According to Corkman Liam Casey we stand on the edge of a golden period of innovation and it is down to the most prosaic part of the sector — distribution.
“The hardest part of hardware is not the making of it, it’s the actual selling of it, the distribution,” says Casey, CEO of PCH International, the $1 billion Ireland-based product design and distribution company. “If you fix distribution and you create a channel that helps start-ups distribute their products while reducing the risk, I think you will create the greatest innovation in hardware ever.”
Casey, a speaker at the Web Summit conference in Dublin, thinks he has fixed it. Thanks to what he calls his “agile supply chain,” PCH can ship product from its distribution center in Shenzhen, China, “to 90% of the world’s population in three days … Our last mile could be up to 7,000 miles long,” he says.
Casey, who founded PCH in 1996, says the existing distribution model is killing hardware start-ups by locking up huge amounts of capital in products that sit in warehouses.
“If we just concentrate on the U.S. for now and talk about some of the big commerce companies, some of them might have as many as 50 distribution centers in the U.S.,” he says. “If you are a start-up and you are trying to meet the requirements you have to put at least one week of inventory into each one of those distribution centers — that’s a year’s worth of inventory.”
Casey’s solution? “We have replaced inventory with data. We hold the inventory in China. We react to real demand and based on the sell-through data, we ship your product based on that. We react to real demand, not forecasted demand.” Shipping direct from China means a fraction of the product is needed, which also means just one distribution center.
If You Want Innovation, You Have To Support Innovators
He is highly critical of the way that some hardware start-ups are treated by retailers.
“The reason we don’t have huge innovation in hardware technology is because of the contracts of the big-box retailers. They will say, ‘we really like your product, we are really excited by it. Now you have to consign inventory to all our warehouses. You will pay us to promote it and if it doesn’t sell you will come and collect it. And then we will bill you for non-performance in the store.’”
These terms don’t give hardware start-ups a fighting chance. “If you want innovative products, you have to support the innovators.”
Sorting out logistics lowers the barriers to entry for hardware start-ups and makes them much more attractive to investors, he says.
At the same time, the bar has gotten a lot higher when it comes to consumer expectations for new products. “PCH offers not just distribution, but will handle every aspect of the consumer experience. We start thinking about what the best way to design the whole product is for the consumer. What will the box look like? What is the packaging like? All the things that you look at that need to be done to ensure it is a great experience when the consumer gets his hands on it.
Renaissance Of Prototyping
“We enable start-ups like Kano [which packages Raspberry Pi computers] and Blaze [which makes a smart bicycle lamp] to be able to do that without having all of the infrastructure,” he says. “That’s the table stakes. You have to be able to deliver to that standard.”
It isn’t just better logistics that will have a profound impact on hardware start-ups; Casey says there is a ‘renaissance of prototyping.’ “The real innovation in hardware comes from having a prototype that works,” he says. “That’s the moment of truth. The ability to do that has really accelerated innovation.”
Products such as Raspberry Pi, Arduino and technologies like 3D printing enable entrepreneurs to build prototypes in hours.
“We run hackathons. People turn up on a Friday night with ideas, they form teams, they agree on projects, and they get to working,” says Casey. “By Sunday night they are pitching and they have a prototype. That is incredibly powerful.”
PCH is behind Highway1, a hardware accelerator in San Francisco. That, together with PCH’s work with major manufacturers, lets Casey see into the future. So where is hardware innovation heading? He is famously discreet, but lets slip “the way e-commerce may be conducted in the future is sensor-to-sensor and not person-to-person.” Start prototyping.
Update @07.17 5 Nov 14: The company is worth $1 billion. An earlier report valued PCH at $300 million.