Building Hardware: Discussing The Undiscussed At Innofest 2016

The future is Hardware.

Information Technology is relevant today and will be just as relevant in the near future, but what will truly move innovation forward will be the hardware sector – and there is no app for that. We think of an urbanised future and what comes to mind? Perhaps flying cars, jet packs, bionic humans and humanoid robots, but we consider them to be a distant reality. Well think again, these are reaching realisation sooner than you would expect. Progress is being made in leaps and bounds, especially since the democratisation of entrepreneurial innovation through the advent of the startup boom.

The IoT keeps gaining traction as days pass and enters more and more industries: fashion, food, retail, home automation, healthcare, sports and more. The world is already on-board the new technical revolution, but is India?

To answer that question quite simply, we aren’t!

At least not yet – starting and sustaining a hardware startup in India is difficult. To mitigate this, and to get a deeper insight into the challenges faced by these startups Innofest (an iSPIRT initiative) organised its Knowledge Series in Bengaluru last month.

Innofest, an event hailed as THE innovation startup event in India, congregated investors, entrepreneurs and influencers from the hardware space. The ambition was to inspire, educate, and assist grassroots innovators to “concert their concepts into scalable, sustainable enterprises that benefit the country as a whole”. One of the efforts made to do so, was a survey of the aforementioned hardware ecosystem to give the industry a better insight – from a hive mind perspective.

An element noticed from this survey was quite bewildering. Not a single woman responded to the survey despite an outreach to several from the industry. It was always the men who responded from any company with women as co-founders or equal peers.

This fact was quite unsettling, as women need to be encouraged to play a larger role in their own empowerment and not stick to just their strengths in the burgeoning Indian startup ecosystem.

Only an inclusive principle can contribute to the holistic push needed for hardware startups in India – something renowned Angel Investor and iSpirit co-founder, Sharad Sharma deliberated on while inaugurating the conference.

Sharad believes that India is on the verge of an innovation explosion. He deliberates that the hardware products coming out of the Silicon Valley may contribute to the first billion of the globe’s population, but India has the potential to cater to the remaining six. This was quite a heavy statement to have left his audience with, but he continued to point out on the necessity of us backing hardware.

India is ripe for hardware innovation – but can we innovate? According to Sharad, India does not have the two means (historically available to growing powers) to sustain progressive economic growth, i.e. –

1. Manufacturing exports, China has a massive lead there and most countries are reverting to self-sustaining policies.
2. Colonisation, to which India just plain says no.

Innovation to support the smart needs of the world’s population can be India’s forte and can lead our charge for economic dominance. With our inherent cost optimisation culture and our inclination to accepting volatility and change (read Jugaad), we have the platform to build on our ability to innovate. There needs to be a renaissance in the hardware startup ecosystem, and Innofest is leading the charge.

Coming back to the survey, we witnessed a couple of discrepancies. In a couple of key areas, there is a stark difference in who the sector proponent work with today, and who they would like to work with in the future. Today’s ecosystem has an equal breakdown between consumers and industries as stakeholders, however, there is a lot less interest in working with consumers. Either the market has their consumer base all figured out (unlikely, of course), or that this may be an omen of the rise of B2B hardware startups.

Another anomaly from the same outreach is that a lot of the responders were keen on working with policy enablers, however they had not had many opportunities to do so. This may be reflective of improvement required in the ease of doing business in India, also noticeable in the graph below.

Back in 2014, the Make In India campaign was launched to facilitate the manufacturing of products in India in order to improve our foreign trade balance and dependence on other countries for products. Startups delving into hardware manufacturing are essentially what the ‘Make in India’ campaign is trying to drive forward. The success of these startups could drastically improve the country’s balance of trade and be an inspiration story for many others. But do we have the ecosystem to support this endeavour?

The most common issue faced by most startups (especially hardware) involves locating sources of capital. Bootstrapping can only take you so far when high capital requirements for manufacturing start coming into the fray. We try to look beyond this persistent issue to some of the other key topics that often go undiscussed.

Small-Batch Manufacturing

Lack of supportive infrastructure supporting the production of hardware innovation cripples opportunities. The primary step in going down the path of a hardware startup would be to execute a design and come up with a prototype. Additional capital hinges on having a running prototype as early in the process-chain as possible. In simple terms, the success of most hardware startups is more dependant on small-batch manufacturing, than talent, skill, passion or dedication. And small-batch manufacturing is very inaccessible in India. How tough is that thought on the minds of aspiring entrepreneurs?

Founders approaching manufacturers with smaller orders, are often turned down or left with unsatisfactory products and empty pockets. This is because price is unfortunately, the major function that India cares about and manufacturers are accustomed to scale in order to reduce cost.

Harsha Ramesh Angeri, CEO of technology platform, Tribe, tells us, “We talk about crossing the product chasm but a deeper issue that plagues hardware startups is the ‘low volume manufacturing’ chasm. You can throw in a bunch of engineers & get some good prototypes out with the Arduino’s of the world. But then the customer says, wow give me a 10,000 of those. Now who will build those – the moulds, the PCBs, wafers… we have basic economics built in for a certain scale and in a country like India which is price sensitive, most manufacturing setups are either geared for high-volume or low-quality jugaad. If you are a serious hardware innovator both won’t work and you have a chasm staring at you. I term India a graveyard of innovation pilots as most hardware products fail to cross this chasm and remain wow pilots!! The 0 to 1 Mn chasm needs immediate intervention.”

Entrepreneurs are eventually left with heading to well-established manufacturing ecosystems like Shenzhen. Or sourcing via sites such as Alibaba and Taobao. This, as you can imagine would entail challenges of its own. Very few manage to navigate them and come out on top, in the end.

Protecting Intellectual Property (IP)

Patents create a sustainable advantage for technology amongst hardware products. Entrepreneurs often end up heading to China for its established hardware ecosystem to source parts or for manufacturing. When you are doing so in China, you need to know how to protect your technology and other intellectual property from being counterfeited or pirated. Chinese companies will do everything they can to relieve you of your IP and entrepreneurs must address this to protect their valuable IP assets. Deals made in China can threaten IP rights not just in China, but in markets around the world.

There is also the concept of enabling public disclosure (EPD), which means that you have shared publicly, enough about your product in order to enable someone in the industry to copy your product. Common examples are exhibiting the product at a trade show or within an article in a publication. One year following an EPD, you cannot patent that product or invention; therefore, it is important to keep your technology out of the public eye until you are confident it is legally protected.

However, an interesting point that came out of the discussion on this topic was that apart from the apparent need to protect your product with the help of the law, a successful hardware startup will secure insurance from replication by creating their own brand from the beginning, creating a process and system that is unreproducible.

Somnath Meher, co-founder and CEO of WitWorks opines, “In a competitive market of consumer devices, it’s absolutely essential for any player (big or small) to innovate and differentiate themselves. However, the innovation there need not be merely in terms of technology/IP, which over time will be commoditised and replicated. It’s about creating deeper defensible virtues. The innovation can also be in the supply-chain setup, the distribution network, offering unique services through the product, or for that matter by delivering a completely distinctive experience that users can adapt to. Creating something radically different requires a certain amount of rational risk-taking, but in the long-run that’s what allows a venture to build its real moat.”

Access To Resources/Academia/Experts

Some international web-based ecosystem hacks like Kickstarter, Thingiverse, and Instructables exist to compensate where localised access to an ecosystem falls short. While these platforms provide some leverage for founders, only an established localised ecosystem can provide the requisite support and access to information which helps overcome prototyping challenges. A community of this calibre does not yet exist in India. Access to experts in the field is not readily available, a shortcoming which is fixable.

Hardware products are usually specialised in nature and often are babies of experts from those specialised fields. However, these experts are not always sufficiently skilled to build the business from the ground up. They require an unhindered flow of expertise in other fields to expedite their businesses – without which typically long gestational hardware products would see early graves.

They also require very relevant connects in the manufacturing space, so that they don’t have to to waste time and effort trying to do something that someone else has already done well. Unfortunately for hardware entrepreneurs in India, this access just does not exist.

Maltesh Somasekharappa, CEO and co-founder of Supercraft3D had this to say, “The problem with India, per se, is that we are rich in knowledge but very poor in sharing. The country doesn’t have, and is, unfortunately, not even making an attempt to have a structure for knowledge sharing. This leads to multiple reinvention of wheels – wastage of resources, skill and time. There’s plenty of movement but you can’t really make out if we are moving forward or backward.”

Lack Of Financial Planning

Most of the aforementioned points are trials for entrepreneurs, but what is the pressing concern that investors face while dealing with hardware startups? Hardware startups come with the inherent tag of requiring massive investments in assets.

Entrepreneurs often fail to understand that the investor does not invest his money on just the idea and the team, he requires a sustainable roadmap of the cashflow of the funds being allocated to the startup. The long gestation period, trial and error methods to perfect a product, mass manufacturing, and marketing are all large costs which require stellar financial planning. Whose job is it to do this financial planning? Definitely not the investors. With great funding comes great responsibility, and the fiscally efficient are usually the ones succeed. This is an understanding that needs to be well communicated to startups before a deal is struck, for their own good more than the investors.

Brij Bhasin, Principal at Rebright Partners elaborates, “Preparing a detailed financial model with proper capital allocation and planning is very important, especially for hardware startups. There are multiple sources of funding available to a hardware startup – grants, crowdfunding, traditional loans, working capital and, of course, equity financing. The smart founders realise their needs at each stage and identify the best source to tap accordingly which will help build a long-term sustainable path for the business. But especially around product launch the capital requirements can balloon quite a bit and hence careful early planning is needed.”

Community For Validation Of Ideas/Prototypes

An interesting proposition discussed at Innofest was the potential of a hardware-focussed community that supports itself by discussing innovation and implementation. A community which can provide expert validation and improvements for products that are prototyped. This would relieve a lot of the issues inexperienced entrepreneurs with bright ideas usually have.

Sridhar Raj,Founder and Managing Partner of CrissCross Ventures had this to say, “The need of the hour is to facilitate Industry-Innovation exchange via various forums such as Hackathons, MakerSpaces, Labs, Universities and even one-on-ones, based on domain-specific knowledge and participants. Industry experts or product managers coming with a problem statements or Innovators arriving with a solution and validating pain points can be of enormous help to entrepreneurs.”

Innofest is, in effect, an attempt to bridge this gap. Sridhar went on to review what he felt about the event, “An immersive session was facilitated by the Innofest team to draw out the teething challenges and hurdles faced by nascent next generation hardware startups in India by asking the question “What your ideal hardware ecosystem entails? Tell us your perfect world scenario.”

A productive workshop hour delivered on its promise where participants walked away gratified, collaborating to contribute their perspectives across industrial, consumer and agricultural hardware sectors only to help shape a better tomorrow for all of us.”

Eloquently put. But at the end of the day, building the necessary hardware ecosystem is a challenging task and Innofest has surely made a headway in that direction.

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