Bootstrap Tactics for Entrepreneurs: Managing Contract Manufacturing Industry

1. WEEK 12 : APR. 6 MBAX 6860 : Bootstrap Tactics for Entrepreneurs • BOOTSTRAP OPERATIONS BOOTSTRAP

2. OVERVIEW • Manufacturing • Information Systems • Customer Service & Support • Accounting • Open issues from agreement • My take on it… • Sales role-playing • Resource/consulting time • Week 13 BOOTSTRAP

3. MANUFACTURING OUTLINE • Contract Manufacturing Industry • How it works • How it approaches Start-Ups • Stages from Product Development to Volume Manufacturing • Business Aspects • Selecting a CM • Financial Liability • Legalities • Funding Issues • Must Do’s BOOTSTRAP

4. Contract Manufacturing Industry • What is a CM? • Experts at Manufacturing • Not product driven • Not risk takers • How CM’s approach Start-Ups • Request a Business Plan review • Meet top management for business skills and experience • Meet technical stars to sort out skills and Qualification and Certification experience • Funding, ownership of exposure, No cash? Other options? BOOTSTRAP

5. Design Stage (Dev. Engineering Biased) Concept Small Proto (2-5 pcs) *1 Proto run (10-20) * 3 Pilot Run (70-100) * 2-3 Production Stage (Production Eng. Biased) Proto run (10-20) * 3 Pilot Run (70-100) * 2-3 Small Volume (100-1000) Big Time (1000’s) Stages from Development to Volume Production BOOTSTRAP

6. Development to Production: Concept Stage • “Bread board” does it really do what we say it does? • Design for Technology vs Design for Market? • Who builds this? • Local proto shop or small CM with proto capabilities • They handle all material via distributors • Challenge: • Money • Industry Know-How • Standards • Players (customers and competitors) • Technology Roadmap BOOTSTRAP

7. Development to Production: Small Prototype Run • Does it work in a different form factor? • Fitting of other parts (enclosure, vendor devices: keyboards, speakers) • This becomes first sales tool • Initial Qualification and Certification testing • Who builds this? • Local proto shop or small CM with proto capabilities. • Plastics manufacturers (Soft tools or CNC) • Challenge: • Money: At this point this becomes expensive • Coordinating different requirements design and materials (Electronics, Plastics, Testing, Material, Software) • Bells and whistles (Marketing vs Engineering vs Reality) BOOTSTRAP

8. Development to Production: Prototype Runs • Prototype runs: • Show and tell to various potential customers or partners • Providing samples for evaluation • Qualification and certification tests • Samples for test development • Heavy involvement of high volume production design to ensure manufacturability • Who builds this? • Small CM with capability to go to medium volume (capacity, financially, test wise). • Plastic soft-tools or CNC • Challenges: • Money: Real Issue • Customer Tweaks • Certification and Qualification Testing (Time, Engineering talent) • Customer concern: How can you support volume? BOOTSTRAP

9. Development to Production: Pilot Runs • Supposed to simulate production line (sometimes a customer requirement) • Large enough that some proto shops can’t handle • Requires real production test (equipment or software) • Used for validation or promotional by customer • Who builds this: • CM that will build volume product • Challenge: • Money • Production issues (manufacturability, efficiencies (costing), testability, time to market) • Certification and Qualification debug and iterations • Coordination of supply chain (lead times, EOQ, inventory, terms) BOOTSTRAP

10. Development to Production: Small Volume Runs • Servicing a market: Hard P.O.’s from customers or good market intelligence • Production schedule • Set up sustaining capability organization (debug, RMA, field issues) • Challenges: • New organization, New skills – No longer a design gig • Working on next product and tweaks while supporting current one • Preparing for high volume: • Can your CM handle the customer forecast (capacity, materials, test, rework, RMA) • Can you trust the customer forecast? • Who holds the bag? You, the CM or the customer? • CASH FLOW !!! BOOTSTRAP

11. Development to Production: Big Time – High Volume Production • Harder P.O.’s from customers or Better Market Intelligence • Challenges: • Happy customers • End of Life management • New product life cycle management: • Design, Protos, Pilots • Contract Manufacturer scalability and reliability • CASH CYCLE Management BOOTSTRAP

12. Selecting a CM • Early stages local support fits high engineering content needs • Later stages capabilities matters more than location: • Technical capabilities (manufacture and test) • Financial capabilities (own materials, test equipment, customer comfort) • Cost requirements (factories abroad) • Price is nice but relationship is key: A bad CM can KILL your business • Other CM services: design, test, system build, distribution, plastics, boards, PCB’s – The whole enchilada • You MUST sort out what you keep and what you outsource • You keep: Strategically Competitive Value Add. (IP, Supply chain, sometimes certain specific processes) BOOTSTRAP

13. Business Aspects: Financial Liability • Who holds the bag? Liability risk needs to match reward • Purchase agreements vs forecasts vs Material terms (Lead Time, NCNR, Tooling) • What are your warranties to your customer? • What is your CM warranting? • Is there a gap? Eliminate it or Charge for it BOOTSTRAP

14. Business Aspects: Legalities • Manufacturing agreement with CM • Purchase agreement with customer • NDA’s with everybody • To patent or not to patent BOOTSTRAP

15. Business Aspects: Funding • Personal Funds • Friends and family • Bank • VC’s BOOTSTRAP

16. Must Haves • Business plan: for yourself and for others • Experience in the industry: Personal, Hire or Co-Found • Technical requirements • Knowledge of the market and competitors • Credibility for funding and with customers • Gives you a link to reality (Xircom vs 3COM) BOOTSTRAP

17. INFORMATION SYSTEMS • Web site! • Architect now for volume later – SCALABLE! • Depending on model; order fulfillment, customer service, information source • Bootstrap options to do it right = barter, note tied to performance, options • Accounting, inventory, receiving, sales flow, order fulfillment, order tracking, phone switch, returns, warranties , etc • Create systems for ALL activity and DOCUMENT • How? - emulate systems from peers and customize BOOTSTRAP

18. CUSTOMER SERVICE & SUPPORT • FAR LESS EXPENSIVE TO KEEP CURRENT CUSTOMER THAN ACQUIRE A NEW ONE • Drive solution as close to customer as possible (less $) -internet -salespeople -effective selling process -offer additional levels • Involve the entire company – -DO NOT - “that’s not my job, talk to someone else”… BOOTSTRAP

19. CUSTOMER SERVICE & SUPPORT • Capture all service & support information and create knowledge base • Solve issues quicker with less cost • Bootstrappers = do in Excel to begin • Publish knowledge base online • Have CSS work closely with product development & testing • Integrate BOOTSTRAP

20. OVERVIEW • Manufacturing • Information Systems • Customer Service & Support • Accounting • Open issues from agreement • My take on it… • Sales role-playing • Resource/consulting time • Week 13 BOOTSTRAP

21. ACCOUNTING • Work with accountant to create foundation of processes • QuickBooks and others are readily accessible and great for bootstrappers • Get system/process from peer and customize • Discipline! Schedule to complete all bookkeeping/accounting at least 1x per week • Unless have expertise, work with small business accountant to file/plan taxes BOOTSTRAP

22. MY TAKE ON IT… • Operations can make or break your business • It’s all in the details • There are professionals that LOVE operations – get them on your team • Even when have the proto, sell the vision/potential BOOTSTRAP

23. MY TAKE ON IT… • Systems are KEY – don’t shortcut • Profitability • Growth • Less headaches • Customer service can/should make $ • Increase customer retention • Upselling / suggestive selling • If manufacturing not a core competency – outsource, outsource, outsource BOOTSTRAP

24. TASK COMMENTS / SALES • Great job! • Practice empathy – what does your CUSTOMER want to hear? • Make more $, less headaches, be the hero, make a difference, etc • Probing questions • Uncover why they want to buy from you FIRST, then provide needed information • Sales process / flow chart – determine ALL contingencies and PLAN for them • Warranties, returns, referrals, NO’s, etc. BOOTSTRAP

25. TASK COMMENTS / SALES • What is the TRUE emotional benefit? • Continue to ask yourself “so what?” until you drill-down to the essence of the benefit/need relationship • EMOTION!! This is the ONLY basis by which we buy. Uncover the inherent emotion in your offering. • Nervous before sales call? Hope so… • People don’t want to be sold, but everyone wants to buy – make it easy for them to buy! BOOTSTRAP

26. OPEN ISSUES • Credibility – how do you get respect from your industry? • Keep high profile • Speak @ conferences/trade shows • PR • Network! • Have a solid plan and present it amazingly • Confidence! • Doing it better and different than everyone else…. BOOTSTRAP

27. OPEN ISSUES • How to deal with the emotions of bootstrapping – addressing failure/perseverance • First, failure sucks…. • Key thread to a positive life experience = PASSION & FUN • Industry you enjoy • People you enjoy to work with • Deliberately build/maintain your self-worth • It’s never your last chance…. BOOTSTRAP

28. OPEN ISSUES • Formula for throwing in the towel • Two perspectives • Huh?! – even thinking about this and you’re on the wrong track… • A planned process… • Planned process • YOUR risk profile – debt limit, time limit, emotional limit, passion bank • Map risk profile to accomplishments or lack thereof of business each quarter • Fun factor!! • Make a go/no-go decision BOOTSTRAP

29. WEEK 13 • Lifestyle Entrepreneurship • Speaker : Panel • Readings • Tasks BOOTSTRAP

30. SALES ROLE-PLAYING • “NOTHING HAPPENS UNTIL SOMETHING IS SOLD….” BOOTSTRAP

31. Uninterested Interested Involved Convinced Committed SALES PROCESS Customer Salesperson • Opening benefit • Investigate • Demonstrate • Obtain Commitment • Get Order BOOTSTRAP

32. SALES ROLE-PLAYING • Demo in class • Role-play • Pair-up • 10 minutes • 5-7 minute pitch • 3-5 minutes of feedback • Switch – salesperson becomes customer • Feedback on: • Overall effectiveness • Probing questions • Listening • Enthusiasm BOOTSTRAP

33. “It is never too late to be what you might have been.” • --George Eliot BOOTSTRAP