You are developing a new product. There is currently nothing like your product on the market. You have high confidence that it will be successful (otherwise, why are you working on this project?).

You need to make a choice.

Do you want to do things fast? That’s tempting, because who knows what the market will look like in 12 months.

Or do you want to do things right? That means investing money and time in de-risking your project.

Let’s look at what these 2 approaches mean, in practice.

Approach 1: launching the new product on the market ASAP, and fixing the issues as they appear

This approach comes naturally to many entrepreneurs.

“Just Do It” makes sense when the development of the new product can be inexpensive and the risks associated with defective/unreliable products are low.

In some cases, there is also a market window that is about to close. If you develop a new type of vuvuzela for the next soccer World Cup, you may not have time to take certain precautions.

In other cases, the product really is quite simple, and getting it to market fast is worth all the risks coming with such speed. I’d distinguish between two cases:

• The product designer has a long roadmap that starts with a very simple ‘version 1’. Getting real feedback from the market is difficult before manufacturing & distribution/installation. That sometimes makes a lot of sense.
• The entrepreneur does not know how to conduct valuable market research and underestimates the risks of not selling, of manufacturing issues, of cost over-runs, etc. They have no idea how long the process will take, and they want to impress investors and/or distributors by promising unrealistic deadlines. All of that is a recipe for a failed project.

And then, there is the fear of being copied. That’s on the minds of most hardware startups.

And, as Steve Dickinson wrote in China Manufacturing and the First to Market Fallacy, that’s the main argument of companies that want to go fast:

Upstart companies need to focus on designing an innovative product and bringing it to market as quickly as possible. If we do that, we can stay ahead of the clones and the rip offs and this is the key to success in today’s market.

The risk of being ripped off does exist. However, ironically, the companies that are most eager to launch ASAP are those most likely to fall victim to this… because they don’t spend the time to work with the right supplier. They want to piggyback on an existing product, so they tend to work with an ODM supplier, and that often goes wrong (as I wrote in The Danger of Developing your Custom Product with an ODM Factory).

Why does it go wrong? Because the ODM’s business model is to own the IP rights of successful products! If you work with them, you are playing with fire. They will necessarily be tempted to steal your IP rights.

Approach 2: planning carefully and addressing all the critical risks first

If a poorly designed and/or poorly manufactured product has a chance of harming people, you absolutely must drop approach 1.

And, if you are about to spend 80,000 USD in engineering design + 25,000 USD in tooling + 50,000 USD in a first production batch, I think a simple calculation can lead to dropping approach 1. There is too much at stake.

A company that wants to ‘do things right’ will tend to follow these steps:

• To reduce the market risk, they spend time showing sketches and early prototypes to potential users and they ask the right questions, and they try to get their cost estimates right (to avoid over-pricing the product).
• To reduce the technical risk, they try and simplify their product concept, they look for standard parts wherever possible, they do ‘proofs of concept’ to test and iterate the design inexpensively, and in some cases, they rely on a specialized manufacturer to do some of the engineering.
• To reduce the product reliability risk, they pick proven components, they ‘design for reliability‘, they run accelerated life tests to find the weaknesses of their design, and later they confirm reliability with life testing.
• To reduce the product compliance risk, they pick pre-certified materials, and test for compliance (when needed they go for certifications) before launching mass production.
• To reduce the supplier business risk, they look for the right type of manufacturer, they qualify the suppliers of critical components, they sign the right types of agreements, and they try to structure the payments in a way that keeps risk low.
• To reduce the manufacturing risk, they document a quality standard, they ‘design for quality‘, they confirm the key suppliers’ quality systems, they validate the custom processes before launching mass production (with pilot runs), they set testing stations for the PCBA and other critical parts before assembly, they inspect production, and so on.
• To reduce the counterfeiting & competition risk, they look for ways to make it more difficult for a competitor to sell an identical, or relatively similar, product. There are legal tools for this (NNN and development agreements, patents, trademarks…), and there are various other approaches (launching a simpler & cheaper version of the same product, going in distribution channels that are not easy to penetrate, building brand awareness, etc.)

Now, all that will take longer, right?

Yes, of course. And there is an endless list of risks, so you need to address the critical ones and, if possible, all the major ones.

If you are launching a new type of bike/scooter, the risk of the user not being able to stop the vehicle quickly is critical. The risk of seeing a few low-end competitors appear once your product is successful on the market is probably major. The risk of one component’s aesthetic finish not being up to your standard (in a way that only 10% of users notice) on the first batch is probably minor.

What about the risk of not being the first to put the new product on the market?

It is often seen as major and may be seen as critical if the innovator counts on a lot of word of mouth — but remember, that’s not something you can count on with very high certainty.

Steve Dickinson suggests that, if a company takes no precaution regarding their intellectual property, they might be ripped off incredibly fast:

This first to market argument is based on an approach popular in the 70s and 80s for many sorts of products and in the 80s and early 90s in the shoe and sportswear market, when the view was that any style or model had at most a six-month shelf life.

The approach in those days was to change models regularly, figuring that it took the counterfeiters and copiers at least three to four months to get the fakes to market. So as long as they changed their styles every six months, they could stay ahead of the competition. However, this approach is no longer used because the counterfeiters/copiers can now get their clones to market in a matter of days, not months. The big shoe and sportswear manufacturers long ago abandoned this first to market approach in favor of the sort of aggressive IP registration and contract protection our China lawyers advocate for everyone.

The first to market approach similarly fails in today’s electronics manufacturing market as well. The simple truth is that if you have not protected your product design, you probably will not be first to market. You will either never make it to market at all or you will be met in the market by your direct competitors or your Chinese manufacturer who will beat you on price, destroying the market for your product. In today’s world of instant product cloning there is usually little to no first to market advantage.

That is certainly true in some cases. Let’s take 2 examples.

• Fast-fashion retailers like Shein can get a new style copied, cut & sewn, and delivered, all within 2 or 3 weeks.
• If your manufacturer decides to sell your electronic product behind your back, it can be on your competitor’s shelves (or inventory) earlier than it gets on yours! That’s more complicated when there is an app you had designed in your country, a cloud server, etc., but that’s not always a big obstacle.

However, I am not sure I’d agree with this statement:

The simple truth is that if you have not protected your product design, you probably will not be first to market.

I guess that’s true if the Chinese manufacturer is excited about the product’s potential and the customer does all sorts of things to build up that interest — for example, a Kickstarter campaign raises 300,000 USD. That’s all the more true if the suppliers of 2 or 3 critical components all know what the end product is and share that enthusiasm, as they might also try to launch the same product.

In other cases, most Chinese suppliers just don’t care. They see a projection of 500 pcs or 1,000 pcs for the first order, and that’s not exciting. They remember that, in the past, more than half of the projects they worked on just folded. They don’t know how they’d sell it. That’s not likely, except if one of the innovator’s customers takes the initiative to contact the supplier directly (and that happens more often than one would think!).

Are some Chinese companies really out there to copy your product?

Oh, yes, if you have an innovative and promising product, no doubt about that.

Steve Dickinson mentions ‘clone shops’ that specialize in spotting a hot new product, releasing a cheap copy on the market fast, and using their mastery of inexpensive distribution & communication channels to steal the market from under the innovator.

There is no way to deny that situation. We have seen this a few times with our clients.

Here is my conclusion on the being-copied-very-fast risk:

• It exists wherever your product is manufactured. See the story of the made-in-Texas mouse trap that got copied.
• If I took 100 Chinese manufacturers and trading companies at random, I bet fewer than 5 would show any interest in self-funding and rushing through the development of a new product that hasn’t even proven its market success yet.
• If you disclose your product publicly and you show signs of market traction, do it as late as possible. Remember, Indiegogo and Kickstarter are major sources of inspiration for these copycats.
• Over time, if your product is successful, it will be copied. You need to have a plan for that, but you might have great difficulty in preventing it entirely.

Has this been your experience? What do you think?

Wondering where to start with IP protection in China?

When developing and manufacturing your new product in China protecting your product’s IP is a very valid concern. We’ve all heard about the various copycats there who can grab your IP, copy it, and beat you to market ~ that’s a nightmare for most businesses and entrepreneurs who’ve invested a lot of time, effort, and money into making their new product a reality!

So, to help you take control over your IP, we created this free guide over on Sofeast.com that guides you through how to protect IP, pitfalls to be wary of, and common activities and legal tools you need to utilize in order to reduce the risks of China IP theft.