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Invisible expenses – Hardware startup

We have seen a lot of people ripping of electronic items to see how much each component costs and then come up with a figure of the value of the item. We would like to weigh in a few expenses which we have identified and experienced apart from the cost of components, which is mostly ignored by many, so that it might help someone stepping into this field.

Assembling Cost: The PCB components are to be assembled. Some people need PCB Stencil, which costs a few thousands in rupees. There are also different finishes of PCB, all the way from least expensive leaded finish to expensive finishes such as ENIG. We mostly use ENIG in our boards for better finishes and quality. The assembling cost varies with quantity.

Transportation: All components, boards, boxes, cases, moulds, stencil, prototypes, cables, screws, batteries, papers, stickers and almost everything is transported and it costs a lot of expense. And an additional 18% GST (+1% cess if from states like Kerala) when billed from the vendor.

Moulds: These are the one time investments for making plastic cases of electronic items. These costs all the way from 50K for small moulds and upwards to tens of lakhs depending on number of pieces per mould to complexity, cooling, finishes etc.

Screws: Might not seem an expensive item, but is usually more expensive than the passive items used in electronics.

Seller platform fees: All online platforms charges fees, in various tabs, depending on the category, all the way up to mostly 20-50% including the shipping and handling charges (including GST). And this amount they collect is credited a few weeks to months later, depending on platforms. If you have your own site and set up a payment gateway, you might have to pay about 2-5% on transaction charges and 18% GST on it. Also be ready to shell out money on packing and printing labels and on shipping charges.

Printing charges: You end up printing a lot of sheets for shipments and invoices, not to mention other documents and accounting related papers.

Storage charges: If you make more, you need to have a bigger rented space to store more. This can’t just be any place as your product might wear out and be covered in dust if not stored properly.

Return charges: If you plan to get online to sell, be ready to accept returns. There are users who order, and return without even receiving the items, and others who order and return without reading the descriptions or looking at the images. Also, we observed that, only a few still contact the startup for support. Most rely on the easy return conditions of e-commerce platforms and do a hassle-free return than try to sort out the issues. In case of return, the seller (you) will be charged the shipping charges, and will also end up losing the packing, invoice and related expenses. The returned items will take and eternity to come back to you.

Items with issues: No machinery is 100% perfect. If you make a 1000 pieces, there will be items which are not fit for sale. This happens in all stages, from PCB manufacturing, assembly, components, final assembly etc. This is an overhead cost.

Salary & Rent: Now, this is mostly the avoided part. Everyone works for a salary and each stage requires a human input, which is to be paid for. Also, there is a rent to be paid for storage and other infrastructure.

Taxes: GST on all payments made. Additional cess for certain states.

Import duty: The items which you see on international websites can get up to twice as costly when it gets to your hand, including the GST, shipping charges, import duties, cess, surcharges and then handling charges, storage, import clearing charges, duty advancement charges and GST on top of these (except for items whose GST has to be paid at the time of import)

R&D: Development takes a lot of time, and lot of trials before it can hit the market or ramp up into production. There are small batches of components required and this is quite expensive (as much as 40x) depending on the quantity that you do. For instance, a prototype assembly for a board (30x50mm, with 25 components) would cost you, Rs. 500+GST for assembly (excluding the 2-4K you spend on stencils). The same production version might cost you <Rs.50 including the stencil charges and taxes.

Banking charges: Companies have current accounts, which doesn’t pay interests, and are charged per transaction.

Capital investments: There are equipment which you need to have to build the firm up, from soldering iron to oscilloscopes or even much expensive items, depending on need.

Electricity charges and related: On the commercial scale.

Government registrations, renewals, taxes and audits: There are charges for all these, and these are not limited to these mentioned tabs.

We will be adding valid points as we catch up with them, or if you can help us with something which had not been mentioned, kindly comment below.

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Hardware startup ecosystem – The difficulties

One of the main drawbacks of smaller companies not easily getting into the product phase in India is the delay encountered and the lack of proper ecosystem !

From my personal experience, compared to a place like Shenzen (China) where there are readily available stocks of components, and facilities, India lacks a proper ecosystem. In a proper ecosystem, it takes few hours to a few days for iterations and designs, whereas, for us, it takes at least a week for the components to arrive, and then a few more days for one iteration of design !

Also to be shared, is the reluctance of the vendors to deal with small orders, and also the lack of proper expertise in their fields, though they have been working in the field for years, or at least claim to be so. When placing a small order, especially for the prototypes, most vendors either charge you very high price, or may even not reply to your request as their margins are much lower on your order.

On an average, the probability of getting a positive reply is 1/5, and that of getting the item you searched for at an affordable rate may be about 1/10. So, to the people who are tired of trying, you should be tying harder !

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Start Up Tips: The Money Game

When it comes to money, most start ups are brave enough to secure funding from the stage when they are struck with the idea of creating a startup.

Where does money come from ?

The money mostly comes from the founders, if they have initially. And then later on, the start ups if they are good enough to pitch well and convince others that they can make money, would be pumped in with money, and in some cases, a lot !

Why do they get money / investment ?

There are big companies/individuals who have cash surplus, or are looking into venturing into a new field. Some think of investing money in start ups, which in future, can be of huge value.

How to use money ?

In business terms, if you don’t have cash in hand, the game is over. This means, you should always have a minimum cash in hand left so as to sustain your operations.

Start ups will have to rent space. Most start ups look into higher rent bigger areas at the heart of city so as to project a descent image. Well, this seems OK to do so. But from a financial point of view, start ups usually have to minimize their recurring expenses. The space rent, would be higher in cities. This expense is to be borne by the company every month, which increases the expenses. This would mean that the company has to have a higher sales, to become profitable.  A cheaper, but well placed offices in semi-urban or well connected villages, are good to start with, or even for later as well. This would lower down the expenses as well as give you nearly same facilities as the ones at the heart of the city.

Hiring talent is costly. I have seen people who are willing to hire highly skilled people at any cost. For start ups with less cash in hand, this would be highly risky. Every hiring decision has to come from ‘necessity’. In smaller companies, one person tend to fill a lot of positions. For instance, an engineer can also work for procurement when the company is small. These multi talents will save you a lot of money. Also, hire people with passion, just because, they tend to pump in a lot of suggestions and ideas, which would come handy, unlike people who are much confined to a post. Freelancing of work is also suggested so as to reduce the recurring costs.

“Reducing Expenses Is A Key To Early Profits”

How did RegalDream take these into account ?

RegalDream Technologies is a tiny start up. Though we could seek funds, we wanted to take the hard way of not securing a funding initially. We invested our hard earned money into the start up company. Isn’t that the better way to start a business ?

We took a small office room in a village, but well connected to the city. The office is just a few kilometers away from major tech park in the state. When co-working spaces in cities were priced at about 6-8K INR, the 100 sq ft office was rented at 2.5K a month. We would be expanding to a bigger office once the start up becomes fully operational.

Hiring talents is of great importance as well as of greater difficulty. We, instead of hiring talent, became a jack of all trades. We learnt to acquire the minimal talents to run a business, from creating contents to mechanical and electronic designs. We consult people when required, but mostly do on our own. We also confined our initial projects to smaller designs, to consume less resources, and would step into bigger ones, once we feel good at what we have accomplished from our smaller products.

We have kept aside the funding and major hiring part for the future 😉

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Start Up Tips : Intro

The intro

Almost everyone has a dream to be a quick billionaire and that is how most people recognize start-ups as – ‘the unicorns’, unlike the popular concept that they need to change the world. A certain other section of people find it difficult to work under someone, and end up being their own boss. There are other reasons that lure people into building a start up, including bringing in a change to the way people live, for a better tomorrow and so on.

We, before starting as RegalDream Technologies, had fallen into different of these categories at different instances, and have learnt lessons, mostly the hard way. So, when we started this venture, we mustered up all the categories, to add up our motives, and prioritize them to build a sustainable business model.

For the above mentioned aims of building a startup, there are pros and cons involved with every model.

Our experiences

To begin with, we started with a small venture to create entertainment videos including short films. We were a team of about 5-10. It all started with a person’s dream to be a director, and then we all decided to support it with our small parts to play. We did a written pitch application even without starting out our first project, and were obviously rejected. None of us had a pretty descent idea of how to get this done, but then we took the leap. We shot a small movie, with Galaxy S Series cameras, and did a few editing works as well. But the short film didn’t even make it to a release. No one was much serious when it came to the end, and everyone had their priorities. We were students back then, and then no one was interested in giving a nearly equal priority to the venture.

The moral, being, have a team who has the same enthusiasm and dream as you do, so that people don’t drop off during the tough times.

The same fate happened to our next venture, Clubbits(dot)com (abandoned) Here, the reason being, the amount of efforts required. The website was a content platform with app reviews, movie reviews, a portal related to studies and so on. In the initial phase, everyone was enthusiastic enough to post and pump in contents, and eventually it dried up. The notion of constant effort was tiring for some. Or perhaps we expanded our fields of interests, too much that we found the resources short for content creation. We learnt and built the site for educational purposes only, and then it eventually died when no one cared for.

The mistakes that we did were

1. We were not focused on specific field of interest, or had no specific customer segment to start with. We just took on the entire thing altogether. We managed to run like this though, as customers were broadly distributed, one odd day for a new article in one segment would be compensated by another in a different segment. We have a 50-50 view on this, but we would suggest considering expansion after starting with a small segment, and then capitalizing on it. Expanding with a strong segment in your hand would help you even if you step into the wrong segment or face a tough competition. It would also help you stay alive in case of a sudden threat in your prime segment as you have your legs in other segments as well.

2. Not everyone is enthusiastic as you are and might not stay for the dry time of start-up venture. Most ventures have dry times where things seem tough, and if you can make it through it, you win. Most people leave during this time, as they don’t have the same passion as you do. Try keeping people with similar passion.

There are a few pros that we took as well

1. Social media marketing. Our major source of traffic was from social media than from search engines. We learnt that consistent social interaction with customers would fetch you loyal customers, and they love being treated well and to stay posted. Tweet, post, interact, message, send emails – and don’t over do so much that they feel suffocated. Just, stay in touch and keep them posted.

2. Launch, then find the market. Most people might not agree to this, but then, in case a startup is not so specific about the segment they want to enter into, but has a vague idea and are sure to sell the product, they may happily launch to the mass segment. Analyzing the performance and interactions, the market can be customized on the go. Do this if you have a fairly descent chance of succeeding.

3. You can win without being a leader. You don’t necessarily have to be the leader to run profitable. You just have to minimize your expenses and keep up your customers. Even with the smallest market share, you can still be the most profitable business. Keep your expenses low.

 

These posts will be continued. Keep reading !