[compumike]

This is a great article and the estimates are decent for what it is. The ultimate point is absolutely right: you will not make money on your first production run. But there are three big warnings that should be in BLINK tags under the headline:

(1) This is a decent estimate for a completely commodity product (Bluetooth headphones). No iOS/Android app development, no content development, very little custom firmware or electronics development required. (That correspondingly means you face the least differentiation and the most competition.)

(2) This is for a "plastic and PCB" product build. That's as simple as it gets. Any product that goes beyond a PCBA inside a plastic enclosure is usually going to have significantly greater design and engineering challenges, not to mention COGS costs. Moving parts? Temperature? Water? Cameras/lenses? Sensors? etc.

(3) The marketing / customer acquisition cost is either ignored or assumed to be some laughably small number. Even at its highest, this article assumes $3/unit customer acquisition cost. That's ridiculous (go look at Fitbit or Gopro or any other filing statements). If it were true, a lot more people would go ahead and get that initial capital to make their own Bolt-o-Phones.

(Disclosure: co-founder of a hardware startup https://www.pantelligent.com/ and about to ship our first production run.)

[drzaiusapelord]

What's your estimate for item 3?

[mozumder]

$50/unit for initial production run, for some bland and generic product like in the article.

If you had an original product that actually goes viral, the marketing costs goes way down.

[hayksaakian]

i think OP was suggesting you look at GoPro / Fitbit's filing documentation with the government, which publicly discloses these numbers.

i'll look for them and update this comment if i find them

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> We have recently begun to spend significant amounts on advertising and other marketing campaigns to acquire new users, which may not be successful or cost-effective.

> We have recently begun to spend significant amounts on advertising and other marketing campaigns, such as television, cinema, print advertising, and social media, as well as increased promotional activities, to acquire new users and we expect our marketing expenses to increase in the future as we continue to spend significant amounts to acquire new users and increase awareness of our products and services. In 2014 and for the three months ended March 31, 2015, advertising expenses were $71.9 million and $21.1 million, respectively, representing approximately 10% and 6% of our revenue, respectively. While we seek to structure our advertising campaigns in the manner that we believe is most likely to encourage people to use our products and services, we may fail to identify advertising opportunities that satisfy our anticipated return on advertising spend as we scale our investments in marketing, accurately predict user acquisition, or fully understand or estimate the conditions and behaviors that drive user behavior. If for any reason any of our advertising campaigns prove less successful than anticipated in attracting new users, we may not be able to recover our advertising spend, and our rate of user acquisition may fail to meet market expectations, either of which could have an adverse effect on our business. There can be no assurance that our advertising and other marketing efforts will result in increased sales of our products and services.

ALSO

> Revenue increased $474.3 million, or 175%, from $271.1 million for 2013 to $745.4 million for 2014. A substantial majority of the increase was due to an increase in the number of devices sold from 4.5 million in 2013 to 10.9 million in 2014, including $151.9 million from new products that we began selling in 2014. U.S. revenue, based on ship-to destinations, increased $356.5 million, or 173%, from $206.1 million for 2013 to $562.6 million for 2014 and international revenue, based on ship-to destinations, increased by $117.9 million, or 181%, from $65.0 million for 2013 to $182.9 million for 2014.

So ballpark 11 million units sold in 2014, and 71.9 million dollars in advertising in 2014

That's $6.59 worst case customer acquisition cost (assuming no repeat customers)

http://www.sec.gov/Archives/edgar/data/1447599/0001193125151...

[compumike]

Your "assuming no repeat customers" is a key point -- when reading overall financial statements like these, note that at "jumbo scale" like Fitbit/GoPro, the "average" customer acquisition cost actually drops tremendously because you get: referral sales / word-of-mouth from existing customers, much more public awareness and perceived legitimacy, more free press coverage, replacement and upgrade sales, gifting from existing owners, etc. all of which contributes to $0 effective CACs on those additional units sold. It does not mean that their marginal cost to acquire an additional new customer is $6.59; if it were, they'd certainly go out and spend it as fast as they can until saturation.

In contrast, a hardware startup (or a software one, for that matter) just has to go out and hustle to get every single sale, whether through paid or non-paid customer acquisition channels. This is where YC's philosophy of treating hardware and software companies similarly works: they both usually have very similar customer acquisition challenges in rapidly building and scaling their growth channels (rather than, say, technical engineering challenges, which are very rarely the limiting factor in startups).

[jkestner]

Acquisition costs are an interesting discussion in themselves. GoPro will have a big number partially because they are marketing-heavy. If you're not (yet) aspiring to be a world-beater, there are plenty of scrappy ways to acquire customers.

Kickstarter, obviously, is a big one. Never mind what people say about needing your own audience - yes, but you gotta start somewhere, and if you've got the message, Kickstarter's got the soapbox.

Another is simply being media-saavy. The press has to write about something, so don't forget that they need you, too. But you have to learn how to pitch stories.