Venture capitalists invest in new and rapidly growing companies that have very significant growth potential. Part of their role includes assisting companies in the development and commercialization of new products. To make a startup firm profitable, it is critical that the VC help the firm develop products that have significant profit margins. While business plans always show significant profit margins, the product cost estimates in the business plans can rarely be met using the first designs. In these cases Design for Manufacturability (DFM) can help close the gap between the actual cost and the target cost found in the business plan.
Because startups usually outsource many functions, there is rarely a large organization from which to draw a concurrent engineering team. A DFM Workshop tailored to startup firms can be an effective way of helping startups achieve their product cost objectives. This workshop involves the product designers, the suppliers with which the designers have been working, one of the company founders, and a facilitator. There are five steps:
1. List and understand all of the current manufacturability issues.
2. Document the process by which the product is manufactured.
3. Brainstorm and identify improvements to the design that will eliminate the major issues.
4. Develop multiple new design concepts.
5. Develop an action list to achieve the desired design.
While these 5 steps might sound simple, they rarely are because the product is truly new and often complex. The three critical success factors are:
1. The designer and the founder must be open to radical change.
2. The supplier must have significant experience manufacturing similar products.
3. The facilitator must be skilled at asking the right questions to obtain information, skilled at framing information he/she has heard, and technically savvy enough to help add value to the design process itself.
With the critical success factors in place, a DFM workshop can help venture capitalists achieve a larger return on their investment. This larger ROI will be achieved through a lower cost product and a shorter time-to-market.
Evidence and Expected Benefits
Medical device companies like Alaris have been using design-for-manufacturability for several years. Alaris’ company stock over the past 4 years (a time period in which most stocks have fallen considerably) has gone from a $3 stock to $17 stock. Much of this success is attributed by Alaris executives to their lean manufacturing and design program. Why couldn’t this same methodology be modified for application to a startup? And what would the effects be? Companies that employ design-for-manufacturability methodologies are usually able to reduce cost 20% or more; in many cases, these are established products that have had many design iterations. In the case of startups, the opportunity is larger. Technology and not designs are often the focus of startup firms, but using DFM to focus in on and improve designs will payoff for startups in the form of shorter time-to-market and larger margins. Venture capitalists can expect a significantly better return on their investment!
as a result.
Darren Dolcemascolo is co-founder of EMS Consulting Group (http://www.emsstrategies.com), a Carlsbad, CA based engineering and management consulting firm. Darren has successfully reduced cost and increased profitability for several major manufacturers utilizing Lean Manufacturing and Six Sigma methodologies. He has also helped client companies achieve substantial reductions in product time-to-market applying production readiness planning and product commercialization tools. Darren has a BS in Industrial Engineering from Columbia University and an MBA with Graduate Honors from San Diego State University. He is a member of the Beta Gamma Sigma Society in recognition of his graduate work in management and finance.
