The supply chain struggle is real

Hardware startups are struggling this holiday

Supply chain issues aren't just hurting car companies and major consumer electronics manufacturers. Component shortages are increasingly also affecting smaller hardware startups — some of which make the very products people buy once they realize they won't be able to gift a PS5 this year.

The situation is especially dire for small companies trying to introduce their first devices, according to Josh Lifton. He's CEO of Crowd Supply, a kind of Kickstarter for developers looking to build geeky gadgets for like-minded enthusiasts and early adopters.

• "We've seen things extremely delayed," Lifton told me recently. "Thankfully, we haven't seen any product completely canceled yet."
• Chips that used to cost just $10 a few months ago are suddenly selling for hundreds of dollars — if they're available at all, that is.
• As they're struggling to get any product at all out the door, smaller companies are starting to get desperate. Some have begun to pull components off boards that didn't pass quality control as they can't afford to waste a single chip, according to Lifton.
• Others were forced to go back to the drawing board and redesign their hardware around whatever components they could get their hands on, raising costs and leading to further delays.

"Startups are really getting hit extra hard," said IoT veteran Ben Corrado, who has been working with a number of consumer hardware companies.

• Part of the problem is that small companies just don't have the capital to opportunistically buy and stockpile components.
• And when they finally get their order in, they're bound to pay a lot more than bigger companies with more negotiating power.
• Making things worse, chipset vendors are asking for much longer lead times. Parts that used to ship within a few weeks now have to be ordered up to a year in advance — an incredibly long lead time for a small company, especially one attempting to introduce an unproven product. "It's really making forecasting difficult," Corrado said.

All this has forced some companies to change the way they do business. French meditation hardware startup Morphée found itself unable to buy SD cards this year because vendors simply didn't want to bother with small orders.

• To keep going, Morphée founder Charlie Rousset banded together with other French startups, which eventually allowed him to place an order for 200,000 SD cards.
• Rousset also had to find new financial backing to build up inventory, and is now getting a smaller cut for each device sold. "I had to change my financial strategy," he told me.
• Morphée now wants to use some of the lessons learned during the crisis to relocate manufacturing back to Europe. "This crisis is huge, and it might continue in 2023, 2024," Rousset said.

Things aren't getting better anytime soon: That's a common refrain among hardware startups and their allies these days. Some even think that the days of readily available components in small numbers — the very thing that brought us Kickstarter projects, maker spaces and a wave of bedroom innovation — could be over. Instead, we might return to a world in which it takes a lot longer, and requires a lot more money, to produce new gadgets.

"Perhaps, it's going to be a lot like the rest of history," Lifton said.

— Janko Roettgers (email | twitter)

A MESSAGE FROM WORKHUMAN

According to the U.S. Bureau of Labor Statistics, 4 million Americans quit their jobs in July 2021. A survey on the external workforce reveals that employee burnout has been on the rise for years, and amid the pandemic, has reached an all-time high. There's a reason to lean into employee recognition programs. When people feel appreciated, they stay.

Learn more

People are talking

Ashton Kutcher was one of many people in the tech community mourning the death of Sarah Ross:

• "You saw the world in a different way than anyone I've ever met."

Nayib Bukele said El Salvador wants to build a "Bitcoin City":

• "Invest here, and make all the money you want. This is a fully ecological city that works and is energized by a volcano.""

Google wants the Justice Department to consider recusing Jonathan Kanter from investigating the company:

• "Mr. Kanter's past statements and work representing competitors who have advocated for the cases brought by the department raise serious concerns about his ability to be impartial."

Apple told employees in an internal message that they're free to talk about wages, hours and working conditions:

• "We encourage any employee with concerns to raise them in the way they feel most comfortable, internally or externally."

Adele got Spotify to stop shuffling songs on album pages by default:

• "Our art tells a story and our stories should be listened to as we intended. Thank you Spotify for listening."

Coming this week

It's Shopping Week at Protocol. We're publishing stories about all the ways tech changes shopping over the next several days.

Elizabeth Holmes took the standin the criminal fraud case against her, and it's expected to continue into this week.

"Tinderbox: HBO's Ruthless Pursuit of New Frontiers" comes out tomorrow. The book uses hundreds of interviews to describe how HBO found success.

There are just a few more days before Black Friday. The deals are already rolling in anyway; Nintendo, for example, started offering discounts yesterday.

In other news

Samsara wants to IPO. The company listed the size of its offering as $100 million, as it tries to get in on a super-hot IPO market before the end of the year.

Ericsson is buying Vonage for $6.2 billion. It's a big 5G play for Ericsson, and a big win for one of the original players in VOIP.

Bobby Kotick might consider leaving Activision Blizzard. He told some staff that he could step down if things don't get better "with speed," The Wall Street Journal reported.

Messenger and Instagram won't get default end-to-end encryption just yet. Meta decided to postpone end-to-end encryption on the messaging chat platforms until 2023 because of user safety concerns.

Citadel CEO Ken Griffin was revealed to have won a copy of the Constitution, outbidding ConstitutionDAO, which had raised $41 million. You'll get 'em next time, ConstitutionDAO.

Pentagon officials solicited cloud contract bids from Amazon, Google, Microsoft and Oracle after it dropped Microsoft's controversial $10 billion contract.

Warnings help cut down on hate speech, according to a new study. A group of New York University researchers found that letting Twitter users know that another account they follow was suspended for hate speech can reduce hateful language.

Frances Frei joined Robinhood's board. Frei is a Harvard Business School professor and former Uber exec.

Staying away from the holiday crowds

Google Maps has a few new tools to help you get around the throngs of shoppers or large public holiday gatherings. (Or jump right into them, maybe?)

One tool is called Area Busyness, which lets you find out what parts of a neighborhood are busy in real time. The Directory now shows where a store is in a building, as well as the store's ratings and hours. Holiday shopping may be stressful, but maybe some of these tweaks will help take the edge off!

A MESSAGE FROM WORKHUMAN

According to the U.S. Bureau of Labor Statistics, 4 million Americans quit their jobs in July 2021. A survey on the external workforce reveals that employee burnout has been on the rise for years, and amid the pandemic, has reached an all-time high. There's a reason to lean into employee recognition programs. When people feel appreciated, they stay.

Learn more