Using Off-the-Shelf vs. Making Custom Products
The beginning of any product starts with an idea. For businesses, that idea is usually either a way to save time or money through operational efficiencies, or a way to earn money through selling products and solutions. Regardless of your intent, once an idea is formed the logical first step is to see what already exists.
Off-the-shelf is the obvious first place to look. In the physical product world, "off-the-shelf" means, does something exist that already provides the function I'm looking for? Often we can find products that are close to what we want, but may need some modifications.
The alternative is to build something of your own from scratch to make something custom for your needs.
Deciding between these 2 options can be difficult, so here are some things to consider when you're choosing the right path.
Using Off-the-Shelf (OTS)
The main thing to remember is: commercially available OTS products are being sold for a profit. We'll do a whole other article about unit economics. So using OTS typically means you're trading time/risk for unit price.
Skip the NRE
NRE, or "Non-Recoverable Engineering", is all the costs you incur while developing a product. Once it's developed, the work is done, and the costs shift to a per-unit cost basis when manufacturing inventory.
Using OTS products allow you to get something working faster, which is a great option for market validation and testing. Since it's already made and available, it means you can skip most of the dev effort and get into the business of going to market or deploying your internal solution.
In addition to skipping the NRE, you can skip the time, capital and complexity of manufacturing a product. You can get straight to selling/earning/savings more quickly.
Higher Unit Economics
One of the challenges with OTS can be that OTS products are purposely built to be very generic to appeal to as many customers and applications as possible. And, like most things, this comes at a cost.
First, it means your cost per unit will be high, regardless of your volume. That's because the seller of the OTS product is running a business - they spent time and money creating the product and need to recoup that and turn a profit by selling the product.
Second, you're likely paying for features you don't need. An example I like to use is with the wireless parking pucks. When we were looking at a parking solution, we looked at the obvious choice: the PNI PlacePod. It's a great product and ready to roll. However, the solution we were working on simply required "car/no car" logic. We didn't need the Machine Learning capabilities and additional algorithms or onboard sensors. So we went custom with our Spider product.
Sometimes there is a good opportunity to use OTS and modify it for what you need. Some (not many!) OTS manufacturers are willing to help with this, so don't be afraid to ask!
Modifying adds risk, as manufacturers may make changes in the future that make your aftermarket mods stop working as intended. Often, we see companies take OTS hardware and communications and then make the mods in software to suit their needs. It's a bit of a hack, but if you can get it to work it's a great option!
Projects like this can easily become very hodge-podge, in the sense that using multiple OTS products in your solution takes some serious organization to make it work. Our recent work on an Environmental Sensor has taken this approach for the initial development, in a project that we affectionally call Frankenstein.
When you use OTS, you rarely get any input into what it looks like. So if you want your product to look and feel a certain way, it's much more difficult using OTS.
There are alternatives you can explore. You can ask for white label options, where the manufacturer replaces any specific branding with your branding so you package the product as your own. Other options like replacing the outer shell or using wraps/stickers to customize can be considered as well!
Building Custom Products
Obviously, the big difference with building custom products is the capital investment required. Before you can earn/save money, you will need to invest in the NRE (see the above section). Building something custom, even if it's using existing reference designs, means there are some R&D (research and development) costs and manufacturing planning, procurement, possibly tooling and regulatory certification costs.
Flexibility in Function and Style
The benefit of spending this time and cost investment is, you have total control over the product. You can have the features you want and get the design aesthetics to match your intended design, look and feel to give the best UX to the customers or users.
When building custom, you'll likely be able to get the form factor smaller or more suited to your specific customer. It's a general rule in electronics that the more custom your design is, the smaller it is. Chip-down radios are a smaller footprint than modules. Electrical Engineers can make schematic and layout choices to reduce the overall size of a product.
With custom development, you'll have total control of how it works, what it does, and you'll be able to create exactly what you want.
It'll Take Time
Between development time/resources and manufacturing the product, it will take a lot more time than buying a solution OTS. In the current climate (October 2021), with a global component shortage, it means you will probably need to get good at solving logistical issues.
Keep in mind, you don't need your own team to do this building for you. At tincubate we work along side you as partners to take care of the technical pieces so you can focus that time on market validation, testing and business development. It will likely take longer for you to staff up if you don't have the right resources in-house already.
A lot of people misjudge the expense of outsourced. Consider finding, hiring, onboarding and running a multifunctional team. When you're looking at it, consider the average technical salary x number of people you need x time + cost of time to recruit, hire and onboard and compare your options. You may be surprised how quickly it adds up!
When you build something truly custom, you're creating your own Intellectual Property (IP).
Whether it's patentable or not (that's a whole other conversation), you will be the only one who builds that exact product. Your embedded firmware, algorithms and data sequences can live on as trade secrets that can give you a huge edge over possible competitors.
It also means, when you're ready to pivot, you have all the access you need to make adjustments or small iterations of your product as it suits you. Anyone else starting after your product is out in the market will need to play catch-up, and that will take time.
And, of course, if you're building it yourself, your per unit costs should be lower so you can compete on price.
The entire decision comes down to balancing features, timeline, budget, cash and revenue potential (earned or saved from the bottom line). There's no right or wrong answer or magic formula that works for everyone. It's all very situational.
Generally, we highly recommend using OTS or modified OTS solutions when you're building up your proof of concept to do market validation testing or customer/investor demos. It's cost effective and faster to do.
But when you do, make sure you also investigate what a custom solution would cost from a time and budget perspective so you have the complete picture of what it will take to scale.
If you're not sure where to start, this is what we do for people and businesses ALL DAY LONG. We work with your business objectives and find the right path that works for you, your business and your industry.
Want to talk about your options? Reach out to chat today!
tincubate supports a variety of different initiatives all being incubated together. We incubate our own ideas into solutions people can buy, and we help incubate other people's ideas into solutions they can own. We also own and operate a collective space where entrepreneurs and businesses can grow their ideas into reality, called the tincubator.
If you have a project you want to explore, reach out today.