Hard tech startups make up only a small fraction of the overall number of startups. Investors, most of the time chasing safe bets despite claiming otherwise, bear only part of the blame for the lack of interest hard tech projects suffered from for a long time. That situation is finally changing, as our friend Eugene explained in our previous blog post, but hard tech founders still face some formidable challenges.
Some of these challenges involve project management issues we are familiar with from other startups. Still others entail high capital requirements or the day-to-day running of a business. It’s time we take a deep dive into the challenges that may hold hard tech founders back.
Modern software development is characterized by short iteration cycles inspired by the “Build-Measure-Learn” principle. Publicized by Eric Ries in his book The Lean Startup, this method seeks to ensure that the development process is informed by customer reactions so that resources can be used in the most efficient manner. The teams leveraging the Build-Measure-Learn cycle analyze customer feedback to execute a series of course corrections instead of sticking to an initial plan until it falls apart.
Hard tech startups, on the other hand, usually have longer iteration cycles. A hard tech startup developing a cure for cancer cannot build an MVP or a prototype as quickly as a SaaS startup. Industries like health, defense, aviation, and transportation are strictly regulated, which makes the development process more complicated and time-consuming. Testing different hypotheses at a high pace is impossible when other actors control the pace.
However, this does not mean that hard tech founders should lock themselves in a garage, only to come out when the product is 100 percent ready. One idea proposed by Y Combinator to overcome this hurdle involves identifying in the business idea a smaller project that lends itself to quick iterations without demanding huge sums to implement. Just like you start with building an ‘atomic network’ of a few nodes before unlocking network effects, this smaller project would be ideal for testing the waters, engendering interest and feedback from customers, and pitching to investors.
Bringing a new piece of hardware to market is a daunting challenge, even in the comparatively well-understood segments like consumer goods. When you are trying to revolutionize the energy industry like Oklo is trying to do, though, the numbers involved can be intimidating for even the most risk-tolerant entrepreneurs.
Frugality makes a lot of sense when you are running a hard tech startup. The good news is that founders have the technological means to pitch and validate ideas without incurring millions of dollars in costs. Avoiding bespoke designs and parts at first and going with the standard, mass-produced components can save founders a lot of money while testing hypotheses.
Most of the time, a simple proof of concept can go a long way toward convincing an investor to back a project. When you need to create a proof of concept, hacking together off-the-shelf components or different commercial products may be more than enough. The emergence of 3D printing and the proliferation of suppliers all around the world have already lowered the barriers for founders chasing big dreams. In capital-intensive industries like defense and aviation, computer simulations and plastic scale models can do a fairly good job of serving as proofs of concept.
Hard tech founders usually come from academic backgrounds and prefer "just doing their thing" as researchers. However, a hard tech startup cannot afford to sacrifice the business side of things for incremental gains on the R&D front. Those two should go hand in hand if the idea in question is to go beyond the realm of an academic article.
Hard tech startups face two types of risks: Technical and market risk. R&D can take care of the former, that is, the risk of failure to find a solution to a problem. But founders should get involved in the nitty-gritty of running a startup if they want to tackle the market risk, which involves whether there is a market for that solution. Usually, while overcoming the technical risk is a matter of science, dealing with the market risk proves to be more of an art than science and, thus, quite difficult.
As an extension of the incremental approach to developing and validating an idea we suggested above, founders should not shy away from looking for ways to monetize the idea at every stage possible. The monetization efforts can kick off with a simplified version of the product or a related service. Sam Altman calls this tactic “taking a detour,” i.e., diverging from your road map a little bit if it will help you generate some customer demand and revenue. Notable Labs is a good case in point. A YC company focusing on personalized cancer treatment, the company started offering tumor screening services to fund its core operations.
Once there is some semblance of a product at hand, another trick up the sleeve for founders can be to get creative with the sales process. Hard tech founders should explore opportunities to secure pre-sales contracts from interested parties. When that is not possible, the next best thing would be to pursue letters of intent, non-binding documents expressing the intention of a potential buyer to buy a product once it is launched. Letters of intent can detail the sales price, order size, and features required, thus removing uncertainty for a startup.
Pre-sales contracts and letters of intent allow founders to mitigate risks and secure future revenue streams without committing to costly manufacturing processes. Armed with these two documents, founders will have proof of existing demand and be able to raise money from investors.
Problems like climate change, migration, affordable housing, and food and energy security are at the top of the agenda in every country nowadays. These issues are here to stay, and software offers very little in terms of solving them.
Therefore, it is a given that people will turn to hard tech for solutions to these big problems. Turning an idea into a life-altering product is rife with challenges. But do not despair: As they say, "where there is a will, there is a way."