Episode #2 – Five Biggest Mistakes Hardware Startups Make with Customers with Dave Millman of BizDev Global
In this episode I talk with Dave Millman of BizDev Global who specializes in helping hardware startups find their first customers. Today, we’ll be discussing 5 of the biggest mistakes that hardware startups make when it comes to customers.
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Dave Millman of BizDev Global
Dave is an expert with decades of experience helping tech startups find customers. He even had the opportunity to work with Steve Wozniak on a new product that he developed after first leaving Apple.
As we discuss in great detail, way too many entrepreneurs begin their hardware product journey by completely ignoring the customer. The typical entrepreneur starts with the product, and then eventually works toward the customer after development is nearly complete. This is backwards. For real success, it is critical that you first begin with the customer and then work with them toward the product.
This is a much smarter strategy than spending months or years, and likely thousands of dollars, developing a new product without starting with the customer. The biggest mistake I see entrepreneurs make is they assume that they really know what other people want. Incorrect assumptions like this are the death for many hardware startups.
In this interview Dave shares five of the biggest mistakes he sees hardware startups make when it comes to customers. This is a interview you will not want to miss!
Links mentioned in the show:
John Teel: Welcome to the Predictable Designs Podcast where we discuss all things related to developing, manufacturing and marketing and selling successful new electronic hardware products. I’m your host, John Teel. This is episode number two. Today I would like to welcome to the show Dave Millman from BizDev.Global. Dave specializes in helping hardware startups find their first customers. Today we’re going to be discussing five common customer mistakes that hardware startups make. I feel like this is a really important topic since I know so many startups tend to be overly product-focused and not enough customer-focused in my opinion. Welcome to the show, Dave.
Dave Millman: Hi, John. Thanks for having me.
John: Why don’t you go ahead and do a quick introduction? Tell everyone a little bit about yourself and then we’ll jump right into the biggest customer mistakes that hardware startups tend to make.
Dave: Well, I’m a hardware engineer out of MIT and after handful of years as a hardware engineer and then an applications engineer, I went over to the dark side and started into technical marketing and sales. With the exception of a quick deviation to IBM, my whole career has been helping startups with marketing and sales of technology products.
John: That’s great. That really gives you, I think, a lot of insight being an engineer and then as you say, going to the dark side and now primarily specializing in marketing. I think that’s obviously a combination that’s served you well and I think it’s a combination that will allow you to provide a lot of useful information for the listeners. Let’s go ahead and just jump right into some of the biggest mistakes that you see hardware startups making when it comes to customers, which in my experience overall, I just see not enough emphasis on the customer. It’s always like an afterthought.
Most startups are very product-focused and they worry about finding customers once they finish product development. As we’re going to learn today through you, that’s not the optimal way to do it. Dave, why don’t we go ahead and just quickly list all the customer mistakes that we’re going to be discussing? Then we’ll go back and we’ll discuss each one in detail.
Dave: Number one is, and you see this all the time, a startup that’s a great idea and they’re going to get their hair on fire to go solve it, but they don’t test their idea with customers first. Even with hardware, you don’t got to test. You don’t have to develop hardware before testing the idea. Number two is not seeking any early customer partners. The earlier you get with customers at every stage of your development phase, the better.
John: Couldn’t agree more.
Dave: Number three is leaving sales to the ‘sales guys’. You know what? In a hardware startup, essentially if you’re just one person, but in a small hardware startup, there are no sales guys. You’re all sales guys. You all need to be aggressively talking to customers, learning from customers and finding out what’s going to work best for customers. Number four is assuming customers will change their behavior to use your product and this one’s a killer. We’ll talk about that when we get there. Then number five is not asking customers what to do next or what Steve Jobs called the second product syndrome.
John: Great. We’ll go ahead and circle back to number one which was not validating your ideas with customers before starting development which is something that I’m always preaching about. I’m really excited to talk about this one.
Dave: I do it myself. I get an idea for a database that I want to create or some macros or scripts I want to write and I just sit down and write them. Since my total investment on that is five minutes or an hour, there’s no loss. But starting a hardware startup without testing your ideas before developing the hardware, you can commit weeks or months or God forbid years before you get customer feedback and that’s just so crazy.
John: Absolutely. I would definitely say, I see years is very common and then you throw on top of that spending tens of thousands of dollars before you’ve even started to try to talk to the first customer here. That’s opening yourself up to a lot of risks.
Dave: It’s so easy when you have a brilliant idea- let’s say you have this brilliant idea for this new widget that’s going to solve this huge problem. Great. There’s a huge problem you’re trying to solve. First thing, go talk to a bunch of prospective customers and ask them if they perceive the problem the same way. If they all say, “Oh my God, that’s a huge problem,” you might be really on to something. If nobody else really sees it as a problem, it might be a problem only you recognize, right?
John: Absolutely. Just because one person’s opinion, whether that be the founder or my opinion isn’t the same as the opinion of a market or your potential customers for sure.
Dave: By the way, you can’t ask mom, you got to go out and ask people who may actually buy this thing. If your product is an automotive product, then you got to go ask drivers and car buyers. If your product is a computer product, then you got to go ask people who buy accessories for computers. Period, end of the story.
John: I suspect that doesn’t happen. One of the biggest reasons is I think it’s scary. I think a lot of hardware founders tend to be a lot of technical people and the idea of going out and approaching customers is terrifying but the idea of hiding away in their lab and developing a product is really exciting and fun. I think that’s a big challenge for a lot of hardware startups.
Dave: A lot of times that’s where working in partnership with somebody else helps. You think of Wozniak and Jobs, for example, Steve Wozniak just loved developing the perfect hardware and Steve Jobs just loved going out and somehow meet customers. What a perfect pair they made, huh?
John: Absolutely, yes. I’ll commonly say that I think for a hardware startup, the perfect team is a maker, a hacker, so you have a hardware guy, a software guy and then you have a hustler. That is the one out there working with customers and doing the marketing and such. Obviously, one person can do it all but to be good at engineering, you tend to probably not be as comfortable out approaching customers. I know that was my own case, but I did it anyway so you just have to get over your fears and be willing to go outside your comfort zone.
I know from my own experience with my business, every time I talk to a client or a customer, I get new insight into problems or solutions that I can offer or different ways of thinking about it. I think that talking to your customers on a regular basis just really provides a lot of value. Myself personally, like having the Hardware Academy and getting to interact more personally with people in the community on a daily basis, I not only learn about everyone better and get to know everyone but I’m also constantly getting feedback and just gaining a better understanding of the customer which is obviously what, whether you’re a product or service business, you need to understand your customer.
Dave: That’s a good segue into number two.
John: Let’s move to number two.
Dave: Number two is not seeking early customer partners, the number two biggest mistake I’ve seen hardware startups make. John, what you just described about probably the community of people on Hardware Academy, you can view those people as partners. They’re not formal partners, you don’t have any agreement with them, but there’s threads on Hardware Academy and on lots of other similar forums where there’s an ongoing discussion about a product or a concept or a feature or a required feature and in Hardware Academy, there’s some ongoing discussions about a microcontroller, about how to implement a sensor technique or whatever. T
here’s a number of those that even in just a couple of months that the Hardware Academy’s been active, there’ve been a number of great conversations like that with people that have extended over weeks, right?
John: Yes, some they go back and forth 26 replies, I think I’ve seen as much.
Dave: Someone will chime in that the ST microcontrollers have a great command set and have all these advantages and someone else will chime in, but the other type of microcontrollers tends to stay in production longer, whatever. I’m not here to debate microcontrollers, but that’s the kind of discussion that goes on.
John: That’s interesting. I hadn’t looked at it as those are partners but I’ll tend to say, it’s like a community of co-founders where now you’re not doing this on your own, you’ve got other co-founders helping you out or other partners. Definitely, seeking early partnerships is always beneficial, that’s a good point.
Dave: Broadening that out a little bit, the concept of customer partners, I just picked- Hardware Academy is just a very specific example, but broadening that a little bit, very often when you do the Starbucks thing, when you do the talking about things in an online forum, you find one or two people who self-volunteer as super enthusiastic about the idea. They love the idea. They recognize the problem. They want to help. This happens all the time. Great. You can tap on them. Take them to lunch once a month. Treat them to lunch or if they’re remote, figure out another way to compensate them. We’re not talking about lots of money. Send them an Amazon gift certificate every time you have a half-hour conversation.
John: Like I just did for you recently. [laughs]
Dave: [laughs] Exactly. If you’ve got a super enthusiastic participant like that, send them a gift certificate once a month and have a 30-minute conversation with them. They’ll be so excited, they’ll stretch you to an hour and a half because you’re the new best friend. Talk to them about the latest ideas you’ve had. You’ve now spent three months in development and you realized, “Wow. I’ve been hearing about this big DVR thing. DVR is really complicated because it involves all of these issues.
We have storage mechanisms. How do we get them stored, do we need thumb drives?” You just tell them about your problem and just hear what they have to say. They might be right. They might be wrong. It doesn’t matter. You’re discussing the problem with another like mind who recognizes the problem and has ideas about it.
John: Definitely. What suggestions would you have specifically around customer partners? Taking a little bit broad partners, in general, they can help you achieve your vision, but what about customer partners? Is there such a thing as too early to start trying to partner with a customer?
Dave: It’s never too early to do that original research that we’ve talked about in problem number one. If you want to talk about partnerships, then it’s when you start to have something. If we’re talking about internet software, then it’s a prototype online. If we’re talking about hardware, maybe it’s a breadboard. It’s something. Let’s talk about the B2B case because that’s easier.
John: All right.
Dave: Then we’ll come back to the B2C case. B2B it’s very common to approach potential buyers. People or companies that potentially could buy your product and say, “I’m working on a solution to the X, Y, Z problem. Lots of companies have told us that the problem is X and the parameters of the problem are Y. If it worked within this scenario, it would be really valuable. We’re developing a solution to that and we need early technology partners to help guide us. Is that something you’d like to participate in?”
You go to LinkedIn and you identify 50 companies that would be potential users of this product and you contact them all. Guess what? B2B, you’re going to be contacting them a lot. Three times by email and then by telephone and you’re going to get through to some. You’re not going to get through the most and that’s what it takes.
John: Absolutely. I went through that process myself with that because, with my own product, I had approached Blockbuster Video back when they were a really large company. I had approached them early on. I had just a flier. I just cold-emailed one of their vice presidents over retail sales. He said the product looked interesting. They wanted to put me in touch with their buyer and the next thing I know, I’m sending the buyer a prototype and that got the ball rolling. Just having that early customer express interest, it’s like a shot of adrenaline to my startup because it just made everything.
Now, I was able to get a manufacturer interested in the product because I had a customer that was interested and then the manufacturer became interested. They invested over $100,000. I was able to get salespeople and get that started all because I had a Blockbuster customer interested very early. I can definitely attest to the fact that having a customer partner early on as early as possible is really beneficial.
Dave: Wow, what a great example that is.
John: Mine was a little bit– I had just the 3D printed prototype at that point. I’ve told this story before in the blog. The buyer of Blockbuster requested a sample. I think this was July or August. I sent it to him. He gets it. I talked to him on the phone. He tells me it’s awkward to use. I remember just being devastated. I just never had anyone tell me the product was awkward to use. After a lot of research, after a couple of days of self-pity and being annoyed that he could say that about my product, I started researching and it turned out it was a 3D printed prototype and it had melted a little bit during shipping. Not enough that he knew it was melted but it was enough for him that it just- the snaps weren’t working, it was almost unusable. I was able to recover from that. He knew it was an early prototype and I didn’t tell him this was a production sample. I was able to work through that but that’s an interesting story that even when things can seem bad, if you just keep working at it, you can typically turn that around.
Dave: The next time, you made sure to print them out of ABS instead of PLA.
John: Yes, absolutely. I never made that mistake again and it’s not something I had heard other people dealing with and it took me quite a while to figure out what — I knew they were okay when I shipped them and I knew he said they were awkward and there was something in-between those two events. I was quite pleased when I discovered what the problem was and was able to work through that.
Dave: The reason I knew that PLA melts on the dashboard and ABS doesn’t is that I experienced the same thing. [laughs]
John: That’s interesting. Yes, apparently the FedEx driver had it open on his dashboard or something in the direct sun, I’m not sure, but that or just set the box somewhere out in the sun probably.
Dave: PLA cannot survive dashboard sun.
John: Yes. That’s a little parallel story.
Dave: Which brings us to the third failure. This is closely related to the others. The third failure that I see is a founder will say, “When we’re ready to talk to customers, we’ll hire sales guy.”
John: That’s the exact same way of thinking as you’ve discussed. They put that off till the end.
Dave: It seems so logical when we need firmware, we’ll hire a firmware guy and when we need whatever, when we need sales, we’ll hire a sales guy. That’s assuming that sales is something you’re both on. You’re both on firmware when you’ve got a micro-controller and a ROM to hold it. That’s fine but you’re not both on ‘sales’ when you have something to sell.
John: Absolutely. I see a lot of people want to outsource sales, even marketing. I get a lot of people that they have an idea and they’re asking me about hiring a public relations company or bringing on someone that can do all their sales and marketing for them. I’m like, “That’s the wrong– You need to be doing that. You the founders of the company have to do that. Otherwise, you’re never going to get anywhere if you try to outsource that.” I think you can outsource sales eventually. You’re not going to be having to travel the world and presenting to every retailer but you definitely need to be involved.
For instance, for my product, I presented it to Blockbuster and I presented it to other retailers, but then eventually I started outsourcing and bringing on sales reps so I could scale and expand from that point but I definitely think earlier on you need to be the one doing the sales.
Dave: Channels is a whole another discussion. We can have that discussion one day. The point is that in this case, when a founder says, “When I need sales, I’ll hire a sales guy,” what they’re doing is they’re postponing customer interaction. That’s what never works.
John: Absolutely. You may not need sales until down the road, but you need the customers in the very early stages. If you can get them to buy early on before you have a product, that’s obviously a best-case scenario, but at the very least interface with them even if you don’t have something to sell. Anything else to say about sales, trying to outsource that or do you want to move on to mistake number four?
Dave: Yes, let’s move on.
Dave: Mistake number four is another really common one. It’s assuming the customers will change their behavior to use your product. As soon as I say this out loud, people say, “Wait, everybody changed their behavior to use smartphones. Wait, everybody changed their behavior to use personal computers.” The funny thing is in the case of smartphones, the people who built smartphones originally were companies like Apple, Samsung, Motorola, Intel and Facebook later on, and what those companies all have in common is billions, billions with a b of dollars in the bank. They can afford to operate in a different way. They can afford to throw something on the wall and see if it sticks. Even Motorola failed in smartphones, even Nokia failed in smartphones. Nokia and Motorola are two of the most successful cell phone and technology communications companies in history. They both failed as smartphones overtook cell phones later on, right?
John: Absolutely, yes.
Dave: Because their entries, there was a product way back when called the- it was the Motorola PDQ. I think that was the name of it. It had a fluorescent light behind the display that buzzed in your ear and it had so many buttons that, yes I’m a techie, I bought it and I returned it the very next day. It was such a buggy piece of you know what. This was some years in advance of the current, what we call, smartphones. This is probably three or four years before the iPhone.
Big companies with lots of money have very different ways of operating than startups. We’re making the assumption here that we’re talking to a startup audience, and the reality is that you need to fit into an existing behavior in order to achieve initial success for your product. Now, in the case that a product is overwhelmingly successful and grows like weeds, you can actually end up changing behavior with your product, and that’s great. That’s amazing when that happens. Your initial success is going to be operating within the way people operate now.
Dave: I’ll give you one example of that time I’m working on with our customers right now. If you think about wearables, and you think about what are the markets for wearables. The wearable business is 5-10 years old now at this point. If you think about where the big growth opportunities in wearables, you think of being– You sit down with a couple of people over coffee, start talking about that, and pretty much everybody comes to the conclusion that one of the biggest markets is healthcare, and it’s obvious.
If I could sit there and be monitoring things like blood pressure and temperature 24/7 or even in once an hour, forget 24/7, just do it once an hour, or three times a day, that’s real-time health data that can be used to diagnose and understand it. There’s plenty of activity in the space, tons and tons of activity in this space. The Apple Watch with all of its sensors is clearly moving in that direction and lots of other products are all moving in that direction, right?
Dave: Do you know what the number one stumbling block is in healthcare for wearables?
John: No, not that I can think of. If I can think of the development issues, but I’m not sure about this. What’s the answer?
Dave: Number one issue, there’s been a lot of trial deployments. One nursing home here or 50 random patients in Australia. There’s been a lot of test deployments, and the number one failure mode is that any watch that’s doing continuous monitoring and communication is going to be the kind of watch that needs daily charging. That’s just the nature of the beast. It’s just like most of the smartwatches, the Android watches or the Apple Watches today, and not like the Fitbits that last for a week. They’re going to be the daily charged things.
We all understand that. We understand the reasons for it, but in a healthcare scenario, there’s something like a 1% drop off every single day when they take it off for charging, and never put it back on. 1% a day is 30% a month, and that’s unacceptable. It just doesn’t work. I can’t deploy healthcare to my population of 5,000 or 5 million people if 1% a day are dropping out. That’s just not a viable solution.
John: That’s really bad. That’s not a sustainable model. Within two, three months, you’ve lost all of your customers.
Dave: Exactly. The only alternatives right now is to look at wearables that are in a care scenario where the nurse can make sure that it’s put on every single day. That’s what nurses do, but that’s not an unattended wearable scenario. Assuming that you could strap a wearable on somebody at home, be it a child, an adult, or an elderly, and that it’ll be worn, is a bad assumption. The numbers go something like- with adults, fully capable adults, 1% a day. Elderly, worse. There’s no solution in place that solves that right now, but there’s necklaces that can be in touch with the skin. There’s things that can’t be removed. Can’t be removed, that’s not a happy scenario, right?
John: No. [chuckles] This all falls under trying to expect customers to change their behavior to use the product.
Dave: Exactly. It’s so obvious that wearables in healthcare should be enormous. Why aren’t they enormous by now? There’s the 1% drop off problem. There’s some other issues too, but that’s the biggest.
John: That’s interesting, yes. I found it’s difficult enough to sell a product if the customer understands why they need it and it fits into their behavior now. But when you add on the whole element that you have to train them to either change their behavior, that becomes a lot more problematic. Now you’ve got two things that you have to do when you’re trying to sell them instead of just one. Let’s move on to mistake number five.
Dave: Not asking customers what to do next. Steve Jobs had a name for this. He called it the second product syndrome. In his own experience, he pointed to the Apple II as a phenomenally successful product and the Apple III as a dog. He felt that- Apple internally felt that they knew exactly what was necessary to do next and didn’t go out and ask customers what they wanted. In fact, the funny thing is the Apple II outsold the Apple III for as long as the Apple III was offered. The Apple IIE and everything else outsold the Apple III for its entire lifetime.
John: I know you almost forget about– Everyone knows the Apple II or Apple IIE, but I’m like, “Oh, yes, there was an Apple III.”
Dave: Exactly. This problem strikes successful entrepreneurs. You get your first product right. It’s a big success and then you assume you know what customers want. The problem is even if you lived the original problem that you solved every day for years and then you developed a product to solve that problem, by the time you get around to designing product number two, you’re already two, or three, or four, or six years away from that experience that you had. That same experience that made you so successful with product number one.
John: Absolutely, yes.
Dave: Even worse. If you were super-successful, you now have competitors. That’s just a law of nature. If you were super-successful, you now have competitors and the competitors are now trying to differentiate themselves from you. They’re working really hard to add new features. They’re trying to make it blue, or they’re trying to add new features or an interfaced X, Y or Z. The market is now expanding and there’s options that your first product when it was designed three, four, five years ago, weren’t even on the table. You’ve now got competition and again, if you are super-successful, you yourself have now changed customers’ expectations and now they want much more.
John: Yes, it seems like regardless of whether you’re talking your first product or your 10th product, it’s always a mistake, no matter how much experience you have, to assume that you know what your customers want without asking them.
Dave: I have a customer right now. They went through a three-year design cycle, a four-year design cycle to design a piece of equipment. The piece of equipment was a success and this is a very complex semiconductor machine, a semiconductor process equipment and they’re sitting down now to design the second version of the product, but they’re not engaging in a comprehensive review with current customers about what they need, they think they have a series of ideas that’s going to be a bigger thing and a faster thing. It’s actually going to be more expensive. It’s not going to be bigger, faster, cheaper. They haven’t gone out and tested all of that extremely valuable customer experience with their own machine and their own technology. We’re in the process of helping them do that.
John: That’s a waste. It sounds like so much valuable data could be collected from the first product before they start jumping into the next version.
Dave: I’ll give you my favorite customer, a consumer example, Evernote. Evernote, for those of us who adopt it, we typically become lunatic flag-waving fans. It’s such an amazingly useful product. They achieved some really spectacular viral growth early on. What they did was they hit on mobile early and that was one of the things they executed on them extremely well. First, it came out on the desktop, so you could just save something from your browser, save something on your desktop, whatever you wanted.
It was your memory for everything. Then as each app store opened, the Apple App Store, Google App Store, as each store opened, they had an app ready, pretty much the data store opened for that store, for that platform. No matter where you were, you could save your notes. I can save verbal or text or anything, notes off my iPhone, I could do it off my computer. People fell in love with this product.
John: I’ve used it a little bit, but I definitely know there are people that are very obsessed with Evernote.
Dave: Then they started developing their Gen 2 products and they did bizarre apps like Food, which didn’t do anything new that you couldn’t do with Evernote. It was just labeled Evernote Food and it’s like, “Wait, I can do all that with Evernote,” and their Hello product which was supposed to be for business contacts, which makes so much sense. I can immediately get a business card in. Yes, except it was all manual. There was no cleverness to it at all. Their peak product, which was a trivia game, and then they had branded styluses and notebooks and backpacks. It’s like, “No, give me more automation and more of the features of the stuff I’ve come to love.”
John: An example of not talking to customers about the next products. One thing I would just like to mention for listeners of this podcast, which are a lot of new entrepreneurs that are new to hardware and not to their second product, I find a lot of hardware entrepreneurs, they’re fixated on just one product and they think that one product is what they’re developing and that’s what’s going to make them rich. But in reality, it’s not a product you’re developing, it’s a company that you’re developing. If you’re developing a company, you can’t just have one product. You have to be constantly innovating.
I know for a lot of people that having your second product may seem in a really far off future, but it’s something you need to be considering from day one, you’re not going to just have one product that you’re going to sell forever. Always be seeking feedback from your customers about future products that you can develop because you’re going to need those at some point if you want to develop a sustainable company.
Dave: Yes, this is cropped up from time to time in discussions on Hardware Academy. It’s really clear from somebody’s comments or questions that they’re considering- that they believe their product when they release, it is going to be the do-all, the end-all and remain fixed forever in time. How many successful products is that true of? It just simply doesn’t happen. Successful products go through revision and updates and everything else even if on the outside, the product is exactly the same, there’s enhancements to make it better, faster, cheaper.
John: Yes, absolutely, not even if it’s a new version, but you’re just always making changes to it to either improve it or like you said, lowering your manufacturing costs, improving quality control. You don’t ever reach a point where you just say, “I’m done. I’m going to sit back and collect money.” That doesn’t happen with any business, especially a hardware business.
John: Okay, Dave. This has been really good. I’m going to run through the five mistakes again just so people have it fresh in their mind what we’ve discussed. The first mistake that we discussed is not validating your ideas with customers before starting development. Number two is not seeking early customer partners. Number three was leaving sales to the sales guys and thinking that as a founder, you don’t need to be involved with sales. Number four is assuming customers will change their behavior to use your product, which is never a valid assumption to make. Then number five is not asking customers what to do next, or what other products you should be developing.
Those are the five biggest mistakes that Dave Millman has seen. Customer mistakes that hardware startups make. Dave, this has been really valuable. There’s so many lessons that we’ve discussed here, some of which I am constantly trying to drive home with my audience, but also a lot of new stuff as well that I think is going to be really beneficial to listeners. I really appreciate you taking the time to discuss this. Can you maybe tell listeners where they can learn more about Dave Millman?
Dave: You can find my website at BizDev.Global. That’s our company and we help high tech companies start sales.
John: Okay, great. Thank you so much for doing this, Dave. This has been really awesome chatting with you as always, and I think this is going to be really beneficial. I appreciate you coming by the podcast.
Dave: Pleasure to be here, John.
John: Okay, thanks. Okay. I hope you found this podcast to be helpful. This was actually a shortened version of my interview with Dave Millman. The full interview was over an hour long and is available exclusively to members inside the Hardware Academy. That’s it for today. Be sure to tune in next week for another episode of the Predictable Designs Podcast.