How To Select A Factory Part 1: China or US?

The following post is the first in a series of guest posts for GrabCAD.

Dragon Innovation often gets the question, “Should I manufacture in the US or China?” While every product and team is different, there are general guidelines to help figure out what makes the most sense.

First, we’ll cover the current landscape of China. It’s well known that labor costs are significantly lower than in the US, but often what is not considered is the expert domain knowledge coupled with a local, robust and highly concentrated supply chain.  The infrastructure, from the manufacturing to transportation, is second to none.  On the negative side, China is far away, and also has potential language and cultural barriers.

China may be a good fit if your product:

  • Is COGS (Cost of Goods Sold) sensitive
  • Requires significant manual labor to manufacture and assemble
  • Is built in high production volumes (>10,000 units)
  • Uses existing manufacturing technology (i.e., injection molding)
  • Is tolerant to supply chain and logistics lead times due to the distance
  • Can benefit from low or no cost Design for Manufacturing Assembly (DFMA) & Non-recurring Engineering (NRE)
  • Has “physically” protectable IP

Keep in mind that the labor rate continues to increase approximately 20% every year.  Hopefully, the US and China will maintain a friendly political relationship, and tariffs will not be a growing issue.

On the other side of the coin, the US may be a good fit for manufacturing if your product:

  • Can be manufactured and assembled through automation
  • Is sensitive to shipping time and expenses  (i.e., it needs to be delivered shortly after the order and the forecast is not well known, or the product is very large, such that shipping would be expensive)
  • Requires low volumes (<10,000 units)
  • Has difficult-to-protect IP, such as a fully mechanical product with no software
  • Requires non-standard capital equipment, such as a laser welder
  • Is part of a government contract regulated under ITAR

There are some exciting initiatives in the US to expand manufacturing.  Stay tuned!

The State of Wearables: UK Wearable Tech Conference

On March 18, Scott attended the UK Wearable Tech Conference where he sat on a panel moderated by Shoplocket’s Katherine Hague (who did a great job moderating – not an easy task!). Following are the questions that Katherine prepared for the panel accompanied by Scott’s notes. While not quite the same as attending the conference in person, it provides a nice overview of both the content covered by the panel as well as the state of Wearable Tech today and where we think it’s headed.

uk wearable tech conference

KH: What trends do you see emerging for 2014 in wearable tech?

SNM: The integration of design and technology, where the technology becomes invisible and style moves front and center.  Simple, discrete and elegant will not only be features, but requirements.  We are seeing significant activity in subtle notifications.

KH: What’s your best advice to aspiring entrepreneurs who want to start a hardware company?

SNM: That’s awesome!  Build a prototype quickly and get it in the hands of potential customers for their feedback. Iterate quickly.  Consider crowdfunding only if you’re fully prepared on manufacturing, marketing and IP fronts.

KH: What qualities would you say successful wearable products have in common?

SNM:  Design, wearability, and problem solving.  They have to look and feel good while offering a useful solution to a problem.

KH: How would you describe to your parents what you do? (A fun question – which sheds light on how far we’ve come from our parents’ generation).

SNM: My parents have been supportive of my hardware addiction from very early on. It may be a stretch to call them hip, but they certainly understand what we are trying to accomplish: Dragon helps hardware companies go from a functional prototype to a successful company.

KH: What’s the biggest mistake you’ve seen wearable tech companies make, and how can others avoid it?

SNM: The biggest and most common mistake is under estimating how hard hardware actually is.  Wearables take these challenges and push hardware to the limits.  I think of them as the  “Olympics of Hardware” for the following reasons:

  • Extremely compact “packaging” (not the box that protects and sells the unit, but the available volume for the housing, processor, battery, radio and other components).
  • Low power consumption.  Many devices must be worn for a week at a time between charges for a reasonable customer experience.
  • Use of flexible plastics, cloth and other non-traditional tech materials.
  • Waterproof to survive the rigors of life on a mammal.
  • Aesthetics across a wide range of personal preferences.  Often, integration with jewelry, which comes from a very different background.
  • Sufficient robustness to survive day-to-day activities.
  • Material compatible across all skin types and sensitivities.

As a result, wearables are often pushing at the cutting edge of technology.

KH: Many of the entrepreneurs I talk to swear by pre-orders and crowdfunding — does it ever make sense not to crowdfund a hardware product today?

SNM:  Absolutely – if you have not gotten to a stage where the prototype is ready to scale or done the necessary preparations. The comparison I like to make is that crowdfunding is like a power tool: when used properly, you can accomplish much more work than doing something by hand.  However, if used improperly, you can cause significant damage to yourself and your product.

KH: What new wearable company are you most excited about right now?

SNMPavlok, which is a habit-forming bracelet that closes the loop on behavior modification.  It’s a personal Drill Sergeant.  I like to think of it as a “Wearable with teeth.”

KH: We’re starting to see some convergence between fashion and wearable technology – do you think there will still be a distinction in, say 10 years?

SNM: With the direction that we’re headed, I think the term “wearable tech” will become somewhat passé. Tech will be the enabler (lower cost and power, smaller packaging) but the design and function will be what makes people want to wear the product.

Products Should Tell a Simple Story

This article was originally a guest Post for the Wall Street Journal

he two most important lessons I’ve learned about hardware design come from my experiences at Walt Disney Imagineering R&D and iRobot.

All of the Disney experiences center around a simple story. Everything in the product (e.g. a movie) is focused on telling this story to the guest.  The same storytelling approach is now becoming true for consumer hardware products. To be successful, products must tell a simple story to the consumer. Their “voice” is expressed through design.

Hardware startups need to take the same approach. In telling the product story, they need to carve away the bulleted list of 20 features to find the core three features that tell a clean, simple and compelling story through the industrial design and user experience. When done well, the result is a product that speaks visually to consumers and makes them crave interaction with it.

The lesson from iRobot is that great industrial design is closely coupled with the product’s function. You can’t silo any parts of the development process. The Roomba is a great example of htat. The key to our success was that the design of Roomba was so tightly coupled with its function. For the Roomba to complete its cleaning mission, it was critical that it never became trapped. This requirement dictated a design based around a round robot with the wheels on the diameter. The clearance under a typical couch dictated the robot’s height. Using these functional requirements, the engineering and design teams were constantly iterating to create a functional product that looks good.

But design also needs to be manufacturable in volume. It can be a very painful journey from a cost, time and emotional perspective when a company falls in love with a design that can’t be built whether due to expense or mere impossibility in constructs.

The key to being innovative, yet on schedule is leaving enough room in the schedule to accommodate the required debugging and quality testing. The best results come from close communication between the designer and the manufacturer so both can push each other productively.

Additionally, an often overlooked but important piece of the design puzzle is packaging. The out-of-the-box experience sets the tone for the overall customer experience.  At the same time that it delights the customer, the packaging must also protect the product during shipping.  Consideration towards the environment and cost must be factored into the equation.

Finally, hardware products on crowdfunding sites have to think about design a bit differently. Since the consumer can’t actually hold the product being crowdfunded, the product team needs to create a compelling design that makes consumers lust after the product by utilizing the channels crowdfunding entrepreneurs have available to them; namely product images and video. Yet, great care still must be taken to ensure the team has done their homework and not enticed backers with a stunning design that is not practical to manufacture.

Building A Hardware Company: Four Ingredients For Success

Since the inception of Dragon Innovation in 2009, the core mission of helping hardware companies succeed has guided us. From a high level, there are four critical ingredients for success:

  • Great product
  • Great team
  • People to buy the product
  • Capital to scale

We started by focusing on our clients’ products by serving as an API for manufacturing, helping companies navigate from a functional prototype to high volume manufacturing. An example is Pebble, who had run a very successful crowdfunding campaign and then needed to rapidly scale up manufacturing.

Along the way, there was a natural evolution where we would often assist our clients with building out their teams by using our network to make high value connections ranging from the placement of electrical engineers to VPs of Operations.

Last fall, we launched Dragon Crowdfunding to help connect entrepreneurs with passionate customers, eager to buy their products.

Today, I’m thrilled to announce the Dragon Million Dollar Challenge. For companies that raise or exceed $1 Million on their Dragon crowdfunding campaign, Dragon Innovation will write the entrepreneurs a $100,000 check in the form of a convertible note.

As we know from experience, capital is critical for scaling a hardware company. By being able to contribute to high potential companies immediately after their Dragon Crowdfunding success, we can give the entrepreneurs a safety cushion to hire additional people, cover any unforeseen issues, and aggressively scale their companies. Having Dragon in the Cap Table also signals to investors that the team is on track to deliver, and has a clear path to get product into the customers hands.

By supporting the four main pillars to a hardware company’s success, Dragon Innovation continues to push on our core mission while at the same time enabling the Hardware Revolution. And for us, this is only the beginning.

What I was amazed to learn on my trip to China

Guest Post by Hardi Meybaum (CEO/GrabCAD)

A few months ago, I had the opportunity to visit manufacturers in China with Dragon Innovation. I couldn’t have traveled with a better team - Scott Miller, Herman Pang, and the Dragon team are experts in the Manufacturing scene there.

Hardi Meybaum of GradCAD (left) and Ben Einstein of Bolt (right)

It was an important trip for me because China is really becoming the heart of manufacturing, with 65% of all hardware being built within a very small area.

The trip was also important because many of our Workbench customers are using the software to collaborate with Chinese factories. I wanted to understand the collaboration problems from the “other side”.

I have visited hundreds of factories in the US as well as Eastern and Western Europe, but China blew my mind. The creativity and efficiency I saw there really amazed me.

Fast and efficient manufacturing for less money

Hardi Meybaum of GradCAD holding a die cast toy fresh off the line

The biggest impression I came away with after this trip was that Chinese factories are incredibly disciplined. Both the workers and engineers are 100% focused on getting the job at hand done. In lock step with their dedication to discipline is efficiency. Despite what you might think, if automating an assembly line makes sense, they don’t hesitate to do so. And when they do, they come up with solutions that would amaze even the most efficient German engineers!

The Chinese factories I went to are always looking for ways to drive more value for their customers, many of whom are in the US. They are striving to manufacture hardware faster and at less cost- and are creative at doing that. For example, one factory explained how they needed Bluetooth as part of a particular hardware product they were manufacturing. So they actually created their own Bluetooth solution and had it certified, allowing them to manufacture for much less.

Collaboration between China and the US

Hardi Meybaum of GradCAD presenting to the factory

For the Chinese, another key element to creating value for overseas customers is improving the methods of communication and collaboration. A lot of factories are looking to expand their business beyond their traditional OEM products. They want to start doing more prototyping and co-design with their customers in America and Europe. The question is how do they do that.

The typical factory that I visited had more than 20 CAD users. Pro/ENGINEER is the dominant software used but SolidWorks is clearly gaining traction. While the idea of PLM for file management seemed promising as a solution, the people I spoke to were extremely dissatisfied with PLM tools. PLM is too expensive, too hard to train their engineers on and not useful for the collaboration that is so crucial to them.

Learnings

Like many people, my impression of Chinese manufacturers was based on the idea of cheap labor and simple products, and I have to say it was completely turned around by this trip. I also learned a lot about how hard it is for American companies to work with their Chinese partners. It’s clear to me that American companies really benefit from a partner who can help them navigate the cultural divide. A partner like Dragon Innovation can really help US companies avoid making critical mistakes early in the relationship.

The other key takeaway from my trip is that distributed teams is the future. We started GrabCAD with the theory that designing, engineering and manufacturing will continue to get more distributed as teams seek highly specialized skill-sets. In the past it has been difficult if not impossible to coordinate a toolmaker in Guangzhou, a simulation engineer in Kiev, and a product designer in Boston, but now it is becoming a reality. China proves the the hurdles to collaboration are coming down as the manufacturing industry gains experience working in new environments, software, culture and so on.

If you’re working with Asian suppliers, I’d love to hear your comments about what you learned and what mistakes you may have made early on.

CES 2014 Takeaways

CES is cool again! What was once a giant display convention has now returned to showcasing the full spectrum of near future hardware – plus some incredibly cool new displays out there with 4k, curves and native 3D.

4k displays

The three big themes to rise to the top: Robots, Wearable Tech and 3D Printing. We, of course, love this because these are three things we know a lot about, given our roots at iRobot and our longstanding relationships with Pebble, MakerBot and others who are disrupting these categories.

3D printed drums

3D printing is no longer an inaccessible new technology; in 2013 it went mainstream. It feels like yesterday that we started working with MakerBot when they were a handful of passionate visionaries with a dream and a BotCave in Brooklyn. We are in awe of how fast they have scaled over the last couple of years to be the belle of the ball with an incredible showcase of their technology. Pebble was once again a star at CES with the announcement of Pebble Steel. It’s easy to forget that less than 18 months ago they were a bootstrapping team tasked with delivering 85,000 watches to their backers.

It’s been extremely gratifying to work with these teams as they continue to grow and thrive, paving the road for more established companies attempting to catch up to them – a scenario that wasn’t even imaginable a couple of years ago.

There was a growing trend of hardware manufacturing in smaller unit sizes with fast turnarounds and higher device complexity. These are the kinds of clients we love to work with: innovative new companies with big ideas that we can help grow and scale.

SifteoRomotiveOrbotix: it was a who’s who of the hardware community, and an opportunity to hang out with clients whom we have worked with for many years. At times, CES 2014 felt more like a Dragon family reunion than an electronics tradeshow!

I also enjoyed watching our newest clients who are on the cusp of something great - CoinRest Devices (partnering withIntel), Atlas Wearables (Hardware Battlefield finalists) – and had fun envisioning where they will be a year from now. History tends to repeat itself so I’m guessing their future is very bright.

When I started Dragon Innovation in 2009, it was with a very simple mission: Help entrepreneurs succeed. Five years later, that principle continues to guide everything we do and it was an incredible experience to see this mission really come to fruition at CES. Can’t wait to see what happens in 2014!

Saving crowdfunding from destroying the hardware revolution

This article was featured as a guest post on GigaOM

SummaryBefore entrepreneurs rush to a crowdfunding site with dreams of glory, they should think hard about how their prototype and eventual product will scale. Here are a few steps to avoid a mess.

Remember the old days of launching a new hardware product? The process went something like this: A company would spend several years and millions of dollars in stealth mode developing a new consumer product. To validate the market and understand the feature set and price point, it relied on focus group testing and Voice of the Customer sessions, all which typically told the company what it wanted to hear and cost a lot of money.

Eventually, the market would determine whether the product was a success but at a significant capital and opportunity cost. If the reception was not as warm as expected, it was very difficult and expensive to change course. The process was both flawed and ultimately stifled innovation, yet until very recently was the standard practice to bring a new product to market.

Then the hardware revolution began

Fortunately, things are changing. The Hardware Revolution has truly begun. Barriers have fallen and innovation is being democratized such that small teams of brilliant entrepreneurs can now quickly grow companies that create entirely new experiences in never before seen categories. Recent examples are companies like Pebble, MakerBot, GoPro, Nest, and many more.

So what’s driving this revolution? They include:

  • Cheaper components, such as Bluetooth and Wi-Fi radios, accelerometers, batteries, etc.
  • New business models enabled by gathering real world data and sending it to the cloud for high-level processing and sharing.
  • Access to high-level modules available through GrabCAD, GitHub and Upverter so that companies don’t need to re-invent the wheel.
  • Low cost mechanical prototyping via 3D printing (such as MakerBot) and quick turn tooling (such as ProtoLabs).

However, getting a working prototype is just the beginning. A company will still need capital to build awareness, validate the market, and manufacture the product. The critical enabler for smaller companies to move from prototype to production is crowdfunding. Now consumers can vote with their wallet by backing an innovative product before it is made. This provides more authentic feedback than artificial focus group testing and is far cheaper than rushing right into the development process.

For consumer electronic hardware products however, there is significant downside if you don’t do your homework before launching the campaign. Unfortunately, it is all too common that many campaigns launch without even a basic understanding of the manufacturing process and as a result, fail to deliver to the backers.

This is top of mind for me right now, because I’m currently in China taking a group of our clients on tours of factories. It is truly eye-opening for them to see the multiple steps after the prototype stage involving tooling, molding, assembling, testing and shipping. I can only imagine what their crowdfunding campaigns would look like for lack of this insight.

The reality is, if it continues to be the norm for teams to launch crowdfunding campaigns without an understanding of the full product development process from the very start, there is a very real risk of destroying the Hardware Revolution.

The solution? Follow me if you want you to live

Crowdfunding is an incredibly public experience, and it is very difficult to hide mistakes. Success in creating a product, and ultimately a company, requires much more than just the “campaign.”

Over the last year, we’ve seen a constant stream of entrepreneurs coming to us after completing a “successful” campaign that didn’t account for even basic manufacturing costs. The result was that they made commitments to backers that were impossible to keep. Although “successful” in reaching the funding goal they had set, that goal was too low due to a lack of a manufacturing strategy from the start.

Before launching, it is essential to thoroughly analyze and understand the bill of materials (BOM) line by line, the cost of each component in volume pricing, as well as labor, packaging, markup, scrap and overhead. In addition, tooling adds a significant cost, and is often forgotten.

One needs to understand how far along the prototype is from a design for manufacturability and assembly (DFMA) standpoint. Is it a 3D-printed part full of undercuts that are not moldable? What are the steps involved going from the prototype through full-scale manufacturing and fulfillment, and how long does each one take?

Crowdfunding is a powerful tool if used wisely, as it reduces risk for the Entrepreneur and investor. To attract capital, entrepreneurial companies can demonstrate proof points that consumers are willing to buy their product, then go on to show that the product can be manufactured and delivered on an understood schedule and budget based on the funds raised during the campaign.

This process achieves three goals:

  • Greatly lowered risk in building a product nobody wants.
  • Ability to secure a significantly higher valuation for the company than would have been possible pre-campaign.
  • Creation of greater awareness in the market to drive future sales at a much lower cost and higher efficiency than traditional paid advertising.

Crowdfunding is just one part of an amazing new set of tools that will enable the next generation of disruptive companies if used properly. It is enabling the creation of a whole new wave of exciting companies who are creating products to make the world a better and more exciting place. Like all tools, if misused in untrained hands it can do great harm. We are just at the beginning of the Hardware Revolution, and history is ours to write. Game on!

On the road…again!

While travel is not for everyone, I love it for many reasons. With Skype and email it has of course become easier to connect with everyone who has an impact on our business all over the world; our clients, potential entrepreneurs interested in working with us, even the Far East factories making our clients’ products. However, I find the in-person connections are what really drive new ideas and innovation. My travels this past week included attending the RoboBusiness Conference where I participated on a panel discussing how to take a product from prototype to high volume, followed by a trip to New York for a really thought-provoking and fulfilling board meeting.

In getting the deck prepared for the Board meeting, one of the highlights was sharing the lessons learned working withHammerhead Navigation who just finished up with a raise of $190k above a $145k goal. It was incredibly rewarding to work so closely with this team.  We all knew there was something to this product and by coming together, strategizing and creating a cohesive marketing plan, we knew the project could be funded.  A word of advice to any team crowdfunding a project: never give up! There are always stones to turn, different angles to try and new consumers to convert. Through all of this, we’ve developed a great friendship with the Hammerhead team.  Traditionally when we engage with our clients with our manufacturing services, we set it up so that we are an extension of their team. It’s rewarding to see this same model developing as we help our clients fund their products in order to take that next step in scaling.

On the subject of new products, we’re happy to introduce Nodal Ninja TeraDribletand Fiesta-Five to the funding platform. While each unique, they all share similar traits: they’re innovative, they can be built and delivered, and they all have great teams behind them. Some products may change the world, others may change your day and bring a smile to your face. When a product creates a reaction, there’s something to it. We’re psyched to help these teams on their journey to bring their products to their customers’ hands.

As for me, time to board a plane to one of my favorite parts of the world, China! We’ll meet up with the Dragon Far East team initially and then travel into Mainland China where we’ll visit multiple factories both for the purpose of checking in on our current clients’ manufacturing and then meeting with and vetting new CMs who we can connect for future clients’ needs. It’s always fun for me to bring people to China who have never been, so this should be an adventure with members of DragonBolt, and GrabCad along for the ride. I’m sure we’ll have stories to tell. Until then, happy travels!

The First Month and What Comes Next

It’s been an incredible month since we launched the first wave of projects on Dragon’s new Hardware-focused crowdfunding platform. During this time, we’ve grown from an established consulting company into a consumer facing web startup.  It became clear to me how different these worlds are when Thos (VP of Product) and I were recently looking at a cool 3D printing website.  Simultaneously our reaction was, “Wow – that is so awesome!”  The only difference was that I was reacting to the robot and Thos was reacting to the website.

It’s an amazing journey and we’ve learned a lot.  The wisdom of our friend, Jim Lynch (inventor of Lego Mindstorms), “you gotta build it to build it” was yet again validated.  As with the products on our platform, testing out a new product in public is both exhilarating and terrifying.  You put yourself out there, warts and all.  It was incredibly rewarding to see how well the platform was received and learn more about areas that worked well, and things that needed another coat of paint.

We reaffirmed the critical importance of the up front planning process.  When a company comes to us to launch a campaign, they are connected with Bill, our VP of Engineering, who dives into an in-depth BOM, DFMA and Manufacturing strategy review.  Based on the results (which can take anywhere from one day to two weeks), the company either moves forward or is given suggestions on how to address any items that could affect their success.  Things that prevent a company from launching include incomplete product design, an incomplete Bill of Materials, non DFMA’d design (which results in excessive fixed costs such as tooling), and low gross margins that make it nearly impossible to cover the fixed costs.  Often times, Bill will work directly with the entrepreneurs to actually help them redesign their product.  The teams can make the necessary adjustments – a process that can take days to weeks – and then the campaign preparation moves forward.

We are deep in the planning phase with the next batch of really cool projects launching at the end of October. And while we know there is much work and growth that needs to happen, we can come away from this first month with the confidence that we have laid the foundation for a platform that is truly for Makers.  The best is yet to come.

Catching the Hardware Wave

Last night at HardwiredNYC, I had the opportunity to share the stage with the founders of Arduino and Raspbery Pi.  I focused my presentation on how to model the Costs of Goods Sold (COGS), which is essential to creating a successful hardware crowdfunded campaign.  Admittedly, costing is not the sexiest topic but it is absolutely essential to get right before running a hardware crowdfunding campaign.  For all projects that launch on Dragon, we spend considerable time with the entrepreneurs analyzing their BOM to ensure they set the funding thresholds appropriately to ensure they can make good on their promise to deliver product to their backers.

The HardwiredNYC meetup was a great way to wrap up a whirlwind month of speaking, meetups, presentations and helping our entrepreneurs meet their crowdfunding goals.  Congrats to Tessel, DASH, and Ollie for already surpassing their thresholds!  It’s been great to watch Hammerhead NavigationRest Devices’ MimoLIMBERboard, and Run-n-Read create a dedicated community of backers and make incredible progress towards their goals.

Getting ready to launch a new wave of products is exciting.  It is an amazing experience to work with gifted entrepreneurs to help them setup a successful campaign by diving into COGS, DFMA and manufacturing strategy so that they are confident that they can deliver once they meet their funding thresholds.

We’ve worked closely with each company to set realistic goals, realign what hasn’t worked and help them get to the prototype stage feeling confident that what they are building actually works and is well positioned to go to market.

Today, we have a new wave of hardware projects launching and the Dragon Innovation team is thrilled to help each one meet or exceed their goals. Check it out:  Lumi is an LED user controlled umbrella designed in collaboration with PilobolusTwistVolt is a sleek configurable power strip that is energy efficient, and ZBoard is an electric powered skateboard with speeds of 18 mph.

We would love to hear from those of you in the maker and hardware community and welcome guest bloggers. Let’s be the change agents that reverse the stat that almost 75 percent of start-ups either deliver late, or never at all.  Thanks for all your support!