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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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 ( )
Big Time (1000’s)
October 27, 2006
Entrepreneur in Residence

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

29. 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

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

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