Monthly Archives: February 2012

Business Tips for Entrepreneurs with Prototypes

February 28 2012  |   leardonsolutions  |  All Posts, Business Tips, Product Design, Product Development, Prototyping  |  Comment

Leardon Solutions, Business tips, Product DevelopmentEntrepreneurs who are building a company around a product idea and are following the proper steps of product development typically have a prototype built. Of course, it is a natural part of innovation to build a prototype but sometimes these prototypes are not used to their full potential. Here are five business tips for entrepreneurs on what to do with a functional and professional looking prototype.

1. Develop realistic cost models using the prototype design.
Developing credible financial plans is absolutely necessary for the entrepreneur to properly step out and launch their product into the market. When the entrepreneur has a prototype, enough information exists to develop realistic financial models. The prototype design will allow the team to work with suppliers to determine the expected non-recurring expense (production tooling, set-up costs, engineering expenses, qualification costs, etc.) and the total cost of the product (direct materials cost, direct labor cost, and indirect costs such as support labor, distribution, and shipping). These are important inputs into the financial model that are used to accurately portray the long term financial forecast.

SCORE, a non-profit entity that provides business advice, has many good profit and loss and cash flow templates that can be used to develop these models. If an entrepreneur is seeking investment to take their product into production, a three-year cash flow statement will be important to determine the amount of cash needed to build the company.

2. Demonstrate the intellectual property for potential licensees.
Entrepreneurs typically protect their product idea by filing for intellectual property such as design patents, provisional patents, utility patents, copyrights, or trademarks. Many times, the goal is to “sell” this intellectual property to licensees in return for a small percentage of sales and let the licensee handle all the manufacturing and distribution. This is convenient since these licensees typically already have factories and sales channels in place. The prototype is a great method of demonstrating the intellectual property to these potential licensee.

3. Include the prototype as the centerpiece for investor presentations.
An article in Entrepreneur Magazine confirms that professional prototypes will help an entrepreneur describe their product to investors. When you are up in front of potential investors, a great looking and functional prototype can be the centerpiece of the presentation and can more effectively describe the product than any words on a presentation.

While a prototype is essential in this presentation, remember that it is also necessary to be working with a great product development team. Investors not only invest in the product idea, they also invest in the team. Always be sure to have the right people on your team.

4. Receive feedback from target customers, distributors, buyers, and retailers.
A prototype is a great tool to get valuable feedback from all potential customers. These customers not only include individuals that might purchase the product, but also distributors, retailers, and buyers for retail chains and catalogs. Put your best foot forward with an excellent looking prototype and absorb the feedback received. Try not to go on the defensive when bad feedback is received. One trait of a good entrepreneur is to find, admit, and correct mistakes or issues in your product.

It is also important to show your prototype to industry influencers or thought leaders for feedback. Not only do these individuals have great insight to the trends in the industry, but they can indirectly influence others to purchase your product.

5. Validate the idea on crowd funding sites such as Kickstarter.
On crowd funding sites such as kickstarter.com, creative companies offer unique benefits or pre-ordering opportunities to individuals who pool their money to help support the effort of a company. In essence, these crowd funding sites are not only a good way for an entrepreneur to get the financial resources to manufacture their product, but also a great way of validating their product ideas. When product description, pictures, and videos of the functioning prototype are posted on the crowd funding websites, it allows potential customers to evaluate the idea and determine if it would be worth ordering. If the idea is fully supported, not only does the entrepreneur receive the funds to start manufacturing but also validates that the idea will actually sell once available.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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Maintain A Strong Relationship With The Supplier: Tip #4:

February 21 2012  |   leardonsolutions  |  All Posts, Insider's Perspective TIps, Manufacturing, Manufacturing Tips, Product Development, Program Management, Supplier Management  |  Comment

Product Development, Leardon Solutions, Manufacturing, San Diego, Southern California

Tip #4: Maintain a Strong Relationship with The Supplier

There is a lot of articles written about the importance of the supplier in new product development and innovation. Most of these articles focus on topics such as supply chain management, supply management, supplier relationship management (SRM), and quality control. While these topics cover important issues such as product quality and continuous improvement plans, there is a lack of research and discussion about the importance of a strong supplier relationship when it comes to new product development.

Leardon Solutions has written about how to achieve strong supplier relationships in past articles focusing on supplier capability and commitment. In order to get the necessary commitment and capability from suppliers, there are Five Vital Characteristics that must be implemented into the relationship. These are:

The relationship:

  • Encourages respect
  • The relationship is a partnership between two trusting parties
  • The relationship supports growth and development of the two parties
  • The relationship consists of managed risk taking
  • Both parties have complementary and balanced capabilities.

Each of these vital characteristics impacts the supplier commitment, capability, or both. If these improve, the relationship will improve to the point of becoming a strong relationship. There are three types of relationships, simply stated as Poor, Fair, and Strong:

POOR RELATIONSHIP: A Poor Relationship exists when the supplier does not commit to the relationship and is not a capable of performing the job at hand. In this case, the supplier must demonstrate some desire to increase their capabilities or their commitment, otherwise another supplier should be chosen.

FAIR RELATIONSHIP: A Fair Relationship exists when the supplier is either fully committed to the relationship or demonstrates good capabilities, but not both. It is possible for this type of relationship to be successful in the short term but typically the relationship will fall apart unless improvement is made.

GOOD RELATIONSHIP: A Strong Relationship exists when the supplier exhibits full commitment to the relationship as well as demonstrates excellent capabilities. This is the pinnacle of supplier management and these strong relationships will become long-term success.

Of course, the goal is to achieve a strong relationship because when this is achieved, there are many benefits including:

  • The supplier feels accountable for the success of the project and acts accordingly.
  • The teams collaborate efficiently on solving issues and defects, even when the supplier didn’t cause the issue.
  • The supplier might give preferential treatment such as payment terms, “jumping the production queue”, allowing lower production volumes, or improved pricing.

These are just a few of the benefits of a strong supplier relationship. Successful product development teams understand that strong supplier relationships are absolutely necessary for success and therefore focus on maintaining and improving these relationships.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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How to Avoid Feature Creep and Scope Creep: Tip #3

February 14 2012  |   leardonsolutions  |  All Posts, Insider's Perspective TIps, Manufacturing Tips, Product Development  |  1 Comment

Product Development, Leardon Solutions, Manufacturing, San Diego, Southern California

Tip #3: How to Avoid Feature Creep and Scope Creep During Product Development Lifecycle

Scope Creep. Feature Creep. Creeping Featurism. Featuritis. Project Creep. These are all terms used to describe the state in a project where the scope or features of the product continually change as the project progresses. Many of the articles written regarding scope/feature creep discuss software feature creep or methods of managing creep. Of course, feature creep is an issue that can adversely impact any project, including software, hardware, or service. If it isn’t avoided and managed properly, the project will end up at the point of no return.

Here are some methods of avoiding feature creep during the product development process.

A. Focus the team on the project priorities. There is always a tradeoff between product cost, program schedule, and product features/scope that cannot be ignored. One objective cannot be changed without affecting the others and a successful team leader is one who will prioritize these objectives. If the team is focused on these priorities then feature creep will take a back seat to proper program management. For example, if Project Scope is prioritized on the program, then it would be acceptable for the program manager to methodically consider new features. But if Product Cost or Program Schedule were the highest priority, changes in features would typically never be considered. One program that was successfully introduced into the market in less than six months was the Floe Winter Drainage System by Apt Innovations located in Northern Ireland, United Kingdom. The Managing Director Jason Paul was very thoughtful in his approach to managing the project. He stated clearly that the priorities of the program were (1) Program Schedule, (2) Program Scope, and (3) Product Cost. This allowed him to make wise decisions about avoiding any creep of the product features when he learned more about new potential customer segments for his product. He left these changes to the next product iteration.

B. Create and manage a product requirements document. It is extremely important that a program is initiated with a formal phase of documenting the program requirements. These requirements are driven by the customer and require in depth research to determine exactly what the customer wants and needs. Once the customer requirements are documented, the engineering team can translate these customer requirements into engineering requirements. This allows the engineering team to initiate their work and begin design and qualification. When features are changed or new features are introduced, the engineering team needs to revisit the engineering requirements document and rework many of the designs and qualification tests already performed. This results in wasted time and money.

C. Feature scope, if any, should only be customer driven. If a product program is being managed with a top priority of product scope, changes in the scope or features can be considered. Sometimes it is necessary to make changes to the features based on new learning from the market and customers. It should be noted though that the marketing team needs to be careful that they don’t react too quickly to requests by customers as this will end up whip cracking the engineering and development team. If features changes are going to be made, make sure that the customer was the original reason for the change.

D. Create a process to evaluate all potential changes to the feature list. When changes are going to be seriously considered, it is necessary to have a team process that is used to make a decision to implement or discard the new feature. The program manager should implement a review process that the whole team understands and follows. The evaluation team should consist of all functional members including technical, financial, marketing, and sales so that all member’s needs are considered. The decision criteria should be an objective metric that considers all financial and schedule outcomes of the decision such as net present value (NPV).

Successful product development teams focus on their original product requirements and don’t let scope and feature creep derail their schedule and financial goals.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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Do not Ignore the Balloon Effect: Tip #2

February 7 2012  |   leardonsolutions  |  All Posts, Engineering, Insider's Perspective TIps, Manufacturing, Manufacturing Tips, Product Development  |  Comment

Product Development, Leardon Solutions, Manufacturing, San Diego, Southern California

Tip #2: Do Not Ignore The Balloon Effect

An analogy that best describes the constraints of the product development process is one of a balloon. If a balloon is pressed or squeezed in one place, the fixed volume of air is just displaced and the balloon deforms. Here is how this analogy relates to product development. A program manager or engineer might attempt to squeeze cost or time out of the product development process only to find that there are counter effects to these efforts. These counter effects could be increased schedule, lower quality, or mismatch of customer performance requirements. The product development process is the air in the balloon and the program constraints are the balloon holding the air. If the balloon is pressed too much, expect the balloon to pop! There are no free rides in product development.

The Product Development Balloon EffectHere are some of the mistakes made and product development constraints ignored in the product development process.

  1. There is always a tradeoff between product cost, program schedule, and product features/scope that cannot be ignored without consequences. One objective cannot be changed with affecting the others. This is sometimes referred to as the Project Management Triangle in product development circles. The concept is that cost, schedule, and features are all program objectives that are connected and should be prioritized in a properly managed product development process. Sounds very familiar to the the balloon analogy, doesn’t it? The program objective that has the highest priority must not be compromised. The second program objective must be optimized based on the results of the highest program objective. Finally, the team has no control over the last program objective and it lands where it lands. Here is an example. If a team is developing a product that requires the lowest market price, then it is obvious that product cost is the highest priority objective. If the team requires a faster schedule, then either the cost must go up or product features must be dropped from the plan. In this case, the team would choose to drop product features since the product cost is the highest priority.
  2. Proper product development is a process that must be followed with the main objective of shipping products to customers and achieving “first customership.” The best product development teams follow this process to the letter and don’t attempt to skip steps in order to save money or speed up the schedule. This will only result in failure and a popped balloon.
  3. The cost of a part or product is driven by the complexity as well as the quantity produced. Some people ignore economies of scale and believe that pure negotiation or playing one supplier off of another will result in a part cost that is below market price. Economies of Scale is the economic principle that the cost of something will decrease as the purchased quantity increases. This makes sense in manufacturing since efficiency increases and raw material prices decrease as higher quantities are produced. The best process to follow to get the best price for a product or part is to get multiple quotations from suppliers in the same country. When these quotations are received, have a meeting to work through the details of the quotation and break out costs that are bucketed together in one number. Don’t try to use quotations or prices from other countries to negotiate as this is like comparing apples to oranges. Also remember that if you are able to negotiate what you believe is a “below market” price for your part or product, changes are high that this lower cost will be the result of skipped steps resulting in lower quality.
  4. The relationship between fabrication tooling cost and part cost is an interesting tradeoff that is typically overlooked. When determining the cost of a part, it is important to consider the cost of the tooling required to make the part. If a very low part cost is required, it is necessary not only to order a high quantity but also to invest in high-volume tooling to bring the cost of the product down. Here is the rule of thumb. If you need low tooling costs, then the part cost will be higher. If you need low part cost, then the tooling cost will be higher. Here is an example. If you only needed ten pieces of a part, it is very unlikely that a production tool would be made. If you needed ten thousand pieces of this part, there is no doubt that a production tool would be required. It would cost more per part to make ten pieces versus ten thousand but the tooling cost would be higher for ten thousand. Remember that if you push hard on the part price, changes are high that it will bulge out in the price of the production tooling.

Smart product development teams don’t ignore the balloon effect and understand that there are constraints that mandate that nothing comes for free.

Need more information? Please contact us with any questions or contact me directly at joseph.donoghue ( at ) leardon.com

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