Ben Einstein does an excellent analysis of the failure of many smart gadget companies.

His analysis breaks down like this:

First generation products are always plagued with bugs, fail whales, and even the occasional mass-recall – most companies can bounce back from these setbacks. But other companies do not. It boils down to risk.

Technical Risk and Product Risk

When it comes to hardware startups, there are two types of risk. They are manageable on their own, but together often spell failure. These risks are: technical risk and product risk.

Technical risk is the chance you can’t deliver a product due to an engineering or manufacturing constraint. Examples from Coin: getting an e-Ink screen, Bluetooth antenna, battery, and microprocessor all working in a 0.76mm thick PVC card.

Product risk, however, is the risk that many overlook. Most products have low product risk. They routinely fail in small ways, but those failures are viewed as mere annoyances. A pop top that breaks off once every 1000 cans of Coke, the Roomba that occasionally misses a spot, an Alexa that mistranslates your command and you try again. Not big deals. But an automated door lock that fails might leave one stranded outside at 2am in a bad part of town or opens the door to robbers, a website that exposes your address and bank accounts for emptying, or your sole payment method that fails you at a fancy dinner are another matter.

You likely have high product risk if any of these are true:

1. If a small number (one or two) of failures over the lifetime of your product create a negative interaction (like door locks or sole payment methods).
2. If users would pay significantly more for a product that is guaranteed to work 100% of the time (like wireless routers).
3. If users rely on your product for critical business operations (like point-of-sale systems).
4. If failure could wreak massive havoc on personal security or safety (like home security systems or cars).

The Goal:

Your goal then is to only have high risk in one of the two risk classifications. Very few companies that have both kinds of risk survive. Tesla and SpaceX are notable exceptions, which should give you an idea of the efforts you will need to go to in order to overcome these risks. The other method is to reduce your feature set to minimize technical complexity or lower user expectations in case of product failure.

The Lion King video game has a notoriously difficult level. Known simply as ‘the monkey level’, some consider it one of the hardest levels in gaming. But did you know there’s a story behind its legendary difficulty?

In the 90’s, Blockbusters started to rent out video games in addition to films. However, unlike film studios, who got paid every time their films were rented, video game developers didn’t get a cut of the profits. So, a lot of the video game industry hated the rental industry and wanted to make sure their games could not be beaten in the rental period.

Disney, in particular, had studies and metrics. They determined that most players would not buy a game if they could beat some large percentage of it in a rental period. Disney told the developer of the Lion King, Westwood studios, to put some giant difficulty spike early in the game to intentionally halt player’s progress. The game was nearly complete and the final deadline was fast approaching. The monkey puzzle was the only thing they could quickly implement on such short notice.

Here’s a developer’s commentary on how it went down: