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Hardware Startups: To Succeed You Have to Sleep in a Factory in China

By Mitch Email @mitch_io
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Silicon Valley – the world’s leading hub for innovation and development – is probably the place to be for young, aspiring entrepreneurs. The Valley has an incredible ecosystem ranging from the world’s most high-tech companies and startups to the most renowned venture capitalists, universities, colleges and government facilities.

While all this is true, at least for software startups, it is a completely different story for hardware. The first indicator of this may be that Wikipedia’s article on Silicon Valley drops the term “software” a record-breaking nine times, whereas “hardware” gets only one single mention. Recall that the term “Silicon Valley” itself was coined because of the physical production of semiconductors and personal computers, i.e. hardware.

Forty years later, the story is an entirely different one.

The Case for China

“As a hardware startup, you’d be insane to prototype anywhere apart from in China,” says Cyril Ebersweiler, founder of HAXLR8R, a hardware accelerator program that takes its startups to Shenzhen, China to hack the hardware they will later mass-produce. It is the first of its kind.

It doesn’t take long for Cyril to make his case for China:

“Zach, my partner, built a DIY CNC machine on his own – well, just because he wanted to build one – at a cost of something ridiculous like 3,000 Yuan.” His partner is none other than Zach Hoeken Smith, co-founder of consumer 3D-printing giant, Makerbot.

A project of this scale is really only feasible in China nowadays. Cost is certainly one factor, but speed is the other major one. For makers and hardware startups, Shenzhen is a huge TechShop; you have access to tools, you can iterate on your prototype multiple times a day – all at almost no cost compared to western standards.

“So strangely enough, I think yes, the perfect stage to come to China [for a hardware startup] is from scratch,” Cyril continues. “That’s very disruptive and I understand that, but here [in Shenzhen] if you have a problem at manufacturing level – if you need to replace a part – you literally go down the street; you will find a new piece within 24 hours.”

Why daily prototyping matters and how to avoid the hardware death trap

Shenzhen headquarters some of China’s most successful high-tech companies. “There is a concentration of electronics and manufacturing that is essential,” Cyril says. “When you build a product, you have to consider the manufacturability of it and its scalability.”

He is convinced that the reason why most startups have failed in the past is the lack of a realistic prototype – one that could not simply be taken to mass-production. “Many startups were just claiming they could do this and that, but once you hit manufacturing level, it just gets so complicated. If you haven’t incorporated every detail into your prototype at first, you can scrap it and rebuild everything from scratch.

“The smartest ones have been sleeping at the factories,” Cyril says. “Sphero’s Founder Ian has been there for a year and a half; Idan from gTar spent a year and a half at the factory – sleeping there. And still it took him a year to get it out of the assembly line,… iterating every single day. We were talking about 1,000 devices out of the first round – it’s that hard to pull off.

“But now it’s possible.”

Making of gTar in Shenzhen

The environment for prototyping

Shenzhen used to be a huge manufacturing maker; today most factories have been pushed out. But some of the layers of this supply chain – the layer of prototyping – remained: 3D printers, CNC machines and laser cutters. This makes it ideal for hardware-related startups that need to iterate quickly at low cost… it allows them to move at similar speeds to software startups.

“Trying to build everything yourself is stupid: trying to manage a laser-cutter yourself – unless you have to do it – why would you do that?,” Cyril says. “In Shenzhen, you don’t have to [produce] yourself, you don’t have to wait for five days – you go downstairs, you take your file, you modify on spot with the computer, the guy [in the factory] tells you if it works or not – you have your part. It’s done… and it costs you $3.”

So now imagine prototyping somewhere here, in the western world.

A few common misconceptions

China as a market is still very complicated, largely due to communication barriers. Without some sort of local investment, you are bound to hit a brick wall. Shenzhen in particular, though, is the place to be if you are serious about hardware production.

Communicating with China’s manufacturers

HAXLR8R helps startups find manufacturing partners, but then “you have to sit inside the factory, there is no other way around it,” Cyril explains. But while “startups used to have to explain how things were built, right now factories know exactly what should be done.” As experience increases, many factories are already able to tell their customers how their hardware should be produced. In general, factories are a lot more willing to work with startups than ever before – some of them even consider investing in startups.

Chinese innovation

Chinese manufacturing is often reduced to taking a product that works and copying it. But China has startups. Their huge advantage: They have control of the manufacturing. “They will leverage their hardware in a way not even Apple can dream of,” Cyril says. Perhaps even more significant is the fact that Beijing is sending reporters to HAXLR8R’s office on a daily basis. “They are in the phase of looking at what’s next – and are clearly looking at the innovation part,” Cyril explains. “When they realize what position they are in… it will change the whole state of mind.”

Hardware startups need insane amounts of funding

HAXLR8R invest $25k per company and are proving that hardware does not need more money backing it than a software startup. “This is the other reason why it doesn’t make sense to prototype elsewhere… you would never know what the [real] price of your product is and that’s going to kill you down the road.”


“Chinese startups will leverage their hardware in a way not even Apple can dream of”

“There is no better place for makers than China,” Cyril reiterates, “and another part is the Chinese market; which we haven’t even tried to get into, but it’s the number one market in the world for consumer electronics.”

Now imagine the possibilities. If you’re going to do anything with your startup life, some part of it should be dedicated to China.

 
Cyril Ebersweiler is a speaker at this year’s Pioneers Festival (30-31 October 2013). His keynote will cover the ups and downs of his experiences with HAXLR8R, what role the U.S. and Europe play in the fight for hardware and much more!

To learn more about the lineup, visit our Speakers page.

 
Image courtesy of HAXLR8R and Flickr user epSos.de

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15 Oct'13 6 SHARE
  • David Schroeder

    While HAXLR8R’s suggestion that hardware startups must prototype in China may prove to be very realistic for startups with a large number of pre-sales or who have wildly successful Kickstarter campaigns (like Pebble Watches), aren’t these are more the exception than the rule?

    If you send your prototyping and design to China, it’s hard to maintain control and it’s even more unrealistic to expect the vast majority of startups to up and move to China for a few weeks, or longer, in order to finalize their designs. Someone needs to be home to actually keep the rest of the business running and make sales.

    What it really boils down to is that there may be a point in time that it makes sense to take your product overseas, but everyone starts at zero. And there is a lot of ground to cover between zero and mass production. Doesn’t it make sense to do as much as possible state-side with a manufacturer that can handle lower volumes but is still able to ramp up to higher production numbers?

    http://reliancecm.com/blog/2013/07/hardware-startups-the-case-for-domestic-manufacturing/

    • mitch_io

      Thanks for you statement, David! Firstly, really appreciate another viewpoint! There is a lot to be discussed regarding hardware prototyping and production.

      1. Let me say that I feel domestic production is hugely important too, but may not be an option for many startups (who do not yet have huge amounts of funding and need to iterate quickly). This leads me to my second point:

      2. I really think that hardware-related startups don’t need huge funding to be successful. Startups at (in this case) haxlr8r get 25k, and spend a good 3.5 months in China – and by being there you can literally control the design of your product.

      3. true advantage of Shenzhen is cost + speed
      also, I think there may be a misunderstanding… haxlr8r is not saying move from prototyping into mass production or mass produce your prototype, but rather build a realistic prototype (in terms of manufacturability) and yes you will be iterating – at best on a daily basis – which means changing your prototype around but the importance behind all this is being able to know the price of your product WHEN and IF you decide to go into mass production.

      What main advantages do you see in producing “state-side” in this case?

      • David Schroeder

        I don’t see domestic manufacturing as the only solution for hardware startups, but I do believe it is not as cost-prohibitive as people may think. Geographically, from a production standpoint, it makes sense to produce products closer to your end-consumer.

        Drilling past the obvious, there are multiple dimensions to a startup and the actual product is just one of them. In fact, based on the findings of the Startup Genome report, the 5 dimensions of a startup are customer, product, team, financials and business model, and each of these needs to progress evenly for success.

        While sleeping in a factory in Shenzhen may be an option for some startups, it is not really a viable option for most.

        I agree that consistent, daily control over prototyping can help circumvent many common product pitfalls (part-obsolescence, design flaws, etc.), but a contract manufacturing partner *should* be able to help sort all of this out in advance so you at least have fewer iterations of the product. Finding that partner you can trust makes it possible for you to support the other four dimensions of your startup so that when you are able to go to market, you are better positioned for success.

        What good is knowing the price of your product when and if you are able to mass-produce it if you have not spent any effort on building an effective business model with the operations support behind it? Even more importantly, without some buzz in the marketplace how do you get customers demanding your product?

        I’m all for startups finding the best solution that fits with their business model, resources and company culture, there is no one-size-fits-all… I just believe that there are many viable options here in the states for those that can’t feasibly move to China in the interim until their product is ready for the world.

        Without the discussion involving domestic manufacturing, I’m concerned startups will overlook resources in their own backyard.

  • http://www.amcsquare.com/ AMC Square Services

    These are good stuff. I hope you share more tutorials

    • Mitch Kranner

      Thanks! It was a great interview with Cyril. In the meantime you can check out all our talks from the Festival on our youtube channel: http://www.youtube.com/user/pioneersfestival/

      • http://www.amcsquare.com/ AMC Square Services

        Oh sure..Fine thats good to see