Hardware Startups In China Move Quite Fast & Very Differently

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Benjamin Joffe, HAX

China’s hardware startup scene is quite different from the West.

Here are 8 differences:

1.  There is no crowdfunding like Kickstarter in China. It’s all pre-orders. On JD.com’s platform, said to be the largest crowdfunding platform in China, products have to ship within 30 days.

2. There are few “makers” in China. As least in the Western sense: the “fun / education / hobbyist / tinkerer” approach we find overseas is rarely found among hardware startups.

3. Yet China talks about “Makers”

They just don’t mean the same thing: Chinese makers are hardware companies, not hobbyists.

Shenzhen brands itself “City of Makers” but does not actually mean “city of DIY hobbyists.” It’s about creating economic activity from hardware businesses and fast-growth startups.

4. Most hardware startups are aiming for mass market — in particular, all the companies Xiaomi invested in. There are far fewer early adopters in China willing to take a risk on unproven products. Chinese consumers don’t want to wait (unless it’s a luxury good?), don’t like to take risks on products, and love a discount.

5. Derivative vs. Innovative

Many companies are doing derivative products trying to capture some market share, knowing it might not last for lack of defensibility. Some of that is the heritage of the “shanzhai” approach to small-batch production and extreme customization. Some of it is the risk vs. reward of radical innovation compared to proven demand. Many Chinese entrepreneurs are quite pragmatic and consider business first.

6. Quality and speed has gone up

Many things in the electronics market or sold online look good, are well made.

7. Products get commoditized fast

We call this “Xiaomization”. What used to be considered hard to do aren’t anymore: a self-balancing scooter, an activity tracker, an action camera, a smartwatch or a drone. Segway even got acquired by its local competitor Ninebots. Fitbit and GoPro are lucky Xiaomi does not have much brand presence overseas yet with its MiBand and Yi camera!

8. Investors are keen on hardware, but have little experience

So they bet on their friends (“here’s one million”), or bet on growth once they have a scalable model (“here’s ten million”). Not many actually help get things done: going from “zero to one” and “one to many”.

So what is next for China’s hardware scene? Here are some potential evolutions:

– More startups

– Universities start churning out more science-based startups

– Hardware veterans from MNCs, local OEMs quit their job to do startups — likely mostly derivative consumer products, with a focus on fast execution.

More funding:

– Some startup clubs organize as “syndicates” and fund startups.

– Hardware-focused funds get started.

– Factories start to fund early stage startups.

– Xiaomi funds more hardware companies, gives them distribution and dominates several more categories.

More global:

– Some startups aim for “global from day one” by engaging foreign-trained product designers.

– Some OEMs used by foreign startups begin to push their own brands overseas.

Benjamin Joffe (@benjaminjoffe) is General Partner at HAX. The HAX hardware accelerator has 80 investments including 10 Chinese hardware startups such as the robotics kit Makeblock and smart light startup Yeelink. HAX is based in Shenzhen, the electronics capital of the world, and San Francisco.