| Read time 9 mins |

Before we dive in, I intended this week's edition to be a bit lighter, but given how much I've learned about hardware this past year, this one goes deep. Put on your reading glasses if you need them... let's go.

I’ve seen dozens of new tech enabled gadgets and wearables this year. Most of them you haven’t head of yet or maybe never will.

When most people think golf hardware, they jump straight to launch monitors. Fair, it's the most crowded corner of the market. But it's one slice of a much bigger board, and the launch monitor slice is already locked up tight.

Walking in there means fighting the most defended position in golf with the least forgiving cost structure in tech. So let's widen the lens, because the device that owns the player can take a lot of forms:

Different sensors, different spots, on the wrist, on the ball, under the feet, on the body, same promise underneath: this is data that didn't exist before, and whoever owns the device owns the player.

That promise is real. But every one of these devices, the radar, the plate, the wrist sensor, the smart ball, the recovery band, does the same thing to the company that builds it. So before you fall in love with any of them, understand what hardware does to your business.

Software you ship broken Monday and fix Tuesday. Hardware you ship broken and you've got a garage of returns and a manufacturing run you already paid for.

The numbers are brutal, and they hold year after year:

That second-round gap is the wall most hardware companies hit. They burn through the first raise getting a product built and shipped, then can't show enough traction fast enough to earn the next check. The clock runs out before the business does.

Then there's the margin you carry forever.

Half the margin, and a slower clock than the software founder your competing with.

This is the part most founders don't see coming. It's the one that should drive the whole decision.

The market does not value hardware and software the same way. Not even close.

Two companies doing identical revenue can be worth twice as much, or half as much, purely based on which bucket the market files you under.

And the default is to file you under hardware. When a buyer or investor looks at a connected-device business, they strip it apart. Recurring subscription revenue gets the full software multiple. The hardware revenue gets carved out and valued separately, often at just 1 to 2x.

So the device that opened the door can quietly cap your valuation, because every dollar of hardware revenue is valued differenlty.

I'm in these conversations right now with a hardware company I advise.

Meaningful revenue and world class customers. But a big chunk of that revenue still comes from the hardware itself, and that mix is the single biggest thing holding their valuation down. Investors don't just look at how much you make. They look at where it comes from. The more of it that's tied to selling boxes, the lower the number they put on the whole company.

So the work right now isn't to sell more. It's to shift the mix. Move the revenue from hardware-heavy toward software-heavy, grow the recurring side until it's the majority of the story, and the same business gets re-rated.

The hardware stays, it's still the wedge, but the more of your revenue you can move into the recurring column, the more the market stops pricing you like a manufacturer and starts pricing you like the software business you're becoming.

That's the move almost nobody makes early enough. The device gets the company built. The revenue mix is what gets it valued.

Now the other side, and it's why some of you should build it anyway.

The same device that nearly kills you becomes the most defensible position in the business once it's deployed. In a hardware-enabled model, the hardware drives retention and the software drives expansion. Installed hardware is expensive to rip out, so it holds your customers in place while the software on top grows the account.

An app can be churned with a thumb. A camera bolted to a bay wall does not get swapped on a whim. That's the asymmetry: the survivors own switching costs measured in hardware installs, not habits. The thing that makes hardware hard to build is the exact thing that makes it hard to leave.

Here's where most golf-hardware founders stop thinking, and it's exactly where the money is.

The device gets you in the door, but on its own it's the low-margin, low-multiple part of your company forever. What you stack on top is what decides whether you're a 1.4x hardware business or a 6x software business. Three layers, each one worth more than the last.

▸ Layer one: the software.

The data the device captures has to do something. A system that turns readings into a plan, tracks progress, flags what changed, and surfaces the next thing to work on, that's software people renew for. Done well, this builds your Net Retained Revenue (NRR) and allows you to pour fuel on the fire.

▸ Layer two: the content.

A device gives you a moment. Content gives you a reason to come back tomorrow. If you're building hardware and you're not building content on top of it, you're blowing it.

Look at Tonal. Strip away the digital coaching/classes content and you've got an expensive cable machine bolted to a wall. Nobody buys it for the hardware. They buy it for the trainers, the guided programs, the new workouts that show up every week, the sense that there's always a next session waiting.

That's the whole reason connected-fitness hardware can charge a recurring fee at all: the device alone gets used twice and gathers dust, but a steady drip of fresh content keeps it in the daily routine.

Golf has the same opening. The launch monitor or the plate earns the install, but the streak of new drills, new programs, new reasons to open the app every week is what keeps the player coming back between range sessions.

▸ Layer three: the coaching.

This is the top of the stack, the hardest layer to build and the one almost nobody in golf hardware touches. Which is exactly why it's worth the most.

A device measures. A coach interprets. The moment you pair the data with a human, or a guided program that feels like one, you've moved from selling a tool to selling an outcome. Outcomes carry real pricing power, and they're what finally earns you the better number on the way out.

In golf this is wide open. The launch monitor tells you your spin dropped. The wrist sensor tells you your face is open at the top. The recovery band tells you you're under-slept. The good ones will even serve up a drill or a video to match. But that's data-driven, a rule firing off a number.

The tool generalizes. The coach personalizes. That gap, between an automated recommendation and a human read, is the most valuable real estate in the category, and it's the one place a smaller player can out-build the up and comers, because they're device companies, not coaching companies.

I've watched coaches live inside a platform five and six hours a day when the platform actually helps them coach. That's not a feature people churn out of.

Stack those right and each layer pulls you further from the hardware multiple and closer to the software one, while making the device underneath it harder to abandon. You stop being a company that sold someone a thing and become a company that's woven into how they get better.

That's the whole game. Hardware in golf can win, and when it wins it wins bigger and holds longer than software ever will. But the device is never the win.

(If you're new here, this is our D2C performance brand that we're building semi-publicly)

Funny thing about this week's story: we're already living it.

Everything I just laid out about coaching being the highest-value layer, we're building it for other people's hardware right now.

We've started dropping our remote coaching layer into a handful of indoor facilities and performance brands. They sold someone a bay, a simulator, a launch monitor, a membership. Great. But the relationship mostly ends at the transaction. The customer hits balls, stares at numbers, and slowly drifts.

So we plug in the part they were never going to build themselves: real coaching, delivered remotely by our network of experts, sitting right on top of the product the customer already bought.

Three things happen at once.

That's the whole pitch. We become the coaching layer so they don't have to become a coaching company, and everybody wins: the facility, the customer, and the coaches who finally have somewhere to plug their expertise in at scale.

It's the cleanest proof yet that the device is the wedge and the coaching is the business.

"I've got recurring revenue baked into my hardware play. So who do I raise from?"

Not the SaaS investors. I learned this one watching it play out in real time.

You'd think the software in your model would make a seasoned SaaS investor comfortable. Sadly, no. The second they hear "hardware," they get nervous, the inventory, the lead times, the cash that goes out before a unit ships.

They're brilliant for the pure-software founders I know, but most of them just aren't built for this. They don't have the stomach for it, and a fast no is the best outcome you'll get from that room. A slow no that drags out three months while you burn runway is the real killer.

So you go where the appetite already exists. Two pools: strategics with a hardware track record, the people and firms that have actually backed physical-product companies and won, the kind who funded the Whoops and the Fitbits of the world.

They don't flinch at a bill of materials, and the good ones bring distribution, not just a check. And angels who know your exact corner cold, operators or even pro atheltes who've lived inside your specific slice of the market and understand the buyer. They de-risk the story for the bigger checks later and open doors a cold email never will.

Last thing: Screen hard, fast. One of the first questions I’m now telling founders to ask in the room: have you ever invested in hardware? Are you ready for this to be your first one? If not, don't waste each other's time.

They can become a customer later. Control the funnel, raise it the way you want to, and stop chasing conversations that were always going to end in "I'm afraid of hardware."

Got a question you want answered here? Hit reply. The best ones run in a future edition.

If you're building or investing in the business of lower scores and you made it this far, you already know I'm here to help.

This fall we're opening up new ways to work together, including access to the buyer pool, the verified customers most brands spend years and fortunes trying to reach. Room will be limited and the people on the list hear first.

Our goal is simple: help you build your business better and faster than we did.

Keep fighting the good fight. See ya next week.

-Spencer

P.S. If you’re getting value, please share with a coach, brand or investor in your network. Appreciate it!

Sources: valuation multiples via Aventis Advisors; hardware failure and second-round rates via CB Insights.