Much of the world is competing to build the next messaging app, or rewards platform, or social analytics platform and this is precisely why The Internet of Things and hardware companies represent a fantastic opportunity. The wave is still rising, and people are figuring out new ways to monetize hardware and connected products everyday.A less crowded market and technical barriers to entry make connected hardware businesses particularly attractive from a defensibility perspective, but those same benefits present major challenges for would-be hardware entrepreneurs. With less established business models it can be hard to come up with a product and monetization strategy that will obviously work, and with technical challenges considered, it can make it difficult to even get your awesome IoT business started.Even if you do get it off the ground, the question always remains, how do you swim fast enough to catch the wave? Here at Konekt, I grapple with these questions on a daily basis. So without further ado I present to you 7 tips for starting and accelerating your own awesome IoT business.
1. Find your customers
It’s become old hat these days to talk about finding a market before you build a product, but with hardware this is particularly important. Its easy to build and ship a webapp and then shut it down if no one uses it. With hardware you have inventory, which is expensive to build and store. If you get stuck with a product no one wants, or that just isn’t moving fast enough, prepare to eat a sizable portion of whatever your initial investment was. No one wants to have to light a bunch of new electronics (and money) on fire because they didn’t do their research.There are many ways to do this. Customer interviews are the most popular “lean startup” way of doing this, but I find that there is a faster and simpler way. Find some folks on Twitter who represent your target market. Lets say you want to build a product that makes it easy for composters to monitor the health of their compost heap. Maybe they’d like to know the composition of their compost, the capacity of the container, when the mix is ready to be refreshed. Find some relevant twitter accounts that talk about composting and other green practices. Scrape a sampling of the handles (+100 is ideal), and append @gmail to them. You’ll get a 40%-50% hit rate on those emails.Send out a super targeted questionnaire. Engage those who answer and then…
Ask folks if they would be willing to pay $x for your smart composing product. Give it a realistic delivery date, and use a service like Celery to accept preorders. Offer discounts for those the pre-pay. Include a money back guarantee or don’t charge the cards until you ship.You can always go for a larger campaign approach like Kickstarter or Indiegogo, but these can frequently require a large investment in terms of design, physical prototype and a video. Especially with Kickstarter, you will need a pretty mature product prototype to get meaningful traction.Regardless of how you choose to pre-sell, don’t make the mistake of believing that “if you build it they will come” find you market and then presell your product or solution.
3. Go off the shelf
If you’re a first time hardware entrepreneur or casual maker, the sheer number of options for building a solution can be a major roadblock within and of itself. Just poke around Digi or SparkFun and you’ll see myriad solutions for everything GPS tracking and temperature sensing to video processing and shortwave radio connectivity. Its easy to get lost or to try to over optimize your solution to make it perfect and beautiful. There are a couple of quick ways to solve this and get something out the door fast. Steve Jobs once said, "real artists ship."
- Determine your connectivity technology: will your customers have easy access to Wifi? Will they be willing to pair it? If not then cellular might be a good solution. Are you building something that will always be in cell phone range? Then maybe go with Bluetooth. There are options, all dependent on your customers connection preferences.
- Determine the ultimate size of the device: if you’ve got room to spare the options are limitless. Otherwise things get a little trickier; but luckily, chips are always shrinking. With the Konekt Dash you can even build tiny cellular devices. Remember that your v2 or v3 can be much smaller. Once you have proven sales and have the money to move from off the shelf chips to a custom module you can always optimize further.
- Keep it down to the essentials: You will always need four things, a microprocessor, a radio (WiFi, Cellular, Bluetooth), power and an antenna. You can often find these in combo packages like the Tessel 2 , Pinnocio Scout, or Konekt Dash, or you can just combine a Rasberry Pi with a USB modem or a Wifi Shield and Boom you’ve got a connected device. From there pick you other components (sensors, GPS, etc.) and your already half-way done. Now you just need to combine the compenent and write some code.
- Crowdsource your enclosure: Its slow and expensive but 3d printing can get you your first 100 or 1000 units. You can crowdsource the design on websites like PrintToPeer and then find a more scalable solution for v2.
4. Don't neglect the economics
E-commerce is a tough business, and ecommerce with hardware its a super tough business. Its not that you can’t do it, you certainly can but make sure that you understand the full cost of your product. This means accounting for freight, pick pack and ship costs, packaging, taxes, payment gateway fees and the like. And, even if you account for all of that you should be sure to build yourself a healthy margin. You want to be able to survive and grow through reinvesting in marketing, not squeezing by at 10% margins.If you can’t afford to price your product with 40%-60% margins then consider adding high margin accessories to your product, or best of all, implement a SaaS model. Do you think someone would pay $4 a month for a product that improved their lives. If so, don’t be shy about implementing and recurring revenue model
5. Optimize cash flow and payment terms
Pre sell and then post pay your suppliers, if you work with good companies like Arrow Electronics then they will generally give you good payment terms so you can make sure you stay cash flow positive. Hardware can be cash intensive so if you get this wrong is can be disastrous.
6. Move your IoT business beyond connected home and “obvious” consumer plays
I wish I had created Nest, but I didn’t. Don’t fool yourself into thinking that you can create an newer better version of an existing connected home product. The market is already super competitive with everyone and their mother launching connected toilets and connected coffee makers. Think about less sexy (but arguably more important) applications like smart trash and smart agriculture.
7. Avoid the hardware (at least at first)
This may seem counter intuitive but try to build the solution without building the hardware. Leverage already existing platforms to bring your application to market in days via a pure software play. If there is enough interest then move into the hardware.
IoT is the next wave and there are tons of way to take advantage. Utilize presales, off the shelf hardware, and a SaaS business model and you’ll be set!
Recommended Reading: What is an IoT platform and how do you choose the right one for your business?