Jul 3, 2015 ยท 3 minutes

Hardware is hard.

Pricing hardware is really hard.

Consider the Internet of Things company, BeON Home and their security light bulbs. The company, which ran a Kickstarter campaign that raised more than $100,000, will be delivering preorders of its products in August -- and then, the real test begins.

The company’s smart bulbs have a wide array of features that make them a practical alternative to expensive home security systems. The are able to stay on for a period of time in the event of a power outage, they automatically turn on if a smoke and carbon dioxide alarm goes off, and they have two very useful security features.

First off, the average pattern of usage is tracked through the company’s mobile app and can be mimicked automatically and adjusted if homeowners or renters are away. And second, residents away from their home can enable a feature that creates a natural lighting reaction if a doorbell rings -- something which I’m told many burglars do before breaking into a home. If the feature is activated, the BeON bulbs first turn on in a bedroom, then a hallway or stairway, and then a downstairs room, making it seem as if someone has been awoken by the doorbell.

It’s an innovative product, and one that has a multitude of other potential uses. When I met with BeON’s co-founder and COO Arvind Baliga, however, I was a bit shocked by the $249 price tag for the package of three bulbs. The recessed lighting version costs $259, and additional bulbs are around $70.

$249 seems pretty steep. But Baliga said that the Kickstarter campaign already proved people’s willingness to pay a premium price for a product that is essentially a next level connected security product. While the early adopters seem willing to pay BeON’s asking price, it will be interesting to see how the next subset of its targeted consumers react, especially if the bulbs start appearing on the shelves of places like Lowe’s and Home Depot. Having a set of $250 light bulbs sitting across the aisle from $20 bulbs might make for a hesitant buyer, no matter what the product can do.

“If you don’t understand pricing structure and what your true manufacturing costs are going to be, you are pretty much going to step out the front door and straight into a hole,” said Thos Niles, the VP of customer experience and product at hardware manufacturing and crowdfunding support platform Dragon Innovation.

Dragon has built a playbook for helping hardware startups not only deliver on crowdfunding campaigns but also build lasting relationships with manufacturers and other service providers in the supply chain. In 2013, Dragon was integral in helping Pebble finally deliver its watches after its massive Kickstarter campaign and the manufacturing missteps that followed.

According to Niles, manufacturing a hardware product has many cost traps that first time entrepreneurs -- most of whom think they can follow an existing crowdfunding and growth hacking playbook to success -- don’t have a clue about, including packaging, scrap costs, labor, and markups. As such, incorrectly pricing a hardware product can kill a company or idea before it even gets off the ground.

“When you haven’t done this before, it’s real easy to hack at it and make a mess of it all,” said Niles.  “Crowdfunding hardware is like a chainsaw. If you know what you are doing, you can make short work of a tree and enjoy the rest of your day. Or, if don’t know what you are doing, you can cut your leg off.”

As more and more early stage companies are hitting crowdfunding sites to test the viability of their ideas, pricing will become critically important to a project’s success. BeON, which used its own resources instead of Dragon Innovation’s platform, succeeded in the first fundamental steps in making a hardware startup a success, and they are about to ship the product.

Now, it just has to move beyond the comfort of the crowdfunding realm and into a new phase of life as a small hardware business at the mercy of a broader range of retail consumers.


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