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The Lean Hardware Startup Model


Lean Startup

what to do after your crowdfunding success

First off, you need to build the product you promised and deliver it to your backers.  That is first and foremost.  Let go of being a perfectionist and ship out your MVP (minimum viable product).  If you even got within 90% close to what you promised, you will have your backers support.  If you can deliver it even within several months of what you promised, you will still have your backers support.

While you’re building your product, you should spend some time thinking about what your next moves are.  The best entrepreneurs are visionaries that are able to see where their company is going months or years in front of where they are.  They are also able to see where the market is going well before it’s already there.

securing additional financing

Anything you can do to get some additional runway is a good thing.  Here’s the tricky part.  If you want your business to really be bankable, you need to figure out how to get it to a $3-5 million yearly run rate.  More likely $5 million before players and strategic investors will really take notice to your brand.  Do it being either profitable or really close to break even.  In hardware, unlike software, your margins are important.  Your growth will be looked at with as much scrutiny as your gross margin.

Don’t even bother wasting your time with traditional banks.  You really have three options.  You can raise equity based financing (selling part of your company), getting SBA loans, and non-traditional financing through AR (accounts receivable).  If you can spike your sales and create the beautiful problem of demand exceeding supply, then you’re in good shape.  This model with an insanely lean overhead is the way to go until you can get more support from a bank.

Do not bank on getting support from Venture Capital in MOST hardware cases.  Right now, the exception is that if you have some really dumb rudimentary hardware with a monetization off high margin software, you can look at VC funding.  In the case of most consumer products, plan on proving yourself for a long time and building up slow and steady.  If you don’t plan on investing a MINIMUM of three years on your product/idea, you should probably walk away right after you ship off to your crowdfunding backers.   There is no shame in this.  Life is short and you should pick a career path you will be happy doing for a long time.

The financing niche righ tnow

So how do you get from $50k to $5 million without much capital?  It’s HARD.  Leveraging your balance sheet in AR financing (or factoring) is tricky.  We’ve used Bridge Bank for a $500k A/R line and Marble Bridge for factoring.  The factoring was pretty sweet because in the wholesale business, they actually act as your A/R department and they proactively make calls to do collections.  It is pricey, but it helps cash flow and it also saves you from hiring someone to do A/R.

What I see in the market is that there are a lot of companies that can reach the initial success of product inception, but few that have support to scale into a successful operating business.  Lighter Capital is providing some revenue based financing which offers facilities based on the business run rate.  To me, crowdfunding has become the new platform for seed stage, but there is a big gap in the early stage $1M-$5M.  Finding the right partnerships to get your business to be bankable is tricky.  My best recommendation is to pitch till the end of the earth, get struck by lighting in a bottle, while maintaining a healthy viable company.

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