Business Models for Hardware Startups - How to Grow Faster and Make Your Company More Valuable
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- เผยแพร่เมื่อ 19 มิ.ย. 2023
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The recurring business model is an excellent way of making sure you lose. Customers would rather pay once for a product and optionally for upgrades. The recurring model only works if your product has a lock-in or is substantially superior to the competition, otherwise plan on seeing your customers flee to the competition. Adobe has been successful with its subscription model, but recently it's been losing its customer base to new competitors who are offering a better product for a one-time purchase.
Speaking from the customer side, I hate subscription access. It feels greedy and I feel like a renter for a product that should be one and done.
Which is why I was so hesitant when it came to my business model for my hardware product.
In the end, my recurring model came down to necessity - cloud storage! And as a customer I am more than happy to pay a subscription for that. I understand the overhead involved.
I'm excited that there's a way I can incorporate a recurring model without giving people the ick (hopefully).
I'll probably have to code up a user usage dashboard to keep my costs under a microscope, but it's doable!
Just be sure your dislike of subscriptions doesn't stop you from realizing that all others don't feel that way. Personally I always prefer subscriptions because they reduce any risk of a bad purchase compared to paying it all upfront. Thanks for commenting!
This. This is why the Nest thermostat (Nest Labs) was bought by Google for 3.2 BILLION dollars. A piece of hardware with a recurring subscription for cloud connectivity.
My current play is a hardware device with ties into the cloud and recurring revenue. I’m going to use Azure for the back end but I’m abstracting it so it could be instantly shifted to Google or AWS, making me a takeover target for either Amazon or Google.
Thanks for the Nest example which is a great one, and there are many.
You can't just add recurring revenue to any product though but if done right and it's a core part of the solution then it drastically increases the valuation.
So if I create an alternative of Rasberry Pi for example and I want to compete with them and they have One and Done business model. And if I come into the market with a better alternative to Raspberry what's the business model I should adopt? If I incorporate something useful to them and provide additional cloud features to them then I can opt for Recurring Business model right? Just a thought
Great content!
Thanks Nicolas!
The recurring expense that comes to mind for HW is a support agreement. Are there other, more enticing, models?
Yes there are and I mentioned a few in this video. Software licensing is the main one. Another one is the consumables model. So if you sold an automated pet food dispenser then you could set them up on auto refill.
If id start a company, I (hopefully) wont be corrupt. I want tofocus on user experience. And that includes payment and price. The recurring model is an absolute no-go for me.
Okay, but why is it a no-go? As a consumer I love recurring services versus big lump sums.
@@PredictableDesigns Well of course I could make It an option. But as @danielleivy8180 said: "I hate subscription access. It feels greedy and I feel like a renter for a product that should be one and done." I comepletely understand him. And I think that as a user, you could spend $1000+ on something that would cost $200+ one and done. Lets say you have a phone. Pay $50 per month to have it and internet and lose both when not paying? Or pay $300+ once and $20 per month for internet and only lose the internet once payment is stopped? You get to keep the phone and potentioally resell it for $100+. As a consumer, it just makes more sense to me. And Id only use the subscription if I have to use it for 1 or 2 months. And again. Im fully on the consumer side. Of course, I do want to make money. But not in a way thats "bad for the user". I dont want to "cheat" my money. What If they leave their phone and forget about it because they have another one or something? They still pay. Its bad for the user. They might be notified about the payment yes, but what about not finding the phone? Extra costs. Extra stress. I dont want that. I want it to be easy and accessable. You could do a monthly pay off yes. Buy a new phone and pay $50 6 months and thats it. Im fine with that.
@@PredictableDesigns You do? But why?
Recurring services may be cheaper to start but they will add up in the end. Just look at leasing. You do pay way more at the end.
Also if it's tied to some cloud service (a typical excuse since there is no reason HW should have recurring cost): Congrats your HW is now tied to the faith of the company.
Is that company a startup it's more likely to dissapear soon -> why would I buy a cloud based system from them?
Apart from maybe being cheaper in the first few months I only see downsides. Unless there is "free" upgrade path which is just generating e-waste.
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Thank you!
I doubt recurring business will help you keep customers. It's easy to compete against: You payed 100.- up front and now 5.-/ month? Come to me, pay 150.- up front and no recurring costs. Pays off after 10 months. You would have to make the initial cost VERY low and bet on the customer staying long enough. Or having a contract which runs for 12..24 months.
If I buy HW i want to pay once. Everything else feels like a scam. And you said it: it appeals to investors -> only reason for doing it: extract money from customers -> scam.
I disagree and I think recurring models are better for both the customer and the company, and investors too. Unhappy customers leave before they're profitable if you don't treat them well. Thanks for commenting.