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Hardware Startups: 3 Strategies For Succeeding

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“Hardware is hard” — there are good reasons for the saying. At least compared to software, hardware typically takes longer to build and is harder to upgrade, since there is no such thing as over the air updates. That said hardware startups can and do succeed, oftentimes against much larger and better-capitalized competitors. This post is focused on 3 key strategies to succeed, which are essentially mutually exclusive.

Strategy #1: Highly Differentiated

Arguably the most common strategy amongst hardware startups. Apple that made computers accessible to homes in the 1980s making or made touch the primary interface for smartphones starting in 2007. Tesla and the Roadster launched in 2008, as a breakthrough electric sports car that could travel 200 mi with a single charge. Peloton which broke the mould for stationary bikes by allowing users to connect with content and community in real-time. In most of these cases, we are talking about high-end, which means high per capita income countries like the US are kings in this strategy as their internal markets that can absorb higher price points.

Lesson on this strategy — build a product that is quite differentiated in features so you can establish yourself in your own market segment. That way incumbents and fast followers alike will be significantly challenged in trying to catch up with you.

Strategy #2: Affordable

The exact opposite strategy is to make hardware a forgettable necessity. You could build with off-the-shelf parts or partner with others to get scale. China has arguably mastered this strategy more than any other, primarily for its own market but increasingly for other countries. DJI founded 20067 has a majority market share in consumer drones. Xiaomi founded 2010 has done the same for the low-mid end of smartphones. Huawei founded in 1987 executed a similar strategy with telecom. All three of them have gone from startup to a huge market share very quickly.

Lesson on this strategy — build a product that is inexpensive and focus on high volume. You could even go all the way and make it completely free, which brings us to strategy #3.

Lessons Strategy #3: Give Away

An ODB port for the car so insurance can find out if this drive is safer than the other one. A heart monitor that a patient can wear at home and flags issues for the doctor. A smart lock that allows hotels to grant/revoke access to guests and get rid of physical keys. In these examples from mobility, health and IoT, a startup could have very well given the hardware completely free and monetized on the service. It’s the class SaaS, with the startup often incurring a loss on the hardware itself and making up eventually on a recurring revenue stream.

Lesson on this strategy — build hardware that is essentially a gateway to data, then build a huge offering around that. And beware that this can happen across an entire industry. Consider for instance telecom, where the installed capacity is getting commoditized very fast courtesy of WhatsApp or WeChat, and where they are working to build business models on services.

So what should you as a hardware entrepreneur do? Analyze your market and competition and think very deeply which of these three strategies your product falls in. Even more so than software, once you make a choice it will be incredibly difficult to change it but executing well is in itself a huge barrier to entry.

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