16 Secret Tips for Hardware Entrepreneurs to Save Money and Reduce Risk

Hardware startups save money

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Bringing a new electronic product to market is generally difficult, risky, and expensive. To succeed, and make it to eventual profitability, you need to focus your early efforts on minimizing your costs and risk.

Your first goal should be to get your product to market as cheap as possible, as fast as possible, all while minimizing your risk. You have to think positive and have confidence in your product, but you should always strive to keep your investment as low as possible. 

NOTE: This is a very long article so here's a free PDF version of it for easy reading and future reference.

 

Below are 16 of the best ways to not only reduce your costs but also to minimize your risk:

TIP #1 – Use modules for complex functions

One of the best ways to save money and reduce risk is by using electronic modules for any of your product’s more complex functions.

An electronic module is a self-contained assembly of electronic components designed to perform a particular function and to be integrated into another system or product.

A wireless electronic module

When designing an electronic function you can go one of two ways –design a custom circuit or use a module. Most products are either fully custom circuit designs, or a combination of custom circuits and modules.

Rarely can a product be taken to market using only modules. However, early Proof of Concept (PoC) prototypes, based on a development system like Arduino or Raspberry Pi, are usually entirely based on modules (and perhaps some breadboarding for simple secondary circuits).

It is very common for a new product design to have a custom circuit for the microcontroller (the “brains” for most embedded products), and other relatively low-risk secondary functions such as power management, alarms, LED displays, etc.

Then for more complex functions such as WiFi, Bluetooth, GPS, graphics controllers, or high-speed microprocessors, a self-contained module can be incorporated on the same Printed Circuit Board (PCB) alongside the custom designed circuits.

A CPU module

Modules have numerous advantages, especially for wireless functions. They offer a way to reduce your risk, reduce your development cost, simplify FCC certification, and get your product to market faster.

The only two downsides to using modules are increased unit cost, and possibly an increased product size.

While incredibly small modules are available, the shape of your electronics board may be limited because of the fixed size of the module. This won’t be an issue for most products. But for products where size is absolutely critical, such as some wearable tech devices, it may be difficult to bring a product to market using modules.

Unless you have a large development budget, or a product that has to be insanely small to succeed, modules are the way to go initially for many advanced functions.

TIP #2 – Minimize your FCC certification cost

A huge benefit to using modules for any wireless functions is they significantly reduce the cost for FCC certification. Any new electronic product requires FCC certification to be sold in the USA, and other countries have their own certification requirements. Certifications are an expense that many entrepreneurs neglect. This can be a costly mistake.

 

FCC logo

 

The FCC classifies products as either intentional or non-intentional radiators. Non-intentional radiators are products that don’t intentionally radiate radio waves, and intentional radiators are wireless products that intentionally radiate radio waves.

A non-intentional radiator certification is significantly more affordable to obtain. By using pre-certified modules for any wireless functionality you will only be required to obtain non-intentional radiator certification. This will likely save you around $10,000.

TIP #3 – Find manufacturer offering better terms

Better payment terms can be one of the easiest and cheapest forms of financing you can get. Cash flow is the major obstacle you’ll encounter once you begin manufacturing your product.

If you’re selling through retail outlets, you likely won’t get paid for 30-60 days. When selling your product online it will typically take you at least a month or two to sell your inventory.

Either way, you will almost never be paid immediately. On the other hand, most manufacturers will require at least partial payment upfront. You will need to finance manufacturing during this interim time unless you partner with a manufacturer willing to give you better payment terms.

Be forewarned you’ll have to give something to your manufacturing partner in exchange for better payment terms. This usually means exclusive manufacturing rights for the first couple of years, or up to a certain production volume.

TIP #4 – Hire independent engineer to review design

Prototyping a new product isn’t a cheap process. You will save a significant amount of money if you ensure the design is right before prototyping. It’s easier, cheaper, and faster to make sure the design is right before creating a prototype.

I’m not saying that getting a second opinion will make your first prototype perfect or immediately ready for market. Even with design reviews most products still require a few tweaks to get them right. But the number and severity of the changes needed will be drastically reduced.

Having another engineer review your product’s design before prototyping is one of the best ways to reduce your development costs and your total development time.

When I worked for Texas Instruments as a design engineer, every project required multiple design reviews. This was a requirement for one reason: it lowers the risk of any design problems.

TIP #5 – Delay certifications as long as possible

The costs for all of the necessary certifications can be quite overwhelming for self-funded startups, but there are ways to reduce and delay some of these costs.

Start by selling your product directly from your website. As long as your product doesn’t plug directly into an AC outlet this will allow you to bypass UL certification in the U.S.

UL certification is only legally required for products that plug into an AC outlet; however, most large retailers and distributors will require your product be UL certified regardless. So begin by selling directly to consumers to bypass this certification cost.

If your product requires battery recharging then I highly suggest that you either use a USB charger or a pre-certified AC/DC wall adapter. This will allow you to entirely eliminate the UL certification requirement.

You can bypass the RoHS certification requirement also by selling direct, or only via retailers and distributors that don’t operate in California. RoHS certification is only required for products sold in California and the European Union; however, once again most retailers in the US will require it if they happen to have stores in California.

NOTE: If you're serious about developing a new electronic hardware product then download our free cheat sheets - 15 Steps to Develop Your Electronic Product and Summary of the Costs to Develop Your Electronic Product.

TIP #6 – Start with a provisional patent

Obtaining a patent is expensive and extremely time consuming. Many entrepreneurs make the mistake of thinking that obtaining a patent is the top priority. It’s not. The biggest majority of patents never make it to market.

In the U.S. one possible option is called a provisional patent application which gives you protection for one year. At the end of that year you must obtain a full utility patent. This gives you time to prove that the product is worth the cost and complexity of obtaining a full patent.

Another low cost way to protect your intellectual property is a trademark. Come up with a really clever name for your product and trademark it. Trademarks offer some level of protection and only cost a few hundred dollars. They are also much easier to obtain and don’t require hiring an attorney.

There are numerous reasons that hardware startups fail and lack of a patent isn’t one of them. Patents can be important, but never make them a top priority. Marketing, customer development, and product development should always be a higher priority. Remember that your product idea doesn’t have much value until you turn it into a profitable company.

Never forget, the value is in the execution, not the idea!Click To Tweet  

TIP #7 – Use a “stock” enclosure whenever possible

A stock component, also called a catalog component, is a component that is already available for purchase. It’s something that a supplier will carry as part of their regular stock of inventory, so there is no need to custom manufacture it.

Project box for electronics

If you can get by with a stock enclosure for your product for early testing you’ll save a considerable amount of money. Even substituting just a few custom parts with stock parts will lower costs.

For example, perhaps you are developing a new type of computer mouse that looks similar to a traditional mouse. In this case you could purchase the mouse enclosure pieces from a mouse manufacturer in Asia.

There are also numerous suppliers that keep a large selection of cases and enclosures in stock. These are sometimes called “project boxes” (see picture above).

However, project boxes are usually rather crude so they only make sense for early prototypes, industrial or DIY products. For most consumer products you’re probably better off finding a manufacturer of a similar product and purchasing an enclosure from them.

TIP #8 – Learn, learn, and learn more

Electronics design, PCB design, programming, 3D modeling, graphic design, website design, accounting, marketing, management, and sales are just some of the skills required to get a product on the market. Learning any of these skills will save you money and speed up development.

For example, my education and career experience are mostly in electronics design. However, when bringing my own product to market I ended up teaching myself 3D modeling and design for injection molding.

I also had to learn to make sales calls, run tradeshows, and manage a sales force. As an introverted engineer these were all outside my comfort zone. But to succeed you must embrace these obstacles.

Learning these skills saved me thousands of dollars and cut months off my development time. No one is more excited about your product than you so you need to find a way to capitalize on this energy!

TIP #9 – Keep early manufacturing local

If you begin by manufacturing in Asia it will be more costly and complicated for you to closely monitor product quality. This is one of many reasons why you should start off with small production runs using local manufacturing. Only later do you want to migrate to offshore manufacturing.

Keep manufacturing close by and you’ll save several thousand dollars in travel expenses alone, since you really should visit and inspect the factory at least a couple of times.

Debugging manufacturing issues literally half way around the world is extremely challenging. Language barriers and time zone differences can make communication with your manufacturer very difficult.

It’s much better to fine-tune your entire manufacturing process locally before you transition to Asia. You can still source any stock components from Asia to save money. But be sure that any critical custom pieces are produced locally.

Definitely perform the final product assembly and testing locally. You want to be able to easily inspect the final products before shipping to any customers. The absolute worst thing a startup can do is to ship faulty product to customers. That’s a mistake that can be extremely difficult to recover from.

TIP #10 – Start with single-cavity, aluminum molds

Custom shaped plastic pieces are produced in high volume using a manufacturing process called injection molding. For most electronic products this means at least the plastic enclosure.

Injection molding works by taking two mold halves that are held together to form the shape of the final part. Hot, molten plastic is then injected into the mold under high pressure. Once the plastic cools, the mold is opened and the custom shaped plastic part is removed.

Injection mold

The number of cavities in a mold determines how many parts can be produced at a time per injection. The hardness of the mold’s metal determines how many times the mold can be used since softer metals wear down more quickly.

Soft metals like aluminum can usually produce several thousand pieces, whereas extremely hard, steel molds can potentially produce millions of parts.

To keep your initial costs low, start with a 1-cavity mold made of a softer metal such as aluminum. Starting with cheaper molds will also allow you to more easily make improvements before spending much more on high-volume molds. Gradually upgrade to higher volume, multi-cavity molds as your manufacturing volume necessitates.

NOTE: This is a very long article so here's a free PDF version of it for easy reading and future reference.

 

TIP #11 – Minimize custom plastic pieces

The cost of injection molds will likely be one of your biggest hurdles to mass production. Each of your product’s custom-shaped pieces of plastic will need its own mold. The cost of these molds run anywhere from $1,500 to $100,000. Reducing the number of custom plastic pieces needed will save you a considerable amount of money.

When designing the 3D model for your product’s enclosure try to minimize the number of individual parts required. The minimum number of pieces will always be two: a top piece and a bottom piece. Having only two pieces may be unrealistic for many products, but reducing the piece count by even one or two pieces can save you thousands of dollars.

TIP #12 – Find a manufacturer to help with development and scaling costs

There are two ways that manufacturers can lower your costs. They may be willing to donate engineering services and/or amortize some of your higher costs like creating your first steel molds.

Try to find a factory that isn’t at manufacturing capacity because they will be more likely to help you. But it must be a factory already manufacturing products similar to your own.

Ultimately you should try to find a manufacturing partner that has a vested interest in the success of your product.

TIP #13 – Use PO financing and invoice factoring

If you can’t find a manufacturer willing to give you favorable payment terms, consider purchase order (PO) financing or invoice factoring.

If a company with established credit gives you a significantly large purchase order (PO), you may be able to obtain purchase order financing. There are lending companies that will finance the production of that order. Obtaining PO financing depends not on your credit rating, but on the credit rating of your customer.

Invoice factoring is an option if you, or your manufacturer, can fund manufacturing at least until the order is ready to ship to the customer. Once you ship the order to your customer you will issue them an invoice. You then essentially sell this invoice to the invoice factoring company.

The interest rate for invoice factoring is significantly lower than for PO financing since the lender’s risk is lower because you’ve already completed the manufacturing.

With both PO financing and invoice factoring the lending company takes over the job of collecting payment from your customer. That can be a good or bad thing. Having a third party company interacting with your customer can be dangerous, so be careful.

TIP #14 – Bring on a co-founder

Bringing on at least one co-founder has numerous advantages. They can bring skills, connections, and/or money. The cost of course is equity in your company. But a small piece of a big pie is better than no pie at all.

Bring on a co-founder that best compliments your skills. For example, if you’re an engineer then bring on a marketer, or vice-versa. Just make sure you get along well with them, because you will essentially be “married” to them for years to come.

TIP #15 – Buy a 3D printer

If appearance is critical for your product you will almost certainly need multiple iterations on your enclosure design to get it right. The cost of these multiple prototype iterations can really add up with each version costing several hundred dollars.

3D Printer

For many products where appearance and ergonomics are critical, a dozen prototype iterations is not uncommon.

You can purchase a descent 3D printer for several hundred dollars. So if you think you’ll require more than a couple prototype iterations to get your enclosure design right, then consider purchasing your own 3D printer.

By creating your own 3D printed prototypes not only will you save money on prototyping costs, but you’ll also significantly speed up your development time.

The key to speeding up product development is to prototype early and often. A 3D printer allows you to quickly iterate your prototype at very little cost.

TIP #16 – Hire offshore engineers (but only if…)

You can typically find engineers in countries like India, China, Russia, and Pakistan who are willing to work at a much lower rate than engineers in Western countries.

The key to using this strategy successfully is to be sure you, or someone on your team, has the necessary skills to review their work accordingly. So make sure you have an engineer you trust review their work. This tip holds true regardless of where you hire your engineer, since incompetence can happen anywhere.

NOTE: If you're serious about developing a new electronic hardware product then download our free cheat sheets - 15 Steps to Develop Your Electronic Product and Summary of the Costs to Develop Your Electronic Product.

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