Shuts Down Business Operations Just Days Before Shipping…
Developing a Tech Hardware Company is tough and SmartLock learned the “Hard Way,” no pun intended.. on how not to do it. In some respects, as bootstrap investor and entrepreneur, I have luckily not made these mistakes; but the post-mortem on Otto, the Smart-Lock company which halted its business, just before shipping its product, is an example of a typical West (Left) Coast startup business model. The company focused on a strategic exit/equity raise for the business to cross over the hurdle from prototype to production. Exposed itself to selling the company way too early without understanding how hedge the risk and knowing how fickle large companies can be…
A bootstrapper would stay focused on the product launch and production needs based on customer revenue, rather than seek or consider alternative funding.
Read the article in Medium by the Founder/CEO HERE: https://hackernoon.com/so-close-806b8ae77fa6
Read the TechCrunch Review HERE: https://techcrunch.com/2018/01/01/smart-lock-maker-otto-suspends-operations/
This really is a prime example of missing the market in many ways:
- The price point is way out of bounds from the standard dead bolt of $20 to the Wifi/Zigbee/Z-wave alternatives in the $200-$400 range. Missed Market Pricing and Demand Signals. (pre-orders or crowdfunding does not validate “the market”)
- Any business should assume that starting with customer revenue is the best way to make money, not equity raises. In selling a company there should be a penalty that the buyer pays if the deal doesnt go through… especially for locking you up for so long.
- The company was too early to be on “Sale” The value should have dramatically increased after shipping the first products, validating the market and pricing, and scaling sales, production and delivery
- With a “High” price like you set at $700, there was probably a false sense of profitability and timing… COGS should be 20% or less than average retail price or sales price.
- Rather than developing a unique, stellar, high-end user experience (and especially without validating pricing and demand for the huge premium), a better, reasonable MVP could have been developed. Remember, when Salesforce entered the market as a SaaS CRM, it barely had the basic features of other Sales Systems. It merely solved the major problem of syncing data amongst remotely dispersed sales-people and had COMPARABLE functionality to other CRMs… Its pricing was also unique but the one value prop of real-time syncing was enough to pay the premium for comparable or even lower functionality
- Just by looking that the company picture, the staffing model seems way to high for a pre-revenue company with a single product. It appears that you may have burned a lot of money chasing the “ideal” product, not just the one to get a single and prove the value of the product and its service/capabilities versus alternatives.
Of course Hindsight is always 20:20 in vision. But this is another prime example of the Challenge behind building a Tech Hardware product vs. a Software only and the culture of raising equity versus raising customer revenue to validate a product.