Image credits: Before launch
Hardware startups are hard, they say, but it’s not always obvious why they’re hard. One of the core challenges is that it’s traditionally been hard to do agile hardware product development – even if you’ve got it all ‘right’, how do you know that people actually want one of the 20,000 gadgets you have so lovingly crafted? Prelaunch.com is an Armenian startup that has developed tools to help startup founders figure out what’s worth building — and it just raised $1.5 million to further develop its products and services.
“My friend Stepan called me one day, showing me a product they had designed – Gawatt Emotions – which had just won a prestigious award. Excited by its recent success and its potential, Stepan took a leap of faith and bought the rights from the client. He wanted to create a stand-alone product and sell it himself and contacted me to see if I wanted to partner with him on this journey,” says Narek Vardanyan, CEO at Prelaunch. “But even though I liked the idea of the product, something didn’t tell me, ‘Why do you think it will be successful, Stepan?'” I asked him. We decided to do a test before spending huge amounts on production and marketing.”
The test was a simple two-page website. The front page showed the general idea and asked people to leave their email to subscribe for updates. The second page had the price alongside a Buy Now button. The idea is simple: it checks the customer’s real willingness to pay, as people have been asked to consider the price, pull out their cards and make a purchase. The team created a marketing funnel, drove traffic to that page, and waited.
“The results were bad. Very bad,” says Vardanyan in an interview with TechCrunch. “People were ‘interested’ in the product as shown by the number of subscriptions on the front 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 shut down the business. But also happy to have saved a lot of money and time.”
That anecdote explains the power of what Prelaunch is trying to build.
I like this positioning test: it tests to see if customers respond better to the “joy of commuting” or focus on safety. Image credits: Prelaunch.com
Until now, the company has been muted, but today it is announcing that it is closing its seed round on a SAFE note with a cap of $10 million. The pre-release is set to get bigger; more engineers, more marketing and more customers.
“We raised 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 investing was Vahe Kuzoyan, co-founder of Service Titan,” said Vardanyan. “We are excited about your concept because we can completely change behavior in the industry.”
The pre-release is based on the basic belief that current practices in hardware product development have practically not changed in the last 100 years. Software found lean methodologies are treated as fundamental religion in the SaaS world. There’s less of that in the hardware space, the company points out.
“CCompanies lose millions of dollars by betting on basically the wrong product, and generally one-third of total inventory production is unused inventory. We think there is a really simple pre-release solution. The idea came from a previous company: we had a very successful marketing agency that dealt with hardware products for clients, and we were getting a lot of innovative products to work with. The question was which product has high potential and which does not? It seems I was always wrong,” laughs Vardanyan. “We tried a lot of things and nothing really worked until we started using a reservation model. When we started prompting users to put down real money to demonstrate their real intent to buy, we started getting better feedback.”
From there, the company and its products have evolved and grown, and Vardanyan tells us they accidentally discovered that this is a pretty universal problem for products, for first-time founders, experienced entrepreneurs, and larger corporations.
What initially caught my eye about Prelaunch.com was the Gallery of Flops at CES 2023 in Las Vegas. The company had amassed an impressive number of products that made it to market, but then bombed. Image credits: Haje Kamps / TechCrunch
The pre-release, it seems, has stumbled upon 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 sometimes unpredictable. People make decisions for reasons they can’t always explain, like when you end up doing a product focus group where everyone agrees it’s a great idea and would buy the gadget you’re studying. But when it comes time to buy, it turns out they make a different decision. By taking a more proactive approach, the company can help product developers make smarter decisions about the product itself, as well as pricing, positioning and marketing.
“The pre-release is very different compared to conventional surveys because in this case they already have this real purchase intent. And then you can ask them virtually anything, knowing you have the right sample group,” explains Vardanyan. “The platform solves two main problems: it helps you understand if your product has viability 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 pre-launch team says it has worked with more than 1,000 companies on its platform, with more than 100,000 visitors coming in each month.