Blue Frontier’s Framework for Picking Your First Market in Hardware

Blue Frontier’s Framework for Picking Your First Market in Hardware

In a recent episode of Category Visionaries, Daniel Betts, CEO and Co-Founder of Blue Frontier, an air conditioning company that’s raised $47.8 million, revealed the framework they used to choose their initial market. For hardware founders staring at dozens of potential applications, this decision determines where you’ll spend years iterating—and whether you’ll survive.

The Problem with Hardware Market Selection

Most hardware founders chase the biggest TAM, the highest-profile customers, or the markets that sound impressive to VCs. Then they spend three years discovering why size doesn’t equal accessibility.

Blue Frontier’s liquid desiccant air conditioning technology could work in residential homes, commercial buildings, industrial facilities, data centers, hospitals, schools—dozens of HVAC applications. Picking wrong meant burning years of runway chasing customers who would never convert.

Daniel and his team needed a framework.

The Competing Variables Framework

“It is very difficult,” Daniel acknowledges. “And it’s a bet, right? You’re going to make a bet.” Blue Frontier developed a framework balancing four competing variables:

Learning loops: “Choose a market that will give you enough replicable product that you get to learn and have generational improvements that occur fast,” Daniel explains. In hardware, iteration speed determines survival. You need volume that lets you spot patterns and similarity between deployments so lessons transfer.

Economies of scale: “That also gives you economies of scale so that you can drive the cost down of the product by creating mass production and you have power over your supply chain,” Daniel notes. Your first market needs enough volume to negotiate with suppliers and justify tooling investments.

Premium positioning: You need a market “on the premium side of things,” Daniel explains. Your early units will cost more to build. Premium markets forgive higher prices in exchange for solving expensive problems.

Manageable size: The market can’t be “so large that it overwhelms the company in its attempt to conquer it,” Daniel warns. Too big creates impossible sales cycles and lets incumbents crush you.

“All these things are competing with each other in terms of picking,” Daniel observes. Maximize learning speed, sacrifice premium pricing. Maximize market size, lose manageability. The art is finding the overlap.

Why Commercial Buildings Made Sense

Blue Frontier chose commercial building air conditioning. The learning loop logic was compelling. “Every building owner in the commercial building space tends to have multiple buildings,” Daniel explains. One customer gives you multiple deployments, creating fast iteration cycles.

“And every building, the commercial building space, has a lot of air conditioning,” Daniel continues. Instead of selling one unit to one hundred customers, you sell ten units to ten customers. Fewer sales cycles, faster feedback.

The commercial market also checked the premium box. “These commercial buildings are larger, so they tend to have complex cooling requirements,” Daniel notes. Complexity equals higher prices. Higher prices equal survival runway.

The customer economics worked. “They tend to be higher priced than if you were to go for, like the residential sector. So you have higher prices, high volumes. The value of the customer is really high.”

The Second-Order Decision: Dedicated Outdoor Air Systems

But commercial buildings still offered dozens of equipment types. Blue Frontier went another level deeper, choosing dedicated outdoor air systems—the units that bring ventilation air into buildings.

The logic was surgical. These units run constantly. “Those units operate almost all the time,” Daniel notes. Constant operation means predictable energy bills and easier sales conversations.

The humidity problem was most acute here. “They’re bringing in humid air from the outside into the building. That humid air basically is a river of water into the space, and you need to get rid of that water,” Daniel explains. Conventional systems over-cool then reheat. “That takes an enormous amount of energy,” Daniel observes.

Blue Frontier’s liquid desiccant system removes humidity without over-cooling. “With just doing that, you’re gaining like 30% reductions in energy consumption, plus the fact that our unit is more efficient from a fundamental standpoint, you end up with 50 to 90% reductions in energy consumption.”

The value proposition wasn’t just clear—it was undeniable.

The Product-Market Fit Paradox

Daniel makes a crucial point that most market selection frameworks miss: “You also want to have as much product market fit, which is a concept that you will never actually have perfect product market fit if you’re doing something new.”

This is the paradox of breakthrough hardware. “The present market, you’re trying to change it, right? So you have to have some overlap. But you’re always going to be doing something new, which means that there’s a bet on saying, like, people will like the new things that I’m doing.”

Perfect product-market fit means you’re not innovating. You’re copying. But zero overlap means you’re educating a market that doesn’t know it has a problem. The framework balances between these extremes—enough overlap to get meetings, enough innovation to win them.

How to Apply This Framework

For hardware founders facing similar decisions:

List every potential market comprehensively. Don’t self-edit yet.

Score each on the four variables: learning loop speed, volume potential, premium pricing, and market manageability. Be brutally honest.

Look for the intersection. You need markets scoring high on at least three of four variables.

Go one level deeper. Within your chosen market, which specific application creates the most obvious value proposition?

Accept the bet. “It is very difficult,” as Daniel says. No framework eliminates risk. But it focuses risk on variables you can control.

What Most Frameworks Miss

Standard advice tells hardware founders to chase the biggest market or highest-margin customers. Blue Frontier’s framework reveals why this fails.

The biggest market might offer zero learning loops if every customer is unique. The highest-margin customer might be so conservative they’ll never adopt new technology. The fastest-growing market might attract so much competition you can’t establish a foothold.

Blue Frontier succeeded because they optimized for learning speed first, then layered in economics. They chose a market where rapid iteration was possible, where ten customers gave them one hundred data points, where their unique advantage was impossible to ignore.

“All these things are competing with each other,” Daniel reminds us. The goal isn’t maximizing any single variable. It’s finding the combination that keeps you alive long enough to reach the next market.