Today's post is kindly provided by John Teel, the Founder of "Predictable Designs", where he helps entrepreneurs, startups, makers, inventors, & small companies develop electronic hardware products
Developing a new electronic product is never quick or cheap, but in this article I'm going to share with you 14 ways to significantly reduce your cost and time to market. Goal number one should be getting your product to market as quickly and cheaply as possible.
As an entrepreneur with a limited budget you need to focus on minimizing your upfront costs as much as possible, even if it means a higher product cost initially.
This article focuses on reducing the upfront costs to get your product developed, manufactured and on the market.
Simplify your product
You’ve likely heard of the phrase Minimum Viable Product (MVP) and it’s something I mention frequently. Basically, the goal of the MVP strategy is to simplify your product so you can get it to market as quick as possible.
Once your product is on the market then you can begin gathering feedback, and based on that feedback you can expand on your MVP to meet the market’s true needs. Otherwise, you are only guessing what the market wants, and that’s never a good idea.
The MVP concept is all about the process of build, measure, learn, and then repeat. The faster you can get to the measure and learn phase, the faster you can iterate your product and build your startup.
The key to getting your product to market as quickly and as cheaply as possible is through simplification. In my years of helping entrepreneurs develop new products, I’ve learned that simplification is essential for a new product to make it to market before the founders run out of money.
Don't get a patent immediately - Start provisional
How many startups start by obtaining a patent? This is one of the most common mistakes I see entrepreneurs make. Obtaining a patent should not be a top priority. Just remember, the majority of patents never actually make it to market.
Patents are a death trap for new entrepreneurs that can cause you to waste thousands of dollars and a year or more of your precious time.
Getting a full patent takes a lot of time and money, and it’s not something you should ever attempt to do on your own without an attorney.
Luckily, there is a cheaper option to a patent! You can obtain what is called a “provisional patent application”, which protects your product idea for one year. This gives you a year to judge your product’s success (or failure), and whether or not its worth spending the money for the full patent.
A provisional patent only costs a couple hundred dollars, and doesn’t require an attorney. You can set one up in minutes.
Patents can be important, but they shouldn’t be your top priority. You are much better served by spending your money on product development and marketing.
Don’t stress about your idea getting stolen. No one steals unproven ideas. Always remember - your idea doesn’t have any value until it is turned into a proven product. After the one year of protection expires, you may wish to pursue a design patent instead of the typical utility patent. A utility patent protects the product’s function whereas a design patent protects the appearance.
Design patents are significantly cheaper and easier to get than utility patents, yet they still allow you to advertise your product as being “patented.”
Use existing solutions when possible
You will save money while reducing your risk if you use existing solutions for your product’s more complex functions.
This includes both the hardware and the software.
For example, on the hardware side, if you need to add Bluetooth functionality to your product you have two options: design a custom circuit or use a pre-certified module. Custom circuits will increase your upfront development cost but will typically reduce your unit cost at higher production volumes.
Self-contained modules are usually used for more complex functions like Bluetooth, GPS, Wi-Fi, or a high-speed microprocessor. Self-contained modules can be added to the same printed circuit board (PCB) as the custom designed circuits.
Modules are especially advantageous to use for your wireless functions because they also simplify FCC certification, allowing you to get your product to market faster.
The same suggestions hold true for the software side of things. For example, using of an existing IoT software platform can save you a tremendous amount of time and money compared to custom coding your own platform.
The only potential downside to using existing solutions is doing so may increase your actual cost per unit. However, until you reach significantly high production volumes your priority should always be on reducing your upfront costs and not your unit cost.
Minimize certification costs
Certification costs can feel overwhelming to a cash strapped startup, but there are ways for you to reduce or delay them. The easiest way to bypass certifications is to sell your product directly to consumers on your own website.
For example, although UL certification is normally only “required” for products that plug into an AC outlet, most big retailers require that your product have UL certification, even if it doesn’t plug into an AC outlet. Selling your product directly to consumers allows you to bypass or at least delay this certification.
You may be able to entirely eliminate the need for UL certification by having your product recharge using a pre-certified USB charger or a pre-certified AC/DC wall adapter. This way your product itself never connects directly to the AC power.
As mentioned in the previous tip, one of the biggest benefits to using modules for any wireless functions is that you don’t have to pay for the more expensive type of FCC certification. FCC certification is required for almost all electronic products sold in the U.S. to ensure they don’t interfere with other radio communications.
Your product will be classified by the FCC as either an intentional radiator or a non-intentional radiator. Intentional radiators are devices which purposefully emit radio waves. On the other hand, if your product does not intentionally emit radio waves, it is classified as a non-intentional radiator.
For example, if your product wirelessly communicates with a smart phone then it intentionally radiates radio waves. But if your product is just a simple alarm clock, then it doesn’t intentionally radiate radio waves. It is much more expensive to obtain FCC certification if your product is classified as an intentional radiator. Non-intentional radiator certification costs only about $3,000 to $4,000, whereas intentional radiator certification costs at the very least $10,000.
However, even if your product is wireless you can get around the higher certification cost by using pre-certified modules for any of your product’s wireless functions. This can allow you to only get the lower cost non-intentional radiator certification saving you thousands of dollars.
Another certification you can try to bypass (at least temporarily) is RoHS certification, since California and the European Union are the only locations where it is currently required. You won’t need RoHS certification if you are selling directly to your customers online, or if you only work with retailers outside of California and the EU.
Keep in mind, however, that most US retailers will want you to have this certification if they have any stores in California. Since most large retailers operate stores in California, they usually require that all products be certified to California’s standards.
Finally, certifications are typically not required for sales tests. You are best to delay certification until after you’ve proven the product will sell and you are in the final stages of transitioning to mass manufacturing.
Keep your injection molds simple
Injection molding requires the use of molds machined (i.e. carved) out of metal. This mold is carved with a cavity in the shape of your plastic parts. Liquid plastic is then injected at high temperatures into the mold’s cavity. Once it cools, the mold is opened and the formed part is removed.
Molds are expensive, and the steel ones used in large scale production runs can cost tens of thousands of dollars. How many cavities a mold has determines the number of parts that can be produced with each injection of plastic. A single cavity mold can produce one plastic part at a time, a double cavity mold produces two, and so on.
Multi cavity molds have two advantages: increased production rate and lower unit cost. But neither of these should be a priority for your first few production runs. Remember, always focus on minimizing your upfront costs.
Most production molds are made from steel, because it’s hard and durable. But the hardness of steel also makes it more difficult to machine into the shape for your mold.
Another way to keep your mold costs down is by using a softer metal like aluminum. Soft metals wear down more quickly, so how hard a metal is determines how many parts you can make with the mold.
Aluminum is considerably softer than steel so aluminum molds won’t last as long as steel ones, but they are a lot cheaper because they’re easier to machine. Expect an aluminum mold to be able to manufacture up to around ten thousand parts. A very hard grade of steel mold can produce upwards of millions of parts. Aluminum molds will work fine, though, in the early stages of production when your volume is lower anyways.
In addition to reducing your mold costs by using single cavity aluminum molds, you can also reduce the cost by reducing the number of molds you need. When designing the 3D model for your product’s enclosure try to minimize the number of individual parts required. The minimum number of pieces will almost always be two: a top piece and a bottom piece.
Having only two pieces may be unrealistic for many products, but reducing the piece count by even one or two pieces can save you tens of thousands in mold costs.
Finally, be sure to keep your mold a simple-pull design without what are called side-actions. This means the manufactured part can be easily pulled out of the mold without the need for expensive and complex side actions.
It’s quite common for inexperienced 3D designers to make the enclosure require side-actions, but with some creative design techniques they can usually be eliminated. If your designer says your enclosure design requires side actions then I’d recommend you get a second opinion.
Learn new skills
There are a lot of skills required to bring a product to market, and as an entrepreneur you have to wear many hats. New products will need electronics design, programming, 3D modeling, graphic and website design, accounting, marketing, supply chain management, and finally sales.
Can you save money by learning how to do any of these skills on your own?
When I decided to bring my own product to market, I ended up teaching myself how to do 3D modeling and design for injection molded plastic.
This ultimately saved me thousands of dollars and even sped up development. Normally, learning a new skill slows down development compared to hiring someone that already poses the necessary skills. However, in some cases, such as when appearance is critical I’ve found it can speed things up if you learn to do it yourself.
Even if you don’t plan to do the task yourself, it’s critical that you have a basic understanding of any task you plan to outsource. Otherwise, how can you manage them or be able to judge the quality of their work?
Buy a 3D printer
If appearance is important for your product you will almost certainly need multiple iterations on your enclosure design to get it right. The cost of these prototype iterations can really add up with each version costing hundreds of dollars.
See here my essential guide to prototyping your new product.
For many products where appearance and ergonomics are critical, a dozen prototype iterations is not uncommon.
You can now purchase a descent 3D printer for several hundred dollars. So if you think you’ll require more than a couple prototype iterations to get your enclosure design right, then consider purchasing your own 3D printer.
By creating your own 3D printed prototypes, not only will you save money on prototyping costs, but you’ll also significantly speed up your development time.
The key to speeding up product development is to prototype early and often. A 3D printer allows you to quickly iterate your prototype at very little cost. A lower cost 3D printer will be fine for early prototypes. But, you may want to use a professional prototype company for prototypes you plan to share.
Hire offshore engineers, but only if…
You can typically find engineers in countries like India, China, Russia, and Pakistan who are willing to work at a much lower rate than engineers in Western countries. As with any location, there are some amazing engineers to be found in these lower cost countries. But also as with any location, there are some really bad engineers too. Worse yet, there are even some dishonest ones out there.
The key to this strategy being successfully is making sure that someone on your team possesses the necessary skills to review their work appropriately. Don’t even attempt to hire offshore developers unless you get a design review, and get help to fill in your gaps in technical knowledge. Otherwise you are opening yourself up to a lot of financial risk.
Bring on a co-founder
Bringing on at least one co-founder has numerous advantages. They can bring skills, connections, and/or money. The cost of course is equity in your company. But a small piece of a big pie is better than no pie at all. Instead of outsourcing to an outsider, bring on a co-founder with these skills.
Bring on a co-founder that best compliments your skills. For example, if you’re an engineer then bring on a marketer, or vice-versa. Just make sure you get along well with them, because you will essentially be “married” to them for years to come.
You will save a lot of money and time if you can partner with a co-founder that has a complimentary skillset to your own.
Use “stock" components
A stock, or catalog, component is something that is already made and ready for purchase. Stock components will be part of a supplier’s inventory, and you can use them to bypass having to custom design and manufacture some parts of your product.
For the electronics this means that you should use existing chips, instead of trying to custom design your own chip.є
As for the product’s enclosure, could you utilize a stock enclosure, at least for early testing? Can you substitute any other custom parts with stock parts? Even eliminating just a couple custom parts can save you major money.
Let’s say you are developing a new type of computer mouse. Can you purchase the plastic pieces from an existing mouse manufacturer? At the very least, these stock parts should work for your works-like prototype.
Some suppliers sell “project boxes”. These are cases or enclosures they have in stock. Keep in mind they are usually pretty crude, and work best for early prototypes or DIY projects.
For most consumer products, you are better off buying an enclosure from a manufacturer like I described in the computer mouse example.
Get a design review
Prototyping isn’t cheap, so you can save a lot of money by reducing the number of prototype iterations. How do you do this?
You make sure that your design is correct and functional before you create an actual prototype. The best way to do this is to hire a good designer plus an independent designer to review their work.
You can reduce your development costs, and your total development time, by having an independent engineer review your product designs before you order the actual prototype.
This doesn’t mean your first prototype will be ready for market. Even after being carefully reviewed, most products need several prototype iterations to get them ready for market. But, the fewer iterations that you require, the more money you will save, and the faster you’ll get to market.
Find a manufacturer to help with development and scaling costs
There are several ways that manufacturers can lower your costs. They may be willing to donate engineering services and/or amortize some of your higher costs like creating your first steel molds.
They also have the ability to extend favorable payment terms, allowing you to get paid by your customers before having to pay your manufacturer.
Try to find a factory that isn't manufacturing at capacity because they will be more likely to help you. But it must be a factory already manufacturing products similar to your own.
Ultimately you should try to find a manufacturing partner that has a vested interest in the success of your product. Here’s my story of how I got a manufacturer to invest over $100,000 in my own product.
Use PO financing and invoice factoring
If you can’t find a manufacturer willing to give you favorable payment terms, consider purchase order (PO) financing or invoice factoring.
If a company with established credit gives you a significantly large purchase order (PO), you may be able to obtain purchase order financing. There are lending companies that will finance the production of that order. Obtaining PO financing depends not on your credit rating, but on the credit rating of your customer.
Invoice factoring is an option if you, or your manufacturer, can fund manufacturing at least until the order is ready to ship to the customer. Once you ship the order to your customer you will issue them an invoice. You then essentially sell this invoice to the invoice factoring company.
The interest rate for invoice factoring is significantly lower than for PO financing since the lender’s risk is lower because you’ve already completed the manufacturing.
With both PO financing and invoice factoring the lending company takes over the job of collecting payment from your customer. That can be a good or bad thing. Having a third party company interacting with your customer can be dangerous, so be careful.
Get an advisor
Very few people have all of the skills necessary to bring a new product to market, and even if they do they likely won’t always have the right mindset.
The point is, regardless of your skills and experience, you can not get a new product to market without help.
If you are an engineer, then you’ll likely need help on the non-technical side of things, such as business operations, marketing, sales, logistic, etc. If you are less technical, then development is where you’ll need the most help.
I’ve always felt that one sign of wisdom is knowing how much you don’t know. The more you learn the more you realize how much you don’t know.
So recognize what you don’t know, and seek out support from those that do. Doing so will ultimately save you thousands of dollars and keep you from wasting months (or years) going down the wrong path.
When bringing a new product to market you absolutely need to carefully analyze every dollar you spend. Your goal should be to get your product to market as quickly and cheaply as possible.
Don’t worry so much about minimizing your product’s manufacturing cost in the early days (assuming you know you can eventually achieve profitability). Instead, focus on minimizing how much money it costs to get your product to market.
With these tips you’re well on your way to getting your product to market faster and saving a significant amount of money while doing it.