The perfect business model for hardware startups

It’s no secret that investors don’t like hardware businesses. Despite the eternal frustration of startup founders, investor distaste in physical product businesses is actually entirely logical. It’s nearly impossible to build a venture-scale business by selling dumb plastic parts at a 30% gross margin.

But the connected, vertically integrated hardware products of today are very different than their dumb counterparts of yesterday. The difference is simple yet profound: it enables hardware businesses to operate with financials that mimic their SaaS brethren.

Despite being a year old, I liked this article so much because I felt closely related to it with the work we are doing at iomando. We obviously can't scale our business only selling the hardware at a 30% margin. But on top of every sale, we also generate recurrent revenue (SaaS) that accounts for our accessibility service.

That give us the best of both worlds. In one hand, the hardware lowers our CAC because people feel that they are getting something tangible. Moreover we can mitigate the problems with low monthly fees that pay over the customer life time, because we already made a profit on that customer.

And finally, note that is really easier to drive additional revenue from an existing customer than acquiring a new one. So we are equally incentivized in acquiring new customers than we are in maintaining and caring about the existing ones.