The life of a startup begins with limited resources. The small founding team typically comprises experts but may lack knowledge in areas such as quality or manufacturing. Successful startups observe their deficiencies and seek out the necessary support from outside experts.

Founders and decision-makers from thriving companies presented at the third KREATIZE Launchpad event, during which they provided their experiences and recommendations to the hardware startup community. Their insights were both practical and forward-thinking for anyone looking to start or grow a hardware startup. Below are the highlights from the series.

Having a strong founding team 

The success of a hardware startup begins with a functional founding team with solid experience. The team can build resilience through the many challenges encountered by startups, learning along the way, as Pascal Blum, co-founder, and CEO of unu Motors explains. An estimated 65% of unsuccessful companies owe their collapses to “people problems.”^[1] Those with complementary skills, knowledge, and experience can form a superior founding team.

While complete harmony seems ideal, Blum adds that “constructive conflicts” within help keep a company on track. Inevitable disagreement among internal teams, such as marketing and engineering, can prevent issues down the road. Relying on the expertise of trusted colleagues and enabling good communication allows each contributor to perform their tasks to support the priorities of the company.^[1] Blum’s education stems from the business side, so he sought out experts in the technology side to be part of his startup, which has proven to be a good choice given the success of the impressive electric scooter by unu Motors.

Build a network

Once a founding team is established, gaps in knowledge and capabilities will no doubt still exist. Stefan Klocke of Volocopter GmbH advises hardware startups to “find the right partners.” Having sufficient support allows for a shared workload, increased objectivity, added skills, expanded network, and improved focus.^[2] Various relationships can result in services such as manufacturing, software design, and marketing. 

The network of support surrounding a startup is referred to as an “ecosystem.” The members of the ecosystem are interdependent, resulting in a culture of reciprocity.^[3] This give-and-take promotes a valuable community of resources, both financial and supply-related, for the startup. The components of an ecosystem include not only other companies but also shared spaces, community events, and public relations.

Klocke discovered that Volocopter would benefit from a rapport with local authorities. The appropriate government entities were kept apprised of their testing of air taxis and drones, such that Volocopter could follow the legal requirements of various regions. Including authorities in their ecosystem maintained trust and even fostered the opportunity to supply air mobility to the upcoming Paris Olympics.

Blum of unu Motors also states, “It is really good to network and get to know other hardware companies.” Each startup develops a unique product, but the challenges ahead are shared with other hardware startups. In addition, experienced entrepreneurs can offer direct advice on navigating the world of small-business hardware. A startup is twice as likely to succeed for five-plus years with a mentorship within their network.^[3]

Creating a functional ecosystem is key for hardware startup success. Whether it’s a mentor, investor, or supplier, a supportive community can help make hardware less hard.

How to get investors

A hardware startup cannot actually start up without capital. Unfortunately, the initial investment required for hardware is large, which is partly why investors often prefer to support software startups. Additionally, a software company’s money requirement is a function of its growth, so the risk is reduced for those who choose to see evidence of success prior to investing.[4] However, VP at SAP, Christian Dahlen, is an experienced investor who opts to help both software and hardware startups. In the growing world of the Internet of Things (IoT), hardware and software go hand-in-hand.

Most hardware startups require significant software integration, like the all-electric air taxi by Volocopter and the unu Scooter with software that can be updated from the cloud. Investors are becoming more interested in this overlap and the agility of IoT. After all, the IoT-device market is expected to break $1 trillion next year.^[5] 

Financing can come from friends, crowd-funding, and advanced sales. Even suppliers can offer investments in the form of payment plans or through strategic negotiations.^[6] Venture capital is available to those hardware startups who can stand out and show the potential for a high profit margin. Regardless of the source, the picky investor looks for certain skills and features in a startup, according to Dahlen. An established ecosystem, a sizable target market, and a defined vision pique his interest. In addition, investors tend to like a strong founding team, an appropriate business model, and efficient use of capital.^[7]

Doing the required homework can land a startup the necessary cash to keep the business on track. 

Scrum with hardware?

Software development in startups has excelled using the Scrum framework, which employs an agile approach. Scrum uses short durations to milestones, or “sprints,” such that the design can be efficiently adjusted based on lessons learned. Within each sprint lies “transparency, inspection, and adaptation.”^[8]

Chris Mikoda is the CEO of SquadTec, a company that provides extensive engineering and hardware services. Mikoda notes that Scrum has its application in the initial stages of hardware development, when the product design requirements may be fuzzy. The customer can be presented with a proof of concept early on, allowing iterative improvements to the hardware before proceeding with production-level manufacturing. Scrum takes advantage of the inherent agility that exists at the beginning of hardware design. 

The latter part of hardware development is less conducive to the Scrum methodology. At this time, a design typically requires stability to proceed to the final stages leading to high-volume production. Still, according to Mikoda, the IoT of the product incorporates agile software design, which can continuously be optimized through Scrum. Similarly, Pascal Blum describes the approach unu Motors takes, using standard automotive development processes for hardware while maintaining a more agile mindset for the software side.

What about IP? 

Intellectual property (IP) comes in many forms. Julia Luksan, Attorney at Law, and Christiane Feichter, Associate at Jarolim Partner Rechtsanwälte GmbH, elaborate on the typical IP that companies in the EU often pursue:

• Trademark. Trademarks can include a company name, logo, or even a sound.
• Right of design. A startup can obtain a “limited monopoly” on its product appearance with a right of design.
• Copyright. When creativity is involved, copyrights can offer adequate protection for a specific duration.
• Patent. Innovative inventions can be protected through patents. Preventing others from using a specific technology can make a startup more competitive.

Both Luksan and Feichter advise hardware startups to act fast with IP since timing is of the essence. The famous Facebook case is a clear example of how protecting technology is paramount. ConnectU fought hard to receive $65 million after claiming Mark Zuckerberg took their concept and ran with it.^[9] Had any of the Harvard classmates secured IP, the lawsuit would likely have been avoided. While investment in IP can be costly, future headaches and unplanned expenses can be prevented.

Secondly, the attorneys recommend that a startup must know the market in which they seek IP.  Patents, copyrights, and the like are specific to a region, and, therefore, IP costs increase as a startup widens its target market. Although global IP does not exist, WIPO (World Intellectual Property Organization) advises expanding IP geographically, which will protect a startup’s unique technology in vulnerable areas while fostering relationships with other companies: “they will be interested in collaborating with you and obtaining the right to use your IP rights through licensing or other such arrangements.”^[10] 

The final piece of advice is to simply do the required research. Along with research regarding where the IP should be registered, startups must also decide what needs IP protection and how. Herskowitz of Columbia Technology Ventures notes the balance between IP and expense needs to be assessed early on.^[11] Dumping capital in numerous expensive patents is not necessarily the best decision. Startups can tackle this IP question in the way of university technology transfer offices, determining if the technology really requires this protection.

The innovations of a hardware startup are worth protecting. A successful launch of IP can help secure a startup’s role in the competitive market.

How can KREATIZE help?

A supportive community is vital to a startup. Harnessing the experience, knowledge, and connections of others can let a startup dedicate its internal resources to what they know best. On that note, cloud manufacturing can help accelerate the innovation process of hardware products. We are at a unique point in time, as technologies now give people easy access to quality global manufacturing capacities. Cloud manufacturing platform KREATIZE, enables hardware startups to be customers of leading manufacturers.

Fabio Sulser, Tech Lead Data & Automation at KREATIZE, shares how cloud manufacturing lowers the entry barriers for hardware startups. He provides a brief tutorial on how KREATIZE’s technology and cloud manufacturing network can assist startups in their journey to develop game-changing products with less up-front cost. 

References and further reading:

1. https://foundr.com/articles/leadership/founding-team

2. https://www.thekickassentrepreneur.com/finding-the-right-business-partner/

3. https://hubbublabs.com/the-insider/startup-ecosystem/

4. https://www.techstars.com/the-line/pov/the-hardware-manufacturing-funding-dilemma-and-why-its-changing

5. https://www.zdnet.com/article/what-is-the-internet-of-things-everything-you-need-to-know-about-the-iot-right-now/

6. https://startupnation.com/manage-your-business/hardware-startup/

7. https://outdesign.medium.com/this-is-what-investors-look-for-in-a-hardware-startup-665aba36abee

8. https://scrumguides.org/scrum-guide.html

9. https://www.theguardian.com/technology/2009/feb/12/facebook-mark-zuckerberg-ex-classmates

10. https://www.wipo.int/sme/en/international_markets/

11. https://www.lexology.com/library/detail.aspx?g=69aaa019-5fc6-4e18-8d46-07d1c942fac4

This article was written with contribution and editing from engineer and technical writer Kimberly Sweetland.