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The Hardware Revolution is Upon Us and Why it Matters

Almost exactly six years ago, Apple launched the first iPhone. It was a small device that many dismissed as a toy.  In reality Steve put a supercomputer in our pocket — we just didn’t know it. And like super computers before, it came with immense capabilities and brought about an opportunity to rethink, reimagine and reinvent how we live, work, create and consume.  Today, smartphones sell by the hundreds of millions and with that they bring what Chris Anderson (True Founder, former editor of Wired, best-selling author and Chief Executive of 3D Robotics) describes as the “peace dividend of the smartphone war.”

Chris Anderson 3D Robotics

Cheap processors, cheaper memory, and even cheaper sensors means it’s a great time for people who like to tinker with hardware to tinker.  Platforms like Kickstarter and Quirky de-risk production, identify features and customers, and do so before the first tool is made.  Wireless broadband is ubiquitous, and military grade technology is available at RadioShack. The manufacture and design of products and devices has changed forever.  Building factories is no longer a prerequisite for building products. Add to the mix emergent technologies such as 3D printing and inexpensive laser cutters that put prototyping capabilities onto a kitchen table, and we suddenly are facing an extraordinary revolution in hardware-based innovation.

Bre Pettis MakerBot

The New Industrialization 

This is a tectonic shift that is going to drive the next wave of industrialization — one that is more nimble, adaptable and rapidly evolving. One that is as much based in software as it is in assembly lines.  The past 150 years were about the economics of labor and mass production. Now, information flow, data, and analytic platforms are the new tools augmenting the lathes, pneumatic hammers, and assembly lines of yesteryear.

The offspring of this marriage of machine and software is customizable, connected, and it enables creation. This new age of hardware is the foundation for a novel breed of services and platforms that leverage software and—most importantly—data, whether to change health behavior or to revolutionize the way we farm.

Investors have historically shied away from hardware, but we have long believed these enormous forces will change the industry and the world. True Ventures has been early and big investors in the burgeoning hardware and device wave:  we funded Fitbit‘s seed round in 2008, were early investors in MakerBot starting in 2010, and have gone on to fund 3D RoboticsAirstone LabsGinger.io, InventableslittleBitsSifteoStreetlineValencell, and several others that have yet to be announced.

The remarkable Fitbit Flex

These investments has given us a unique view at the dawn of this new revolution, and we want to share what we have learned. We share because we believe deeply that collaboration is the best path to inspire and propel the Founders behind this historic movement to unleash a new kind of creativity into our world.

 

Some of the things we have learned so far:

  • Hardware is the double black diamond of startups.  These startups are not for the faint of heart. Innovation curves are longer in hardware, and you’re dependent upon a huge host of suppliers and partners. Off-shore manufacturing means dealing full time with multiple and different business cultures, languages, customs, and believe me when I say that China is a very long way from Palo Alto.  Maybe not once or twice a year, but to manage it every day presents a much higher degree of difficulty.  Unlike most startups in which you control your destiny, in devices you are dependent upon many, many others, some of whom are around the world, just to build your first product.
  • Experience counts . . .really.  Stand tall on the shoulders of others -  people who have been there before.  Learning how to implement an SAP system or negotiate with suppliers 24/7 is a critical path skill for the company, but it is not necessarily a critical path skill for you as a Founder.  Get experienced help, and get it quick.   Poor supply chain creation and management or weak demand planning will kill most companies that make a product.  These are areas where you as a Founder don’t want to be a hero, you just want to get the best job done.  Be creative:  littleBits solved this problem with a really deep and valuable partnership with PCH.  It enabled the company early on to have significant production capacity and scale.  It’s been an important part of the company’s early success.  Seasoned help is out there, get it in your company fast.
  • Capital, and lots of it.  Costs are high and more cash is needed, at all stages, to build a device.  Not only is the cost of building a physical product much higher than in a software only business, but in today’s hardware world, you need to build both a hardware company and a software company. Today’s devices extend the power of the software world to incredible places, and your startup needs to do both well, which means higher burn rates. Cash also gets consumed by WIP, inventory, shipments in transit, returns.  Even small failure is very expensive.
  • Just like we pilots say, “know your numbers”.  Knowing the specifics behind your BOM and margin is as critical to you as knowing when to rotate an aircraft on takeoff, knowing your fuel reserve margin, or keeping up airspeed on an approach.  Often hardware companies learn to their chagrin that while they are selling an awful lot of product, they are steadily running out of cash.  Gross margin, contribution, inventory turns, all of these are critical to keeping air flowing across your wings.
  • Choose you investors wisely.  It’s in vogue for VCs to “love hardware” today, but most investors operate on far too short a time horizon for early stage hardware startups.  Capital strategy is one of the most important things you will do as a Founder.  Take it seriously, and be careful.
  • Design as if your life depended upon it, because it does.  Not only are most devices incredibly hard to design because of space, heat, shape constraints, but they also must look and feel amazing.  Oh, and you don’t get a second chance for a first impression.  Devices are very hard to change once you ship them, and unlike an app or any software, customers don’t “close” a device and make it disappear.   Your good choices, and your bad ones, are forever enshrined in atoms for all the world to see.  In many cases you are building something intensely personal. Consider the Fitbits people wear or Nest devices that light up in the home above or around your loved ones:  these are remarkable devices and they are incredibly personal.  Getting design right is very, very hard, and getting design wrong is very, very easy. Once trust or respect is lost in the marketplace, it’s nearly impossible to restore.  The lesson here is launch only when you are absolutely positively ready (and no, you don’t need to “hit Christmas” on your first launch).
  • Retail me later.  As tempting as it is to have meetings with “big box retailers” who promise to move enormous numbers of units, the reality is that this should be a strategy to employ well after you’ve succeeded in selling a lot yourselves.  Not only is direct more profitable, but you maintain the relationship with your customer, which is so critical in the early through mid-stage.  You also maintain your agility, because all of these large retailers require big inventory reserves, special pricing and special terms, and they have return rights that can sink you if your product doesn’t sell.  Retail is a great channel later, but first stay direct.
  • It’s all about the data.  Seriously.  All of these devices are merely endpoints of the web or connection point to data, content, or a point of connectedness to a particular state, location or point in time. In addition to ambient monitoring data, other types of data are the real juice to the squeeze here:  Thingiverse to the MakerBot, which makes every endpoint a universal creation machine, limited only by the world’s creativity; images and video brought to us for the first time from quadcopters and fixed wing autonomous vehicles; parking data delivered instantly by Streetline’s mesh network of sensors, or the delivery of beauty instantly to a place where it may not have existed (play “Nice Dream” by Radiohead via Spotify on your Sonos system if you any doubt about the beauty that a connected device is capable of creating).
  • You’re building a company, not a Kickstarter campaign.  Sure, Kickstarter (which we love) is a great early indicator of product demand and can be useful in feature testing, but a successful campaign does not a successful company make.  Like every other startup, you need to build a great team early, in advance of success, and meet the market with the best minds possible, working together, to change the future.  A good Kickstarter campaign is great, but don’t mistake it for company success.

These are just a few. . . there are many more.

What we think comes next

We believe this is just the very beginning of the hardware revolution. The world is eagerly awaiting new devices and new device platforms. Look around you and it is hard not to see opportunities. We need a large scale device control and management platform that enables configuration, addressability, access, registration, tracking.  We are still in desperate need for advance control plane software that will enable features in robotics like sense and avoid, swarm coordination, traffic management, ideally across device type.  And much, much more.

On the device level, opportunities abound. When True funded MakerBot and Fitbit, critics told us these were “vertical markets” that were small and maybe not so important.  They’ve turned out to be more like iceberg markets—they looked small and niche from the surface but were monsters underneath, and have driven the creation of entirely new categories. There are many, many more of these in places we don’t yet see, but they are likely right under our noses. The home, the car, the workplace. The body. The air, the sun, the sky, the sea, the sand.

Enormous amounts of video and imagery are being created, and this gives rise to new types of data cataloguing, geo-referencing, stitching, searching and even analysis.  There is an entirely new GIS industry about to be created.  Unlike GIS of the past, this one will be fully multi-media, multi-modal, real time, and in all likelihood streaming.

Some of the platforms we’ve seen will literally blow your mind at first glance. New devices will create a entirely new view into our world, from the nano to the galactic, from the human body out into the oceans, the atmosphere, space and beyond.

We expect brilliant things to come in the years ahead.

Welcome to the hardware revolution.

Please join us.

 

Comments

  • Great post! Thanks for the insights.

    • by Zaki

    • on July 27, 2013

  • Props to my partner Jon for this epic, meaningful post. There are so many invaluable insights but one that really stands out is the concept of retail me later. Awesome.

    • by Tony Conrad

    • on July 27, 2013

  • [...] Almost exactly six years ago, Apple launched the first iPhone. It was a small device that many dismissed as a toy. In reality Steve put a supercomputer in our pocket — we just didn’t know it. And …  [...]

  • As part of /r/hwstartups and as a co-host of a show about electronics, I’ve seen this coming for a while. But man, there’s nothing like a little validation from people with insight into the broader field (and hey, a little money behind them to boot). I like that you focus on the difficulty of the actual development cycle. It’s not just an Arduino strapped to a sensor (though that might help for prototyping). People need to make thoughtful, cost driven decisions that can be scaled with available parts. I deal with this kind of stuff every day and it’s exciting to see it getting more attention. Hell, the supply chain world could use a little help too (and I know of a few good ones working on it!)

    Kudos to your team for taking some calculated risks and I look forward to seeing what’s highlighted and funded next!

    • by Chris Gammell

    • on July 27, 2013

  • The “Open Stack” movement (Open Compute, Open Hardware, et al), in my view, at once complicates and clarifies this revolution. OSS had a democratizing effect on software revolution. OSH could help focus on a ‘common core standard’ or ‘capital strategy’ or ‘tech experience/talent match-up’ for Hardware? Am curious on your reaction to that possibility?

    • by Manoj Govindan

    • on July 28, 2013

  • Thanks for sharing Jon. Indeed, some of the most powerful conceivable ideas right now often mix h/w+s/w often in industries will little s/w at this stage. They will help disrupt older infra industries. Utilities are a good example for instance where solar + local electrical storage can dis-intermediate residences from transacting with utilities . s/w would be the “brain” there.

    I’d be curious to know if a new crop of hardware suppliers will evolve to “fast prototyping” and work with smaller companies to prove ideas at smaller volumes, all the while maintaining costs lower, the “secret lean sauce for h/w”…

    • by echeyde

    • on July 28, 2013

  • Outstanding and logical vision with solid ground! Toll! Let’s go!

    • by V. Tralov

    • on July 28, 2013

  • Jon –

    Thanks for writing this and saving the hardware entrepreneurs that read it a lot of unnecessary pain an suffering. There are so many trap doors in trying to build a great hardware system (system because hardware happens to be the endpoint, as you point out).

    In an attempt to get to market faster as a bootstrapped startup, we tried to partner early on with a European manufacturer. It was a terrible decision on my part that ended up costing us at least a year in getting to market. We are still licking our wounds, but by bringing everything in-house – software, hardware and manufacturing (with a local CM), we have a much better prototype and we are much more determined to go the distance and build a great product that our customers love.

    Congratulations on building a great team at True, and thanks to Chris Dixon for tweeting your post.

    Best,

    TJ

    • by TJ Culbertson

    • on July 28, 2013

  • As an industrial designer, I’ve been working on “hardware” all my career. (Although product designers reserve that “hardware” description for a small subset of the products we create.) The first time I saw a 3-D printer available for $15/ hour, and a MakerBot for $250, I realized there was an enormous explosion of interesting new products about to occur, and that they would come from unexpected sources. There is a new study out of MIT that indicates 30% of US R&D is now flowing out of garage-level enterprises!Your piece, and your advice, is spot on in most regards. I can see you’ve been watching this action closely.

    But it neglects to acknowledge how hard it is to build a market for new consumer products. Advising people to ramp to big box slowly is smart, but advising these companies to “go direct” ignores the extreme challenge in doing that to scale. I find people who create great consumer products rarely have the marketing capital and skill to build the associated customer base and business. Very few products sell themselves. And to compound the problem, the more innovative a product, the harder it is. Why? Because people don’t expect it to exist. They aren’t searching for it. They are skeptical. They need endorsements they can trust. They take convincing about a true “white space” product, as opposed to an optimization of an existing product.

    Therefore, to me, however, the really cool business opportunities around this hardware revolution are the chance to create businesses that support these new indie product companies (ala the Paul Graham thesis of selling to startups as a ticket to high growth). For example,Shipwire bringing enterprise level logistics to indie producers. BOLT as a hardware accelerator. SurveyMonkey for credible market research on the cheap.

    I decided to crack the hardest nut: launching these indie products and helping them succeed. We’ve launched over 2,000 at The Grommet (formerly Daily Grommet…I met with Phil an age ago) and find most of these hardware companies are solving the same problems in isolation. And they are generally surprised at how quickly the first buzz of new product press dies off and how much work it is to build a market to sustainability. As you listed, this is not for the faint of heart. And you did not even address the hardest part of all, which is not building the better mousetrap. It is getting people to find it, buy it, share it, trust it.

    • by Jules Pieri

    • on July 28, 2013

  • EXCELLENT ARTICLE!! Great information to know/ THANK YOU..tried to send it up to Facebook page..karen.koop.100…SEND ME MORE GREAT ARTICLES!! :-)

    • by Karen B. Koop

    • on July 28, 2013

  • [...] Callaghan / True Ventures:The Hardware Revolution is Upon Us and Why it Matters  —  Almost exactly six years ago, Apple launched the first iPhone.  It was a [...]

  • Very inspiring!
    I appreciate your passion for this topic very much.

    Thank you for your Post,

    Andy – http://meetingofideas.wordpress.com

    • by Andy Cavallini

    • on July 29, 2013

  • [...] The Hardware Revolution is Upon Us and Why it Matters @ True Ventures. [...]

  • [...] The Hardware Revolution is Upon Us and Why it Matters – Nice essay on startups that focus on hardware and why they’re so important – and hard to do [...]

  • [...] about Quirky while reading an interesting post about the future of hardware startups from the investment perspective. So I dug out one of my simpler ideas to take it for a spin, see [...]

  • [...] The Hardware Revolution is Upon Us and Why it Matters | True Ventures. [...]

  • [...] The Hardware Revolution is Upon Us and Why it Matters | True Ventures. [...]

  • [...] the folks at True Ventures point out, it is a great time for Makers and the DIY community to tinker with hardware, as building factories [...]

  • Jon – thanks for condensing this knowledge and insight into this post. Pure gold :-)

    • by Surj

    • on July 29, 2013

  • Great piece. Just to put a bow around two of your points about why hardware is so…HARD.

    One is the simple truth that hardware guys speak a different language and come from a different planet than software guys, and vice versa.

    This generally translates into each party trying to abstract out the other, which often leads to lowest common denominator solutions, or worse, products where the target user credulously wonders, “Were these things designed to work TOGETHER, or just to irritate the user?”

    The next wave implies developers having a sense of there being one composite whole (hardware, software, service, tools, manageability), and the team, culture and ecosystem being oriented accordingly. One can see this dynamic at work in Apple’s iOS vs. Google’s Android.

    Two is that specifically because you are dealing with physical devices (as opposed to the pure 1s and 0s of software), the question of channels for discovery, selling, distribution and support are inordinately more complex, with many more points of failure, than with software alone.

    This underscores an indelible truth about indirect channels (like retail, amazon, etc.) that many fail to grok; namely, that the channel can NOT solve your selling and support challenges until YOU figure them out first. It’s like trying to tell the blind how to see when you can’t see yourself.

    Great work!

    Mark

    • by Mark Sigal

    • on July 29, 2013

  • [...] Link: The Hardware Revolution Is Upon Us And Why It Matters [...]

  • Jules,
    I completely agree with you on the challenges of building a new consumer market . . . add another diamond to the degree of difficulty if you’re going mass consumer. The issue is that the big box channel is often cart before horse. . .ie initially good web-based traction (or Kickstarter), might get the retail channel interested, but is way too much risk for a small company to take on early (at least in my experience). I wonder, though, about your point on “people not looking for it”. .doesn’t the fluidity of information (via Twitter, FB) significantly reduce those hurdles? That’s a theme we see across our portfolio of companies . . the market has an easier time finding you now than any other time in history. Your point on trust spot on, of course.

    And yes, what a brilliant time for USA R&D. I believe this revolution has tremendous positive impact on the future of US manufacturing and the US labor force. . .Washington needs to take notice and embrace it.
    Jon

    • by Jon

    • on July 30, 2013

  • TJ: “pain and suffering”, “trap doors”. . .sounds like you’ve definitely been there and I completely agree. And the promise of a partnership that solves the vexing parts of it is rarely realized. Though our experience with PCH has been great. They seem to really get it. Thank you.

    • by Jon

    • on July 30, 2013

  • “the channel can NOT solve your selling and support challenges until YOU figure them out first.” Well said.

    • by Jon

    • on July 30, 2013

  • [...] The Hardware Revolution is Upon Us and Why it Matters | True Ventures – This is a tectonic shift that is going to drive the next wave of industrialization — one that is more nimble, adaptable and rapidly evolving. One that is as much based in software as it is in assembly lines.  The past 150 years were about the economics of [...]

  • [...] a recent True Ventures article, it was stated that the “next wave of industrialization” is upon us – “one that is more [...]

  • [...] The Hardware Revolution is Upon Us and Why It Matters The Ventures 07.27.13 Almost exactly six years ago, Apple launched the first iPhone. It was a small device that many dismissed as a toy.  In reality Steve put a supercomputer in our pocket — we just didn’t know it. And like super computers before, it came with immense capabilities and brought about an opportunity to rethink, reimagine and reinvent how we live, work, create and consume.  Today, smartphones sell by the hundreds of millions and with that they bring what Chris Anderson (True Founder, former editor of Wired, best-selling author and Chief Executive of 3D Robotics) describes as the “peace dividend of the smartphone war.” [...]

  • [...] Hardware revolution is here and there are challenges in managing its development, well noted here, http://www.trueventures.com/2013/07/27/the-hardware-revolution-is-upon-us-and-why-it-matters/ [...]

  • [...] The Hardware Revolution: The revolution is truly upon us. Ofcourse at the heart of it, it will be the software that they enable that will make the winners stand out, but still we are more excited of late with different kids of gadgets (hardware) rather than the software. [...]

  • [...] startups, some things in hardware remain hard.  Very hard.  Jon Callaghan of True Ventures called Hardware Startups “the double black diamond of [...]

  • [...] software” – so many people I can’t quote them all.  Except it’s not. It’s harder.  Jon Callaghan sums it up perfectly, “Hardware is the double black diamond of [...]

  • [...] hardware. Dozens of articles have shared all kinds of optimism about how hardware — recently labeled ”the double black diamond of startups” – is cool [...]

  • I just stumbled on this post – insightful and so true. Good job detailing a trend, that for most, is developing under the surface.

    • by Matthew White

    • on October 17, 2013

  • […] is that we’re just at the beginning of what can be done. We’re at the cusp of a major hardware renaissance powered by increasingly small yet powerful mobile systems-on-a-chip (SoCs). These SoCs are driving […]

  • Of the topic: “In reality Steve put a supercomputer in our pocket…”… oh, come on, Steve didn’t do such thing. Smart phones were introduced on the market long before iPhone. Steve made them look nice and user friendly, which was a huge breakpoint ofcourse, but that’s it.

    • by VB

    • on January 8, 2014

  • […] roadblocks to building really big businesses. As the hardware investors at True Ventures wrote in an exhaustive recap, “these startups are not for the faint of heart. Innovation curves are longer in hardware, […]

  • […] the double black diamond of startups, there are still limited resources that help hardware entrepreneurs navigate the challenges they […]

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