“Lean” Hardware Startups

Jeff Bussgang of FlyBridge Ventures wrote a good post today about application of “lean startup” concepts to capital-intensive ventures.  It’s something I have been contemplating quite a bit after having started and run two optoelectronic system ventures, and then dipped my toes in the software world.

Obviously there are some significant differences in what gates progress in web/SaaS/software and component/system ventures.  Whereas risk in web start-ups resides mainly in the market (or “product-market fit”), most component ventures are gated by technical risk.  Often market risk can be reduced very quickly (A/B tests, test campaigns, etc.), and progress measured on a daily basis (e.g. conversion rates).  In components, risk reduction cycles (often it’s done using the ur-A/B test, “designed experiments”) may take weeks or months.

As CEO, it’s tough to go to a board meeting and say “the wafers are still in the fab, just like last time,” so you are inclined to make other forms of progress.

The most insidious form of artificial progress is hiring.  At the early stages, it’s usually a small, tight team that is doing all the core risk reduction.  Hiring additional layers before you reach well-defined technology or product gates is a recipe for painful down rounds.  It takes time, it integrates cash burn, and takes an emotional toll when you have high-paid, high-powered applications, systems, and sales people sitting on their hands.  Then you have more cash burn and endure more pain when you pivot the company and have to replace many of those layers.

I like Jeff’s (and FlyBridge’s) model of $500,000 seed money to build a prototype.  But even a Series A in these ventures typically has lots of risk left in it — and spending must be gated according to core development milestones.

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