Lesson #1: What type of hardware startup do you want to build?

What type of hardware startup do you want to build?

Before sketching, before defining your customer, before anything, it’s important to establish what type of hardware startup you want to spend the next umpteen years losing sleep over. Each comes with a different business model, a different measuring stick for success, and even different investor potential. Choosing a suitable category at this early stage will allow you to frame your startup’s trajectory, enabling you to see beyond your initial product to the “big picture” of your future company.

Matt Witheiler of Flybridge Partners summed it up nicely in a Venture Beat post, which we will expand on here. Drawing very broad strokes, there are three main types of startups in the hardware space:

1. Portfolio startups
2. Platform startups
3. Ecosystem startups

Portfolio Startups

This is exactly what it sounds like: startups that create an array of products that support and leverage their proven technology. Think GoPro. While you may first think of a single product—high-def action cams for capturing extreme sports—they host a number of different products built on the same technical foundation.

The different variations on a product often happen as a startup either develops their first minimum viable product (MVP) or learn from the demands of their market through research. A good product should be shaped by new or existing needs and always strive to fulfill it.

Having multiple devices that pivot around the same core function will not only strengthen your eventual startup’s presence in the market, but it will also serve as an indicator for whether or not your initial idea is beefy enough to commercially iterate on. Investors look for companies, not products. The more you can show that your product is not a one-hit wonder, but rather the first of many devices to come, the better your chances of securing a round of funding.

Platform Startups

Unlike portfolio companies, platform companies use their hardware devices as a means to deliver something else. A great example of this framework in play would be Nest: their smart thermostat is a gateway product to a much larger, connected platform for automating your home. These startups often require a robust software side to their hardware product to serve as a hub or community around their technology.

It’s important to upkeep the software side of the world if you plan on making a platform play. It should be treated as your company’s final product or service, while your hardware device serves as a physical arm to what you’re offering (eg. the Square Reader is a means to access Square’s mobile payment platform).

At this year’s Open Hardware Summit, we heard about the story of Phonebloks, the modular mobile phone idea, pre-Project Ara, that took the Internet by storm in 2013. As a company, Phonebloks is focused on driving a community of tinkerers and developers to build on top of their product. It’s this community that becomes an integral part of the product, which will inevitably make the hardware side better as a result.

Ecosystem Startups

Ecosystem companies are a direct response to the burgeoning hardware revolution. They build products to fuel the current surge of hardware development, enabling the greater community to build their own products. Examples include MakerBot, Rabbit Proto, and even companies that specialize in development boards like Arduino.

This strategy is great in that the trend and need is there. It also casts a wide net of applications, from serving as an educational tool for the DIY and maker movement, to a way for teams to rapidly prototype their own hardware product.

The product development cycle is changing: it’s getting leaner, cheaper, and every step is more accessible. Zero in on a phase of the process that you want to improve and fundamentally change how everyone, from the maker in his basement to the next leader in consumer electronics will build their ideas.

What to avoid

Watch out that your startup doesn’t just focus on a one-off product. It’s easy to get enamored with an individual device that serves a single but extremely cool function. We see this happening a lot with trending product types like wearables, toys, and IoT devices. During the ideation stage (which we’ll be covering in our next chapter), try to zoom out and define what the significant element is to what your startup is bringing. What is it fixing? Making easier? Better? What’s the ultimate thing the consumer is buying? Once you figure this out, you’ll be able to explore related ideas that complement or augment your original hardware device. Focus on creating home runs—grand slams, even!—rather than a single hit.

For next week

Now that you know the three types of startups that exist in the hardware space, you should be able to frame your initial product idea into a structure for an actual company. As mentioned, we’ll explore in our next post how you can flesh it out but for now, try to answer the following questions for next week. The responses will no doubt change as you further explore your market so don’t approach it like they’re going to be written in stone!

https://docs.google.com/forms/d/1YXjfEg8Ljs1Y5IdwYK38HwyOEUqhKUeCiZ-QSGuOuB0/viewform?embedded=true