This is the third in a 3 part series. Links to Part 1 and Part 2.
For new clients at Spanner, initial conversations with us might sometimes feel more like interrogations, as we seek to build broad context for launching the product development journey. To us, there’s pretty much no such thing as useless context; trivial maybe, but not useless.
In particular, our lines of questioning regarding a client’s business plan are often met with puzzlement - what does my business plan have to do with designing and engineering a great product? I gave you a detailed product brief and critical specifications; what more could you need to deliver a great product? Well, a lot.
For example, to our question about initial production volumes, we might hear, “I’d love to sell half a million!” OK, who wouldn’t? In reality, though, it’s not how many you’d like to sell, but how many you need to sell to stay in the black based on your business model. (Not in your business model yet…? You have a business model, yes?) Establishing reasonable production volume goals to meet the first three to five years of forecast sales informs important product design choices early in the development process when strategic decisions have a significant impact on key characteristics of the product, as well as both the timeline and budget for development.
At Spanner, we deploy our Enterprise Financial Model to build test cases of a client’s business plan, showing how, for example, production volumes affect capital requirements, cash flow, and profitability, often early enough in the process to help clients substantiate their pitch decks and assert confidence in front of investors. Building on the COGS estimates and development costs discussed in Parts 1 & 2 of this series, our model pulls it all together with sales forecasts and additional cost estimates for things like outside services, marketing, hiring, and other SG&A line items.
When pitching investors, ROI rules the day, regardless of how compelling your product is. After all, they're actually investing in your business, not your product. A comprehensive model will show how robust your business plan is against things like changes in COGS, sluggish sales, delays to product launch, higher warranty returns, greater churn, etc. In other words, the model allows you to assure investors that you have assessed and planned for these risks.
In our experience, we often encounter entrepreneurs so focused on their product concept for so long, that they’ve forgotten they will also be designing and building a company in parallel with developing the product. In fact, if they’re in a CEO role with their fledgling company, they’ll be spending increasingly more time on the business side than the product side as they move through the development process, courting investors, recruiting stakeholders, and generally making sure they get off the ground before the end of the runway. To do that, a well-informed and flexible business model is imperative.
Just like rapid sketches and quick mock-ups are powerful tools for designers to explore the interplay between various aspects of product concepts, a founder can pull the levers on our enterprise model to build a hands-on understanding of which parameters are the true driving factors for success within their business. The assertions highlighted in a pitch deck, then, like the proverbial tip of the iceberg, are grounded in a much larger repository of knowledge. Founders can answer the “why” questions confidently, with specific examples to support the fundamental choices in their business plans.
Of course, not everyone with a product idea is looking to build a manufacturing company for the long haul. Some may be positioning themselves for acquisition, adding to an existing product line, or looking to validate their product’s market viability before licensing their IP. For this reason, we spend time early in our engagements with clients to understand this larger vision so we can tailor the approach to product development appropriately. For example, in the latter situation, we might spend less time optimizing a design for mass production in favor of working prototypes for a crowdfunding campaign, or low-volume production for a pilot validation program. In cases like these, the near-term profitability of low-volume runs of product for those pilot programs is not of primary concern as priority is placed on seamless functionality, and any economies of scale have not yet been realized. Regardless, a well-considered business model remains important to help frame estimates for retail price and trade-offs with various feature sets as the learnings from the pilot are collated.
Finally, because we have the data, our enterprise model includes conventional reports like cash flow, balance sheet, and annual income statements, ready to hand for investor meetings, or for conversations with the CFO.
Product designers are context hogs. We’re trained to establish a richly embellished exposition in the narrative where a novel product is the resolution to whatever stands in the way of a better future. It’s always felt natural and appropriate, then, to build our approach to product development at Spanner to include context from what are traditionally business domains, as well as a founder’s larger vision for their company, alongside the more recognized facets of design and engineering, to bring forth truly innovative, meaningful, and successful products.
Arne Lang-Ree is co-founder and CDO of Spanner.
An innovator, thinker and deconstructor, Arne challenges himself and Spanner’s clients to bring sustainable and responsible products to life. Born in Norway, Arne was inspired early by his engineer father to look at things twice. At an early age, he was imagining inventions that ultimately inspired him to earn both his BSME in Mechanical Engineering and MSE in Product Design from Stanford University. Arne has since racked up more than 30 years of product development and mechanical design experience in a wide range of product markets and with globally recognized brands. Arne is rarely without his trusted canine sidekick, Penny, and the duo can be found at the Spanner office creating together or walking the Silicon Valley for inspiration.
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