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Supply Chain
Reducing Time to Profit — The Most Important Objective For Startups
By John Daker, Vice President, Riverwood Solutions
“better decisions, better products and better profits” seems to resonate with them. Just as often, we are put into startups by venture capitalists (VCs) or private equity firms looking to en- sure that their cash is spent wisely. Both of these parties have a common interest, and that is to get the compa- ny’s invention manufactured and ful- filled profitably in the shortest amount of time.
A
Success or Failure First-round funding is as avail-
able now as at any time that I can re- member. Crowdfunding sites like In- diegogo have made first-round fund-
t Riverwood Solutions, we are often hired by startups. Our approach, which drives toward
ing more attainable and more demo- cratic by allowing consumers to vote with their dollars. Angels, VCs and private equity firms are keener than ever to invest in hardware ideas, par- ticularly in such popular areas as the wearable, IoT and medical electron- ics markets. However, second-round funding
is not so easy, and the barriers to get- ting to that stage are just as chal- lenging as they have been in the past. VCs and private equity firms expect more failures than successes, and many companies run out of cash before they are able to sustain them- selves, or to prove the value of their business model. In short, they take too long to get to profitability. This is not exclusively the case.
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Sometimes, other milestones take precedence, such as FDA approval, a patent application, a proof of concept, but more often than not, the real milestone is turning the tide from cash out to cash in.
Getting to Profitability Fast In the hardware world, there
are a number of elements that en- sure a company can reach its goals before its money runs out. First, does the company have enough of those two key elements: time and money? Many companies start with an unre- alistic view of what it costs and how long it takes to convert their working artifact into a manufactured product, let alone a profitable one. Understanding from the outset
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the cost of processes, such as product realization, tooling, material and vendor selection, and supply chain design, is a good start. One of my fa- vorite quotes from a customer we helped was, “We didn’t know what we didn’t know.” Those “unknown unknowns” are where most entrepre- neurs stumble, and where both time and money can be eaten up. In short, a company needs enough time and money or will otherwise burn through all its cash before it reaches a stable place. It will either fail, or be in too weak a position to negotiate the further funding it needs to get to profitability and self-sustainability. Next, has the company got the
expertise and experience to go from inventor to manufacturer? The an- swer to this question is almost al- ways no, but not everyone wants to admit it. Another quote that comes to mind is from the COO of a large EMS company, “Manufacturing is not that hard if you know what you’re do- ing…if you’ve never done it before, it’s pretty much impossible.”
Helping Others Help Themselves At Riverwood, we outsource the
services that we don’t have experi- ence in. We help our clients out- source their manufacturing when it is appropriate, but it is very hard to relinquish those C-suite roles, such as finance or operations. For me, the test is simple when deciding what to keep in-house and what to outsource, especially as a startup. Is the ele- ment key to the company brand or to intellectual property (IP)? Is it core to what is going to help the company to “change the world” and dazzle cus- tomers? If the answer is yes to either, the company should be looking to hire that skill. If the answers are no,
John Daker, Vice President, Busi- ness Development, Riverwood So- lutions, is a career operations, en- gineering and supply chain profes- sional with more than 15 years of global operations experience. He has held engineering, operations, and program management roles at several companies including NASA, Flextronics, NHT, Power- File, and Tesla Motors. John has worked with products in consumer electronics, networking, photonics, and managed manufacturing facil- ities producing audio components and electric vehicle power trains.
then the business should concentrate on what it promised its investors and let someone else have the stress of the rest, at least while the company is in a fledgling state. Investors put their cash into people who create and deliver new ideas, not into account- ants and operations managers. The key elements of reducing
time-to-profitability are excellence in each of the following:
Product Realization. Getting the product fit for purpose and fit for manufacturing in as few iterations as possible.
Supply Chain Design. Designing a supply chain that suits the company, its product and its customers. The sup- ply chain must cover design, manufac- turing and fulfillment.
Vendor Assessment Selection and Management. Selecting the right geographical location to manu- facture in, which parts to outsource and which parts to make in-house rather than purchase. Also, assess- ing and selecting the right vendors, negotiating a good contract, and managing the local ongoing process, including troubleshooting, and moni- toring changes in technology and de- mand. r
July, 2016
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