In the context of: The biggest difference between building hardware and software is the amount of time it takes to get your first payout. There are no easy ways to shorten it, but there are ways to adapt and smooth the path to revenue growth.
We obviously have strong biases when it comes to benefits Hardware investment In return for investing in software. And we have Some strong opinions In investment cases each is more alike than common wisdom says. However, there are distinct differences between the two, and we want to explore those differences with the ultimate goal of finding ways to eliminate the risks of investing in hardware, or at the very least, finding conveniences to settle for long-term results.
Guest author Jonathan Goldberg He is the founder of D2D Advisory, a cross-functional advisory firm. Jonathan develops growth strategies and alliances for companies in the mobile, networking, gaming and software industries.
Undoubtedly, one of the biggest benefits of starting a software company is how quickly the company generates revenue. Two like-minded engineers in the bedroom can build a real product and generate revenue almost overnight.
The hardware world, especially semis, is very different. In fact, if we had to name the single most important difference between the two, we’d end up with it timing.
Building hardware only takes time. Design the product, rethink the design, build a prototype, fix bugs, redesign, build to manufacture and then get into front production. There are only so many steps involved, and many of these steps usually depend on other companies adding time.
Take semiconductors, for example. We recently worked with a team of 20. They designed their chip in less than six months. It was an incredibly experienced team and so there was no doubt that their determination would work. Then they had to spend a month plugging their data into TSMC’s software interface (aka PDK). They sent in their libraries and TSMC “signed” their chip, and after three months, they got their first silicon back and had to go through a few more months of testing and packaging.
Together for about a year from napkin to first working sample. Note that more than half of the time was taken by third parties. For those unfamiliar with semis design, this seems like a very long time. Those familiar with semis design will be amazed at how quickly this team can move. Seriously — 20 people in less than six months! This was no small chip either.
There are no easy ways around this. The software can be debugged in real time, but once the hardware is out the door, there is no way to fix it.
So the question then becomes how do we deal with this reality.
First, it has become a little easier to build chip prototypes. There is a growing number of “Free Tape Out” programs, with many trailing edge foundries offering cheap rates for small runs. For larger chips that depend on the process, simulations on FPGAs work well. This isn’t ideal because customers won’t commit until they see working silicone, because they’ll want to do their own assessments (and don’t even get us started on how long an entire EVT/PVT/DVT cycle can take). But these methods can at least prove to investors and customers that the product has something to offer.
Another important adaptation would be the shift to “solution” selling, where companies sell some form of service on top of the chip. This can be a complete hardware unit (with chipset and board) or it can incrementally mean software running on the chip. we’ve got written in this topic in the past. It is difficult to achieve, but it has benefits.
The ideal solution would be for a chip company to design a standard product whose features could be improved with periodic software updates. This is firmly in the “if you can’t beat them join them” camp, borrowing a page from software companies. Not only does this generate the first revenue faster, but it paves the way for increased sales, easing the path to growth.
The hitch to this path is that it really entails an entirely new business model, not just a new product. The semi-finished industry is largely built on product selling habits, but this model requires “solution selling”, which most large chip companies are not equipped to provide.
None of this will shorten your monetization time by much, but it does provide a fairly solid adjustment. And not for nothing, everyone is given something to do while waiting for the first silicon to return from the foundry.