Published on February 16, 2014
Dallas HW Meetup 140205 How to Scale Hardware Companies Dallas HW Meetup 140205 Dragon Innovation, Inc. firstname.lastname@example.org dragoninnovation.com Wednesday, February 5, 2014 1
OVERVIEW •Informal - Please Interrupt •Quick Survey •Dragon & Bolt Overview •NPD Paradigm •One -> Many •Q&A Thursday, February 6, 2014 2
Quick Survey Thursday, February 6, 2014 3
Dragon & Bolt Overview Thursday, February 6, 2014 4
Thursday, February 6, 2014 5
Thursday, February 6, 2014 7
Selected Companies We’ve Helped Thursday, February 6, 2014 8
Helping Hardware Startups Thursday, February 6, 2014 9
Ben Einstein Managing Director ‣ Product designer & entrepreneur Brainstream ‣ Principal(4@years) Design ‣ Product vision and prototyping expert ‣ Developed >15 commercially available products, ~10 others SCOTT N. MILLER AXEL BICHARA Partner Partner ‣ Manufacturing expert ‣ VP Engineering @ iRobot (10 years) ‣ VC with mechanical engineering background ‣ Founder & CEO @ Dragon Innovation ‣ Manufacturing many VCbacked startup hardware products: Pebble, MakerBot, Sifteo, etc ‣ Partner @ Atlas Venture (19 years) ‣ Lead investor or cofounder SolidWorks, Belmont, GrabCAD, Premise ‣ 7 funds totaling >$2.6B Helping Hardware Startups Thursday, February 6, 2014 10
HW Revolution Enablers Thursday, February 6, 2014 11
• • Unprecedented Global Technology Innovation • Fearless and Connected Entrepreneurs & Consumers • Available Capital • Inexpensive Devices, Access & Apps • Hardware Wave Enablers Nearly Ubiquitous High-Speed Wireless Access Ability to Reach Millions of New Users in Record Time KPCB DECEMBER 2012 Thursday, February 6, 2014 12
Hardware Innovation Now Comes From The “Little” Guy 13 Thursday, February 6, 2014 13
PROTOTYPING HAS NEVER BEEN EASIER • 3D Printing • Arduino, Raspberry Pi, Beagle Bone • TechShop • GrabCAD, Upverter, GitHub • SparkFund, Adafruit • Easier Access to Capital Thursday, February 6, 2014 14
Delivering Is Hard Getting from prototype to delivery is a long journey with many ‘unknown unknowns ’: • COGS, tooling and manufacturing costs • Lead times • Permanence of Quality • Iteration cycles • DFMA • Factory Selection and Management • Team Scalability • Schedule & Project Management • Specialized skills (ME / EE / SW/ Q / SC / Logs) Thursday, February 6, 2014 15
NPD & Crowdfunding Thursday, February 6, 2014 16
The Product Development Paradigm is Changing OLD WAY Build then Sell NEW WAY Pre-Sell then Build Thursday, February 6, 2014 17
PRE-SALES ARE PERFECT FOR HW • Raise capital • Validate product / market fit • Create engaged and passionate community • Access media and investors • Understand build volumes Thursday, February 6, 2014 18
Global Crowdfunding Is Exploding $530M 2009 Thursday, February 6, 2014 61% growth $854M 2010 72% growth $1,470M 2011 91% growth $2,806M 2012 67% growth $4,676M 2013 (est) 74% growth $8,141M 2014 (est) 19
Products Are Raising Serious Amounts Of Capital Lockitron $1.3M $1.4M $1.96M $2.3M $2.3M $2.4M $2.7M $2.9M $8.5M $10.4M LIFX Elevation Dock Canary Lockitron WobbleWorks Oculus Rift Tile Formlabs Ouya Pebble EXISTING DRAGON CLIENT Thursday, February 6, 2014 20
But … It Can Go Terribly Wrong Without: • • • • • Thursday, February 6, 2014 Analysis of COGS and Fixed Costs Designed for Manufacture and Assembly Manufacturing Strategy & Schedule Threshold Analysis Marketing Strategy 21
There Is A Better Way: The Dragon Integrated Approach DFMA Review, COGS Analysis, Cost Estimation, Manufacturing Strategy Platform Optimized For Hardware, Campaign Strategy, Marketing Execution Factory RFQ and Selection, Production Startup, Certiﬁcations, On-the-Ground Far East Project Management Thursday, February 6, 2014 22
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One -> Many Thursday, February 6, 2014 24
Manufacturing Triangle Cost (COGS) Quality Thursday, February 6, 2014 Schedule 25
Cost of Goods Sold (COGS) Thursday, February 6, 2014 • Direct costs for goods produced. • Does NOT include Tooling. • Actual price depends on where a company takes ownership: - Ex-Factory (XF) - FOB (add overland transport to XF) - Landed (add shipping to FOB) - Inventory (add warehousing) • Price will vary by date depending on running changes, transportation costs, currency exchange, commodity costs, etc. 26
Very Simple Retail Costing Model Sell-Through Price (Retail Price) $ Retailer Gross Proﬁt Company Gross Proﬁt Sell-In Price (Wholesale Price) COGS COGS Thursday, February 6, 2014 27
COGS Drivers YOUR DESIGN • Material and Component Selection • Fabrication Method Manufacturing Eﬃciency (First Time Yield, machine tonnage, assembly labor, number of operations, etc.) • Quality Requirements (driven by requirements / Voice of Customer) • Packout (replaceable vs. rechargeable batteries; packaging; spares, etc.) • Thursday, February 6, 2014 MANUFACTURING PARTNER •BOM Transparency •Proﬁt Margin •Labor Rate •Currency •Geographic Location (shipping, tariﬀs, etc.) •Capability (in-house vs. outsourced) •Supply Chain (Purchasing Power, volume (piggy back), Consigned vs Purchased, etc). 28
Controlling Costs 1.Deconstruct the BOM. 2.Separate special components. 3.Transparency 4.Compare to standards. 5.NegoAate Inclusions Thursday, February 6, 2014 29
COGS Strategies •When manufacturing in volume for a CE product, it is cri8cal to understand and control COGS. Focus here! Because of the volume, every penny counts ($10k @ 1M units) •Calculate labor rates. Pop Quiz – How??? •Bill of Material Transparency: Require factories to provide an item by item costed BOM. No mysteries or hidden formulas. •Build a “Standard Cost” database. Price out cost reduc8ons. •If 8me permits, develop rela8onships with mul8ple vendors to avoid single source suppliers. Leverage is a beau8ful word. Thursday, February 6, 2014 30
• • • • • • • • • Anatomy of a BOM Plastic Purchased Parts Electrical Components Consigned Components Deco Packaging Assembly Labor CM Proﬁt, Overhead and Scrap Overland Transportation Thursday, February 6, 2014 31
How to Calculate Plastic Costs • Does it matter that it is a gear??? • Components (3) 1. Material Cost = Part Weight * Resin Cost 2. Machine Overhead: = Hourly Cost * Cycle Time (sec) / (3,600 sec / hr) 3. Factory Mark-up, Scrap and Overhead (%) • Total Part Cost: = (Material Cost + Overhead Cost) * (1+Factory M/U) Thursday, February 6, 2014 32
HK Resin Prices (USD/Ton) Reference: http://www.nhh.com.hk/eng/trading/price_trend.asp (you will need to create a login) Thursday, February 6, 2014 33
Typ. PRC Molding Rates Item 280 Ton / hr $15.48 220 Ton / hr $10.96 180 Ton / hr $8.38 140 Ton / hr $7.09 100 Ton / hr $5.80 80 Ton / hr Thursday, February 6, 2014 Cost (USD) $5.16 34
How to Calculate EE Costs • Cost = Component * Usage • Separate high cost components over a certain threshold. Apply a lower mark-up. • Apply Factory M/U Thursday, February 6, 2014 35
Typical PRC CM Margins (Proﬁt, Scrap, Overhead) PCBA 6–8% Thursday, February 6, 2014 Toys 12% Consumer Medical 15% >40% 36
Other BOM Costs • Deco (Tampo, Paint, etc.) • Labor (PRC $2 – 6 / hr) • Packaging (Gift + Master) Thursday, February 6, 2014 37
Add It Up • • • • • • • • • Thursday, February 6, 2014 Plastic Purchased Parts Electrical Components Consigned Components Deco Packaging Assembly Labor CM Proﬁt, Overhead and Scrap Overland Transportation 38
Quality Thursday, February 6, 2014 39
Quality Deﬁni&ons: •Quality = Customer Sa&sfac&on = Performance – Expecta&ons •“Fitness for Use” •Incoming Quality Control: Use good ingredients. •Build and test along the way. Use sub-‐components. •Sta&s&cal Process Control (SPC) / Yield. Find out now, not later. •Sample Tes&ng: Temp/Humidity; Transporta&on; Drop; T/T; Small Parts; Heavy Metals; Compliance; Func&onal; Life. How do tests match reality? ISTA-‐2A. •Final Inspec&on / Acceptable Quality Levels (AQL) •Walk the line. Get your hands dirty. •It is much easier (and less expensive) to make changes before Produc&on Start. •What happens if something fails? •Will make or break a product … and a Company! •Quality is rarely considered in the engineering phase by startups due to schedule, cost and technical pressures. •Watch out for the Unknown Unknowns. •Strong indicator of long term success, etc. •Can you answer the ques/on “How do you know the product is good”? Thursday, February 6, 2014 40
Schedule Thursday, February 6, 2014 41
Schedule •Many consumer products are driven by the Christmas (which has a ﬁxed date). •Plan con&ngency in your schedule. Things never go according to plan. •Have an onsite presence. •Track schedule carefully and take correc&ve ac&ons early. •Avoid: “There is never &me to do it right the ﬁrst &me, but there is always &me to do it again. ” Thursday, February 6, 2014 42
The Road to Production Thursday, February 6, 2014 43
Detailed Milestones ‣Hand Over / Kick-‐Oﬀ -‐Form CM Team -‐Contact Lists / Roles and Responsibili&es -‐ME and EE File transfer -‐Works Like / Looks Like Samples -‐CM trip to the US if possible (access to models and team, rela&onship building). -‐Factory Input ‣Components -‐Engineering -‐Quality -‐Produc&on Planning (interface with Sales) -‐Sourcing / MA / Cos&ng -‐Logis&cs -‐Process / Procedure -‐Financial (modeling and payments) Thursday, February 6, 2014 ‣Pre-‐Produc&on Milestones -‐Tool Release -‐Tool Start (TS) -‐First Shots (FS) -‐Engineering Pilot 1 (EP1) -‐EP2 -‐EP3 -‐Final Engineering Pilot (FEP) -‐Produc&on Pilot (PP) ‣Produc&on -‐Produc&on Start (PS) -‐Ramp ‣Engineering Change No&ce (ECN) ‣Sustaining (Quality Up / Cost Down) ‣Sunset 44
Questions? Thursday, February 6, 2014 45
email@example.com Thursday, February 6, 2014 46
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