I’m writing this to motivate many of my fellow entrepreneurs in Beirut, Amman, Cairo, Dubai, Riyadh and all over the Arab world. 10 years ago, the idea of being an entrepreneur was to open a restaurant (giggling, we would call it our shawarma shop backup plan) but after Yahoo’s acquisition of Maktoob in a rumored $164 Million deal, everything changed, and hundreds of startups began sprouting here and there. This is a story of our first try to build a hardware product in the Arab world.
Back in 2009, we were fresh out of college. Our startup Nawatt, a couple of days old, just landed its first project prototyping a medical ultrasound scanner for a customer. We were a boutique shop providing integrated end to end solutions for designing and building electronic hardware, programming the chips (microcontrollers) on them and then interfacing these devices through USB, LAN, WiFi and Bluetooth to PCs running our custom applications. We used ATMEL AVR microcontrollers (best known today as Arduinos), programing them with microBASIC (which was a huge upgrade from the mind-boggling Assembly) and writing C# programs (amidst the Java vs .NET wars) on our Windows XP machines. With all that was going on, we decided to go through the experience of building and selling our own product. Our resources were very limited and we thought carefully about building a valuable product with the lowest possible investment. At that time, using USB for prototyping was a difficult task. All USB chips were in SMD form factor which was not suitable for prototyping on breadboards. Therefore, we used to solder them on breakout boards that can be easily inserted into a breadboard. This inspired us to turn the USB breakout board into a product for hobbyists and students to quickly prototype their designs. In other words, we were solving a problem for ourselves and in the process helping others solve theirs.
So we set on a journey to build our first product We grew considerably and learned so much during this period about market product fit, customer research, prototyping (Minimum Viable Product), supply chains, manufacturing, product design, documentation and packaging, pricing, supply and demand, sales strategies, channel distribution, marketing, warranties and customer service. At the beginning, we were four people working on the project. One was working on the design, packaging as well as planning the “customer experience”. Two others were prototyping the hardware and developing the firmware. I was responsible to prepare the sample applications and How to Guides. It took us 3 months from idea to mass market delivery. Personally, I was amazed at how many people it took to create a high-quality product. It was later seconded by my visit to the US. I went to see a friend in Seattle during Thanksgiving and I was shocked to know that Real Networks for example operate out of two towers with hundreds of employees. Before that, I just knew them from their music/video player which was a tiny application running on Windows.
This was lesson No #1, never underestimate the time and effort it takes to build a high-quality product. It may take one developer to create an app but many more to design, test, update, maintain and integrate it as well as to market and sell the product and finally respond to customer queries and complaints.
We wanted to build a solid product but PCB fabrication, machine component placement and soldering as well as silk screen / solder mask application was virtually nonexistent in the Arab world. We knew that to produce a product to meet the quality we were seeking, we needed to look seriously at China. After a couple of days searching the internet, we found a company that could fabricate the boards for us.
They were willing to procure all the components, solder them and then ship the finished product to us. There was only one snag, they had an MOQ for our BOM. Fancy terms that we learned on the job. There was a Minimum Order Quantity (MOQ) of 1,000 pieces. That was a lot compared to our initial estimate of 100. Nonetheless, we thought that the price discount we were being offered was well worth the investment. So, we quoted our Bill of Materials (BOM) which is just another term for list of components on the board and set to get a prototype from the manufacturer.
Lesson No #2, when working with hardware, consider the cost of Minimum Order Quantities (MOQ).
After a successful prototype was shipped to us, we verified that the device was running properly and gave the go ahead for production. The device looked cool and we needed impressive packaging. We thought that presentation was everything. To look valuable and worth the price, the box needed to look amazing. We called on a friend of mine, a graphics designer to design our packaging, CD label and cover, stickers and warranty cards. After a couple of trials, we nailed the design with a lovely box. We were laser focused on the details and our box was inspired by PC component companies such as ASUS, ATI and Nvidia.
These companies house their products in high end futuristic boxes and that inspired us to design our own. We even thought of a mascot to appeal to hobbyists and students alike. We designed a cute robot that was going to be used in all our marketing materials. The purpose was simply to engage and excite the buyers into purchasing our grand product.
With a good design, a catchy name was to follow, and we called this device neXus literally meaning bridge or gateway since the USB adapter was a connection between a PC and other hardware (by the way, we did name our product a year before Google released its Nexus phone).
Lesson No #3, good design coupled with a catchy name go a long way to have your product stand out from the competition.
Product development was complete. We wanted to sell our neXus and understand who our customers where exactly. Our target market was computer science, information technology and electrical and mechanical engineering college students as well as hobbyists. To reach these segments, we had to go through the right distribution channels. At colleges, that was the photocopy center and for hobbyists, a couple of electronic components shops based in two major cities. We knew the market spot on because we in fact were part of this market and knew where others like us go. To tightly connect with our end users, we did need to understand who was buying these devices. Therefore, we printed a warranty card with a detachable section. The customer filled in their contact details and received in response a one year free of charge warranty and support.
Lesson No #4, Know your customer! Know where and when to sell to them!
Finally, pricing! I quote these wise words from a book I read once “Your product’s price is what the customer is willing to pay you. It’s totally dependent on his perception of its value. There is no correlation what so ever between selling price and how much it costs you to make it or how innovative the idea seems to you” It cost us $6 per piece to deliver the neXus to the market. We thought at first of selling it for $12. Commission for the sales partner was $2 leaving us $4 as our profit margin. In other words, we paid $6,000 to make the neXus. It was just fair to make a profit of $4,000. The math was simple. Only after two months of waiting, we sold 5 pieces. It became evident that our price was not working. At that point, we were discouraged and thought of the whole thing as a complete loss. We decided to slash the price to $3 per piece giving our channel partners a $1 commission. We desperately needed validation. We spent months building a product and we needed to know if it was worth anything. After two weeks, we got a call from our partner, he wanted to stock another 50 pieces. I was surprised. “What happened to the previous batch?” I asked. “Oh, we’re sold out. This thing is selling like fire” he replied and after that all was history. We were selling 50 pieces a month. We even were receiving orders for hundreds of devices through our facebook account.
Our neXus even appeared in famous international forums such as http://avrfreaks.com with people asking questions on how to wire the device. Other hobbyists built more sophisticated devices and kits around neXus and taught courses using our first product.
At the end, we did lose a bit of money but learned a whole deal about product design. What we failed to comprehend at the start of our journey was the importance of calculating market size, testing the waters with a Minimum Viable Product (MVP) and understanding the purchasing power of our customers. We were fresh engineers, a group of over enthusiastic Wozniaks wanting to change the world.
Therefore, lesson No# 5, Understand early on how to calculate the Total Addressable Market (TAM), as well as how to estimate your anticipated share of the market and finally know what your customers are willing to pay for your product.
Steve Blank once said “What startups fail to comprehend is that they can’t build products from their ivory towers. Founders need to go out of the building and talk to customers”.
The whole experience opened our eyes to a new reality of how to build and sell hardware products. We learned invaluable lessons that led us to sell our solutions later for millions but that’s a story for another post.