If you’re a startup or small business, at some point you are going to hire a product development team. This seemingly simple task has sent many entrepreneurs to ruins. There are sharks in the water, well-meaning experts that will do the wrong thing really well, people looking to learn on your nickel, and lots and lots of people who do not understand the difference between large company product development and small business product development. It’s no wonder most projects fail to meet budget or revenue goals. Peer-reviewed studies compiled by the Product Development and Management Association (PDMA) show as many as 49 percent of product development projects fail, and there is anecdotal evidence to suggest it is much higher in small companies and startups.
Like most business activities, product development success is largely dependent on the decisions that the team makes, and these decisions are only as good as the team that is making them. Finding the right team is essential.
Avoid the sharks: The world of product development contains people/groups/companies that have no intention of adding value. They want one thing: your money. They primarily play on the dreams and desires of the unguarded. They all have the same MO – tell you what you want to hear and not what you need to hear. Your first clue is that if it sounds too good to be true, it is. Unrealistic budgets and schedules or the promise that “someone will buy your idea” are the two most common ruses.
Sharks tend to fall into two different categories:
1: “You have a million dollar idea”: They promise that someone, usually a company, will buy your idea. They will tell you how important it is to patent and market your “idea” – and of course, charge you to do both. Companies do not buy ideas – they already have too many of their own. Companies buy other companies that have products, customers and revenue. Anyone can get a patent – just add enough elements to the claims and it’s all yours. It is also worthless because there are too many ways to get around your specific solution to the problem.
2. Take the money and run: Almost all of these “companies” are out of the country – or someplace that you can never get to. They promise you miracles: low hourly rates, unrealistic budgets, etc. Once they have you hooked, they will ask for a deposit, and then they are gone. It can be very hard to spot these people. They often build fake profiles complete with 5-star reviews (all of which are fake). The easiest way to vet them is to go visit their location, or at least talk to a customer that you know for sure is a real company. Even this may not be enough, though.
Beware of the experts: There are well-meaning “experts” out there that will do the wrong thing really well. These experts often have a list of Fortune 500 companies that will sing their praises. They are generally really smart, and they know a whole lot about one subject. However, as the saying goes: “if you’re a hammer, everything looks like a nail.” Their expertise is anything but product development. Worse, they rarely do any work for small companies – and thus have a very distorted idea of how small companies develop products. They are successful with large companies because these large companies have the in-house expertise to manage them. They have project managers, processes and other experts to balance these well-meaning experts. First and foremost, you need a product development expert – preferably one that knows how to do product development in a small business.
Learning on your nickel: Most colleges only prepare engineers on how to learn. The actual learning is done on the job – not much different than doctors becoming a resident before being turned lose to work on their own. Large companies need to be world-class at certain core technologies and thus are happy to bring in these inexperienced engineers and teach them the ropes. To a certain degree, they can do some low-level duties that add value, but primarily they are being paid to learn – and thus why it is so important that they are retained for a long period of time.
As a startup, you do not need this learning or retention – you’re likely to pivot six times before you even know what your core is. You need experts that already know the answer. Hiring a student is more likely to destroy value than create it. At the very least, you need an experienced engineer to monitor and train these less experienced engineers.
Basement Engineers: It is not uncommon for engineers to hang their own shingle. Sometimes they are between jobs or supplementing income with a full-time stint, or they are interested in controlling their own schedules. It is not “wrong” to hire basement people per se, but one should understand the limitations. They are likely to be very inconsistent in terms of availability – and often quite entirely unavailable when they find a “real” job. They are also not a team with processes, management, and leadership. Although their hourly rates are usually modest, their productivity is low given they have to wear so many hats.
Hire your own engineers: A startup should never hire full-time engineers. This is the quickest way to burn through your cash. Full-time people are very expensive. Good engineers are very hard to get, and few are capable of working in an unstructured startup. In all likelihood, the business will pivot away from their expertise. Even if you don’t pivot, it is very likely they move from “hero to zero” as the business scales. Typically, you must offer them stock to compensate for the risk – and this can lead to all kinds of issues down the road.
Small companies should only rarely hire a full-time engineer. Certainly, it makes sense if there are key core technologies that you need to be world-class at. Most of the engineering work that is done in small companies is so sporadic that you will either have low utilization, or people trying to do so many different things that productivity is almost zero. Management and leadership will be difficult and expensive with such a small team.
Determine your core: What is the one thing that defines what your company can be, or is, better at than anyone in the world? This is your core. Arguably a Ferrari is the best sports car in the world. Ferrari will never outsource the design of the suspension system for their cars because the suspension defines a sports car. However, headlights do not define a sports car. You can’t sell any car without headlights, but you do not buy a sports car because it has good headlights. Headlights are not cored to Ferrari – so they just buy them from someone else.
Don’t outsource your core. If you’re a small business in a niche market, hire great engineers for your core (assuming product development is part of your core), and outsource the design of stuff that is not your core.
If you’re a startup, find world-class experts for your core. It’s very unlikely you can hire them full-time, but figure out some way to engage them – advisor, partner, by the hour, etc.
Focus on a good match: Find a product development company that matches your needs. If you’re a startup, find a company that only works with startups. If your budget is $100K, don’t go to a product development company where such a budget means you’re the last guy on their list. Look for companies that have reference designs that match your needs. Don’t get “wowed” by a list of Fortune 500 customers – that is not you.
Can they communicate: Product development is a complex mix of technology, marketing, and business. Communication is just as important as technical skills. If they don’t speak your language, they are not likely to be good at communicating with you. Do they listen? Are they comfortable pushing back on you if they think you’re wrong? Can they explain things to you in a way you understand? Do they have the acumen to understand the business fundamentals of how you’re going to make money from this endeavor?
What are their processes: The primary reason you are hiring a product development team is that they come with a set of processes that have been refined over a number of years. Make sure they actually have some, and the team is really a team that functions well together. A lot of the value is in the “team”. Anyone can hire a bunch of engineers that never worked together, but that does not mean they are or will become a functional team.
Location: All thing being equal (and they rarely are), the ability to have face-to-face communication is going to win. If you’re in a big city where technology is abundant, it is almost certain you can find a product development company that meets your needs. However, if you’re in a small city, or a city where technology is scarce, don’t be afraid of working remotely. Today’s world of email and video conferencing makes this a lot easier than it was in the past. If this is the case, build some travel time into the budget – at least once or twice a quarter.
Reference Design: Many startups and small companies need to keep development costs low. The easiest way to do this is with reference designs. Reference designs are part of other products that are recycled to create new products. The idea is to start the project ½ done with reference designs. This reduces cost and risk. Some product development companies are more adept at using reference design than others, and of course, each company will have a set of reference designs that may or may not align with your product needs. A reference design is a powerful tool for reducing product development costs. They should be part of your due diligence process.
BTW – reference designs don’t work in “big company” product development for two reasons. First, most big companies will not allow any work product to be used regardless of being competitive or not, and second, large companies need designs optimized for low unit cost. They will spend $50K just to reduce the product cost by $1 and recycled designs are rarely optimized to this level. If you want to take advantages of reference designs, you need to look for product development companies that specialize in working for small companies and startups.
About the author: Steve Owens, Founder, and CTO of Finish Line Product Development Services has over 30 years of successful product development experience in many different industries and is a sought-after adviser and speaker on the subject. Steve has founded four successful start-ups and holds over twenty-five patents. Steve has worked for companies such as Halliburton and Baker Hughes. He has experience in the Internet of Things, M2M, Oil and Gas, and Industrial Controls. Steve’s insight into the product development process has generated millions of dollars in revenue for start-ups and small businesses.