When Tandem began investing in hardware startups in 2013, the sector was only just beginning to shake off its reputation as “the ugly step-child of venture capital.” As our first-ever hardware investment, Tile, a device company building “the world’s largest lost and found,” provided a crash course in the opportunities and challenges associated with hardware investing. While the company’s co-founders, Nick Evans and Mike Farley, managed to quickly build a business selling millions of dollars of product only weeks after launch, no one at the outset could have predicted what the principal driver of this hyper-growth would turn out to be.
One major factor in our decision to invest in Tile was the new ability to test product-market fit through crowdfunding and pre-sales campaigns (for further background on our hardware investment thesis, please see The Four Enablers: Making Hardware Less Hard). While Nick and Mike already had incredible product sensibilities, neither co-founder had yet managed a pre-sales campaign. Weighing the existing options and the risk that a public failure might leave the venture pushing daisies, the team decided against using a crowdfunding platform, choosing instead to “roll their own” campaign. The decision would prove critical. Not only would a direct pre-sales campaign deliver a quick, clear message from the market on the viability of Tile’s product, but the team would also maintain control over essential domains such as marketing and charging practices. The end result included an engaging brand video and an easily navigable e-commerce site for direct sales. The team launched with some PR activity and observed the pre-order activity closely.
Then it happened. The team presented their projected metrics based on the first few days of organically driven pre-orders, and the numbers looked good but not great. In closing out the presentation, the team reviewed a small, experimental test they had run on Facebook advertising. The results were astounding. Even without optimized audience targeting, let alone A/B testing around ad copy, the sales volume delivered via Facebook ads was producing unbelievably strong sales. The results were so convincing that Tile took on debt financing to expand its advertising experiment and then pushed forward with a substantial programmatic Facebook advertising program that continues to this day. Tile’s direct pre-sales campaign coupled with Facebook promotion proved a success; they ended up breaking a number of independent pre-sales campaign records at the time, closing nearly $2.7 million in orders over the first 30 days.
However, this success brought with it a difficult choice. The ad campaign had gone so well that the team knew it would face a serious backlog of orders if it kept its foot firmly pressed on the advertising spend pedal. They did not want to risk damage to their fast-rising brand from an ever-growing list of customers waiting months on end for their order to ship. With this in mind, Tile intentionally slowed down the sales funnel and focused on shipping product to its early customers until the backlog was filled, and the company reached the point of same-day shipping.
Tile’s experience clearly shows that testing and experimentation across different platforms can quickly determine the most effective channels for any given product. In the case of Tile, Facebook ended up being the primary driver of pre-sales. Now countless hardware startups advertise on Facebook and hope to see similar results.
Because “the secret is out,” however, competition is fierce when it comes to successfully engaging a Facebook audience around a hardware product. It is still quite possible to build successful pre-order campaigns on Facebook, but it is now more difficult than ever. The product value must be strong and simple to understand, the story must have an emotional impact on the audience, and the team must be very smart about audience targeting and site design among other things.