How To Pave The Way To A Successful Hardware Startup With Smart Money


July 19, 2018
Photo by Julius Silver from Pexels

Imagine you’ve successfully raised money for your new project. Crowd supported you on Kickstarter or an angel investor gave you money, believing in your team. As we mentioned in our first guestblog, to build a successful hardware company, you need eight key components coming together.

We don’t want to dwell into the sources of capital, there are very useful resources on when and how to raise your first capital (e.g. a great checklist by Techstars here). Instead, we’ll look into the right way of investing and allocating this capital, and pave your way to success in long-term.

We’ll show you how to turn prototypes into great products as well as how to optimize production costs and improve functionality. This text should help you with preparing your key components of success – manufacturing, logistics, information systems, and customer care.

Finding the right manufacturer

One of the most important aspects is securing manufacturing for your product. Imagine you want to manufacture in China. It means you need to find the right factory and negotiate the terms with them.

The first question you would be asked is the quantity of production. Manufacturers are looking for long-term contracts and larger quantities which might be harder to secure with limited capital. With specific products, where they need to adjust production or create new molds, the costs might be higher and you might lose flexibility in price negotiation.

Quality assurance and materials are one of the key components you need to be aware of to avoid products that won’t pass the safety regulation. Check the requirements prior to starting production (check out CE marking as a start). Once you have revenues, we would recommend renegotiating your production contract and booking your slot for the next year.

E-commerce Smart Money

Securing storage and transportation

Your products are being manufactured and you need to secure logistics. Ideally, you should arrange for a logistics company that will take your products directly from the factory (ex works) to your dedicated warehouse. In the process, you should also include taxes and duties to be managed by your logistics partner. They know how it works and it will save you a lot of time learning how to navigate the process.

At the beginning, you might not be able to afford your own warehouse. You can rent out space in a shared warehouse, though. Make sure it offers fulfillment logistics from inbound to outbound warehouse management. Otherwise you would have to come and take your products from the truck to the shelf and also input into warehouse management system (WMS). This system notifies staff to prepare the package (including invoice and shipping note) and to give it to your selected provider for last mile delivery.

One of the biggest advantages is that you don’t have to care about the changes in inventory since your fulfillment-partner is responsible for that and makes sure you are not losing money. We have also started with a partner and grew to our own fully serviced warehouse in Germany the size of 10 football fields.

Tracking and coordinating sales & invoices

You have probably started with simple website presenting your product and offering pre-sale. Investing in a good information system that makes it easy for you to track sales, invoicing and coordinate with WMS is considered another key element.

For a start, you can buy out-of-box solutions for CMS systems, connecting them to accounting software for invoicing and build a connection with your warehouse which – in the end – will smoothen the operation, give you a better overview and prevent unhappy customers.

Imagine a situation where your customers order online, the order gets lost and is found three days later. You need to manually create an invoice and shipping note, send them to your warehouse and then arrange delivery. It will take up a lot of your time and your customer will not be happy with such a long wait. In the beginning, you might need to do it yourself, but we strongly recommend putting it as one of your priorities when you are still small and the switch is manageable.

E-commerce Smart Money, Photo by bruce mars from Pexels

Taking care of your customers

On one hand, such a system helps you sell, on the other it should help you for a bond between you and your customers. We would recommend setting up communication channels and informing your customers about the processing of their order.

In case you have a simple product, email customer support could be enough, however, if the product is more expensive and complicated, your customers might require guidance and the ability to speak to a person.

In the beginning, it can be you or your first employees (have at least two people so they can step in, in case one is sick or unavailable). Connecting phones to your ERP might help you serve your clients better.

These are the four areas we would recommend concentrating on while allocating finances. It’s a general overview, but if you have a specific hardware project you would like to turn into a profitable business, let us know at Eight Products is brought to you by electronic-star.

Title photo by Julius Silver from Pexels

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