On October 20^th 2016, Gabriel Goldstein, Chief Product Designer of Anidea Engineering, the expert in product development, had a great talk with David Alexander, the President of BaySource Global, the expert in business process outsourcing and offshoring, to discuss preparation steps and common issues when outsourcing in Asia, especially China.

Hi David, Thanks for taking the time to speak with me today and share what you learned about outsourcing manufacturing work to Asia, specifically China. Please tell us a little bit about yourself and BaySource, and how you got started?

I was in the consumer products industry and I’m going back to before the year 2000. We owned some brands that went to the value-price-point category and we needed to develop the new brands, new packaging and we were over a hundred-million-dollar company, but we had very limited expertise in our purchasing and procurement department. Really China was just coming on board. It was really all the Fortune 500 companies that had the resources to send people to China. We didn’t. So we struggled getting some packaging done the right way. We were challenged with that, and it dawned on me that there was no enterprise set up for serving small and medium size businesses. To help them navigate China, to become a bridge to doing business in China and you know having a trusted resource to mitigate the usual anxiety, which are costs and quality. And so, around 2004 I put a business plan together to kind of take a look at how we can serve small-middle sized companies in the United States having a trusted bridge to China setting up offices over there, and I kind of felt the opportunities would be enormous. That is how I got started. I left that position to start what is BaySource now. That was 2005.

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Wow. Okay. That is a good history you have there, so when someone’s considering offshoring their manufacturing to either China or other Asian countries, what are the things they should consider?

They have to consider the potential volume of the product they are looking to source. And, more importantly than that, they need to understand how much of their cost of goods labor makes up in term of the total landed costs. So,  if labor is not at least around 25% of your cost of goods, it generally doesn’t make sense to go to China because until you start adding labor vis-à-vis secondary processes, manual processes, finishing, handwork, anything with labor…assembly, that’s when it makes sense for China. And, they should also look at their design. Are they making or designing products, which keep costs, whether involving labor or not…are they keeping the costs of their products to the minimum when designing their products?

All right, very good, so things kind of need to be designed for China and have a good fit for Asian manufacturing.

Not even designed for China. I am just talking in general, you know? Whenever you’re designing or creating or developing a new product, you want to design a product that is going to be suitable to the market you’re serving or you’re selling in, right? That you are not going to out-cost yourself based on either what is currently available or where the costs are going to out-weigh the value.

Sure! Right! Thanks for the clarification there. So, what are some other advantages beside costs to offshoring the manufacturing?

The other advantages we see, mostly now for offshore manufacturing is that there is infrastructure in place, particularly in China. So, China’s benefited from a steep learning curve in the past 15 years. Their efficiencies are up. There’s infrastructure in place, plant property and equipment. The municipalities infrastructures are there, highway systems, rail, obviously shipping. So really startup costs are a huge advantage, when offshoring because you don’t have to invest in assets: equipment, plants, facilities, people, training, all of that kind of overhead.

Well, they really have built quite a system over there and I can really see that if you had the volume to warrant it, they can really turn out a lot very quickly for you. What about some of the pitfalls or disadvantages of outsourcing your manufacturing?

Sure. So, what I like to say is whether you’re making a product in Chicago or China, the product has to be managed: the life cycle, the development, the quality. You have to manage new product development, and so the obvious disadvantages are time and distance. Not to mention the built-in disadvantages which are communication and translation, so a lot of details can get lost in translation. Another disadvantage is that the Chinese are often making products that they have no idea what the applications for those products are. They’re making just literal widgets based on drawings, designs, specifications, but don’t always necessarily know what these product are being used for in the U.S. So there isn’t that proactive nature for somebody at the factory level to say: Hey! We can make this product a little bit better or wouldn’t it work better if we did this? Whereas, you know, locally there is probably more common knowledge built-in around: Hey why are they doing it this way? If they made it this way, we could fit it in a box better or it would be more efficient or it would show up on the shelves better or something like that.  You’re not going to get that sort of proactive participation when you are offshoring.

So I guess in that example, it’s kind of like you get exactly what you asked for, and not much else, which is very interesting… uncounted costs or advantages, which I think is a pretty interesting aspect there. As far as, the kind of person or business… I mean at what scale or where should a personal or entity be at when they consider their outsourcing manufacturing? Kind of like size, volumes, financial, capability and where should someone really to be at when they start approaching manufacturing in China?

Wherever you are going to manufacture something, you need funding. I don’t mean to state the obvious, but a lot of people don’t take into consideration once that product is developed, once you’ve gone through your first article of inspection, your prototypes, your samples….now you’ve got to place a purchase order. So people have been able to float their ideas, their business, their startup up to a certain point but if you don’t have the right finances and resources in place…to place orders, literally just place the first orders, to cash flow those orders, you’re at a loss there, right? So, a person or business should consider creating a budget, you know, startup budget, and understanding what their cash flow needs are going to be when they’re manufacturing, I didn’t even mention the tooling and startup costs that need to be built into the equation.

So let’s be a little more pointed about that. I mean minimum order quantity. It would be easier if you said you had an order of 100 or maybe a 1000 of the product but is that realistic when outsourcing to Asia?

Everybody always asks us, so what is your minimum order quantities, but they’re really not our minimum order quantities? They are a factory’s minimum order quantities. We have a sporting goods client that just placed their first order for a new product. We’ve done several orders for them before but it is a new product for them, and they are going to order 700 of these products, and they are going to order 700 at $40 each. Now, you know now it is a $30,000 order, and that is not a huge order, but their resale on the items, the margin of the resale on that item supports getting into that business, watching that product. The next order will be doubled that or triple that, and also we have found a manufacturer suitable, who is pleased with…..you know who is not stopping at those lower sub 1000 unit orders because they’re a family owned factory, and they have capacity and so they are delighted to help these guys get into the business, because the guys have already proven on other products that they are making, that they’re doing with us. They are proven that they have ability to capture the market. They have already been successful with their other products. There is no one size fits all on the minimum order quantity. The other thing that I’ll mention to you is that freight…any good business decision maker understands that your freight whether in Chicago or China, freight should not eat into any more than 10% of your costs of good. So a container is a container is a container, so a 40-foot container all-in, let’s just call that $5000. So, if you don’t have $50,000 of value on that container, you really should be looking for something else. Likewise, a 20-foot container is generally…you know with taxes and import fees, tariffs, $3500. So if you do not have $35,000 worth of value on that container, you might want to reconsider. We should still do “Less Than Container Loads”, LCL but the trade value at cost of the products on those containers support the exercise.

Very good. That’s good metrics and numbers there. For that one example that you gave about that product, can you give a general category of that kind of product as far as you know, was it a soft good, was it engineering intensive, or would something that ….

Yeah, it’s engineering, it’s sports training equipment and it’s got good margin over here, so they will sell it for double what they pay for it, but they have to work in distributor margins and things like that. For me to say okay that $30,000 order doesn’t make sense even though it is going to cost them $3500 dollars to get it in. The margin on that $30000 of product supports the little bit of overage over that 10% of costs of good.

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Very interesting. You mentioned that there was engineering involved with that, so let’s talk about design work. What should be designed offshore? What should not be designed offshore? And what is available in turnkey design services?

We’re seeing more and more Chinese firms pop up to say we’ll do your design and development work, help you get into prototypes, things like that. Generally, the cost, the managerial cost or the salary of the designer over there, the CAD designers would still be less than over here. However, going back to the original translation issue and application issue, where they can help you design something, but if they don’t know the literal use or the practical everyday use of the product, they are not going to be suited to design nearly as well as the U.S. designer. So, you get what you paid for, right? And also, when dealing with a designer offshore, just the translation, the back and forth, the product revisions, their understanding of what you’re asking them to do, and how you are asking them to change things. When you start meshing creativity with practical services and design work, it’s definitely an advantage to stay local.

Yes. Very good. Thank you. So, wrapping up! if someone has an idea and they have their finances in place and they’re confident they want to go offshore with their design, their product. What is the next step for them to get started?

So that goes kind of to a question you have, it says: How should a person prepare to outsource their manufacturing? I gave a talk out at a tradeshow in Las Vegas last year, which was essentially how to do business in China. The thesis or the main argument of my discussion was sort of from the garbage in…garbage out. You will be received to the degree that you are prepared, meaning you need to have a…it’s not a business plan but a formal product document, product briefing. A little bit of background about you, the business, you know…. where you are selling to. Not that you have to devolve the whole business plan to the Chinese factory, but you want to put a very professional request of proposal together, because the more thorough and detailed that package of information is, the more creditable you will be with the factory and the greater sense of urgency that they are going to share around helping you with manufacturing your product. So we talked about a budget. You shouldn’t even be near China, until you’ve done a budget, and what I meant by a budget is sort of a breakeven analysis that if you’ve identified what percentage of the potential market, whether that would be one percent or one tenth of one percent of the market here. And that should extrapolate into top line numbers. And then what your margin needs to be on those numbers to support the business and help you cash flow the business. So having a budget in place and particularly including those startup costs, those purchase order costs, and then a lot of people don’t even work in the selling and marketing expense. They just think it’s their time but there’s time, there’s travel, the opportunity costs, right? Having a good budget and a sound game plan and a professionally presented package of information around your product.

Very good! So, that last question prompted me to ask something else here. How do you handle IP and licensing issues when you’re working oversea?

So, that is a great question, and you know kind of tongue in cheek I tell people if the Chinese factory or somebody that works in China tells you not to worry about IP…run from that person! That’s just not viable advice. How we help mitigate that is we work two ways. One, we work with reputable people, reputable suppliers that are owned by decent people, and have worked with Western companies before. So, it is kind of on the coattails of other businesses that have come before them and they have had a good track record with supporting the manufacturing businesses, and not running off with their IP. That’s one way to mitigate it. So if ‘Black & Decker’ has been working with the factory for a while, you know that they’ve audited and scrutinized and challenged that factory’s willingness to protect their IP. One is really reputation and experience and knowing where to go, having sort of that extra sense in instinct to understand if the factory is reputable or not. Two is really working with somebody in China that coordinates the manufacturing from a supply chain perspective, and doesn’t necessarily tell the right hand what the left hand is doing. So, we are making injection molded parts over here. We’re doing our SMT technology and our circuitry over here. We’ve got metal parts and components over here. We select the final assembly point which can usually be one of those factories, but the factories we are going to choose are not the ones that are already participating. Meaning, they’re not vertical, which means they are not manufacturing and marketing companies. They were not already at all the tradeshows in those respective industries over here in U.S, right? So, we work with really pure contract manufactures. We seldom work with companies that are already marketing their own products. Another thing I’ll tell you that we don’t work with anybody that doesn’t have a patent.

Got it! So, it helps protect you on the US sale side too. That is very handy.

That protects us, and protects them. We just don’t want to work with someone who doesn’t have a patent because we can get well in the process and find out that our customer has no right to launch the product because somebody else has a patent.

Oh interesting. I wasn’t thinking about that originally. David, very good. This is a wealth of information. I appreciate your time and thank you very much.

Yeah! Thank you, Gabriel.

This book was a serious wakeup call for me and I wish I had discovered it 15 years ago.  It is an incredibly easy read and packed with very tangible concepts.  It’s not usually in the standard list of books people have read and posted on Facebook. It’s not like a Good to Great or 4-Hour Work Week that every entrepreneur grins at the mention of, however, as I spoke to some seasoned entrepreneurs (read older) they gave the grin.

It’s funny how I happened to come across this book.  I was listening to a podcast and they were ripping on the 4-Hour Work Week. I had decided not to read the book a while ago, as I had heard so many negative things about it, but the podcast ultimately inspired me to give it a shot.

So, I asked around to borrow a copy, and one of my friends obliged. It  took a few months before I scheduled lunch with my friend and he showed up with a stack of books.  He started out saying something like, “Here is the book you asked for, but this is the book you need to read [The E Myth Revisited].” He gave me an overview and I was hooked. I started reading it immediately.

The Problem

So, have you ever been sitting there at your desk, knowing you are more capable, skilled, and talented than those around you, and you just know that you could do this job better than your incompetent boss? If so, this book is for you.  It details the struggle between the Technician, the Entrepreneur, and the Manager.

You are a skilled technician. You live in the present. You have work, you do work, you deliver work, you move on.  This is a valuable skill, but you want something bigger; now you’ve added the entrepreneur.  This person lives in the future.  He is what got you to leave the comfort of your old company and start out on your own.  He is the one that sees the vision of what your business could be.  You need him to go out and get the work, because without him the technician has nothing to do.  Now you balance your time between two jobs.  You spend some of your time selling/growing and some of your time performing the work you sold.  For you this led to an undesirable boom bust cycle.

As it turns out, the technician has a lack of appreciation for the other aspects that make your former company run, and if you continue to overlook these details, you will perfectly craft yourself a career dungeon.  As the book outlines, you start your company for the independence and flexibility, but those overlooked details will start to be required, and you’ll need to react.  So you hire another technician.  They may be as skilled as you, but they won’t quite do things the same way.  When you have just one or two, you can handle that and things get done.  You get a few more and the cracks in the system get bigger. Then, thinking to yourself, I need a manager to keep these guys in line!  The manager lives in the past trying to clean up messes.

So, now you have all of these people working for you, and you are working harder and you still aren’t making any more money than you made working for your former company. Additionally, the quality of your product or service drops due to a lack of systems and defined expectations. Furthermore, you didn’t start a company, you just made yourself a job! This place would fall apart without you.

Franchise Model

No one is suggesting that your shop should be the next McDonalds, however what Gerber and I are suggesting is that you run it like a franchise.  I can envision a company that is represented by a large stack of documents:  How you do everything in XYZ Co.  If you can document how your entire company operates, then you don’t have a job, you have a business, and a business should be an asset.  It should work for you.  You may have a job, but it shouldn’t be any more critical than other jobs there. When you want to open a McDonalds franchise, you get a large stack of documents and go through a lot of training that effectively says, “this is how we do it here.”  How do you do it at XYZ Co.?  If it’s not written down and repeatable, only you know. Then only you can run the company, then you have a career dungeon.  Did you want to build a dungeon?

Vision and Goals

As Gerber points out, when starting a company you should really sit back and think about your goals.  Not your business goals, but your life goals.  What do you want your life to be like?  Do you want to work 40 hours a week, make a decent living, have benefits, paid vacation, and insurance?  Or do you want to work 60 to 80 for the rest of your life, struggling to keep your company together, with little benefits, sacrificing your family life with no vacation, and if you leave for a week, it all falls apart?  The first example is where many entrepreneurs start.  The latter is where most entrepreneurs end up.  So what are you going to do differently?  Create a vision for your life.  If it involves starting a company, build an asset.  From day one, you need to think about how you are going to build your business.  Yes, you need to do this while you are still figuring out what your business is and how it needs to operate.  You need to slowly and interactively document how your company will do things and train your employees to follow the process.

 Action Steps

So, you still want to start a company, or you are in the early stages of one, and you don’t want to build a dungeon.  Here are my suggestions:

• Create job descriptions for every position in your company.  Not one person, one position.  If there are just 3 of you, you each may have 5 positions.  This delegates and assigns responsibility and you get a great idea of everything that actually needs to get done.
• Document how important things get done.  There are many little things and big things that happen in a company every day.  I suggest doing this iteratively.  Being proactive would be great, but I personally find that problems are more quickly solved reactively.  Plug the holes as they come up. When you have focused on a problem, you can document the solution and hopefully prevent it from coming up again.  Most quality standard systems have a continuous improvement process.  It doesn’t need to be perfect the first time.  Something beats nothing and done is better than perfect.
• Iterate and grow.  These are living documents.  Early on they will change often and you need to have ways of keeping everyone updated.  Also, as you gain a broader vision for the overall system, you can begin to be proactive in your process documentation.  

I fully suggest you find this book and read it, ideally, before you start your own company.  I’ve found extreme value in it even 15 years into my Product Development and Design firm.

On Amazon: Click here!

Also I’d like to thank Jason Zook for the term ‘career dungeon’.

The costs of creating something. Engineers are generally the ones responsible for creating a product. Depending on what the product is, you could have industrial designers, mechanical engineers, electrical engineers, and software engineers. There are other specialties as well, but most products require these as the core.

Engineers are generally well educated and skilled individuals. People with this kind of expertise usually earn an excellent income. So there is a large human cost to product development. And it takes a lot of time, especially if you want it done right.

The costs of making it. Now that the design engineers have created and developed the product, it needs to be made, and you want it made in mass. While the engineers above could certainly make your product, it would not be cost effective.  Therefore, we need more engineers and resources to reduce the product cost by engineering the complexity out of the manufacturing process.  Only then can lesser skilled labor and machines manufacture your product and reduce overall costs. This can range from robot automation, to creating tools to stamp steel or injection molding plastic, to documentation for an assembly work station. This is all before you actually make the first production part. This is one of the single most misunderstood costs in product development. Then you have to actually produce it, which then requires additional raw materials (read costs) for your tools and your assemblers to actually produce the parts and products you need.

The cost of selling it. You’ve invested money into the engineering and the production. Now I am sure you did not want to fill your garage with copies of your product. You want to sell it. While there are many ways to sell your product, almost none are free. Whether it is traditional advertising, a pay per click campaign, or a crowdfunding platform, they all cost money. It will also take a lot of your time, or at least a lot of someone’s time. Factor that in.

The hidden costs. Ah, the unknown unknowns. This is why you go to experts. If you are starting a company, you may have regulations that you need to adhere to. For any electrical product you develop, you need to consider the FCC regulations. If you plan to sell into a big box store, you may need to adhere to a UL specification. Do you want to sell into Europe? You need CE specification. Does your product have Bluetooth? You’ll need to join their consortium. There are all sorts of hidden costs you may need to consider when selling and marketing your product. Some are governmentally mandated; some are industry specific. Research your industry and consult with experts to learn what these hidden costs are so you can plan for them.

The single biggest problem startups and inventors have is not understanding these costs. It is very common to look at a product on the market that costs $10 and expect that it can be designed and made for $1000. A single, simple plastic part can have a tooling cost of $5000 or more, and that is before the engineering or selling part. A good example is a home coffee maker you can buy for $100 (a nice one). It may have cost the company upwards of $500,000 to get the first one to the store shelves. They only make their money back because they are going sell 100,000 of them. You can see quickly here how volume plays a major role in what a product costs. Investigate and understand the costs of product development, then proceed accordingly.

Please check out my other blog posts Engineering Design Based on Volume and The Missing Link Between Prototype and Production for more information.

As I dug in to my memory bank, I remembered he was also an engineer and my brother-in-law was always bragging about how smart he was.  This should be relatable!  I gave it a shot and I downloaded what was for me my very first podcast.  I gave it a listen, and I was hooked. 

Peter Awad (short a, short i sound) hosts the “Slow Hustle” and chronicles the ups and downs of entrepreneurial life.  As he says, “Sometimes you are crushing it and sometimes it is crushing you.”  I’m not the type of guy to ever use the term ‘crushing’, but now I have become more familiar with this expression.  This is a sentiment I can relate to in my personal life and business.  I could certainly connect with the content here. 

Almost every episode is inspired and well produced.  Some of my favorites are:

SH005 with Arel Moodie talking about the Art of Likability. Arel goes into just some of the basics of being a good person and interacting with everyday people on a more personal level.

SH021 with Amy Morin talking about being mentally strong.  Amy talks about personal struggles in her life which for she creates a list of what she cannot do if she wants to remain mentally strong.

SH052 with Hal Elrod talks about how to wake up like it is Christmas morning.  His concept for the ‘Miracle Morning’ is something that I’ve embraced, executed, and recommended to others.

Corey Blake talk about vulnerability is sexy.  I’m fascinated with the idea and I’ve been working on implementing this in my life and work.

Jason Zook explains the Career Dungeon.  Jason is an all-around great and creative guy.  Fun to listen to.

Jeff Hyman is the Startup Therapist. He talks about ‘Ugly Babies’.  Yes, you may have a bad idea.

Each podcast generally starts out with the back story on the guest.  I think this is the most fascinating part of the podcast.  Then they go into some of the struggles they have had, and how they have relaxed and recalibrated their lives.  That is the “slowness part of the podcast”.

So much of entrepreneurship is a mental game with yourself.  We thrive off mantras like “you only fail when you give up” or “10 years of trying will make you look like an overnight success”.  It is C-R-A-Z-Y.  Obviously we do not live in reality, if we did, we would go get jobs! 

If you have any desire to start your own entrepreneurial venture, or are knee deep in one, I highly recommend you take a listen.  It’s like AA for entrepreneurs.  “Hi, my name is Gabriel, and I’m an entrepreneur.”  And much like alcoholism, I fully believe there is a genetic predisposition to entrepreneurism that you will have to learn to fight or embrace.

Here are some Do’s:

1. Do get yourself a clicker and use the space (Time allocated).  Engage with your audience through motion, eye contact and body language. The best presentations are conducted by passionate, animated entrepreneurs who do not hide behind the podium. While presenting don’t forget to target your key audience. These are the people who likely have investment funds.
2. Do provide factual and validated information.  If you are ever caught lying, or perceived as deceitful, you’re dead.  Period.
3. Do rehearse.  Practice your pitch, and get the timing down.  Every group will have a different format.  Sometimes you’ll have 15 minutes to pitch and sometimes you’ll have less.  Sometimes there will be lots of questions with little time to respond.  Other times there will be few questions and dead air.  Tailor your pitch to each time frame and practice.  If you are new, put the important stuff up front.  If you are a pro, you will have your pitch timing down and you won’t run out of time in any situation.  Be a pro.
4. Do tell us ‘Why You’?  Ideas are cheap, execution is everything.  Why are you going to be successful with this idea?  Is your team awesome?  Say so. 

Here are some Don’ts:

1. Don’t throw out large numbers.  Don’t use the size of the market to try to reflect the size of what you think your business will be.  Any major market is in the billions and trying to relate your company revenue to that is just ridiculous at this point when you barely have a validated product.  Don’t suggest that you can even capture 1% of it, that is an unsubstantiated number (since unvalidated isn’t a proper word).
2. Don’t use baseless information.  This is tough, but try to validate information in any way possible.  What have other companies done in the past?  How long did it take them to break into the market?  What market share does the leader have? Have you ever spoken with a customer to see what they think?
3. Don’t create crazy projections.  Be realistic. If you think you can turn your startup into a $100M venture in a niche industry in 5 years, you clearly don’t have any idea what you are talking about.  Refer to number #2.  What have others done?
4. Don’t be sloppy.  Nothing makes you look worse than showing up in jeans and a t-shirt (be appropriate for the venue) or have a PowerPoint deck with bad graphics, and a poor layout.  Do your research and make sure you put your best foot forward.

Most of all though, have fun.  When you get to the point where this starts to get serious and you are raising money, you may give this pitch 1000 times (a number thrown out recently by a very successful entrepreneur) to get what you ultimately want.  You are going to get tired, but you need to keep it real, energetic, and have fun with it.  Good luck out there! 

Startup Weekend is an innovative concept, where by in one weekend, just a mere 54 hours, you can go from nothing to a viable company.

Anidea Engineering’s owner, Gabriel Goldstein, attended his first Startup Weekend in 2013 in West Palm Beach.  Although not a Startup company, Gabriel knows there is always something to learn. 

It starts with an opening event with a speaker, then attendees start getting down to business: What is your idea?

They make pitches, wait anxiously as their peers choose which pitches seem the most viable, and then, as ideas are weeded out, groups begin to form. Inspirational speakers tell of their entrepreneurial experiences. Then, they get to work.  break for the night. Day 1 is complete. 

Day 2 begins bright and early, with budding entrepreneurs ready to make something happen. They quickly get to work, feeling the pressure as time trickles away, far too quickly for their liking. Day 3, Sunday, they continue working until it is time. The groups present their companies, and a winner is chosen.

Startup Sponsor / Supporter / Mentor

In 2013, Goldstein worked on an app – YO! – that facilitated conversation between bartenders and patrons in a loud, crowded atmosphere. The would-be drinker communicates visually through the app to the bartender, creating an ease-of-ordering that can’t be beat.

Unfortunately, the team did not win. However, Goldstein not only met some great friends but still to this day, is an experienced entrepreneur who avidly supports the startup community.  He was bitten by the ‘Startup Weekend’ bug and his team was featured in a newspaper article about the event.

Being an entrepreneur is not new to Goldstein. After all, he started Anidea Engineering with literally, just an idea. He has since leveraged his experience to become one of the speakers and sponsors at 2014’s Startup Weekend West Palm Beach, and a mentor and sponsor at Startup Weekend Miami-FIU, which took place Friday, Nov. 20-22, 2015.

Mentoring is not new to Goldstein who has worked with various clients for the last 15 years, helping to mold and shape many of their companies. In addition, he is a mentor at FAU’s Tech Runway, a collaborative work space for entrepreneur to house, educate, mentor and fund their companies from inception through venture funding.

Goldstein used his mentoring experience to assist the teams at Startup Weekend.

“I got to work with a lot of different companies,” Goldstein said. “I was a huge fan of it. It is so much fun to see these companies start from nothing and become something.”

 “As a mentor, it was a lot of fun to go around and challenge the teams on their ideas and make them question things. One of the biggest things about Startup Weekend is validation. Everyone thinks they have a good idea, until you go out and test it in the marketplace,” he said.

Testing the ideas led to some of their downfalls, and others readjusted, reevaluated, tweaked their ideas, and came up with something stronger and more viable.

Working with a younger demographic – many of the participants were college students – did not have the same experiences that Goldstein has had, which shaped their projects and approaches. For example, one group learned about credit card processing, and how small transactions do not lend to a profit.

“As a mentor, I was able to bring my entrepreneurial and life experiences to the table to challenge and guide the teams. I’ve had the advantage of seeing technology evolve in the last 20 years that many of the attendees – bright, gifted students – did not,” Goldstein said, explaining that although he has accumulated years, he still has the same energetic, inquisitive, entrepreneurial spirit that helped him create Anidea Engineering.

Goldstein enjoying one of the more entertaining parts of Startup Weekend.

The teams worked hard on their ideas, testing and learning along the way.

“The incredible value of Startup Weekend is that you have the opportunity to go through many of the processes that you would go through in a team format to launch a company, with very little risk involved. It’s a vast learning experience,” he said.

Former attendees have reached out to Goldstein, as a mentor, and a networking connection.

“It’s a really great organization that I highly recommend for anyone who wants to learn about entrepreneurship and starting their own company and to participate in,” he said. “I’ll participate in any one I’m ever invited to, or any other way I can possibly participate.”

To learn more, visit www.anidea-engineering.com or call us at (561) 383-7311. Check us out and see how we can help you. Have an idea? Get Anidea! We’re located at 8020 Belvedere Road, Suite 1 in West Palm Beach Florida. Not local? Call and we can set up a Skype conversation at gabriel.goldstein.anidea.

Kevin Ferguson from Facebook is our winner.  I’ve direct messaged you.  Please contact me for the coupon code to collect your prize!  Thank you to all who entered. 

Original post below from Gabriel Goldstein:

“First, I’m a huge fan of Startup Weekend.  My first time was a few years ago in West Palm Beach at the inaugural event where I attended the first night to see what was going on and to meet people.  Things seemed kind of cool, so I pitched an idea that didn’t get any traction.  I met some guys who seemed very nonchalant about the whole thing.  One of them had this idea for the Yo! App.  It was a way to order drinks in a loud bar.  This seemed like the kind of low impact company that would be fun to explore for 54 hours.  I ended up joining, being a key member of the team, and presenting on Sunday with my team mates.  It was some of the most fun I have ever had, and most of my team mates are still friends today.  My wife will not let me participate for the whole weekend anymore.

The second time I was asked to be a mentor.  The third time I spoke and sponsored.  This time I’m mentoring and sponsoring.  I love the program, it’s a ton of fun, and I’m proud to be a part of it.

So, this year I have two tickets I am giving away to help spread the word about Anidea and Startup Weekend.  Here is what to do:

• Share this or any other content from our website.
• Like us on Facebook or Follow us on Twitter.
• Send us a message about it! (So we know you did it.)

Startup Weekend is at FIU in Miami on November 20 – 22, 2015.

We will draw two names Monday, November 16^th.

Thanks!

Gabriel

It may come as a surprise, but you can pay a company or a person for engineering design work, and not own the design that you paid for. It has happened to several of my clients working with other vendors in the past, and it happened just recently and I was compelled to bring this to light.

I refer you to the Copyright Law of 1976. It’s some nice light reading for a Sunday afternoon; it’s rough.  Here is the gist, if you create something, it’s yours. Yes it gets more complicated that than that, but in the case of engineers and other people who are typically in the business of creating, that’s the way it works. So you walk into Joe Engineering, Inc. (no offence, Joe) and pay them to create your new invention for you, they own the design and have every right to protect it. You could still very well have a patent on it, but without any additional contractual terms, they own it.

Now obviously in whatever you signed with Joe, you should have been assigned at least some rights to the work you are paying them to create, but that’s where the devil is in the details. And as I lay out these examples, one isn’t better than the other, they are just different and it depends on the company’s monetization model.

Work for Hire. This is an actual exception to the copyright law above. As I stated above, if you create something, you own it. Well we are all pretty comfortable and understand that if you are an employee of a company, the work you do is owned by the company. This is work for hire. However it gets messier if you work with an independent contractor, company, or freelancer. The entity that created the work for you owns the work, unless rights have been explicitly granted to the entity doing the hiring.

So you walk into Joe Engineering, Inc., sign the agreement, they do the work, you pay them, now what? If the agreement states that the work was a ‘work for hire’ or that you are granted full rights to the design, then you can do whatever you want with the work. If however if a ‘work for hire’ was not agreed to ahead of time, they could very well present you with a set of drawings and say thank you very much. Heck, they may not owe you anything, it just depends on your agreement. Typically they would just offer you the output documents (files to produce the product, but not change). Which brings me to the key point of this paper, read and understand your contracts.

This isn’t about the companies being mean, it’s just the way they chose to do business. What typically happens, is if a contracting company sells and assigns the entire rights of the design to the client, they have to charge more. They are selling their work at full price. On the other hand, if you have a company which tightly controls their intellectual property and maintains ownership of their designs, they generally charge less as they intend to monetize their costs other ways (manufacturing, change orders,etc.).

The typical case when a client finds out about the details of their agreement is when the client is no longer satisfied with the work of the engineer and wishes to split their paths. The client explains that they need all of their design files. These are the files used to create the design. They could be source code, solid models, schematics, etc. And you want the files used in the native software so they are easily editable so you can have someone else work on them. And the engineering company tells you no, you don’t own those files. You don’t have a lot of options here. You are either tied to that engineer on this project or you can pay another engineer to re-create the design for what might be a simple change at a significant cost.

As I said above, read and understand your contracts. You may get three bids from engineers on your development project and one is just so much lower, this may be a reason why. Sure, as an entrepreneur and/or startup company money is tight, but be careful of the long term implications.

Disclaimer. I’m not a lawyer. Seek good legal advice. I own an engineering company and have seen these issues played out numerous times when new clients want to use us instead of their other engineer. 

Consider the origin of the word “prototype”:

c.1600, from French prototype (16c.) and directly from Medieval Latin prototypus “original, primitive,” from Greek prototypon “a first or primitive form,” noun use of neuter singular of prototypos “original, primitive,” from protos “first” (see proto- ) + typos “impression, mold, pattern” (see type (n.)). In English from 1590s as prototypon.

So think ‘first impression’.

I try to use a few more specific phrases to help articulate what the various forms of a prototype.

• Proof of concept – This would be an early level prototype that includes many of the final features, but usually has a low level of customization.  Typically we can take a few off the shelf devices, modify them, program them, etc., and prove the concept the inventor has in mind is practical.  They can then be used for raising early stage funds and validating your idea to focus groups.  They are generally not the prettiest things in the world, but they are a good start.

• Functional Prototype – This is a mid-stage prototype which usually has a high level of customization.  Most components are custom or designed for volume purchasing at this point.  Most of the features are in place.  There may be some compromises on functionality due to cost or time constraints.

• Pilot Run – This is a late stage prototype which you have before you start production without the engineers.  At this stage the device should represent what you intend to sell.  If you find issues here, you iterate, make minor changes and try again.

It’s important to state that there is a large continuum of what your prototype will be.  You can start out with very low tech methods, as I call ‘Garage and a glue gun’, and work your way up to a professionally made, ready to show the market device. 

You must start though.  Don’t be afraid of making something ugly or that it won’t come out right. It won’t.  You will get better.  Failure is OK.  Start somewhere and keep on working on it.

Iterative Design

Design and engineering don’t happen all at once.  Most famous painters don’t paint the perfect picture first time out.  With oil paints, you can just keep painting on top of what you have until it looks the way you want.  Your product will not be perfect the first time.  Keep making prototypes until it’s the way you want it.  Of course this needs to be tempered with budget constraints and your time.  Experiment, permutate (make different variations), research, test, and do it all over again. Dyson famously made 5,127 of his vacuum.  Edison had over 10,000 attempts at his light bulb.

Garage and a Glue Gun

This is where you just have to start somewhere.  Everyone can use tools to some degree.  The more you use them, the better you’ll be with them.  Sketch, illustrate, research, learn, experiment, modify, and create.  Repeat.  It will not be perfect.  The greatest obstacle to finishing a task is starting.  Also, this is a good time to take out your camera phone.  These early documentation steps will provide great entertainment for later and possibly help you defend your ideas.

Professional Prototype

After you’ve done some of your initial experimentation, and you have a plan, it’s time to consider a professional prototype.  You don’t need to be an expert at everything.  You should be very familiar with your product and have some very specific ideas about what it should be in the end.  When you approach a professional, you should have a written document.  It doesn’t need to be a full specification, but it should have the things that you care about along with the known unknowns; the things you know you need their help with.

A professional prototype development company should have a wide range of resources.  They will have better tools, machines, toys, skills, and disciplines.  Generally, a combination of electrical and mechanical engineering will be required for most projects, however if there are other specialties required, make sure they have access to those other skill sets either through contractors or partner companies.

When working with a professional service, especially product development services, be sure you understand your agreement.  Various companies have vastly different business models that may or may not be agreeable to you.  Be sure you understand what you are paying, what you are getting, and who owns what.  It is possible for you to pay for a design and not own it.  Some firms will work for sweat equity in part or in full which is great to save you money, but treat them like you would any other partner, as you will be working with them for a long time.

Conclusion

While I’ve tried to make this exhaustive, it by no means is.  Every idea and business plan will have its own nuance and particulars.  Product development is a tough road no matter how you slice it.  I think the hardest part of it is that the capital required to physically create something just to sell the first one is usually pretty high.  On the other hand, there is a lot of activity in software and web products there is more of a gradation in how quickly you can start marketing your product and the intangible aspect of it.  There are still many great product ideas out there waiting to be found and executed.  I personally love creating tangible products and entrepreneurship, so that’s what I do every day and I feel it’s all worth it.

Resources

• Anidea Engineering Blogs

–      http://www.anidea-engineering.com/blog/

• LMP, Inc.

–      http://www.lmp-solutions.com/

• Inventing Daily

–      http://www.inventingdaily.com/

• Sketch Up

–      http://www.sketchup.com/

• TinkerCad

–      https://tinkercad.com/

Web References

• Documenting Your Idea

–      http://www.docie.com/patenting-help/documenting-your-idea/

• Document your Invention or Idea

–      http://www.veritek.com/Media/EDocs/documenting_the_idea.pdf

• 3 Things You Need to Know About Launching a Product Business

–      http://www.entrepreneur.com/article/230068

• Launching a Product Business

–      http://www.entrepreneur.com/article/230068

• How to Build a Billion Dollar Business Plan

–      http://www.forbes.com/sites/alanhall/2012/08/26/how-to-build-a-billion-dollar-business-plan-10-top-points-2/

Angel Groups

• Angel Forum of Florida

–      http://www.aiffl.org/

• Gulf Coast Venture Capital Association

–      http://gcvca.org/

• New World Angels

–      http://www.newworldangels.com/wp/

• Tamiami Angel Fund

–      http://tamiamiangels.com/

Build a Team

This is probably one of the most important steps in any business or product launch.  You are not an expert in everything.  You may not be an expert in anything but the idea you have.  Find people to help you that believe in you.  Find friends, partner with firms and consultants.  Work with business associates.  Find people who can help you in the spare time and possibly jump in with you if things start to go in the right direction.  It is far better to have a team and share the wealth than to try to do it all on your own and increase the likelihood of failure.  You need to convince a few associates to put their blood, sweat, and tears into your project, if you can’t get that done, you probably won’t be able to sell your product.

There are many aspects to the team.  You’ll want marketing people, law/IP people, tech and engineering people, etc.  It’s going to take a team.  Build the core.  And they all don’t need to quit their jobs and follow you.  Some may be family, friends, or other professionals.  I would expect a few people would be putting in time for you at night and waiting in the wings for your vision to take off, then they might be willing to quit their jobs and follow you!

Funding

An important part aspect of the business plan will be determining how you are going pay for this venture.  Starting a company takes a lot of moving parts, and money will be a critical part to this.  You really need to figure out how much you are willing to risk on this idea.  Don’t wreck your life over starting a company.  Most likely, unless you are independently wealthy or have a very high paying job, you will be looking for money from other places like investors and partners. 

There are a lot of ways to raise money. In the infancy of your company, you may be looking for what is termed a ‘Seed’ or ‘Angel’ round.  Seed money is the very first chunk you throw in.  It’s usually all your or close friends and relatives.  At the Angel stage, you’ve got a plan in place, but you need to make it to the next step.  It would be great at this point if you have sales, but validation will be really important here.  Have you proven there is a market, they will pay your price point, and you have a good idea what it will take to get there?  The Angel (the person) will likely be a key part of your company and will likely provide a lot of guidance and maybe even a title role based on their own experience.  After that you get into more serious rounds like ‘Series A’. 

Keep in mind too that it is easier to raise $10M than $100k.  There is a catch here though, you need to have a $100M idea.  The point here is, have a big plan.  Think and figure out how your company would look if it actually worth $100M?  Here is the mentality to this.  If a theoretical investor is willing to invest $1M in a project, he probably is worth upward of $30M.  He doesn’t need to double his money; that doesn’t impress him.  He wants to 10x his money.  This is further compounded by the fact that lots of people have lots of ideas, and only a handful make it.  So he knows that he needs to put $1M into 10 places, and that only one is maybe going to make 100x his investment.

One other key factor to consider when trying to raise money for your company.  If you can’t raise money, it means one of a few things:  You aren’t ready (not enough validation), it’s not a good idea, or you don’t have a good plan (or you don’t convey your plan well enough).  It takes time to raise money.  You have to find the right investor for your project.  However, if after a year of being ready and trying, you can’t raise money, you should really consider some of the other possibilities above.  And don’t just turn around arrogantly and say that they don’t know what they are talking about and try to fund the project yourself.  People fund good ideas and plans; you just may not have one.  Go back to the drawing board to validate and refine; or be glad you still have a day job!

Consult With Score

For some context, I originally created this presentation for my local SCORE chapter and I present it a few times a year.  SCORE’s consultation with me was one of the key pivotal points which launched my company from a one man show to what it is today.  I highly recommend the organization for their classes and training.  They however don’t do the work for you.  They are an all-volunteer organization and provide a lot of support to the entrepreneur and small business person. 

If you are new to the way business works in general or have a few weak spots either starting or maintaining the various functions you will need to run your business, check them out.  Depending on what you need, they will help select a mentor for you.  Don’t be afraid to ask for others or more than one either.  Find someone who has the wisdom you need and you work well with.  If the relationship is successful, you will likely be working with them for a while.

Start a Company

Now that you have your plans in place, you’ve consulted with SCORE and other consultants and friends, it’s time to launch your company.  Now I understand that for other reasons, you may have incorporated earlier before having your full plan in place, which is OK.  Some of those reasons may be to have a protective legal structure or just a place to move money around in a non-personal environment.  I mean you are really starting to run and operate like a company. 

There are a few key types of organizations you can create, generally you are either a C or S Corporation or Limited Liability Corporation (LLC).   There are lots of legal and tax reasons for each of them.  I personally prefer the S Corp, but the LLC is becoming more and more common.  I personally find the flexibility allowed in an LLC is not all that required or necessary.  This is a good question for your lawyer.  In either case, the primary reason for setting up a legal entity is separation from yourself personally and the company.  Secondary reasons for a corporation are topics like allowing multiple owners, accounting, and identity.

Licensing

Perhaps after reading all of this, you determine that maybe you really aren’t ready to start a company manufacturing and selling your product idea.  That’s quite OK, you can always try to license your product.  Essentially, this amounts to many of the initial steps of starting your company such has validation and prototyping, but if you can find someone who wants to build and market your idea for you, you can sit back and collect checks.  There are drawbacks of course, it’s not a perfect plan.

The first drawback is that you get out what you put in.  You’ve taken far less risk on launching your product.  You are likely to make a few percentage points on your idea.  The risk was taken by the licensor who manufactured and sold your product.  They will make more money on your idea than you will, and that is OK.

The second is that these agreements can get really complicated and this is where you see inventors getting taken advantage of a lot.  You have an idea, you naively contact an ‘investor services’ company, and they license your idea away for a very low rate, and are not obligated to do anything with your idea.  There are many reasons why they don’t move forward with it, but there is nothing you can do about it.  Be careful with these agreements and get a licensing lawyer involved or someone experienced in the process.

Really the advantage is that you take much smaller risk.  You may have $10,000 in your idea and patent, and that’s it!  Find a good licensing deal and collect checks.  And if they don’t come in, you are out $10,000 and consider yourself lucky.

Read the next installment.