Summary: <br> Hardware is hard. Consumer hardware is even worse.<br> As an ex ecommerce seller with years of experience manufacturing overseas, I can tell you dealing with suppliers, MOQs (minimum order quantities), quality control, cash flow and even LTV are tough.<br> Unlike SaaS where you build it once and sell again and again with almost no added costs, hardware requires cash. Manufacturing 10s or 100s of thousands of products requires massive upfront investments that most startups cannot afford.<br> And while every sale helps make up those margins, it is still nowhere near SaaS. Worst still is LTV (lifetime value of a customer). And like a one night stand, one and done isn’t efficient in the long run.<br> <br> Fishing vs farming<br> Constantly acquiring new customers takes time and money. CAC (cost of acquisition) kills your margins. High unit costs make economics even worse.<br> Most startups and brands fall into the fishing category. They launch product: let’s say a smart lock, an autonomous drone or a time machine… then they think about the business. “Well, obviously we Kickstart this, right?”<br> As an ex-crowdfunding consultant, I saw this all the time. The “build it and they will come” mindset kills more businesses than Facebook. Without proper planning, founders often scale unsustainable business models<br> Single purchase behavior is a like treadmill. Without repeat buyers or recurring revenue, businesses must constantly fight the same battle.<br> Exceptions to this rule build strong organic acquisition channels (<a href="https://thinkgrowth.org/the-broken-business-of-ecommerce-and-why-porn-and-prostitution-can-fix-it-6aac8cfa51dd" data-href="https://thinkgrowth.org/the-broken-business-of-ecommerce-and-why-porn-and-prostitution-can-fix-it-6aac8cfa51dd" class="markup--anchor markup--p-anchor" rel="noopener" target="_blank">see this post</a>).<br> But even then, one and done loses every time.<br> <br> Farming is a 10–100x better business model. Rather than kill or be killed, startups that acquire recurring customers need a much lower hit rate to succeed. Why hunt rabbits when you can domesticate them?<br> Source: Drawception<br> The same is true of customers. Companies that effectively milk customers merit MUCH higher valuations and become more sustainable, long lasting brands.<br> Repeat vs recurring<br> There are two ways brands build success: repeat customers and monthly service fees. As a rule of thumb, these represent B2C and B2B businesses respectively.<br> As an investor, I only invest in hardware/IoT companies with recurring revenue components, ie typically B2B plays.<br> But today we are talking consumer. (For more on the B2B side of hardware/software plus IoT, <a href="https://thesyndicate.vc/ts-nick-moran-of-the-full-ratchet-on-why-iot-is-the-1-startup-sector-and-the-midwest-is-the-best-place-for-companies/">see this interview below with Nick Moran, an accomplished VC in the space</a>).<br> Later in the article we will discussing B2C recurring revenue businesses and how hardware can be your businesses trojan horse.<br> Repeat buying behavior<br> There are several ways to prop up LTV here. Traditionally these include:<br> <br> New products — shoes, socks, shorts, shirts etc…<br> Consumable products — toothpaste, contact lenses, lipstick etc…<br> Replacements — new iPhone, new laptop, new fridge etc…<br> Accessories — earbuds, Xbox games, HDMI adapter etc…<br> <br> Are you an Apple fanboy?<br> You are on this article because of Apple, let’s start there.<br> News broke recently that Apple was screwing customers, surprise surprise. The company that brought you the iPhone was conveniently slowing older ones down, right after new versions were released.<br> In my opinion Apple is scumbag company. It didn’t use to be. But recently under leadership of Tim Cook, Apple has been only focused on numbers 3 and 4 above — the least innovative and most expensive...
