Three Challenges the Hardware Industry Faces in 2016

2016 is the year many thought leaders in tech space are urging caution, expecting markets to cool drastically and urging startups to stay afloat by minimizing burn rate. Yet at the same time, the hardware industry is the fastest growing sector in the market, with investment up 30x since 2010.
At this important precipice, what does the future hold for hardware companies?
To better understand where the hardware industry opportunities are, what are perceived as the greatest challenges, and what it means to be a hardware founder today, we surveyed over 200 hardware companies and uncovered a lot of interesting information. Here are the highlights.

Hardware Companies are Working to Build Products Faster

In our report, we found on average most companies budget one to three months to build a functional prototype. Similarly, the majority of companies budget just three to six months to go from functional prototype to production.
If you’re not familiar with hardware development lifecycles, just know that this kind of schedule is incredibly fast (and ambitious) compared with what was possible just five years ago. Hardware startups are increasingly seeking to become leaner in order to get to market faster and maximize capital investment.
But while companies are working hard to be lean and build faster, the outcomes don’t always match expectations. Data shows that about four out of five VC-backed crowdfunding projects were late in 2014, and of the late projects (total cohort of 91 companies), 30 percent still hadn’t shipped in Q1 2015.
Hardware companies setting ambitious schedules to get to market faster, and that’s fantastic and important, but there are clearly still obstacles in the way preventing companies from building as fast as they’d like to.
What are these obstacles and how can we overcome them? Well, there are many, and I won’t mention them all in this post, but one of the major ones we’re focusing on at Fictiv is prototyping speed. Iterating on a physical product is inherently slower than iterating on a digital product, but if we can help companies to iterate daily vs weekly, that’s a huge step forward.

Hardware Companies Seek Access to Better Tools

One of the key factors that has contributed to massive growth in the hardware sector is an increase in the number of tools available to hardware companies for prototyping and development.
We asked companies which tools they leverage in the development of their products and saw that 91% of companies use 3D printing, 58% use Breadboards, 51% use Arduino, and much more. (Honorable mention goes out to the tried-and-true duct tape, used by 46% of survey takers!)
On the design side of things, there are a large variety of CAD programs available, but according to our results, Solidworks still reigns supreme, used by 70% of our survey takers.
While there’s been a big uptick in the number of tools available, we need to continue to teach a wider audience how to use these tools most effectively. Arduino and Adafruit, for example, are doing a fantastic job educating people on the electronics side, Dragon Innovation is teaching young companies how to work with manufacturers in China, and on our blog we’re educating engineers and designs on how to prototype on the mechanical side of things.
However, access to tools is not enough to make a successful hardware company—we need to document and decodify the knowledge around how to best use these tools and manufacture products at scale.

Raising Capital is Top of Mind

We polled companies on the greatest challenge in bringing a successful product to market and 28% said funding & resources was #1.
And they’re not alone—this feeling is being echoed by thought leaders across the venture capital space. For example, Mark Suster, partner at Upfront Ventures, cautions: “I suspect 2016 will be the year that the more heated private tech markets cool.” Similarly, Fred Wilson, co-founder of Union Square Ventures, recently projected that “Markdown Mania will hit the venture capital sector as VC firms follow Fidelity’s lead and start aggressively taking down the valuations in their portfolios.”
In response to VC’s urging caution this year, minimizing burn rate and staying lean is the mantra for hardware startups in 2016.
The good news is that hardware is still the fastest growing sector in the industry and investment has been increasing at astounding rates: Investment in hardware is up 30x since 2010 and venture capital dollars in IoT have gone from $1.8 billion in 2013 to $2.9 billion in 2014 and $3.44 billion in 2015.
To stay lean, hardware companies should consider burn rate and optimize for speed in the prototyping stage of development. Often we see cost-conscious startups skimp on up-front costs rather than considering the cost of wasted time, which ultimately comes down to burn rate (people are your biggest expense). So every time you order a 3D printed part, for example, the true cost of that part is really (part cost + (lead time x daily burn rate)).

Main Takeaways

The evidence from our State of Hardware Report points toward incredible potential for the hardware industry. More and more companies are building innovative products, we have better tools and technologies for prototyping, and the community is strong and passionate about open-source knowledge.
But we still have a ways to go before hardware development can truly to accessible to everyone. We hope this snapshot of information points the community in the right direction to understand how to make hardware universally accessible so we can continue to build better tools and resources for truly democratized hardware development.