Manufacturing beautiful and functional hardware is more difficult than ever due to capital demands and a lack of hardware experience on most startup teams. My experience at Apple taught me some important lessons about hardware design and production that, if heeded by hardware startups, provide an opportunity to bring innovative products to market without suffering setbacks – or even failure – from preventable mistakes.
1. Get inside the factory
I’ve met too many people in this game who make one trip to China, pick a manufacturing partner, and never visit again. All of the companies they represent eventually end up with enormous problems when it comes time to launch. Get out on the manufacturing floor and talk to the line managers and operators. You’ll be amazed at what you learn about the manufacturing process and about your manufacturing partner. Seemingly small pieces of information from the factory floor can later help you refine product design for better manufacturability or even clue you in to larger issues with factory management.
In 2010, we had a supplier in China that had agreed to increase capacity by 50 percent over the next nine months. It had been a few months since anyone from my team had visited the factory, so I stopped by to see how the expansion was coming along. To my surprise, only about half of the new equipment needed was actually on order. After speaking with the floor manager, we learned that he was not given the resources to meet our expansion plans. Needless to say, we had to have a fairly direct conversation with senior management to get the expansion back on track.
2. Build prototypes close to home
3D printing houses and rapid prototyping shops are popping up all over the U.S.. You often get what you pay for in this realm, so it isn’t where you want to pinch pennies. Use the proto phase to refine, refine and refine some more. That way, when it comes time to spend money on pricey mass-production equipment, you only have to do it once. Mass production molds for plastic parts can cost upwards of $50,000, so finding out two parts just don’t fit together quite right after you’ve started mass production is an excellent way to jeopardize and even kill your company.
The added benefit of prototyping close to home is that your engineering team can iterate faster. 3D prototypes can be on your doorstep in a few days, compared to the four to six weeks needed for other prototyping methods. Expedited turnaround times accelerate overall development cycles, and in turn, reduce development costs. Rapid development also gets your product to market faster than the competition!
3. For mass production, China isn’t the only game in town
Examine the total cost of your supply chain. If you’re building product in China, you need to do the math on how it is getting to the U.S., where it will be packaged, cost of import duties, what happens if a product is defective, and a thousand other questions. Each of those factors has a cost implication, and when added together, startups sometimes discover that Chinese manufacturers are not price leaders after all.
Look for manufacturing opportunities closer to your customer. For instance, there is tremendous manufacturing talent and capacity in places like Guadalajara, Mexico, where you can benefit from NAFTA tariffs and reduced logistics costs, not to mention low cost of labor.
4. The job doesn’t end after launch
Once you launch (congrats!), resist the temptation to sit back and watch it all happen. To the contrary, monitor your supply base like a hawk. There is a reason Apple has thousands of supply chain professionals on the ground in countries around the world. When things go wrong, they can go very wrong very fast. Actively monitoring supply chain data and maintaining a transparent relationship with managers at each node in the supply chain will prevent most issues.
When it comes to tracking data, inexperienced startups are often overwhelmed with the amount of data and tracking options a modern-day supply chain produces on a second-by-second basis. It doesn’t take an Apple-size team to avoid most supply chain issues. Figure out what your key data points are and track those on a daily or weekly basis. Take the time up front to build reporting tools that make it easy for you or your team to see at a glance if there is a problem building.
For instance, my team was able to monitor over a billion dollars of annual procurement across 22 factories using just six spreadsheets. Careful planning and foresight will go a long way towards ensuring that data can be used to proactively identify and resolve issues.
5. Tim Cook is right – inventory is “fundamentally evil”
Most startups I’ve encountered are unaware of how excess inventory can quickly crush a small business. The simple answer to inventory management is to never carry more inventory than you absolutely, positively need (easier said than done). Before production starts, set realistic goals for inventory turns and days of inventory. If inventory exceeds pre-defined levels, shut down your supply chain. Shut it down entirely.
You simply can’t afford to have more product coming off the line if you’re not going to be able to sell it. You may find yourself in an uncomfortable position with your supply chain, but that discomfort is minor compared to the pain of writing off a massive inventory. If you don’t agree with this approach, please refer to RIM’s colossal $485 million inventory write-off at the end of 2011.
Oh, and one more thing: Fire any engineer that ever says “it’s not possible.” That no-can-do mentality has no place at an innovative startup. Attitudes are infectious and that one is positively poisonous within an engineering organization that strives to innovate. People who are motivated by the challenge to push a manufacturing process to a smaller tolerance or a larger scale than ever achieved before are the lifeblood of innovative hardware organizations. Everyone else is just dead weight and a liability to your mission.
Bill Banta is currently a student at the Stanford Graduate School of Business and CEO of Stealth HD, which builds 360-degree video technology for the military and media broadcasters. Previously he worked at Square and also at Apple.