Hardware startups are hard, the saying goes, but it’s not always clear why they’re hard. One of the core challenges is that it’s traditionally been difficult to do agile hardware product development – even if you get everything “right”, how do you know that people are actually want to one of the 20,000 gadgets you’ve so lovingly crafted? Prelaunch.com is an Armenian startup that has developed tools to help startup founders figure out what’s worth building – and just raised $1.5 million to further develop its product and services.
“My friend Stepan called me one day to show me a product they designed — Gawatt emotions – who had just won a prestigious award. Excited by his recent success and its potential, Stepan took a leap of faith and bought the rights from the client. He wanted to create a standalone product and sell it himself, and he reached out to me to see if I wanted to partner with him on this journey,” said Narek Vardanyan, CEO of Prelaunch. “But although I liked the product idea, something wasn’t quite right: ‘Why do you think this is going to be a success, Stepan?’ I asked him. We decided to run a test before spending huge amounts of money on production and marketing .”
The test was a simple two-page website. The first page showed the general idea and asked people to leave their email address to subscribe to updates. On the second page, the price was next to a Buy Now button. The idea is simple: it checks the customer’s actual willingness to pay – as people were asked to consider the price, pull out their card and make a purchase. The team set up a marketing funnel, drove traffic to that page, and waited.
“The results were bad. Very bad,” says Vardanyan in an interview with australiabusinessblog.com. “People were ‘interested’ in the product, as evidenced by the number of subscriptions on the first page…but only three people actually tried to pay for it! We were sad and happy at the same time. Sad, well, because we had to close the business. But also happy that we just saved a lot of money and time.”
That anecdote explains the power of what Prelaunch is trying to build.
To date, the company was bootstrapped, but is announcing today that it is closing its seed round on a SAFE note with a cap of $10 million. Prelaunch prepares to get bigger; more engineers, more marketing and more customers.
“We increased from three VCs – Big Story VC led the round, and Formula VC, Granatus Ventures and BANA (Business Angel Network of Armenia) participated. One of the angels who invested was Vahe Kuzoyan, co-founder of Service TitanVardanyan said. “We are excited about your concept, because we can completely change the behavior in the industry.”
Prelaunch is based on the core belief that current practices in hardware product development have essentially not changed over the last 100 years. Software found lean methodologies that are treated as fundamental religion in the SaaS world. That is less in the hardware space, the company emphasizes.
“CCompanies are effectively losing millions of dollars by betting on the wrong product, and a total of one-third of total inventory production is unused inventory. We think there is a very simple solution for pre-launching. The idea came from a previous company: we had a very successful marketing agency, dealing with customer hardware products, and we got a lot of innovative products to work with. The question was which product has a high potential and which does not? It turns out we were wrong all along,” laughs Vardanyan. “We tried a lot of things and nothing really worked until we started using a reservation model. When we started asking users to deposit real money to prove their real purchase intent, we got better feedback.”
From there, the company and its products evolved and grew, and Vardanyan tells us that they accidentally discovered that this is a fairly universal problem for products, for start-ups, experienced entrepreneurs and larger companies.
Prelaunch, it seems, ran into a very practical application of behavioral economics: there is a difference between what people say they will do and what they actually do; it is unpredictable at times. People make decisions for reasons they can’t always explain, which is how you end up in a focus group for a product where everyone agrees it’s a great idea and they’d buy the gizmo you’re researching. But when it comes time to buy, it turns out they make a different decision. By taking a more active approach, the company can help product developers make smarter decisions about the product itself, as well as pricing, positioning and marketing.
“Pre-launch is very different compared to conventional surveys, because in this case they already have a real purchase intent. And then you can basically ask them anything, making sure you have the right sample group,” explains Vardanyan. “The platform solves two major problems: it helps you understand if your product is viable in the market and it helps you understand who your customers are at a very early stage. And these two pieces of information are critical to making sure you’re working on the right types of products.
The Prelaunch team says it has worked with more than 1,000 companies on its platform, with more than 100,000 visitors per month.