True, hardware involves lots of schleps. But that means good ideas of this type are often lying around in plain sight, while all the other would-be founders are fixated on making the latest mobile social commerce app. (http://paulgraham.com/schlep.html)

Maybe it's particularly good to be a hardware company when the solution to the problem you're tackling requires new hardware. For instance, if 50 years from now we're all going to be getting around on motorized skateboards. But if you watch Kickstarter, there are hardware proposals that are "hardware for its own sake"; those offerings might be structurally disadvantaged compared to iOS or Android software, and you might not want to start that kind of company as your first startup.

    Schlep was originally a Yiddish word but has passed    
    into general use in the US. It means a tedious,     
    unpleasant task.        

Maybe it was just artistic license.

Dictionary definition or not, a google search for the phrase "a schlep" returns >60,000 results.

As applied to English, it refers to the use of a verb (in its -ing form) as a noun (for example, the verb "learning" in the sentence "Learning is an easy process for some").

pg: if possible, I'd love to read your thoughts on how the economics of these businesses might evolve as they attempt to grow, especially as compared to software-only businesses.

Don't forget tIndie!

[1] The hardware is the customers PC.

[2] iOS device programming, w/ human interaction (gyroscope) has also been a natural training ground.

[3] Of course, many Hardware companies these days Square, Dropbox, etc, will be paired with a cloud service.

[4] Acqui-hires..."We are shutting Down. Please Download your stuff by next week. Thanks for being a User and getting me interest from a big fish, see you on my next startup"

We (as a tech community) need to careful thinking so small. YC is tiny. If the article was the result of talking to other investors and a similar trend was identified across the board it might be newsworthy, but to anyone with any statistical background this isn't a trend, it's noise. That doesn't mean there isn't a trend, it just means this isn't in and of itself, evidence of one.

Perhaps you could elaborate? This text 'sample' does not appear to play nice with your comment.

For example they are less likely to have the sort of network effects problem that some social media based application would.

We actually have four different hardware systems, ranging in size from a 1U box that goes on site, to a full rack that's basically a turn-key cluster with no external configuration (just plug in ethernet and power, and assign static IP addresses).

All of our hardware is based on Intel motherboards and chips, especially the E3/E5 series. This eliminates the long prototype cycles, since we use off-the-shelf hardware. The only real prototype cycle for us is choosing components and the case (!), which we did with 3D CAD software and a machine-shop-as-a-service we found on the Internet.

We went this route for reliability and performance (especially, latency), and then getting those two at a reasonable cost. By only paying for the hardware we need, and configuring it to exactly what our product/service needs, we're able to meet our product and business needs while still maintaining healthy margins at a cost our customers can afford. I wouldn't change a thing.

We also face all of the problems you mentioned (how to deal with inventory -- our hardware has a comprehensive 3 week burn in time), how to deal with repairs/replacements in the field, etc, and how to get the capital needed to sustain startup-scale growth. They're real problems.

Like most hardware-based companies, we're able to do this only with outside funding, but at least in our case (the enterprise space), we don't need any up front funding to stay cash-flow positive with slow growth, and we developed a rather innovative way to get the funding that we do need to fund fast frowth (hint: not through VCs). This took a lot of effort at the business-design level, something I suspect most tech startups don't take the time to do. It's pretty much mandatory if you're going the custom hardware route and want to grow fast.

One major positive of going the custom hardware route is the elimination of competitors. No YC-backed company going the standard AWS route can possibly compete with us -- not on cost, not on performance, not on latency, and not on reliability -- not even close. Controlling the whole stack, from hardware to OS to software is why we can do what we do at the price we do it, and grow at the rate we expect to grow.

I'm not sure we could make our approach work in the consumer hardware space today, but in the enterprise market, it's ideal for us.

We're in the process of packaging that up as a standalone product/service and building a business around it. As one of the commenters noted, we failed to get funding for the studio itself last year, and this is Plan B.

We've got some crazy technology in it, and I'm hoping to get some papers written up describing it all. AFAIK, it's the only Google Spanner-like design outside of Google right now.

To create a PCB you need artwork. This includes the electronic files; the drill plots, the photoplots, the etch resist masks and the silkscreens. You then need the production tools for the PCB. You'll need a stencil for the screen-printing of the solder; a pick and place machine program (and you hope your PCB software can provide something that the P&P machine can read); if there's any through hole component you might want a cropping plate made.

A team goes through the prototyping process, using hand built small batch stuff. But then they need to convert this into production ready stuff. So the above costs happen when you hope -but are not sure- that you're ready to build a full scale batch. You get ten PCBs made for test, and discover a missing trace. That means you need either another set of stuff or to modify every board as it's produced.

Without very careful internal quality procedures and excellent engineering standards it'd be very easy for a company to burn through $10k before producing any saleable product.

Before we can have a true renaissance of hardware startups there needs to a be a platform for cheap rapid prototyping with push button production scaling.

Akin to what Heroku did for web apps.

Things like arduino can lower the friction between hardware and software design quite substantially for hackers.

I wouldn't necessarily expect startups to be rushing out to compete with the dishwasher any time soon but the point is that it now becomes much simpler to think about "hooks" in your software into the physical world.

http://en.wikipedia.org/wiki/Lean_manufacturing

Inventory kicks in once the company has scaled successfuly. And then iventories are more curial to success than production costs in terms of company survival. Market entry is won with product costs low enough to make a profit. Once in the market you live and die by cash expanses, inventories are huge part of this. Espacially since hardware becomes outdated pretty fast, high levels of exess stock can basically mean death for a young company.

But all that is one of the schleps coming with hardware, and bulding such an operation from scratch is a really interesting thing to do.

This process involves a couple of one-off costs (design of the PCB; transfer of that design to photo artwork). It also involves some setup costs that you get every time you need more product - setting jigs to the right size to hold the stuff. The artwork costs a couple hundred dollars, and that does not include any of the design and engineering costs, that's just the price if you hand a bunch of electronic data to a PCB house.

A stencil for screen-printing solder? That's steel, laser cut, can only be used for your PCB, and if you change the design of the PCB you might need a new stencil. Each stencil costs a couple hundred dollars.

A cropping plate is steel, or sometimes fibre glass, plate that has holes drilled where you have through-hole components fitted. An assembly-operative would have the cropping plate held in a jig, with PCBs on it, and they'd stuff the PCB. When they've fitted all the through hole components the plate is put on a machine which slides a blade under the plate and crops the leads. The operative then takes the PCBs off the plate, and sends them off for (probably) wave soldering. Each cropping plate is individual, and cannot be used for any other product. You'll need as many cropping plates as you want people to build PCBs. Each plate is going to be a couple of hundred dollars (steel) maybe a hundred dollar (fibreglass).

So far you haven't got any product that you can sell to the end customer! You've just got setup costs that you hopefully amortise over the number of product you produce.

You're right that an electronic assembly house would tend to outsource all this stuff to other people rather than doing everything in house.

PCB fabrication is the easiest part of shipping hardware.

I've described what tooling costs are.

> Tooling NRE = $479.00 (Tooling waived when re-ordered) Testing = $475.00

Tooling waived when re-ordered emphasises what I've said - this is a one off up front cost that you pay before you get any product that can be sold to customers.

Note that I haven't said that PCB manf is hard. I've even said that companies don't do this stuff in house, but that they outsource it.

If you're using "normal" software that can generate gerbers, there are other options. If you don't mind long turnaround and overseas fab, Seeed Studio will make boards for ~$1 each, for 5cmx5cm [1]. Slightly more for larger boards.

For hobby projects and prototypes, OSH Park can't be beat. Started as a board pooling coop for open hardware, they now send out batch jobs a few times a week to Amitron in IL and produce high quality boards (ENIG, with silk screen and soldermask) for $5/in^2 (for three copies, so a 1.5in^2 board would be $3.75 each)[2]. Their ordering process couldn't be better--upload gerbers, approve an on-screen rendering, specify the number of boards, and enter your billing info. No confusing options to go through. Seriously, try it. It's awesome.

So board fab is not that expensive anymore, and perhaps cheaper than when you last looked. The turnaround times aren't great for the inexpensive options, but with luck or good EDA it's possible to get by without too many iterations.

1. http://www.seeedstudio.com/depot/fusion-pcb-service-p-835.ht...

2. http://oshpark.com/

Board fab is over an order of magnitude cheaper than that these days. Yes, I have old circuit boards that I designed 15+ years ago that cost me $400 for two bare PC board prototypes, but today I can get the same two for about $50 these days, shipped express from somewhere in China.

To go even more extreme, I just ordered a handful of an existing design from OSH park just to see what their quality is. Three tiny boards cost me $5. Five bucks!!!

I am wrong about the costs for small batches and prototypes - you don't need all the production aids and you can get very good, rapid, product now.

But don't compare hobbyist costs (sub-standard material, limited use etc) for tiny quantities with industry costs for production size runs (http://www.photostencil.com/products/electroform-stencils-hy...)

No reason why this company couldn't be located in Asia as well, but having very close and accessible communication with the people who use its services might also turn out to be an idea that was stupid until it wasn't.

Recession hits these companies hard, because of the costs of stock; labour; etc, and because volatility of customers makes long term planning tricky.

And, really, the components that are common over many projects are cheap. It's the stuff that's specific to a build that is expensive. The PCB, the case and tooling for the case, the connector (sometimes), these are the big costs.

I've bought plenty of hardware from http://www.seeedstudio.com/depot/

As an "open hardware facilitation company" I donno if they fit the startup licensing mold, but the general idea seems pretty sound.

Cost of inventory is an issue, but there are several ways around it, including dropshipping and createing on demand. You can hire an MBA to optimize in this area (this is the area where they are supposed to do well).

Basically if you could honestly imagine your product doing well on kickstarter, you don't need to worry about margins.

If you can imagine your customers being willing to wait 3 weeks on the product you don't have to worry too much about inventory.

I very much doubt that YC will back a new factory to produce hardware for others.

I very much believe that YC will back a company that produces an alarm clock that makes you want to start the day, or a device to insert into your toilet that will analyze your urin and tell you if the measurements are out of whack.

Here's a Slate story about a Kickstarter hardware project that failed spectacularly. The income Kickstarter generated was counterfeit, because the guy running the business was swamped by expenses he hadn't predicted out the outset and would only learn when he needed to ship in volume. Spoiler: all he was trying to sell was lockpicks, little shims of metal.

http://hive.slate.com/hive/made-america-how-reinvent-america...

Want another example? How about Wakemate?

Good business people will anticipate the expenses needed and make sure there's a way to pay them (or delay payments and make sure everything is in a company with limited liability), borrow money in the bank with collateral in your inventory, get good deals with suppliers (If you do it right you'll get a 90 days credit line thus nullifying much of your cashflow problem), etc. etc.

The article discusses how this guy abandoned his friends, launched their project without them, then went money-crazy when the project was funded. This guy is spending on conferences, unlimited air passes, and $24,000 worth of locks and Open Locksport swag, but doesn't even have a source for the lock picks he's "sold" to people.

Maybe the best part is where he has to spend $2000 to hire a go-between to talk to lockpick suppliers, as he was too insecure to do so himself. Maybe one of his friends could have done that, if he hadn't abandoned them. No...the best part is where all the conferences and flying and vacations has caused him to become depressed, so he checks himself into a hospital. sigh

Oh, and I think the friends he abandoned came back to sell his locks and sell this story. I'm not completely sure if they're his friends, because the Slate article is very unclear about this.

- supply chain & associated quality management

- manufacturing (this is an entire discipline, btw)

- shipping

- board design

- packaging of device

- QA is intense

- hardware engineering culture != software culture.

- continuous deployment can't exist

Those are from the top of my head. Anyone from software who is jumping into hardware needs to stop and think: it's different, and that needs to be reckoned with. It's not impossible, of course. :-)

As far as pitfalls, they range from minor product alterations like requiring the addition of ferrite beads/elements on power lines/other wires inside the enclosure or altering component values on the board, to major alterations that require another board spin (adding extra passives like ferrites, decoupling caps, or just better PCB trace layouts), to very bad problems that require major redesign and rearchitecture of parts of the product.

If you are still in the board design/prototype stage, try to add spots on data lines and high speed traces for: extra capacitors in parallel for decoupling and to target power supply ripples and harmonics, and 0 ohm resistors in series to later replace with ferrites to absorb EMI or low-value resistors to correct for trace impedance mismatches. You can always remove these when the design gets closer to production.

Budget ~$1-2k extra as well if you want the testing house engineer to try various ferrites and shielding to get a design a few dB out of whack to pass while it is in their test environment. Of course, some of their recommendations may be too expensive/unworkable and some redesign is in order.

Unfortunately, all of this costs time, money, and enormous amounts of energy cursing the gods of physics and RF when things go wrong... but that's part of the fun of designing new things, right? :)

Great resource: http://www.murata.com/products/emicon_fun/index.html

* "10. PCB Stackup" -- <http://www.hottconsultants.com/tips.html>; (or as PDF: <http://www.frontdoor.biz/HowToPCB/HowToPCB-extra/PCBStackups...; via the "Route" section of <http://howtopcb.net/>)

* "The Ten Best Ways to Maximize the Emission from Your Product" -- <http://www.hottconsultants.com/techtips/maxemission.html>;

Both deal with the design factors that impact EMF radiation.

And if you're doing anything in the critical infrastructure space, certifications are ABSOLUTELY KEY. Things like ISO9001 are no joke in the hardware space. And those can take ages to get and sometimes get very political.

You know there was a time long long ago where those were considered barriers to entry, and that barriers to entry were considered a good thing?

There was a time long long ago where it was also considered a good thing for startups, so that young funded companies would not be competing with bootstrapped/small-angel deals.

In other words: the barriers to entry behind you are defenses for your success. The barriers to entry ahead of you are obstacles to your success.

No part of this has changed since the 1990s.

If you choose it right, they are obstacles to everyone's success, which is kind of the point. A well-funded company that can make a biz work with lower-margins and inventory costs will likely not be competing with bootstrapped (for example) companies.

Edit: pg is more pithy below - Barriers to entry are good for those who can overcome them.

Most of this is not necessarily "good" for the consumer or the economy as a whole - although if the barriers to entry are natural and it means that problems are being addressed that otherwise wouldn't be addressed at all, then it might be.