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Tiny Batteries -- And Tiny Investors -- Usher In a Wave of Hardware Startups

Connected "devices" will soon far outnumber the total volume of smartphones and tablets in the world.

Nordic Semiconductor

We’ve been hearing about wearable technology and the Internet of Things for years, but we’re just now seeing a wave of “lean hardware” startups usher in a revolution of connected, always-on devices. A little-known technology change created the initial disruption, and an innovation in sales and marketing has accelerated it.

The world still underestimates the sea change that is under way, and we shouldn’t be surprised if the volume of connected everyday things quickly blows past the 25 billion figure that Cisco predicts will be out there by 2015. Yes, these connected “devices” will soon far outnumber the total volume of smartphones and tablets in the world. Here’s why.

A three-letter communication protocol is changing the world

As with many catalysts that spur great change, the technology shift in this case went unnoticed at the outset. The proverbial tree falling in the forest was Apple’s adoption of a new communication protocol, Bluetooth Low Energy, into iOS 5 and the iPhone 4s. BLE allows devices to communicate with each other at long ranges and very low levels of power consumption. This means that a battery the size of a nickel can now power an actively communicating device for a year or more. And these connected devices now can have tiny form factors that you can put on your body or just about anything you own.

In essence, we can now connect anything to ourselves and to the Web, from backpacks to bikes to blue jeans, without having to charge them. Some predict that this added level of convenience will lift the number of connected devices per household from 10 today to 50 by 20122022.

Preorder crowdfunding provides the ultimate early test of consumer demand

We’re already seeing a slew of impressive connected devices come to market like Tile, Pebble and Lockitron, to name just a few. But it wasn’t only the technology shift that made these possible. Just as importantly, the advent of the preorder crowdfunding campaign made it possible for these companies to test demand of their products in just weeks, before spending time and money to manufacture and deliver them.

Millions of tiny investors like you and me are voting with their wallets, and showing they love the idea of cool, connected devices to help them keep fit, track their health, manage their homes and even find their lost stuff. This has enabled enterprising entrepreneurs to take a page out of the “lean startup” manual and blaze their own trails for building “lean hardware” businesses.

Take Tile as an example. They made a huge splash with their viral video, and signed up about 50,000 customers to buy tiles during their 30-day campaign. They’ve now sold more than 450,000 devices, and this volume has allowed them to enlist one of the world’s largest manufacturers to produce the product. They were also able to drop the list price of the item quickly with the increased production volume. In essence, a company that no one had ever heard of built a considerable brand in just weeks, and made money while they were at it.

Professional investors will start taking note of early-stage connected hardware

As more campaigns like Tile, Pebble and Lockitron burst onto the scene, the support of millions of tiny investors who show their support and interest by pre-ordering the products will prompt VCs to take notice. Now product-market fit, typically the most difficult challenge for any early-stage startup, can be displayed before a product is even in production. The initial investors will then have to focus their due diligence on the ability of the companies to deliver on their promises to consumers.

But it is the investors who are willing to make bets before product-market fit is established that will provide the most value and gain the most reward. In order to run successful preorder campaigns, and ultimately launch viable products, many of these fledgling hardware companies need relatively small amounts of capital at the outset. Then they can get the benefits of a strong early-product prototype, solid sales and marketing strategy, and a killer video to help get things off the ground. We saw this firsthand with Tile, and expect that this combination of early investor backing plus preorder crowdfunding will become the new formula for success.

We will see many more Tile-like offerings come out and take off over the coming months and years. Tiny batteries provided the spark, and millions of tiny investors will pour fuel on the flames.

Doug Renert is a co-founding partner of Tandem Capital, Silicon Valley’s first and largest mobile accelerator fund, currently at $32 million. Tandem backs 12 early-stage mobile startups each year with its brand of “muscle capital,” a powerful combination of funding and hands-on support. Some of Tandem’s biggest successes include PlayHaven and Bash Gaming, formerly known as BitRhymes. Prior to Tandem, Doug built businesses as an operating executive at Oracle and as CEO of telecommunications startup Tello. Reach him at Twitter @DougRenert.

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