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Hi. I’m Steve August, Founder and CEO of August & Wonder. I’ve just launched my first hardware product, a unique product called The Market.
My story of bringing this hardware product to life provides a real world perspective from an entrepreneur’s point of view.
I will be sharing all the twists and turns, decision points and lessons learned from my particular hardware product. Hopefully it will be of value to anyone else who is contemplating or in the process of bringing a hardware product to life.
Along the way, you’ll see unrealistic expectations dashed, budgets busted, and the realization that conventional wisdom isn’t always so wise.
A short background on me – I’m a creative technology guy with an entrepreneurial bent. In 2006 I founded a market research software company called Revelation. I grew the company, went through the roller coaster of funding and expansion, and successfully exited in 2014.
Though I have enough knowledge to be dangerous with tech and design, I’m not a proper programmer or engineer by trade. I am definitely more what you would call the ideas guy.
Your First or Second Idea Isn’t Always the Right One
The road to The Market began back in 2015. After my company was acquired in 2014, I started to play around with creative coding and hanging around maker groups for fun.
I had a particular interest in creating what MIT lecturer and author David L. Rose calls “enchanted objects”.
Rose’s book, Enchanted Objects: Design, Human Desire, and the Internet of Things, describes “enchanted objects” as normal objects that are able to change depending on real world events or phenomena, due to their connection to the internet of things. In a sense it is art-fused IoT.
My not so hidden agenda was to fuse tech and art. I wanted to create things that felt less like the Minority-Report-future that seems to have arrived ahead of schedule and more like something out of Harry Potter.
Idea #1: Living Pictures
My first idea was to create a picture that changed depending on the actual time and weather in the photo’s location. I used a picture of Big Ben that I had taken in London, and started teaching myself Unity, C++ and Processing.
I cut the sky out of the picture with Photoshop, dropped it into Unity, added a dynamic and photorealistic sky, and connected it to a weather API.
The result was a Harry Potter-like picture of Big Ben that would change with the time of day and weather in London. If it rained in London, it would rain in the picture.
I posted the project to my Facebook page, and got a great reaction. People started requesting that I make pictures for them. So I started to make a few, including one of a lake in Wisconsin that was for an elderly couple that could no longer keep up their lake house.
But, while it was an idea that really resonated with people, it was really limited. It was very time consuming to make each picture. And the pictures could only be played on high end tablets, phones and PC’s, which people wouldn’t dedicate to one picture, no matter how cool.
I couldn’t charge enough to make it worthwhile along with not having a good platform to display the pictures. So I hit a dead end with Idea #1.
Idea #2: The Cine Calm Clock
The idea of creating an emotionally connective experience that people could have at home kept tugging at me. Living Pictures were emotionally connective, but couldn’t be scaled up.
Figure 1 – Proof-of-Concept (POC) prototype for the Cine Calm Clock.
I reasoned that if I could eliminate the custom work, and create something that didn’t need the end hardware requirements, I could still pursue the idea. I also pictured the product as something that would be in people’s homes.
I then came up with the idea of the Cine Calm Clock. It seemed to check all of the boxes I required. It would feature hypnotic video loops that changed with time, day and weather. It wouldn’t require elaborate hardware or tight form factors. I had the software prototyped out, and just needed to figure out the hardware.
Hardware Isn’t Software
I got my first taste of the hardware world when I used the wrong power adapter and somehow fried my first Raspberry Pi and the attached monitor. It was an early sign that there was going to be quite a learning curve jumping from software to hardware.
But, like other persistent makers with an idea, I kept going, learning how to get the Pi to do more or less what I wanted.
I devised a simple enclosure that I designed in the 3D modeling software called Fusion 360. I picked up a 3D printer and taught myself the basics of using it.
I posted videos on Facebook and got a great reaction again. The idea of “calm tech” really resonated with people and they asked me when they could get one too.
I knew I was on to something with Idea #2. Now I just needed to figure out how to make it into a product.
Having spent years in the software business, I thought I had a sense of the process of bringing a product to market and the time it would take. I drew up a schedule in a spreadsheet with an aggressive six month timeline from creation to crowd funding.
I thought it would be a pretty straightforward process to make all this happen, and I’d be out in the market within six to nine months.
Yeah, not so much.
Making Isn’t Manufacturing
I was feeling pretty good. I had made something that connected well with the idea of a calmer form of tech. But I didn’t know how to make the leap from putting something together with a Raspberry Pi, some code and a 3D printer, to creating a bonafide, profitable hardware product.
I had a pretty good network of developers, designers and cloud infrastructure pros that could help me create nearly anything in the software realm. I figured they’d have some insight into the hardware side of things, or at least know some people who did.
But my friends in the software world were as clueless as I was when it came to hardware development. They also lacked contacts in hardware development. I realized that software/web development and hardware lived in two different worlds, and in order to succeed I was going to need help.
So I started hanging out in the maker groups where I live in Portland. I met people who were learning Arduino and making cool, one-off stuff for installations. But no one was focused on creating a manufactured product.
I found a small number of books about creating a manufacturable hardware product (most are geared toward makers), and I started to get a better sense of what I was in for.
Given the Cine Calm Clock was a little quirky, I really needed to understand my costs and the path to production to figure out if it was actually viable.
But there was only so much that I could learn from a book. I needed to understand all the specifics of my hardware product, and I was going to need an experienced person to help me.
I did a web search and it was surprisingly frustrating to try and find the right kind of help. I found a number of hardware manufacturing consultants and product design houses but they were set up to work with bigger more established companies, not a solo-preneur who was trying to figure out how to bootstrap a somewhat quirky hardware product.
They were also way more expensive than what I could pay at that point.
Finally, I stumbled upon the Predictable Designs blog and their articles on Make magazine’s website, and I saw that they offered a custom service called a Predictable Hardware Report.
It’s always hard to know when to bring a consultant in, and who to trust. But I had hit a wall in trying to assess the viability of my product. I also realized the high level of investment it takes to get something to market.
John Teel, the founder and lead engineer at Predictable Designs, was really responsive in answering my questions about this service.
The Predictable Hardware Report seemed like a straightforward way to get the answers I needed. While it was an investment, I needed to understand if I had a viable idea as early as possible.
I took the plunge, and began working with Predictable Designs. Thankfully, I got the answers I needed, but they were not quite the ones I wanted.
Great Product Ideas Aren’t Always A Viable Business
One of the challenges of this process is timing. You want to have an idea developed sufficiently so that a company like Predictable Designs can put reasonable estimates to it. But you also don’t want to be so far down the road that you can’t adapt to the new information.
I had the central concept for the Cine Calm Clock and knew how it might work, but there were a number of details I hadn’t quite sussed out. I didn’t know if I should use a touch screen or physical buttons to control the clock. Also, would baking Alexa into the device might give it more appeal?
Predictable Designs was able to take these different variables and lay them out in a way that I could play with the numbers and create different variations of the product.
As I looked over the Predictable Designs report, I finally understood all the costs involved with developing this product, and how much it would cost to manufacture.
While I knew these were estimated numbers, it still enabled me to look at the project and start making some decisions.
I really, really loved my idea and was excited to make it. But as I drilled into the numbers and played with scenarios, some challenges emerged.
As with any product, there’s a retail price limit to what people will pay. With hardware products, you ideally want your retail price to be four times your fully loaded costs. This gives you enough of a margin to work with retailers and marketplaces and still make a profit.
The Predictable Hardware Report was showing that the Cine Calm Clock would have reasonable development costs, which was good. But challenges arose when it came to manufacturing costs. I had done a little market research and felt I could charge $125 for my product.
Based on the projected manufacturing costs, the Cine Calm Clock was too expensive to make unless I could get up to quantities of 50-100k units.
There was no way, as a small company just starting out, to be confident that I would sell 50-100k units in the near term, let alone fund that volume of production. Being an unconventional product, there wasn’t really a path for outside investment.
I could sell the Cine Calm Clock directly to consumers which would give me more wiggle room on profit margins. But the estimated production costs at lower quantities made even that a dicey proposition, as it would potentially be slower to build sales.
Another challenge arose after talking to my patent attorney, who said there was no way to patent my idea. There would be nothing to stop a bigger player from coming in with a similar product.
The Cine Calm Clock could be successful at high volumes. It would be a great product for a company that already had cash flow, could afford the startup and high volume production costs, and had established distribution channels.
Entrepreneurs are often portrayed as daring risk takers. Actually, that’s bit of a myth. The reality is that entrepreneurs take on new things that come with lots of uncertainty, but they are actually constantly looking to reduce risk.
I came to the conclusion that while it was a great product it wasn’t viable for me. As much is it pained me (people still ask me when I’m going to make the clock) idea #2 was put on the back burner.
Some Unconventional Thinking
The Predictable Hardware Report gave me the answers I needed, although they were not the answers I was hoping for.
While I was disappointed that I had hit the wall with the Cine Clock, the process of getting there provided me some really important pieces of knowledge that would drive the development of my next product, The Market.
First and foremost, I had gained a much better understanding of what drives production and manufacturing costs.
I learned that it can be challenging to make products with a screen and a GPU profitable, especially at lower volumes. Because of economies of scale, many hardware products don’t become profitable until they reach high volumes of production.
I also realized that if my product could command a higher price point, I would have more leeway and more of a path to profitability at lower volumes.
One of the other things that I struggled with the Cine Calm Clock was that the audience was very general, anybody might want one.
You might think having a big, broad market is an advantage. But in the early days it is harder to make product decisions since you could serve so many customers. Also, your marketing resources have to compete in a more crowded and noisy playing field. I needed an audience that would pay a premium price for a product that really spoke to them.
Another crucial bit of knowledge was that if I could sell direct, I’d have a lot better profit margin to potentially keep bootstrapping along. Knowing that most VCs or angel investors wouldn’t fund my project, made it even more crucial to be profitable at lower production volumes.
In a reversal on conventional wisdom, I was pursuing a kind of craft, industrial approach (what can I say, I’m from Portland). I thought it might work – if I could find the right product idea.
Enter “The Market”
All these things were turning over and over in my mind as I tried to figure out what to do next. I had gone from thinking I’d be on the market in six to nine months to being back at square one.
I suppose I could have thrown in the towel and just been happy with the two Cine Calm Clocks that adorn our house.
But the idea of fusing art and IoT to create an entirely new category of decor objects would not leave me be.
The image that kept coming into my mind was sitting in my room with no screens or phones, but still understanding what was going on in the world because the objects in the room would change when something changed in the world.
As I talked about it with others, I found this idea really resonated with people who were fatigued by their current experiences with intrusive and distracting tech. I just needed the right combination of product, audience, cost and price.
Then one day in April 2017, a crude little sketch appeared in my journal, a bit of bird scrawl that depicted a seesaw with a bull and a bear on it. The idea was that the seesaw would connect out to the stock markets and tilt to indicate the changes in the market.
In spite of the crudeness of the drawing, I had the sense that this spoke to many of the issues that had thwarted my earlier efforts. It had that sense of magic that I was looking to create. It would feel like art more than tech.
Figure 2 – A looks-like-works-like prototype of “The Market”.
I imagined that my product would be made out of natural materials like wood and brass that would hide the electronics inside. It would look like an antique instrument that was enchanted to change when money moves in the financial markets.
It wouldn’t have a screen or need a GPU, and therefore costs of the electronics could be much lower than something with a quality screen. A quick chat with my patent attorney also confirmed that it was potentially patentable.
It would have a specific audience- financial pros, market geeks and the people that love them. This would help me focus my marketing efforts.
With these improvements in hand, I decided to figure out how to make and bring The Market to market.
Creating “The Market”
While I had developed some rudimentary maker skills, it became clear that even creating a looks-like prototype was beyond my abilities, let alone making a works-like prototype.
Figure 3 – A very early looks-like prototype of The Market (with bad 3D prints).
I inquired with some prototyping firms, but when they understood that I wanted to use wood and brass, they demurred as they were geared towards more traditional products.
Finally, I connected with a local maker space in Portland called Hedron Protofab and they took on the job of creating my prototype.
Within a few weeks we had a rudimentary works-like prototype made out of metal that could connect and move with the market. Within a couple of months we had a looks-like/works-like prototype made of brass and wood.
Figure 4 – Proof-of-Concept (POC) prototype of “The Market”.
But The Market was still a long, long way from being ready for production. I still had to answer a lot of questions.
What would people pay for it? What could we make it for? Who was going to make it? Those questions were all interrelated. I basically had to figure out how to make and sell The Market in order to figure out if I should make and sell it.
Market Testing Leads to Understanding Positioning
I started taking my looks-like/works-like prototype around to people I thought fit the target audience: financial advisors, wealth managers and finance geeks. The reaction to the idea was very enthusiastic, as there was really nothing like it. One wealth advisor was passionate about it and said it really spoke to his vocation.
A price around $500 seemed to be the sweet spot which would hopefully give me enough room for a 4x margin if my production costs were around $125.
I felt confident about financial pros being interested but I wasn’t sure about non-professionals. I have a background in market research, so I used a low cost recruiting service called respondent.io to set up remote video interviews to test the concept. The results were telling.
The most important thing I learned was how to position The Market. When I presented the concept with a picture of the prototype, I asked people what they expected to pay.
Many responded with a price that was below the cost of making it! Quite a concern for viability. But an interesting thing happened when I revealed the estimated price of $500. They said, “Oh, I get it, it’s an art piece!”.
That was a huge insight into positioning. When people perceived it as novelty or gadget, they were willing to pay one price. When they perceived it as a piece of art or premium decor, the price made sense.
This insight had all kinds of implications in terms of what was going to be needed for developing a premium or luxury brand. My marketing would have to convey that The Market was more art than gadget.
I felt confident in the price point and, already had a number of commitments to buy. The missing piece was whether it could be produced at a cost that would make it a viable product.
Figuring Out How to Get It Made
While Protofab, a local maker group where I live in Portland, had been brilliant with the first prototype, they were not experienced in manufacturing a product. I started reaching out to manufacturers myself.
Figure 5 – 3D model of The Market stock market indicator.
As I talked to manufacturers, I quickly realized how steep the learning curve would be for getting this product ready for market.
I finally found the right firm in Portland called Grune Technica, and we dug in. The initial BOM assessment indicated that there was a realistic path to produce The Market at or close to the cost target.
At this point I decided The Market was a go and set in motion two parallel tracks: creating the product and developing the brand.
Developing the Brand
The challenge with The Market was that it’s a new category of object. It’s not a mainstream hardware product and it’s not a traditional decor object.
I decided to produce and market the product myself, since I wasn’t confident that a third party could tell the story of something so unique. And I had ideas for a whole range of follow up products if The Market succeeded.
Given the premium positioning I needed to get the desired price point, I decided that the best course for The Market was to create a brand as well.
I don’t have experience in the luxury premium field, so I worked with a branding agency and over the course of several months, created a brand August & Wonder that really captured the essence of what I am trying to create.
Developing the Product
At the same time, things were moving forward on the product itself. Based on the initial Predictable Hardware Report, I had set a budget that I thought was realistic. Grune Technica agreed and we began.
As we worked our way through the process, there were so many details to figure out. Which metals, platings, types of wood would work best? What motor and circuit board design worked best?
Each part seemed to impact the others. Also, our choice in parts and materials depended on which factories could provide the level of quality we needed at a price point that would work.
Figure 6 – Independent components that make up “The Market”.
I eyed a pilot run of 300, which we would release as a Limited Edition Series A. As we made our way through the process, the timeline extended and the BOM costs kept creeping upward.
A particular flash point came when Grune Technica and I had a misunderstanding where he thought the estimates he was giving did not include shipping and tariffs (and other landed costs) and I thought it did.
This forced me to think through how I was going to sell The Market.
Choosing How To Sell
Even while my BOM costs creeped up, I knew I had given myself a lot of room with the $500 price point, and there was a path to lowering costs as we reached 1,000 units.
But I also needed decent margins in the early going to continue to fund marketing and new inventory. My take was every sale had to count.
I had been doing a lot of research on ecommerce. One piece of advice I noticed was to focus on only one channel: your own site, Amazon, eBay, retail, or any other marketplaces. But don’t start out trying to sell everywhere at once, or your limited marketing resources will be spread too thin.
Given the nature of The Market and the brand, I thought I should first concentrate on selling direct through the August & Wonder web site. It’s easier than ever to open up your own store front using Shopify or WooCommerce.
With your own online store, you get to own the customer relationship and your margins are as good as they can be. The down side is that you have to build your audience yourself versus drawing on an existing marketplace like Amazon.
Like every decision in this game, there are tradeoffs and it depends on the nature of your product and your market strategy.
My strategy was to launch pre-orders once the brand was ready. I decided not to do Kickstarter or Indiegogo because I had money to invest from exiting my previous company.
I also didn’t feel like crowdfunding would be a fit for the brand. To be honest, I’m not sure if that was the right call yet (more on that later).
With the marketing in place and the product coming along, it was time to launch pre-orders.
I had built up a small list of people over the past couple of years, but a lot of them had come on during the Cine Calm Clock phase of things and weren’t really the target market.
The build up to launch was actually the most stressful time.
Ideally, I would sell 75-150 of them to get cash flow going, but I really had no idea how it was going to go.
The product really captured people’s imaginations, but it’s also a $500 purchase from a brand new company that wasn’t going to ship for at least a couple of months. It was going to take a lot of push to get there, and it was a moment of truth to finally open up for business.
One thing that helped was setting smaller milestones. I had three milestones I wanted to hit in the first month:
Milestone #1 – Sell one to anybody
Milestone #2 – Sell one to a complete stranger
Milestone #3 – Sell one while I slept
I knew that if I could accomplish these three milestones, it would go a long way to validating all the effort and investment that I had put in to get this far.
We launched pre-orders in May on AugustWonder.com, and fortunately I accomplished these milestones within the first week. I did it a number of times more over the first month, so that felt really good.
I also went to the Moneyshow conference in Las Vegas where I had a kiosk and was able to demo the manufacturing prototype. I sold a few, but more importantly got to see the reaction of people and get further feedback.
I also knew that the second month would be tougher than the first, because I had a head start in month one with the people from my list. Month two would be starting again from scratch.
Where I Am Now
Here in the third week of June 2018, and as expected it’s been a harder month two. The email list and Facebook ads have been the main driver of sales, and we are still trying to dial in our Facebook ads and understand behaviors on our site.
It’s an ongoing puzzle, and with the number of sales to date, it’s hard to discern patterns and drivers.
Based on the decisions I made (i.e. selling direct) it’s to be expected that things may take more time to ramp up. Right now I don’t have units even to ship to reviewers, or have the product in people’s hands so it can start generating some word of mouth.
To be perfectly honest, I get impatient and frustrated when I don’t see sales notifications from my Shopify store. But I also know that things can turn very quickly. The other day I had my first order where somebody bought TWO of them!
I know the product idea is good, and the fact that people have bought it is a good sign. So I have faith that things will ramp.
On the product side, things are going slower than I’d like. We had a hiccup with the production power board which had a flaw in it’s design and caused overheating.
So that’s set back the product a couple of weeks to get a new sample made and sorted. It seems like the number of details that need to be nailed down keeps taking more time.
Don’t Do What I Did
This may come as a surprise, but I also am a business coach, and I wouldn’t recommend necessarily doing what I did.
I started with an idea that I was passionate about, versus a real pain that I was solving. I always coach people to find a problem to solve and start from there. You could argue that I solved a problem that I was having, but The Market is definitely a nice-to-have product versus a need-to-have one.
Do What I Did
Test your idea dispassionately. Figure out how to get experienced help for the things you are weakest at. You are going to either pay by working through your own learning curve, or you are going to pay by hiring experts.
Hardware and physical products require a tremendous amount of investment. You can find ways to minimize your costs, but you are going to pay one way or another.
I hope my story has illustrated that creating a successful hardware product is not just about circuits and firmware, it’s about balancing a host of interrelated elements, each impacting the other.
What you create, how you pitch it, how much it costs to make, and how you market and sell it, all effect one another. It is a Rubik’s Cube that requires a lot of twists and turns to solve, as well as more money and time than you expect – even when you expect it will take more time and money.
My story is still playing out, and I am excited by the initial reactions and sales. But honestly, I don’t know yet if the decisions I made were the right ones.
There’s only one way to find out, and that’s to keep going and see if The Market and August & Wonder will reach their potential.
Be sure to also read part 2 of Steve’s entrepreneurial journey.
Are you ready to discover the smart way to develop a new electronic hardware product? If so then check out the Predictable Hardware Report.