The Art of De-Risking Your Hardware Startup
Every startup inherently possesses a significant amount of risk, and mitigating risks is crucial to ensure a better outcome for your startup. Here are some strategies for de-risking , including finding the right partners to help you grow your business.
We are living in a golden age of software.
Never has it been easier to develop and scale cutting-edge software. Hardware, the interface and tool by which all software becomes useful, remains much more complex to produce on the other hand. Because of its intricacy, hardware requires more steps, roles, processes, tools, and therefore risk.
It’s important that we overcome this complexity because hardware is an indispensable part of the ongoing technological advancements in today’s society. In a time where the internet-of-things (IoT) is fastly becoming reality, it is crucial to understand that hardware is a key component in this technological trend.
Nils Berger, CEO of Viewpointsystem, and Thomas Hoffmeister, Chief Commercial Officer at KREATIZE GmbH highlighted this in their discussion at Launchpad Austria, calling hardware “the T in IoT”.
Click here to watch the full interview with Nils Berger.
Manufacturing is a technology-based industry that is always evolving, making an ongoing understanding of current trends and cutting-edge technologies paramount for success. Hardware is not as easy to update as software and therefore must be built with more longevity in mind. Ideally hardware should be built in an agile fashion where it can be constantly optimized at the prototype stage for a more successful scale-up.
Hardware product development is not easy, in part due to the high-risk and up-front costs associated. This is all changing, however, as new technologies are helping hardware entrepreneurs de-risk their startups by making it faster and easier to take their products from prototypes to scale-ups.
What is De-Risking?
De-risking means decreasing the chance of harm, danger, or failure of your business. One of the best ways startups can de-risk is by effectively focusing on their core competencies and attaining external partners for their non-core strengths.
The term de-risking has its origins in finance and refers to the practice of ending or setting certain parameters with clients or types of clients, in order to better handle the risk associated with them. For example, requiring a client to buy a type of insurance to offset the risk on a loan. This can be something like requiring an importing company to acquire transportation insurance for their long-trek products from China. In the case of hardware startups, the risk is not necessarily on the choosing of clients. Rather, in the choosing of their in-house strengths and know when to leverage partners to handle the areas where they have less expertise.
“De-risking for hardware startups means deciding to take on external partners to perform business tasks unrelated to your core product development process,” said Thomas Hoffmeister, Chief Commercial Officer at KREATIZE GmbH. “Investors like it when you present them with solutions that will not only save money, but also take care of necessary processes efficiently.”
How Do You De-Risk?
A lean startup is one that focuses on developing a particular product or company that meets the explicit desires of the market. Lean startups often make use of partners to acquire particular services in an effort to use less capital and de-risk while they pursue growth. Finding such a partner can substantially lower your product development costs and time-to-market.
“Lean hardware startups find ways to test the market with fewer resources,” said Hoffmeister. “The risk is the same, but in terms of investment, it is drastically different. It is the difference between setting up a costly production line with many machines or obtaining the same result with none of that.”
For example, in the early 2000s, U.S automaker Tesla was a startup with expertise in developing two key components of a car: an electric powered engine and a battery. Instead of setting out to build every component of the car itself, it partnered with Lotus Cars to create the Tesla Roadster (first generation). Lotus provided all necessary elements for a successful car assembly, while Tesla focused entirely on its key differentiating components.
“Tesla did not know how to build cars, so they went to an expert,” said Hoffmeister. “Had they tried to build an entire car themselves, they might have run out of money faster. By working with Lotus they de-risked.”
Tesla went on to create later generations of their cars themselves. However, at this initial stage, the partnership with Lotus Cars was crucial to their success. They were able to de-risk with the right partner to prove their concept and gain the strength and success to go at it alone in the future.
In the world of hardware, startups are offering solutions to better manage risk when it comes to developing a supply network quickly. Most large hardware businesses are highly rigid and secretive about their supply networks. Developing such a network is a very expensive process, and many companies fail in part because of the time and money required to develop it.
“Startups are the ones offering de-risking solutions for this challenge,” explained Hoffmeister. “The big players in the hardware industry still rely on old models and are not providing the solutions for startups.”
How To De-Risk Your Hardware Startup With KREATIZE
Hardware startups have a strong product development I.Q. They have a good understanding of what is required to make a game-changing product. However, there are parts of the development equation where they lack knowledge and where it is expensive for them to develop inhouse resources.
“Startups are very good at figuring out what their hardware product should be,” said Hofffmeister. “Manufacturing it, finalizing it, and bringing it to market—these are areas where they need help.”
By partnering up with KREATIZE, hardware startups will decrease their risk and drastically cut their procurement and supply network costs of acquiring custom parts.
KREATIZE can fully handle all of a startup’s custom part needs via our software and manufacturing network. All a startup needs to do is upload their custom parts drawings, configure its specifications, and place an order. The parts will then arrive quickly at their chosen location.
“Ultimately a hardware startup should want to get from point A to point B as fast as possible with the fewest resources,” said Hoffmeister. “By choosing to develop your own supply network the upfront costs and time-to-market become much higher. Setting up a quality custom parts procurement network simply takes time.”
In a way, KREATIZE can do what Lotus did for Tesla from a supply network perspective. A startup brings us in as an experienced partner who can handle its procurement needs for custom parts with ease. This allows it to de-risk by not needing to set up their own supply network, much like Tesla would have faced if they had tried to make a full car from scratch without partnering with someone who could help them.
“Startups must de-risk as much as possible to succeed,” concludes Hoffmeister. “With KREATIZE, a company is de-risking by plugging into a cloud network and skipping the expensive and time-consuming efforts of procurement and developing a supply network. Our KREATIZE team becomes your partner to better configure your custom parts.”
Are you a hardware startup that is looking to de-risk?
Our mission at KREATIZE is to provide manufacturing that the world loves.
This means helping your startup succeed from prototype to scale up, and de-risk as much as possible by providing your engineers with the tools to create products quickly and without cumbersome procurement processes. With our proprietary and patented software, KREATIZE uses the power of cloud manufacturing to give you access to the best industrial facilities and in the process helps you mitigate all supply-related risks.
Start now by creating your account for KREATIZE Manufacturing Services or by making an appointment with one of our cloud manufacturing specialists today.
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