4 Ways for Hardware Startups to Reduce Risk

When engineering, manufacturing and selling hardware products the best way to succeed is to plan ahead.

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By John Teel

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Bringing a new hardware product to market is definitely not for those adverse to taking risk. Regardless of how "perfect" your product may be, or how sure you are it will be a runaway success, you should always strive to minimize your risk.

Although you can't eliminate all of the risks, fortunately there are ways to reduce them. In most cases, minimizing risk means reducing the investment required and/or increasing your chance of success.

1. Hire multiple independent engineers.

One of the best ways to lower risk, and increase your chance of success, is by hiring at least two engineers. This is especially true when it comes to developing your product's electronics.

I recommend that you hire one engineer to actually develop the electronics, then hire a second, independent engineer to review the design before you produce prototypes.

You can be sure that any new hardware gadget developed by a large company has been reviewed by multiple engineers. To be competitive you need to emulate these successful companies to some extent.

When I was a microchip design engineer for Texas Instruments (TI) it was mandatory that all designers hold formal presentations called design reviews. In fact, it's safe to say that nearly all large companies developing electronic products require design reviews. This is because mistakes are almost guaranteed when designing anything complex, no matter how good the engineer.

Always strive to gather as much feedback as possible regardless of where you are on the path to bringing your new product to market.

2. Ramp up manufacturing volume slowly.

Your top priorities should be to get your product to market as fast and cheaply as possible, while minimizing your risk.

Setting up manufacturing in Asia and ordering a large quantity of your product will always reduce your unit cost and increase your profit. Increased profit sounds great, right?

Well not so fast! Manufacturing in Asia also greatly increases your risk. This is because it will take longer to get manufacturing up and running, and your product quality may suffer if you don't monitor it very closely. You'll also have to order a larger quantity than you would if manufactured locally which opens you up to even more risk.

Instead, start off manufacturing small batches using a local (i.e. in your country) manufacturer. Sure your per unit cost will be higher and your profits will be lower, but your total cost will be much lower. Also the quality of your product will generally be higher because you are more easily able to monitor manufacturing closely.

The worst case scenario is that you rush into manufacturing a large order using an offshore manufacturer. You may then find yourself stuck with a large amount of inventory that you simply can't sell. Or worse, you may find yourself stuck with a large amount of defective merchandise.

I know, I know, your product is utterly amazing and will sell like hotcakes, and this will never happen to you! But keep in mind this worst case scenario happens quite frequently with new startups so be very, very cautious!

Always remember that profit is something you should focus on after your product has had some significant sales success. Focusing on maximizing profits is pointless if you go broke before you even get your product on the market. Instead focus on minimizing your risk!

Relate: 3 Things to Do Before Kickstarting Your Hardware Startup

3. Use modules initially for complex electronic functions.

One of the best ways to reduce the complexity of an electronic product, and therefore reduce your risk, is by using electronic modules for some functions. This is especially true for wireless functions such as Bluetooth, WiFi, GPS, GSM, etc.

Electronic modules are a self-contained assembly of electronic components designed to perform a particular function. They are designed to be easily integrated into other products.

However, keep in mind that in most cases you can't bring to market an electronic product made up entirely of modules. This is because of the significant cost for a module versus a custom designed circuit. Also, in many cases modules will make the product too large for market.

4. Develop your audience, then your product.

Most entrepreneurs believe that they need to keep their product top secret until it's ready for market. Being overly secretive, however, is the biggest rookie mistake you can ever make! You can't develop a successful product while living in a cave. You need market feedback from day one to be successful.

Also once your product is finally ready for market, you need to make sure you have customers lined up to purchase it. Don't wait until your product is ready for market before you start thinking about how to sell it. You need to gain some market traction as soon as possible.

If you begin building your audience now you can accomplish both of these goals. First, you'll be able to get quick market feedback from potential future customers. Secondly, you'll have a large audience of customers ready to buy your product once you have it available for sale.

Related: Your Mantra in the startup chaos needs to be ''first things first."


The odds can be heavily stacked against hardware startups. But by following these four tips you'll greatly lower your risk and increase your chance of success. As a startup you need every advantage possible to help you reach your goal of financial fortune and world domination!

John Teel

Founder of Predictable Designs LLC

John Teel is president of  Predictable Designs a company which helps entrepreneurs bring new products to market. Teel was formerly a senior design engineer for Texas Instruments where he created electronic designs now used in millions of portable devices (including some from Apple). He is also a successful entrepreneur who developed his own product, had it manufactured in Asia, and sold in over 500 retail locations in three countries. Download his free cheat sheet for developing your new hardware product.

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