Samsung Note 7, GoPro Hero 4: The Risk of Hardware Startups

Hardware startups are in a unique position. On the one hand, hardware products are difficult for other small-to-medium competitors to imitate quickly due to the high overhead and engineering considerations, leading to big growth spurts for innovative companies like GoPro, Fitbit, and Pebble. On the other hand, as any iOS app developer will tell you, hardware comes with huge risks that aren’t so prevalent for “intangible” software, mobile app and platform-based startups (think Tinder, Uber, etc.).

This has been a big year for the case studies on the downside of hardware startups. First GoPro, the darling of tech startups famously created by a down-on-his-luck outdoor enthusiast out of a garage, saw their stock plummet to near single digits on the poor sales of the Hero 4 and failure to launch their much-hyped Karma drone on schedule for the summer season. (Considering how many app developers invested in the hot company directly after their IPO, the loss was felt strongly in the tech community.) Then Samsung, one of the biggest brands in Android hardware, saw a smartphone maker’s worst nightmare: defective “exploding” phones, forcing the company to recall the stock on the Note 7 at a $3 billion dollar loss.

Both surprising letdowns came as a downer to San Francisco Android app developers keen on the latest improvements to the Android platform and wide reach of the much-anticipated Note 7 device.

What’s the takeaway from these cautionary tales? First, hardware developers must follow the golden rule of “under promising and over delivering,” just as in software and app development. Second, hardware startups should pay special attention to the “plan B” when the worst happens, and have a funding setup that can handle much rockier ups and downs than app-centric startups. Both hardware and software startups have their pros and cons, and the tech market has done a great job of highlighting both throughout 2016.