How to Build a Hardware Startup: Beginning to Realize Your Electronics Dreams

Engineers are some of the most entrepreneurial people I have ever met. If you're an engineer with a great idea, there is a process to turning that into a product, and to turning the process into a real business.

Maybe you have stumbled on a totally disruptive idea that will turn the industry on its head. Maybe you just want a more reliable Bluetooth device on your home network. If you’ve ever been frantically sketching out your idea on the back of an envelope or keeping notes and ideas in your pocket journal, make sure you don't ignore the business realities that can derail a great idea and leave it in the dustbin of engineering history.

Building a real company around your piece of hardware is hard. If you are just starting to dip your toes in the startup community, the deck can be stacked against you and bringing your great idea to market can be an uphill battle. As a first-time entrepreneur, you probably have several questions about organization, fundraising, and legalistics. My goal in this article is to show you how you can begin making your hardware startup dreams a reality.

Steps to Hardware Startup Success

Let's be clear: there is no simple 3-step process that will take your great idea from a proof-of-concept to a mass-manufactured product. There are a few high-level areas where you need to succeed in order to build your startup from an idea in to a real business.

Please note: Some legal and financial information is included in the following sections. The information shown below is provided purely for educational purposes, and it should not be taken as legal or financial advice. If you're unsure of what to do, consult an attorney.

Now with that we have that out of the way, let's look at how hardware startups can get on the path to growth.

Step 1: Raising Funding For Your Hardware Startup

Fundraising is something every founder will need to get good at. There is no simple way to do it and you can't be shy about your product, so you will need to become your own evangelist and salesperson. The founding members and advisors are responsible for this; there is no service you can hire that will do this on your behalf.

The VC and tech investment world has developed a fundraising process over the past decade, where founders are expected to go through a series of steps before a monied investor will provide capital to help build a business.

No matter how great your idea is, and no matter how great of a salesperson you are, hardware relies on a physical product. You need to have something tangible, something you can actually show to investors, in order to secure funding. This isn't the software world, where you can get to a billion dollar valuation based on a concept for a product and a team full of ex-Google founders. If you don't have an actual device to show, test data to prove functionality, and a realistic plan for scaling the business with all the essential functions (supply chain, sales, marketing, engineering) then no one will provide capital.

• Create the right entity - ideally a Delaware corporation
• Build prototype products and test them against real-world situations where your product will operate
• Gather test data proving the product solves your intended problem
• Frame the test data in two ways: in terms of proving technical capabilities and in terms of the user's wants/needs, both of which must align with your business objectives
• Compile two pitch decks: a technical deck for engineers and a business-oriented deck for everyone else

If you do get funding from a wealthy investor or VCs, you might need to give up more than just equity. As you get to later funding rounds, you may need to provide a board seat. These investors want to know that you are acting as a good steward of their capital and that you are making wise decisions regarding allocation of resources. If you do these things correctly, you might get introductions to other investors, and that means more opportunities to grow your company's war chest.

Step 2: Prototyping, Alpha and Beta Testing

This stage does not necessarily happen after you get funding; in many cases you can transition from proof-of-concept to prototype before the angel/seed round. Subsequent funding rounds are intended to perfect prototypes, transition them to products, and build a team to support business development and sales.

Hardware startups can be very capital intensive and much riskier than software startups from an investor's perspective. This is true regardless of the complexity of the product being developed. Software teams can prototype and rebuild their application infinitely, while hardware teams need to carefully consider every aspect of a prototype before pulling the trigger on a board spin. As hardware teams build their protoptyes, they will need to be put through testing to prove functionality, alignment with business objectives, and reliability.

Alpha hardware testing is carried out in a lab or other controlled environment and the testers are usually internal company employees, the lead engineers, and/or the founders. The goal is to identify all possible defects in the product within a controlled environment. This will be your first opportunity to see your prototype in action, to identify functionality problems, and determine possible paths towards solutions.

The point of alpha testing is to go beyond feasibility testing as defined for a proof-of-concept. During rounds of alpha testing, determine how the product's performance answers the following questions?

• How well does the product's capabilities align with its business case?
• Are any defects related to the core functionality, or are they problems in a custom board that can be fixed?
• Does the operational data captured during tests support simulation results or proof-of-concept results?
• Are the user experience and functionality reliable, repeatable, and as-designed?
• What are the environmental or operating limits that cause the product to break?

Alpha and beta testing can reveal design flaws

By the time you're ready for VC funding (seed and later stage), you should have worked out some of the functional issues in your alpha test and be on your way to building your beta version. Your beta users should come from the same industry and application area as your target customers, and they should be testing your product in its intended environment. Most of the issues or feedback collected from beta testing will be implemented in future versions of the product. During this stage, you may find an opportunity for a variant of your product or a new application of your core functionality.

Step 3: Scaling

Getting your finalized PCB manufactured without redesigns and having it work correctly the first time is a huge feat, but of course this rarely happens. This is why we go through multiple rounds of prototype, both during development and when preparing an order for high-volume production. A portion of your funding should be set aside for the initial manufacturing order as your product moves into full-scale production. Once your product has reached this stage, it's possible to use this as leverage to gain additional investor capital to aid further growth.

Scaling for a hardware product is not just marked by large manufacturing orders. It's also about marketing products, selling, developing partnerships, and exploring new use cases for products. Teams need to be developed, head count starts to increase, and eventually the engineering group is on to the next product.

To get the product into the scaling phase successfully, there will be some design modifications required after the final round of prototyping has gone successfully. These largely revolve around cost control and supply chain management:

• Contact semiconductor vendors directly to see if they can allocate parts to you at volume
• Consolidate lines in the BOM to reduce unique part count
• Identify alternative part numbers in the BOM, including functional equivalents and pin-compatible substitutes

These tasks support sustained production and derisk the product against supply chain volatility. When parts go out of stock during scaling, the engineering team will be hard at work modifying designs and putting through last-minute board fabrication orders so that customer purchase orders can be fulfilled.

Hardware startups are pushing the envelope of electronics development, and these companies need the complete set of industry-leading PCB design tools in Altium Designer^®. The integrated design rules engine and comprehensive suite of design features give you everything you need to create prototypes and finalized products that can scale to high volume. When you’ve finished your design, and you want to release files to your manufacturer, the Altium 365^™ platform makes it easy to collaborate and share your projects.

We have only scratched the surface of what’s possible with Altium Designer on Altium 365. Start your free trial of Altium Designer + Altium 365 today.