The ability to rent all sorts of things is a logical step in the evolution to a subscription economy, but renting hardware wasn't necessarily top of mind for startups until COVID-19 hit.
Before the pandemic, a common step in the onboarding process at many VC-funded startups involved employees visiting the nearest Apple Store with a company credit card so they could purchase a new laptop.
That practice stopped when offices closed, and as buildings stood empty, all those laptops, desktops, large monitors, and office chairs began to look like a waste of money. At the same time, it became clear that remote work was here to stay and that sending teams to another country was expensive.
Working from home during the pandemic created tailwinds for hardware rental companies. But even with the prospect of a hybrid return to offices, there are reasons to rent not just software, but also laptops, phones, or even furniture. What should the startup do in its initial stage?
OPEX versus CAPEX
"Don't buy, rent", reads the message of emendu, a startup. But now that SaaS is mainstream, why does this need to be said? Because emendu does not sell software subscriptions; leases hardware to a variety of clients, including startups.
From a financial standpoint, there is a key difference between buying and renting: the former is a capital expense; the latter an operating expense. In some places, this makes a big difference when it comes to the amount of value added tax a startup can deduct.
The country of origin of emendu, Spain, is one of the places where hardware rental is fiscally advantageous for startups. This aspect is less relevant in the United States, where an expert Paul White He said "I haven't seen the conversation come up from a tax standpoint in this country."
Bianco is the CEO of Graphite Finance, which provides startups with outsourced accounting and CFO support. But most of his clients "owe little or no taxes" because "VC-backed startups in growth mode aren't profitable yet," he said. If renting hardware makes sense to them, it doesn't because of the tax deductions.
If there are financial reasons for a startup not to buy its hardware, "it would be more about cash flow management," Bianco said. But decapitalization is a major concern "for very early-stage businesses where cash is a scarce resource" or "if the amount of hardware being purchased is important to the business."
Throw in options like credit and BNPL, and it seems the main advantage of leasing hardware may not be financial. "For companies that have raised money, it's definitely more about saving time," Bianco said.
keeping it simple
Efficiency is a key success factor for startups and is also the framework through which to consider hardware rental.
According to the head of digital emendu, Francisco Chaves, the rental of hardware begins to gain relevance after 10 employees. Below that threshold, startups may find it easier to buy hardware.
Things change once the team grows, especially if it spreads out, Chaves said, and, for example, emendu is shipping devices all over Europe.
“In a world of remote work, I can see a lot of value in a managed service that can make it easy for employees to get on and off, by equipping them with their team on time, already configured and ready to go from day one,” said Bianco. “Time is the most valuable resource in a startup, so if remote employees can get up and running faster and easier, I can see companies paying a premium for it.”
Remote teams are a central focus for first base, whose mission is to help its customers "set up, manage, and retrieve all the physical equipment your remote workers need to get great work done from anywhere." This includes hardware and a software platform to manage it.
"Successfully enabling remote workers requires software that links with HR systems, IT provisioning systems, SaaS tools and more," a16z partner David Ulevitch wrote when the venture capital firm risk invested in the Series A financing round of 13 million dollars of first base last April. "The platform first base handles all of this for businesses with just a few clicks.”
These layers of support, management, and integration are one of the main differentiators for customers, compared to simply purchasing hardware. This is also why this category is known as "hardware as a service" or HaaS.
everphone, based in Berlin, is another player in this category, with an additional point of view: its business is “mobile as a service”. “everphone describes its offer as a one-stop shop, with the service covering not only the rental of smartphones and tablets (new or refurbished), but also administration and management covering support needs, including handling repairs/replacements.”
This returns to a model based on simplicity: once a startup reaches a certain size, it probably makes more sense to buy integrated insurance and not have to deal with filing a claim every time a device needs to be replaced.
Facilitating rapid growth
In addition to the time savings, hardware rental customers are interested in the fact that it's flexible and scalable, Chaves said. This could be because they have surge periods, for example a company that needs powerful machines to do a lot of video playback, but only once in a while.
Hardware rental is particularly relevant when companies anticipate needs, because, for example, they are opening a division in a new market. HaaS can help them avoid a large one-time spend as well as potential supply chain issues.
A disruptive supply chain can also be a boon to startups that are hiring gradually but quickly. In this case, they could notify your provider without having to pay right away. As an example, Chaves mentions clients for whom emendu is currently looking for devices in anticipation of future needs.
In a context of fierce competition for talent, providing employees with new and consequently high-cost hardware can also act as a benefit, much more so than a Bring Your Own Device (BYOD) policy.
For new hires with strong tech preferences, a company-chosen device could be a tradeoff compared to being able to "bring your own work environment," a trend known as BYOE (Bring Your Own Environment). This is something rental providers are prepared to address.
To understand this better, you can observe one of the clients of emendu, streamloots. The globally distributed Spain-based startup is targeting a market to buy real-time live-streaming interactions with many gamers on their own team. The people specialist Hortensia Espiritu pointed out that “50% of our collaborators have a technical profile. They usually care about the specifications of their devices and the operating systems installed on them, so it's important that we adapt."
To ensure that emendu know the preferred technology specifications of employees, streamloots Start these conversations with them early on, Espiritu said. “Conversations with technicians about their future devices begin at the first interview in the selection process and are completed when they sign the job offer.”
"For these profiles," continues Espiritu, "we try to have all the information at least two weeks in advance." But if streamloots it doesn't, emendu offer to help: the ability to replace one device with another without penalty is part of their value proposition.
Recent gadgets can help attract talent, but also become a competitive advantage for retention. When working in technology, a recent viral tweet he joked saying: "It's easier to just get a new job than stick around long enough to upgrade your laptop."
Leasing hardware can make renewals and upgrades more frequent, while still keeping environmental concerns in mind. “Returned devices are refurbished after a certified data wipe and can be used in a second life cycle. If not, we will recycle the device. everphone on your website
It's not just about returned devices being refurbished; rented devices are also often used again. For example, the German provider Grover he tells his B2B clients who rents «new and as good as new products«.
This circular economy is not only more sustainable, but also helps keep rental prices low. Anyone who has participated in a commercial event knows that renting equipment It is not new. But when it came to technology, it used to be much more expensive than having the same piece of hardware for a period of time. But a quick look at the consumer page of Grover shows that this is no longer the case, not to mention the option to buy the device after a set number of months.
Security Considerations
There is a strong push for refurbished devices in the consumer market, but this could still raise security concerns for some startups.
Depending on your threat profile and the type of data you collect, you may prefer to own your hardware outright and in perpetuity. If you are still interested in renting, you can ask the supplier not to send used devices and not to renew the delivered one after being used.
If exclusive control of your devices is key, they can also provide enhancements such as remotely wiping a device that has been stolen.
More generally, the platform layer that comes with hardware rental can help keep track of where devices are and with whom. This need became clearer with remote work, Chaves said. As startups lost the ability to visually control their hardware, they began to require the kind of device management that businesses already used internally.
Regulations like Europe's GDPR and California Consumer Privacy Act (CCPA) also mean that the needs of startups and large corporations are more similar than they used to be.
Selection criteria
The type of device management that is required should influence a vendor's choice, perhaps second to its location and that of the employees: shipping devices to far flung countries or even the post-Brexit UK may still be a challenge. But once you've narrowed it down, you could also consider the range of services that help the business expand.
For example, HaaS is just one component of what emendu hope to achieve. Its mission is to “improve access to technology”, and this could acquire different modes of support, such as license management, training and advisory services.
“We hadn't anticipated that many of our customers would be looking for advice on what to buy,” Chaves said. "Instead of asking for specific devices and quantities, they could ask what to buy for 12 street vendors, two developers, and a video editor."
emendu had to adapt and additionally train its staff to ensure they had a thorough understanding of the technology and hardware options available, including computers and mobile devices, but also virtual reality headsets and accessories.
Sales advice may not be necessary for startups that already know their needs. But if they're not all that clear, they'll want to make sure their hardware rental provider can go the extra mile and advise whenever a new lease, as well as upgrades and previous versions, are being considered. This could also allow you to test hardware that you're not sure is worth the investment, without taking a financial risk.
