Situation: A company wants to expand to new sites. It’s business model relies on high levels of customer service, with high customer retention and efficiency. The challenge is that the model is low margin, because only a few employees are billable. How do you finance site expansion?
Advice from the CEOs:
To evaluate profitability and start-up time create a low-cost prototype site to test the model and collect data.
Develop a template with a high likelihood of survival over the first 6-12 months when investment will outweigh income.
Consider a SWAT resource team to accelerate early success for new sites.
Key areas of focus:
Understand the value of the business. For example, is it:
Improving client operational efficiency?
Building the team?
Response time to client needs?
From experience define the most important variables for success:
What is front office, what is back office?
How important are the dynamics between key people? Is it better to hire key people as the number of sites expands or grow them internally.
Determine what is being sold, with a reasonable prospect of return – methodology or services?
Consider a franchise model. The model must show a reasonable return to the prospective owner, including the cost of franchise purchase and start-up costs.
As franchisor, it is important to know what this model looks like to a prospective franchisee; however, take care not to create a representation to which would be bind the franchisor as a promise.
A successful franchise should have a branded presence.
Offer potential franchisees a guarantee: if after one year the net costs to establish and maintain the site are below a certain level, the franchisor will credit the difference between their estimate and the actual net costs in Year 2.
MacDonald’s does not allow franchisees to choose store locations. Similarly, the franchisor can choose locations, determine the availability of key talent, select anchor clients, and develop a reasonable estimate of the value of a new franchise before selling it. This increase the value for the franchise sale and creates a more predictable ROI for new franchisees.
Situation: A company has built a strong prototype line capable of handling projected volume for the near-term as they scale up production. Their long-term plan is a fabless model through manufacturing partners. They have solid IP counsel and protection. What are the most critical elements of scale-up? How do you generate scalable manufacturing?
Advice from the CEOs:
The answer will depend on the product strategy, if the near-term focus is on quick tactical wins.
The most critical elements of the scale-up will be:
The planned speed of the scale-up. A tactical approach, which will make limited demands on production near-term supports a prudent scale-up plan.
Having the right business development talent to generate quick wins with smaller volume opportunities to feed the scale-up.
When you are ready for larger volume – and your scale-up capacity can support this – hire an experienced sales professional who is known in the industry and who can bring you some relatively quick higher volume contracts.
Que near-term contracts according to the sales cycle.
Design cycle – build awareness of your capacity among significant market players and focus on quick turn-around to respond to their demand.
Qualification cycle will be longer, perhaps 6 months. As your brand awareness builds push for qualification orders which will be larger, but still within near-term capacity.
Focus business development efforts on building strong awareness across your target companies. Some companies tend to limit early knowledge of vendor capabilities between their divisions until they have confidence in the vendor’s ability to deliver. Optimize customer awareness by:
Cultivating business partners who can facilitate a high-level approach within your target customer companies.
Start creating a small forum of industry savvy individuals who can become your champions. Leverage this forum to spread your message and bring you opportunities.
Interview with Henry Chen, PhD, Founder & CEO, Cynovo
Situation: A company in a maturing market needs to gain customer feedback to guide product development. They want to optimize Alpha testing prior to investing in tooling. How do you assess product viability on a limited budget?
Advice from Henry Chen:
As the market for tablet devices matures, it is increasingly important to test mass market response to new product design prior to freezing product specs and investing in tooling. Our approach to vertically designed enterprise solutions focuses on four areas: going to the experts for guidance; monitoring the competition and market direction, investing heavily in prototypes, and leveraging speed to market.
Go to the experts; leverage their knowledge and understanding of the market to speed your own development efforts.
Get to know the market gurus who stay on top of the market and are knowledgeable about market direction. These are the influencers who blog, write and publicize new market innovations.
As a smaller company, the route to market in often through alliances. Senior staff at large companies are a valuable resource. One option is to work through large companies’ sales teams to identify senior product people and connect with them.
A good place to monitor market developments is at major trade shows. Events like the Consumer Electronics Show allow you to interact with a large number of experts and to monitor both what the large companies are introducing and their product direction.
Trade shows are unique situations because many experts attend. Some are speakers, and others simply attend to keep up to date with latest developments.
Use trade shows as an opportunity to gather a panel of experts to give you feedback on your design concepts. Experts like to be on top of the market and new developments and appreciate the opportunity to provide input on new products.
Leverage the opinion of younger leaders and experts. In the US and in China, the average entrepreneurial founder is young – often in their low 20s. They are not as cautious as older people who worry about failure. Successful young entrepreneurs are also potential investors.
Give experts time to think about your product. It may take a few hours or even days for them to “get” your new concept.
Invest in prototypes which have a similar look and feel as actual products, though they may lack full functionality. People like to hold a product, gauge the weight, look and feel of the controls, and to contrast different model options.
Large companies are often hindered by internal confidentiality rules. Smaller, more nimble companies may rely on speed to market to allay confidentiality concerns. This gives them the ability to gather more feedback prior to finalizing product design.
Interview with Eric Bauswell, President, SurfaceInk
Situation: For a domestic engineering solutions company, one of the challenges is engaging potential customers with the idea that a domestic solution can cost-effectively meet their needs. If you can combine a manufacturing solution to the service solution, this helps. What have you done to effectively communicate your solution to potential clients?
Know your clients. Clients have expertise of their own. However, they may lack expertise in all the disciplines necessary to create a full product. How will you fill the gap?
Know your strengths.
Design is an iterative development process. If you increase process efficiency you can complete more process cycles in a given timeframe, advancing to final product more quickly.
Identify your key differentiators. Target clients for whom your differentiator is a critical need. For example, we do not encourage all of our clients to manufacture overseas, but if they insist and lack experience managing overseas vendors, we can handle this for them.
Consistency of personnel across the life of a project is important, particularly the core team.
“Invention & Innovation” require a plan to mitigate the risk they represent. Develop the design along parallel paths, stage higher risk components or pieces of the design that represent critical path inventions such that they are proven prior to moving forward, or even take that feature out of the current design in order to develop it to a production ready solution for the next product on the client roadmap. Sometimes an invention or innovation is THE reason for the new product. In these cases the key is managing the client’s expectations regarding the significantly elevated risks that come with invention and proceeding with the understanding that the phase gates and even the production dates will slide according to the progress against developing that critical path invention or innovation.
Expertise in material selection and understanding what can be done with materials in the manufacturing process is non-trivial, as is vendor qualification, particularly with new materials.
Know your competitors. How do they handle similar challenges to those that you face?
Know your vendors. “Right-sizing” your contract manufacturer to your client’s product is important. Things will go wrong, and you must assure that the contract manufacturer will give you the priority to get things back on track to meet your launch date.