Creating any new product is an expensive process. That’s even more true of a physical product, especially a hardware tech product. You can expect a minimum of $10,000 in development costs to get a working prototype — for the simplest type of product.
A moderately complex product? Expect to pay a minimum of $20,000.
In most cases product development has to be funded entirely by the entrepreneur, so finding ways to save money at this stage is critical. Once you have a working prototype, it then becomes more realistic to obtain outside funding. The reason? Most investors want to see proof of a serious commitment on your part; and nothing constitutes better “proof” than a real working prototype.
This is why entrepreneurs with a limited budget may find it beneficial to divide their development phase into two parts. Part one is to get a working prototype to use as a proof of concept, and a way to attract outside funding.
Part two, once funding has been obtained, is to proceed with getting the design ready for production.
Here are three tips to reduce your development costs for a new electronic tech product (for more, see my free eBook).
1. Use existing electronic modules, especially for wireless functions.
A module is an electronic circuit that has already been manufactured for integration into other products. Modules are available for various functions, from Bluetooth to GPS to video encoding. Most products still require some custom circuit design. but if you can push the more complex functions to an already designed module, you will save thousands.
Another point to consider is that if your product has wireless functionality, you will have to pay considerable additional expenses to get your product FCC-certified (other countries require their own certifications). That shouldn’t be a surprise: Just about any new electronic device has to be certified by the FCC to ensure it’s not “polluting” the airways.
A device that doesn’t transmit wirelessly is classified as an unintentional radiator and costs only about $1,000 to get certified. But if your product does transmit wirelessly, it is an intentional radiator. And in that case the FCC certification costs will be a minimum $10,000.
For products that feature Bluetooth (which over half of the products I design do), you can expect to pay an additional fee of $8,000 to join the Bluetooth Special Interest Group (SIG). This membership is required to sell any new product using the protected Bluetooth protocol.
The best way around these expenses is to use modules that have already been designed, debugged and FCC-certified. Similarly, a Bluetooth module will already be Bluetooth approved, so there’ll no need to pay the $8,000 fee.
There are two major downsides to using modules. Although they lower your development costs, they also increase your product’s unit cost, so your eventual profits will be reduced. This means that by the time you reach high-volume manufacturing, you’ll need to switch to a full custom-circuit design. Secondly, if your product is ultra-small (wearable tech, for example), modules may be too large for anything other than a proof-of -oncept prototype.
2) Find a co-founder who is an engineer.
Having a co-founder is a huge advantage for a startup, especially when the founders have complementary skill sets. For example, a marketing expert and a design engineer make an ideal co-founder team; better yet, throw in a financing expert too.
A co-founder who has the skills (or the ability to learn the required skills) to develop your product will save you the most money. I would estimate that about 85 percent of the expenses for developing a new product are engineering costs. So, getting an engineer on your team will save you tens of thousands in the long term.
Another advantage of having a co-founder is that that asset will make it easier to attract investors, especially if your skills are complementary. Investors know that the odds of success are greater for startups with two or more founders.
Adam Callinan of Beachwood Ventures sums it up well in his article 7 Reasons You Need a Co-Founder, writing: “If the founder burns him or herself out or gets hit by a beer truck, both the company and our investment are likely gone. Unless it’s a truly otherworldly opportunity and all the stars align, it’s just not worth the risk as an investor”.
3) Hire multiple engineers, not just one.
This one may sound a bit strange. Engineers are expensive, so why hire multiple engineers if you’re trying to save money? The explanation is that engineers who specialize in different areas usually charge different rates. For example, a circuit designer usually charges more than a 3D modeling engineer.
Most engineers developing complete products are outsourcing some of those tasks. When outsourcing work, the lead engineer will mark-up the rates of these other engineers. This means that you pay more.
If instead you hire, and oversee, the various engineers required, then you can save money. However, you then have to take on the responsibility of integrating the work of all of the various engineers to create a finished product.
You need to weigh the complexity of such factors as you move toward a seamless, cost-saving product design.