Building a hardware startup is exciting. I love it because when I code the backend, it makes physical things move.

Nothing else does that.

But hardware startups are hard- and there are a multitude of reasons for that.
Primarily, hardware startups contain a lot more moving parts compared to software startups.

Here are some of the biggest challenges of hardware startups:

Higher upfront costs:

Developing and manufacturing physical products requires significant investments in materials, prototyping, tooling, and manufacturing processes.

Fundraising becomes crucial, and investors tend to be more cautious with hardware ventures due to the higher risks involved.

Fundraising is also harder- because the margins on software products are also much higher on paper. These are much more attractive investments to most investors.

Complex supply chains:

Managing your supply chain is a delicate dance. You need to find reliable suppliers for components, negotiate good deals, and ensure smooth logistics between various stages of production. Unexpected delays or quality issues can significantly impact your timeline and budget.

Long(er) development cycles:

From the initial design stages to final production, developing hardware is a lengthy process. Iterations and prototypes take time, and unexpected technical hurdles can add further delays.

Inventory management:

Overstocking becomes a financial risk, and understocking can lead to frustrated customers and lost sales. Finding the right balance is crucial.

Design Updates:

Also, unlike software, you can't simply push a button to update your hardware.

Physical constraints:

You're bound by the laws of physics and the limitations of real-world materials.

Design decisions based on aesthetics or functionality might be hindered by production feasibility and cost considerations.

This becomes even more important in case of hardware for critical applications, such as that used in medical settings. Often, material choices are heavily limited by these constraints and it takes ingenuity to come up with solutions that solve the problem within the provided constaints.

Quality control:

Maintaining consistent quality across product batches can be challenging. You need robust quality control processes and reliable manufacturing partners to ensure your product meets your high standards.

Should you even think of starting a hardware business?

Yeah, hardware is much more complex. Its definitely slower to market than software.

There are however, certain advantages of the hardware business model.

It is easier to lock-on loyal users to subscriptions than having just a software product, because now you own both the hardware and the software.

It is not uncommon to see companies sell hardware at a loss as a result as shown in the hardware business models in my previous article. You can refer to it to read about potential business models for your hardware company.

Hardware businesses are a much longer term game than software focused ones. Getting traction can often take longer, but when combined with software, hardware centered businesses can often have much more defensible business models than purely software companies.

Every competitor has to overcome the same challenges as you, giving you a moat, especially if you own proprietary technology.
As hardware startup, it is possible to create unfair advantages in any of the major categories above as well.

For example, a more cost-effective supply chain and better distribution can often overcome existing competitors.

Finding your unfair advantage is key- be it technology, distribution, funding or business model.

Make this your moat!