How to Scale Hardware Companies - Austin Hardware Meetup - February 2014

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In this presentation, Dragon Innovation will provide an overview on how to approach scaling hardware companies. Topics will include:

- Dragon & Bolt Overview
- Hardware Revolution Enablers
- NPD Paradigm
- Going from One to Many
- Quality & Schedule

Share this presentation here: http://bit.ly/Scaling-Hardware-Companies
Watch the presentation here: http://capitalfactory.lifesize.com/videos/video/286/

About Dragon Innovation

Dragon Innovation works with entrepreneurs to launch hardware products and scale companies. Founded by a team of hardware experts, Dragon provides a clear path from prototype through production with unmatched manufacturing expertise and trusted connections. Dragon's client roster includes Coin, MakerBot, LIFX, Scout, Romotive, Sifteo, Orbotix, FormLabs and over 100 more companies paving the road for how new technology gets made.

Connect with Dragon Innovation
Website: http://www.dragoninnovation.com
Blog: http://blog.dragoninnovation.com
Twitter: http://twitter.com/dragoninnovate
Slideshare: http://www.slideshare.net/dragoninnovation/

Published in: Business, Technology

How to Scale Hardware Companies - Austin Hardware Meetup - February 2014

  1. 1. Dallas HW Meetup 140205 How to Scale Hardware Companies Austin HW Meetup 140206 Dragon Innovation, Inc. scott@dragoninnovation.com dragoninnovation.com Thursday, February 6, 2014 1
  2. 2. OVERVIEW •Informal - Please Interrupt •Quick Survey •Dragon & Bolt Overview •NPD Paradigm •One -> Many •Q&A Thursday, February 6, 2014 2
  3. 3. Quick Survey Thursday, February 6, 2014 3
  4. 4. Dragon & Bolt Overview Thursday, February 6, 2014 4
  5. 5. Thursday, February 6, 2014 5
  6. 6. Thursday, February 6, 2014 7
  7. 7. Selected Companies We’ve Helped Thursday, February 6, 2014 8
  8. 8. Helping Hardware Startups Thursday, February 6, 2014 9
  9. 9. Ben Einstein Managing Director ‣ Product designer & entrepreneur Brainstream ‣ Principal(4@years) Design ‣ Product vision and prototyping expert ‣ Developed >15 commercially available products, ~10 others SCOTT N. MILLER AXEL BICHARA Partner Partner ‣ Manufacturing expert ‣ VP Engineering @ iRobot (10 years) ‣ VC with mechanical engineering background ‣ Founder & CEO @ Dragon Innovation ‣ Manufacturing many VCbacked startup hardware products: Pebble, MakerBot, Sifteo, etc ‣ Partner @ Atlas Venture (19 years) ‣ Lead investor or cofounder SolidWorks, Belmont, GrabCAD, Premise ‣ 7 funds totaling >$2.6B Helping Hardware Startups Thursday, February 6, 2014 10
  10. 10. HW Revolution Enablers Thursday, February 6, 2014 11
  11. 11. • • Unprecedented Global Technology Innovation • Fearless and Connected Entrepreneurs & Consumers • Available Capital • Inexpensive Devices, Access & Apps • Hardware Wave Enablers Nearly Ubiquitous High-Speed Wireless Access Ability to Reach Millions of New Users in Record Time KPCB DECEMBER 2012 Thursday, February 6, 2014 12
  12. 12. Hardware Innovation Now Comes From The “Little” Guy 13 Thursday, February 6, 2014 13
  13. 13. PROTOTYPING HAS NEVER BEEN EASIER • 3D Printing • Arduino, Raspberry Pi, Beagle Bone • TechShop • GrabCAD, Upverter, GitHub • SparkFund, Adafruit • Easier Access to Capital Thursday, February 6, 2014 14
  14. 14. Delivering Is Hard Getting from prototype to delivery is a long journey with many ‘unknown unknowns ’: • COGS, tooling and manufacturing costs • Lead times • Permanence of Quality • Iteration cycles • DFMA • Factory Selection and Management • Team Scalability • Schedule & Project Management • Specialized skills (ME / EE / SW/ Q / SC / Logs) Thursday, February 6, 2014 15
  15. 15. NPD & Crowdfunding Thursday, February 6, 2014 16
  16. 16. The Product Development Paradigm is Changing OLD WAY Build then Sell NEW WAY Pre-Sell then Build Thursday, February 6, 2014 17
  17. 17. PRE-SALES ARE PERFECT FOR HW • Raise capital • Validate product / market fit • Create engaged and passionate community • Access media and investors • Understand build volumes Thursday, February 6, 2014 18
  18. 18. Global Crowdfunding Is Exploding $530M 2009 Thursday, February 6, 2014 61% growth $854M 2010 72% growth $1,470M 2011 91% growth $2,806M 2012 67% growth $4,676M 2013 (est) 74% growth $8,141M 2014 (est) 19
  19. 19. Products Are Raising Serious Amounts Of Capital Lockitron $1.3M $1.4M $1.96M $2.3M $2.3M $2.4M $2.7M $2.9M $8.5M $10.4M LIFX Elevation Dock Canary Lockitron WobbleWorks Oculus Rift Tile Formlabs Ouya Pebble EXISTING DRAGON CLIENT Thursday, February 6, 2014 20
  20. 20. But … It Can Go Terribly Wrong Without: • • • • • Thursday, February 6, 2014 Analysis of COGS and Fixed Costs Designed for Manufacture and Assembly Manufacturing Strategy & Schedule Threshold Analysis Marketing Strategy 21
  21. 21. There Is A Better Way: The Dragon Integrated Approach DFMA Review, COGS Analysis, Cost Estimation, Manufacturing Strategy Platform Optimized For Hardware, Campaign Strategy, Marketing Execution Factory RFQ and Selection, Production Startup, Certifications, On-the-Ground Far East Project Management Thursday, February 6, 2014 22
  22. 22. Thursday, February 6, 2014 23
  23. 23. One -> Many Thursday, February 6, 2014 24
  24. 24. Manufacturing Triangle Cost (COGS) Quality Thursday, February 6, 2014 Schedule 25
  25. 25. Cost of Goods Sold (COGS) Thursday, February 6, 2014 • Direct costs for goods produced. • Does NOT include Tooling. • Actual price depends on where a company takes ownership: - Ex-Factory (XF) - FOB (add overland transport to XF) - Landed (add shipping to FOB) - Inventory (add warehousing) • Price will vary by date depending on running changes, transportation costs, currency exchange, commodity costs, etc. 26
  26. 26. Very Simple Retail Costing Model Sell-Through Price (Retail Price) $ Retailer Gross Profit Company Gross Profit Sell-In Price (Wholesale Price) COGS COGS Thursday, February 6, 2014 27
  27. 27. COGS Drivers YOUR DESIGN • Material and Component Selection • Fabrication Method Manufacturing Efficiency (First Time Yield, machine tonnage, assembly labor, number of operations, etc.) • Quality Requirements (driven by requirements / Voice of Customer) • Packout (replaceable vs. rechargeable batteries; packaging; spares, etc.) • Thursday, February 6, 2014 MANUFACTURING PARTNER •BOM Transparency •Profit Margin •Labor Rate •Currency •Geographic Location (shipping, tariffs, etc.) •Capability (in-house vs. outsourced) •Supply Chain (Purchasing Power, volume (piggy back), Consigned vs Purchased, etc). 28
  28. 28. Controlling Costs 1.Deconstruct  the  BOM. 2.Separate  special  components. 3.Transparency 4.Compare  to  standards. 5.NegoAate  Inclusions Thursday, February 6, 2014 29
  29. 29. COGS Strategies •When  manufacturing  in  volume  for  a  CE  product,  it  is  cri8cal   to  understand  and  control  COGS.    Focus  here!    Because  of   the  volume,  every  penny  counts  ($10k  @  1M  units) •Calculate  labor  rates.    Pop  Quiz  –  How??? •Bill  of  Material  Transparency:    Require  factories  to  provide   an  item  by  item  costed  BOM.    No  mysteries  or  hidden   formulas. •Build  a  “Standard  Cost”  database.    Price  out  cost  reduc8ons. •If  8me  permits,  develop  rela8onships  with  mul8ple  vendors   to  avoid  single  source  suppliers.    Leverage  is  a  beau8ful   word. Thursday, February 6, 2014 30
  30. 30.                                                                                                                          • • • • • • • • •                  Anatomy of a BOM            Plastic Purchased Parts Electrical Components Consigned Components Deco Packaging Assembly Labor CM Profit, Overhead and Scrap Overland Transportation                                                                                      Thursday, February 6, 2014                                                     31
  31. 31. How to Calculate Plastic Costs • Does it matter that it is a gear??? • Components (3) 1. Material Cost = Part Weight * Resin Cost 2. Machine Overhead: = Hourly Cost * Cycle Time (sec) / (3,600 sec / hr) 3. Factory Mark-up, Scrap and Overhead (%) • Total Part Cost: = (Material Cost + Overhead Cost) * (1+Factory M/U) Thursday, February 6, 2014 32
  32. 32. HK Resin Prices (USD/Ton) Reference: http://www.nhh.com.hk/eng/trading/price_trend.asp (you will need to create a login) Thursday, February 6, 2014 33
  33. 33. Typ. PRC Molding Rates Item 280 Ton / hr $15.48 220 Ton / hr $10.96 180 Ton / hr $8.38 140 Ton / hr $7.09 100 Ton / hr $5.80 80 Ton / hr Thursday, February 6, 2014 Cost (USD) $5.16 34
  34. 34. How to Calculate EE Costs • Cost = Component * Usage • Separate high cost components over a certain threshold. Apply a lower mark-up. • Apply Factory M/U Thursday, February 6, 2014 35
  35. 35. Typical PRC CM Margins (Profit, Scrap, Overhead) PCBA 6–8% Thursday, February 6, 2014 Toys 12% Consumer Medical 15% >40% 36
  36. 36. Other BOM Costs • Deco (Tampo, Paint, etc.) • Labor (PRC $2 – 6 / hr) • Packaging (Gift + Master) Thursday, February 6, 2014 37
  37. 37. Add It Up • • • • • • • • • Thursday, February 6, 2014 Plastic Purchased Parts Electrical Components Consigned Components Deco Packaging Assembly Labor CM Profit, Overhead and Scrap Overland Transportation 38
  38. 38. Quality Thursday, February 6, 2014 39
  39. 39. Quality Defini&ons: •Quality  =  Customer  Sa&sfac&on  =  Performance  –  Expecta&ons •“Fitness  for  Use” •Incoming  Quality  Control:    Use  good  ingredients. •Build  and  test  along  the  way.    Use  sub-­‐components. •Sta&s&cal  Process  Control  (SPC)  /  Yield.    Find  out  now,  not  later. •Sample  Tes&ng:    Temp/Humidity;  Transporta&on;  Drop;  T/T;  Small  Parts;  Heavy  Metals;   Compliance;  Func&onal;  Life.    How  do  tests  match  reality?    ISTA-­‐2A. •Final  Inspec&on  /  Acceptable  Quality  Levels  (AQL) •Walk  the  line.    Get  your  hands  dirty. •It  is  much  easier  (and  less  expensive)  to  make  changes  before  Produc&on  Start. •What  happens  if  something  fails? •Will  make  or  break  a  product  …  and  a  Company! •Quality  is  rarely  considered  in  the  engineering  phase  by  startups  due  to  schedule,  cost  and   technical  pressures. •Watch  out  for  the  Unknown  Unknowns. •Strong  indicator  of  long  term  success,  etc. •Can  you  answer  the  ques/on  “How  do  you  know  the  product  is  good”? Thursday, February 6, 2014 40
  40. 40. Schedule Thursday, February 6, 2014 41
  41. 41. Schedule •Many  consumer  products  are  driven  by  the  Christmas  (which   has  a  fixed  date). •Plan  con&ngency  in  your  schedule.    Things  never  go  according  to   plan. •Have  an  onsite  presence. •Track  schedule  carefully  and  take  correc&ve  ac&ons  early. •Avoid:    “There  is  never  &me  to  do  it  right  the  first  &me,  but   there  is  always  &me  to  do  it  again.  ” Thursday, February 6, 2014 42
  42. 42. The Road to Production Thursday, February 6, 2014 43
  43. 43. Detailed Milestones ‣Hand  Over  /  Kick-­‐Off -­‐Form  CM  Team -­‐Contact  Lists  /  Roles  and   Responsibili&es -­‐ME  and  EE  File  transfer -­‐Works  Like  /  Looks  Like  Samples -­‐CM  trip  to  the  US  if  possible  (access   to  models  and  team,  rela&onship   building). -­‐Factory  Input ‣Components -­‐Engineering -­‐Quality -­‐Produc&on  Planning  (interface  with   Sales) -­‐Sourcing  /  MA  /  Cos&ng -­‐Logis&cs -­‐Process  /  Procedure -­‐Financial  (modeling  and  payments) Thursday, February 6, 2014 ‣Pre-­‐Produc&on  Milestones -­‐Tool  Release -­‐Tool  Start  (TS) -­‐First  Shots  (FS) -­‐Engineering  Pilot  1  (EP1) -­‐EP2 -­‐EP3 -­‐Final  Engineering  Pilot  (FEP) -­‐Produc&on  Pilot  (PP) ‣Produc&on -­‐Produc&on  Start  (PS) -­‐Ramp ‣Engineering  Change  No&ce  (ECN) ‣Sustaining  (Quality  Up  /  Cost  Down) ‣Sunset 44
  44. 44. Questions? Thursday, February 6, 2014 45
  45. 45. scott@dragoninnovation.com Thursday, February 6, 2014 46
  46. 46. Thursday, February 6, 2014 47
  47. 47. Thursday, February 6, 2014 48
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