Author Topic: EEVblog #887 - The Economics Of Selling Hardware  (Read 18745 times)

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Offline all_repair

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #25 on: June 07, 2016, 12:31:37 pm »
Three parts to me: gain trust, provide benefits, and create happiness. 

The weakest point of engineers shall be on the "happiness creation" and the "grey" areas  Say if there is mistake, and not the customer mistake, nor the seller mistake, who is going to absorb the loss?  and make good what the customer got what he wanted.  He wanted the product, not the refund and the product has run out.  What are you going to do? it is too troublesome or too costly just to process one order.  OR some you think could be the customer's mistake, but it was made due to confusing system or instructions, who is going to absorb the loss? That shall determine the tone and recourse one is making to the customer.  At that time, the engineer could be fighting fires on many fronts.  Most engineers I came across shall take this kind of hiccups as irritants and shall react accordingly.

Charge a bit more if it allows you to make the customer happier.  Or you could take the other path, and compete with the drop-shippers.
 

Offline hazzer

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #26 on: June 07, 2016, 06:54:20 pm »
Hello All

Any insights on the selling of kits vers finished modules?

i.e. boards and hard to find parts, vrs, finished & tested modules.

Does the 2.5 times guidance still hold, or does it need to be higher?

Is selling a kit of parts asking for endless trouble and requests for support?

Thanks

Hazzer
 

Offline Wilksey

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #27 on: June 07, 2016, 10:27:18 pm »
It all depends who you sell to.
Sell to Joe public and you don't know who will be on the receiving end of your product, if you are a direct seller you may end up spending most of your time with support cases.

In an ideal world a VAR would take your product and employ an FAE to do the donkey work, and only call upon you as a last resort!  However, some of the FAE's can be just as demanding as the general public.

If you go-it-alone, or are bootstrapping then you will find it more challenging, but more rewarding towards the end (if you succeed!), if you are looking at VC or an investor then you might have some restrictions imposed by them, but might have the added advantage of them helping you to sell and realise your market.

In terms of how to enter the market, well, most ideas for a new product come from a problem that you have seen or heard of, be it from an actual person or something you have read in a magazine or on the web, in most cases, you are able to contact said person or "publisher" to see where you could take your idea and move on from there.
If it is a completely new idea, it will relate to one or more markets, i.e. Rail, Transport etc, look at other companies that do similar products or consultancy firms, they might want to haggle like a VAR would but once you are connected the next time *should* be easier!

VAR = Value Added Re-seller
FAE = Field Application Engineer
VC = Venture Capitalist

These are just my views / opinions based on own and acquaintances' experiences.

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Offline old gregg

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #28 on: June 08, 2016, 07:32:11 am »
how do you scale the redundant number you have to produce to take care of unexpected manufacturing errors, shipping lost or such ?   

 

Offline biomurph

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #29 on: June 08, 2016, 12:40:47 pm »
Love the blog, been watching for a few years, and this is an almost great video.

I have a couple of Open Source Hardware companies, and they are so far sustainable over the course of 5 years for one and 2.5 years for the other. I find a fatal flaw in your calculations Dave. When you say that you will make a thousand things for $50/each, then sell them for $125/each over the course of a year, you definitely do make $75K. For one year. What happens when you need to make another thousand things? where does that money come from? Thin freaking air? No, it comes from your profit, so you're actually making a measly $25K for the year while you capitalize your company so that you can be sustainable over (hopefully many) more years. You never once mention the notion of sustainability in the entire video, and for someone who appreciates the law of thermodynamics (loved the Peltier water bottle take down!) you're creating a system that is just not going to cut it! If someone quits their job based on this information, they will be back for job interviews the following year, scratching their head wondering why they went out of business!

Please, please, take this problem in your formula seriously and post a correction. People ask me 'How come it's so expensive?' for a $25 product, when it costs me about $5 to make (and I have a 50% partner), and incomplete explanations about how to create a sustainable business like this leave me  |O

« Last Edit: June 08, 2016, 12:58:24 pm by biomurph »
 

Offline EEVblog

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #30 on: June 08, 2016, 01:03:19 pm »
I have a couple of Open Source Hardware companies, and they are so far sustainable over the course of 5 years for one and 2.5 years for the other. I find a fatal flaw in your calculations Dave. When you say that you will make a thousand things for $50/each, then sell them for $125/each over the course of a year, you definitely do make $75K. For one year. What happens when you need to make another thousand things? where does that money come from? Thin freaking air? No, it comes from your profit, so you're actually making a measly $25K for the year while you capitalize your company so that you can be sustainable over (hopefully many) more years. You never once mention the notion of sustainability in the entire video, and for someone who appreciates the law of thermodynamics (loved the Peltier water bottle take down!) you're creating a system that is just not going to cut it! If someone quits their job based on this information, they will be back for job interviews the following year, scratching their head wondering why they went out of business!

Sure, but I can't cover everything, the video was already long enough, and everyone circumstances, profits, cash flow etc etc are different.

Quote
Please, please, take this problem in your formula seriously and post a correction. People ask me 'How come it's so expensive?' for a $25 product, when it costs me about $5 to make (and I have a 50% partner), and incomplete explanations about how to create a sustainable business like this leave me  |O

No "Correction" needed. It would be wrong of me to post a "correction" and assume variables about someone's business sustainability.
Simple stuff like the timing of when you make your income and have to pay your bills and tax etc can, make a huge difference, it can even make or break your company. The dynamics of business cash flow are something that a simple "correct" calculation can't possibly cover. I think you were expecting way too much from this video.

Worthy of a follow-up video though perhaps, along with half dozen other things that can be just as important.
But I suspect that such a followup video covering those things may cause more confusion than help if not done right.

You mention "If someone quits their job based on this information", well the exact same problem can be said about if I explain and try to calculate a business sustainability model. It could be completely off for them and their circumstances causing them to go out of business if they follow my "advice" and calculations.
This is not nearly as easy as you make it out to be, simply providing a "correction". Such a correction could likely be as "wrong" as me not mentioning it in the first place.
« Last Edit: June 08, 2016, 01:15:41 pm by EEVblog »
 

Offline biomurph

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #31 on: June 08, 2016, 01:16:49 pm »
I don't think that quitting your job for a hobby project is a great model. After all, someone had to come up with the $50K to launch the damn thing. Let's say you crowd fund it, well, then great you can spend the year doing shipping and handling while you invent your next Kickstarter campaign...

All right, I'm editing this. I see the mistake I made. You sell for $125, and make your $50 back on the sale while pocketing $75.
I humbly apologize for my knee jerk response.
« Last Edit: June 08, 2016, 01:22:24 pm by biomurph »
 

Offline saturation

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #32 on: June 09, 2016, 12:59:33 am »
A great video, even if folks disagree on the actual ROT, it details what funding is needed to get a project off the ground and what that markup entails, this is fairly common for the consumer market space.  Not so sure what it is these days in T&M.  It should give those wanting to crowd fund projects some pause to ponder.  Direct to consumer selling, aka on-line sales, have changed somewhat the middle man issues like distributors, as it was far worse before the Internet.

E.g. if we assume 2.5 is true, then consider the MRSP $US400 of the  Rigol 1054Z, means it costs ~ $160 for Rigol.

There are other complex side issues and benefits for bare bones pricing for profit to be reduced even more, like the concept of loss leaders or publicity, but Dave demos see how small changes in additional charges can result in drastic profit reduction and the best way to hedge against more profit erosion depends on the money you need to survive, and in 2.5 margin ecosystem, volume selling is key.

Now whether the widget for this year is really better than last years or the makers reduce quality to insure failures after X years, so the seller can sell more to earn more, I leave the moral dilemma to the readers; particularly in the consumer space.
 
You need not play such a game.  As another said, a niche market can be charged what the market will bare.  For aerospace markup is typically >1000x of cost, built to order, have little to no inventory, buyers even pay development costs like 'crowd funding' which is built into the product cost, so there is less capital risk.  In military spending, there is little no competition just government oversight.  An EE would be best to enter such fields as a career and stay away from anything that is civilian or consumer focused.  Devices are often kept and used for decades. Medical devices have price pressure as its mostly for civilian use, more than military but less stressful than consumer.

AFAIK some niche T&M instruments, like the top end DSOs, the 3458a DMM, the Fluke 8508a DMM etc., are built to order and cost what the market will bare.  However, in the HP days of Bill and Dave T&M was like entirely driven by 'market will bear'  scientific instrumentation costs, but these days a portion of catalogs acts like a consumer product due to widespread competition and ease of development: DMM, DSO, clamp meters, etc. 
« Last Edit: June 09, 2016, 09:53:02 pm by saturation »
Best Wishes,

 Saturation
 

Offline Lord of nothing

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #33 on: June 09, 2016, 05:44:19 am »
Sorry he forgot something like salary!!!
Depend on your Country even when you are an one men show you must pay: Income tax, Subway Tax, Social Service, Medical Insurance and a lot of other Stuff. So at the End 70% of your salary are gone.
Made in Japan, destroyed in Sulz im Wienerwald.
 

Offline VanitarNordic

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #34 on: June 09, 2016, 07:40:15 pm »
Thanks a lot Dave for this Video. I learned a lot.  :clap:

I really appreciate if you make another one for the software business, such as mobile apps and so on. Thanks.
 

Offline josechow

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #35 on: June 09, 2016, 10:36:10 pm »
Great video!

I'm finishing a small project that I would like to try to sell, I'm good on the technical aspect (I work on power electronics) but I had little idea on the resellers and how much they expect to charge. Other part that I'm a little afraid is on the customer support that the product would require... ranging from documentation, technical questions to refunds etc...

For the small kickstarter project I did last year, the documentation was horrifically long because I wrote it as I understood it... which is not the case for everyone! So I had to write a supplement document which "dumb-ed" everything down.  Sometimes its hard to sit back and look at a project from the perspective of someone not knowing your product or system.
 

Offline josechow

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #36 on: June 09, 2016, 10:42:11 pm »


The founding of Fairchild Semiconductors might be an appropriate example of what a great team can do once free of poor management. Mutiny is sometimes the only solution.

I read The Chip, absolutely great read if you're a nerd like me.
 

Offline EEVblog

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #37 on: June 10, 2016, 12:45:48 am »
I really appreciate if you make another one for the software business, such as mobile apps and so on. Thanks.

I know nothing about that market.
 
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Offline Brumby

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #38 on: June 10, 2016, 11:44:55 am »
I really appreciate if you make another one for the software business, such as mobile apps and so on. Thanks.

I know nothing about that market.

.... and that whole market operates on completely different costings.

For example - what's the difference between selling 10 units and 1,000,000 ?

For Dave's BM235, it is astronomical - for an App downloaded from Google Play, it is, essentially, nothing.
 
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Offline VanitarNordic

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #39 on: June 11, 2016, 08:11:51 pm »
Quote

.... and that whole market operates on completely different costings.

For example - what's the difference between selling 10 units and 1,000,000 ?

For Dave's BM235, it is astronomical - for an App downloaded from Google Play, it is, essentially, nothing.

That's the reason why I asked if somebody knows about the software business truly, there are many articles on the internet, but they are written generally because nobody wants to disclose his secrets of selling or entering the market. I was looking for something like Dave showed about hardware business, but this time within the software niche, such as computer software, mobile apps ....
 

Offline Brumby

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #40 on: June 12, 2016, 12:55:35 am »
I have no credentials in this sphere, other than having been involved in corporate IT application development for a decade or three...

The first and foremost requirement is to have a product that will be in demand.  It need not be a brand new product, but it would need to offer value and preferably possess a clear and desirable element of differentiation in the market.

The next is to develop a product that is robust, reliable and of a quality at least comparable to the competition - but preferably superior in some relevant qualities.

If you get this far with an App, the rest will be a cakewalk.  A physical product is something else, completely.


Just my 2 cents.
 
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Offline VanitarNordic

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #41 on: June 12, 2016, 01:25:26 am »
I have no credentials in this sphere, other than having been involved in corporate IT application development for a decade or three...

The first and foremost requirement is to have a product that will be in demand.  It need not be a brand new product, but it would need to offer value and preferably possess a clear and desirable element of differentiation in the market.

The next is to develop a product that is robust, reliable and of a quality at least comparable to the competition - but preferably superior in some relevant qualities.

If you get this far with an App, the rest will be a cakewalk.  A physical product is something else, completely.


Just my 2 cents.

Thank you in advance. I am totally agree.
 

Offline bitseeker

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #42 on: June 12, 2016, 09:34:42 am »
That's the reason why I asked if somebody knows about the software business truly, there are many articles on the internet, but they are written generally because nobody wants to disclose his secrets of selling or entering the market.

Articles and books about the software business are written from a general point of view because the circumstances, market, and extraneous forces vary significantly. It's so unpredictable that often timing and luck will make the difference between massive success and failure.

Being first to market, having the best app, possessing massive financial backing, etc. provide no guarantee of success. Businesses fail despite so-called advantages. The statistics vary, but approximately 80% of new businesses fail in the first year or two.

There are no instant success secrets. If such things existed, the people purporting them would be using them to make money rather than selling books, videos, and seminars about their "method".

Learn the fundamentals of operating a business. Surround yourself with experienced, trustworthy people in your space that you can turn to for advice. Work on things that interest you. Make things that solve a problem, unmet need or desire. Then, be flexible to change with the times and the competition. Enjoy the ride!
Life is better under the TEA. ♪♩♫ Under the TEA. ♩♫
 
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Offline VanitarNordic

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #43 on: June 12, 2016, 05:51:01 pm »
Quote

Articles and books about the software business are written from a general point of view because the circumstances, market, and extraneous forces vary significantly. It's so unpredictable that often timing and luck will make the difference between massive success and failure.

Being first to market, having the best app, possessing massive financial backing, etc. provide no guarantee of success. Businesses fail despite so-called advantages. The statistics vary, but approximately 80% of new businesses fail in the first year or two.

There are no instant success secrets. If such things existed, the people purporting them would be using them to make money rather than selling books, videos, and seminars about their "method".

Learn the fundamentals of operating a business. Surround yourself with experienced, trustworthy people in your space that you can turn to for advice. Work on things that interest you. Make things that solve a problem, unmet need or desire. Then, be flexible to change with the times and the competition. Enjoy the ride!

Yes, Sometimes with all precautions and calculations, one product may fail in the market. I think we will never know what will happen before we actually test and act. I am totally agree with your terms specially with people around us. unfortunately when you start a business, you receive many jealousy signals rather than helpful ones.
 

Online AndyC_772

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #44 on: June 12, 2016, 06:38:24 pm »
they are written generally because nobody wants to disclose his secrets of selling or entering the market.

I'm afraid I think that, for as long as you believe in the idea that there are "secrets" being shared by successful people in a business as common and mundane as software development, you're going to struggle.

I owe what business success I've had to:

a) knowing the right people at the right time, and
b) doing a good job for them

...in that order.

(b) is achievable if you have the necessary skills and the will to make it happen. This part is entirely down to you.

(a) is harder. It's not a 'secret', but it is necessary, and it's not something anyone can tell you how to do because the answer will depend on your specific circumstances, and is different for everybody.

This is primarily a technical forum, and most of us are able to put together some code or device which does something cool. What we're not generally so good at - because it's a completely different mind set - is getting that thing into the hands of customers.

How to do it? Your guess is as good as mine, that's why I have customers and business partners for whom I do design work but not sales. Maybe in your product area it's all about social media, or usability, or a really polished looking UI. It's probably not about some super technical feature, even though that's what us nerds tend to focus on.

At risk of starting a war, look at Linux... technically brilliant, but despite having been around for years and years, it's not achieved mass market penetration. Take a long, hard look at why that might be, and you might get some clues as to how to make a software product successful. (Hint: don't just make a product that's 'by nerds, for nerds' if you want to sell a lot of copies).
 
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Offline EEVblog

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #45 on: June 12, 2016, 07:32:37 pm »
This is primarily a technical forum, and most of us are able to put together some code or device which does something cool. What we're not generally so good at - because it's a completely different mind set - is getting that thing into the hands of customers.

There is also an entirely different mindset in being able to get your widget into the hands of customers, and having the skills (or even have the desire to) turn that into some huge business that keeps on growing and growing. Some people are just very happy with (and good at) having a successful small one-man-band business selling a few different widgets. Not everyone needs to nor wants to grow into an Adafruit or Sparkfun.
 

Online coppice

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #46 on: June 12, 2016, 08:13:36 pm »
At risk of starting a war, look at Linux... technically brilliant, but despite having been around for years and years, it's not achieved mass market penetration. Take a long, hard look at why that might be, and you might get some clues as to how to make a software product successful. (Hint: don't just make a product that's 'by nerds, for nerds' if you want to sell a lot of copies).
Linux is the most widely used operating system on the planet. Its struggles in areas where a prior system was already well established - e.g. desktops and some areas of servers. It dominates in most areas that have grown since Linux became available - e.g. routers, switches. phones, tablets. It dominates in most areas where the previous incumbent died - mostly Unix servers and workstations. What you might learn from this is its hard to displace something well established, and much easier to grow with something fresh and new.
 

Online AndyC_772

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #47 on: June 13, 2016, 04:16:44 am »
its hard to displace something well established, and much easier to grow with something fresh and new.

Good point, well made. I completely agree  :-+

If it was a goal to make Linux achieve significant mass adoption then it would need to be standardised.

I agree with this too, and to illustrate the point, I suggest looking in completely the opposite direction: the iPhone.

The iPhone came out of nowhere. People had tried to do 'smart' phones and similar devices before, but the thing Apple chose to do was start the UI all over again from scratch, with an absolute 100% focus on the user experience to the exclusion of all else. Since then, smart phones that look and feel just like the iPhone have become universal, and patent lawyers have got rich off them.

This total focus on usability made for a relatively restricted product in terms of what it was able to do - and a wilfully restricted one at that - but for the 90% of people who wanted the phone to "just work", it was a perfect fit, and that made it a huge success. As for the other 10% of nerds, techies, and people who were offended by the idea of Apple's walled garden... well, commercially speaking, who cares.

I don't mean to suggest that every product needs to be like an iPhone of course, but I think it's important to understand that:

- a product's user is a very, very different animal indeed from its developer, and
- a lot of developers regard themselves as 'above' their users in some way.

The iPhone guys understood this, and IMHO if you want to develop commercially successful software, it's all about the user.
 

Offline Wilksey

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #48 on: June 13, 2016, 09:01:18 am »
Unfortunately most successful company directors will say it was right place right time and who you knew, not what you knew, not what anyone wanting to start out wants to hear!
Some niche products will sell themselves, or it will be easier to enter the market.

So, Andy, as a director of several companies, are you owing all of your success to just who you have acquainted with over the years, I guess the hardest to get going would be the consultancy company, it's one thing selling a product, doing market research etc, but what tips if any would you give for someone looking to become a consultant and finding someone who wants work done?

You almost need a resource like freelancer but without the people willing to do an entire 3 months project for the price of a packet of Quavers!

Bit of a minefield when it comes to "going it alone"!
 

Offline Brumby

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Re: EEVblog #887 - The Economics Of Selling Hardware
« Reply #49 on: June 13, 2016, 11:51:08 am »
... but what tips if any would you give for someone looking to become a consultant and finding someone who wants work done?

This is where the phrase "It's not what you know, but who you know" is champion.

My 2 cents....

Consultancy is all about reputation - and the perception of that reputation is best presented by people who know people ... and the reasoning is simple.  There is more at stake for each of the members of the 'referral chain' and they already have an established level of credibility with each other.  A public image is helpful, but this personal connection is gold.  As a result, there will be a higher degree of trust as each member along the referral chain will not compromise their credibility (too much), so any recommendations will often go straight to the short list and sometimes they will end up at the top.

It is direct knowledge of a potential consultant's demonstrated abilities and foibles that has power because of the personal delivery system.  A public reputation is not so personal.

Another aspect of this is that if a personal recommendation is offered from one member of the referral chain to the next, it might be taken as a personal affront if it was rejected.



JMHO
 


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