6 min read
How To Do Hardware: Crowdfund, Then Head To Shenzhen
In the last five years, hardware start-ups have become the new darlings of the tech industry, thanks to popular crowdfunding sites like Kickstarter and Indiegogo.
Via crowdfunding campaigns, hardware entrepreneurs can directly obtain funds from people who are truly interested in purchasing their products. Gone are the days where a successful hardware company required a sterling reputation and an abundance of investment. With a good idea, solid technology, a well designed crowdfunding campaign and a city named Shenzhen, almost anyone can become a hardware entrepreneur.
Lebanese duo Bassam Jalgha and Hassane Slaibi, founders of start-up Band Industries, Inc., are no strangers to the crowdfunding and hardware scene.
Jalgha, a researcher in robotics and Slaibi, a software engineer, both played in the same band and shared a passion for music. They realized that there was a market for automatic guitar tuners and created their first hardware product, Roadie Tuner, which could accurately and quickly tune a guitar in seconds. The pair left their jobs to create Roadie Tuner, and have not looked back since.
“My parents were not happy with what I did,” laughs Jalgha. “But I knew that I wanted to build things. I hate routine and working on the same thing, every day.”
Their gamble paid off. In January 2014, the pair successfully raised almost $180,000 on Kickstarter to manufacture Roadie Tuner, nearly tripling the $60,000 target.
“With crowdfunding, you can test your idea and your market,” said Slaibi. “People vote with their money – they vote if they want your idea and want to purchase your product.”
“We needed $60,000 to proceed with manufacturing (Roadie Tuner), and we raised this amount in just four days, which is amazing for a startup. Having the funds ahead of time meant that we did not need to take a loan or extra investment for the sake of manufacturing.”
26 year-old Stanford graduate student Adam Kell invented and co-founded Flamestower, a wireless generator that converts heat from any fire source into electricity. The electricity can then be used to charge your electronic devices. Like Jalgha and Slaibi, Kell eventually launched a campaign on Kickstarter to raise funds for Flamestower in 2013.
“Before Kickstarter, we were doing a lot of pre-sales for Flamestower on the website. We would store the payment information and would not charge buyers until the unit was shipped,” said Kell, who was named one of Forbe’s 2014 ‘30 under 30’ for his invention. “There was a lot of traffic from that.”
“We decided to try and put the project on Kickstarter and get some viewers we couldn’t get before, traffic that was not driven to our website.”
Kell’s decision was a good one. At the end of the campaign, backers pledged over $60,000 for Flamestower, exceeding the campaign’s target fourfold.
Flamestower and Roadie Tuner are just two successful hardware projects among a wealth of wildly popular crowdfunding campaigns. In 2012, Pebble Technology famously raised over $10 million from nearly 69 thousand backers for its eponymous smartwatch. This year, the company launched another campaign on Kickstarter for its new generation smartwatch – Pebble Time, raising over $20 million.
Other examples include Oculus Rift, a virtual reality headset for video games invented by then 20 year-old Palmer Luckey. The device was dubbed as a breakthrough for the industry and over $2.4 million was raised on the Kickstarter platform. Subsequently, Oculus Rift was acquired by Facebook for $2 billion dollars.
Despite all the high-profile rags-to-riches stories in crowdfunding, pulling off a successful campaign is no easy feat.
“Crowdfunding is highly dependent on marketing,” said Jalgha. “You could have a brilliant project, but if it’s not exposed enough, it might easily die off and not succeed.”
“In the first few days of launch, a lot of marketing push is required to reach out to the media – this is what makes it or breaks it,” he continued.
To Kell, a crowdfunding campaign, while useful, is not the be all and end all for a company’s success.
“You can’t count on having enough money just from your crowdfunding campaign to manufacture the product. You have to be prepared to raise money especially if it’s a product that’s going into mass production,” said Kell, who had managed to raise a small seed round of investment from angel investors prior to Flamestower’s Kickstarter campaign.
“(Had we not done that), the $60,000 we raised on Kickstarter would not have been enough.”
Kell, like many other hardware entrepreneurs, chose to manufacture in Shenzhen for the first generation of Flamestower. The city is known as an international manufacturing hub, thanks to its advanced manufacturing infrastructure and abundance of electronic components.
Despite this, Shenzhen was not always the star of the manufacturing world. For a long time, the ‘made in China’ label was synonymous with poor quality and cheap materials, but China is slowly but surely shedding this stereotype.
“This is good news for China business and brands, which are shrugging off negative stereotypes, ‘cheap, low-skill, low-tech’,” said Sarah Reiter, the president of FutureBrand Asia Pacific in an interview with Jing Daily. “Like Taiwan and Japan in previous decades, China is now shifting towards being associated with ‘modern, sophisticated, high-tech’.”
During the manufacturing process in 2014, Kell lived in Shenzhen for several months, talking to as many people as he could and learning about the manufacturing process and product development cycle in China.
“The ecosystem in Shenzhen is so strong, and it made a lot of sense to build an electronic product in Shenzhen,” said Kell. “When we were building Flamestower, we wanted to be able to find a source of whatever electronic component we needed or circuit board manufacturers.”
“In Shenzhen, there was so many of them in one area and that really helped our development cycle.”
Fortunately for Kell, he did not run into many problems while manufacturing in Shenzhen.
“Part of what helps is just spending six months there and really getting to know your partners, ensuring that you both want success. This is the most important thing and it was something we were able to do just by being there.”
Challenges of Shenzhen
Things were not as smooth-sailing for Jalgha and Slaibi. The duo had also headed to Shenzhen to manufacture Roadie Tuner, but ran into several frustrating issues.
“Finding the right factory is really challenging. We’re a start-up and that’s the reality of things. Our orders were not in the scale of 50,000 units. To the well-known factories, they won’t give us much attention because we’re just a start-up in their eyes. But if you go to a small factory, they might not have enough resources,” said Jalgha.
The factory they had initially chosen to work with had taken on a large project concurrent to the manufacturing of Roadie Tuner, and eventually things came to a halt.
“We were really impressed with their facilities at first and they were dedicated to our project, but they stopped giving us any attention once they took on the bigger project,” said Jalgha. “Luckily, we were able to change factories in the middle of the production run within a couple of days.”
The language barrier also presented problems of its own for the Lebanese duo.
“Most of the Chinese suppliers don’t speak a word of English, and this was very tricky,” said Jalgha. “We could not communicate directly with the factories and there was a lot of room for misunderstanding and miscommunication, which caused some problems in manufacturing in China.”
“Fortunately, we were able to find a solution for everything and get our product to the market almost on time.”
Despite the problems that they ran into, Jalgha and Slaibi shared that they would continue manufacturing in Shenzhen for future iterations of Roadie Tuner, thanks to the Chinese city’s advanced infrastructure and quick turnaround time. Currently, Roadie Tuner is already in its third production round in Shenzhen.
“In Shenzhen, people understand that time is gold, so anything can be done really fast and efficiently,” added Jalgha. “The Chinese understand manufacturing – they have a lot of experience and do it really well. We could come up with a new design and have the prototype built and delivered two days later.”
Rising costs in the heart of the manufacturing industry
However, contrary to popular belief, Shenzhen is no longer the cheapest place to manufacture hardware with China’s rapid economic progress.
“There is a rapid increase in labor cost. Costs are rising for manufacturers significantly, about ten or twenty percent per year in terms of the work force. Shenzhen is definitely becoming less compelling for price reasons,” said Kell, who revealed that assembling future products in Ethiopia instead of Shenzhen was a possibility for Flamestower.
Jalgha agrees with Kell. “(Manufacturing in Shenzhen) is not really cost-effective in many places,” he stated. “Living expenses in Shenzhen are also getting higher and it’s not cheap to live there either. We could get the components from China and assemble them here (in Lebanon) and it would be almost the same cost.”
Despite the blood, sweat and tears that no doubt went into Roadie Tuner and the journey of entrepreneurship, Jalgha and Slaibi would do it all over again, no questions asked.
“Hardware is hard. And that’s what our hardware accelerator, HAXLR8R, told us when we started,” quipped Jalgha. “But seeing a final product in your own hands and knowing that you made it happen is very rewarding.”
Image Source: Flickr, https://flic.kr/p/fBT7uZ
Image by: Cory M. Grenier, ‘High Tech Manufacturing in China’