Top 6 Priorities When Forming a New Hardware Startup

Published on by John Teel

Creating a new hardware startup is an overwhelming process and it can be quite confusing to know where to even start. In this article I want to highlight what your top 6 priorities should be when forming a hardware startup.

These priorities will help you minimize your financial risk, reduce your chance of focusing on the wrong activities, and ultimately give you a better chance to succeed with your product.

Priority #1 – Set Up Your Business

As soon as you decide that you’re pursuing your product idea, and that it’s going to be a serious endeavor of yours, then you need to set up some type of formal business structure.

A sole proprietorship is typically the easiest way to start because it doesn’t require any registration in most states. Another option that’s really common is to set up a limited liability company or an LLC.

In most cases, I advise that you start with a sole proprietorship, but switch to an LLC before you begin selling your product.

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

You need to properly set up a business structure for tax reasons because the money that you’ll be spending to bring your product to market is going to be a tax write-off if you have your business set up properly.

Having an official business also allows you to be taken more seriously by developers, suppliers, manufacturers, funding partners, co-founders, and whoever you’re reaching out to. Make sure to always present yourself as a business, not an individual or inventor.

Once you have your business name and you’ve chosen your business structure, then you need to set up a business website. Don’t get too complicated. Keep it really simple, even just one page that highlights what your startup is about is enough to get started.

You don’t have to give all the details away about your product, but highlight what the business is about and provide your contact information.

Next, you need to set up an email account using your website’s domain address. This is because one of the worst things you can do is to reach out to professionals, whether that be suppliers or investors, using a Gmail, Yahoo, or AOL email account. Using a Yahoo or AOL email domain paints an especially bad image of yourself because they are such outdated platforms.

So, establish your business structure and set up your business website with an email account that uses your new website’s domain address. These should be your first priorities.

Priority # 2 – Marketing and Sales

Marketing and sales are the most important pieces of the puzzle to achieving success. I’m an engineer, and you might already know that most engineers don’t like marketing.

But if you want to succeed with any type of business, whether that be hardware, software or a service based business, marketing has to be your top priority.

I was listening to a podcast the other day and I heard a great story about the author (Robert Kiyosaki) of a very popular book from the late 90’s called “Rich Dad, Poor Dad”.

The author was at a book signing event when a woman approached him and asked “I’m a writer too who has written a book but I’ve not been very successful with it. What would you recommend?”.

Robert replies “I recommend that you spend the next year learning all you can about sales and marketing”.

The woman replies “I’m sorry, I think you misunderstood. I’m a writer, not a salesperson.”

Robert then picked up a copy of his book and said “See here on the cover of my book. It doesn’t say Bestwriting Author, it says Bestselling Author!”.

In this story just replace “writer” with “creator” or “maker” and the story applies equally well to hardware entrepreneurs. The moral of the story is that in order to make your product a success you absolutely need to embrace sales and marketing.

Creating something great isn’t the path to success. Creating something great AND being able to market and sell it is the key to success.

Lots of people can create awesome things because that is what they enjoy doing. But very few have what it takes to market and sell their creations in a big way. That is how you set yourself apart from the crowd.

Unfortunately, I find that most startups tend to make marketing their last priority. You need to market your product idea as much as you can before you actually start developing the product.

Build Your Audience

The best way to begin your marketing process is to start building an online audience as early as possible. So how do you build up an online audience?

First, you need to set up a blog where you begin providing valuable, free content that discusses your industry, your product or your area of expertise.

For example, if your product is for cyclists, then you should blog about cycling. Or if your product is for pet owners then start blogging about pet related topics. Present yourself as an expert in the field through your blogging.

The point is you want to start blogging in order to collect email addresses as soon as possible. This is the best way to build up an audience.

Gathering traction online can be an excruciatingly slow process. Like everything with a hardware startup, it takes a lot of time and work, and it’s a long-term play.

Since you have to begin this from day one, you can build your audience in parallel with developing your product. That way, once you have something to either present or sell, you will already have an audience of interested potential customers.

Although slowly building your audience is typically the best option, the other two possibilities are to buy or borrow your audience.

Buying an audience simply means using paid advertising to attract people to your website. The third option is to borrow the audience of an influencer in your industry. So in this case you would sell your product to their audience in exchange for them taking a commission.

Also, make sure to perform serious upfront market research and product validation. Just because you think that your idea is great, does not mean that it will sell well.

Focus on validating that your product is truly a good idea before you start spending lots of money, time, and effort to develop it.

Conduct market research that includes customer feedback. Always strive to get as much feedback from as many people as possible about your product idea.

Getting lots of different types of feedback will allow you to hone your product into something that will be successful.

Don’t ever assume that you know what people want. Remember, you’re just one person and there’s no way that you alone can really know what a large group of people want.

You need to seek feedback from potential customers, investors and engineers. But you first need to make connections with these people to be able to even get their feedback.

A lot of this relationship building can be done through your efforts to build an online audience. But you can also use LinkedIn, join local startup meetups, or become a member of my Hardware Academy. These are all different ways that you can connect with other startup professionals.

Priority # 3 – Minimize Your Risks

You always want to minimize your upfront costs, and how much time you invest, until you know that your product is going to be successful.

You also want to minimize your design risk, which usually means minimizing the design complexity. Using electronic modules, for instance, is a really common way to reduce your design complexity and risk.

Let’s say your product has wireless functionality. In general, if your product uses a standardized communication protocol such as Wi-Fi or Bluetooth, then rarely would I recommend you custom develop the electronics from the chip level.

Instead, use a pre-certified and tested module that already has the wireless functions fully tested and validated. That’s going to go a long ways towards simplifying your design. And it is a lot cheaper than paying for the certifications that custom electronics require.

Independent Design Reviews

Another essential way to lower your risk is to conduct independent design reviews. Any large tech company has a very strict design review process in place and there’s a reason for that.

It doesn’t matter how good an engineer is, we all make mistakes, we’re just human. So, the more engineers that you can get to review your product design, the better off you’ll be.

Once you have a schematic or a printed circuit board layout, be sure to have an independent engineer review it to make sure that there aren’t any issues.

Conduct a review before you go to the next step of ordering prototypes, and if possible before paying the designer. You want a way to verify that the quality of the design matches what you were promised.

Don’t Worry About Maximizing Profit Margin Yet

Focus on minimizing your upfront cost instead of maximizing your profit. Here’s a common mistake that entrepreneurs or startups will make. When you are ready for your first production run, you will see that your cost per unit is much, much lower if you produce 10,000 units instead of only 100 to 1,000 units. It’s easy to be tempted by the higher profit margin.

But you have to keep in mind that you are also greatly increasing your risk by purchasing such a large amount of inventory. What if it doesn’t sell? What if you realize you need to add an essential feature?

The only time it makes sense to place a larger than necessary first production run is when you already have orders in your hand.

In general, don’t fall into the trap of trying to increase your profit too soon. Instead, focus on minimizing the total cost you have to spend upfront since you can always go back later and optimize your profit margins.

Simplify Your Enclosure

Another way to minimize your development risks involves the enclosure for your product. A custom plastic enclosure adds a lot of costs and risk to both the development and manufacturing of your first units.

Is obtaining the perfect aesthetic for your plastic enclosure a crucial part of your product? If you absolutely need a custom plastic enclosure, be prepared for dealing with the complexities of injection molded plastic technology.

Or can you get by, at least in the beginning or for your early prototypes, with a less than perfect enclosure? If so, I highly recommend you consider using an off- the-shelf enclosure instead of custom developing your own.

Always start simple and work up in steps from there. For instance, if you decide you do need a custom enclosure, don’t start off with a steel, multi-cavity mold that costs $10,000. Instead, start with a much cheaper, one-cavity mold made out of aluminum. Always start simple and try to expand in small, incremental steps.

Priority # 4 – Don’t Over Focus on a Patent

The patent process is a black hole for most inventors or entrepreneurs. It takes a really long time to get a full patent. I mean, you’re talking at least one to two years. A full patent also typically costs $10,000 or more.

It always concerns me when I see people obtaining a full patent as the first step on their startup journey. So ask yourself the following questions.

Have you conducted market research on your product and your competitors? Have you started marketing your product idea by building an audience? Are you getting feedback about the product from potential customers?

Getting your patent before you’ve done any of these steps is a bad decision because only a very small percentage (approximately 3%) of patents actually make it to market.

This low success percentage is because so many people get a patent as their very first step, and focus solely on getting that patent. But fast forward 1-2 years when they’ve spent $10,000 to get their patent, but now what?

Do they have any money left? What if they finally start conducting market research only to realize that no one wants their product?

There are so many cases where this happens! Do not focus on a patent first. I think it’s one of the worst things you can do. A patent is nothing more than a piece of paper that has little real value.

There are better options. For instance, in the US, we have what’s called a Provisional Patent Application which will give you the protection of a patent for one year. You don’t need to hire a patent attorney, it only costs a couple of hundred dollars, and you can do all the paperwork yourself in just a couple of hours.

With a provisional patent application you are allowed to say that your product is “patent-pending”, so you can feel comfortable sharing your idea openly.

You also have the option of using a nondisclosure agreement (NDA) with anyone that you share your product idea with, instead of focusing on getting that full patent.

Keep in mind that in general, patents have limited value. If you patent a product that people want to rip off, it’s not going to necessarily prevent knockoffs.

You only have to worry about your product being ripped off by a competitor once it is successful and making money. No one will copy just an unproven product idea.

There’s no value in an unproven idea. All of the value is in the execution. If your idea is going to be stolen, it will only happen after your product is a proven hit.

If competitors see you making millions of dollars, then that’s obviously going to get the attention. The patent itself doesn’t bring a whole lot of value because if someone wants to work around your patent, they can.

It’s very difficult to get a really broad patent that protects a broad category of solutions to a problem. In general, most patents are much more narrow and focused.

A narrow patent allows for a lot of flexibility in working around your solution. There may be ten ways to solve this particular problem and your patent may only protect you against one of those ten, so the other nine are still a possibility.

If someone decides to rip off your patent, do you have the legal and financial means to take them to court and try to enforce that patent? Probably not. Therefore, a patent is probably not the best use of your time or money.

The one area where I have found it to be an advantage to have a full patent is with large retailers. Big, well known, retail companies like seeing that you have patent protection. It gives them some level of reassurance that your product is unique and they won’t have to worry about copycat products.

So, a full patent can have some value, but it’s minimal and usually not worth the money. There are much better ways to spend $10,000 and one to two years of your life!

Priority # 5 – Develop a Plan

You absolutely need to have a plan. This whole product development/launch process is so complicated, and there are so many steps and obstacles. Trust me, you can’t just wing it.

You need to have a plan that includes all the steps that lie ahead and all the obstacles that you will confront. Then you can come up with ideas for working around those obstacles.

A lot of your obstacles are going to be financial. What is the cost of developing the product, scaling it, getting it certified, and getting it manufactured? It’s really critical that you know all of your costs upfront.

You also need to identify your funding strategy. You need to have a plan in place for paying for all these costs.

If you have $500 to spend, then that’s not going to get you very far. But you don’t necessarily need to have all your funding right upfront.

As you make more and more progress, new options for funding will open up. For instance, if you get it to the point of having a really nice looking, fully functional prototype, then that’s going to open up a lot of doors for outside funding.

You also need to identify your development strategy as part of this plan. Who’s going to develop your product? Are you going to do it? Are you going to bring on a co-founder? Are you going to outsource development? Are you going to partner with a manufacturer? Are you going to hire an expensive firm?

What is your marketing plans? Do you plan to use content marketing or paid marketing? Do you plan to attend any tradeshows? What about your sales strategy? Will you only sell your product on your own website, or do you plan to also sell via brick-and-mortar retail stores?

All of these questions need to be addressed in your plan before you proceed to spending large sums of cash to get your product developed.

Priority # 6 – Minimum Viable Product (MVP)

Bringing a hardware product to market is really complicated, so that’s one of the reasons you need to focus on simplifying your product as much as possible.

Bring to market the absolute simplest version of your product. It should only have your most necessary, core functions.

Any other supplemental functions that you’re considering, but that aren’t absolutely required for the user to benefit from your product, should not be incorporated in your first product attempt.

Instead, get the MVP in users’ hands so you can get their feedback. Then, you can find out what features your customers really want. Remember, you may think you know what people want but you really don’t. You’re just one person. So, you need to always seek feedback and never make assumptions.

The Minimum Viable Product concept will minimize your risk upfront, versus the much more risky “dream” product that has every feature imaginable.

When you try to bring to market a product that’s too complicated, you will usually find out that people either don’t want a lot of these features, or you may never even make it to market at all.

A lot of products get weighed down during development with unnecessary complexity. So, simplify, simplify, and then simplify some more. That’s one of the biggest keys to lowering your risk, which increases your chance for success.

Conclusion

I hope these different startup priorities will help you understand where and how to begin your exciting hardware startup journey. My goal is to help point you in the right direction so you don’t get lost going down one of the many wrong paths.

Always remember to choose the path that minimizes your financial risk, and that allows you to get a simple version of your product to market as quick as possible.

Two of the most fundamental ideas that will help keep you focused on the right priorities are:

First, an idea itself has no value. The true value is in the execution of that idea. So stop worrying about your idea, and start focusing on executing. With action always comes increased visibility.

Secondly, you are only one person who really has no idea what anyone else wants. The key to business success is always to build, test, learn, and repeat. Get your product or idea in front of people as soon as possible so you can begin this learning cycle.

If you need engineering technical support, coaching, training, connections, referrals, and resources to help bring your new electronic hardware product to market then be sure to check out the Hardware Academy.

The key to success is knowledge of the obstacles that lie in your path and a realistic plan on how to overcome those obstacles. Helping you accomplish this is the goal of the Predictable Hardware Report.

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Gerald RooyJohn TeelCampbell James Recent comment authors
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Campbell James
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Campbell James

I agree completely with all you have said here! Just add a few pointers about where to head for that mysterious marketing journey for the hardware engineering audience who is often totally lost or scared of that part of the equation (apart from over-engineering/perfecting too early)

John Teel
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Thanks Campbell! Yes, the marketing side of the equation is something I plan to discuss in a lot more detail in future blogs and inside my Academy. Honestly, this is where most engineers need the most help.

Gerald Rooy
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Gerald Rooy

Yes, i want to be part of that project
I. Hope this will carry ur approval..


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