Why contracting Foxconn will destroy your startup

The size of your key suppliers is crucial for your hardware startup. Suppliers of the wrong size will literally kill your startup before you even realize something is wrong.

Here's why. Your supplier's size must match your size: small companies should work with small suppliers, and bigger companies should work with bigger suppliers. If your supplier is too big for you, your orders will always be deprioritized, delayed, and essentially used as training material for junior staff. If your supplier is too small for you, they will always listen to you, try hard to do what you need, but will essentially lag, choked by the volume of your orders.

I saw hardware startups signing with big EMS factories (think Chicony, Foxconn, Pegatron, etc.) to handle their new product development only to see their projects are nearly halted by constant requests for specs, formal tests, long review and approval cycles for every minor detail. I saw big companies struggling to scale production to catch up with demand, when suppliers were working in three shifts and still could not keep up with the schedules. Or worse, drowning in defects and low yields.

Generally, you want to stay in the top 20% of the supplier's clients (by volume or revenue). This will ensure that they will be motivated to expedite your orders, and yet they will not be crushed by the volume.

Sometimes, you can work with much bigger suppliers. Usually, it makes sense when you have a good personal relationship with the owner, or you have been working with them since they were small, and at some point they outgrew you. But never work with much smaller suppliers. If the supplier did not scale together with you, likely they will not be able to serve you well.

Always work with suppliers that match your size. Don't expect the bigger ones to treat you well, and don’t expect the smaller ones to magically scale up.