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The Rise of the Startup Manufacturer

An Article in Schott, P.C.’s IP Law For Start-ups Series
By Stephen B. Schott

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“Some software startup founders are evolving into product startup founders. It’s an interesting trend.” A product startup founder said this to me over coffee a few months ago. Since then, I’ve been giving what he said some consideration. Has the time of the startup manufacturer come? Or, given the pre-70s stereotype of the garage startup business, maybe the question is better put, “Has the time for the startup manufacturer returned?”

Companies like Jawbone and GoPro answer yes, as does a recent Wall Street Journal articlethat estimates over 800 million venture dollars were invested in hardware startups last year, almost double the number from 2012. Why the sudden shift?

Communication. 23 years ago, I was an engineering student with access to cutting edge computers. I encouraged my now wife, a humanities major, to go to her university’s computer department and open a “VAX account” so she and I could email. When she showed, up, she had to convince them that she really needed the account (she didn’t) and then and that she knew how to use it (she didn’t). Thus began her first experience with email. Spring ahead two decades and just last week, I had two videoconferences with India and one with Spain. In one conference, we were marking up drawings as we chatted and even showing and discussing a device that one person had in their hands.

That ease of communication makes discussions with large scale manufacturing centers in Asia not only possible, but easy. This takes the ability to manufacture products out of the hands of giant companies and puts it within anyone’s reach.

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3D printing. I visited a product development company earlier this year whose prototype design process has undergone a dramatic shift in the last few years. Walking though a relatively quiet machine shop, it was striking how much things have changed. Now what once took several days of expert machine work only requires that a designer hit print before going home for the day. In the morning, he has a plastic prototype. And if you haven’t seen a high-end 3D printer, they produce amazing products: items with moving parts, wheels, hinged doors, and detailed articles that approach production quality. As the cost of these printers decreases and the quality improves, manufacturing will become even easier for startups.

Design capability. Computer drawing and modeling is now so straightforward that almost anyone can do it. And the modeling includes being able to test material components and material stresses, which skips expensive rounds of prototype and failure.

Hiring experts. Product teams moving an idea from concept to product require many people: designers and engineers with varied scientific backgrounds, salespeople, business leaders, administrative support, lawyers, and others. The startup’s challenge is that it usually lacks to budget to hire all of these people, so in the past, the startup employees wore many hats: The software engineer might also do sales and design. The administrative support person might be the bookkeeper.

But these days, experts are easier to find and connect with. Even if a startup’s network does not include, say, a regulatory lawyer, a survey through LinkedIn should yield someone who can help just two contacts away. As LinkedIn constantly reminds me: My connections connect me to over 10 million people.

And even better, because the startup can find so many experts, it can probably find more than one and negotiate pricing or question them about their expertise to establish a level of comfort before hiring them.

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Manufacturing startup hubs. Companies like NextFab in Philadelphia provide a co-working and support space for manufacturers, where this business model was once only available to software and services businesses. NexFab offers its clients 3D printer capability, laser cutting machines, textiles, metal and wood shops, a photography studio, and access to expensive design and engineering software.

Availability of goods. If you need a Langstrom 7” gangly wrench, you can probably get it shipped to you next day in quantity. Think of the miracle that as several million people place iPhone 6 orders today; they will ship from Shenzhen China on the same day and be in your pocket two days later.

Venture capital. At least in the US, but as I’ve seen first hand in other countries, it has never been easier to merge a great startup company and the money to back it. The key is still to have the “great” startup company. All the bad ideas that you see on Shark Tank won’t get funded but if you’ve possibly got the next big thing, and have the right combination of passion and business sense, you will find backing.

So what are you waiting for? Go make something…but please be sure to patent it.

If you have questions, contact me.

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