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 Plan

It all starts with an idea!  You start doing research on your idea.  You read (our) blogs about invention and product development and get to work.  You validate your idea, talk to potential customers, and start to formulate a plan.  Now you begin to realize that this is going to take a lot of money.  The term ‘tooling’ keeps coming up and it is very expensive.  Then there is engineering, software, testing, development, and we’ve not even started to sell the product.  You are not a rich person, but you believe that if the world knew about this product idea, you’d be able to sell millions of them.

Now the fun invention project has turned into a business.  You are going to need significant outside money and resources to get this thing going. This is when you can’t help but turn to the exciting world of crowd funding.

The Myth

It looks so simple.  Make a video, post it on Kickstarter, and the money comes pouring in.  All you have to do is build it, ship it and you’re rich.  No.  According to Sally Outlaw of Peerbackers:

“70% of Kickstarter hardware projects are already funded before they go onto the platform…which means they usually already have angel or VC money behind them before launch”

Ouch!  Ask yourself, “Why would I launch my product on Kickstarter if I had angel or VC money?”  Because you need it when it comes to hardware.  Kickstarter and others are simply pre-sales platforms.  Yes, there are some success stories, many of them are from a few years ago before some of the rules changed.  I use Kickstarter as an example, but others have similar rules. 

There was a huge upset from the Pebble Watch Kickstarter.  In 2012, Pebble became the most funded project in Kickstarter history however Pebble could not commit to fulfilling their promises.  This caused Kickstarter to change the rules for hardware projects by requiring companies to be very honest about how far along they were in the development process.  Renderings are so impressive these days that products look real when they may only exist in a computer. The challenges of actually designing and manufacturing a working product had not yet been conquered and this caused a number of products to fail or deliver late.

The facts are that nowadays many of the most successful products launched through Kickstarter and other crowdfunding websites are mostly complete by the time you see them.  A common phrase to hear in campaign videos is ‘we just need to fund our tooling’ or ‘we need to gear up for mass manufacture’.  That basically means they are ready to go and want to make sure they can pre-sell enough to warrant the expenditure of hard-tooling and manufacturing setup.

Another important fact about the most successful crowd funded campaigns is that the real campaign starts before the Kickstarter one.  Crowdsource-ers network with the media and collect fans, followers and an audience before they launch their public campaign.  Nothing draws a crowd like a crowd, and these campaigns ensure they have a crowd waiting to review, talk, and fund before they launch. 

The Legends

Pebble

Pebble is a wearable electronics manufacturer launched in 2012.  I used Pebble as a failure example, but they ultimately made good on their promises and have managed to launch several more campaigns, albeit far more successfully and with less fuss.  In 2015, Pebble raised $20M for their Pebble Time product and is now shipping.

Coolest Cooler

This product takes your typical ice chest to the HNL.  It incorporates a blender, Bluetooth speakers, cutting board, and it holds ice too.  Originally, when the product launched in 2013, it was a failure.

“As most people who are first launching a project on Kickstarter do, you do some research, you put the product out there, and you hope for and secretly expect that because this idea is great, magically it will get funded,” Grepper said of his failed first campaign. “It was very disappointing.”

He tried again later, with better preparation and it became (at the time) the most successful Kickstarter campaign ever.  They still had problems delivering.

SkyBell

The world apparently needed a Wi-Fi doorbell.  This product raised $600K in 2013 on Indiegogo.  A big advantage with Indiegogo is that even if you don’t hit your funding goal, you can still get the money that was pledged.  Kickstarter is all or nothing.

Tips for a Successful Crowd Funding Campaign 

1. Find funding to get your product through the prototype phase. It needs to work and you need to have a clear path to manufacturing. 

2. Build your audience before you launch your campaign. Create lead generation pages and social media accounts. And don’t forget networking at off-line events as well to build your audience. 

3. Create relationships with the media.  Figure out who has an interest in the product and who is willing to write about it. Review other similar campaigns on Kickstarter and see which media outlets wrote about them.  Then add these journalists to your own outreach list. Media needs content , and if you have a good story, that helps too. 

4. Get a professional video. Unless you are an awesome videographer and editor, pay someone to make it shine. If you MUST shoot it yourself, make sure viewers can see you, hear you and that you are in an environment that makes sense (ie., film yourself in your work space while talking about the product, not sitting at your kitchen table). 

5. Hire a professional crowdfunding strategist. Many people have done this before.  Pay for their experience as it can be the difference between a wildly successful campaign and one that does not get off the ground.  One resource for this service is Peerbackers. 

6. Set a realistic goal – one that is the minimum you would require to take your product to the next level. Then outline stretch goals in your campaign narrative so backers will be motivated to continue to donate once you reach your initial target. It’s better to be successful with a smaller goal than to be unfunded with a larger one (this varies by platform). 

Good luck out there!

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.

Unless you have all of the resources you need to create and develop your product, you are more than likely interfacing with a technical consultant or engineering company.  The more effectively you can communicate with the technical team, the better your chances of getting what you want. 

Writing it down and describing all of your ideas and how they will work together will be a very effective task for moving your idea forward with your technical team.  You will begin to see holes in the logic, stumble upon new ideas, and begin to document what is in your head.  Writing it down will also alleviate the constant ruminating of an idea in your head.

But you say, “I’m not an engineer!  I don’t know how to write a specification!”.  Well, both statements may be true, but if you want to pave the way to a successful product development venture, you’ll need to learn to communicate your ideas effectively to the engineers who can write a specification.  And with a few helpful tips, you too can write a basic specification.

An item of note, this list is for a somewhat validated idea.  This list assumes you’ve already performed the basics like validated a market, created a tentative business model, and you have performed some level of prototyping.

1. Brainstorm.  Your first step is to just get all of your ideas down on paper.  White boards, drawings, and short lists are a good place to start.  You want to focus enough on this so it is all out of your head and on paper.  You can move things around later, but now you have your concept documented and you can begin to refine it.
2. Strong and weak words.  Inventors tend to get very tied to their ideas.  Try to break away from that and begin to describe what you need done using some special words.  If you use a phrase like, “The device shall be made from titanium,” then the reader will expect that you are the expert in this material and there is no room for variance.  Other strong phrases are: must have, required to, and will.  Does it need to be made from titanium or is it that weight to be minimized?  There are weak words to use like may or should or can.  Think about what is absolutely required and what would be nice, and the real goal you are hoping to achieve.  Then write that down.  Keep in mind that opposites can also be valuable in your writing.  Phrases like cannot, shall not, and should not are equally useful.
3. Sketch.  As you have heard, a picture is worth a thousand words.  You may be amazed at how effective a simple block diagram in Power Point can be.  Show how things are connected.  Show the logical flow of operation.  There are great mock-up tools for software/apps these days you can also use.  The more you think and articulate your idea, the more effective it will be conveyed and possibly become a better product.
4. Write what you know.  You are probably not an engineer if you are reading this, so don’t try to be.  Yes, you should educate yourself in the technical field of your idea.  You should not spend your days looking over websites for microcontrollers and then specify the use of one in your project.  Describe the features and functionality you require, don’t try to engineer the product unless you have that skillset (before you had this idea).  An experienced engineer will have just that, a lot more experience.  Take advantage of that and let them do what they are good at.
5. Iterate.  A specification is a living document.  It can change as the market and business input is uncovered.  As you learn more about your idea, do more research, and develop your product and business, it will constantly evolve.  Now with that being said, once you engage a technical team, there can be costs associated with change.  You will want to get close enough to start engaging your technical team, but once you hand it over to them you should have a good assurance it’s right, and only make changes that absolutely have to be done.  Inventors tend to like to ‘tinker’ with their ideas which can keep products from ever reaching the market, so iterate until you have something to sell, then stop.  Let the market drive your iterations.  This is a subject for another posting.

What I’ve described above is generally referred to as Functional Requirements Specification or a FRS.  The engineering team will then likely create several documents from this which could be a Design or Product Specification, Test and Validation Plans, etc.  Those are beyond the scope here. 

Don’t worry about making it perfect.  From a non-technical perspective, you should put down the things that you care about.  However technical and non-technical that is.  If you care about the color, put that down.  If you care about costs, put that down.  If you don’t care what material is used, let the engineer figure that out.  In any case, your technical team will start to ask you a lot of questions to help flesh out your specification.  After the ground work is laid, then everyone can be on the same page for what needs to be done.

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! 

But there often is a long, and lengthy, process from taking an idea from concept to reality, to something tangible that you can hold in your hand.

This is where Anidea Engineering comes in. We take ideas, mere thoughts, and bring them to reality, making them into something real.

We make something from nothing, whether it is helping with product development, engineering consulting, hardware design and engineering, software design and development, industrial design and mechanical engineering, printed circuit board design and development or manufacturing and prototypes, we do it all!

On the top of our web site, right below the URL, is an amazing document to help any inventor prepare for the process, one which we excel at guiding companies through.

When you’re ready, it is time to make a prototype. So what exactly is a prototype? Merriam-Webster defines a prototype as “an original or first model of something from which other forms are copied or developed; someone or something that has the typical qualities of a particular group, kind, etc.; and a first or early example that is used as a model for what comes later.”

Thomas Edison went through many different variations of his prototype of the light bulb before he found one that worked. It took him more than 10,000 tries, but eventually he got there. This can be a long process, but in the end, it is worth the time and dedication. After all, your idea is on the path to becoming a reality.

So you start with a prototype to create a tangible version of your idea. There are many types of prototypes, but the three Anidea Engineering typically deals with are:

• 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, Anidea Engineering 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.
• 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.

Prototypes can range in how sophisticated their design and packing are, whether they are made in the garage with a glue gun, or professionally made and ready to show to the market. However, in the early stages, it doesn’t have to be pretty – it just needs to work. Even if it doesn’t, and you keep having to return to the drawing board for your design, don’t feel badly. It isn’t a failure; you are learning what doesn’t work. If it worked for Edison (Even Thomas Edison went through more than 10,000 prototypes until the lightbulb was just right), it will work for you, right?

At Anidea Engineering, we guide you through the process, going from a garage and glue gun inventor to a professional, sellable, specific product.

Yes, prototypes are expensive. For instance, a watch might cost $100 in a department store, but to get that watch from concept to prototype, with manufacturing and testing, may cost more than $100,000.

It takes time, effort, organization and work to take an idea from concept to reality, and we’re here to help.

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.

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/

IP Strategy

Intellectual property (IP) is a big buzz word these days.  It’s important stuff.  If you can convince the US government (or other government) that you have an original idea, they will help you protect and give you exclusivity of it for a period of time, generally 20 years.  That sounds great, doesn’t it?  You can also file a provisional patent that is kind of places a foot in the door which discloses that you are working on an idea, but you aren’t ready to file a patent yet.  If you file a patent based on your provisional, you’ll get an earlier file date. 

Ultimately what you want is a Utility Patent.  You want to patent the actual utility of what you’ve created.  Those are the good ones.  There are other types like Design Patents, but they are more easily circumvented.

Above while I was talking about the government helping you protect your idea, they will only do so much.  The patent office does try, and they do a decent job, of making sure the patent they give you is unique, however they are not the only opinion that matters.  In the case where two issued patents have overlap, people can go head to head for years dumping tons of money into lawyers trying to get injunctions or other compensation in place.  Alternatively, you may have protected IP and someone else is selling a product which infringes on your patent.  It will cost a good bit of money to make them stop. The old line is that a patent is only as good as your pockets are deep.

So why patent at all?  It’s a reasonable question.  In general, patent what you can with the finances you have, but don’t go overboard.  Or, you can always take advantage of some other techniques like “first mover advantage” or “first to market”.  Coke doesn’t have a patent on the drink itself, but people can’t copy the true ingredients.  Coke has a trade secret on their recipe and they have proven that they go through extraordinary efforts to protect it.  The proof of how hard they protect it, and it actually being unique, provides them protection.

Footnote: I’m not a big fan of patents.  Not because I don’t think a patent is cool, but that they get way over used and big business has ruined it for the common inventor.  I do think they are very good for impressing your mother, and who doesn’t want to do that.

General Protection Mechanisms

So you are going to need to talk to someone about your ideas, as no one can do it themselves and you have to build a team.  So the first step is to have a Non-Disclosure Agreement (NDA).  This is a basic agreement between you and to whom you are talking to that they will not disclose your discussions and they will not benefit from them (unless you end up hiring them in some way).  These are basic agreements.  You can download them for free/almost free.  They are a good first step.  If nothing else, it sets a clear expectation that you expect your conversations to be between you and the other party.  If you don’t trust the other person, the NDA probably won’t mean much.  Also, many people won’t sign them.  Investors typically won’t as it exposes them to risk, as they tend to see a lot of deals and ideas.  They may already know 3 people working in that space.  The suggestion here is start out slow, and make sure they have a legitimate interest.  As the relationship grows, they may sign an NDA and get more involved with your venture.  On a side note, most professionals only have their integrity and reputation.  We know not to talk about other people’s ideas or to try to leverage information given in confidence.

Keep your mouth shut.  Not everyone at the bar on a Saturday night needs to know about your whiz bang idea.  Be careful about who you speak to about your idea.  Think of it as a need to know kind of thing.

Also, as you getting started with your team, you may be thinking, “We’ll figure out the money later” type of thoughts.  No, do it now, while there is nothing to argue about.  Money makes people weird.  At the very least create a rough operating agreement that you sign with your ‘friends’.  Talk about the ownership distribution, who does what, and how a person can leave or come in.  Just get some basics out of the way.  If the money starts rolling in, the last thing you want to do is start fighting with your co-founders about who owns and does what.  It will be over before it begins.

Also, keeping ownership straight, everyone should read up on the Copyright Law of 1976.  It talks about who owns things when you hire a contractor if not otherwise agreed to.  Make sure you understand the agreements you sign with contractors, especially dealing with ownership and rights. Yes, it is possible for you to pay for something and not own it or full rights to it.  There are all sorts of variations here where a contractor may become part owner (sweat equity) or a manufacturer may partner with you.  The key here is to make sure you understand the agreements.

Read the next installment.