Founders with a new hardware product idea often keep it under wraps as much as possible, pushing to get to market as early as possible driven by the fear of being copied. That’s a valid concern, but it can lead to a serious blind spot that can kill their new business venture and prevent them from attracting much-needed investment (and working with the best possible manufacturers).
So, what do founders do wrong, and what are investors really looking for? Let’s explore that so you don’t make the same mistakes..!
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Before we get started on the topic of how investors validate new hardware products and the startups creating them, some good news!
Hong Kong has dropped quarantine and is open to visitors!
Hong Kong has dropped its ‘zero covid’ quarantine approach, and as of Monday 26th September 2022 inbound travellers have no requirement to provide a negative Covid test before boarding flights and the previous 3-night hotel quarantine has been dropped. Now travellers will have a PCR test in the airport upon arrival and then will be free to leave, the result will be uploaded to the ‘LeaveHomeSafe contact tracing app’ and they will need to take daily tests and monitor their health for 3 days on the app. During these 3 days, they will not be permitted to go into public premises like bars, cinemas, restaurants, and shopping malls, and masks must still be worn, but they can still go to the office, order takeaway food (to eat in their hotel or maybe outside somewhere), and travel around the city as normal. This represents a breakthrough and makes Hong Kong far more open for business than it has been for the past few years. (00:25)
Now on to today’s topic…
How to validate your new hardware product idea in the eyes of investors?
Why is this important? First-time founders with a new hardware product idea can tend to be over-optimistic and want to get an IP lawyer involved, build a prototype, and get into mass production as soon as possible, When raising money from friends and family or working a full-time job and doing the product launch as a side hustle, getting them to have faith in the idea is perhaps easier than an outside investor, and enough money can be raised to get the venture started and get a working prototype built based on faith alone.
But serial founders who have successfully launched new products before, say, a few times, have a different approach which is more effective. First, they validate that the product idea has traction with potential users which is a damaging blind spot that first-time founders have. (08:36)
The key risks faced by founders with a new hardware product idea.
- Technical risks – can we even build a working prototype that operates as we require? This is a greater risk for more complex products.
- Business risks – such as copycats stealing your idea and getting to market before you at, perhaps, a lower price (which many founders tend to overestimate the danger of happening).
- Market risk – do people even want to buy the product? How do you know? (12:18)
An example of market risk: A new energy-efficient cooking solution.
An engineer with experience in the cookware industry has a working proof of concept idea for a new energy-efficient home cooking solution and quits their job to work on launching the product. At this point, most people will say almost nothing about the idea (even if they do show it to potential investors they will be tight-lipped about how it functions), gather a small team, prototype it and get into production as fast as possible in order to protect it from being copied. This addresses technical and business risks, but it ignores the market risk at all because they go to market based on a theoretical notion that the product is needed or wanted by the market. If it doesn’t sell all of the time and money invested are wasted.
A better approach is to put the fear of being copied aside and get out and talk to potential users about it – few startups do this well. Aside from copycats, they also fear hearing bad news about their idea, such as people saying that they don’t like it.
With this engineer’s new product idea people may like that it’s energy-efficient, especially in Europe these days where energy costs are spiking, but they may have objections about needing to buy another potentially expensive device for the kitchen when they already have a gas or electric cooker, they may be concerned about needing to replace pans they already own with new accessories, etc. These are real market risks that need to be considered.
They might create a storyboard and sketches to convince target markets, say, housewives with a good level of income and with larger houses (more space in the kitchen) in the UK. Cardboard or 3D printed mock-ups demonstrating the size could be helpful. Data showing that cooking with the device broken down by month or year is a lot cheaper might also be convincing that the device pays for itself. They then need to be brave and approach people in that target market in person and get their feedback on all of this.
Note: All of this can be done before prototyping and product development takes place. (14:01)
What to do with the feedback from target customers?
Collect real-life feedback and consider the results. If it was mainly positive you may have a hit on your hands. If mainly negative you might need to go back to the drawing board and make changes to the design to address their concerns (too expensive, too bulky, not attractive enough to replace current equipment, etc).
Some founders with more budget may hire a market research company to get the feedback, but you still need to physically be there to hear the feedback live and ask insightful follow-up questions that yield very useful responses for you rather than leaving that in the hands of the research company. One extra benefit of doing research like this is that potential investors can be impressed by a short video taken of a research panel being enthusiastic about your new product idea and the fact that the founder took the initiative to obtain feedback and listen to it rather than launching based on theory. (22:33)
The minimum viable product for hardware startups.
Books by Steve Blank and Eric Ries go into far greater detail about this kind of approach to getting to the minimum viable product. For hardware startups this doesn’t mean the V1.0 of the produced product, rather it is a mock-up or prototype that works well enough and looks OK for the purpose of getting the feedback required to validate the idea. (25:59)
How investors validate and new product and the startup behind it.
Two key milestones they look for are market traction and having a ‘works and looks like prototype.’ They look at what work has been done, if risks were found and addressed, and evidence that the concept could be a winner.
Investors will not be excited if there is a prototype of a relatively simple product, but they will be attracted if there is evidence that a large number of potential customers want to buy it.
For more complex products, getting to the prototype stage is a really important milestone, but there still needs to be some market traction. (27:54)
The Hardware Academy – a good place to get advice.
Today’s topic came up because Renaud is a member of The Hardware Academy which is a great resource for founders to learn about launching their new products and starting their business more effectively with courses and workshops and a forum to speak with peers and industry experts. (30:07)
No market research = Higher risk of project failure, lack of investment, and difficulty in working with the best manufacturers.
Some founders come to Sofeast with no market research and feel that it’s useless because they’re convinced that their idea is amazing and will sell. Their project is at high risk of failure.
Those that come having done the research and maybe gotten a lot of preorders are in a far healthier position because they not only attract investors but also the best manufacturers, too, who will see more orders coming from a successful product in the future and will therefore be more open to working with them and dedicating their best staff to the project so it goes as quickly as possible. (31:30)
P.S. Related content to this topic…
You’ll get a lot more new product launch tips and assistance from the blog posts, guides, and podcast episodes!
- Hong Kong drops pre-flight tests and quarantine for visitors
- 8 Ways To Get Funding For Hardware Startups
- How To Develop and Launch a New Product? Feat. Liz Long [Podcast]
- Read The New Product Introduction Process Guide for SMEs and hardware startups
- Prototyping Process To Test & Refine a New Product Design
- Hardware startup founders can get a lot of help and guidance from The Hardware Academy