While building any startup is hard, companies working to transform critical physical industries face an especially rough road. From the challenge of assembling small teams that also encompass multiple areas of deep expertise, to contending with the risk of building products where technical failures could be deadly, there is a seemingly infinite number of potential setbacks that can destroy a business in physical industries. 

Yet, some level of setback is both inevitable — and necessary — in order to learn enough to iterate in a meaningful way. In other words: You often don’t know what you don’t know until something fails miserably. 

As we’ve seen fledgling startups evolve into truly groundbreaking companies, one thing is undeniable: the depth of your expertise, quality of your team, and viability of your business strategy collectively matter infinitely more than any mega round ever could. The only way to figure out whether you have these things is by moving fast, failing fast, and learning fast. 

Transforming physical sectors means accepting that discomfort is part of the process. If you want to rebuild critical industries like defense, transportation, or manufacturing — which not only impact everyone’s lives, but also form the basis of a nation’s GDP — you must accept that it takes a certain amount of failure in order to learn.

At the same time, you must move extremely fast to iterate based on those learnings to get to a place where you can demonstrate real impact on an industry. Physical industries are made up of risk averse, resource-constrained stakeholders. If you can’t show why you deserve to be there right out of the gate, you probably don’t. 

What does this look like in practice? In a few words: messy, painful, and discouraging. But the companies that have truly transformed physical industries — from the previous generation of category-defining businesses like Tesla, SpaceX, Rivian, and Samsara, to the new wave of startups like True Anomaly, Arc, Mytra, and more — have all gone through these moments. In the process, they learned how to move fast and make things that matter. 

In a series of essays/interviews/etc., the Eclipse team and the founders we work with will be sharing stories of how they got through challenging phases that ended up being critical to their company’s lasting success. In most cases, learning from failure means making painful (at first) changes. This can significantly alter the way the company operates from a tactical and cultural perspective, and ultimately make it stronger. This can include the following areas:

• Cross-functional communications when products are failing. “Root Cause Analysis”
• Engineering organization — now is a time to take stock of team
• Resetting your teams 
• Selecting and managing early customer relationships
• Leadership — keeping teams focused, rallying spirits in times of stress, etc.
• Funding allocation 

Future posts will get into the specifics above. In this post, I’ll provide the basic framework to set yourself up to fail – forward. 

Why the Pain is Worth It

Many legacy players in physical industries haven’t undergone meaningful tech updates in decades, and are now too large and fragmented to even address high-profile mistakes in a timely manner, let alone innovate (case in point, Boeing). We need fast, nimble startups to overhaul the physical industries that power the world.

When we started Eclipse in 2015, few founders (and even fewer investors) had their sights set on transforming physical industries. Times have changed. The pandemic brought much-needed focus on the need for modern fixes for age-old problems across manufacturing, healthcare, transportation, logistics, and more, while shifting geopolitical dynamics are sharpening our focus on aerospace and defense. In recent years, building the infrastructure to support the new economy has become a top priority of governments around the world, and AI is now accessible enough to be a force multiplier to modernize industries long underserved by tech. This convergence of trends has caught everyone’s attention, and we’re thrilled to see more interest from founders and investors in transforming these industries. 

Yet, at the same time, we see this rush of interest — and increasingly large and high-priced Early-Stage funding rounds — as a cause for concern. As unique as these industries are, they are just as vulnerable to the worst impacts of speculative bubbles and hype cycles driven by FOMO: too many startups headed by first-time founders with all the moxy in the world to take on physical industries, but without the experience to avoid making unoriginal mistakes. Often, they are backed by “tourist” investors without the experience to credibly improve a startups’ chance of success. 

This is why I want to offer some advice. Throughout our careers as investors and builders in these spaces, the Eclipse team has identified the following as the hard truths to live by if you want to move fast and build businesses that can endure.

Capital Constraints Work in Your Favor

Massive funding rounds may seem like the only choice for startups solving the complex problems of the physical world. But in reality, overcapitalization is almost always the enemy of focus — no matter which industry you are building in. Extra funding won't reveal what to build or secure product-market fit — it requires a painstaking process that money alone can't shortcut. Plus, excess capital can mask critical errors or flawed planning for years. 

Startups that aim to overhaul major physical industries run an even greater risk of losing focus due to the unique needs of their businesses. When juggling priorities like managing a complex supply chain, lengthy build and test processes, regulatory compliance — and more — companies with radical focus are the most successful. And nothing drives radical focus like resource scarcity.

This has been the case for space defense startup True Anomaly, for example. Since their founding in 2022, the company has flown three missions, landed key customers, and was awarded the U.S. Space Force’s Victus Haze contract (a critical project in the government's strategy for space defense). In an industry where decades-long timelines and billions of dollars in operating expenses has become the norm — and which has led to lack of innovation in the field — True Anomaly made significant progress in three years with about $50 million to work with. Getting to where they are today required sprinting towards their goal at an uncomfortable pace to fully understand the domain and engineering requirements it took to get a completely novel satellite system into space. 

With limited resources, True Anomaly was forced to prioritize. None of their money went into frivolous expenditures like a fancy office (it was a grim, fluorescent-lit, concrete-floored box). All capital went towards engineering and manufacturing, trying to eke out as many launches as possible. They were forced to quickly identify (and accept) what wasn’t working in their initial test flight, restructure their focus areas accordingly, and develop a root-cause analysis process that allowed them to iterate at a rapid rate. Nine months later, their second test flight was successful and they demonstrated the ability to incorporate lessons learned on unprecedented timelines compared to industry norms. This wouldn’t have happened if they had hundreds of millions of dollars with which to cushion themselves while quietly figuring out — on their own timeline — what to prioritize in order to build a successful product.

Don’t Play it Safe 

Moving with the urgency that comes from capital constraint means exposing yourself to failure and risk — not just technical risk, but the risk of losing credibility, partnerships or customers, future funding, and confidence within the team. This is just reality, and how you respond to these discouraging but instructive experiences will determine your fate as a company. 

True Anomaly’s first test flight was not successful by any account. Mytra’s first generation of its AI-powered robotics platform for warehouses was an imperfect mix of off-the-shelf and custom-made components that could not scale. Arc’s first electric boat was a clunky contraption riddled with technical limitations. Still, these companies put these products out for their partners/early customers and investors to see, had frank discussions about their shortcomings, and then got back to work. With small teams and limited cash, they had to race to incorporate learnings and build better versions fast enough to convince investors and customers they were capable. These experiences were painful, but invaluable: Teams have to give their best in order to remedy technical, operational, and even cultural flaws within their company. These moments of adversity teach them how to tap into their greatest strengths. The more challenges they overcome, the more this mindset becomes second nature, and the companies get stronger.

This is also why choosing the right go-to-market strategy and early customers matters. Mytra’s partnership with Albertsons, the second-largest grocery store chain in North America, was critical in order for Mytra to test how their robotics platform worked in the real world. Just as importantly, Albertson’s is a highly engaged customer that wants Mytra to succeed because they are going after a problem very real to them. This creates the right dynamic for testing and iterating — but also pressure to show value quickly. Albertson’s didn’t expect perfection right out of the gate, but they did expect Mytra to diagnose technical flaws and iterate a better version as fast as possible, or risk losing the partnership. (We’ll cover what this looks like in detail with a future case study on the importance of finding the best partner).

Arc is another example of the importance of working with the right customers at the earliest days, when your product is at its least impressive. Their mission is to electrify the entire maritime industry, but Arc took the Tesla-approach and started with the luxury boat market. This small but eager customer population was instrumental in Arc’s journey. The first version was an ugly, aluminium-shelled thing that looked nothing like the sleek, high-end speed boat they were building towards. On demonstrations, the founders had to stop every few hundred meters to make on-the-fly repairs. Nevertheless, they showed it to as many people as they could so they could demonstrate what actually was and was not working with the initial electronic and battery systems, receive feedback, and quickly iterate to the next version. Over the span of two years and numerous revisions across every system, the luxurious, all-electric Arc One was delivered. Twenty months later, they released the even cleaner, quieter Arc Sport.

The stakes are much higher in physical industries. But you have to persevere, ship things, and be prepared to deal with the outcomes associated with the early failures. The thing that matters is urgency and speed. If you play it safe, you don’t expose the surface area of the problem, you don’t get the team ready to do hard things, and you don’t build the best solution as quickly as you possibly can.  

Be Transparent, Be Honest 

Oftentimes, companies have a blind spot regarding what is causing the failure. Or, people may see the problem, but don’t feel comfortable speaking up about it to either their leaders or their advisors. 

Mytra’s team spans seven disciplines — from electrical engineering and robotics to AI software development and go-to-market. The entire system would not work if one component wasn’t designed with the total system in mind. As CEO and Founder Chris Walti said, the breadth of expertise across teams could only be fully realized towards a common goal with near-constant communication. Daily standup meetings across the entire company, extensive documentation, and frequent discussions was the only way to ensure everyone stayed in complete alignment while working on multiple discrete parts of the system.

True Anomaly likewise had to implement a culture of open discussion and specific terminology to effectively communicate across teams with wildly different functions. Shortcomings in this process were exposed with the failure of their first generation product. This prompted team leaders to examine not just how they thought about their specific deliverable, but how the overall solution was accomplished by all teams working together. Companies building integrated products must foster an environment where people take ownership over their function and feel empowered to speak up. 

It’s one thing to say you have a ‘fly, fix, fly’ mentality, but you have to be prescriptive about what that means in practice,” says True Anomaly CEO and Co-Founder Even Rogers. “You have to define what that means for your culture, your processes, your procedures – and then provide clear expectations to the team for the way you want to operate and continue to propagate that over time.”

Rip the Bandaid Off — Correct Quickly 

Acknowledging failure exists is just the first part. You must be willing to do something about it, quickly, no matter how painful it is. This includes everything from confronting the reality of a flawed design, contacting your customers, completely starting over from scratch with different materials, or even more difficult changes like restructuring teams and transferring leadership responsibilities. 

After a few small pilot programs, warehouse automation and fulfillment software provider 6 River Systems finally landed their first big deployment. It was a disaster, and the customer parked their fleet of robots in the corner and stopped using the system. Founder Rylan Hamilton immediately flew to the site with a team of engineers and spent every day on-site for a month until the customer had enough confidence to use the robots in production again. In this case, the painful change was to completely start over and not worry about getting it perfect right away — just ship something to the customer to show they were making progress. Incrementally, they got there, and in the process demonstrated their ability to give it everything they had, be transparent with the customers, and not stop until the system delivered the promised, economic value. The customers stayed with them, gave a glowing endorsement for their next round of funding, and the company was eventually acquired by Shopify. Rylan has taken those lessons forward as he works on his new company, which we’ll share more about soon. 

It Doesn't Get Easy — You Just Get Better

These are just a few examples. At Eclipse, we’ve seen companies at these make-or-break moments throughout our careers, both as early employees of iconic companies, and as partners to founders building the next wave of game-changing businesses in physical industries. 

Turning moonshot ideas into reality doesn’t happen easily. Failure along the way is guaranteed. But if you prepare for this reality and embrace the discomfort, you have the chance to build something that really matters.

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