Manufacturing Strategies for Start-ups: Start Flexible.
By Jim Kasic, Founder & Chairman, Boulder iQ
December 5, 2022
Your medical device may have the potential to be groundbreaking, life-saving and marketable. But it won’t be any of those things unless you can manufacture it in a way that gets it to the market as quickly as possible.
For almost every start-up, time is revenue. Accordingly, the biggest challenge in manufacturing is time. Developers need to be able to make product quickly, and get it on the market as soon as possible. However, many developers lose sight of this overarching goal. The result can be disastrous.
When it comes to manufacturing, learn how to work flexibly, and how to work with a small-volume manufacturer that can help you achieve your goals in progress.
1. Look beyond unit cost. Understandably, start-up developers are usually trying to drive to the lowest-cost product in the first year of production. Low unit costs from a large-volume manufacturer can look very attractive. But that low cost can be deceiving, and come at the expense of flexibility – which can turn out to be a very real and very large expense to a start-up.
Consider that manufacturing of initial product runs quickly often requires small lots, which runs counter to the operations of large-volume manufacturers. First, they generally need to have every component and every process locked down before beginning any manufacturing. So if you are looking to make a lot of 1,000, but have a quantity of only 990 of one component, you will need to wait. When time to revenue means everything, waiting often isn’t an option. Suddenly that great unit cost doesn’t look so great.
Consider, too, the impact of change orders. A fact of life for start-ups, change wreaks havoc in the standardized systems of large-volume manufacturers. Implementing any change once an order is set – even if actual manufacturing has not yet begun – will take a long time and will come with substantial cost.
In contrast, a smaller-volume manufacturer used to working with start-ups will be flexible and knowledgeable about the typical issues that arise. Handling small lots will be their specialty. They’ll use just-in-time (JIT) techniques, and generally charge on a time-and-materials basis, allowing the
developer to get product on the market quickly. Be aware that overall pricing structure is commensurate with this approach. Don’t ask for a quote to build 100,000 units and then think that the per-unit price will be a strict 1% calculation.
2. Expand your supplier profile. Often, start-ups only qualify one vendor for each part. It may be faster and seem easier, but it’s far better to have several different suppliers for each component. Particularly today, as supply-chain issues continue, it pays to make the effort here. You’ll gain flexibility, ease manufacturing pressures and lower stress levels.
3. Be prepared for product and process improvements. The reality with start-up devices is that early manufacturing runs will highlight problems and pinpoint needed iterations. Train your mind to stay flexible and prepare to move fast with these changes. Do your homework to find a manufacturer that will be open to changes, and that can keep up with them.
4. Stay close to home. Manufacturing locally – when possible – provides the greatest degree of flexibility. On the other end of the spectrum will usually be the overseas large-volume manufacturer. While pricing makes it tempting, be aware of potential issues that could impact your time to market – and revenue. Frequently, there can be issues in obtaining the documentation packets needed for medical devices. In other cases, it can be difficult to transfer manufacturing out of another country down the road. It pays to think ahead.
As an example, here at Boulder iQ, we had a device start-up client that received its CE mark to sell in Europe. Because the company’s cost of goods did not provide a strong enough margin for long-term success, they shut down manufacturing with us and took it overseas. As a result of complications of working with the large-scale manufacturer and its strict processes, they were unable to get manufacturing off the ground. The company ran out of money and was forced to close before it could sell a single unit.
5. Have short-term, medium-term and long-term plans. For maximum flexibility, avoid getting stuck on generating a high margin early on.
- Short-term (now): Yes, margins are important, but as a start-up, your top priority is to get product out there on the market and obtain customer feedback.
- Medium-term (12-18 months): Focus on modifying and finalizing your device based on that feedback and early results.
- Long-term (2 or more years): Move to high-volume manufacturing and making a good profit.
Walk before you run
Start-ups can become so worried about making a high margin early on that they never complete the journey. That means never generating real revenue and never getting to the point of becoming a serious funding or acquisition target. If you’re seeking funding, remember that potential investors love to hear that the market loves your product, and what you need is capital to drive cost down. If you’re fortunate enough to have an acquisition, the acquiring company will be able to work with you to drive the cost.
Take it one step at a time, and make sure you take those first manufacturing steps carefully. Unless you’re incredibly well-funded and are absolutely positive your product won’t experience any changes, crawl before you walk, and walk before you run.