Manufacturing start-ups – effective partnerships
As a startup you may have a great idea but you can’t do it all on your own. You need access to additional expertise, help and of course investment. Forming the right partnerships in the early days could make the difference between success and failure so let’s see where you can get that help …
When you start you may simply need advice and mentoring in how to run a business and possibly some seed funding as you develop your business model and your product. This is very much the nurturing phase of your business.
Incubators
At this stage a startup incubator programme can be a big help. They may provide office space and networking opportunities plus access to some early-stage investors. It pays to do your research because some are industry specific while others are more general.
Accelerators
Once you are more confident, have validated your product and are ready to take it to the next phase a startup accelerator will help you grow. Accelerators will give your business access to all sorts of services including mentoring, networking, legal assistance and access to investors.
A startup accelerator will help you validate your idea before you become too committed; it can save you a lot of wasted time and money. But there is a cost and that cost is often a share of your equity. Again, it’s worth researching and finding an accelerator that has a proven track record of producing successful startups in your business area.
Finance
Most critically you will need finance. There are of course several sources of funds including your own money, loans from family and friends, grants and from crowd sourcing. Each have advantages and disadvantages and need careful thought.
For a first-time manufacturer though you will probably need greater funding than any of these sources can provide and you will need staged funding at different phases of your new business.
This is where an angel investor or venture capitalist can come in. You may be introduced to them via an accelerator platform or you might find them via research or engaging with them on platforms such as Linked In.
Both parties need to benefit and for the investor that means that they want a high return on their investment. You need to be prepared, have a convincing business case and explore how they will make money – this often involves an equity stake and a clear exit strategy.
Generally, venture capitalists tend to favour businesses that are ready to scale rapidly and have been through the initial validation processes.
A word of warning VCs can be a bit of a poisoned chalice for some businesses because they want fast growth and may push for higher risk strategies rather than more gradual organic growth. Finding the right type of investor that is willing to back you and your team is crucial – make sure that you do your research. Have they got experience in manufacturing startups and in your market and do they have a track record of success? And ask yourself whether you are a good fit for them in terms of their time frames for return on investment and their objectives?
Corporate partnerships
One of the biggest potential problems that a new business will face is access to the market and customers – especially as they are often an unknown quantity.
This can be overcome in part by forming a partnership with a larger business, whether that is another manufacturer or perhaps a distributor. The benefit for the startup is obvious – access to the market, technology and equipment, and possible finance and expertise that you have not got inhouse.
Large corporates also benefit as witnessed by the number that have active venture units. They need to innovate to both stay ahead of competitors and to be part of the disruption that could otherwise see them go out of business. Ask any large corporate and they will cite that they need more innovative thinking and to attract more talent and free thinkers into their business; unfortunately, large organisations are often not structured to encourage this, so many outsource some of their R&D and innovation.
On paper this may seem like a partnership made in heaven, but in practice there are many pitfalls. Not least is the difference in culture, one partner is agile and eager to progress quickly, the other more cautious and risk adverse demanding proof. As a startup you need to ensure that you partner with the right business and that you have buy in from both senior personnel and those that you will be working with. You also need to avoid being shoehorned into just one area of the business.
Find the right corporate partner with the right attitude and it can be an extremely successful relationship for both parties. But tread carefully and make sure that you understand what you want and also what they need before you commit. A report by McKinsey found that most corporates stopped investing in startups after 2 or 3 years and only 28% of startups said that they were satisfied with the partnership.
Supply chain partnerships
As a startup manufacturer you also need to ensure that you get your supply chain right – both to ensure on time delivery of parts and components, but also to access expertise that you may not have within your own business.
To attract initial interest and investment you need to validate your concept and to do this properly you will need prototypes for show and tell presentations to test for form and fit and probably to test market your concept. Venture capitalists for example want as much proof as they can get.
You also need these prototypes quickly and you may need to reiterate the design either in response to feedback or to make them more manufacturable using your chosen production process. Eventually you need a product that you can produce cost effectively that you sell at a reasonable profit.
You may not have all the expertise in your business to make this a reality so search for help where you can get it. Suppliers to your business are one obvious source.
At Protolabs for example we can provide that critical design to production expertise. We can get prototypes back to you in as little time as a day from uploading your CAD into our Protolabs 2.0 platform which will also provide you with a design for manufacturability report.
This is an early sense check; it is free of charge and you can use it as many times as you like before committing to production. For real value though you may need to go beyond automation to benefit from the expertise and cognitive thinking that an engineer has in your chosen production technology. For injection moulding, 3D printing and CNC machining we can help you with this.
You can even outsource production to us in the early stages of your business to delay the large investment in equipment that you need to make and to further validate your product before you commit your seed capital.
As a startup you need to get all the help that you can; you cannot be an expert at everything and you may well need funding from investors to get off the ground. Picking the right partners to help you navigate through these early years could well determine the difference between success and failure. Get it right and they will help you build a business to be proud of.