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Where Should You Manufacture Your Products?

If you don’t have your own dedicated manufacturing facility (and don’t plan to build one), you will need to find a contract manufacturer to make your products. Here is a summary of the pros and cons of onshore, nearshore and offshore manufacturing.

Where Should You Manufacture Your Products? Onshore vs. Nearshore vs. Offshore

If you don’t have your own dedicated manufacturing facility (and don’t plan to build one), you will need to find a contract manufacturer to make your products.

Clint has worked with manufacturers in the US, Mexico, Hong Kong, China, Taiwan and Japan. There are pros and cons to manufacturing in each of these places and there are many other locations around the world that offer contract manufacturing services.

Here is a summary of the pros and cons of onshore, nearshore and offshore manufacturing.

Onshore – Made in the USA

Pros

Local manufacturing (assuming you’re based in the US)
No international shipping to deliver goods from your manufacturer to you
No language barrier
The manufacturer will typically be within 1 or 2 time zones of you
Fewer concerns about misappropriation of intellectual property
A broad selection of high-quality contract manufacturing services is available in the US

Cons

High cost

Summary

There are many advantages to manufacturing in the USA – and there is one dominant reason so much manufacturing has moved offshore: Cost.

If you work with a US-based contract manufacturer, you can enjoy all of the advantages listed above. But if your competitors are making similar products at an offshore contract manufacturing facility, they might be getting their products for 25% lower cost, which would put you at a huge pricing disadvantage. That, in a nutshell, is what has driven so much manufacturing offshore.

That being said, there are circumstances in which US-based manufacturing is the right decision. Here are the most common reasons to choose an onshore vs. offshore manufacturer:

Your product requires specialized manufacturing processes that are more readily available in the US
Concerns about misappropriation of intellectual property
Regulatory requirements – for example, a medical device that must be manufactured in an FDA GMP compliant facility
Patriotism – you want a “Made in the USA” label on your product and are willing to pay a premium for that

Nearshore – Made in Mexico (or Canada)

Nearshore refers to manufacturing outside the US, but in a country that has a border adjacent to the US – i.e. manufacturing in Mexico or Canada. Clint doesn’t have experience with Canadian manufacturing so the comments below refer to manufacturing in Mexico.

Pros

Close to US
- Lower travel costs to visit the factory and lower shipping costs
No significant time zone differences
Lower cost of goods than onshore (US) manufacturing
For some products that are made in Mexico there are favorable import duties
If your product is large or heavy, you will save on shipping costs from Mexico vs. shipping from Asia

Cons

Smaller selection of contract manufacturers to choose from compared to US or offshore locations
The domestic Mexican supply chain is not as robust as the US or offshore supply chains
- Often you will use the maquiladora program, in which you ship components and subassemblies to the manufacturer. Then the manufacturer will assemble the product and ship finished goods back to you. You will have to coordinate with your maquiladora to arrange material ordering, handling and shipping across the border.

Mexico offers lower cost manufacturing than the US and can be an attractive option. At present, the cost of labor in Mexico is roughly on par with the cost of labor in China.

Offshore – Made in China

Offshore manufacturing (from a US-centric perspective) refers to production facilities anywhere in the world outside of North America. There are contract manufacturing services on every continent except Antarctica. This analysis focuses on the pros and cons of manufacturing in China because China remains the dominant worldwide contract manufacturing location.

Pros

Low cost manufacturing
- Cost of labor has risen significantly in China in the past 10 years, but China still offers competitive manufacturing costs
The largest selection of contract manufacturing facilities in the world
The broadest and deepest supply chain in the world
- For almost any product you could dream of manufacturing, virtually every material, component, subassembly and process can be sourced in China
Quality standards at Chinese manufacturers have risen significantly in the past decade
- It’s possible to get consistently good quality products from China

Cons

Time zone difference
Language difference
Shipping costs and shipping times
Higher travel costs to visit the factory
Concerns about misappropriation of intellectual property

Comments on the cons:

Time zone difference is usually not a problem. With email and with messaging apps – and with the long working hours typical in China – you can usually get same-day responses to inquiries.

The language difference is a minor hurdle. Almost every Chinese factory has employees who speak English.

Shipping cost is usually not significant. If you ship by sea and you fill 40’ containers full of your product, shipping costs will typically add only a few percent to the landed cost of your product. You will need to factor shipping times into your order schedule. A good rule of thumb is to allow about a month for sea shipments from China (and a week for land shipments from Mexico).

Cost of travel to visit your manufacturer: Factory visits are an inevitable part of the cost of manufacturing, regardless of where the manufacturer is located. Traveling to China costs more than traveling to a site in the US or to Mexico, but the cost difference is not significant in the context of overall manufacturing costs.

There are a lot of concerns about theft of intellectual property in China. IP theft does happen, and when it occurs it makes headlines. However, there are ways to protect yourself against this. In more than 20 years of working with contract manufacturers in China, Clint has never experienced IP theft or misappropriation.

Three key ways to protect yourself against IP theft (regardless of where your manufacturer is):

Choose your manufacturer carefully. Check references and talk to their other customers.
Only divulge to your manufacturer the information that is necessary to build the product.
If there is a key component in your product that contains IP that is valuable and vulnerable, consider adding that component as a final assembly step after the product arrives in the US.

China remains the preferred location for most contract manufacturing worldwide because it has the broadest and deepest supply chain in the world, and China still has competitive manufacturing costs.

Other Offshore Manufacturing Locations

There are hubs of offshore manufacturing outside of China, notably in southeast Asia and eastern Europe. If you need the absolute lowest cost of goods and if your product doesn’t require esoteric manufacturing processes, southeast Asia could be a good location for you. If you will sell a significant percentage of your product into the European Union, eastern European manufacturing might be a good option.

Bottom Line

There are many options for contract manufacturing and many variables to consider when deciding where to manufacture your product. Clint can work with you to evaluate your needs, your goals and your constraints, and help you find the right manufacturer for your product.

Why Projects Go Off the Rails

All projects start off with high hopes and great intentions. Far too many projects run into problems – delays, cost overruns, constantly changing endpoints, etc. These problems often result in the project failing. This article looks at a few of the most common causes of project failures and offers tips for avoiding these problems.

Why Projects Go Off the Rails

One of the advantages of being a consultant is that it develops great breadth of experience.

Over the course of more than 30 years of providing consulting services in product development and manufacturing, I have worked on dozens of projects across a broad spectrum of technologies and industries. I have experienced many corporate cultures and worked closely with all kinds of management teams. I have seen products become very successful. And I have seen products fail.

At the end of every project, I write a summary of what happened. What went well? What went awry? What did I learn? If I were to do this project again, what would I do differently?

These summaries are personal notes that I have been keeping since I started working in product development. Over the years some clear patterns have emerged regarding indicators of success or failure of a project.

This article presents a few of the most important lessons learned in my years of consulting.

What Are We Trying To Do?

It’s surprising how many companies launch new – and usually expensive – projects without a clear vision of why the project is being launched and what the ultimate objectives are and how they plan to achieve the objectives.

Granted, nearly every project starts with a vision statement – a statement of “This is what we are going to achieve.” Quite often these vision statements include glowing descriptions of all the benefits that will accrue from successful completion of the project. But most project vision statements are woefully inadequate, which is usually the first indicator that the project is not going to go well.

Preparation of a vision statement is a mini-project unto itself, requiring a fair amount of research, consideration, discussion and debate. The specific areas of research, evaluation and discussion that go into preparing a vision statement will vary depending on the nature of the project. A few considerations that should be included in every vision statement are:

Why are we doing this? How will this benefit the company?
What risks are associated with this undertaking? How will the company be affected if this project fails?
What resources (money, personnel, outside services) will be needed to perform this project?
Are all of these resources available in sufficient quantity to complete the project?
What are the criteria for success? How will we determine if this project succeeds or fails?
Who has ultimate responsibility for management of this project? Who will make sure it stays on track, and will take action if it drifts off track?

These are the first and most fundamental questions that should be addressed when preparing a vision statement for any project. When developing a new product, a number of questions specific to the product being developed should be asked and answered. Preparing a vision statement for new products will be the topic of a future article.

When I am preparing a vision statement, the question I continually ask myself as I am writing is: If I were being asked to invest my personal savings in this project, will this vision statement give me all the information I need to be able to make that decision?

The next time you are wrapping up a vision statement for a new project, try doing the following before presenting the vision statement to the rest of your team:

Ask yourself the same question. “Does this vision statement give me all of the information I would need to decide whether I would invest in this project?”

With that question in mind, re-read the vision statement from start to finish. After that re-read, I suspect that you’ll want to add some information and make some revisions. Don’t submit the vision statement to the rest of the team until you can honestly answer yes to that question.

What is the Marketing Team Doing?

What is the single most reliable indicator of the success or failure of a product development project?

In my experience, the actions of the sales/marketing team during product development is the number one indicator of a project’s ultimate success or failure.

If I’m managing development of a new product and I hear little or nothing from the sales/marketing team during product development, that’s a nearly certain death knell for the product.

However, if members of the sales/marketing team are peppering me with questions such as…

“When can you give me working prototypes? Three different distributors want to see the product.”
“I’m drafting MOU’s with several companies who want to retail this product. What date can I commit to the product being delivered to them?”
“I need to get together with you to make sure we’re in sync on the feature set of this product. I need to put that into some marketing literature that is going out to 20 prospective new accounts.”

…then this product has a very high probability of success.

When expressed this way, this lesson seems about as subtle as a bucket of cold water poured over your head. But it’s surprising how often sales and marketing teams do very little marketing and pre-selling while a new product is under development.

If you’re developing a new product, assign at least one person – and preferably a small group – from your sales/marketing team to have dedicated responsibility for pre-selling the product while it’s being developed. If they are getting letters of intent and MOU’s and pre-orders before the product has entered mass-production that will put a lot of pressure on the product development team. But it’s a good kind of pressure to have. On the flip side of that coin, if they are having trouble generating interest in the new product, it’s a sign that the product needs to be re-evaluated.

Did I Just Miss Something?

Virtually every project will experience at least a few “surprises” that delay the project and add to its cost. On many projects, such surprises occur frequently and sometimes they are very expensive. And these delays and cost increases will accumulate over the course of the project. Sometimes the delays and cost overruns grow to the point where the project has to be canceled.

It’s impossible to completely eliminate snags and delays in a project, but you can do a lot to keep them to a minimum.

Far and away, the most common cause of these “surprises” is poor communication. Something changes or there is new information that is pertinent to the project, and not everyone gets the message. Why does this happen?

Even projects that have a small development team have a surprisingly large number of communication channels. As an example, let’s look at a typical product development team in a small company.

Senior management (usually the CEO) is responsible for top level strategy and decision making
There might be two people in Sales & Marketing who must determine the market requirements for the product, make sure the product meets the marketing requirements, and develop sales channels.
The product development team will have a few engineers – electrical, mechanical, software, industrial design, etc.
Typically, there will be a handful of 3^rd parties who provide specialty services such as prototyping, reliability testing, regulatory approval and manufacturing.
There will be suppliers who must provide components and materials that meet your requirements and specifications.

Even the smallest of projects can easily have 15-20 parties who have various levels of responsibility for completion and success of the project.

Now consider the possible channels of communication between the parties. You might have weekly team meetings. You might have frequent conference calls with the 3^rd party service providers. People can communicate with each other by email, text message, Skype, WhatsApp and WeChat. Documents can go flying back and forth as attachments to any digital messaging medium. And finally, there are the informal channels of communication. A mechanical engineer can bump into an electronic engineer in a hallway and say. “By the way, I just saw something that you should probably know about.”

If you tally up all the possible channels of communication for a small development team like this, the number climbs well into the thousands. And the number of messages that pass through all these channels over the course of the project will quickly climb into the hundreds of thousands.

What kinds of information might not get to people who need to know?

A supplier sends a message that a key component in the product will no longer be available in three months, and the message gets buried in an email inbox.
There is a significant change in the financial situation of the company and the CEO is hesitant to share the news.
A competitor just launched a product that makes your new product obsolete before it’s launched.
Prototypes of the product work fine when made by hand in the engineering lab, but it will be a nightmare to put into mass-production.
An engineer made a design change, and the updated documentation didn’t get put into the master design file.

This is just a small sample of things I have seen. This list could easily be as long as an encyclopedia.

Consider this spiderweb of communication channels and all of the bits of information that must travel through that web and get to all of the right parties. When a project is in high gear, there can be 10 to 100 pieces of information generated each day that must be relayed to someone. That’s 200 to 2000 key developments per month. If you can keep the rate of communication failures down to 1%, between 2 and 20 key messages will get lost each month. That illustrates how and why miscommunication is the number one cause of delays and cost overruns in projects.

The next question is: How do you manage this?

Whole books have been written about managing communications in the organization. In my experience the most effective means of managing communications – and mitigating miscommunication – is to have a dedicated project manager who has obsessive attention to detail.

A good project manager will:

Be included on all communications related to the project
Read all communications and make sure s/he understands the implications of all new information
Have a brief meeting at least once a week with each member of the product development team – from the CEO on down – to check on progress and inquire about anything new that has occurred
Convert verbal communications to writing, and share the written information with team members as necessary
Make sure that affected parties know about and understand the implications of all new information
Assiduously and meticulously maintain all project documentation and make sure the engineering team does the same for all product specifications

These are the six golden rules for managing communications on a project.

Of course, there is a lot more to good project management than communications management. A future article will deal at length with project management.

This is a summary of what I call the “Big Three” causes of projects running into problems.

Incomplete vision statements for the project
Inadequate effort by sales and marketing while the product is being developed
Miscommunications

But the list doesn’t stop at three…

What Else Can Go Wrong?

Future articles will cover other common causes of projects going awry and will offer suggestions for how to avoid those problems. Some of the topics will be:

How Gantt charts can make your project go well (and how they can destroy a project)
Shortcuts that ultimately make the project cost more and take longer
Equity stakes – a leading cause of blindness and insanity in start-ups

Lasershield Case Study

This is a two-part case study. The first part is an example of how a seed of an idea can be turned into a finished product – an example of Clint’s services in product development…

Part 1: It starts with a dream (and some seed money)

This is an example of a start-to-finish project. The founder of Lasershield had worked in the home security industry for more than 20 years. Year after year he heard customer complaints about security systems – too expensive, too complicated, too difficult to install, too easy to trigger false alarms. And year after year he saw alarm manufacturers continue to sell the same old stuff. Finally he decided to take matters into his own hands. Dohrmann wrote a 2-page description of what an alarm system should really be – based on 20 years of listening to customers. Then he raised some seed money, hired a contract-engineering firm and said, “Here’s my product description. Develop it.”

Fast-forward a year and a half: After 18 months, and spending almost $200,000 and going through three different engineering firms, Lasershield had almost nothing tangible to show. A whole lot of money had been spent and whole lot of nothing had been developed. Lasershield was in peril of crashing before it ever got off the ground and the CEO, who had never developed a product before, was wondering if there was anybody out there who could really develop a product from scratch.

Getting a stalled project back into high gear

The company retained Clint as a last ditch effort to turn the idea into reality. Clint’s first step was to flesh out the 2-page product description into a complete functional specification. Surprisingly, none of the other engineering firms had taken this basic first step. The product was complicated and the spec grew to more than 100 pages. The complete system had three different hardware products; there were RF and telephone communication links; and several back-end server systems that had to communicate with one another and with the products. Turning the 2-page “dream” into a real product spec took almost three months, with many hours of questions and answers and brainstorming with the principals of the company. Three months may seem like a long time to spend on developing the product spec, but (here’s the first key lesson in this case study) the effort put into preparing the spec more than paid for itself in the product development phase. The three months spent on the spec cut six to eight months off product engineering – when a half-dozen engineers were working on the project simultaneously.

As the requirements specification firmed up, Clint put together a team to develop the product. Contract firms in Hong Kong and China did the initial engineering. As the product began to take shape, Clint brought in a few key engineers in the US to help the offshore engineers with some of the tougher engineering challenges and to make sure the finished product complied with specifications. Clint shuttled back and forth between the US and China, managing engineering on both sides of the Pacific.

When the first engineering prototypes were almost completed two new tasks had to get started: writing a test plan for the product and finding a manufacturer.

The second key lesson in this case study: The person who writes the requirements spec should never be the same person who writes the test plan. Having one person do both is a recipe for disaster – it’s worse than proofreading your own copy. Clint had written the spec, so he brought in a quality engineer to write the test plan.

With test plan preparation underway, Clint turned his attention to finding a manufacturer for the product – which brings up key lesson number three in this case study: Select your manufacturer as early as possible. There are several reasons for this: (1) You want to make sure that the manufacturer is capable of building what you are designing. (2) The manufacturer can often recommend components, materials and processes that can reduce cost, improve quality or both. (3) Offshore manufacturers can often perform quality and reliability testing at a faction of the cost of domestic test labs.

Clint interviewed about a dozen manufacturers in China and Taiwan, performed audits on the four top candidates, and finally selected a manufacturer (a Hong Kong parent company with a factory in China) who offered the best combination of capabilities, price and quality.

With the test plan completed and the manufacturer engaged, product development became a sprint. The following tasks were checked off as quickly as possible:

Make tools for the plastic parts, assemble the first prototypes at the factory, perform functional testing, complete regulatory testing and submissions, and perform quality/reliability testing.

Ramping up for mass-production required designing and building a lot of custom fixtures for assembly and testing. Clint added a test engineer to the team, and worked closely with the manufacturer to design and build the fixtures. When the factory was ramping up for mass-production, Clint became a nearly full-time presence at the factory, overseeing the start of production.

In parallel with product development, Clint brought in network engineers to develop and deploy the back-end network systems that were essential to the function of the product.

In the course of developing this product, the team generated a lot of core intellectual property (in layman’s terms, they invented a lot of cool stuff). Clint worked with patent attorneys to identify patentable inventions and prepare the patent application.

The product launched, and the Lasershield security system completely rewrote the book on how security systems are designed, manufactured, used and managed.

Follow-up work after the initial product launch included: feature improvements to the product, ramping up a second manufacturer in China, hiring a permanent in-house engineering team for the company, and developing several follow-on products.

This case study illustrates of the scope of services that Clint can offer – product definition and specification; product development from start to finish; setting up offshore manufacturing; preparing patent applications; and building engineering teams.

If you’re in the early stages of developing a new product, and if you would like professional help to turn you idea into reality, please call or email Clint to see if he can help you.

Part 2: A short cut becomes a near-disaster

When Lasershield retained Clint, their vision for the appearance of the product was a set of black pyramids – a large pyramid for the master control unit and smaller pyramids for the motion detectors. The master unit looked like a one-foot-tall model of the Luxor in Las Vegas, and the motion detectors looked like its eight-inch-tall younger siblings.

The CEO of Lasershield showed the pyramid design to Clint during their first meeting, and one of Clint’s first questions was, “Have you done any focus groups? Are you sure people will accept this design?” The CEO said that the design represented strength and security and intimidation, and that this is what you want in a security product.

In the first month after Lasershield retained Clint, he suggested twice more that the company run at least one focus group to get feedback from the target market. The response was essentially, “We don’t have time for that, we don’t have money for that, and we know what the market wants.”

So the product was developed in the shape of a pyramid and the manufacturer made molds and tools for building pyramid-shaped security systems. The manufacturer completed the initial sample build of 30 sets and shipped them to the US – and finally Lasershield ran some focus groups. The response from the focus groups was virtually unanimous (which is quite rare): They liked the features, the price point, the ease of use – they liked every feature except for one, and you already know what it is. They didn’t like the shape of the product and they said they wouldn’t install big ugly black pyramids in their homes.

Lasershield had paid tens of thousand of dollars for tooling to make pyramid shaped products, and Lasershield had committed to a firm date for delivering the first mass-production run to a major consumer electronics retailer – and every participant in three separate focus groups had said they wouldn’t buy the product in its pyramid shape.

Calling this a crisis is an understatement. It could have sunk the company. Fortunately, the CEO of Lasershield responded positively. He noted the positive messages from the focus group – they liked the features, functions and pricing. We contacted the product’s industrial designer and asked how quickly he could create a new design and release CAD files. Clint contacted the factory in China and told them to put production on hold because a new design was coming, and he contacted the electrical engineers and told them that they were going to have to re-layout the PCBs.

The new CAD files were released in less than two weeks. The manufacturer completed tooling (including injection molds) for the new design in six more weeks, and the electronics were re-laid-out while the tooling was being made. The factory made prototypes of the new design, and engineers in the US tested the prototypes. Focus groups in the US gave their blessing to the new design, and three months after the initial focus groups, an overhauled design was rolled into mass-production.

Two lessons: First, focus groups can have great value. Skipping a key step early on can cost much more than it saves. Second, if your product is worth developing, then it’s worth developing right. Recognize the strong points, fix the blemishes, and get the product to market as quickly as possible.

If you want to learn more about when and how and why to run focus groups, please contact Clint.

Offshore Manufacturing on a Budget

Setting up offshore manufacturing can seem intimidating and can sound expensive if you have never done it before. But if you do it right, it won’t be expensive and can provide significant savings in your manufacturing costs.

Setting up offshore manufacturing can seem intimidating and can sound expensive if you have never done it before. There are travel expenses, language and cultural differences, and a lot of unknowns. How do you go about finding a manufacturer? How do you know if you’ve found the right one? Can they build your product with the level of quality that you want? Will they make copies of your product and sell them out the back door?

These concerns can be particularly daunting for small companies with tight budgets. But setting up offshore manufacturing does not have to be expensive, and a lot of the unknowns and uncertainties can be eliminated if you work with somebody who has been there before and knows the lay of the land.

Clint has helped some very small businesses set up offshore manufacturing, including businesses that were started and self-funded by individuals. Clint’s familiarity with offshore manufacturing, particularly in China, helps pave the way for a fast, efficient production ramp. Clint can find and qualify the right manufacturer; set up a manufacturing agreement; and help you get tooled up very quickly.

The inevitable question is, “How small a budget are you talking about?”

The inevitable answer is, “It depends on the complexity of the product.” The product photos shown in this case study are examples of very low-cost production ramp-ups in China. Each of these required only one or two trips to China by Clint, and the NREs to start up production (tooling, fixtures, jigs, sample runs) were only a few thousand dollars. For each of the product photos shown in this case study, the total expense to get production started was less than $10,000.

This is not typical – these products represent the low end of the cost curve for ramping up offshore production. As products grow in complexity, the cost of setting up production grows accordingly.

It’s worthwhile to keep the following in mind:

When you set up offshore production there will be travel expenses and engineering expenses, but the payback can be very quick. The lower cost of tooling usually offsets more than 50% of those expenses, and the cost savings on your first couple of production orders generally offsets the remainder of the expenses. For many products, by the time you place your second or third mass-production order, you have offset all of the up-front expenses for going abroad, and you begin to reap a net savings from offshore manufacturing.

If you would like to get an estimate of how much it would cost to set up offshore manufacturing, please contact Clint.

Preparing for Mass Production

Ramping up mass production should be exciting. This is when you start building and selling a product that has completed design and development.

Ramping up mass production should be exciting. This is when you start building and selling a product that has completed design and development. You’re going to start making money on the product that you have invested in. Quite often, however, production ramp-ups become sources of schedule delays, cost overruns and missed delivery commitments.

When you start ramping up mass production, you are no longer building small quantities of engineering prototypes. You need to purchase components and materials to build your product in larger quantities and you need to pay for production tooling to make your product. Snags that occur during a production ramp can be really expensive.

Early in the product development process you need to ask the following questions:

- Where will we make this product?
  - In the US? Or offshore?
  - Will I use my own manufacturing facilities or set up a new manufacturing facility or use a contract manufacturer?
- What production and manufacturing capabilities are required to make the product?
  - You need to be 100% sure your chosen production facility has all of the capabilities and skills that are necessary.
  - What are your production volumes? Can your production facility meet your volumes?
- What tooling is needed?
  - You’ll need to specify your production tooling, cost it out, and allow adequate lead-time to build and test the tooling

You should find and engage a well qualified manufacturer (assuming you aren’t using in-house manufacturing) at least three months before completion of product development and preferably four or five months before.

After you have engaged the manufacturer, do the following:

Let the manufacturer review the design of your new product
- Quite often the manufacturer will suggest changes to improve the manufacturability of the product.
Prepare written production procedures and quality documentation
- Every production step and every quality requirement needs to be documented and then reviewed with the manufacturing team.
Allocate resources to work with the manufacturer during production ramp up.
- It’s imperative to have somebody present at the manufacturing facility throughout production ramp up to make sure the manufacturer understands how to build the product correctly and to test and inspect the product for acceptable quality. If somebody isn’t overseeing the early stages of manufacturing, you might take delivery of 10,000 products that were assembled incorrectly. Good oversight during the first couple of production runs can assure that doesn’t happen.

If you can use help setting up production of a new product, please contact Clint.

Your Competitors Can Help You

Analyze your competition. Most businesses think they do this, but most (especially small businesses) do don’t do this well.

If you are a product company, buy your competitors’ products. Use the products; read the manuals; disassemble the products and look at the quality of materials and construction.
Call up your competitors and pretend to be a prospective customer. Did you have a good experience when you contacted your competitors?

When you go to online review sites to see what people are saying about your business, take a few extra minutes to see what people are saying about your competitors. You may see something that represents opportunity for you.

These are old and well-known tactics, but I’m always surprised at how infrequently small businesses use these easy and low-cost approaches to get ideas for how they can be better than their competition.

A few years ago, a friend used some of these techniques for analyzing competition to help him launch a business that became very successful.

He lived in a small town in southern New Mexico. His long-term employer was on the verge of bankruptcy and he needed to find a new source of income. He thought that there was a market opportunity in installation of residential solar panels.

He had never installed solar panels before. He wasn’t a licensed electrician. There was well-established competition – several companies in town had been offering solar panel installation for many years. But only about 10% of the houses in town had solar panels installed, so there was a significant available market.

He called every solar panel installer in the area and asked each of them to prepare a quote for installing panels on his home. He asked a lot of questions. He looked at their websites. He got literature on the panels and inverters that they used and did research on the panels and inverters.

He wrote extensive notes about his experience with each company, and then identified areas where he could improve on the experiences. He found a line of panels and inverters that had features that were better than his competitors.

He developed a website where his customers could track on an hourly basis how much energy their solar panels were generating and how much money they were saving on their electric bill. (This is common now, but it was novel at that time.)

A complete list of all the areas he identified to differentiate himself from the existing competition would make this article too long. The gist of the story is: Eighteen months after he launched his business he was the largest solar panel installer in town and he maintained that position until he sold the business and retired.

A careful analysis of his competition allowed him to identify ways to differentiate his business and be very successful.

Every business tries to analyze their competition. How well do you do that? Do you analyze your competition to help you generate new ideas for your business? If you would like to implement some of these techniques in your organization, please contact Clint to help you get started.

Mining Your Own Business

Your employees might be a goldmine. If you’re taking your first steps in setting up an innovation program in your company, consider using this technique for generating new ideas.

That’s right! Mining (not “minding”) your own business…

Your employees might be a goldmine. If you’re taking your first steps in setting up an innovation program in your company, consider using this technique for generating new ideas. This can be a low-cost and fast way to generate innovative concepts for your business. Here’s a situation where this technique worked well.

Innovate or Die

Newpoint was a small consumer electronics company that made surge protectors and uninterruptible power supplies.

The customers of Newpoint were the largest consumer electronics retailers in the US. The retailers liked Newpoint’s products and appreciated the company’s service (timely delivery of good quality products at prices that allowed the retailers to make their target profit margins). But the buyers repeatedly told Newpoint that they needed to add SKUs to their line or they would be dropped as a vendor. Buyers at big box retailers prefer to have a few suppliers who offer a broad range of merchandise rather than many suppliers who offer only a few SKUs each.

Newpoint had been attempting to innovate for more than a year – without success. They had an innovation logjam that seemed intractable. And if they didn’t innovate, they were almost certainly going to lose every one of their major accounts.

When Newpoint contacted Clint, they had a very short fuse burning. It really was a case of “innovate or die”.

Clint interviewed key personnel in the company to find out how they had been trying to innovate and why they hadn’t succeeded to date. He had to come up with an innovation strategy that would generate some viable ideas very quickly and that would break the logjam that was plaguing Newpoint.

The interviews identified two problems in the innovation process that were the root of the logjam:

Newpoint lacked a good process for generating new product ideas. This is critical; you can’t develop new products if you don’t have new ideas. And the more product ideas you have to choose from, the better your chances of finding a winning concept in the pool of ideas.
The process for vetting and approving new product proposals made it almost impossible for a new product idea to be approved. Vetoes were easy; approvals were difficult.

Clint developed a two-point strategy to solve these problems.

There are a lot of ways to generate new product ideas; Newpoint needed a method that was simple, straightforward and fast – active solicitation of ideas from every employee of the company. The dearth of new ideas was overcome swiftly. Within two weeks, the company had a pool of almost three hundred ideas for new products. The idea pool had gone from empty to overflowing.
To break the approval logjam, Clint introduced a modified Delphi technique that utilizes group input to reach a consensus on the best ideas. This technique prevented any one individual from having veto power. The Delphi technique was applied in a series of meetings with 6 to 8 employees at each meeting. Representatives of every department in the company were present at each meeting to assure broad input when evaluating the new product ideas.

Eight weeks after the start of the project the company had a list of five “hot product” families to start developing and about twenty runner-up ideas waiting in queue. The 250+ other ideas were not forgotten – there was a procedure to make sure that product ideas with potential did not get swept under the rug. And new product ideas continued to flow in at a steady pace.

The final phase of implementation was to actually develop the products. Clint worked with the CEO to hire a VP of Product Development. The VP was brought on board, was mentored in Newpoint’s innovation processes, and was then given the reins and told to run. At the next Consumer Electronics Show in Las Vegas (less than eight months later) the company had two new product categories to show to buyers, and two more product categories under development that they could start pre-selling.

This is an example of how a stagnant product development program can be revitalized quickly and inexpensively. There are many approaches to innovating. This is just one example. If your product development program feels like it’s stagnating, please call or email Clint to see if he can help you.

Listen to Your Customers

Every business knows that customer input can be valuable. Customer input can be a very fast and low-cost way to generate ideas for new products. How effective is your company at extracting this valuable information?

How Many Ways Are You Getting Input From Your Customers?

Every business knows that customer input can be valuable for improving your products (or services), and for identifying opportunities for new products and services. Customer input can be a very fast and low-cost way to generate ideas for new products.

How effective is your company at extracting this valuable information?

Here are five different ways to get input from your customers. How many of them are you using?

1) Have your salespeople get direct customer input

This is the most commonly used method to get customer input, but most companies don’t utilize this approach effectively. Every one of your salespeople should have a written list of questions that they ask at the end of every sales call. A well-scripted set of questions can elicit a treasure trove of valuable input.

To get you started, here are suggestions for questions to ask. You should tailor this list to your unique circumstances.

What products or services can you see us offering that we don’t offer now?
What products or services do you get from other suppliers that you think could be better?
What new features could we add to our existing products or services that would make them more helpful for you?
What can we do to make our business serve you better?
Is there a product or service you wish you could get that nobody is offering?
Does your company have plans for expansion into new areas? Is there something we could offer to help with your expansion?

Most customers appreciate the opportunity to provide this kind of input. They will feel like you value their opinion. And if you modify a product or develop a new product as a result of their comments they will be positively predisposed to the new product.

2)Talk to ex-customers

Losing a customer is painful – but it can also be a source of valuable information that can help you innovate. Always interview ex-customers to find out why they left. Quite often, the first reason they give will not be the real or the only reason. When interviewing an ex-customer, employ “polite persistence” to get the real reason(s) for their departure. Be sure to ask questions that explore the following.

Competition
- Did you find a similar product or service for a better price?
- Did you find a different product or service that is better for you?
Internal factors
- Are there shortcomings in the quality or features of our product or service?
- Do we need to do better in after-sales service and support?
- Do we need to change how we interface with you?
Customer issues
- Are there changes at your company that make our product/service no longer viable for you?
Market issues
- Are there changes in the market that make our product less attractive? Is there something we can do to address those market changes?

Keep asking questions – politely but persistently – until you feel you really understand all of the reasons the customer left. You will almost always learn something that opens a door to innovation. And you might even earn the customer back.

3) Observe customers using your products

This can be very illuminating if done properly. There are a few keys to getting good results from this kind of exercise

For this exercise, “customer” means the end user of your product(s). In many cases, this will be a different person from the buyer.
Observe customers who are experienced users of your product, using the product in its normal use environment.
- Are they using the product the way you intended or envisioned it being used? If not, what are they doing differently and why?
- Are they making use of all the features of the product? If not, why are some features not being used? Because the users aren’t aware of the features? Or because the features are awkward to use? Or because the features aren’t useful?
Find some people who would be typical end users of your product, but who have never seen or used the product before. Give them your product in a typical use environment, and let them use it.
- Make the same kinds of observations as above. More often than not, you will see confusion or frustration. When you see this, view it as an opportunity to innovate and improve.

An inviolable rule for these exercises: You must be silent while observing. Ideally, film the subjects while they are using your product(s) so that you aren’t even in the same room with them. If you’re in the room with them, they’ll be tempted to ask you questions. And if you give even a hint of an answer the exercise is tainted.

Careful observation of customers using your product(s) can yield significant insights and can provide ideas for changes and improvements to your product line.

4) Observe customers using your competitors’ products

This is directly analogous to the previous technique, but with the obvious difference that you will observe end users’ interaction with products that you compete with. You may observe shortcomings or weaknesses in your competitors’ products that you can exploit. This technique can be an opportunity to beat your competitors at their own game.

5) What are people saying about you?

Forget about your business for a moment….

How often do you read online reviews of a product or company? And how often do you see a representative of the company actively respond to online reviews – good and bad?

What impression do you get about a company that responds to reviews — showing appreciation for good reviews and genuine concern for bad reviews? How does that compare to your impression of a company that doesn’t respond to reviews at all?

A survey of online review sites indicates that only about 10% of companies actively monitor and respond to online reviews.

Assign one or two people in your organization to actively monitor online reviews of your company and your products or services. This shouldn’t take much time – maybe 20 minutes per week. They should respond to almost every review – expressing thanks for good reviews and reaching out to address the concerns in negative reviews. But this is just the skin on the apple.

They should also analyze the reviews, looking for patterns that can help you improve your products or services. What features are cited most frequently as positive? What are the most common complaints? Do they express frustration with the user interface? Does the user manual confuse them? If customers didn’t like the product, do they mention alternate products that they prefer?

If this is done well (and if you get a reasonable number of online reviews), very quickly you will have a database of valuable information that you can mine for ideas for innovation.

Every business tries to pay attention to their customers, but not all businesses do this well. You can use these five techniques to extract valuable information from your customers that can provide new avenues for innovating. If you would like to implement some of these techniques in your organization, please contact Clint to help you get started.

Getting Started On Innovation

Coming up with innovative new ideas is often the biggest hurdle in innovation.

One of the reasons that many businesses do not innovate actively is because the first step – coming up with new ideas – can be daunting.

Coming up with innovative new ideas is often the biggest hurdle in innovation.

One of the reasons that many businesses do not innovate actively is because the first step – coming up with new ideas – can be daunting. You might have a mental image of bringing a handful of your staff into a meeting room with a blank white board, and you say “OK, somebody start innovating.” And everybody stares at that white board like deer looking at the headlights of an oncoming car.

Over the course of my career I have encountered companies in situations like this. They know they need to innovate; they want to innovate; but the bucket of ideas is empty. I have also encountered companies that are prolific at generating innovative ideas for new products and services with regularity, and companies somewhere on the spectrum between these two extremes.

I have compiled a list of techniques that small businesses can use to generate ideas for new products and services. I have analyzed and sorted the techniques based on how much time and money it takes to implement them (in general, less time and money is better) and how effective they are at spawning innovative new ideas (in general, more is better).

Papers that describe a number of these techniques are available on the Articles page of the website, in the section on Innovation. I will add new articles at a rate of about one every other month.

If you read the papers on innovation, you can assess which ones would be most applicable to your business and can create a list of techniques you want to use to start innovating. Having a list like this is a great tool for breaking the first big logjam in innovation – coming up with new ideas.

There is a rough order in which I add articles about innovation to the website. I start with techniques that are easiest and cheapest to implement, that are most broadly applicable, and/or are the most reliable at producing results – i.e. at generating new innovative ideas. As I continue to add articles, we get to techniques for innovation that are a bit more costly, or are not as broadly applicable, or are effective in a narrower range of situations or circumstances.

But I have found all of these techniques can be very powerful when they are used in the right situation. And all of these techniques are suitable for small business with limited budgets.

An Economist’s Perspective

Clint started his career as an economist before transitioning to product development. This background can bring a new perspective to product development – a perspective that sometimes adds a lot of value.

Product development projects typically start with a team of engineers picking apart the product concept; thinking about the engineering challenges; and figuring out how they will tackle development of this new product. Usually there is a project manager who prepares a project plan in Gantt chart form to track progress and manage the team. Often an industrial designer will be part of the team, with a focus on human factors engineering.

All of these skills can contribute to development of the new product, but sometimes one more perspective can be helpful.

At the start of each project, Clint typically asks the following:

What is the market for this new product or service?
Who will buy this product? Who will use it?
What unmet needs does this product solve?
What are direct and indirect competitors to this product?
Are there features we can include in the product that makes it different from and meaningfully better than the competition?
What will it cost in time and money to develop the product?
What selling prices do we need to make sure the product can meet sales goals?
What cost of goods do we need to hit to make sure the profit margin will yield a healthy return on investment?

Asking these questions at the beginning of a project will help you define products that meet market needs and targets for profitability, and can help you avoid the all too common blunder of engineers developing a solution in search of a problem.

If you would like an economist’s perspective on a new project, please contact Clint.