When we started Contour, we had zero relationships in Asia and no idea about where to start. We ended up relying on a friend who had built electronics in China to introduce us to our first supplier. A long story short, they were a terrible choice. After 10 months of making our VholdR camera we had to shut down the line and move to a new supplier because their quality was so horrendous They did get us off the ground, but nearly killed us with unbearable defective rates.
Fast forward to today and a lot has changed in finding the right suppliers. You have a variety of options in where you product (US, Mexico, Asia) as well as a handful of service providers who will help you find the right manufacturer. As you think about making this choice, here is what you should be thinking about:
Thankfully there are a handful of people you can turn to help you find the right supplier.
- Hiring firms like Dragon Innovations and D2M is ideal if you have capital and want to find a high volume, high quality supplier in Asia. They have years of producing product in Asai.
- Haxlr8r is an accelerator based in Asia that will help you find the right partner as part of their program.
- Lemnos Labs is also a similar type of accelerator based in San Francisco that brings a lot of production experience.
- PCH has both an accelerator and an incubator, but their core business is helping you manage your supplier and supply chain.
- Flextronics is one of the largest suppliers in the world and their accelerator works with startups to help get you off the ground, while offering to produce your product as part of the program.
When you launch your MVP quality is the only thing you should be concerned about. Price is irrelevant, especially in the beginning when early adopters are willing to pay a lot more for your product. Because if your product has a high defective rate or takes longer to get to market, it will cost you a lot more than the difference in pricing suppliers are offering.
To find the highest quality I would start in the US, where you don't have to deal with language barriers, cultural differences, and massive time zones. You will pay a lot more per unit, but you are likely to get a much higher quality product. Reliance CM is an example of a US supplier, which provides both engineering and production services.
The next step would be Mexico, where labor is a little bit cheaper than the US and the quality is almost as high. Tijuana is doing a lot to entice companies to produce in Mexico. 3D Robotics is a great example of a startup that grew from using third party suppliers in Tijuana to creating their own factory.
The last stop is Asia and I say Asia because there are a handful of places you can go. Taiwan and Korean suppliers generally provide better engineering services at slightly more expensive prices. China provides the cheapest prices, but engineering and production quality can be an issue. While Vietnam is becoming the new China with even cheaper labor.
Regardless of which direction you go, validate their quality through references and a tour of the factory. The personal relationship you create is super important.
Once you identify where in the world you want to produce your product, I would then focus on suppliers that have experience making your type of product. It makes a world of difference both in the engineer advice they provide and the quality of product they produce off their production line.
For example our first supplier at Contour didn't make cameras, which lead to a high defective rate. Our second supplier made web cameras, which was better, but still not great for making a rugged action camera. Finally our third supplier had experience with waterproof video cameras, which meant they were highly qualified to make video cameras that went outdoors.
To make sure they have the right experience, have them provide a list of products they have worked on before. You can contact these companies to find out how they did producing their product and if they would recommend them.
Early on I prefer a supplier that has an engineering team because they will help make sure your product is production ready. There is nothing worse than engineering your product only to find out that it can't be made.
Ideally the supplier you choose has engineers on staff (not contractors) that can help with the electronics, mechanicals, and production. The right partner will make these engineers available to supplement your own engineering efforts, while working with your team to make sure they can produce what you are making.
You must have a legal contract with your supplier that includes the services they will provide, the quality levels, and what happens if the product is defective. Although legal docs can be difficult to enforce overseas, they are super important. Your supplier should have a standard agreement they use and if not, ask other startups what docs they have used to setup their relationship.
When negotiating you want to be concerned about a few things.
- Quality: have them define what quality they will produce.
- Defectives: it should be spelled out how they are going to handle defective units and the timeline to provide you with quality product. They can wither provide excess stock (say +5% above of your orders) and any defectives under that percent you are responsible for. Or you can create and RMA process with them to return broken units.
- Price: the entire BOM should be spelled out in the agreement, including the product and packaging.
- Engineering Services: any and all engineering services should be outlined as if it's a work for hire program. You own the engineering they provide. Do your best to negotiate this as a per unit price and not cash up front.
- Tooling: this is your most expensive cash outlier. Ideally you can negotiate this to be rolled into the price over X thousands of units. If not, they will make you pay x% up front and x% upon delivery (normally 50/50).