The First Critical Steps When Bringing a New Hardware Product to Market

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Published on by John Teel

In this article I’m going to share with you the first critical steps you will need to take when bringing a new hardware product to market.

Unfortunately, too many entrepreneur completely skip some of these critical early steps, while others rush through them. Most entrepreneurs want to get right into developing their product.

There are a lot of very critical steps you need to take before you are anywhere near being ready to begin full development of your product. Skip these first steps at your own peril.

I’ll be covering a wide variety of topics in this article including market research, product validation, business models, funding options, sales plans, and much more.

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

Competitive research

You need to first research the competition and confirm that a market exists for your product.

When entrepreneurs do competitive research the common misconception is to think that finding any competition is bad. In fact, most entrepreneurs panic and think it’s the end of their project when they find a competing solution.

In reality though, some competition is actually good because it proves there is a market. However, trying to enter a crowded market segment that is dominated by big players like Apple or Samsung for example, will prove very challenging.

It’s usually best if you find some competitors, but none who are totally dominant. This way you prove there is a need for your product and there is a market opening.

You may also wish to use online surveys at this point to get general feedback on the problem your product is supposed to solve so you can understand who and how many people have this problem.

You may also wish to perform a patent search just to see what other solutions have already been patented. If you find similar patents, don’t panic! Most patents are considered “narrow” scope patents which means they are easy to work around.

Don’t be overly secretive

Being overly secretive is an extremely common mistake made by new entrepreneurs. However, I’ve never known a hardware startup to fail because someone stole their idea.

That simply does not happen. Instead, entrepreneurs fail because they’ve been unsuccessful at getting the word out about their product. To succeed you need to be the opposite of secretive, you need to be shouting from the rooftops about your product and getting feedback from everyone possible.

I understand why many will be reluctant to do this without their idea being protected. As I’ve already mentioned, pursuing a patent is not where you should be spending your time and money.

Instead, in the United States, I suggest you file what is known as a Provisional Patent Application. This will give you protection for one year while you validate that your product idea is worth the investment of a full patent.

The beauty of the PPA is it is very simple and cheap to obtain. No attorney is needed, and you can easily file the paperwork yourself for only a couple hundred dollars. Other countries likely have something similar.

Validate your product idea

Once you’ve determined that a market exists for your product, and you’ve filed for a provisional patent or equivalent, then the next step is to validate that people will actually buy your product.

Below are some of the ways you can validate that your product will sell and is worth the investment:

Make a sales flyer – I suggest that you start by designing a nice color one-page sales flyer that visually showcases your product. You can have a photorealistic 3D model of your product designed for a fairly low cost. You can then use this model in your flyer to show off your product.

Share it with strangers – Feedback from friends and family is always going to be biased, so you need to seek out feedback from total strangers. Even simple things like sharing your idea with a stranger while waiting in line for coffee can give you some valuable, unbiased feedback.

There are various online forums to share your product and request feedback. One benefit of this method is people in forums tend to be more honest with their negative feedback. If you can find the right forum it can be a fantastic way to get unbiased feedback and also make some helpful connections.

Share it with retailers – In addition to sharing your product with strangers I suggest you also share it with retailers for feedback. Do this even if you don’t plan to sell via retailers.

For example, take your sales flyer down to a local retailer that sells your category of products and show it to a manager for feedback. You can also email your sales flyer to higher level decision makers. I did this with my own product.

I sent my sales flyer to a Vice-president at Blockbuster Video (back when they were worth billions). He liked it and that eventually led to me being invited to Blockbuster headquarters in Dallas to present my product.

Setup a sales page which goes to a waiting list – One of my favorite early ways to validate a product idea is to setup an online sales page which showcases your photorealistic 3D product model.

On this page you will have a buy button. When a customer tries to buy it you can have a message popup that says the product is not available yet, and you can ask them to join your waiting list.

Although no money exchanges hands, this is still valuable validation because customers pressing the buy button think they are about to purchase your product.

Crowdfunding – Although crowdfunding is one of the best ways to validate a product, you should usually have a manufacturable prototype first. Otherwise, it’s impossible to accurately forecast when a product will be ready to ship, so you risk upsetting your backers.

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Prove the Concept

At this point you have proven that there is a market for your product and that people will pay for it. Now the question you must answer is whether your idea solves the intended problem as expected.

This is the goal of a Proof-of-Concept (POC) prototype which is an early prototype built using off-the-shelf components with little to no custom hardware design.

They are usually based on development kits such as an Arduino, Raspberry Pi, or a variety of development boards available from chip manufacturers.

I’ve already stressed the importance of not focusing too early on a prototype, but a POC prototype is an exception because it’s not overly expensive to build.

A POC allows you to prove that your product solves the intended problem, and helps give you insight into the feasibility of your product.

However, a POC prototype is rarely something that can be brought to market. The cost is usually too high, the size is too large, and the appearance is commonly rather ugly.

Define and simplify your product

Now it’s time to specify the details of your product based on the market research you’ve done, and the potential lessons learned from your POC prototype.

You can never develop a product without a proper specification. The more details you specify the more likely you are to end up with the product you intended.

When specifying your product it’s critical to avoid unnecessary complexity. It’s tempting to throw every imaginable feature into your product thinking it will sell better.

You need to embrace simplicity in order to have a chance at product success. Focus on those critical core features that are essential for your product. Eliminate all of the nice-to-have but not essential features, at least for now.

You should work with experienced product developers to help simplify your product before you begin full development. Since simplifying your product lowers the engineering costs these developers should be independent from your primary developers in order to avoid any conflict of interest.

This strategy of product simplification will allow you to get to market much faster and cheaper with a higher chance of success.

Choose a business model

Broadly speaking there are two business models for a hardware startup.

The first is the classic business model where you have a product which you sell at a profit for a one-time fee. The second, and much better model, is a recurring sales model where your customer continues to pay you month after month.

I cannot stress enough how beneficial it is for you to incorporate a recurring revenue into your business model. For one thing it costs 7 times as much to get a new customer as it does to keep an existing one.

Think of it as Netflix versus Blockbuster. Netflix uses a recurring subscription based model, whereas Blockbuster had the classic one-time sales model. I think we all know who won this business model battle.

Recurring revenue leads to a much more predictable business since you essentially know how much revenue will be coming in over the upcoming months.

Because recurring revenue is more predictable, the overall value of your business increases significantly, even for the same amount of revenue. The recurring model can also drastically help solve the cash flow issues so common with hardware startups.

There are two basic types of recurring business models for hardware startups that we’ll look at:

Hardware-as-a-Service – This is most commonly a hardware product with an recurring software service element to it. Although some profit may be made on the initial hardware sale, most of the profit comes from the backend recurring software fees.

With this model the manufacturing cost of the hardware becomes less critical. The hardware may even be sold at break-even with all profit coming from the recurring software.

Consumables – Commonly referred to as the “razor blade model” where nearly all of the profit is made on the disposable razor blade refills and not on the sale of the original razor. A more modern example is an inkjet printer which requires ongoing, and expensive, ink cartridges.

Select the legal business structure

Selecting the right type of business structure for your startup is critical. It affects how much you pay in taxes, your ability to raise outside funding, the paperwork you need to file, and your personal liability.

There is already plenty of information online about legal business structures so I won’t go into much detail here. Instead, I’ll share my recommendation for hardware startups.

If you are in the United States, then my recommendation is to start with a sole proprietorship while researching your idea, then migrate to an LLC as soon as you are serious about proceeding.

Finally, consider a transition to a C-corporation once your company is profitable or you bring on equity investors.

Other countries will have similar options in most cases to the sole proprietorship, LLC, and C-corporation.

Estimate the costs

Before you proceed to full product development you need to have a solid understanding of your expected costs. Without knowing these costs in advance it’s impossible to create a realistic plan to get your product developed and on the market.

You can break down costs into three areas:

Development cost – This will consist mostly of engineering fees and prototype costs. This includes the cost to develop the electronics, software, and enclosure. You need to know this cost so you can ensure you have sufficient funding to complete development.

Scaling cost – This is the cost to scale your product from a few prototypes to mass manufacturing. Most of this cost will be for electrical certifications and high-pressure injection molds required to mass manufacture your product’s custom enclosure.

Manufacturing cost – This is perhaps the most important cost for you to know in advance. It will determine your sales price, how much profit you can eventually make, and how much money you will need to purchase inventory.

Most entrepreneurs make the mistake of calculating the manufacturing cost after development is completed. But, you need to do it before. This ensures that your product can be eventually sold for a profit before you spend the money to develop it.

Funding strategy

Self-funding – This is your most likely option when just starting out. The more progress you make with self-funding, the easier it will be to raise outside funding.

Friends and family – This can be an early option in addition to self-funding. I recommend using this only for small amounts of initial funding. Startups are a very high-risk investment that most people don’t understand. If you lose grandma’s savings you may never recover.

Co-founders – Bringing on co-founders not only adds other skills to your team, but they can also serve as additional sources of income.

Angel investors – Angels are wealthy people with money to invest in early stage startups. They typically understand the risk of investing in startups. As with any type of investor, you need to have a personal connection to have a real shot at getting their money, so start networking now.

Crowdfunding – This is the hottest way to raise money for many startups today. However, you need two things to make this work: a large audience and a quality prototype. Most startups have neither when first starting.

Startup accelerators – Startup accelerators can be a good option, and are a great opportunity to learn in addition to getting funding. The main problem is they’re difficult to get into, and they’re very limited depending on your location.

Product contests – Winning a product contest not only provides you with funding, but it also serves as great product validation.

Manufacturer financing –A manufacturer may agree to amortize your initial costs (development, molds, etc.) which means you repay them by paying a small additional fee on each unit manufactured. They can also offer you improved payment terms. Both of these are essentially interest-free loans.

Invoice factoring / PO financing – If you get a large order from an established company, then you can easily borrow the money to produce their order. The beauty of this method is that it’s your customer’s credit rating that matters, not your own.

Venture capital – These are large, professional investment companies that invest in later-stage startups. This could be an option when you need more capital in order to grow faster.

My personal funding strategy: For my own hardware product that I brought to market, I self-funded until I had a presentable prototype. Then, I primarily used manufacturer financing to fund the remaining development and initial orders.

Sales and distribution plan

Do you plan to sell your product directly to consumers on your website? Or do you plan to sell it on Amazon? What about selling through retail chains or distributors? Or will you be selling strictly to other businesses?

These are all questions that you need to answer soon. For most consumer products my recommendation is to start by selling directly to consumers via your own website.

There are several key reasons. First, this strategy gives you the most profit margin since no one else is taking a cut of your profit (other than advertising costs).

Secondly, selling directly to consumers gives you the best shot at getting direct feedback from end users. If you instead sell your product through retailers, then you don’t get direct feedback from consumers.

Finally, selling directly on your website is the easiest way to get started. Once you have proven the product will sell then you can leverage that sales proof to get retailers interested.

Get an advisor, or better yet, get multiple advisors

As you are probably now understanding, there are a lot of different aspects to getting a new product developed and building a hardware company around it.

It is impossible for one person to be an expert in all of these different areas. Sure it can help if you have multiple founders with different areas of expertise, but unless you have actually built a successful hardware company previously, it’s unrealistic to think you have all of the answers.

If you already know people with the expertise to advise you then that’s great. But most entrepreneurs don’t have these types of business connections.

One option in the U.S. is called SCORE which is a non-profit made up mostly of retired business executives who want to “give back” by helping new entrepreneurs.

Unfortunately, from my experience, it’s very difficult to find a SCORE advisor with any experience in hardware. Nonetheless, even an advisor with basic business experience can be beneficial.

Bringing a new product to market is similar to traversing a minefield. Your chances of making it across successfully are slim if you try it alone. You need a guide with the necessary expertise to help you navigate the complex journey to market.

Honestly, there has never been a great way for hardware entrepreneurs to connect up with advisors and experts which is why I built the Hardware Academy. You get unbiased advice that you can trust from a team of experts, including myself, all at an ridiculously low cost.

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Paul Wells

Thank you John. Very helpful as always. I looked recently at crowdfunding as a way to get to the next stage, but most of the projects on offer seemed to be setting out to raise relatively small amounts which would not fund a hardware/firmware/software project for more than a few weeks at most. What do you think?

Jon Bazakas
Jon Bazakas

Very helpful post. Thank you, Mr. Teel!

 

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