The Right Moment To Bring In A Manufacturing Factory Depends On The Case

In practice, this is a case-by-case matter. Let’s consider a few typical examples.

＜The case of Company A＞ Company A is a startup that has just launched, and the founder(s) are not engineers with manufacturing experience. Most of the team consists of outside resources such as contractors, and with part-time help they have managed to get as far as a working proof-of-concept prototype. Fundraising has covered only the minimum seed funding needed for development, and there is no clear prospect yet for raising funds through to manufacturing.

In this case, bringing a manufacturing factory on board looks premature. One reason is that Company A’s strengths are not yet established. If the founder(s) happen to be researchers trying to build a business on their research results, the critical differentiating factor is not the research results themselves but the hardware or service that correctly implements those results. Unless they reach the point of achieving product-level operation with an in-house design, that strength won’t be fully leveraged. If they have secured development funding, they should use it to spend another six months to a year growing the team, iterating on prototypes, and maturing the technology, then make their move once they’ve raised further funding.

＜The case of Company B＞ Company B is a company that has already built up a fair number of years in business and revenue with software products, and has now resolved to move into a service that also uses hardware. They’ve been able to run some proof-of-concept testing by combining off-the-shelf components, and now they want to turn this into a product using dedicated hardware.

In this case, bringing a manufacturing factory on board at this stage looks preferable. Given this company’s characteristics, they have not built up hardware know-how, and building it up now doesn’t seem worthwhile. They would do better, and stand a better chance of finding a competitively advantageous approach, by pursuing a strategy weighted toward their strength, which is software. Also, the fact that they were able to run proof-of-concept testing with a combination of off-the-shelf components means there is little uniqueness in the hardware itself. Given that, bringing a manufacturing factory on board and using their design resources and partners to quickly turn this into a product through horizontal deployment of general-purpose technology looks feasible.

＜The case of Company C＞ Suppose this is a startup that has raised sufficient funding, with a team ranging from people who came from major development companies to people with experience running manufacturing factories, giving them a solid staff for pushing forward development and manufacturing. However, they remain fabless. Their prototype has gone through repeated rework over two years, and at first glance it has reached a quality level not so different from a mass-produced product.

In this case, I’d recommend first properly organizing the manufacturing specifications internally, then starting conversations with multiple manufacturing factories at the same time. There is actually considerable variation in what factories demand, depending on the factory’s own technical capability and management capability. If you leave the judgment calls about design changes too much up to the manufacturing factory, you risk the self-defeating situation of being forced into modifications that undermine the original design intent. If this is something the company can manage and judge internally, it’s better to firm things up internally as far as possible and then go into negotiations with the manufacturing factory with that in hand, since this allows you to demand higher-quality output. But it’s also natural for a factory to say “what can’t be done can’t be done,” so you should approach multiple factories.

Originally published in Japanese at https://clazytech.com/2021/08/543/. Translated with LLM assistance and reviewed before publication.