Will Your Hardware Startup Make Money?(medium.com)
medium.com
Will Your Hardware Startup Make Money?
https://medium.com/@BoltVC/will-your-hardware-startup-make-money-677a8e6c665b
85 comments
What's your estimate for item 3?
$50/unit for initial production run, for some bland and generic product like in the article.
If you had an original product that actually goes viral, the marketing costs goes way down.
If you had an original product that actually goes viral, the marketing costs goes way down.
i think OP was suggesting you look at GoPro / Fitbit's filing documentation with the government, which publicly discloses these numbers.
i'll look for them and update this comment if i find them
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> We have recently begun to spend significant amounts on advertising and other marketing campaigns to acquire new users, which may not be successful or cost-effective.
> We have recently begun to spend significant amounts on advertising and other marketing campaigns, such as television, cinema, print advertising, and social media, as well as increased promotional activities, to acquire new users and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to acquire new users and increase awareness of our products and services. In 2014 and for the three months ended March 31, 2015, advertising expenses were $71.9 million and $21.1 million, respectively, representing approximately 10% and 6% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to use our products and services, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing, accurately predict user acquisition, or fully understand or estimate the conditions and behaviors that drive user behavior. If for any reason any of our advertising campaigns prove less successful than anticipated in attracting new users, we may not be able to recover our advertising spend, and our rate of user acquisition may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products and services.
ALSO
> Revenue increased $474.3 million, or 175%, from $271.1 million for 2013 to $745.4 million for 2014. A substantial majority of the increase was due to an increase in the number of devices sold from 4.5 million in 2013 to 10.9 million in 2014, including $151.9 million from new products that we began selling in 2014. U.S. revenue, based on ship-to destinations, increased $356.5 million, or 173%, from $206.1 million for 2013 to $562.6 million for 2014 and international revenue, based on ship-to destinations, increased by $117.9 million, or 181%, from $65.0 million for 2013 to $182.9 million for 2014.
So ballpark 11 million units sold in 2014, and 71.9 million dollars in advertising in 2014
That's $6.59 worst case customer acquisition cost (assuming no repeat customers)
http://www.sec.gov/Archives/edgar/data/1447599/0001193125151...
i'll look for them and update this comment if i find them
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> We have recently begun to spend significant amounts on advertising and other marketing campaigns to acquire new users, which may not be successful or cost-effective.
> We have recently begun to spend significant amounts on advertising and other marketing campaigns, such as television, cinema, print advertising, and social media, as well as increased promotional activities, to acquire new users and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to acquire new users and increase awareness of our products and services. In 2014 and for the three months ended March 31, 2015, advertising expenses were $71.9 million and $21.1 million, respectively, representing approximately 10% and 6% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to use our products and services, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing, accurately predict user acquisition, or fully understand or estimate the conditions and behaviors that drive user behavior. If for any reason any of our advertising campaigns prove less successful than anticipated in attracting new users, we may not be able to recover our advertising spend, and our rate of user acquisition may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products and services.
ALSO
> Revenue increased $474.3 million, or 175%, from $271.1 million for 2013 to $745.4 million for 2014. A substantial majority of the increase was due to an increase in the number of devices sold from 4.5 million in 2013 to 10.9 million in 2014, including $151.9 million from new products that we began selling in 2014. U.S. revenue, based on ship-to destinations, increased $356.5 million, or 173%, from $206.1 million for 2013 to $562.6 million for 2014 and international revenue, based on ship-to destinations, increased by $117.9 million, or 181%, from $65.0 million for 2013 to $182.9 million for 2014.
So ballpark 11 million units sold in 2014, and 71.9 million dollars in advertising in 2014
That's $6.59 worst case customer acquisition cost (assuming no repeat customers)
http://www.sec.gov/Archives/edgar/data/1447599/0001193125151...
Your "assuming no repeat customers" is a key point -- when reading overall financial statements like these, note that at "jumbo scale" like Fitbit/GoPro, the "average" customer acquisition cost actually drops tremendously because you get: referral sales / word-of-mouth from existing customers, much more public awareness and perceived legitimacy, more free press coverage, replacement and upgrade sales, gifting from existing owners, etc. all of which contributes to $0 effective CACs on those additional units sold. It does not mean that their marginal cost to acquire an additional new customer is $6.59; if it were, they'd certainly go out and spend it as fast as they can until saturation.
In contrast, a hardware startup (or a software one, for that matter) just has to go out and hustle to get every single sale, whether through paid or non-paid customer acquisition channels. This is where YC's philosophy of treating hardware and software companies similarly works: they both usually have very similar customer acquisition challenges in rapidly building and scaling their growth channels (rather than, say, technical engineering challenges, which are very rarely the limiting factor in startups).
In contrast, a hardware startup (or a software one, for that matter) just has to go out and hustle to get every single sale, whether through paid or non-paid customer acquisition channels. This is where YC's philosophy of treating hardware and software companies similarly works: they both usually have very similar customer acquisition challenges in rapidly building and scaling their growth channels (rather than, say, technical engineering challenges, which are very rarely the limiting factor in startups).
Acquisition costs are an interesting discussion in themselves. GoPro will have a big number partially because they are marketing-heavy. If you're not (yet) aspiring to be a world-beater, there are plenty of scrappy ways to acquire customers.
Kickstarter, obviously, is a big one. Never mind what people say about needing your own audience - yes, but you gotta start somewhere, and if you've got the message, Kickstarter's got the soapbox.
Another is simply being media-saavy. The press has to write about something, so don't forget that they need you, too. But you have to learn how to pitch stories.
Kickstarter, obviously, is a big one. Never mind what people say about needing your own audience - yes, but you gotta start somewhere, and if you've got the message, Kickstarter's got the soapbox.
Another is simply being media-saavy. The press has to write about something, so don't forget that they need you, too. But you have to learn how to pitch stories.
You're software start-up probably won't make you money either. At least for hardware, people don't have so many free options. The barriers to entry are also higher. Someone won't be developing hardware after a 12 week online course. To me it looks like a great time to build hardware.
Kickstarter has really changed the game. These guys launched today, for example, and they'll probably be funded within 24 hours:
https://www.kickstarter.com/projects/1152958674/the-sensel-m...
Kickstarter has really changed the game. These guys launched today, for example, and they'll probably be funded within 24 hours:
https://www.kickstarter.com/projects/1152958674/the-sensel-m...
The barrier for entry (intellectual & financial) and the risk are higher. The upfront investment is perhaps the single most important reason why people moved to software (myself included) as all you needed was a couple of $100 and you can get going. I think Makerspace is helping a lot to even out this gap and I couldn't be happier.
Interesting product... they are almost there and the traffic from here should do it.
Interesting product... they are almost there and the traffic from here should do it.
I tried to launch a hardware start-up on Kickstarter earlier this year (http://www.pcgamer.com/introducing-gameref-the-anti-cheat-ha...). Unfortunately, it didn't get funded.
I might just suck at PR, but I don't think The Sensel Morph is really representative of your run-of-the-mill funding experience.
I might just suck at PR, but I don't think The Sensel Morph is really representative of your run-of-the-mill funding experience.
I might just suck at PR
You just picked a really hard product to make successful.
The problem is J. Random Gamer has no reason to buy it, unless enough of his gaming buddies have it that he gets shut out of games if he doesn't have it. If he's the only person in the game who has it, or even if half the people in the game have it, the cheaters are still in the game and he's spent $125 without any benefit. And that's assuming the games support it - if no games support it properly, there's even less point.
There's a chapter about this sort of thing in Thomas Schelling's Micromotives and Macrobehaviour, if you're interested. Not cheaters in pc gaming (the book was written in 1978) but the game theory around similar situations.
One option is to make the product known to people who run the competitions, then wait for a major cheating scandal and lobby them to make it compulsory - but obviously that would only give you pro sales, not the much higher volume consumer sales. It might be possible to arrange a bunch of great servers where the device is mandatory, so early adopters get some benefits.
In the longer term I'd also suggest some sort of IP licensing, where something compatible with your product is built right into gaming mice. That way users have one less thing to cart around, and companies who know how to make and distribute hardware can take care of that for you. And you'll have a much easier time getting it made mandatory if it's "$1 in every gaming mouse from a variety of competing manufacturers" rather than $125 with a single source :)
These guys raised $650k for their keyboard last month:
https://www.kickstarter.com/projects/keyboardio/the-model-01...
I think a lot of these guys try to build a following before they launch.
https://www.kickstarter.com/projects/keyboardio/the-model-01...
I think a lot of these guys try to build a following before they launch.
Yes, there's a lot of planning that goes into a successful campaign. We prepared for six months. It's not hardware, but similar business/marketing challenges. Here's how we raised $484k on Kickstarter: http://blog.glowingplant.com/post/85922974558/how-we-raised-...
Looks like a great idea, to me! But I think the appeal of the Sensel Morph is much more broad, and your project seems quite niche.
[deleted]
eventually somebody like these guys will come into play too:
https://swarm.fund/
https://swarm.fund/
New hardware is always easily more impressive to people that software too, and case in point that pressure pad looks amazing.
I would add a few additional things to consider when thinking about a hardware product (via retail). First, creating additional value for your entire supply chain is extremely important, and gives you a lot of leverage. The OP mentioned this indirectly via high demand products creating walk in value, but additional value also can include selling a higher value/higher margin product, or creating a product that is highly consumable and has a high churn rate (think 5 hr energy). Ultimately the retailer is trying to maximize the $/sq ft in their store, and doing the things mentioned above will certainly help with that. Also selling a product that drives accessory purchases will give you additional leverage. Think phones that push purchases of cases and screen covers. Also think of Apple and the huge amount of floor space their products take up in a Best Buy. They can do this because of the higher value their products offer to the retailer. In addition, the higher value product you sell, the lower margin your retailers can be willing to take in order to sell the product. Ultimately, the retailer has to make more money with your product than the other products he or she could be selling in the same space to justify selling your product. This line or reasoning goes for your suppliers as well, especially if you are working with a factory that is near or at at capacity.
Really good explanation of all the costs people don't think about. Don't be disheartened. Take those numbers and work them down. Get the overhead cost down by doing it yourself and using consultants. Get the manufacturing cost down through dogged engineering and adjusting your product spec. Write a product strategy that allows you to ramp up toward retail availability, even if it takes several products to get there.
Yes, you will likely fail if you've never done this before and you're trying to make a consumer-quality product. So get experience with an intermediate step or two.
Yes, you will likely fail if you've never done this before and you're trying to make a consumer-quality product. So get experience with an intermediate step or two.
Underrated post here. Kestner's launched multiple products. Greets from the ML.
It is certainly true that you can spend this amount of money on a product and not make money on the first 5000 product run.
But it is certainly possible to make money on such a first batch: Why do you need inhouse EE, ME, DE en Embedded Engeneer for a headphone. Many of these functions can be done by a small design firm or freelancer that you hire for a much smaller fee. In addition, these people do this all the time for different companies and have a huge experience this way and good contats (you can also go with teh bigger firms, but then you probably need the same amount of money).
But it is certainly possible to make money on such a first batch: Why do you need inhouse EE, ME, DE en Embedded Engeneer for a headphone. Many of these functions can be done by a small design firm or freelancer that you hire for a much smaller fee. In addition, these people do this all the time for different companies and have a huge experience this way and good contats (you can also go with teh bigger firms, but then you probably need the same amount of money).
So... You are a hardware start-up that doesn't actually do any hardware. I recall a guy who got seriously burnt by taking this approach in a kickstarter: he had designed a iPad cover, successfully funded it and then proceed to crash as all his supply chain decided that wanted a bigger slice of that money. He even got sued by some random backer.
I think you really need some expertise in what you are trying to build. It has to be really hard doing a decent cost estimation otherwise.
I think you really need some expertise in what you are trying to build. It has to be really hard doing a decent cost estimation otherwise.
I did a hardware startup earlier this year (http://gameref.io) and tried to fund it via Kickstarter. I need to write a post-mortem one of these days, but even after significant media coverage (including PC Gamer, Vice, Polygon, etc.):
- http://www.pcgamer.com/introducing-gameref-the-anti-cheat-ha...
- http://www.redbull.com/en/esports/stories/1331720277392/game...
- http://www.pcgamesn.com/gameref-is-a-prototype-anti-cheat-sy...
- http://www.polygon.com/2015/2/23/8090221/onling-gaming-cheat...
- http://motherboard.vice.com/read/can-this-little-device-fix-...
.. it failed to get funded. Failure is part of the game and I wasn't too phased by it, but it still sucks. Unlike a software start-up where I can build and launch a working alpha/beta, you NEED some money to pour into a hardware start-up right at the start. It's not easy and, as the article mentions, the margins aren't as great as software. The sentiment of hardware being tougher than software is ubiquitous from what I can tell.
Props to the people that make it though.
See the KS page here: https://www.kickstarter.com/projects/1094040691/game-ref-the...
- http://www.pcgamer.com/introducing-gameref-the-anti-cheat-ha...
- http://www.redbull.com/en/esports/stories/1331720277392/game...
- http://www.pcgamesn.com/gameref-is-a-prototype-anti-cheat-sy...
- http://www.polygon.com/2015/2/23/8090221/onling-gaming-cheat...
- http://motherboard.vice.com/read/can-this-little-device-fix-...
.. it failed to get funded. Failure is part of the game and I wasn't too phased by it, but it still sucks. Unlike a software start-up where I can build and launch a working alpha/beta, you NEED some money to pour into a hardware start-up right at the start. It's not easy and, as the article mentions, the margins aren't as great as software. The sentiment of hardware being tougher than software is ubiquitous from what I can tell.
Props to the people that make it though.
See the KS page here: https://www.kickstarter.com/projects/1094040691/game-ref-the...
Curious what the endgame looks like for hardware startups that fail? One of the things that appeals to me about software startups is that if they don't work out, I've learned a lot of valuable technical skills that there's a market for. I can easily do some consulting or get a job with a fast-growing company to replenish the bank account, and then try again if I have another idea.
Is there the same transferability with hardware startups? Do other companies love to hire failed hardware entrepreneurs the way they usually like to hire failed software entrepreneurs, or do you just write off the money and time spent on the startup as a dream forgotten?
Is there the same transferability with hardware startups? Do other companies love to hire failed hardware entrepreneurs the way they usually like to hire failed software entrepreneurs, or do you just write off the money and time spent on the startup as a dream forgotten?
> do you just write off the money and time spent on the startup as a dream forgotten?
This isn't my first rodeo, but I usually just write off failed start-ups in general as dreams forgotten (and boy do I have a lot of forgotten dreams). I obviously gained a lot of technical knowledge: how USB works, packet formats, some hardware engineering, driver programming, etc. But unless I ever get a job writing low-level code for hardware devices, I doubt I'll ever use that knowledge again.
Who knows, maybe for another hardware start-up?
This isn't my first rodeo, but I usually just write off failed start-ups in general as dreams forgotten (and boy do I have a lot of forgotten dreams). I obviously gained a lot of technical knowledge: how USB works, packet formats, some hardware engineering, driver programming, etc. But unless I ever get a job writing low-level code for hardware devices, I doubt I'll ever use that knowledge again.
Who knows, maybe for another hardware start-up?
It will have its chance, at the moment its hard to force customers to purchase a product just to compete.
I believe hardware anti-cheats will be more efficient but until we have companies (cevo, esl, mlg etc) that are willing to front the cost of the devices for the customers, it'll be a short lived thing.
I'd imagine, some form of a rental system would work market fit wise, sort of like a DVR from your cable company.
Until then, software seems to be the easiest solution sadly.
I believe hardware anti-cheats will be more efficient but until we have companies (cevo, esl, mlg etc) that are willing to front the cost of the devices for the customers, it'll be a short lived thing.
I'd imagine, some form of a rental system would work market fit wise, sort of like a DVR from your cable company.
Until then, software seems to be the easiest solution sadly.
How much were you trying to get funded? And who was your target audience? Congrats on getting as far as you did though. I'm sure you learned a lot. As the Buddhist saying goes: nothing is ever wasted.
Thank you for your kind words! You probably don't realize it, but they actually mean a lot to me :)
My goal was $200k. Some people criticized it for being too high, but I think it was actually a pretty conservative estimate. Oh well, c'est la vie.
My goal was $200k. Some people criticized it for being too high, but I think it was actually a pretty conservative estimate. Oh well, c'est la vie.
This is probably an underestimate for the product development phase. And if you want to sell to Best Buy you usually need to work with a distributor who has their own margin. Rule of thumb is 3-4x COGS to get to MSRP.
I'm having trouble with this article and I hope someone from HN will help clarify for me: why was an initial run of 5000 units selected? This seemingly arbitrary number seems too important in HW development to be relegated to a single non-explanatory bullet point.
If my understanding is correct, product dev teams seem to aspire to an initial 500 - 2000 units for that initial run as the symbolic point of reaching this "finalized" level of development. Any production at this level is considered a finished good ready for the sales/supplier pipeline.
Once a product has reached this level, my understanding is that subsequent runs is typically for 10K to 25K widgets per run ("lot") that see anywhere from 10,000 to 250,000+ widgets for a single SKU per production run.
Above 1 million units, everything changes, but the 5K first-and-only run seems abnormal.
If my understanding is correct, product dev teams seem to aspire to an initial 500 - 2000 units for that initial run as the symbolic point of reaching this "finalized" level of development. Any production at this level is considered a finished good ready for the sales/supplier pipeline.
Once a product has reached this level, my understanding is that subsequent runs is typically for 10K to 25K widgets per run ("lot") that see anywhere from 10,000 to 250,000+ widgets for a single SKU per production run.
Above 1 million units, everything changes, but the 5K first-and-only run seems abnormal.
Producing 500 or 2000 units would virtually require the same time, so you may as well get a standard batch size and improve your margins.
There's a big difference between 2000 and 5000 unit initial runs... why 5000?
For an initial production run there are a lot of fixed setup costs. Just from my gut feel 5000 units is just barely off the NRE (non recurring engineering cost) 'knee'. (And the manufacturing learning cost knee) Less than 5000 units the NRE costs start to dominate your out the door manufacturing price. So at 2000 units that might be 50% to 80% higher per unit than at 5000 units.
Also people often forget about your suppliers management, accounting, and sales overhead. That means that they will have minimum orders below which they don't make enough money justify the overhead of shepherding your product through their shop. For Chinese suppliers 5000 units appears to be typical because lower volumes are typically on-shored. On shoring is going to increase your costs by probably 30%.
You might ask the other question, why not 10,000 or 20,000 units? Answer is that starts to be a huge chunk of money for something that isn't proven.
So ans: 5000 because less the NRE kills you. And you'll have to on shore production. And no more than that because otherwise your initial production costs becomes the dominant part of the investment risk.
Also people often forget about your suppliers management, accounting, and sales overhead. That means that they will have minimum orders below which they don't make enough money justify the overhead of shepherding your product through their shop. For Chinese suppliers 5000 units appears to be typical because lower volumes are typically on-shored. On shoring is going to increase your costs by probably 30%.
You might ask the other question, why not 10,000 or 20,000 units? Answer is that starts to be a huge chunk of money for something that isn't proven.
So ans: 5000 because less the NRE kills you. And you'll have to on shore production. And no more than that because otherwise your initial production costs becomes the dominant part of the investment risk.
Thanks for complementing my answer. That's exactly what I had in mind, but I (still) can't type from mobile devices. :)
Great read and sums up a lot of my experiences.
As a product manager who launched a niche consumer hardware product recently, I came up with the same analysis. Plus, manufacturing state-side (boston) had its own perks (quality control) and cons (labor cost and freight from china for components).
Even after you factor in all the costs, there is cost of acquire customers which can be quite a lot for a product that is new in its category, where a lot of startups aspire to be.
What is tricky is seeding customers, organic growth through hackathons, co-marketing, and customer stories.
Thanks for the post.
PS: Full Disclosure, i launched a robotic haptic device (cubify.com/touch).
Thanks for the post.
PS: Full Disclosure, i launched a robotic haptic device (cubify.com/touch).
>What is tricky is seeding customers, organic growth through hackathons, co-marketing, and customer stories.
How did Cubify handle these things?
How did Cubify handle these things?
One thing those tables don't account for is paying for your own (and other full-time) employee salaries post-production. Someone has to keep working after the initial production (and future) run is complete. You don't just sell your hardware, make your profit and leave :)
To sell 50k units or more you will need a few people to handle your store, marketing and support. Also will you continue to sell the same model for years or develop new versions? Lots of other costs to keep a business running should be included in your business financials.
A 3x multiplier is slightly low for CPGs, I'd go with 4-5x depending on the product and market to give yourself some breathing room. Things like sales, resellers and coupons all eat into profit.
To sell 50k units or more you will need a few people to handle your store, marketing and support. Also will you continue to sell the same model for years or develop new versions? Lots of other costs to keep a business running should be included in your business financials.
A 3x multiplier is slightly low for CPGs, I'd go with 4-5x depending on the product and market to give yourself some breathing room. Things like sales, resellers and coupons all eat into profit.
Those salaries seem absurdly low.
Also, why is the cost of employees with overhead lower? (NB/EDIT: Pointed out below this is for 3/4 of the year, not the full year - but the rest of my point stands.) That makes zero sense. Surely they are paying payroll tax, unemployment insurance and health insurance for their employees, no?
Also, why is the cost of employees with overhead lower? (NB/EDIT: Pointed out below this is for 3/4 of the year, not the full year - but the rest of my point stands.) That makes zero sense. Surely they are paying payroll tax, unemployment insurance and health insurance for their employees, no?
> Also, why is the cost of employees with overhead lower?
I think that's the cost of the employees for the 9 months (not 12) it takes them to do the required work.
I think that's the cost of the employees for the 9 months (not 12) it takes them to do the required work.
[deleted]
Oh right. Math. Yes. Good call.
Finding a talented EE for 75K/year seems like an impossible endeavor (if I read this correctly)
I know the EE space well in SF Bay Area (source - I was an internal recruiter for a hardware based startup). EE generally sits between 70-90k (but have seen people demand $120k), whereas software developers (especially mobile) is more like 90-120k (and for top talent sits around $150-200k). Depending on the financial health (i.e. funding) of the company, the full cost of an employee can range from 1.25x-1.80x their base salary. Hardware startups generally are stingy on their cost structure (and therefore probably skimp on benefits, bringing them down to 1.25x) because the cost structure is so high relative to software. For example, tooling costs could vary between $100-250k which is terribly difficult to estimate when you don't know the design or demand of your final product. The difference of $100k is...you guessed it...equivalent to a full additional human resource. Resource planning for hardware startups is scary.
I know for a fact finding talented EE people is possible at $75k, and that same level talent would most likely cost $100k for a software dev. Interestingly, there is a decent supply of EE talent out there, however due the varying degree of hardware applications finding the right person is more difficult than it seems on the surface.
I know for a fact finding talented EE people is possible at $75k, and that same level talent would most likely cost $100k for a software dev. Interestingly, there is a decent supply of EE talent out there, however due the varying degree of hardware applications finding the right person is more difficult than it seems on the surface.
But if your an EE and a software dev can you get 75 + 100 or $175K ? :-)
One of the best advice my Dad ever gave me when I was thinking about majors in college was that you could program computers with an EE or a CS degree but without an EE degree they probably wouldn't let you build/design them. The math and physics were, to my taste, more difficult but I got tremendous satisfaction in being able to understand a computer from the PN junction of its transistors, to the process model of its operating system.
One of the best advice my Dad ever gave me when I was thinking about majors in college was that you could program computers with an EE or a CS degree but without an EE degree they probably wouldn't let you build/design them. The math and physics were, to my taste, more difficult but I got tremendous satisfaction in being able to understand a computer from the PN junction of its transistors, to the process model of its operating system.
You don't need a degree for common sense.
My parent spout a lot of the same nonsense. Just who exactly are these "they" gatekeepers the Boomers keep referring to? Pretty sure "they" are the same keepers of great wisdom such as "Housing prices will always rise", and "Work hard, you'll get a pension and gold watch," sorts of people. Not intentionally wrong, but definitely behind the times.
Want to make a computer? WE don't need "them" to gatekeep their own bullshit anymore. Everthing, including fabs has been virtualized and is available online. Funding, PCB design and layout, soft-hard your FPGA ASIC designs, etc, etc, etc. Make your tradeoffs same as the rest of us, but don't think for a second that you must have "them" to make that computer.
I know it's not really that easy (my parents spout the same nonsense all the time, but I love them nonetheless), but try to surround yourself with enablers not gatekeepers. And be able to quickly differentiate between the timeless and the boomer knowledge.
My parent spout a lot of the same nonsense. Just who exactly are these "they" gatekeepers the Boomers keep referring to? Pretty sure "they" are the same keepers of great wisdom such as "Housing prices will always rise", and "Work hard, you'll get a pension and gold watch," sorts of people. Not intentionally wrong, but definitely behind the times.
Want to make a computer? WE don't need "them" to gatekeep their own bullshit anymore. Everthing, including fabs has been virtualized and is available online. Funding, PCB design and layout, soft-hard your FPGA ASIC designs, etc, etc, etc. Make your tradeoffs same as the rest of us, but don't think for a second that you must have "them" to make that computer.
I know it's not really that easy (my parents spout the same nonsense all the time, but I love them nonetheless), but try to surround yourself with enablers not gatekeepers. And be able to quickly differentiate between the timeless and the boomer knowledge.
2nd this comment - im an EE with concentration in signal processing (also have an MS in Applied Math now). i was debating Math + CS or EE and I am very happy with my choice - has opened a lot of doors for me career wise
I couldn't agree more. I ended up doing a dual EE/CS undergrad and get the same satisfaction from understanding things down to the bare bare metal.
I'm an EE (work at a funded hardware startup) and I know a lot of other EEs working in the Bay Area. None of them make less than $100K. If you're an EE at 70K to 90K, you can make a lot more than that.
so mobile developers are in more demand right now than full-stack in SF? ( that is what it sounded like to me)
Finding an injection mold with tooling for 5K is also in the realm of impossible (and probably unusable if found), certainly for PCB enclosures.
For one part? You can get tooling for less than that at Protomold in Minneasota (the higher per-part cost is often worth the lessened risk if it's your first go-round), and easily in China.
I know and you know that 2-piece molds are cheap around the world - but does the buyer/typical HN reader know the difference between, say, O-2 and 6063 when tooling?
Can Protomold in Minneasota rotoshill my parts?
Can Protomold in Minneasota rotoshill my parts?
For most hardware startups their first time, who cares if they're using aluminum tooling? They're going to learn from their first iteration while staying solvent, and they'll never hit enough volume to worry about the tool life.
I don't know what rotoshilling is but manage to produce hardware anyway. A problem I see is that first-timers think they have to act like the big boys, and the big boys design complex assemblies and go to China. (I wouldn't unless you have the money to either make an expensive mistake, or to hire someone with experience.)
I don't know what rotoshilling is but manage to produce hardware anyway. A problem I see is that first-timers think they have to act like the big boys, and the big boys design complex assemblies and go to China. (I wouldn't unless you have the money to either make an expensive mistake, or to hire someone with experience.)
Does it cost $150k/yr to hire someone you're paying $75k/yr?
I've heard the fully-loaded cost of an employee is about 2x their salary, but I'm interested to know what the fully-loaded cost of a startup employee is. At the minimum, an employer would probably need to pay for health insurance, for example. Even if the benefits aren't very good, the cost is higher than someone's salary.
The article says the cost with overhead is 1.25x, but is that realistic?
I've heard the fully-loaded cost of an employee is about 2x their salary, but I'm interested to know what the fully-loaded cost of a startup employee is. At the minimum, an employer would probably need to pay for health insurance, for example. Even if the benefits aren't very good, the cost is higher than someone's salary.
The article says the cost with overhead is 1.25x, but is that realistic?
My simulated metric was something like %133, which another person on payroll said that was pretty accurate. So there isn't hidden information when calculating this stuff.
Think of:
- Health Insurances ($500/mo)?
- The other half of payroll taxes (~%8)
- Food benefits ($10/day in snacks, $15/meal served)
- Office rental & upkeep costs
- 401k program costs (yes, they charge employers for this)
- HR Costs
Think of:
- Health Insurances ($500/mo)?
- The other half of payroll taxes (~%8)
- Food benefits ($10/day in snacks, $15/meal served)
- Office rental & upkeep costs
- 401k program costs (yes, they charge employers for this)
- HR Costs
They have this person budgeted at $80k/year (the figures are amortized over the time to develop the first run of 5k). $80k + founding stock may be reasonable (though possibly not in SF).
Not at all, out of the coastal areas (and maybe even in the coastal areas). It's a harder course than software, but pays worse.
Not in the midwest, or many other parts of the country. Check Glassdoor for rough numbers. Salaries are reasonable, cost with overhead is questionable.
Long story short on all this, if you've never made hardware before and are going to make hardware, take the risk with other peoples money... if at all.
Long story short on all this, if you've never made hardware before and are going to make hardware, take the risk with other peoples money... if at all.
I'd be curious to learn how VCs value hardware startups vs software considering this and all the other risks.
In my experience, my friends got EE/CmpE degrees are harder to find, but much cheaper to hire than CS. I don't think they have the same "hustle" baked into their profession that CS/programmers do and as such they move jobs less and tend to make less.
It isn't, but depending on how involved the design is, hiring a consulting engineer can save you money.
One issue not being discussed is the revolving cost of having products out in the market and the cost of the next production run.
if your orders double from 20K units to 40K, your costs will roughly double, usually meaning that any profit made on the 20K is re-invested to make the 40K - usually plus additional capital.
So long as your production quantities double, you will not actually "have" any money (unless your FOB cost is north of four times sell price). Many companies cannot "realise" profit until orders stabilise.
if your orders double from 20K units to 40K, your costs will roughly double, usually meaning that any profit made on the 20K is re-invested to make the 40K - usually plus additional capital.
So long as your production quantities double, you will not actually "have" any money (unless your FOB cost is north of four times sell price). Many companies cannot "realise" profit until orders stabilise.
Thanks for the nice write up.
Hope someone can do an explanation like this for a software startup too.
Hope someone can do an explanation like this for a software startup too.
Also on HN Frontpage: "When Hardware kickstarters ship"
https://news.ycombinator.com/item?id=10113987
This should be prerequisite reading material for anyone doing a hardware kickstarter. Still waiting on my 3D printer 3 years later...
Is he using COGS in the right sense? I think he means CIF, cost/insurance/freight. My company produces products in Europe and Japan and we use the term 'landed CIF' to include all the costs associated with mfg, freight, and duties before it hits our US warehouse.
COGS for us is how much is sold through a distributor to an end user.
COGS for us is how much is sold through a distributor to an end user.
The first assumption "$30 to produce and you sell it for $99" is bad. That's not a high enough profit margin.
Second, obviously don't hire people at full salary. Make something that people are excited to work on and give them equity to do it.
Equity doesn't pay for a house or feed children. 90% of the time, they will never bring in any money.[1]
You won't always be able to hire whoever you want/need if you offer them equity. An inexperienced, younger person who's willing to work for equity might cause delays in delivering which will also cost money.
1. http://www.forbes.com/sites/neilpatel/2015/01/16/90-of-start...
You won't always be able to hire whoever you want/need if you offer them equity. An inexperienced, younger person who's willing to work for equity might cause delays in delivering which will also cost money.
1. http://www.forbes.com/sites/neilpatel/2015/01/16/90-of-start...
True many people won't be able to work for equity full time. I've been lucky enough to find people willing to work with me for equity in their spare time. I'm not a connected or wealthy person. For many people like me it's the only option. I've been able to get people really excited about the product, but I also have had to accept that I have to be flexible with deadlines for people I'm not yet paying. Things take longer when you don't have money. Sometimes it's better to go slow.
This article simply makes all the assumptions that will lead you to be unprofitable. Yes if you have a boring product and you spend too much developing it and don't have a high enough profit margin you wont make any money.
Another hidden cost here (particularly if your main sales channel is direct to consumer) is shrinkage/fraud.
Consumer hardware is easy to purchase with a stolen credit card and fence on eBay.
Consumer hardware is easy to purchase with a stolen credit card and fence on eBay.
This article made me think of Betteridge's law of headlines
(https://en.wikipedia.org/wiki/Betteridge%27s_law_of_headline...): "Any headline that ends in a question mark can be answered by the word no."
On a serious note, it surprised me that the BOM listed the shipping materials as being about as expensive as an assembled and flashed PCB. It's interesting that a cardboard box (which feels pedestrian) costs about as much as a printed circuit board (which feels a little like magic).
On a serious note, it surprised me that the BOM listed the shipping materials as being about as expensive as an assembled and flashed PCB. It's interesting that a cardboard box (which feels pedestrian) costs about as much as a printed circuit board (which feels a little like magic).
A lot of it comes down to automation and mass. Chips are made by the millions and the material costs are minimal. Your box is made by the thousands and is a relative pain to handle.
I haven't downvoted you but I think people are because they're tired of references to Betteridge's law of headlines in every single submission ending with a question mark.
I personally don't think this is a good case of Betteridge's by the way.
I personally don't think this is a good case of Betteridge's by the way.
I half-expected a single word article with the word "no".
An ee that can program and do some simple mechanical design can do all that engineering himself.
Maybe for a simple box, but for an injection moulded curved enclosure like the headphone example? If you didn't get that designed by someone who'd done it before you'd be taking a huge risk.
> you'd be taking a huge risk.
The subject at hand is a hardware kickstarter. That bridge has long been crossed and burned. If you had all the talent and resources at hand already, you'd probably have funding too.
The subject at hand is a hardware kickstarter. That bridge has long been crossed and burned. If you had all the talent and resources at hand already, you'd probably have funding too.
Many tooling shops will design the molds for you if you send them the original part drawings.
On a side note, is there a site like hacker news for Hardware?
Also check out http://hackaday.com/ - not quite the same, but much more hardware-focused.
/r/hwstartups on reddit is a good place to start.
EEVBlog is not a bad place, although it's not really news oriented.
(1) This is a decent estimate for a completely commodity product (Bluetooth headphones). No iOS/Android app development, no content development, very little custom firmware or electronics development required. (That correspondingly means you face the least differentiation and the most competition.)
(2) This is for a "plastic and PCB" product build. That's as simple as it gets. Any product that goes beyond a PCBA inside a plastic enclosure is usually going to have significantly greater design and engineering challenges, not to mention COGS costs. Moving parts? Temperature? Water? Cameras/lenses? Sensors? etc.
(3) The marketing / customer acquisition cost is either ignored or assumed to be some laughably small number. Even at its highest, this article assumes $3/unit customer acquisition cost. That's ridiculous (go look at Fitbit or Gopro or any other filing statements). If it were true, a lot more people would go ahead and get that initial capital to make their own Bolt-o-Phones.
(Disclosure: co-founder of a hardware startup https://www.pantelligent.com/ and about to ship our first production run.)