Hardware startups are near and dear to my heart. I spent years at startups grinding away, trying to take exciting technologies to market that could make a positive impact on the world. It’s these positive experiences with insanely smart co-founders, who cherished our missions, that were some of the driving forces behind launching IndustryStar.
My startup journey has given me lifelong friends who’ve shared the highest of highs, launching award winning products like the Ford GT, to the lowest of lows, losing everything after a business went bankrupt. Personally, there were challenges along the way too: long hours, begging suppliers to support us, and at times the sad realization that we simply couldn’t reach our product cost target; the types of headwinds that I’ve realized are extremely difficult, if not impossible, for startups to overcome. After all, they’re largely due to market dynamics not even the smartest entrepreneurs can tackle.
One of my core passions is leveling the playing field for startups who make physical goods. It’s hard enough to start a business let alone take on these hurdles. In my experience, it’s the messy supply chain stuff behind the scenes that customers never see which can make or break a new company; supplier selection, costs of components, and ease of manufacturing determine success and failure.
We certainly don’t have all the answers, but we recently deployed several new startup-friendly solutions for high-growth companies looking to outsource their supply chains to a managed services provider. Our hope is that these offerings will leave a small dent in the US hardware startup success rate, ushering in more innovation, creating more exciting positions, and making an impact on some of world’s most pressing challenges.
In this blog I wanted to share my perspective on product commercialization challenges that hardware startups face along with big mistakes they make when choosing a supply chain managed services supplier, and some things to think about if you’re planning on hiring one.
How to Choose a Supply Chain Managed Services Partner for Startups
1. Find a Supply Chain Managed Services Firm that has Supported Startups
Unless you’ve walked a mile in an entrepreneur’s shoes, it’s impossible to relate.
You’d be amazed at the number of people who provide input on topics in which they have no experience. University professors who teach entrepreneurship, but never launched a startup, or firms that develop products, but never brought a design into manufacturing, the list goes on.
Partnering with a firm that’s entrepreneurial like you is mission critical. Better yet, I’d advocate to partner with a firm that employs founders of hardware startups.
Launching a hardware product isn’t for the faint of heart, it’s hard. You want a firm that understands the task at hand and will have your back. You want a firm that won’t turn adversarial when the going gets tough, but will instead bend over backwards to do what it takes to succeed.
2. What to Look for in a Supplier
Startups have limited capital and many needs. Investing in supply chain and manufacturing – the people, processes, technology, equipment and tooling – is prohibitive. Managed services, e.g., Supply Chain as a Service, can be a great alternative to take advantage of lower-cost flexible support that scales with your business.
A precursor to this type of support is business process outsourcing (BPO), a method of subcontracting various business-related operations to third-party suppliers. Today, cloud software, and new technologies – e.g., artificial intelligence and blockchain – are enabling newer “pay as you go” on-demand business models.
Companies are moving beyond outsourcing non-core services to partner with a newer bread of BPOs, technology-enabled service providers, to enhance capabilities, shorten product time to market, use variable cost structures, foster innovation, and lower costs. Today, startups can outsource part or all their day-to-day supply chain operations and specific tasks within procurement, quality, manufacturing, and order fulfillment.
Supply chain is evolving rapidly and, when used strategically, can be the element to stack the deck in your favor. Look for a firm that has developed in-house software technology to ensure you keep pace with advancements, a flexible business model to give you operational flexibility, and buying scale with relevant industry components so you remain competitive.
The net result should be to acquire world-class capabilities, as needed, at a fraction of the cost.
3. Balance Cost Savings with Service Quality
It’s critical you receive a fair price for managing your supply chain – this ensures you can compete; however, the lowest-cost option isn’t always the best one. Instead, a scalable option that adjusts with you over time is usually preferred. For startups, flexibility is more important than cost.
ROI is a great way to compare the value of alternative proposals. As an example, one firm might cost more up front, but will deliver a larger product cost reduction, yielding a higher ROI.
Service quality is another way to measure value. It takes more time to uncover but is worth it to mitigate firm selection risk. Asking for customer references – i.e., talking with three similar customers – is key. And since you’ll be working with them a lot, meeting with the firm several times to ensure cultural alignment is essential.
Service quality reveals itself in little things like answering your calls promptly, which is important for high-growth companies where things change quickly. Service quality can also be the result of the firm’s underlying processes, as these are what determine repeatable results. Talk to firms about what it’d look like to work with them daily. What would a kickoff agenda look like? Who’ll be your program manager? Details matter, so ask these questions before engaging a firm charged with bringing your vision to life.
4. The Best Supply Chain Managed Services Firms are in it for The Long Haul
Part of the challenge with launching both a new company and product is the uncertainty of future sales. Many firms might verbally communicate that they’re easy to work with, so their contracts should reflect this. Contracts which require you to meet certain volumes or pay penalties aren’t easy to work with, and their terms can demonstrate the type of relationship firms are interested in building.
Large contract manufacturers with existing equipment and tooling needing to stay utilized, shareholders to keep happy, and marquee customers may not prioritize your business when you need it most. There are thousands of things that need to go well to launch a successful product and you need a long-term partner that’s going to take care of issues, not send you a bill for every problem that arises.
You need an agile partner that can support your needs and flex up and down. Every new venture has uncertainty in its growth, that’s part of the excitement, but this unpredictability requires a strong commitment to your success from the firm’s owners.
5. How to Align Your Organization with a Best-in-Class Partner
Subject matter experts are better than one-size-fits-all generalists. You’re outsourcing to gain expertise, thus a targeted firm – i.e., a new product launch firm – should generate superior results supporting innovative technologies, as opposed to an order fulfillment firm that focuses on moving boxes the cheapest.
In general, smaller firms that’ll provide you with more experienced resources, focused attention, and tailored support will be better than larger ones.
Often, firms start out designing initial minimum viable products themselves or with a product development firm. Once it’s decided to launch production, less is clear and the options can seem overwhelming. Should you ask your product development firm to support you, partner with a large contract manufacturer, or build a supply chain team to manage everything yourself?
Align with a firm who specializes in launching all-new hardware products for high-growth companies instead of trying to shoehorn a supplier with tangential capabilities to try to meet your needs.
As your product heads to market, a firm that can provide ongoing day-to-day supply chain support post-launch can free up your time to develop the next big thing, allowing your business to better compete and win in the marketplace, while lowering ongoing costs.
6. Questions to Ask a Potential Supplier
To ensure the right fit and long-term success for your company, you need to ask the right questions. Below are some vital ones:
How do you price your offerings?
Firms, especially those that are technology enabled, should offer several engagement options, which may include 1) time & materials, 2) percent of buy 3) bandwidth 4) phase and/or 5) project.
What’s your core competency?
Not all firms are equal. Ask them what they’re best at, like the steps within the supply chain, industries and/or regions.
How does technology enable efficiencies?
A supplier should be able to clearly articulate how their unique technologies enable sustainable cost arbitrage to enable a competitive advantage for your firm.
Who’ll be supporting me?
In general, services firms have a bad stereotype of performing the old bait-and-switch where they’ll bring in experts for the proposal review and then staff inexperienced resources once a contract is closed. A firm should outline specific people, names, titles, and skill sets that’ll support you to enable your company to utilize the best possible resources.
To date, we’ve been fortunate to partner with many large companies like ThermoFisher, Mahindra, and BAE Systems, but since our founding, we’ve continued to work with many startups that are changing the world.
It saddens me when an entrepreneur reaches out after making a series of supply chain missteps while working hard to bring their product to market. This is usually through no fault of their own, as I’ve made many of the same mistakes. Often, I find these potholes could’ve been avoided simply by knowing the options and having the right experienced partner that has the startup battle scars to effectively navigate their hardware product supply chain.
If you have any questions about hiring a supply chain managed services partner, email me at email@example.com.
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