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Here’s a controversial opinion for you: launching a software startup is easy.
Some of the most successful software startups started life in humble surroundings. We’re all familiar with Facebook, which started life in Mark Zuckerberg’s dorm room. Similarly, one of the most successful enterprises in history – Microsoft – was founded by two hopelessly dorky college dropouts, who sold software that monitored traffic. These companies started as ideas that slowly became something much bigger, and they were able to do that because building software products is relatively easy.
Hardware, on the other hand? Hardware startups are hard. Really hard.
Two people who know this better than most are Erez Zukerman and Yaara Lancet. The pair – who, full disclosure, are both MakeUseOf alumni – are currently working on the ErgoDox EZ, a pre-built copy of the ErgoDox keyboard, which is widely regarded as one of the best keyboards money can buy.
I sat down with Erez, and he told me what it was like to envision, build and market a physical product from scratch, and what he’s learned from launching a physical hardware startup on IndieGoGo.
“I Love Keyboards”
As a developer and writer, Erez spends a large portion of his life using a keyboard. This has turned him into somewhat of a connoisseur. He has developed an understanding of a competitive market, as well as discovered his own preferences.
The ErgoDox is not like most other mechanical keyboards. Firstly, it’s entirely open-source, from the design of the hardware to the code that runs on the microcontroller. Secondly, it’s designed to be ergonomically friendly, and consists of two separate halves that can be positioned as the user wishes. Users can also reprogram their keyboard layout through the browser; something that hasn’t been done in any other keyboard.
Erez immediately fell in love.
There were complications, though.
“… But the problem with the ErgoDox was twofold. Firstly, it required the user to assemble the keyboard from scratch. We’re not just talking about one or two components. We’re talking about 160 components, including some surface mount parts that are as small as a third of a grain of rice that have to be soldered. Secondly, you can’t just ‘buy’ an ErgoDox. You have to wait – often for months at a time – for an opportunity to purchase a box of the components.”
Despite the inconvenience, there’s still an incredible demand for the ErgoDox. Opportunities to buy the components – in ErgoDox parlance this is known as a ‘drop’ – often sell out in a matter of days. Anyone unfortunate enough to miss the drop just has to wait for the next one.
The ErgoDox is licensed under a permissive, laissez-faire license. Absolutely anyone can sell their own ErgoDox kits, or market pre-assembled units without having to ask for permission, or pay a royalty.
But nobody has. Observing a gap in the market, Erez sprung to action.
“Hardware is hard”
There’s a reason why software companies quite often start in humble beginnings: the initial barrier to building an app or website is pretty low.
All you really need is a laptop, knowledge of computer coding, and an Internet connection. There’s no real initial startup costs.
The same is not true with physical products.
Not only do you need to be a multi-disciplinarian, with an understanding of marketing, product development, and design, but you also need the connections to bring the product to manufacturing. Even if you’re a skilled product guy, you still need the connections and knowledge necessary to start manufacturing products and distributing them to customers. You also need the startup capital to get production started.
This is, in Erez’s opinion, where many hardware startups fall down.
Fortunately, Erez had a prior relationship with Tibbo, a Taiwanese company that makes high-grade industrial electronics – including keyboards. He worked with them as their head of support. His flair with words later lead to him being their one and only writer, where he penned technical documentation, as well as the copy on their website. Erez has since left, but he’s remained on friendly terms with them. This relationship, plus Tibbo’s 20 years of experience in creating heavy-duty keyboards for industrial environments and point-of-sale systems, made Tibbo the chosen manufacturer.
Manufacturing a physical product is a lot harder than it sounds. It’s nothing like 3D printing, where you pass a computer a CAD file, and it gets to work, eventually producing a like-for-like copy of the design you gave it. Rather, when you’re building a product to retail standards, and at a large scale, manufacturing is a long, arduous process that involves the establishment of an entire production line.
Robotic manufacturing equipment has to be programmed. Production lines have to be tooled, and moulds have to be built from scratch. It’s more complicated than merely flicking a switch, or running a program on a computer.
Perhaps what is most interesting about the birth of this idea is how indicative of the times in which we live in. Erez agrees, and goes on to argue his project couldn’t have happened 10 years ago.
“The ErgoDox EZ simply wouldn’t have happened in 2005. The tools designed to prototype the kit simply didn’t exist. Neither did 3D printing, and there was no means of crowdfunding the product. ”
Even the idea of having a piece of consumer technology that was entirely open-source was utterly unthinkable ten years ago. Less so today.
Hardware is indeed hard, but even so, it’s never been easier to build a consumer hardware product. But what about financing it?
Finance and Crowdfunding
Perhaps the biggest reason why we have so many hardware startups in 2015 is how much funding has changed in the past 10 years. It’s not because banks have suddenly became more willing to bet on new ideas. Rather crowdfunding and peer to peer finance have changed the game completely. Simply put, there’s no longer any real need to have to go to a bank and deal with the uncertainty of applying for a loan.
Crowdfunding in particular is ideally suited for hardware startups, because it naturally scales with the demand for the product. The more interest you have, the more money you get to bring it to life, which is the complete opposite of a bank which provides fixed amounts of finance on fixed, quite rigid terms.
One of the biggest advantages of crowdfunding is not just the fact that capital is provided upfront, though that’s a huge part of it. It’s bigger than that. Crowdfunding allows the entrepreneur to validate an idea, and to work out whether their idea is something people would be willing to purchase. It’s a system where the free market discards bad ideas, and upholds good ones.
“I know that this is a niche product.” Erez told me. “I’m not doing this to get rich. It’s not an inexpensive product, and I know that not everyone is going to spend $200 on a keyboard. But the beauty of crowdfunding is that if my idea flops and we don’t make our target of $50,000, then I know it was a bad idea to begin with, and I was wrong about it”.
Two of the biggest crowdfunding companies are IndieGoGo and Kickstarter.
Kickstarter is the largest, and the most popular, having distributed over $1.5 billion in funds to over 200,000 projects.
IndieGoGo is the less mainstream alternative to Kickstarter though. Erez chose it because, in his own words, it’s “friendlier to new products” and “the underdog”. He says they’re fun to work with, and tells me that they allow you to operate as a “shop” once the campaign has concluded. Something KickStarter does not support.
But unlike a bank loan, a crowdfunding campaign isn’t a sure bet, which is why it’s so vital to start strong and to market your campaign effectively.
“Starting strong is crucial.” Erez told me. “Most successful campaigns get 30% of their funding within the first 48 hours”. Acutely aware of this bellwether for success, Erez decided to launch a pre-order page. Without giving any credit card information, people could pre-order a keyboard at a reduced price. When the campaign went live, those who had filled out the form were sent an email reminding them to provide their card details in order to finalize their order.
This strategy resulted in the ErgoDox EZ hitting 30% of its goal in just 18 hours. The campaign was 50% funded in just a matter of days.
Marketing and Customer Relations
There’s a fundamental difference between how online retailers like Amazon work, and how crowdfunding works.
With Amazon, you purchase a product, and three days later it sits on your doorstep. Crowdfunding is a little bit more speculative, and you’re placing a bet that the manufacturer will deliver the promised goods, in the promised timeframe. There’s a lot of faith involved, and consequently there’s a genuine need to keep customers in the loop.
People who order an ErgoDox EZ now will have to wait until December 2015 to receive their keyboard. That’s almost nine months. Erez acknowledges this:
“Manufacturing a product from scratch is a ton of work, and although nine months is a long time, it’s actually super tight from our perspective. As a result, we’ve felt the need to give an accurate, detailed timeline of the work that has to be done. This is, after all, a technical product”.
The constraints of their schedule directly influenced the way they communicate their manufacturing process. On their IndieGoGo page, they take great efforts to explain each individual step of production, from a month by month basis.
“Production for us is something artisanal, you could say. We even added [in the instructions] a Wikipedia link that explained what a parting line was, which is the line that’s created when the two halves of a mould are put together, and something we’ve tried hard to minimize in the ErgoDox.”
Of course, there other important reason to keep consumers informed is to provide reassurance their hard-earned cash hasn’t simply been pocketed. In the early days of crowdfunding, there was an epidemic of those who simply failed to deliver, and disappeared with the cash. Now, to assure their customers, crowdfunding campaigns provide regular updates, timetables, and even tell them what their money will be spent on.
Communications isn’t just about reassuring customers. It’s also a vital tool for marketing, and something Erez has spent a lot of time and money on. He’s planning on engaging a professional PR agency, who will approach technology blogs and publications, with the aim of getting them to write about the ErgoDox EZ. More importantly, they’ll do it in a way that’ll actually resonates well with technology writers, and is more likely to produce coverage. This is especially important, as far too many people doing their own PR get it horribly wrong, as we saw with the amusing case of Brax.me late last year, who sent out an email pitch to almost every tech reporter and forgot to use the BBC field.
He’s also hired the services of a professional video agency. For a not insignificant sum of money, they’ve produced a professional-quality commercial, which succinctly explains the product. This, Erez says, is vital to his campaign.
At the time of writing, the ErgoDox EZ is still going strong. It’s an ambitious product, and one that shows how anyone can create a hardware startup. All they need is a great idea, and some business chops, and the courage to give bring it to market.
Have you backed a crowdfunded hardware product before? Are you planning to launch your own product? I want to hear about it, and any other thoughts you might have. Leave me a comment below and we’ll chat.