WHAT TO KNOW WHEN STARTING AN IOT BUSINESS

Guest post By Alexandra Deschamps-Sonsino on May 16, 2016

Back in January I gave a webinar on what to think about when you’re considering quitting your day job and starting an IoT product. Startupbootcamp IoT | Connected Devices is aimed at companies that are a little further down the road but if you’re thinking of applying to an incubator at the end of the year and want to get going, here’s what I think you should consider in light of my experience building the Good Night Lamp. (Please note some of these examples are UK-centric but similar services may be available to you locally.)

Over the past few years many companies have claimed to offer IoT services when what they really offer are either proprietary middleware, closed software services or physical products that don’t take advantage of the web but simply have embedded electronics. It’s useful to situate where your idea sits amongst all these options in order to call your product an #IoT product or not. I created a litmus test to help with this.

​In the following sections I’m assuming you’ve got a physical product which has a software component which you’ll sell wholesale or direct to your customers.

The Product

Doing product design hides a lot of complex decisions and processes. There’s the product itself and what it looks like (physical design), how it’s sold (marketing, e-commerce, pricing), how it performs (electronics design, firmware, backend design), and how your customers will interact with it (user experience).

For each of these categories there are now either free options, very accessible options or professional services available.

Physical Design

Cheapest: DIY (1+ years)

​You may want to take up to a year to teach yourself CAD (Computer Aided Design) with free or cheap online software packages (Sketchup,  Autodesk 123D Design,  Meshmixer,  Tinkercad,  FormZ) in parallel with manufacturing processes (subscribing to a physical materials library is a great way to get a sense of what you could design with). You could also join a local maker or hackspace with access to wood, plastics and metal working facilities (sadly many unis don’t monetise those resources to non-students enough). You may want to pay for a desk in an artist studio (Cockpit Arts, The White Building and the Chocolate Factory were good examples but I’m sure there are many others these days) as your peers may have those machines already and lend you a hand occasionally. You might want to hang out at the Makers Café in Shoreditch and pay for a little help from Soner’s team to understand how you can use laser cutting and 3D printing to your advantage for your design. This will mean you’ll just have to invest in the raw materials and cost of a desk (£500/mo if you’re going crazy, £200/mo if you’re lucky).

Not So Cheap: Industrial Design Freelancers (8-9 months)

This would involve working with a freelance industrial designer and sadly they’re quite rare. I studied industrial design and many of my peers went on to work within larger businesses. If you’re lucky enough to find one, make sure this is someone with industrial experience with the manufacturing processes you think you need. You don’t want to work with someone who knows about the CAD but has no experience of manufacturing. Mistakes in prototyping are very costly and the cost of a batch with some major mistakes will set you back several thousands of pounds. So work with good people. I’m lucky enough to have been working with Tom Cecil Studio and he’s got a great network so if he can’t help you he’ll know someone who can. If you don’t know how to think about the manufacturing of a complex product, go talk to Christopher Pett who has over 20 years of experience with supply chain design for small product companies. More ‘on demand’ product design services are emerging and Red Clay Design has been mentioned to me once or twice. In this scenario you’re resolving some of your issues but you’ll still have to design your own supply chain and figure out how all the pieces fall into place.

Expensive: Industrial Design Firms  (6-7 months)

Industrial design companies have existed since the beginning of industrialisation so they’re easy to find. Large firms such as IDEO, Frog, SeymourPowell, TTP, Native, Map Project Office, RPD International (who are also partners of the Startupbootcamp IoT | Connected Devices program) and others are worth having a chat to. They’ll probably help you design the product, sometimes set up the supply chain, and even put you in touch with potential retail partners. They won’t be cheap though, and you should think about costs starting at £50K+ but the work will probably be done quicker. If you’ve closed a successful funding round or crowdfunding campaign there are worst ways to spend your money. Beware though about a firm’s ability to take on software and physical product design. Because #IoT has become popular, many firms are claiming to offer the full range of design services when they’re actually outsourcing many of these tasks, passing the inflated costs on to you which as a small company you’re probably not interested in. So ask questions about their experience across product, electronics and embedded software design.  Make sure the IP stays with you as well and you have access to the original CAD and Gerber files should you choose to move on to a new partner.

Selling Your Design

Figuring out how much a customer is willing to pay for your product is sometimes in direct conflict with how much a product costs in small quantities. This is acerbated by the ongoing costs of development in #IoT. This is a difficult battle, but you should consider that eventually you should aim for your costs (bill of materials, shipping costs between vendors, assembly, labour, tax, warehousing and shipping costs) to add up to no more than 20% of your RRP (recommended retail price). When you’re talking to wholesalers, they’ll be looking to take 50-62% of any sale of the product, so there’s got to be enough left for you to pay salaries, customer support, returns, warehousing and to market your product.
To engage with trade press is a long game which you can facilitate with a few assets. Always have a Dropbox folder any journalist can access with print resolution images (in context and with a white background) a Word document press release and a link to a web-friendly 3minute (max) video. You’ll want to keep a list of press contacts which you may want to send samples to for reviews. If you want to be written about for Christmas, you need to be ready by June with your assets as most magazines will take months to prepare the Christmas edition which comes out in late October-November.

If you’ve decided to sell ‘direct’ via your website, use a flexible e-commerce platform like Shopify where you can ‘plug-in’ different services such as fulfilment services. This means you won’t have to box the products and send them to your customers yourself but you’ll pay someone a few pounds to do it for you. All you have to do is to send them a bulk quantity and let the orders roll in. Building plug-ins for added functionality on top of Shopify is difficult so you may have to commission a friendly developer to do this, but initially this might not be a problem. Keep in mind that using Shopify involves a flat fee (I pay almost £60 a month) and then added fees on each sale, on top of whatever your payment provider charges you (2-3%). Everyone wants a piece of your sale sadly.

Be wary of ‘marketplaces’ for #IoT. They may not have the traffic you’re after and you’re essentially paying them a fee to distract your customers away from buying from you. If it’s John Lewis that’s one thing, but someone small and digital only will be a waste of time. You want to build your brand, not help them build theirs.

Tradeshows are a great way to raise awareness to a buyers community if you’re ready in terms of pricing. NY Now (formerly known as the New York Gift Fair) is probably your best bet if you’re trying to get American buyers interested. (NB: When I say buyers I mean the staff in charge of selecting products to be sold through shops or chains, not the end customers.) In the UK, consumer-facing shows can be a great way to build momentum around your product when you’re not quite ready for larger orders, but those shows do cost several thousand pounds even for the smallest space. Most shows however do have a bit of space for ‘emerging talent’ so try to haggle a little. 

I hope the above is of use. In my next blogpost I’ll move on to the meeting of hardware and software. In the meantime join the Startupbootcamp IoT | Connected Devices Showcase in London on May 17th - www.sbciotlondonmay.eventbrite.co.uk.

Alexandra is an interaction and product designer, entrepreneur, speaker and curator based in London. She heads up designswarm a consultancy for clients who want to plan for next generation connected products, experiences & strategies. She's also the founder of the Good Night Lamp, and runs the London IoT Meetup.