ACE Research Vignette 061: Digital Technologies as External Enablers of Digital Hardware Start-ups This series of research vignettes is aimed at sharing recent research findings from our team of international entrepreneurship researchers. This vignette, written by Dr. Frederik von Briel and Prof. Per Davidsson, discusses how digital technologies enable digital hardware start-ups, that is, start-ups that create and commercialize digital hardware devices such as drones, home automation devices, robots, smart kitchen appliances, and wearables.

Background and Research Question

This vignette builds on previous vignette #057 and #059 about changes of the business environment as External Enablers of new ventures, digging deeper into digital technologies that enable digital hardware start-ups. Our research is based on the observation that a recent surge in independent digital hardware start-ups coincided with the introduction of several new or advanced digital technologies. The surge digital hardware start-ups is particularly interesting because the creation and commercialization of digital hardware has traditionally been challenging and imposed substantial barriers such as a high capital intensity and long development processes. Thus, the research question we explore in this vignette is:

How do digital technologies enable start-ups to create and commercialize digital hardware?

How was this investigated?

This is theoretical work guided by industry observations, prior research, and our own thinking.

Findings

The below table lists six categories of digital technologies that we identified as external enablers of digital hardware start-ups, along with a very brief example of each.

Digital technology Explanation

Rapid-prototyping technology

Technologies such as 3D printers (additive) and mini-mills (subtractive) that use computer aided design (CAD) files to automatically create physical artifacts

Electronics development platforms

Programmable, digital devices such as Arduino or Raspberry Pi that can connect to, interact with, and process information from a broad range of (potentially non-digital) devices such as sensors, motors, or LEDs

Interconnectable devices Digital devices with computing capabilities such as notebooks, smartphones, and televisions that can connect ad hoc with and provide functionality for other digital devices

Crowdfunding platforms Online platforms such as Indiegogo and Kickstarter that connect fund-raising start-ups with large numbers of potentially unknown (private) investors

Social media Online platforms and repositories such as GitHub, GrabCAD, Hackster.io, and IFTTT that enable users to create and exchange content

Cloud computing Online computing such as Amazon Web Services that provides digital devices on-demand access to shared computing and data storage resources

We found that these six digital technology categories provide six of the mechanisms identified in Vignette #059. By doing so, digital technologies from these six categories reduce the traditional barriers for digital hardware start-ups to create and commercialize new digital hardware devices. Specifically, they enable digital hardware start-ups to:

1. Shorten the time to perform necessary activities (compression mechanism). For example, 3D printers allow hardware start-ups to quickly create looks-like prototypes of products that they can show to potential customers and investors.

2. Reduce required resources (conservation mechanism). For example, electronics development platforms allow hardware startups to create works-like prototypes with relatively limited knowledge of electronics development.

3. Increase available resources (expansion mechanism). For example, online repositories provide hardware startups access to source code that they can build on instead of having to develop their software from scratch.

4. Replace previously used resources (substitution mechanism). For example, crowdfunding platforms allow using direct feedback from real users instead of having to conduct traditional market research with potential users.

5. Combine different resources to create something new (combination mechanism). For example, hardware startups can leverage the displays and computing power of smartphones to provide core functionality for their own products.

6. Leverage third parties to continuously enhance products (generation mechanism). For example, online platforms such as IFTTT allow hardware startups to empower customers to create new functionality for their products even after products have already been manufactured and shipped.

Important for the surge of independent digital hardware start-ups, digital technologies from these six categories simultaneously enable all stages of the venture creation process, from (1) the initial exploration of ideas for hardware devices via low-cost prototypes to (2) the development of these ideas into devices that can be mass-manufactured to (3) the actual manufacturing and distribution of these devices to customers. If enabling digital technologies would have only been available in one or a few but not all stages of the venture creation process, there might have been more attempts of digital hardware start-ups to create and commercialize new market offerings, but more of these attempts would have likely failed because of the remaining barriers. Along the same vein, continuous technological advances such as the increasing capability of rapid-prototyping technology to manufacture small batches of the final product can potentially reduce barriers and thus enable digital hardware start-ups further over time.

Business and Policy Advice

Our investigation of digital hardware start-ups has several implications for businesses and policy makers. First, businesses that want to develop new market offerings based on digital hardware or digitization of their existing hardware should actively leverage the enabling digital technologies identified by us to reduce barriers along the process.

Second, policy makers who want to nurture digital hardware start-ups should provide access to and training for the enabling digital technologies identified by us, again, to reduce barriers for digital hardware start-ups. Importantly, policy makers need to plan interventions that remove entry barriers along all stages of the venture creation process—from (1) experimenting with initial ideas to (2) developing these ideas to (3) commercializing the final solutions—if they want to foster successful activity of digital hardware start-ups at a large scale.

Our framework, dividing the venture creation process into three broad stages together with the fundamental mechanisms that reduce entry barriers for digital hardware start-ups and the digital technologies that provide them can help both businesses and policy makers to identify and plan interventions that are likely to successfully foster digital hardware start-ups. The surge in digital hardware start-ups would likely not have been possible had digital technologies not provided enabling mechanisms in each stage of the venture creation process. This suggests that to be successful, policies need to address all stages in which entry barriers are considerable.

__________________________________________________________________________________ This research vignette builds on: von Briel, F., Davidsson, P. & Recker, J. (2018) Digital technologies as external enablers of new venture creation in the IT hardware sector. Entrepreneurship Theory and Practice, 42(1): 47–69 (tinyurl.com/BRD-ETP). See also http://tinyurl.com/ACEvignettes