Start-up companies and existing businesses trying to get a product to market are often cash-limited or on a budget. They have a finite amount of capital to design and engineer their product, create tooling, place production orders, spin up marketing and sales channels, and more. The top priority for businesses that are developing new products is to recoup their investment and start making profits quickly. A common pitfall is to cut essential upfront development costs. Building a product is like building a house, why would you risk your chance for success by building a poor foundation? Here are a couple of things to consider when considering development options.
Beware of Low Cost Options
Some design and engineering firms with close ties to factories will lure start-ups and companies with lower or sometimes no up front costs for design. This sounds great, but groups like these are able to do this by taking a cut on manufacturing. This cut will increase your manufacturing cost and reduce your margins when you need it most. If you can afford a little more up front, it could pay dividends in the end. Finding a group that has your best interests in mind, and is willing to be flexible, is critical. When comparing options, ask firms if they get a cut from manufacturers for PO's placed through them and understand how that might impact your budgets and costs in the end.
If you decide to go directly to a manufacturer for design and development, they will most often design your product for production on their respective equipment, they may also retain ownership of your tooling. This can be a plus from a development cost standpoint, but without the ability to be completely creative and open to other options; you may be designing something that is not best suited for the user or the most efficient manufacturing processes. In addition, manufacturers may not have the right professionals on staff for product development when compared to the teams found in specialized firms.
At Lexicon, we believe that creating the best product for your company and your users is #1. Finding manufacturing partners that fit your needs should be reserved for when the time is right in the development process. If we need to reduce the manufacturing cost, we will solve that in a strategic way while best maintaining your product's intent.
Don't Skip Design, or Any Other Part of the Process
When building a new company, there is always the tendency to try to find cost savings. When building a car you wouldn't skip installing the engine, or the wheels, or the doors for that matter! Sometimes it is tempting to short cut the development process for short term savings, but this can ultimately cost more in the long run. This can be an issue if you compromise your product's user experience by skipping critical design, engineering, prototyping, or functional testing. A product development partner's role is to never overlook any phase of development while relentlessly improving user experiences and reducing production costs.
Prototypes not Prototype
We hear a lot of companies say "we can't afford to build more than 1 prototype" which is typically met with "you can't afford not to build more than 1 prototype." Designers and engineers do their best work when they are allowed to build, test, and break things. These professionals know how to reduce expenses by building what is needed to learn. They repeat building and learning until your product is ready for production. From a business owner's perspective, this may seem like you are paying for failure or for prototypes that are useless; but in reality you are paying to learn. It may seem frustrating when your development partner needs to build 5-10 expensive prototypes, but they are doing so to ensure your product's success. If you don't build enough prototypes, your company could be at risk of an expensive product failure, or worse; a potential lawsuit.
Some products are more expensive to prototype than others. The larger and more complex; the more expensive. The closer you get to production, the more expensive prototypes become due to the increase in component quality to simulate the real thing. Electronics and moving mechanical parts are also common cost adds in prototyping.
Make Sure You Have the Right Budget Planned for Your Project
Many design firms will help you by estimating rough prototyping budgets in addition to what they require for development. It is important to remember that you are hiring a team of seasoned professionals with years of education and experience in their field. Most design firm rates run from $100-$200 an hour or more depending on their team, experience, and geographic location. In order to complete your project, you may need hundreds of hours of design, engineering, prototyping, and testing to perfect your product. Electronics based projects can run $250k+, while complicated structural/mechanical project can run $110k+. Simple projects can be completed for much more affordable amounts, but it all comes down to complexity,
A good rule of thumb is that a project will be more expensive the more professionals needed to complete the job. For example, when developing an electronics based product you may need: a graphic designer for your company logo and marketing collateral, an industrial designer to design the best look and feel for your product while optimizing user experiences, a mechanical engineer to create a device that meets your functional requirements(drop tests, environmental requirements, UL certifications etc.), an electrical engineer to design your circuit board, a firmware engineer to program the board to make all of its components function together, a software engineer to program your device, its connectivity/server back end, and program your user facing app, a UX/UI designer to design an easy to use app interface, and a project manager to keep everyone on schedule and communicating.
Understanding your development costs early will allow you to accurately plan for your product launch. Be as transparent as you can with your potential partners, and listen to their advice. The information you give them will be reflected in their development quote. If information is inaccurate or pieces are omitted, you may run into additional charges based on out of scope work that wasn't planned; causing potential delays.
Once you understand the costs, if they are out of budget; discuss your options to find additional funding through friends, family, and/or investors. The Small Business Development Agency closest to you can be a great resource to connect with investors or a source for business loans.
Every product is different, and quotes are free, so don't be afraid to contact a few groups when getting started. If you have questions about product development or budgeting for a project, feel free to reach out to our team at Lexicon.