts of data that will require frameworks, support, and storage

The trite adage that says ‘it's better to be the one selling shovels and pans than actually digging for gold’ rings true here.

As hardware startups find traction, they run into all kinds of issues that have beset manufacturers for centuries: sourcing raw materials, finding factory space, distributing quick-selling devices faster than consumers snap them up.

Founders once had years or decades to figure all of these things out. Companies tended to grow more slowly, and there were fewer sources of major venture capital, with no way to quickly drum up consumer attention and demand the way Kickstarter and other outlets can.

With the speed at which new products can now be adopted, founders don't have years to solve these problems. This is where other startups, aimed at exactly these kinds of problems, can make hay.

Companies such as Tempo Automation allow for quick turnarounds of hardware prototypes, with automated factories focused on low volumes and beta products.

Hardware startups who feel their time is best spent focusing on product often leave logistics, a critical path problem that can greatly slow down hardware startups who are rapidly gaining traction, to a new class of company built to do just that. There's no reason to become a logistics expert when it isn't necessary and not core to a company's product and mission.

3. New use cases and major new hardware products will materialize as the network of connected hardware devices grows

The connection to the web of devices that were once pedestrian, barely more than pieces of furniture—things like thermostats, coffee mugs, dishwashers, lightbulbs—has changed how people think of their homes and their belongings. As everything becomes bound by code and the cloud, new use cases, new possibilities, new frontiers for old paradigms continually surface.

Places where nobody saw opportunity a year ago will become the province of innovation and growth for new startups.

With this understood, venture capitalists and investors need to have pliable minds when it comes to thinking how hardware will evolve as everything around us becomes more connected, more able to be controlled and monitored from afar.

The best hardware investments aren't about incremental change or new twists on old solutions, but rather sweeping changes to the way we use and wield devices, thanks to the infusion of software and the web.

That doesn't mean that hardware startups need to create new classes of devices. But they must focus and iterate quickly on the functionality they are adding or bringing to the device.

Many of the best-run hardware startups, notes Igneous CEO, Kiran Bhageshpur, focus just on their piece of the value solution, and use off-the-shelf hardware to comprise the rest of their product. Igneous makes on-premises storage that functions like cloud storage.

“Don’t develop your own hardware unless you have to. In our case, there was one hardware component we needed to support our “fail-in-place” architecture, and it was the basis of our first patent," Bhageshpur says. "For the rest of our architecture, we were able to benefit greatly by utilizing off-the-shelf components developed for other uses, and I’d recommend doing that wherever possible.”