Why Your Hardware Startup is a Restaurant.
I’m often shocked when I come across hardware entrepreneurs that want to skip the strategic design phase and go straight to the building part of developing hardware (although it's more of an eyeroll after all these years, since it keeps happening so friggin' much!).
Check your bias (to save your wallet)
Now, no shade, because this is quite natural. Since most hardware entrepreneurs have a technical background: they're action-biased by nature, it's just how they are wired. Yet it always pains me to see how many people have zero problems with literally YOLO'ing anywhere between 300 grand and 3 million on a hardware development with a specialized agency, but feel that idea validation, identifying a niche, user research and the likes "cost too much".
I will always argue that an investment in these early stages should be at least 10% of your entire development budget, and that's not even being generous. It's like taking out an insurance policy if you will. 10% to derisk your entire investment, that's just common business sense if you ask me.
Now, it's hard for people to realize this and come out of their bubble. They're always struggling with confirmation bias and that's only human. It's the fallacy of "design for me", where if you feel the problem and solution are relevant for you, they are just as relevant as for everyone else.
Another thing that doesn't help is what's called "availability heuristic": overestimating the importance or prevalence of something based on how easy they can recall examples. If you personally, frequently encounter the problem you're trying to solve, it may seem more common than it actually is.
What tends to help in these situations is use symmetry of logic and distanced self-talk. The first is a school of thought around the idea "if it makes sense elsewhere, it probably makes sense here as well". It's a method that can help you (or others) gain new insights or explain ideas by using relatable analogies.
Additionally, distanced self-talk forces you to think about other people in a similar situation (it's why we're so much better at giving relationship advice to our friends instead of working on our own relationships), this helps you ground yourself to reality when you need it most.
I must admit that even I am still very susceptible to the above mentioned biases if it comes to my own hardware business ideas, even more than a decade of experience can't shield you from that, so I have to keep doing this to myself as well.
Let’s start a restaurant
Let's use this situation on the fictional use case of someone wanting to start a restaurant. Let's say your buddy wants to start a restaurant, a huge financial risk, no? So what do you, the good friend that you are, ask him? Probably something along the lines of “Where will you open it? Who's you target audience? What will you put on the menu at what price? How many customers do you expect to have? What are you basing this on? Do you have facts to support these assumptions?”.
You'll probably even advise him to do some of the following:
Start looking at what the other restaurants are in the region, you don't want to be the fifth pizzeria on the same block, right?
Try and find a unique hook that makes you different enough than what exists, while also being something people are actively looking for
It's likely a good idea to first ask people about what type of restaurant they find to be missing in their neighborhood or what elements they're missing from what exists (can't bring my pets, too loud, closes too soon, …)
Try to figure out what type of people to attract. Test what would attract those people by showing them different examples of what the restaurant could look like and would have to offer.
Experiment with different price points and discuss these menu's with potential customers. Setup a fake website with these things enclosed to see how much reservations he gets.
Make calculations to figure out if you'll have enough clients, what it will cost to run the place, how much profit you'll make.
Makes sense, right? You want to reduce your risk before you invest in starting a restaurant, to increase the chance it'll be a hit. Yes?
If it's true there, it's true here: why not do the same for your hardware business? Why not invest in idea validation, stakeholder research, concept development and early testing before building expensive hardware? Invest in securing the success of your product by reducing market risk early on before the larger investments come knocking.
How it fits into your Smallest Viable Audience
There's an additional point I'd like to make using these analogy. I see a lot of folks afraid to niche down in the early days of their hardware venture. I've talked before in another article how you should choose a Smallest Viable Audience. This works perfectly for a restaurant as well (or any business venture for that matter), it's all about positioning.
You've all been to those restaurants that have an enormous menu, they sell everything from pizza's and pancakes to steak and seafood. I can guarantee you they are a nightmare in terms of operations and cashflow.
Let's compare restaurant A, which is as above, with restaurant B which is a high-class restaurant aimed at upper-class vegans, obsessed with local and fresh food.
Restaurant A has a giant menu (think of these as the number of features in your hardware device). They struggle with providing the same level of quality for all those dishes since not all staff can make them as well (they’re not specialized by having to make something different every time). Moreover, due to inventory management, a lot dishes are from the freezer and taste like it.
They also want to keep prices low to attract as much people as possible, resulting in the cheaper ingredients (or components on your case), leading to poorer quality dishes and more unhappy customers.
On the flip side, restaurant B only has one menu each season, making inventory management a breeze in comparison, pushing quality of ingredients up.
Their staff is exceptionally skilled at making these dishes, since they make them over and over for at least 4 months straight. They have specialized staff for each part of a course.
They know they're the only one serving this niche and they do it very well, so they can charge more. Again: more margin, more room for quality, as well in the staff as in the food, as in the customer service.
Restaurant A is open 6 days a week, serves breakfast lunch and dinner and you can walk in whenever, again to increase their target market and hopefully attract more people. This makes for chaotic shiftwork, staggered and diverse orders in the kitchen add to the complexity.
Restaurant B is open 3 nights a week and has two distinct time slots at which you can book a table, calibrated exactly to the kitchen, the singular menu helps them orchestrate this perfectly and smoothly
A's issues are all a consequence of trying to serve as broad a market as possible in pursuit on attracting more customers and thus making more money. I can tell you that is and always will be bullshit. Say it with me.
You want less customers.
Customers that want something specific and are willing to pay more. Less customers is less headaches. You will need less features and will be able to do them exceptionally well and provide exceptional customer service. Furthermore your device is less complex because of it due to the focused feature set, less prone to errors, less bugs in the field, less aftermarket customer service, you name it… It just. Works…
Now go and start your restaurant, after you've de-risked it.
