Four options for building an IoT hardware product as a Fortune 500 company

This article was originally published on the Mindtribe blog.

By Tom Hsiu, Director- Program Operations, Mindtribe.

Technology now touches every industry. Increasingly, consumers and customers are looking for tactile or connected experiences that require hardware innovations or a standalone hardware product. From Clorox to Ikea, Adobe to Johnson and Johnson, companies are experimenting with connected devices. However, many of the world’s largest companies have zero experience in building hardware, even as they contemplate adding a hardware component to their portfolio of products.

So how should a company that is in a traditionally non-tech, non-hardware space get started?

At Mindtribe, we’ve worked with hundreds of companies, including dozens of Fortune 500s. We’ve seen hardware efforts take many different shapes.

Below are the most common approaches we’ve seen successfully employed:

OPTION A: LEVERAGE EXISTING HARDWARE BY PARTNERING WITH AN OEM OR ODM

An OEM (Original Equipment Manufacturer) already has a catalog of products they have developed and manufacture. If one of these products matches, or nearly matches, your hardware needs, then the OEM can quickly rebrand the product or slightly customize it to your requirements.

ODMs (Original Design Manufacturer), on the other hand, are like OEMs except that they offer more in house engineering capabilities and can do more complex customization.

In order to work with an OEM or ODM, a Fortune 500 company would still need to build out an in-house team to manage the project (though this team would be much smaller than if the hardware were being developed from scratch).

The internal team could include project management, operations, product security, support, regulatory, and some backend engineers for working with the OEM to integrate any services with existing data systems.

Pure Digital, creator of Flip Video, utilized OEMs for their early “disposable” digital camera service. They did not develop those cameras from scratch, but leveraged OEMs to source their branded cameras.

OPTION B: LEVERAGE EXISTING HARDWARE BY PARTNERING WITH A HARDWARE STARTUP

With this strategy, Fortune 500 companies can license hardware sold by an existing company (often a startup that is focused solely on developing that innovative product) and co-brand or rebrand it as their own. Often, this hardware partner may even take care of manufacturing ramp-ups and product support — both of which are non-trivial efforts that would otherwise take an internal operations team.

A startup hardware company will also have already developed the product ecosystem, including the backend and service models. However, a startup company’s product is often new and unproven, with innovation being central to its success.

If the partnership goes well, you can move towards an acquisition. Such acquisitions are generally strategic in scope and should fit within the company’s longer-term vision. For these sorts of transactions, financial and legal experts are key to the process. Most Fortune 500 companies will be familiar with the leading providers of such services. Google took this approach when they acquired Nest and Cisco took a similar route when buying Linksys.

OPTION C: BUILD FROM SCRATCH BY HIRING ENGINEERING AND PRODUCT CONSULTANTS

An engineering and product consultancy can help a large company build a brand new, innovative product. New-to-the-world products that define an industry require new forms of engineering and exploring unproven aspects of hardware. A consultancy is accustomed to exploring new technologies and solidifying nascent product ideas.

Consultancies can also help jump start your internal team development by being your initial team while helping you hire your internal team and then phasing out as your internal team grows. Mindtribe assisted Square and Tesla in this manner when their hardware teams were still small.

OPTION D: BUILD FROM SCRATCH BY HIRING YOUR OWN INTERNAL TEAM

An internal engineering and product innovation team can help a Fortune 500 company explore ideas, prototype, and better understand what products can feasibly be built and model how they might affect the business’ bottom line.

In conclusion, there are a handful of ways for large companies to build a hardware product that aligns with their goals and long-term vision. Each option should be carefully weighed — there are always tradeoffs to be made — but inaction produces zero results.

As a growing proportion of companies leverage technology to better serve their customers, hardware will increasingly play a pivotal role in enhancing user delight and product utility.