Nuts and Bolts for IoT Startups
As the IoT industry gains momentum, the demands continue to intensify. The bars for lead-times and cost efficiency are constantly being raised and the unforgiving millennial consumer will only give you one chance to deliver upon your promise. It’s a cut-throat competition not many survive.
Because of the heightened demands, these often Silicon Valley driven startups are setting up shop in Hong Kong and Shenzhen to come closer to production and access services such as Industrial Design and Branding. It provides a healthy demand for high-end service skills and we are kicking out some amazing stuff!
With a little help from my friends Bay McLaughlin, Co-founder and COO at BRINC IoT Accelerator, Tony Verb, Managing Partner at METTĀ and George Charkviani, Partner at FRANKLY HOWL design and production agency, I set out to answer some of the most common questions I hear from IoT startups planning to set up shop in Hong Kong.
Here are our key takeaways;
The Big Cake
According to IT research and advisory firm Gartner, Inc.:
- In 2016 5.5 million new things connected every day.
- 6.4 billion connected things were in use globally.
- By 2020 an expected 20.8 billion devices will be connected globally.
Global demand for IoT products will only grow stronger, opening up new business opportunities and attracting a new crop of startups and entrepreneurs jumping on the IoT bandwagon, ready and eager to take part of the big cake.
Harvest the Best of Two Worlds
When it comes to IoT startups, you need to grasp any advantage you can get to be competitive. Hong Kong can offer some major advantages to a young entrepreneur. It is the blend of culture, governance, location and accessibility that makes the city one of the most appealing spots for hardware development, attracting companies and entrepreneurs from around the world.
Strategically situated at the doorstep to the world’s factory in Shenzhen, and the English speaking, business savvy Hong Kong allows for IoT startups to leverage the best of both worlds:
- Business and Legal: Hong Kong companies enjoy an English speaking international infrastructure, sophisticated and business-friendly legal system, easy business set-up with minimal red tape and low corporate tax at 16.5%.
- Sourcing: Shenzhen is a haven for sourcing everything you need in IoT-specific hardware. There are actual shopping malls dedicated for electrical components operated by the manufacturers themselves, thus improving speed and enabling cost-efficient prototyping.
- Manufacturing: Work closely with OEM setting up production line and minimize hiccups that would lengthen lead time.
- Internet: Hong Kong is “super connected”. It is supported by advanced and reliable ICT infrastructure, very high broadband and mobile penetration rates and excellent Internet connectivity, providing a solid testing ground.
Tapping into the connected device market extends, of course, far and beyond finding the right geographic location to launch the business. Startups entering this fascinating and ever-changing dimension should be forewarned of the 5 key takeaways identified here which C’monde Studios has learnt from our experience working with IoT clients:
1. Neglecting to identify a consumer need
IoT is all about connecting; the first question any IoT entrepreneur should ask himself is whether the device he is developing should be connected in the first place. Contrary to popular belief, the number one reason IoT startups fail is not the lack of cash. Instead, failure to cater for a “market need” tops the list.
2. Turn Your Tech Features to Customer Benefits
Many startup entrepreneurs forget that all technical features must ultimately be transformed into tangible consumer benefits. By focusing on the key features that drive customer value, the product has a greater chance for success. A strong and well-written value proposition for any connected device is KEY. An overloaded features list will only shadow the real benefits and make your product more complex and less intuitive for users.
3. Thinking Too Small
Successful IoT hardware is rarely made in garages; many disappear due to an absence of experience in mass production. Technical background is not enough to convince investor if the idea is not scalable. Revenue will only flow to companies that demonstrate a realistic strategy, reliable alliances in the ecosystem and a viable plan to execute the business model at big scale.
4. Committing Mistakes At Zero Cost
Too many IoT startups undervalue the prototyping stage. One of the best values of the prototyping stage is testing, evaluation, getting customer feedback and allowing for mistakes at low or zero cost. When errors are discovered at a later stage in the development cycle, it always racks up large costs and exhausts vast amounts of time to fix.
5. Long on Technology, Short on Design and User Experience
Because of its innate technological integration and customer experiences, IoT demands a high level of design and technology partnership. While many startups search high and low for the manufacturer partner, they fail to do their due diligence when picking a designer partner.
Manufacturers will often provide skills of their in-house design engineers, and startups take delight in the ease of this approach. It may save some time and money at the outset, but these designers usually do not possess the requisite competence nor know-how that a more focused shop frequently do.
And believe me, nothing burns through a budget faster with significant impact on your ROI than having to overhaul in redesign a product that is lacking in user experience and does not meet market requirements.
Tony Verb – Managing Partner at METTĀ
Mettā is a platform that connects innovators and entrepreneurs with the resources they need.
It’s not how good you are, it’s rather the strength of your network
As we are in the business of connections, I will have to highlight the importance of that: networks, relationships and partners. Not only for a successful launch, but to run a business well, you need to find the right people with the right resources. That’s how you get access to funding, to customers, to more efficient solutions and synergistic deals.
If there was a global capital of connectivity, then it is Hong Kong. It doesn’t only have one of busiest ports and airports in the world, super high smart phone and broadband penetration, but also a genuine culture of networking. It applies to everyone from students, to business magnates and also to the government that is engaging with the rest of the ecosystem on the ground.
This network matters more than it looks by first sight as they all lead beyond Hong Kong. The city is unique, because it has strong influence in China (people from Hong Kong own a large proportion of Guangdong factories) as well as in the rest of the world. And just like everyone else, the people with that influence can be accessed and are open to new ideas, as long as they make good commercial sense.
In the end it is all about business in Hong Kong. As an old local phrase suggests very clearly: no money, no talk.
Bay McLaughlin – Co-founder and COO of BRINC
BRINC is an ultra hands-on IoT and Hardware accelerator platform with offices in Hong Kong, Guangzhou and Shenzhen.
Plan, plan and plan some more.
IoT or Hardware companies need to accept the fact that they are 80% offline – old economy businesses. You are NOT a tech startup. If you work hard enough, partner with the right people and solve a real problem for people, you MAY have the chance to get to the part where the digital and data side becomes the most important differentiator. However, most people doing IoT or Hardware startups for the first time never make it to that moment. It’s ALL about planning. The details matter more in these types of ‘waterfall’ businesses than they do in software of digital. Plan, plan, and plan some more. Join an accelerator. Partner with a great mentor or product development shop and STOP making excuses. You CAN do this.
I guess the question then becomes, HOW do you do this? That’s actually one of the easier problems to overcome. You move to Hong Kong (specifically Sheung Wan), where you have the best industrial and product development shops, IoT / hardware minds and startups, and busses running to Shenzhen every 15 minutes. And don’t kid yourself, you DON’T need to be in China full time (actually, you shouldn’t be). You just need to be within a quick drive so you can be involved with production regularly, but also build your Western-facing business at the same time (you CAN’T do this while being in China every day).
It’s a magical time to be starting your first IoT / Hardware business and the right partners with all the right experience are living in Hong Kong and ready to help you. #GetInvolved
George Charkviani – Partner at FRANKLY HOWL
Frankly Howl is Northern Europe’s leading development agency with a team of 80 designers, engineers, and production specialists across three sites in Stockholm, Malmö in Sweden and Shenzhen
The Importance of Being Present
With the odds stacked heavily against success, it’s logical then that any budding IoT entrepreneur should look to find advantage wherever possible. It is undeniable that having a presence in Hong Kong and Shenzhen offers several unique advantages in the startup universe not found elsewhere.
Two major advantages are within the scope of running product development, specifically within the areas of user orientated design and supply chain management.
At Frankly Howl, we practise and promote a user orientated design process. We see this as key in creating amazing products, as well as the primary competitive advantage most companies (regardless of size) have. The foundation is knowing your end users and understanding their behaviour and decision-making process. However connected the world has become, the intricacies of connecting with a user group still require entrepreneurs to be engrossed within their culture. Locating a development group in Hong Kong and Shenzhen presents a glimpse into both Western and Eastern consumer behaviours that is difficult to replicate elsewhere.
The second is the proximity to one of the most skilled manufacturing bases in the world. Despite recent trends of moving manufacture back to the West, Guangdong still has the most mature and skilled production suppliers in terms of IoT and high volume hardware. The cultural gap with Chinese suppliers makes getting products into production a highly stressful process that left unmanaged results in delays, increased cost, and compromises in the final design. From our perspective there is no better way to manage these risks then being present as miscommunication is minimised, expectations are better aligned, and business relationships are matured.
Finally as markets have opened, being in Hong Kong becomes a huge advantage. There is an obvious trend of Western companies shifting focus towards growing affluence in China, as well as Chinese brands trying to establish themselves in Western markets. Companies located at this crossroad have superior access to customers in both. This is particularly relevant as focus is balanced more towards developing the business from the actual product as the company matures.