Polish Start-ups About – Hardware From Poland
It's an old truism that doing hardware is hard, especially for start-ups. But it no longer seems to be the case as more start-ups than ever manage to succeed with their innovative products. So do Polish hardware start-ups, whose presence can already be felt on a global scale
A quick browse is all it takes to find a proof that start-ups are more interested in developing hardware products that ever before. Only this year brought products such as Pebble Time, or ZANO the nano drone. Some other hardware start-ups such as Pebble, Pono Music, Coolest Cooler or Ouya are among the highest funded crowdfunding projects of all time, proving that there is indeed demand for highly specialized and innovative devices. For Poland hardware is one of the areas it's the most proud of – partly thanks to the quality of Polish engineers working for leading companies in the world and partly thanks to the number of Polish hardware start-ups that successfully scale their ventures globally. Some of them include the beacon-driven Estimote, Ifinity and Kontakt.io, the last one of which shares its insight with web.gov.pl today. We also reached out to Zmorph, a successful 3D printer producer, whose affordable printers have several removable toolheads for different purposes, and Swimmo, one of the most recent Kickstarter wearable starlets from Poland dedicated to swimmers. You will also meet Ecoisme, a Ukrainian hardware start-up that picked Poland and the Krakow-based accelerator hub:raum as the next step in its business journey.
It's time for hardware start-ups
Hardware products seem like one area where large enterprises should have a clear advantage over start-ups as they can spend a lot more money to develop innovative solutions. But it turns out that the odds are not that bad for small players:
“Usually giant tech companies are very slow – their decision process can take months, while start-ups are fast and can change their direction many times. Also giant tech companies cannot risk a lot. That’s why they are pretty conservative about new products and make precise risk management. That's because if the product fails, they lose a lot on the stock exchange,” says Alexander Diatlov, CEO and founder of Ecoisme, a start-up that moved to Poland to work on its device that measures the usage of energy in each home appliance separately and provides analytics based on it.
New methods of acquiring necessary funds help start-ups find out whether there is an actual demand for their products really quickly.
“Thanks to new financial tools such as crowdfunding, a good idea, also in the hardware category, can acquire just enough capital for the product to be polished or even to start production,” says Swimmo's CEO Mateusz Heleniak. Swimmo is one of the most successful Polish start-ups on Kickstarter. It managed to earn over $180 thousand through Kickstarter in May.
There are also quite a few positive circumstances specific to Polish start-ups. As Mateusz Heleniak points out:
“In Poland, one capable electronics designer can do the amount of work expected from a whole department in many giant companies.”
The quality of human capital is one of the most important factors also according to Trevor Longino, Kontakt.io's Head of Marketing and PR:
“I would note there are several advantages of being a Polish start-up company. First of, all the costs which here are much lower than in US. What’s more, there is a pretty decent level of a technical and language capacity that Polish employees represent. The fact that so many Polish people under the age of 30 speak English well, means that they have the ability to engage in international markets, and ultimately succeed globally.”
According to Zmorph's Marketing Manager Arek Morawski, despite what's considered common knowledge, it's quite easy even for a hardware company to acquire initial funding within the borders of Poland.
“Financing your business is increasingly easy. Besides, foreign investors are more and more interested in betting their money in Polish start-ups and businesses in general. It's thanks to those few success stories. Even in Poland it's fairly easy to get funded – the best proof of that we can give is that despite rapid growth on foreign markets, we're remaining an entirely Polish company.”
It's easier than ever before... and still very hard
Some hardware companies are among the most profitable ventures in the tech world. But in order to get to that point, a hardware start-up may be forced to spend fortune and more on Research & Development. As a lot of VC investors opt for monetizing their shares quickly(sometimes simply due to the lifespan of an average fund), putting a lot of money into a venture that's not generating profit and is yet to hit the market with its product is a difficult decision. Another issue that requires special attention compared to software start-ups is distribution.
“R&D is the hardest part, because it requires much time and money. Usually investors do not like to give money for R&D to early-stage start-ups. That’s why it is really a challenge to find investments when you start a hardware project,” says Ecoisme's Alexander Diatlov.
“Both R&D and distribution are very costly, but one should also mention the production setup, initial order of all components and forms and so on. The latter may be simplified through partnership with companies that have already established such channels. As for R&D, it's difficult, because with start-ups we're talking about early-stage products by definition,” adds Swimmo's CEO.
Arek Morawski lists a few non-hardware specific, but also crucial issues for hardware start-ups to handle.
“A good product always triumphs. Both when it comes to creating distribution channels and R&D – we don't lack qualified engineers for this job. I believe that law barriers – such as duties – and cultural barriers – e.g. lack of trust to products that come from outside of the U.S. on the American market – are the most difficult to tackle.”
Kontakt.io's Trevor Longino adds another challenge to the list – one that is especially difficult for hardware start-ups as, due to very limited funds, there is no room for costly mistakes.
“Hardware is hard. That maybe a truism but it is an answer to why so much what happens in Silicon Valley doesn't touch hardware at all. Software is much easier to work with – if you shipped software that has bugs you can fix it over the air, and with hardware you simply don’t have that chance. The principal challenge in regards to hardware is to make the R&D cycle successful and guarantee that once the product hits the market, it will work in the manner that people expect. Distribution itself is challenging but provided that you offer a good piece of hardware, and you can work at scale, it is the easier problem to solve.”
The nature of start-ups compels them not only to develop innovative products, but also to search for innovative ways to make money. Increasingly often, hardware start-ups look for ways to earn recurring revenue. One business model that allows it is hardware as a service, which refers to the practice of selling the right to use a product rather than the product itself. Some companies may earn recurring revenue in addition to hardware pieces sold by offering software in the SaaS model additionally.
“Recurring revenue is easy, comfortable, predictable – if you have enough recurring revenue to cover your operational costs, there’s much less stress in the business, because you know you have money to pay your bills. On the other hand, it represents a huge shift in what company does. If you are making that step, you have to ensure the same quality that your hardware hopefully represents, and in a manner that won’t end up causing you problems with your current business,” says Trevor Longino for web.gov.pl.
Ecoisme, Swimmo and Zmorph are all making or are interested in making profits from other sources that direct sales of their hardware products.
“We are considering different business models – both B2C and B2B. The most interesting for us are business models with recurring payments. We want to cooperate with different businesses like utility providers, energy audit companies, insurance companies, solar panel installers, contraction companies, providing them our solution as a value added service for their customers. For example, in the EU there is an open energy market, when utility providers compete with each other. However, price for residential customers is strictly regulated and utilities cannot compete by price. That's why they are looking for different value-added services like Ecoisme that will give additional benefits for their customers.” says Alexander Diatlov.
“As Swimmo goes hand in hand with software, one can easily imagine a business model where an advanced version of the software is distributed in the SaaS model. As for HaaS, this particular model may actually disturb the established buying patterns biased towards purchases or leasing, which may have negative impact on profits,” says Swimmo's Mateusz Heleniak.
“As this moment we prioritize sales profits and we're not planning to switch to HaaS. Still, we're improving our business model in many ways – e.g. we're developing our own software dedicated to 3D printers called Voxelizer. We also expand the offer of accessories. Only recently we introduced a self-made 3D scanner,” adds Zmorph's Arek Morawski.
Hardware start-ups going global
One of the reason why crowdfunding platforms such as Kickstarter have such a great choice of hardware start-ups from outside of the U.S. despite the fact that non-American businesses have to go through very time consuming formalities is that going global with your product from the start is more important than ever. Crowdfunding is one of the ways hardware start-ups organize pre-launch of their new products. Swimmo's CEO confirms the importance of global approach in investor relations.
“Persuading investors is often a matter of gathering and analyzing data on markets and costs – oftentimes the required condition to grow fast enough and proof satisfying traction is scaling globally from the start. Even when it comes to niche devices or those targeted to a long tail it turns out to be the best approach economically. Global approach makes talking to investors much easier,” believes Mateusz Heleniak.
Kickstarter and similar platforms make for a good start, but in order to truly grow fast enough on a global scale, cooperation with VC investors is often indispensable.
“In order to grow your business beyond the immediate capacity of Central Europe, you need to find outside funding, whether it’s a VC in Europe or the U.S. Kontakt.io is the best example here. After we had gained $2 million investment from Sunstone Capital, we were able to focus on expanding our global market reach, and accelerate product roll-outs,” says Trevor Longino.
While a lot of Polish hardware start-ups are achieving remarkable feats, Poland is still yet to produce a start-up company that has truly managed to take over its field. There are quite a handful of candidates though. We're going to watch what companies such as Kontakt.io. Estimote, Oort, Swimmo, Zmorph or Zortrax will be up to in the near future. As well as watching the new ones making Polish and global headlines on a weekly basis.
Read also: Ecoisme helps you save on energy bills
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