Essential Considerations for Hardware Entrepreneurs

Introduction to Hardtech Development

For entrepreneurs and startup founders venturing into the development of hardware or hard tech products, understanding the key aspects of the entire process is crucial to avoid mistakes. In this article, we will discuss important factors such as timeline, costs, the bidding process, prototyping, patents, and more, in order to provide better comprehension and align expectations for those embarking on this journey.

Timeline

Developing, manufacturing, and launching physical products typically requires a minimum of several months to one year. Unlike software products, which can be iteratively improved after an initial launch, physical products demand a more comprehensive development process before launching. It is essential to understand the reasons behind this difference, which are explained in our article on Hard Tech vs Soft Tech. Therefore, it is important for entrepreneurs to have conducted market research, competitor analysis, and/or some level of prototyping before engaging with a product design firm.

Costs

Bringing a physical product to market entails significant financial investment. The total development and launch costs for a physical product can range from $250k to $350k, and in some cases, expenses can reach up to $750k or higher for more technical products. To provide a breakdown of these costs, let’s look at the two phases: 1) Design & Engineer, then 2) Reproduction:

1. Design & Engineering

• If you have an idea and need assistance with Design, Engineering, and Manufacturing preparation, Tomorrow Lab offers a Holistic Innovation Sprint. This service helps you develop the design, technology, and supply chain required for mass production. Our Holistic Innovation Sprint projects are structured weekly and span 1 to 8 weeks.
• Once a concept has been prototyped, next steps include Design, Engineering Development, and Manufacturing Preparation. Those costs could range from $50k to $250k. Higher costs are associated with more technical products or those with extensive software requirements. To gauge the complexity of your product idea, you can use Tomorrow Lab’s Project Complexity Gauge. Keep in mind that the more complex your idea is, the more time and money it will require for development.
  

2. Reproduction

• Reproducing your product involves certain costs that are important to consider. One-time fees known as Tooling or Non-Recurring Engineering (NRE) Fees, ranging from $50k to $100k, are paid to a Contract Manufacturer (CM) Factory. These fees are necessary to set up high-volume production.
• For new product trials, a Minimum Order Quantity (MOQ) is typically required, which is usually 1000 pieces. If your final unit cost is $100/ea, you can expect to pay $100k to the CM for the first order.
• In addition to the above, there are other expenses associated with shipping products, including Certification, Regulatory Compliance, Shipping, and Warehousing, which amount to approximately $25k. Intellectual Property (IP) protection requires an investment of $15k, and advertising/marketing fees can reach up to $25k.
• While Tomorrow Lab does not lead the reproduction efforts for Clients, we do offer work scopes to help set up and oversee manufacturing programs with third party Contract Manufacturers.

Understanding the financial requirements is crucial for entrepreneurs seeking funding, interest, or commitment from stakeholders. It also highlights the fact that the fees paid to a product development company like Tomorrow Lab are only one portion of the total capital needed to launch a product to the market. Entrepreneurs should ensure they have budgeted for — or at a minimum are aware of — the total capital required before deciding to undertake the project and have a firm come along the journey with them.

Leveraging Expertise

Given the development process of new products can be very complicated for first-timers, leveraging the expertise of a product design firm is a key reason entrepreneurs engage with such companies. These firms have extensive experience in designing, developing, and manufacturing physical products. 

Clients should be aware that their expertise lies in these areas and, therefore, should bring their own critical expertise, such as knowledge of the product’s industry, marketing strategies, and go-to-market plans. 

The collaboration between the firm and the client should utilize the strengths of both parties to achieve successful outcomes. Clients who are under-resourced in all areas including marketing strategies and go-to-market plans need help beyond that of a Product Development firm and should first seek to partner with co-founders or other resources to fortify their team.

The Bidding Process with Product Development Firms

When engaging with a product design firm, it is important to establish clear communication and expectations. Creating a project proposal should be a collaborative effort between both parties, indicating a likelihood of project progression. If seeking bids from multiple firms, mention that and communicate your critical requirements upfront to ensure an efficient bidding process. For example, if being co-located in the same city is a requirement, that should be clearly communicated upfront. 

Product design firms are generally compensated in one or more of three ways: Cash Fee, Equity, or Royalties. At Tomorrow Lab, the most common form of project compensation is Fee for Service, especially for initial engagements. From time to time, the TL Partners review opportunities for Equity arrangements in order to build long term strategic partnerships.

It is imperative to respect the time and effort of all firms involved and to avoid requesting proposals when there is no intention to work with them. Transparent communication from the outset is essential to avoid miscommunication or disappointment.

Prototyping

Prototyping is a fundamental aspect of physical product development, constituting approximately 75% of the overall activities. A healthy hardware product development process makes use of prototyping as a series of recurring loops. Each loop reaches higher and higher fidelity output until the design is ready to be manufactured.

At Tomorrow Lab, we define four tiers of prototypes to highlight their iterative nature and their purpose in the development process. These tiers include:

• Tier 0: Cosmetic Models – Display prototypes for assessing aesthetics and validating design direction.
• Tier 1: Benchtop Demonstrators – Sub-system prototypes to validate key features and address technological challenges.
• Tier 2: Functional Devices – Integration of all features to demonstrate cohesive functionality and generate buy-in from partners and investors.
• Tier 3: Factory Produced – Final pre-manufacturing prototypes that embody the soon-to-be-manufactured product.

Due to the reality that the cost of a change increases the further you go in the development process, a good process is one in which each Prototyping Tier is not skipped. Lastly, keep in mind that many more than four prototyping tiers are created in most projects, as there tend to be incremental and interstitial prototyping tasks that occur between each of the main four Tiers.

Patents

Filing for Intellectual Property (IP) like a patent is an important step for any hardware venture to consider, as a patent can increase the value of the hardware design and provide some amount of protection.

Having a patent can provide both defensive and offensive value:

• Defensive: Having a patent allows you to pursue legal litigation against another party that appears to be infringing on your technology by copying or reproducing it without your permission. Keep in mind legal battles over IP can be expensive and time consuming, especially if the offending party is much bigger than you and has relatively endless resources.
• Offensive: Having a patent can make your hardware venture more attractive to investors  and partners. Keep in mind that the value of a patent is in its Claims, and therefore not all Patents carry equal weight or power. A well-written patent focuses on a few claims which are non-obvious features central to your product or invention.

To file a well written patent or provisional patent, all prospective Clients are encouraged to seek and hire outside Intellectual Property Legal Council. Tomorrow Lab does not provide legal services of any kind, however the Tomorrow Lab Partners can help co-author written claims language about the products we are hired to invent and develop. We can also help Clients with their patent strategy from the design & engineering points of view.

Conclusion

Developing a hardware or hard tech product requires a deep understanding of the time, cost, process, communication, and expertise involved. Entrepreneurs and startup founders must be ready to commit substantial time and financial resources. Transparent communication with product design firms and leveraging their expertise alongside the client’s industry knowledge are central for successful outcomes. 
Furthermore, recognizing the iterative and essential nature of the prototyping process will lead to a more comprehensive and effective product development journey together. For more information about developing hard tech products, or to speak with us about a product you have in mind, contact Tomorrow Lab and we will be happy to answer any additional questions!