Every few months we get a press release about some great device from a no-name manufacturer who promises to change the world. One example was the TXTR reader from Germany last January. Another is zzzPhone, a company selling dual-SIM Android powered smartphones from China. Neither company produced much of anything.
Era of the Silicon Valley success story – two guys making something cool in a garage and selling it – is over, at least in hardware. The costs of making consumer electronics, including cellphones and computers, on a small scale have risen so much as to be prohibitive and then the marketing costs of that same hardware is even more prohibitive. Whereas, once, two nerds in a basement could build a computer company I worry that it takes more resources than any one man or woman can muster these days to even approach something like success.
DOA
The first sad truth is that most consumer electronics cannot be made in “expensive” countries like the US or the Euro zone. During a visit to the Suunto watch factory in Finland, for example, I learned that while many of the watches are made near Helsinki a large percentage of them are made overseas and drop shipped from Asia. The company just couldn’t make anything in bulk without resorting to off-shoring. This means you either invest in an expensive small run of hardware overseas, something the Asian manufacturers do not do particularly well, or invest in a massive run of inexpensive hardware in Asia that you risk having to recycle if your company goes belly-up.
This doesn’t mean you can’t make it big anymore. Take TiVo, for example. It sprung out of obscurity a decade ago and filled a niche in the living room that has yet to be challenged by any manufacturer. Unfortunately, when someone – probably Samsung, LG, or Apple – figures out how to take over the DVR market, TiVo is toast. The same is true of Palm who, to all intents and purposes, is now a small company. The big guys are eating their lunch thanks to Android and it will take some fancy footwork to survive. The small guys are, sadly, always at the precipice of failure.
Other companies like Neuros and Slingbox simply sell a wrapper for their software. Sometimes this works but sadly it also leads to retrenchment when companies like Slacker pull out of the hardware business due to lack of interest and cost. Then there are success stories like like FyreTV [NSFW] which will do well because they focus on porn. Not everyone can focus on porn.
When in doubt, do this.
The second problem facing small CE companies is marketing. Micro-companies like Zeo and FitBit get a huge initial boost thanks to online media but then disappear once the news cycle has moved on, leaving the companies with amazing technology in the dark. This is an era of constant marketing, a situation that forces companies like Apple and Sony to put their message in front of consomers almost constantly in multiple media.
Anecdotally, I’ve seen companies receiving 8,000-10,000 pageviews with one good launch, more if its an interesting product. That initial boost translates into a percentage of good sales – those are good eyeballs, not just random traffic – but it rarely turns into repeat or continuing business.
That said, here are some of the best practices I’ve seen from small to medium CE companies who know how to do it right. This may not apply to you and yours, but it’s something to think about when you get excited about a product (Gizmondo anyone?) only to find it has crashed and burned.
1. Tell multiple stories. When you start out you have one story: Why your product is good. Prepare multiple stories for the next few years including ideas tagged to pressing issues of the month or year. Do you have a fitness gadget? Work on a story about post-holiday stress and weight gain. Have a DVR? Put yourself in the Super Bowl frenzy with blogger outreach and giveaways. That first boost is nice but if you’re a small company it’s the next four boosts that will push you through the rest of the year.
2. Price yourself competitively if not suicidally. Even if it’s suicidal, price yourself at just above the average price in your market. Aiming at rich, cosseted professionals is nice but the sharper Image model of doing business is over. Consumers want more for their money (even if they often get considerably less) so while $999 might seem like a nice number for a NAS or a piece of audio gear the consumer is more accustomed to $499.
3. Be quiet. Hide your light under a bushel. Patent your idea and don’t launch until the product is completely ready. I’ve seen too many companies splattered with the vaporware monicker because they failed to deliver on time or at all. Once you’re done, support your product forcefully and quietly. If someone has a problem, address it quickly. Send out new hardware before putting someone through tech support hell.
4. Change your trade dress regularly. This fickle market thinks anything that looks the same as it did last year is old. Why do iPods change every few months? People want to think they’re buying the new hotness, not the old and busted. If you can’t change your trade dress, change your website.
5. Slow and steady wins the race. None of the greats made it overnight and it’s harder than ever to truly make it. If you’re a small CE manufacturer, Godspeed. It’s a tough race so don’t sprint it.
For a great look at this topic, read The Song of the Powersquid, our 6-part story on the creation of a CE product.
It soon became obvious to anyone paying attention that Tiger Telematics, Gizmondo,and the Uppsala Mafia gangsters and End Timer who ran it were pitching nothing but a penny stock pump and pillage scheme. Watching the CE media fall for it, along with Stephan Erikson’s spectacular Ferrari Enzo crash was pure entertainment at its finest. You can’t make that sh*t up.
There are exceptions. Popcorn Hour. Slim Devices. These guys targeted the high end and moved to more mainstream audiences over time. Great Widgets!
http://www.popcornhour.com/onlinestore/
http://www.logitechsqueezebox.com/
while I love the squeezebox I think they’ve lost a lot of the creativity since being absorbed by logitech … the newer devices seem to be becomeing “cheaper” yet somehow cost more, and innovation on the software has… stalled.
Our biggest challenge has been finding the companies to do the hardware design and manufacturing. Would love some suggestions / references!
I second Christopher’s motion. It would be very helpful to know which design and manufacturing companies can provide costing metrics for those of us who are classified as the little guys/gals with big ideas.
i’ll work on that. The guys at powersquid, for example, do great work.
I would be happy to help on this note. Michael [at] Sprkinc [dot] com
“Our biggest challenge has been finding the companies to do the hardware design and manufacturing. Would love some suggestions / references!”
Christopher
Steve_kgn@yahoo.co.uk. First consultation free.
While I don’t disagree with the core of this article you may be interested to know that I recalled your first story on the txtr (http://www.crunchgear.com/2009/01/22/txtr-reader-vaporware-ebook-readers-for-all/) earlier this month. The reason that I recalled it is due to the fact that the txtr was released at the Frankfurt Book Fair on the 14th October and they will be taking orders from the 1st December and shipping for pre-Christmas (although I suspect only in Germany). At the time you commented on how awesome it looked and how you expected it’d never appear. Maybe it is still possible for the little guy to produce something great _and_ for it to get to market. I still have high hopes for the txtr, it’s cooler than the Kindle and is more open but I fear that they simply won’t get the press coverage someone like Amazon gets and this may be another factor in why the little guy can’t succeed in the consumer electronics field.
Apologies, I forgot to include the press release for the txtr.
http://reader.txtr.com/press.html
There is a video out there somewhere as well giving coverage of the device at the Book Fair although it is in German so not of much use to the English speaking (like myself).
Are you sure about that? Aren’t there good examples that made it out there? What about flip? You also mention Tivo and I can probably add Jawbone.
This is a very well thought out and executed article.
For years I was under the dilemma of needing to create a device to fulfill a new format idea. As time moved on, I realized that home computers were getting more powerful and less expensive.
With the launch of Windows 7 and the devices carrying it, the time is perfect for the plan to move forward.
I really think software is the key now as you can transform a computer into anything you want, and face it, there is no set-top-box you can create to beat the power of a full fledged multicore PC.
Flip Camera! only one example. Solid hardware + great software = success.
Pure Digital (makers of Flip)…sold itself to Cisco (CSCO) for $590 million in stock.
Please tell me there is still hope for the Crunchpad!
there is
when will we get that cruchpad update. i keep getting the feeling that its like groundhogs day. it seems that most of the smaller ce players act as a launching pad for great technology that is usually incorporated into an inferior shell/hardware.
I’m curious to see how many of these rules the Crunchpad follows and if they lead to success.
I guess it’s sort of following the first rule with it’s “story” from conception to execution.
Thanks you guys this article and your comments are all worth it. If you are here like i am then i guess we are all looking for answers. Some of the guidelines given here are very informative and well worth consideration. It takes time and a lot of work to get your product out there but with perseverance, the outcome should be positive.
The nerd fringe where the emphasis is on sharing the electronics knowledge with your customers has produced some success stories, with very little capitol investment. Adafruit.com and Sparkfun.com are both examples. Chumby is partially in that camp (but via traditional VC route).
I have to take great exception to your advice. I wrote a book “From Concept to Consumer” that says pretty much the opposite, based on decades of experience and doing hundreds of products.
The rules have changes and today many of the same resources once only available to the large corporations are now available to the small entrepreneur and small startups. It’s all knowing how to tap into these resources.
In fact one of the points I make in my book (Ch: Legal advice and when to ignore it) is not to rely on patent protection as it’s a diversion and rarely provides the protection you think. With today’s short life cycles the product is often off the market by the time the patent is issued. And a patent is just a license to sue; small companies rarely have the resources to fight a legal battle.
Bottom line: I’ve done all this and am doing this for many companies large and small and my experiences are pretty much the opposite of what you wrote.
I’m an adviser to wireless HD video/audio company http://www.neosonik.com We’ve got a $4B+ market opportunity, enough P.O.’s to go cash flow positive at launch, shelf space at the biggest retailer in the US, and a product that works. (See the video on the site.) A business on a silver platter.
Yet we still haven’t found the investor to bring the final product to market.
Despite the Flip Video and Slingbox success stories, VC’s almost never invest in CE anymore. I’ve heard a lot of reasons from them, but mostly I think it is lack of balls.
I wish this was the 70’s, when investors had vision and guts.
damn TC. this weekend is full of awesome articles.
I recently wrote an article “Can a tiny company compete with a big one?”
[http://blog.philipgbaker.com/my_weblog/2009/08/can-a-tiny-company-compete-with-a-huge-one.html]
that should help the little guy realize there’s advantages to being little. In response to Ken, money is not easy to find for new products, but that’s also true in big companies, as well. If you have a good product with a good business model there are many ways to proceed (and -a plug- discussed in my book.)
and innovation on the software has… stalled.
Errrrr
Monome?
Or is the scale not big enough for you, as they seem to be making a living from it well enough?
If any of you smaller guys need advice or consultancy I charge very, very reasonable prices with no initial consultation fee.
I have all the contacts in China, I am expert in manufacturing and design and can meet deadlines.
So which, if any of these are you, and how to contact? Thanks for the offer, by the way.
Steve Keegan
Company:
Nortel
Steve Keegan
Company:
British Telecom Cnsultg & Sys Integration Corp.
Steve_kgn@yahoo.co.uk
Consulting for Telefonica.
It’s an interesting article. Anwer this. If the I-phone or PSP were developed by smaller companies, would they succeed? Answer after this:
1) You don’t necessarily have to go to China. I know two Chinese companies one of which I help set up in the Czech republic to take advantage of Euro import duties.
2) There are companies in China who will collaborate with smaller concerns and offset some of the set-up cost for a share of the profit (why not?) There are Americans in Hong Kong helping smaller companies (for a share). Just negociate the right deal.
3) Don’t sit around waiting for patents (patent pending will do)
4) Find a distribution partner. If your product is good enough…someone will take it.
4) Launch on your own doorstep
5) Lobby, Lobby, Lobby.
Lobby associated degign teams i.e if you need industrial design and it’s unaffordable….negociate something i.e some cash down and a 1 dollar licence fee…..It works i’ve done it!
6) Seek partnerships if it means getting to market quicker. Imagine the scenario of one guy having a gtreat concept product but wants to protect all his profit. He does everything himself and it takes 4 years. Or the guy who has a similar concept but takes survival profit and partnerships who gets to the market in 12 months. Who will win?
7) Control operating expense.
8) Give partners of workers shares in the company. Worked for Mircosoft didn’t it.
I have set up numerous companies and taken many products to market. The rule is that there NO rules. Do whatever it takes and keep believing. Don’t stop developing. Always question prevailing paradigms.
9) You could learn a lot from the creation of Gizmondo.
It was a hair’s breadth from being a great product. It won a prestigous design award in the UK. Their marketing ran ahead of the product. The version 2 was spectacular. They nearly made it (controversy apart).
Answer is YES but a small company couldn’t develop them!
Neosonic guy. Go to LG (but don’t tell them how it’s done)
Do they have a venture arm or make investments?
Doubtful they would license based on the stage we are at. (We’ve been down this path with most of the majors. Once we are in the market, they’d be interested)
Ken I’m in a similar position as you and I can tell you the only thing worse than starting a CE company right now is starting a communications hardware company. VCs don’t do pre-revenue hardware any more, or at least it is very, very rare. Heck VCs barely invest at all any more. Large OEMs do make strategic investments but the road is long, slow and hard. Just find guys that are in and around your space
Drew,
I was in telecom before, so I feel for you, big time. However, the one thing I do know is the most important characteristic an entrepreneur can have is persistence. Stick with it!
Yes. It’s in Seoul, Korea. You have go in pretty high. No-one below Director level can make a decision.
Why does the information on Gizmondo Uppsala Mafia “Chairman” Ashley Posner, and his “Kimball Dean Richards”, and Dubai Middle East “Dean Dahab”, keep disappearing frokm Wikipedia? For example from here – http://en.wikipedia.org/w/index.php?title=Uppsala_Mafia&oldid=322677147 – Is there a Wikipedia editor among the Gizmondo crowd, or better a Wikipedia Admin. (All the fleshies trying to put edits with these name have been shut down by the White Maffia, including Admins from the White Mafia evengelist Sarah Palin edit wars, as demonstrated here – http://en.wikipedia.org/wiki/Talk:Uppsala_Mafia .