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How much harder is developing a hardware product vs a software product?

Jul 6, 2018 8:00:00 PM
In the startup scene, a lot of focus is put on software businesses and the stellar growth they are capable of producing. While there can be some similarities in the business models, there are a lot of differences between companies that do hardware and ones that focus on software alone. The purpose of this topic is to discuss some of the main differences between a software product business and a hardware product business. The experiences and evaluations matrix for evaluation of products and business plans that work for a software business find a very unfamiliar home when applied to hardware. Many of the newest software models are SaaS, so applying this type of thinking to a hardware business yields a Hardware-as-a-Service (HaaS) model where services are where the money is made more so than selling hardware.

There are many differences between a hardware and software business, but we'll discuss three of them here: Time, Project Management and Cashflow.

Close up of blue Printed Circuit Board-1

 

Time

Time to market is the key to success, especially for a new product/application. But, if the product is not good enough to impress angel customers, the product might completely fail and take all of your investment money with it. How to balance time to market VS customer experience is the biggest artist's question. 


While the software product can be optimized with a few one-nighters and short sprints, hardware products can take as much as 8 weeks for one update. That's a quick update. We're talking express prototype manufacturing (up to 3 weeks), 2 weeks for testing+feedback, 3 weeks to identify problems and redesign the updated version before sending out for another iteration. This is a fairly normal pace and one that is what is seen with companies like Apple in their product cycle. That's for ONE hardware update.

This is why this particular balancing act is just as much art as it is science. At what point to do you hit "good enough" and ship some units out? How many iterations can your seed funding tolerate? The answers to these questions are life and death for a hardware company whereas a software company gets a lot more iterations in a much shorter period of time.

 

Project Management

Project managers are a lot like circus jugglers that impress everyone with how many balls they can keep in the air at the same time and still keep the rhythm. Where the software PM may have a few balls in the air at the same time, the hardware project manager has all of the same balls plus a few knives and flaming batons.  The software is only one ball of the Hardware PM's juggling act : 

Software Product

  • Agile Project Management
  • Product Lifecycle
  • Infrastructure Management

Hardware Product

  • Software Development (Agile Project Management) 
  • EE = Electronics Engineering
    • Hardware Engineering
    • Embedded Software Engineering 
  • ME = Mechanical Engineering
    • Mechanical Design
    • Modeling
    • Tolerance Design
    • Control
  • Assembly = Product Assembly
    • IQC and Supplier Management
    • QC System
    • Assembly Line design and optimization
    • Labor force
  • Packing & Shipping
    • UX Design (Package Design, Weight Optimization)
    • Logistic System design
  • Life Cycle Management = Customer Satisfaction 


Cash Flow

Without cash flow, the company is going to die very quickly and it's much harder to balance the cash flow for hardware products companies.  One key risk, for example, is stocking. The velocity that stock leaves your stock is critical. Once you have dead stock in the warehouse, there is also dead cash associated with it. That wasted capital can cripple -- and eventually destroy -- a business.  The idea of "stock" doesn't really exist any longer for a software business, especially a SaaS business. Even though there are some common expenses, the hardware company has to deal with a lot more -- and a lot more dangerous -- enemies to their cash flow : 

Software Product

  • Team Cost 
  • Marketing Operation
  • No Stock

Hardware Product

  • Team Cost
  • Marketing Operation
  • Production Cost
  • Stocking
  • Dead Stock & Defective Cost

 

Much of these problems can be dealt with through a good supplier relationship with manufacturing suppliers. Having good suppliers that can provide lower MoQ's at earlier stages in your development cycle can go a long way towards mitigating cash flow and stocking risks.

There are many more challenges to face, but if a hardware startup can cover these three main challenges, you're well on your way to a more consistent HaaS business. Your patience, as well, will be enhanced and rewarded since it will help your team, your investors, and your customers through the tough times of initial product development. Once the customer starts buying and using your product, balance your cash flow effectively and build up reliable supplier partnerships, the longer term prospects get much better. This puts the hardware company on a good foundation for long-term business growth with more consistent results.

If you're a new hardware company and are in need of help with dealing with production cycles, cash flow, or project management risk, NexPCB can help. If you're an old hardware company that would like to explore a new way of doing electronics manufacturing, we can also help you to transform your hardware development cycle. Here at NexPCB, we are a team of professional hardware product engineers, production specialists, and supply chain managers with experience helping scores of companies make it through tough times. We'd love the opportunity to see how we can help make your design come to life.