Almost exactly six years ago, Apple launched the first iPhone. It was a small device that many dismissed as a toy. In reality Steve put a supercomputer in our pocket — we just didn’t know it. And like super computers before, it came with immense capabilities and brought about an opportunity to rethink, reimagine and reinvent how we live, work, create and consume. Today, smartphones sell by the hundreds of millions, and with that they bring what Chris Anderson (True Founder, former editor of Wired, best-selling author, and Chief Executive of 3D Robotics) describes as the “peace dividend of the smartphone war.”
Cheap processors, cheaper memory, and even cheaper sensors means it’s a great time for people who like to tinker with hardware. Platforms like Kickstarter and Quirky de-risk production, identify features and customers, and do so before the first tool is made. Wireless broadband is ubiquitous, and military grade technology is available at RadioShack. The manufacture and design of products and devices has changed forever. Building factories is no longer a prerequisite for building products. Add to the mix emergent technologies such as 3D printing and inexpensive laser cutters that put prototyping capabilities onto a kitchen table, and we suddenly are facing an extraordinary revolution in hardware-based innovation.
The new industrialization
This is a tectonic shift that is going to drive the next wave of industrialization — one that is more nimble, adaptable, and rapidly evolving, and one that is as much based in software as it is in assembly lines. The past 150 years were about the economics of labor and mass production. Now, information flow, data, and analytic platforms are the new tools augmenting the lathes, pneumatic hammers, and assembly lines of yesteryear.
The offspring of this marriage of machine and software is customizable, connected, and it enables creation. This new age of hardware is the foundation for a novel breed of services and platforms that leverage software and — most importantly — data, whether to change health behavior or to revolutionize the way we farm.
Investors have historically shied away from hardware, but we have long believed these enormous forces will change the industry and the world. True Ventures has been an early and big investor in the burgeoning hardware and device wave: We funded Fitbit‘s seed round in 2008, were early investors in MakerBot starting in 2010, and have gone on to fund 3D Robotics, AirstonLabs, Ginger.io, Inventables, littleBits, Sifteo, Streetline, Valencell, and several others that have yet to be announced.
These investments has given us a unique view at the dawn of this new revolution, and we want to share what we have learned. We share because we believe deeply that collaboration is the best path to inspire and propel the Founders behind this historic movement to unleash a new kind of creativity into our world.
Some of the things we have learned so far:
- Hardware is the double black diamond of startups. These startups are not for the faint of heart. Innovation curves are longer in hardware, and you’re dependent upon a huge host of suppliers and partners. Off-shore manufacturing means dealing full time with multiple and different business cultures, languages, and customs. And believe me when I say that China is a very long way from Palo Alto. Maybe not once or twice a year, but to manage it every day presents a much higher degree of difficulty. Unlike most startups in which you control your destiny, in devices you are dependent upon many, many others, some of whom are around the world, just to build your first product.
- Experience counts…really. Stand tall on the shoulders of others — people who have been there before. Learning how to implement an SAP system or negotiate with suppliers 24/7 is a critical path skill for the company, but it is not necessarily a critical path skill for you as a Founder. Get experienced help, and get it quick. Poor supply chain creation and management or weak demand planning will kill most companies that make a product. These are areas where you as a Founder don’t want to be a hero, you just want to get the best job done. Be creative: littleBits solved this problem with a really deep and valuable partnership with PCH. It enabled the company early on to have significant production capacity and scale. It’s been an important part of the company’s early success. Seasoned help is out there, get it in your company fast.
- Capital, and lots of it. Costs are high and more cash is needed, at all stages, to build a device. Not only is the cost of building a physical product much higher than in a software only business, but in today’s hardware world, you need to build both a hardware company and a software company. Today’s devices extend the power of the software world to incredible places, and your startup needs to do both well, which means higher burn rates. Cash also gets consumed by WIP, inventory, shipments in transit, returns. Even small failure is very expensive.
- Just like we pilots say, “know your numbers.” Knowing the specifics behind your BOM and margin is as critical to you as knowing when to rotate an aircraft on takeoff, knowing your fuel reserve margin, or keeping up airspeed on an approach. Often hardware companies learn to their chagrin that while they are selling an awful lot of product, they are steadily running out of cash. Gross margin, contribution, inventory turns, all of these are critical to keeping air flowing across your wings.
- Choose you investors wisely. It’s in vogue for VCs to “love hardware” today, but most investors operate on far too short a time horizon for early stage hardware startups. Capital strategy is one of the most important things you will do as a Founder. Take it seriously, and be careful.
- Design as if your life depended upon it, because it does. Not only are most devices incredibly hard to design because of space, heat, shape constraints, but they also must look and feel amazing. Oh, and you don’t get a second chance for a first impression. Devices are very hard to change once you ship them, and unlike an app or any software, customers don’t “close” a device and make it disappear. Your good choices, and your bad ones, are forever enshrined in atoms for all the world to see. In many cases you are building something intensely personal. Consider the Fitbits people wear or Nest devices that light up in the home above or around your loved ones: These are remarkable devices and they are incredibly personal. Getting design right is very, very hard, and getting design wrong is very, very easy. Once trust or respect is lost in the marketplace, it’s nearly impossible to restore. The lesson here is launch only when you are absolutely positively ready (and no, you don’t need to “hit Christmas” on your first launch).
- Retail me later. As tempting as it is to have meetings with “big box retailers” who promise to move enormous numbers of units, the reality is that this should be a strategy to employ well after you’ve succeeded in selling a lot yourselves. Not only is direct more profitable, but you maintain the relationship with your customer, which is so critical in the early through mid-stage. You also maintain your agility, because all of these large retailers require big inventory reserves, special pricing, and special terms, and they have return rights that can sink you if your product doesn’t sell. Retail is a great channel later, but first, stay direct.
- It’s all about the data. Seriously. All of these devices are merely endpoints of the Web or connection point to data, content, or a point of connectedness to a particular state, location or point in time. In addition to ambient monitoring data, other types of data are the real juice to the squeeze here: Thingiverse to the MakerBot, which makes every endpoint a universal creation machine, limited only by the world’s creativity; images and video brought to us for the first time from quadcopters and fixed wing autonomous vehicles; parking data delivered instantly by Streetline’s mesh network of sensors, or the delivery of beauty instantly to a place where it may not have existed (play “Nice Dream” by Radiohead via Spotify on your Sonos system, if you any doubt about the beauty that a connected device is capable of creating).
- You’re building a company, not a Kickstarter campaign. Sure, Kickstarter (which we love) is a great early indicator of product demand and can be useful in feature testing, but a successful campaign does not a successful company make. Like every other startup, you need to build a great team early, in advance of success, and meet the market with the best minds possible, working together, to change the future. A good Kickstarter campaign is great, but don’t mistake it for company success.
These are just a few… There are many more.
What we think comes next
We believe this is just the very beginning of the hardware revolution. The world is eagerly awaiting new devices and new device platforms. Look around you and it is hard not to see opportunities. We need a large scale device control and management platform that enables configuration, addressability, access, registration, tracking. We are still in desperate need for advance control plane software that will enable features in robotics like sense and avoid, swarm coordination, traffic management, ideally across device type. And much, much more.
On the device level, opportunities abound. When True funded MakerBot and Fitbit, critics told us these were “vertical markets” that were small and maybe not so important. They’ve turned out to be more like iceberg markets — they looked small and niche from the surface but were monsters underneath, and have driven the creation of entirely new categories. There are many, many more of these in places we don’t yet see, but they are likely right under our noses. The home, the car, the workplace, the body, the air, the sun, the sky, the sea, the sand.
Enormous amounts of video and imagery are being created, and this gives rise to new types of data cataloguing, geo-referencing, stitching, searching and even analysis. There is an entirely new GIS industry about to be created. Unlike GIS of the past, this one will be fully multi-media, multi-modal, real time, and in all likelihood streaming.
Some of the platforms we’ve seen will literally blow your mind at first glance. New devices will create a entirely new view into our world, from the nano to the galactic, from the human body out into the oceans, the atmosphere, space and beyond.
We expect brilliant things to come in the years ahead. Welcome to the hardware revolution. Please join us.