07 Jul Kickstarter Prototype to Production: $100K is not enough
Q1 of 2015 saw a record 128 electronic projects raise at least $100K each on Kickstarter and Indiegogo. Reaching $100K is often considered a successful campaign, and many think that the founders can take this money to a factory and just get the stuff made. The 4 out of 5 hardware campaigns that don’t manage to ship in time show that most teams still underestimate the DFM (Design For Manufacturing) process. A number of factors complicate things:
Arduino is too expensive
Companies like Arduino, Sparkfun and SeeedStudio have developed great electronic modules which are easy to connect and program; making it easy for a programmer and a bizdev guy to quickly throw a prototype together and put it on Indiegogo or Kickstarter. For a prototype pricing of these modules is not bad, but for mass production it will not give you a price level the market can accept.
Competitive components take time
There are much more affordable Bluetooth and GPRS modules available, especially in China, but first you need to order samples, which means interacting with a multitude of vendors, and not all of them are fluent in English. Then you test the alternatives, and often will find that the ones with the best price/performance ratio are the most popular and can suddenly see shortages, driving up the lead-time to 12 weeks. Of course one missing component will completely stop your production.
Yes, in Shenzhen there is a market where you can buy any component instantly, but that’s a risky road: they can be old and out-of-warranty, recycled or plain fake.
Many of the components are sold on reels, which feed into the automated assembly machines. A reel typically will have 2K to 5K pcs, so you likely will need to order more than you really need for the first run. A startup has no credit history and will be required to pay before shipment.
You need to Design For Manufacturing (DFM)
Changing key components such as the Bluetooth and the processor nearly always means that the circuit board (PCB) will need to be redesigned, and the firmware rewritten. Real electronic design takes experience, you need to know for example how to design in such a way that you avoid harmful radio-emissions. The new design needs to be prototyped, tested, and more than likely adjustments will have to be made, a second custom PCB will need to be fabricated, the often minuscule components will have to be mounted on it again, and if you’re good (and lucky!) you pass the FCC & CE certification tests.
Molds are forever…
3D printing and ever easier to use 3D CAD programs are great for changing designs on the fly and making 3 different versions of your prototype in a day, but when you need to make 6,000 sets of plastic parts you soon realize that this process is still too slow and labor intensive to be practical. This means injection molds will need to be made, and once these steel molds are finally done it is very costly and slow to change anything, quite unlike your 3D printer. Depending on the size of the product a set of molds will cost anywhere between $10K and $200K and take 2 months to finish … if everything goes well.
Besides the electronics you will also need to DFM the housing. This means negotiating with your Chinese mold maker how to optimize the plastic parts so they will come out of the mold nicely. Among many other things you also want to optimize for ease of assembly. Highly complex assemblies not only take longer, they can also increase the percentage of products which needs to be scrapped because they don’t pass quality control. The yield loss on the Fuelband, for which some 42 molds (for each wrist size!) were used, is rumored to never have gone below 25%, even after years of tweaking. No wonder they got out of the business.
Don’t forget testing
Most people forget that once you have a manufacturable design it is highly recommended to do extensive field testing on the pilot run units before starting the real production batch. Murphy ’s Law certainly applies to product development, and doubly so in China.
A recall of faulty products can kill a company, and that’s why the major brands have 10 engineers do nothing but testing for months on end. A start-up likely doesn’t have that kind of budget, but can take more risk as it has less to lose. As a minimum I recommend sending 20 units to beta-testers around the world to evaluate for several weeks.
DFM is not a sauce you can simply ladle over a prototype, it often requires a complete rethink of the product. There’s no shame in that, it’s really hard to consider all China manufacturing aspects when you’re designing in Palo Alto or Munich. The first products of even star-studded teams such as Pebble and Nest are said to have been completely redesigned by Taiwan ODM’s before they could be manufactured.
But as I discussed in an earlier article: “China factory designs: 7 pitfalls to avoid”, handing over an Arduino prototype to a factory in China in many cases won’t work. Large ODM’s find it hard to justify putting 25 engineers on a 2,000 piece order. That leaves small factories who are willing to give it a try, but combining a third tier factory with a start-up client does not make for a fast process.
Has it become too easy?
US$ 100,000 sounds like a lot when you first get it wired to your bank account, but it is rarely enough to pay for the products AND all the redesign, prototyping and mold making.
There seems to be a flaw with crowdfunding platforms: it is too easy to come up with a prototype video, making it very easy for people to get in, and when they raise their goal quite a few realize they are ill prepared for what happens next—much to the publicly vented frustration of their backers.
Requiring participants to list only “ready for mass manufacturing” products is not the answer; it would mean that they would have to spend substantially more time and resources on development, and this would defeat key purposes of crowdfunding: getting quick real market validation for the idea, and enabling people with little money to still bring products to market.
The current crowdfunding model is a wonderful boon for product development, it has transformed a flurry of ideas into great new products, and has given many other ideas their much needed reality check, saving passionate inventors from working for years on an idea whose time may never come.
Get additional funding
My main advice to founders is that as soon as they start hitting their goal they immediately should get additional investment. The good thing is that $100K is a very solid indication that people are willing to buy your product, and so it becomes a lot easier to find investors, for example at https://angel.co/
Time is running
As a soon as a project is starting to get some good traction on the internet you can rest assured that there are factories in China working on a lower cost version. This means that the market window to establish yourself as the actual leader of the segment you’re creating shrinks rapidly with every month delay. And next quarter there will be another 125 new and improved gadgets on the crowdfunding platforms…
Ideally you want to have your DFM in order before you start crowdfunding, and quite a few smart startups get investors on board well before their campaign, giving them the funds to do solid engineering and testing before launch, so they can predict with a reasonable degree of confidence when they will deliver.
For those participants crowdfunding then becomes more of a marketing exercise. The original Kickstarter champion Pebble these days is certainly not lacking for funds, but still decided to launch its second model on Kickstarter, selling some 78,000 smartwatches. Can’t wait to get mine!