How I saved more than $200,000 in Hardware startup..
OK, So you have a million dollar idea of a hardware product that you think is a best possible solution to a problem. You go ask your mom, your wife, your friends and even your dog and everybody think that your product is going to change the world. Now its time to get it manufactured. However everything around manufacturing seems like a black hole! How will you find first investment to manufacture prototype overseas, how will you handle marketing/branding, how will you figure out distribution even when you get your investment. There is always a risk involved with buying MOQ quantities when you don’t know what demand there is at what price point when you are dealing with manufacturer outside your country.
As when I was working on my hardware product, I have had my own share of challenges working with international factories be it OEM, ODM, CM, JDM etc. To me, China was this Wild West, where you order something X and your get Y. I had heard and read these horror stories about manufacturing overseas where everything and anything that you can imagine can go wrong ( Murphy’s Law — Matt Rogers <Nest> told me). So rule number 1 was not to put everything in one basket.
However, I was curious to find out why this was the case. I have always been intrigued since childhood to not look at the problem for the solution. I usually like to understand the crux or root of the problem first before I take any step to resolve it. As it happens, I wanted to study what was playing at this and why are there so many startups struggling with manufacturing overseas and what should I do to resolve it.
I went back to basics. BOOKS. I bought every book that I could find on understanding Chinese Culture. What is so different, unique about the way they maintain relationships. I read deeply about what communication means to them and how it translates in business. I realized few important things about their style of doing business.
These are some of the tips that I used which can not only help you understand better about communicating with overseas manufacturing but also help you negotiate better.
Due Diligence. Because China continues to dominate the world of manufacturers, the country has a factory and B2B platform — Alibaba — that lets customers gain insight, compare costs and ask questions. Although this is a good resource, there is a chance of fraud and misinformation. Always check the company feedback, verification, if onsite premises have been checked, and if they provide speedy responses to your questions. It’s also a good idea to test the factory with small orders before investing in larger ones. While seeing an online profile and an amazing warehouse may have you tempted to move forward in the buying process, have a little patience. Reach out to the factory and ask them to see a list of companies they have done business with in the past. Contact the businesses and ask about their experience. You can also ask the company to send you a small sample of their work to see how it looks in person. Lastly, if you have the resources, try to to attend several tradeshows in the location of the manufacturer, so you can meet your future rep in person and see what the quality of their work is. I would ask your business contacts or friends to refer a factory that they use. Make sure your contacts have a longstanding relationship with the factory to lend additional credibility to their recommendation.
Develop “personal” (not just professional) relationships: The number one thing that companies in US tend to not pay attention is developing “personal” relationships. In US, there is a culture of keeping emails professional. Business meetings are all professional. However, overseas this isn’t necessarily the case. Trust is not built upon business language but on human bonds. It is very easy in this connected world to forget the importance of building trust. It is important to establish relationships with several factories that make similar products. These relationships have to be personal and not just professional. Get to know their life, their families, their work. Express gratitude, encourage and make them feel inclusive part of your company. You don’t have to share IP or product roadmap, what you need to focus on is how they+you can march to growth of each others businesses. I can not stress enough about this as this has impacted to a great degree. If some hardware startup comes to me and says that they have to invest $300,000 for Tooling because that is the quote they got from their manufacturers, I know they have not invested in relationships. Negotiation is not bargain, it is mutual understanding, shared vision, what we call win-win situation. Every serious manufacturer in China cares about their clients success, they want them to succeed. If you can not build relationships to go beyond just quotes, tooling, assembly, delivery then you would find it hard for someone overseas who HAS YOUR BACK when things go south.
Request a prototype. I would always recommend making a prototype of your product in the U.S. before sending the job overseas. It may cost more upfront, but it will save you a ton of time and money in the long run. You’ll have more control over your product, speedier turn times, and you’ll have a much easier time communicating your vision to someone that shares your language and culture.
Creating your own product is a huge task full of heartache, excitement and headaches but seeing your vision come to life is always going to be worth the effort. Using some of these techniques has helped me and it will I believe will help you work with your companies, factories and not just save money and time but also build a long term relationships and bond.