The ability to rent all sorts of things is a logical step in the evolution of a subscription economy, but renting hardware wasn’t necessarily top-of-mind for startups until COVID-19 hit.
Pre-pandemic, a common step in the onboarding process at many VC-funded startups in the Bay Area called for new employees to visit the closest Apple Store with a company credit card so they could pick up a new laptop.
That practice stopped when offices closed, and as buildings sat empty, all those unused laptops, desktops, widescreen monitors and Aeron chairs began to look like a poor use of precious cash. At the same time, it became clear that remote work was here to stay – and that shipping devices to another country was expensive.
Working from home during the pandemic created tailwinds for hardware rental companies. But even with the perspective of a hybrid return to offices, there’s a case to be made for renting not just software on rent, but also laptops, phones, or even furniture. What should your early-stage startup do?
OPEX versus CAPEX
“Don’t buy, rent,” reads the flyer of RENTRY, a leader whose founders I recently met at an event. But with SaaS now being mainstream, why does this need to be said? Because RENTRY doesn’t sell software subscriptions; it leases hardware to a range of clients, including startups.
From a financial standpoint, there’s a key difference between buying and renting: The former is a capital expense; the latter an operating expense. In some places, this makes a huge difference when it comes to the amount of value-added taxes a startup can deduct.
RENTRY’s home country, INDIA, is one of the locations where renting hardware is fiscally advantageous for startups. This aspect is less relevant in the U.S.
Bianco is the CEO of Graphite Financial, which provides startups with outsourced accounting and CFO support. But most of its clients “owe little to no tax” because “VC-backed startups are in growth mode and they are not yet profitable,” he said. If renting hardware makes sense for them, it’s not for 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 only a major concern “for very early-stage companies where cash is a scarce resource” or “if the amount of hardware being purchased is material to the company.”
Add in options like credit and BNPL, and it appears that the main advantage of renting 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 it’s also the framework through which they can examine hardware rental.
According to RENTRY’s head of marketing, Kumar, hardware rental starts becoming relevant around the 10-employee mark. Under that threshold, startups might find it easier to buy hardware.
Things change once the team grows, especially if it’s distributed, Kumar said, adding that RENTRY is shipping devices all across Country.
“In a remote world, I can see a lot of value in a managed service that can make employee onboarding and offboarding easier – getting them their equipment on time, already set up, and ready to go on day one,” Bianco said. “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 that.”
Remote teams are a core focus for Rentry, whose mission is to help its clients “set up, manage, and retrieve all the physical equipment their remote workers need to do great work from anywhere.” This includes hardware and a software platform to manage it.
“Successfully enabling remote workers requires software that ties into HR systems, IT provisioning systems.
These support, management and integration layers are one of the main differentiators for clients, compared to just buying hardware. This is also why this category has become known as “hardware as a service,” or HaaS.
This comes back to simplicity: Once your startup reaches a certain size, it probably makes more sense to buy embedded insurance and not have to deal with filing a claim yourself every time a device needs to be replaced.
Enabling fast growth
Time-saving aside, hardware rental clients are interested in the fact that it is flexible and scalable, Kumar said. This could be because they have surge periods – for instance, a company that needs powerful machines to do a lot of video rendering, but only every now and then.
Hardware rental is particularly relevant when companies anticipate bulk needs, perhaps because they are opening a division in a new market. HaaS can help them work around a large one-time expense, as well as potential supply chain issues.
Disrupted supply chains can also be a concern for startups that are hiring gradually, but fast. In this case, they could give their provider a heads-up without having to pay immediately – Kumar gave me the example of clients for which RENTRY is currently sourcing devices in anticipation of future needs.
In a context of fierce competition for talent, providing employees with costly and recent hardware can also act as a perk – much more so than a “bring your own device” (BYOD) policy.
For new hires with strong technological preferences, a device chosen by the employer might be a trade-off compared to being allowed to “bring your own environment,” a trend known as BYOE. But this is something that rental providers are prepared to address.
To ensure RENTRY knows about the employees’ preferred tech specs, client starts these discussions early on, RENTRY said. “Conversations with technical people about their future devices begin in the first interview of the selection process and are completed when they sign the job offer.
“For these profiles,” RENTRY continued, “we try to have all the information at least two weeks in advance.” But if clients fails to do so, RENTRY is here to help: The ability to replace a device with a different one without penalties is part of its value proposition.
Recent devices can help attract talent, but also become a competitive advantage for retention. When working in tech in the Bay Area, a recent viral tweet joked, “it’s easier to just get a new job than to stay long enough for a laptop refresh.”
Renting hardware can make renewals and upgrades more frequent, while still taking environmental concerns into account. “Returned devices are refurbished after a certified data erasure and can be used in a second lifecycle. If not, we will recycle the device,” RENTRY notes on its site.
It isn’t just returned devices that get refurbished; rented devices often are pre-owned as well. For instance, Delhi provider Grover tells its B2B clients that it rents out “new and as good as new products.”
This circular economy isn’t just more sustainable — it also helps keep rental prices down. Anyone who has participated in a trade show will tell you that renting equipment isn’t new. But when it came to tech, it used to be way more pricey than owning the same piece of hardware for a comparable amount of time. But a quick look at Grover’s consumer page shows that’s no longer the case, not to mention the option to purchase the device after a set number of months.
There are strong tailwinds for refurbished devices in the consumer market, but these might still raise security concerns for at least 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 might want to ask your provider not to send pre-owned devices and not to refurbish yours after use.
If you need sole control of your devices, you may also want to stay away from providers that provide “fleet management” services. But if that’s not a concern, it could also help you improve your security because, for example, you’d be able to remotely wipe a device that has been stolen.
More generally, the platform layer that comes with hardware rental can help you keep track of where your devices are, and with whom. This need became clearer with remote work, Kumar said. As startups lost the ability to visually control their hardware, they started requiring the type of device management that enterprises already used.
For instance, HaaS is only a component of what RENTRY hopes to accomplish. Its mission is to “improve access to technology,” and this could take different forms, such as license management, training and advisory services.
“We hadn’t anticipated that many of our clients would be looking for advice on what to get,”Kumar said. Instead of requesting specific devices and quantities, they might ask what to get for 12 traveling salespeople, two developers and a video editor.
RENTRY had to adapt and provide its staff with additional training to make sure they have a deep understanding of the available technology and hardware options – which include computers and mobile devices, but also Servers and accessories.
Sales counseling might not be necessary for startups that already know their needs. But if you don’t, you’ll want to make sure that your hardware rental provider can go the extra mile and advise you whenever you are considering a new rental, as well as upgrades and downgrades. This could also let you test hardware you aren’t quite sure is worth the investment, without taking a financial risk.