Wednesday, July 23, 2014

Can Heathkit Make a Comeback? No, and Here's 10 Reasons Why.

Last year Heathkit announced on their website  that they would be making a return to offering kits, placed an extensive survey on their web site, and held a Q&A session where they presented many ideas for kits that they hoped to offer in the near future. Little or nothing has been heard from them in the last few months. Here are ten reasons why I don't think Heathkit can successfully make a comeback to the electronic kit business.

1. Economics. There is a huge one time cost (often called NRE or Ron-Recurring Engineering cost) to bring a new product like a kit to market. You not only have to design a product that works, but it needs to consistently work when built by customers without sophisticated test equipment, you need to develop the assembly manuals, obtain sources for components, stock the parts, have expensive custom plastics and cabinets manufactured, and put all the right pieces in the kits without making errors. If Heathkit is going to sell a kit for, say, a digital multimeter, it will likely cost a couple of hundred dollars. Meanwhile, I can get an assembled, calibrated, and working meter at Harbor Freight for $5 or free with a coupon. In addition, unlike in the past, almost every product today relies on a software component, something that is very expensive to initially develop and needs to continue to be maintained.

2. Startup costs. Similarly, to get economics of scale to be profitable, you need to set up manufacturing, distribution, and agreements with component suppliers. I don't believe that the new owners of Heathkit have deep enough pockets. Are they going to open dozens of retail stores as in the past? When companies like Radio Shack are going bankrupt?

3. The market has changed. While there has been some resurgence, the hobbyist market (sorry, now it's called the "maker movement") is small. Ham radio users are ageing. Probably Heathkit's most popular kit of all time, the HW-101 transceiver, would not have specs that would interest modern hams other than some nostalgia buffs. No one today wants to build a stereo or TV set from a kit.

4. Changing technology. Most new electronic components are only available as surface mount technology (SMT) devices that the average user cannot solder. And forget about getting vacuum tubes in any quantity. Even if they could assemble it (or it came with SMT parts pre-assembled), the average user doesn't have the test equipment needed to test, calibrate or debug modern equipment.

5. Safety. Most kit companies shy away from anything powered by line voltage. It is too easy for the user to electrocute themselves. In the litigious North American market you can be sued if a customer hurts themselves trying to do something they were not explicitly warned not to do in the instructions, no matter how ridiculous. Many of the original Heathkits required aligning or adjusting the equipment under power. But limiting the products to battery operated or external power supplies will make it impossible to offer some of the most interesting kits. This alone could be a showstopper.

6. Too much competition. The market already saturated with established players like AdaFruit, Elecraft,, etc. Many of these are small, Internet-savvy operations with low overhead. Some are run by a single employee on a part-time, break-even basis.

7. The need to go global. In order to get a decent sized market today you have to expand beyond just North America. But this will introduce even more challenges in distribution. How about the famous Heathkit manuals - can they be economically translated into 30 languages?

9. Lack of goodwill. A number of years ago the Heathkit name carried some cachet, but it is now long past it's expiry date. Heathkit has been out of the kit business since the early 1990s, almost 25 years now. The in-house staff and expertise that Heathkit once had is now long gone (most are retired if they are even still alive). They can no longer rely on the Heathkit name to carry any weight with customers

9. Staffing. It is very difficult and expensive to find good engineering staff, especially those with the specialized knowledge to build kits. Technical writing is also expensive and a specialized task that can't be done by the engineers. It takes a long time to build up an engineering team. And will the best people want to relocate to Benton Harbor, Michigan?

10. Differing expectations. If you poll people it seems like everyone would like to see Heathkit come back, but all for different reasons. Some hams want to see the old kits come back, others want new state of the art kits. Some users want computers, robots, radio controlled equipment, and 3D printers. They all have different expectations, but any one of these markets is too small a niche for a viable business.

Given all that, in my next blog post, I will present ten reasons why Heathkit could re-enter the kit business and be successful.

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