Why hardware companies fail
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Top 10 Manufacturing Reasons Hardware Companies Fail

Having worked with hundreds of hardware startups over the course of many years, you can say at Dragon that we’ve seen it all. And while there’s nothing more gratifying than seeing our customers succeed, we’ve also experienced the disappointment of witnessing hardware companies fail to get over the finish line for a number of different reasons. While the factors at play are going to be different from company to company, there are certain themes that play out over and over again. Below is a compilation of our experiences, noting that these are based on a manufacturing point of view.

  1. Creating a design that cannot be manufactured. It seems pretty basic, but you would be surprised at the number of designs that we review which simply are not manufacturable. We always try to emphasize the importance of inserting manufacturing strategy and thinking into your overall plan as early on as possible, whether from a capital standpoint or design standpoint. If you are doing your own design, make sure you’ve educated yourself on Design for Manufacturing (DFM) ahead of time (we have an entire course of videos on the very subject). And if you’re working with a design firm, make sure that they have DFM experience appropriate for the manufacturing processes your product will need. For example, firms that primarily design low-volume expensive medical equipment may not be best at optimizing the design of a low cost consumer product for mass production in Asia. Do your homework prior to committing money and time to a firm that ultimately may provide beautiful designs but do not have the first clue about manufacturability.
  2. Not prototyping a design rigorously enough.  Coming up with an idea is one thing but having a functional looks like works like prototype is everything. Simply put, if you can’t get to this stage, you really shouldn’t be building products. There are an incredible amount of resources out there if prototyping on your own is not feasible. Some additional insights on prototyping are available here.
  3. Failing to control the Product Cost and Gross Margin. Let’s be honest: the ultimate failure of any business is going to come down to money…or as it were, lack thereof. Take into heavy consideration the following two subjects:
    1. Controlling Product Cost
    2. Understanding Gross Margin
  4. Not understanding your obligations regarding regulatory certifications. Even the largest companies in the world will roll a new product out conservatively, expanding into new countries little by little. Having an understanding of the differences in regulatory certifications (or at a minimum, the knowledge that the rules are different in every country) will save you time, money, and a lot of heartache. For a 101 on certifications on hardware products, we recommend reading our blog series on the subject.
  5. Selecting the wrong partner to assist you in offshore manufacturing. As with any partner you select as a critical part of your business, transparency should be number one. If you don’t know who your factory is and are simply going off of the reassurances of a middle man, then you truly don’t have a partnership. Read up on ways to avoid the common pitfalls.
  6. Not choosing the appropriate factory relationship. If you don’t know the difference between an OEM and an ODM model, we strongly encourage you to not select a factory until you’re fully read up on the subject.
  7. Failing to properly evaluate a potential factory.  The scenarios are many – from quality issues to the realization that you’re working with a sweat shop. Doing your due diligence ahead of time is a must in order to avoid consequences that could have been avoided. If you are unable to evaluate a factory in person, companies like Dragon offer factory audits for the very purpose of ensuring that your partner will be able to deliver in a manner that meets your expectations and requirements. To find the best CM for your business we always recommend running a competitive RFQ as a structured process for selecting your CM.
  8. Not creating a good quality plan early in the manufacturing process. When we run a competitive RFQ, we need to know if the potential factories are going to be able to meet our customers’ quality requirements. We begin an outline of the quality plan at the earliest stage in the process for this very reason. What we find is that some of the factories will take themselves out of the quoting process if they know they won’t be able to meet certain specifications. Better at this stage then mid-production. Learn more about quality plans here.
  9. Failing to negotiate a good contract with the manufacturer.  Here’s the thing. If you’re going about this on your own for the first time, the factory will probably be able to tell. And like any good business, they’ll create a contract that is fully advantageous to them. If you don’t have an experienced partner sitting at the table with you through this process, do get yourself up to speed prior to putting pen to paper.
  10. Not establishing and maintaining a realistic schedule. From crowdfunding promises to meeting holiday deadlines, schedule is everything. Understanding all of the factors at play, from lead times to to tooling and everything in between, is part of the make or break of your business. Here’s what you should know.

So what are the keys to success? Our advice to any hardware startup would be:

  • Insert manufacturing strategy into your overall product development plans at the earliest stage possible (check out some of our planning tools here)
  • Gain an understanding ahead of time – educate yourself!
  • Work with trusted partners
  • Establish appropriate funding – avoid short term thinking

As always, we’re here to answer any questions along the way. Feel free to comment below or reach out to us anytime.

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