Latest / Hardware Startups with Fexingo: Devices, Robotics, and Manufacturing Tech Companies / Why Hardware Startups Should Sell Before Building
Transcript
- Lucas: There's a moment every hardware founder faces. You've got a prototype that works — sort of — and you're staring at the bill for injection moulding tools or PCB assembly. Minimum order quantities start at five thousand units. The natural instinct is to raise venture capital to cover that cost. Luna: But there's another path, one that's older than venture capital itself. Sell the product before you build it. Lucas: Exactly. Preselling. Taking customer money before you have inventory. It sounds risky — and it can be — but for hardware startups it solves three fundamental problems. It validates demand before you commit to a production run. It improves cash flow because you're getting paid upfront. And it reduces inventory risk because you know exactly how many units to build. Luna: The canonical example here is Pebble, the smartwatch company. In 2012 they launched on Kickstarter and raised over ten million dollars. They had a prototype, but they hadn't manufactured a single watch. That presale validated that people actually wanted a smartwatch — which was not obvious at the time. Lucas: Right. And it's worth remembering how big that number was. The goal was a hundred thousand dollars. They got ten million. That told them — and more importantly, told their suppliers — that there was real demand. They could go to a contract manufacturer with a purchase order and say, 'We need fifty thousand units.' The manufacturer sees a funded order, not a startup with a dream. Luna: But Pebble also had problems. They shipped late. The early units had quality issues. And eventually, Fitbit acquired them for pennies on the dollar. So preselling isn't a magic bullet. Lucas: No, it's not. And the more recent crowdfunding landscape is littered with failures. The Skarp laser razor raised over four million dollars on Kickstarter promising a razor that would never need blades. It never shipped. Backers lost their money. The company couldn't actually build a laser that was safe and effective at that price point. Luna: So the success of a presale depends on having a realistic path to manufacturing. If the prototype is a hand-wired breadboard and the unit cost is fifty dollars, but you're selling it for twenty-five, you're going to lose money on every unit. That's not validation, that's a subsidy. Lucas: Absolutely. The unit economics have to work. And you need a credible timeline. The worst case is taking money, then spending eighteen months trying to solve a problem you didn't know existed, with customers getting angry every week. Luna: There's another angle here too. Preselling changes the relationship with investors. If you've already sold ten thousand units, you have revenue, you have a purchase order, you have proof of demand. That makes raising venture capital easier and gives you better terms. Lucas: Yeah. It's a classic de-risking move. The founder who walks into a VC meeting with a Kickstarter campaign that raised half a million dollars is in a much stronger position than the founder with just a PowerPoint. But there's a trade-off. Preselling also creates pressure. You now have customers expecting delivery. That can force you to ship before the product is ready. Luna: So what's the right approach? Should every hardware startup presell? Lucas: I don't think it's right for every product. If you're building a B2B industrial sensor that costs fifty thousand dollars and sells to factories, a Kickstarter campaign is probably not the right channel. But the principle still applies — get a letter of intent, get a deposit, get some form of commitment before you build inventory. Luna: For consumer hardware, crowdfunding platforms are still the most popular route. But there are alternatives. Some startups use their own website with a pre-order button. Others use platforms like Indiegogo or Crowd Supply. The key is to have a clear refund policy and a realistic timeline. Lucas: Let's talk about a company that did this well in a more recent context. Framework, the laptop company. They launched with a pre-order model. They didn't build inventory and hope people would buy it. They took pre-orders, then built to demand. That's a much leaner model. It reduces the cash tied up in inventory and allows them to iterate faster. Luna: Framework also had the advantage of being a well-known product category. People understand what a laptop is. The risk for them was more about execution and differentiation — can you make a repairable laptop that people actually want? The pre-orders told them yes. Lucas: Then there's Nothing. The phone company. They used a waitlist and a deposit system to gauge interest before manufacturing. They didn't call it a presale, but functionally it's the same thing. They wanted to know how many units to build before they committed to tooling. Luna: And that deposit model is smart because it creates a financial commitment without requiring the full purchase price upfront. A ten-dollar deposit still signals intent, and it filters out people who are just curious. If someone puts down ten bucks, they're likely to convert. Lucas: Exactly. And the data from those deposits can inform production volume. If you get ten thousand deposits, you know you can build at least ten thousand units. You might even build fifteen thousand, with the extra five thousand for retail or later sales. But you're not building a hundred thousand and hoping. Luna: One thing we haven't talked about is the legal side. Preselling creates a liability on your balance sheet. You've taken customer money, and you owe them a product. If you fail to deliver, you could face legal action — or at least a lot of angry customers and bad press. Lucas: Right. And there's a difference between a presale and a donation. Kickstarter backers expect a reward. If you're running a presale, you have to treat it like a commercial transaction. That means having terms of service, a refund policy, and a clear communication plan for delays. Luna: So what's the checklist for a hardware founder considering a presale? Lucas: I'd say four things. One: have a working prototype that proves the core function. Two: know your unit economics — bill of materials, assembly cost, shipping — so you don't sell at a loss. Three: have a realistic timeline with buffer for delays. And four: have a plan for what happens if you don't hit your presale goal. Do you cancel and refund? Or do you proceed with a smaller run? Luna: And what about the channel? Kickstarter vs. your own site? Lucas: Kickstarter gives you discovery. People browse the platform looking for new products. But you give up a percentage — five to eight percent — and you have to follow their rules. Your own site gives you more control and better margins, but you have to drive your own traffic. Most successful presales use a combination: a crowdfunding campaign for the initial push, then convert backers to your own platform for future sales. Luna: There's also a newer model: using a platform like Crowd Supply, which is specifically for hardware and has a more hands-on approach to helping with manufacturing logistics. Lucas: Yeah, Crowd Supply is interesting. They vet campaigns more carefully than Kickstarter, which can actually be helpful for founders because it forces them to have a solid plan. The platform also handles some of the logistics like payment processing and shipping. Luna: I want to come back to something you said earlier about unit economics. I think a lot of founders underestimate the cost of shipping and returns, especially for hardware. A heavy product can cost twenty dollars to ship. If you're selling a fifty-dollar gadget, that's a huge chunk. Lucas: Absolutely. And returns are brutal. If a customer gets a defective unit, you not only have to replace it, you often have to pay for return shipping. That can eat your margin entirely. The presale model doesn't eliminate those costs, but it does give you better cash flow to handle them. Luna: Let's talk about the alternative: not preselling. Just raising venture capital, building inventory, and selling after the product is ready. Lucas: That's the traditional model, and it works if you have access to capital. But it has a big downside. You're building product before you know for sure that people want it. You might build ten thousand units and only sell two thousand. Then you're stuck with eight thousand units of inventory that's costing you money in storage and eventually gets discounted. Luna: And inventory is a huge risk in hardware. Once you've built it, you can't just delete the code. You're physically holding things that may or may not sell. Lucas: Right. And that's why preselling is so powerful. It's a form of just-in-time manufacturing. You build what you've already sold. The risk shifts from the company to the customer — the customer is taking a risk that the product will ship on time and be as described. In exchange, they often get a discount or early access. Luna: But we should also acknowledge that some customers are burned out on crowdfunding. There have been so many failures that some people just won't back hardware projects anymore. Lucas: Yeah, that's a real headwind. The trust in crowdfunding is lower than it was in 2012. But I think that's actually forcing founders to be more transparent and to have more derisked prototypes before they launch. Which is a good thing. Luna: So the takeaway is: preselling is a tool, not a strategy. It works best when you have a credible plan and a product that people understand. Lucas: I'd add one more thing. Preselling forces you to talk to customers early. You have to explain your product, answer questions, and build a community. That's valuable in itself. Even if the presale doesn't fully fund your production run, you've learned a lot about your market. Luna: And that's something that no spreadsheet can tell you. Lucas: Exactly. Look, we do these shows every day, and one thing that keeps us going is that they're ad-free. No sponsor breaks, no product placements. That's intentional. We think the content should stand on its own. If these conversations are useful for what you're building or running, we hope you'll consider supporting that choice. The link is buy me a coffee dot com slash fexingo. No pressure, it's just a way to keep this independent. Luna: Yeah, it makes a difference. We appreciate everyone who has chipped in. Lucas: Alright, back to hardware. There's one more case I want to mention. The company Oura, the smart ring. They initially launched with a crowdfunding campaign on Kickstarter in 2013. Raised over a million dollars. That presale allowed them to validate the concept and build a customer base before they had a mass-market product. Luna: And now Oura is a major player in wearable health tech. The ring form factor was novel, and the presale proved people would wear it. Lucas: Exactly. The presale didn't just fund the first production run. It created early adopters who became evangelists. That community feedback helped them improve the product, and it generated word of mouth marketing. So the benefits go beyond just cash. Luna: So if you're a hardware founder listening, what's the first step? Should you go straight to Kickstarter? Lucas: No. First, build a minimal viable prototype that works. Then, talk to potential customers — not just friends and family, but strangers in the target market. If they show genuine interest, then consider a presale. But start small. Maybe do a limited presale to a hundred people first to test the logistics. Then scale up. Luna: And have a plan for the worst case. What if you only sell ten units? Can you still deliver those ten? You should be able to. Lucas: Right. The worst thing you can do is oversell and underdeliver. It's better to sell fewer units and ship them on time than to sell a thousand and ship them a year late. Your reputation is everything in hardware. Luna: And your backers are your first customers. Treat them well. Lucas: Exactly. So for any hardware founder thinking about a presale: validate your economics, have a real prototype, set a realistic timeline, and treat your backers as partners. Do that, and preselling can be the smartest move you make. Luna: Good advice. I think we covered a lot of ground today. Lucas: We did. Next episode, we'll look at another angle. As always, thanks for listening.