Why Consumer Hardware Start-ups Fail
For a long time at Contour we believed that if we built the best product it would sell itself. Instead, we lost to a competitor whose brand experience resonated with millions of customers.
The recent flood of new consumer hardware start-ups is fantastic, but also a humbling reminder of how hard it is to build a brand, especially one that stands out.
What I've found is that many of these start-ups try to play up their features but not their experience. That may lure a few customers initially on Kickstarter, but when it's time to connect with thousands of customers, those start-ups tend to get stuck.
Branding is generally difficult for hardware entrepreneurs for three reasons. First, engineering founders love technology, so they fall in the trap of believing that features and specs will win the game. Second, defining a brand customers can fall in love with isn't taught in the lean start-up world or understood by most investors. Lastly, these entrepreneurs haven't started with a niche segment of the market, which makes targeted marketing difficult.
Hardware start-ups could learn a lot about brand building from "lifestyle companies" or traditional consumer products such as Rapha, Method, and Nixon. If you want to move from thousands to millions of customers like they have, here are three things you'll need to improve on.
Sell what you believe.
The Simon Sinek quote, "People don't buy what you do, they buy why you do it" is especially true of hardware.
Although tech reviews and comments from early adopters would have you think otherwise, the reality is most consumers are too busy to care about specs. All they want to know about is why they need your product, how they can use it, and if it's worth the money.
It's a lot harder to sell what you believe in versus what you do, because if people don't agree with what you do, then it's no big deal. But if people don't believe in what you believe in, that can be soul-wrenching.
If you have the guts to start selling what you believe in, customers who share your perspective will join in the cause. Not everyone will follow, but if you can inspire thousands of customers to tell the world how amazing you are, you'll have a chance to build something memorable.
Look no further than Apple, Boxee, and Instagram for inspiration. They had loyal customers from the beginning.
Be the brand of choice.
If your category is massive like smartphones, you don't have to sell the most units, but you do have to drive the most profits. Profits are a requirement if you want to compete long-term, because without them you can't continue to innovate or increase brand awareness--just look at Apple.
In his book, Eating the Big Fish, Adam Morgan explains this concept better than anyone, as he demonstrates how being Number 1 in the market provides disproportionate advantages to companies in terms of awareness, revenue, and profits. "It is not just that Brand Leaders are bigger and enjoy proportionately greater benefits," he writes. "The evidence we are going to consider suggests that the superiority of their advantage increases almost exponentially the larger they get."
One example of how this plays out are activity trackers, a maturing category. Fitbit, Nike, and Jawbone are all duking it out, and all in distinctive ways. Fitbit gets rave reviews, thanks to its focus on everyday people, while Nike, one of the best brands in the world, tries to inspire the athlete in all of us. Jawbone's focus, meanwhile, is design and stylish urbanites.
Smartwatches are another category where branding is key. Pebble smartwatch is still in its early stages of category development, but while the company started out strong, it must remain the people's choice if it wants to rise above the money being thrown at the new category by traditional consumer electronic (CE) companies. If Pebble can keep selling what it believes while delivering on its promise, it might stand a chance.
Smartlocks, on the other hand, are even earlier in their category development, though they have the same challenge. Lockitron, August, and Kevo promise security and simplicity, but none of these start-ups have begun shipping products and only one can be the brand of choice.
At the end of the day, consumers will ask, "Which one of these should I buy?" and if your brand doesn't come out of their mouth, you'll lose. No matter how crowded the category is in the beginning, you have to become the brand that everyone picks. Your story, your product, and your value will make customers choose your product over the others.
Branding comes first. Distribution comes second.
A lot of start-ups get this one wrong--I know I did at Contour.
The lure of selling in a megastore was so strong, we started preparing for distribution before we even had a product to sell. We wound up spending our limited resources on product and distribution, leaving nothing to become the brand of choice.
Our competition took the opposite approach. By selling almost 50% of their product consumer direct, their high margins allowed them to pump significantly more back into marketing. Their ability to reach new customers continued to snowball, creating an umbrella of awareness we could never penetrate.
What a lot of hardware startups miscalculate is the real cost of reaching consumers through retail. On a $200 priced product you generally give away $60 (30 percent in margin) just to get in the store. Add on the additional costs for market development funds (MDF), returns, and customer support, and your real cost to reach a customer is closer to $75. You might as well give a customer $50 off the retail price and sell your product for $150 than walk into retail.
Distribution doesn't increase customer awareness. It only fulfills orders for the demand you've created.
Marc Barros is the co-founder and former CEO of Contour, a hands-free camera company. Shortly after graduating from the University of Washington, Marc co-founded Contour in 2004 and led the organization from a garage to a multi-million dollar company. Contour products were sold in over 40 countries through action sports retailers and national chains, including Best Buy and Apple.