Lesson #7: Division of Labor

imageLast week, we talked about some of the preliminary things that you should cover in setting up your business. It should be obvious by now that the foundation of a successful hardware startup extends beyond simply executing on building your product: You need to do your due diligence with customer discovery; you need to build your mailing list and find a reliable pool of user group to eventually convert into your first customers/evangelists; you need to bolster up where you are weak and find a co-founder that you can rely on when things get hairy.

This week’s lesson will largely focus on your team, both internal and external. The nature of shipping a hardware product involves many different roles, skills, and players at every stage of its development. This is where finding the right talent makes a tremendous difference. We’ll also go over what the “business” side of the team should be doing in the background while the “technical” body focuses on delivering the product (hint: you definitely shouldn’t be just waiting for launch).

Hiring your core team

Much like finding the right co-founder(s), you need to grow your team by hiring talent that can fill the voids. What aspect of the company are you missing expertise in? Mechanical? Software? Firmware? Business? Your core team should be as balanced as possible, and willing to learn together what they don’t know. Cobbling together a patchwork of contractors and manufacturers is a dangerous path to go down: Not only will communication be stretched thin across the board, it’s difficult for contracted parties to see the big picture beyond the designated task and area you’ve set.

A huge upside to having a core team made up of an assortment of backgrounds is that you encourage cross-pollination of skills and ideas, held together by a unified goal and hunger for success.This will not only balance out the work load within your company, but ultimately make your product better by leveraging everyone’s proficiencies.

For a well-balanced hardware startup, you should think about finding your four core “departments”: Software, Hardware, Operations, and Marketing/Sales/Business.

What’s going on in the background?

Too many startups think that putting together a business arm before their hardware product is ready is jumping the gun. They assume that once it launches, people will automatically know of its existence when this is simply not the case. Startups have to deal with the difficulty of building traction, exposure, and traffic for a product and brand that is completely new to the world. There’s a great deal of ground work that should be done pre-launch that will give your product a chance at successfully generating revenue.

So what does this involve? We highly recommend you watch this presentation by Vidyard’s founder and CEO Michael Litt called The Anatomy of a Hustle. Among the incredible insight he gives into what he did in the early stages of Vidyard, he covers a list of things that he believes startups just don’t do anymore.

Working with manufacturers and contractors

You’ll inevitably work with an external team, especially when it comes to manufacturing. Use this section of the lesson as a reference when you’re ready to work with contractors. We’ll go over the different types of manufacturers and how to choose the one that’s right for your startup.

CM (Contract Manufacturer)

If you have hardware experience in-house, contract manufacturers will most likely be the best way to go. CMs describe companies that manufacture components or products for another hiring firm. A startup will approach the CM with a full design and, for an agreed upon price, they will serve as the startup’s factory which includes producing and shipping units.

ODM (Original Design Manufacturer)

If you lack the hardware experience and have set up your startup based on an idea, Original Design Manufacturers will be a better fit. These describe companies that are responsible for designing and building a product to another company’s specifications. While this business model has the ODM owning and/or designing the hardware in-house, the product will ultimately be branded by the hiring startup for sale.

OEM (Original Equipment Manufacturer)

Contrarily, Original Equipment Manufacturer describes a company that is responsible for the designing and building of a product according to its own specification. The product is sold to another company, rebranded, and then distributed by the hiring firm. Using an OEM allows you to obtain needed components or products without owning and operating a factory, due to the OEMs’ ability to drive down the cost of production through economies of scale.

In choosing the right type of manufacturer, think about how your idea will eventually become a product: Are you going to do the bulk of the work? Paying people to build things along the way? Are you going to partner with a factory, work with them, but in exchange give them a much bigger piece of the revenue? This all comes back around to what kind of expertise you have in-house and whether or not you will be able to design the actual hardware aspect of your product.

If your startup’s core team lacks that technical expertise and you do end up working with an outside manufacturer for the hardware design, you do not own your company’s most valuable asset: the product IP. Try to err on the side of working with outside contractors for one-offs, rather than relying on them to build out the core parts of your product. Knowing in-house how the hardware works will also pay off in knowing how to fix potential bugs or improving the product in the future.

If you’re just joining us, spend some time going over our earlier lessons and be right on track for next week!

Lesson #1: What Type of Hardware Startup Do You Want to Build?
Lesson #2: Exploring Ideas
Lesson #3: Customer Discovery
Lesson #4: The Cardboard Prototype
Lesson #5: The Hardware Lifecycle
Lesson #6: Setting Up Your Business

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