A guide for Startups working with Product Design Companies

We are frequently asked if we work with startup companies. The answer is a qualified ‘Yes’: While most of our business is with established businesses, we do work with startups, when they have realistic expectations about their business and about development.

When we work with startups, we often need to provide more coaching and guidance than we do with mature businesses. Over the years, we have built this list of questions and answers that may be useful to startups trying to learn more about product design and development:

What are some approximate costs for developing, prototyping, and manufacturing a small electronic product?

Let’s consider an example project to answer this question. Envision a product that incorporates a temperature or humidity sensor in a plastic case the size of an egg (approx) which had these basic abilities – Bluetooth (for initial programming from smartphone), WiFi (for communication with the home or office network) and a microphone. It would only need a relatively small amount of memory and processing power other than what’s needed for the Bluetooth and wireless. It would need custom firmware (the internal coding that drives the on-board components), that would enable the unit to operate and to output specific data, under specific conditions via Bluetooth or WiFi. In this example, we will assume that we do not need to develop a custom microchip – we will incorporate commercially available microprocessors and other components.

Development costs for this product would be driven by how “new to the world” the functionality is. In other words, how much new firmware is required to achieve the product functionality, and how many prototype cycles would be required through development. Reliability testing can drive cost as well, but is critical for a product that will be commercialized. Development costs may range from $60k to $300k.

The per-unit manufacturing cost could get really low if volumes could be driven up. If volumes are high, production costs may be around $5 per unit. If production costs are low, production costs may be $100 per unit.

This is a simplified example, with rough numbers intended to provide an order-of-magnitude range for development and production costs for electronics.

I need a Prototype: How much will that cost me?

This is the first question that many new clients come to us with. It is certainly a valid question: the person asking is trying to understand what they should expect for development costs prior to a hand-off to manufacturing.

A concept that is new to many startup clients is this: A prototype does not represent the end of development. A prototype is a tool used during development to answer specific questions, and successful projects include many prototype cycles. Development of a simple product may only require four or five prototype cycles. More complex products may require twenty or more cycles. Since manufacturing startup typicality required a large investment, it is critical to get the product exactly right before going into production. Prototypes serve this purpose, reducing overall project risk.

Very early prototypes may be used to validate use-case or address some high-risk functional items. Late stage prototypes may be used as sales presentation tools at trade shows, kick-starter videos, or for more in-depth user feedback.

We have found that people new to development think of a prototype as a one-off unit that represents a manufacturing-ready design.  This is something we do provide – but it typically takes multiple phases of development and prior prototypes to get there.

Will SGW Deisgnworks enter into a revenue sharing agreement for a new product idea?

We are asked about this very frequently by new clients that are just getting a business off the ground and need help with their product design. We generally are not able to work for equity or for a back end revenue share. If you are serious about getting a product development company into this type of  arrangement with you,  approach them as though they are a prospective investor (which they basically are). That means you should have a really compelling market case and business plan. In addition, make sure that you can demonstrate to them that you do indeed have the ability to get the product launched, marketed, maintained, and serviced.

Is SGW Designworks able to sign NDA's?

Generally, we are willing sign nondisclosure agreements. We prefer to use our own, but can review others as well. Typically, we are able to get through an initial high level discussion without the need for an NDA. This allows us to make sure both parties feel that SGW Designworks is a fit for the prior to the administrative step of signing the NDA.