Outsourcing Innovation 6-30-2010 [Compatibility Mode]

The research abstract is below

This paper explores the beneficial impact of outsourcing on new venture innovation development efficiency and effectiveness.  The relationship of outside firms on innovation commercialization is highlighted, with an additional focus on the enabling role service providers such as rapid prototype fabricators and quick-turn manufacturers perform.  We synthesize our research into five distinct lessons, which form a guide for new ventures in selecting and implementing these external resources.  The first lesson is optimizing your firm to allow easy integration of outside resources.  In our study, the most successful firms leveraged a network of outside providers by keeping internal head-count low, and migrating to a software-like agile development processes.  The second lesson is strategically selecting partners that provide more strategic long-term assistance as opposed to only discrete development resources.  These firms help connect channel partners, customers, and new investors.  The third lesson is managing the innovation process through agile milestones, not onerous procedures.  Maintaining a balance between flexibility and discipline is a pathway to success for the new venture.  Next, the ability of the firm to quickly and inexpensively source and have solutions fabricated for internal and external customer testing is essential to an efficient process.   These fast solutions place concepts quickly in the hands of the development team and potential customers – speeding the process to market through rapid vetting of successive iterations.  Finally, the use of quick-turn manufacturers and assemblers can also help the new firm gather important sales data without having to invest large amounts of capital on costly inventory – helping the new venture preserve precious financial capital while capturing data needed for full commercialization.  These guiding lessons not only contribute to applied management knowledge, but outline phenomenon that require further detailed empirical investigation in the space of new venture innovation development.

For additional information on how Flashpoint Development can be your outside innovation experts please contact: info@flashpointdevelopment.com

However, the entrepreneur should be cautious when selecting features and selling price. Basing selling price on extremely high volume can be tempting – but you may be in a situation of negative margin from introduction until (if ever) you reach the volume estimate. That means negative cash-flow from the onset – which may kill the company before you ever break-even. So, perform your bottom-up and top-down cost estimates – if there is a huge disconnect you may need to cut back on features/capability and/or adjust target market/demographic (higher selling price) to make the economics work. These iterations and cost engineering are essential at the beginning stages of product design.

Tucker Marion Interview from Tom Ermolovich on Vimeo.

But, there is hope out there for the inventor, entrepreneur, and new venture. A company in New Hampshire has been helping people license their inventions to large, established firms. That company is the Big Idea Group, or BIG. BIG started in 2000 to bridge the innovation process between the inventor and the big firm looking to commercialize new innovations. For inventors, BIG offers Roadshows, Idea Hunts, and even accepts general submissions. Their intent is to help find that one in a thousand invention that is perfect for Black and Decker for example. For large, established firms, BIG offers Innovation Challenges where their network of over 13,000 inventors submit ideas on open idea challenges. A recent challenge was held for Staples. BIG helped Staples design a public invention contest for office supplies to help differentiate Staples products from commodity goods, drive traffic into stores, and generate positive PR. In the first year, the contest generated 8500 entries, received national U.S. media coverage, and led to the launch of four innovative products.

FlashPoint has had a relationship with BIG since 2004. In April 2004 an inventor approached FlashPoint to help try and commercialize his product, a new type of personal flotation device. It was designed to replace the life jacket through a very comfortable and easy to wear automatically inflating belt. It was tested and certified by the Coast Guard – it really worked as promised. Actually a sad story – the inventor had spent his life savings on the project – gone through a divorce, and was living in near poverty, exhausted and desperate. I was sold on the product, and committed to the inventor to work for a percentage on sales if we could get it to market. We developed marketing materials, detailed commercialization plans, and hit the road to try to sell it. We presented the product to BIG and they were excited too. In fact, they agreed to sponsor an airing of 5,000 units on QVC. We were on our way. Unfortunately, when we tried to line up the manufacturing, the inventor’s contract manufacturer did not have the capacity to fabricate the units. We found another supplier but the inventor could not raise the funds for the QVC inventory. We tried to secure angel investment, but we could not get a deal closed. All investors were not happy 7 years had elapsed on the patent, and had concerns with the inventor. So we had to fill BIG in on the bad news. As with many failed inventors and inventions – there are often sad stories behind them – and many what ifs. A lesson to be learned – do not spend all of your life’s savings and run out of funds and energy before you get to market. Have a clear commercialization strategy and do not hope for the best once you have a patent and a prototype. As with manufacturing, once you have a functioning product does not mean it will be successful.

So, check out BIG – if you have the right idea in the right space – your potential for successful licensing may be improved. BIG is currently on the lookout for high-potential micro-businesses.

Once a product or part is designed in computer-aided-design (CAD) and is prototyped, in order to go into production volume tools need to be constructed (these may be injection molds, dies, stamping tooling, etc.). These tools can take anywhere from 5 – 15 weeks to build. Once they are built, the debugging process begins. And here is where things can get frustrating to individuals and companies trying to get a product to market – expect the unexpected. In the figure below, note the testing and refinement and product production ramp phases.  It is common to think that product development is complete once detailed design is complete – it is not.

Figure. 1. Ulrich and Eppinger (2004) NPD process.

Even the most well-thought out design will invariable have issues during the last two phases (fit during assembly, sink marks, reliability issues). For complex products, this fine-tuning can take months or years. For an automobile, it can take two years from first prototype to production ready.  During this time, design and manufacturing issues are resolved in an iterative manner.  It is the response and quick resolution to these issues that is imperative to get a product to market.  Things like tooling issue matrices, daily teleconferences, etc. mean the difference of time and money. For the entrepreneur and start-up – be prepared for the unexpected and realize that it takes time to get something right. Plan for the time and costs of product development AFTER the initial design is completed.