Why the little guy can't get a break in consumer electronics and 5 ways to find a leg up

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The Back Burner: Things we didn’t post this week

david-goliath

Every few months we get a press release about some great device from a no-name manufacturer who promises to change the world. One example was the TXTR reader from Germany last January. Another is zzzPhone, a company selling dual-SIM Android powered smartphones from China. Neither company produced much of anything.

Era of the Silicon Valley success story – two guys making something cool in a garage and selling it – is over, at least in hardware. The costs of making consumer electronics, including cellphones and computers, on a small scale have risen so much as to be prohibitive and then the marketing costs of that same hardware is even more prohibitive. Whereas, once, two nerds in a basement could build a computer company I worry that it takes more resources than any one man or woman can muster these days to even approach something like success.

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DOA

The first sad truth is that most consumer electronics cannot be made in “expensive” countries like the US or the Euro zone. During a visit to the Suunto watch factory in Finland, for example, I learned that while many of the watches are made near Helsinki a large percentage of them are made overseas and drop shipped from Asia. The company just couldn’t make anything in bulk without resorting to off-shoring. This means you either invest in an expensive small run of hardware overseas, something the Asian manufacturers do not do particularly well, or invest in a massive run of inexpensive hardware in Asia that you risk having to recycle if your company goes belly-up.

This doesn’t mean you can’t make it big anymore. Take TiVo, for example. It sprung out of obscurity a decade ago and filled a niche in the living room that has yet to be challenged by any manufacturer. Unfortunately, when someone – probably Samsung, LG, or Apple – figures out how to take over the DVR market, TiVo is toast. The same is true of Palm who, to all intents and purposes, is now a small company. The big guys are eating their lunch thanks to Android and it will take some fancy footwork to survive. The small guys are, sadly, always at the precipice of failure.

Other companies like Neuros and Slingbox simply sell a wrapper for their software. Sometimes this works but sadly it also leads to retrenchment when companies like Slacker pull out of the hardware business due to lack of interest and cost. Then there are success stories like like FyreTV [NSFW] which will do well because they focus on porn. Not everyone can focus on porn.

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When in doubt, do this.

The second problem facing small CE companies is marketing. Micro-companies like Zeo and FitBit get a huge initial boost thanks to online media but then disappear once the news cycle has moved on, leaving the companies with amazing technology in the dark. This is an era of constant marketing, a situation that forces companies like Apple and Sony to put their message in front of consomers almost constantly in multiple media.

Anecdotally, I’ve seen companies receiving 8,000-10,000 pageviews with one good launch, more if its an interesting product. That initial boost translates into a percentage of good sales – those are good eyeballs, not just random traffic – but it rarely turns into repeat or continuing business.

That said, here are some of the best practices I’ve seen from small to medium CE companies who know how to do it right. This may not apply to you and yours, but it’s something to think about when you get excited about a product (Gizmondo anyone?) only to find it has crashed and burned.

1. Tell multiple stories. When you start out you have one story: Why your product is good. Prepare multiple stories for the next few years including ideas tagged to pressing issues of the month or year. Do you have a fitness gadget? Work on a story about post-holiday stress and weight gain. Have a DVR? Put yourself in the Super Bowl frenzy with blogger outreach and giveaways. That first boost is nice but if you’re a small company it’s the next four boosts that will push you through the rest of the year.

2. Price yourself competitively if not suicidally. Even if it’s suicidal, price yourself at just above the average price in your market. Aiming at rich, cosseted professionals is nice but the sharper Image model of doing business is over. Consumers want more for their money (even if they often get considerably less) so while $999 might seem like a nice number for a NAS or a piece of audio gear the consumer is more accustomed to $499.

3. Be quiet. Hide your light under a bushel. Patent your idea and don’t launch until the product is completely ready. I’ve seen too many companies splattered with the vaporware monicker because they failed to deliver on time or at all. Once you’re done, support your product forcefully and quietly. If someone has a problem, address it quickly. Send out new hardware before putting someone through tech support hell.

4. Change your trade dress regularly. This fickle market thinks anything that looks the same as it did last year is old. Why do iPods change every few months? People want to think they’re buying the new hotness, not the old and busted. If you can’t change your trade dress, change your website.

5. Slow and steady wins the race. None of the greats made it overnight and it’s harder than ever to truly make it. If you’re a small CE manufacturer, Godspeed. It’s a tough race so don’t sprint it.

For a great look at this topic, read The Song of the Powersquid, our 6-part story on the creation of a CE product.

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