From Prototype to Production: 3 Things You Need To Know Plan not only for launch, but for the life of the product.
By David Cann Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
It's no secret that creating new hardware products is hard. From idea, to proof-of-concept, to functional prototype, to public launch, to production and ongoing support, every step of the way has its own pitfalls. Hardware development requires extended periods of research and development -- which, most importantly, calls for significant upfront investment to have the chance to experiment with something new and leave room for error.
Related: The 10 Costs You'll Pay to Bring Your Hardware Product to Market
Because of this, it's easy for hardware startups to fail. The company behind the Lily camera drone, for example, raised $15 million in funding and received $34 million in pre-orders, but over promised on both features and ship-date estimates, ultimately leading to the company closing operations. The Zano mini-drone, Europe's biggest Kickstarter, shut down after receiving $3.4 million from more than 12,000 backers. The team behind Zano overestimated their ability to execute the vision due to poor planning and lack of experience.
However, there have been some companies that have excelled at creating hardware by avoiding these common mistakes. Form Labs, the $3 million Kickstarter that developed desktop 3D printers, successfully shipped their first generation printer on time because they were far along on their prototyping process before launching their Kickstarter campaign. DJI has dominated the drone industry by locating their engineering offices and assembly facility in close proximity to each other, creating a tight feedback loop throughout the design and production processes.
At Double Robotics, we've made some mistakes, and we've done some things right. We successfully shipped our first hardware product just nine months after its public debut. Our hardware product has been on the market for four years now, and we couldn't be more excited about our growth since then. It hasn't been easy, so we wanted to share some important things that we learned along the way.
Here are three tips on how to take your hardware product from prototype to production:
1. Create a bill of materials with pristine accuracy.
A bill of materials, or BOM, is a spreadsheet of the complete cost of all individual parts and assemblies that will make up a single production unit of the product. Make sure to also factor in shipping, import taxes and labor. Costs will vary with volume, but be sure to estimate your costs at the lowest expected production volumes, in case your sales are lower than expected.
You should estimate the BOM once the prototype is complete, although you will not yet have production quotes from your contract manufacturers or even final production designs. You will need experienced mechanical and electrical engineers to envision the final product and estimate each individual part separately.
After accurately estimating your BOM, you can set your retail price. The cost of goods sold (COGS) is the BOM, plus the labor and shipping costs associated with a single unit -- basically your total cost per unit. Your gross margin is the sale price minus the COGS. Your margin will vary depending on your distribution channel. If you're selling through retail stores, you will need a much higher margin than if you are selling direct to customers. When selling direct to customers as a startup, targeting a 50 percent to 60 percent margin is a good rule of thumb.
Understanding exactly how much it will cost your company to build your product will allow you to set the price properly, thus ensuring you won't lose money or have to raise prices later on.
Related: Hey, Entrepreneurs, It's OK to Walk Away From an Investor
2. Plan for the worst.
In any startup, resources are scarce and time is of the essence. When estimating time for anything, a rule of thumb is to add 50 percent on top of your original estimate. With hardware, this is even more important because you're moving around physical atoms instead of just bits online. Here are a few areas that require extra planning:
Production: Assume that setting up a contract manufacturer will be very expensive and take way longer than you think. In particular, documentation, quality control and creating a repeatable assembly process are always a challenge. Often, parts will arrive from your manufacturers with varying dimensions or specifications. This means it's extremely important to communicate your tolerances, or what range of specifications you can accept, to your suppliers.
Shipping: Investigate all possible import taxes and fees, especially on inbound shipments coming from your suppliers overseas. Estimate shipping costs for all inbound shipments from your suppliers -- will it go by air or sea? Air is more expensive, but sea takes a very long time. Some products cannot be shipped by air, and some products have fees that can outweigh the cost benefits of using an overseas manufacturer.
Regulations: Make extra time for relevant government testing and certifications, like FCC Certification, UL for electrical and safety testing, and CE testing for many countries around the world. Expect to iterate on your design a few times in order to pass these certifications.
3. Create an extensible product.
When we were first discussing the idea behind Double, we had a long list of features we wanted to include. We also knew we wanted to begin shipping as soon as possible. Creating an extensible product -- something that can be designed to accommodate new features or changes -- has allowed us to build on the product over time. New features and upgrades can come in the form of either hardware, software, or both, so think carefully about how this will play out through the lifecycle of your product.
We've released three accessories over the past few years, and all of them have been backwards compatible to very first Double units built three years ago. Even our earliest customers are able to enjoy these new features, which helps us build a strong relationship with them over time.
Related: Engage With Your Customers and Find Out Their Needs
Bonus tip: Consider keeping final assembly in-house.
At Double Robotics, we're lucky to have a low volume, but high margin product, so we're able to do final assembly in our California facility. This keeps our engineers very close to the entire assembly process, so they can solve issues very quickly and iterate with more freedom. Since everything revolves around time -- time to market, time to iterate -- shipping our first product quickly was crucial to our success. By keeping the assembly process in-house, we were able to ship six months sooner than with a traditional contract manufacturer.
Foregoing a contract manufacturer and keeping all aspects of production in-house will allow your company to iterate quickly, conduct "just-in-time" manufacturing and have tight quality control and turnaround that you might not otherwise be able to achieve. By keeping all engineers, tooling, processes and overall knowledge within your company's walls, you are better able to truly invest in yourselves, rather than anyone else.
While the challenges of taking your product from prototype to production can be daunting, the final result of shipping your product to paying customers is rewarding and something to be celebrated.
