ENTREPRENEURIAL FRIDAYS SERIES Facilitator: Erick Mueller Workshop #4: Effective Operations for Entrepreneurs October 27, 2006 Entrepreneur in Residence

STATUS Workshop #1: Ideation. Identifying, Validating and Developing Good Ideas Workshop #2: Marketing & Sales for Entrepreneurs Workshop #3: Funding Options for Entrepreneurs Workshop #4: Effective Operations for Entrepreneurs October 27, 2006 Entrepreneur in Residence

OVERVIEW Who is this Erick Mueller bloke? Manufacturing Information Systems Customer Service & Support Accounting Finance Erick’s take on it Wrap-up October 27, 2006 Entrepreneur in Residence

WHO IS ERICK MUELLER? 1 of 12 children Founded 5 companies 3 successful, one current, and one flaming failure Bootstrap Adjunct Professor, University of Colorado October 27, 2006 Entrepreneur in Residence

MANUFACTURING OUTLINE Contract Manufacturing Industry How it works How it approaches Start-Ups Stages from Product Development to Volume Manufacturing Business Aspects Selecting a CM Financial Liability Legalities Funding Issues Must Do’s October 27, 2006 Entrepreneur in Residence

Contract Manufacturing Industry What is a CM? Experts at Manufacturing Not product driven Not risk takers How CM’s approach Start-Ups Request a Business Plan review Meet top management for business skills and experience Meet technical stars to sort out skills and Qualification and Certification experience Funding, ownership of exposure, No cash? Other options? October 27, 2006 Entrepreneur in Residence

Stages from Development to Volume Production Design Stage (Dev. Engineering Biased) Concept Small Proto (2-5 pcs) *1 Proto run (10-20) * 3 Pilot Run (70-100) * 2-3 Production Stage (Production Eng. Biased) Proto run (10-20) * 3 Pilot Run (70-100) * 2-3 Small Volume (100-1000) Big Time (1000’s) October 27, 2006 Entrepreneur in Residence

Development to Production: Concept Stage “Bread board” does it really do what we say it does? Design for Technology vs Design for Market? Who builds this? Local proto shop or small CM with proto capabilities They handle all material via distributors Challenge: Money Industry Know-How Standards Players (customers and competitors) Technology Roadmap October 27, 2006 Entrepreneur in Residence

Development to Production: Small Prototype Run Does it work in a different form factor? Fitting of other parts (enclosure, vendor devices: keyboards, speakers) This becomes first sales tool Initial Qualification and Certification testing Who builds this? Local proto shop or small CM with proto capabilities. Plastics manufacturers (Soft tools or CNC) Challenge: Money: At this point this becomes expensive Coordinating different requirements design and materials (Electronics, Plastics, Testing, Material, Software) Bells and whistles (Marketing vs Engineering vs Reality) October 27, 2006 Entrepreneur in Residence

Development to Production: Prototype Runs Show and tell to various potential customers or partners Providing samples for evaluation Qualification and certification tests Samples for test development Heavy involvement of high volume production design to ensure manufacturability Who builds this? Small CM with capability to go to medium volume (capacity, financially, test wise). Plastic soft-tools or CNC Challenges: Money: Real Issue Customer Tweaks Certification and Qualification Testing (Time, Engineering talent) Customer concern: How can you support volume? October 27, 2006 Entrepreneur in Residence

Development to Production: Pilot Runs Supposed to simulate production line (sometimes a customer requirement) Large enough that some proto shops can’t handle Requires real production test (equipment or software) Used for validation or promotional by customer Who builds this: CM that will build volume product Challenge: Money Production issues (manufacturability, efficiencies (costing), testability, time to market) Certification and Qualification debug and iterations Coordination of supply chain (lead times, EOQ, inventory, terms) October 27, 2006 Entrepreneur in Residence

Development to Production: Small Volume Runs Servicing a market: Hard P.O.’s from customers or good market intelligence Production schedule Set up sustaining capability organization (debug, RMA, field issues) Challenges: New organization, New skills – No longer a design gig Working on next product and tweaks while supporting current one Preparing for high volume: Can your CM handle the customer forecast (capacity, materials, test, rework, RMA) Can you trust the customer forecast? Who holds the bag? You, the CM or the customer? CASH FLOW !!! October 27, 2006 Entrepreneur in Residence

Development to Production: Big Time – High Volume Production Harder P.O.’s from customers or Better Market Intelligence Challenges: Happy customers End of Life management New product life cycle management: Design, Protos, Pilots Contract Manufacturer scalability and reliability CASH CYCLE Management October 27, 2006 Entrepreneur in Residence

Selecting a CM Early stages local support fits high engineering content needs Later stages capabilities matters more than location: Technical capabilities (manufacture and test) Financial capabilities (own materials, test equipment, customer comfort) Cost requirements (factories abroad) Price is nice but relationship is key: A bad CM can KILL your business Other CM services: design, test, system build, distribution, plastics, boards, PCB’s – The whole enchilada You MUST sort out what you keep and what you outsource You keep: Strategically Competitive Value Add. (IP, Supply chain, sometimes certain specific processes) October 27, 2006 Entrepreneur in Residence

Business Aspects: Financial Liability Who holds the bag? Liability risk needs to match reward Purchase agreements vs forecasts vs Material terms (Lead Time, NCNR, Tooling) What are your warranties to your customer? What is your CM warranting? Is there a gap? Eliminate it or Charge for it October 27, 2006 Entrepreneur in Residence

Business Aspects: Legalities Manufacturing agreement with CM Purchase agreement with customer NDA’s with everybody To patent or not to patent October 27, 2006 Entrepreneur in Residence

Business Aspects: Funding Personal Funds Friends and family Bank VC’s October 27, 2006 Entrepreneur in Residence

Must Haves Business plan: for yourself and for others Experience in the industry: Personal, Hire or Co-Found Technical requirements Knowledge of the market and competitors Credibility for funding and with customers Gives you a link to reality (Xircom vs 3COM) October 27, 2006 Entrepreneur in Residence

INFORMATION SYSTEMS Web site! Architect now for volume later – SCALABLE! Depending on model; order fulfillment, customer service, information source Bootstrap options to do it right = barter, note tied to performance, options Accounting, inventory, receiving, sales flow, order fulfillment, order tracking, phone switch, returns, warranties , etc Create systems for ALL activity and DOCUMENT How? - emulate systems from peers and customize October 27, 2006 Entrepreneur in Residence

CUSTOMER SERVICE & SUPPORT FAR LESS EXPENSIVE TO KEEP CURRENT CUSTOMER THAN ACQUIRE A NEW ONE Drive solution as close to customer as possible (less $) -internet -salespeople -effective selling process -offer additional levels Involve the entire company – -DO NOT - “that’s not my job, talk to someone else”… October 27, 2006 Entrepreneur in Residence

CUSTOMER SERVICE & SUPPORT Capture all service & support information and create knowledge base Solve issues quicker with less cost Bootstrappers = do in Excel to begin Publish knowledge base online Have CSS work closely with product development & testing Integrate October 27, 2006 Entrepreneur in Residence

OVERVIEW Who is this Erick Mueller bloke? Manufacturing Information Systems Customer Service & Support Accounting Finance Erick’s take on it Wrap-up October 27, 2006 Entrepreneur in Residence

ACCOUNTING Work with accountant to create foundation of processes QuickBooks and others are readily accessible and great for bootstrappers Get system/process from peer and customize Discipline! Schedule to complete all bookkeeping/accounting at least 1x per week Unless have expertise, work with small business accountant to file/plan taxes October 27, 2006 Entrepreneur in Residence

KEYS TO SUCCESSFUL BOOTSTRAP FINANCING “Cash is king!” PROCESSES Accounting (cash flow statement, balance sheet, income statement…do them!) General infrastructure – merchant account, PO system, QuickBooks, etc. Prepare contingency plans Credit cards, factoring, 90 days with suppliers October 27, 2006 Entrepreneur in Residence

KEYS TO SUCCESSFUL BOOTSTRAP FINANCING Keep your eye on the ball Sign all checks Review A/R, cash flow, payroll and other reports WEEKLY Take global view of financial position at least every quarter Plan ahead – cultivate bank & angel relationships, set-up factoring if needed, etc October 27, 2006 Entrepreneur in Residence

MY TAKE ON IT… Have 2x burn rate in cash or equivalent liquid asset Insurance!! Protect your hard-earned money Grow organically unless you have injection of cash from Angel, VC, strategic partner, etc. Grow too quickly, without planning = cash trouble! October 27, 2006 Entrepreneur in Residence

MY TAKE ON IT… Systems are KEY – don’t shortcut Profitability Growth Less headaches Customer service can/should make $ Increase customer retention Upselling / suggestive selling If manufacturing not a core competency – outsource, outsource, outsource October 27, 2006 Entrepreneur in Residence

MY TAKE ON IT… Operations can make or break your business It’s all in the details There are professionals that LOVE operations – get them on your team Even when have the proto, sell the vision/potential October 27, 2006 Entrepreneur in Residence

WRAP-UP Who is this Erick Mueller bloke? Manufacturing Information Systems Customer Service & Support Accounting Finance Erick’s take on it Wrap-up October 27, 2006 Entrepreneur in Residence

MOVING FORWARD… Contact me with questions: Erick.Mueller@colorado.edu Presentation & resources @ website: leeds.colorado.edu/faculty/muellee BEST WISHES!!! October 27, 2006 Entrepreneur in Residence

“It is never too late to be what you might have been.” --George Eliot October 27, 2006 Entrepreneur in Residence