Many inventors put great effort into developing superior and ingenious products, but fail to build successful businesses from their creations. Many different factors come into play when taking a new product to the market, but one single root cause can perhaps explain most commercial successes and failures: the use of capital.
Capital and Obsolescence
Obsolescence poses a problem for startup businesses, especially inventors. From a small manufacturer’s perspective, it is increasingly difficult in today’s fast-moving marketplace to justify purchasing equipment if the equipment comes with a long payback period. As product life cycles continue to shorten, the risk involved with purchasing capital assets increases. Overcommitting resources to a product that has not been properly vetted and tested in the marketplace can leave an entrepreneur saddled with unsellable inventory and excess capacity.
The Move Toward Outsourcing
In recent years, shorter product life cycles and faster technological evolution have created numerous challenges for businesses. Acquiring capital and hiring full-time employees both pose the same problem: they create present overhead expense based on the expectation of future payouts. For inventors, overhead is especially problematic. When a product has no history on the market, risk is at its highest, as demand may be short-lived. For this reason, inventors have wisely moved toward outsourcing as a go-to-market strategy. Outsourcing effectively offloads a large portion of the risk that comes with acquiring capital and hiring employees. Here are a few distinct advantages of outsourcing for an inventor.
Do What You Do Best and Hire Out the Rest
Instead of spending time maintaining equipment, managing employees, working out the bugs in manufacturing processes and ordering piece parts, inventors can focus on their chief area of expertise and allow a contract manufacturer to handle common manufacturing problems.
Anticipate Production Costs
The cost of manufacturing a product at scale is a critical lynchpin when it comes to determining the future viability of a product on the market. Manufacturers are more familiar with the hidden costs of building products and better able to recommend processes that allow a product to be sold at a competitive price. Few inventors have the expertise to project production costs on their own, especially over the long haul.
Faster Time to Market
By partnering with a contract manufacturer to develop a prototype and scale up production, an inventor can significantly accelerate the product development cycle. Contract manufacturers already have equipment, personnel, and standard operating procedures in place.
Pay for Only the Capacity You Need
Outsourcing makes use of shared infrastructure and other resources. Buying a dedicated machine requires enough demand to keep the machine running full-time. Hiring an employee necessitates enough work to keep the employee busy. Contract manufacturers allow inventors to produce prototypes and small batches to quickly test the viability of a new product.
Mitigate Liability Risk
Since outsourcing does not require hiring employees, an inventor can avoid (or greatly reduce) the potential for liability stemming from factors like workplace injuries and product recalls.
Developing a product—and a cost-effective process to manufacture it at scale—often requires more expertise than a lone inventor/entrepreneur can bring to the table. Contract manufacturing allows an inventor to take advantage of trained experts such as process and safety engineers.
Today’s hyper-competitive and fast-moving marketplace demands increasing agility and speed. Inventors have much greater chances of creating successful revenue streams from their inventions by making strategic use of outsourcing at each stage of business development.