Would businesses be willing to do this?

[Noodles87]

I will be starting a new business within the year. My main concern right now is I have a lot of prototype work needing to be done. One assembly could easily see 20+ parts. And when I have 5+ different assemblies. The number of prototype parts needed to be completed is quite high(for myself). Now That is just the final prototyping to be sure it all works. But I have assemblies with fewer components for prototyping for R&D(less then 5 parts in an assembly). Those parts will be tested and tweaked until everything works the way it should.

As I'm young and don't have a large expense account to fund it all. My plan is to prototype/patent(if applicable). And then get a loan for production. And I have a few questions.

My thinking was could I go to the shop and have the prototype parts created, for "production" costs? Now I understand no shop will quote me for 1000 parts, and then I say "I want one for that price". But would they be willing to if that "one part" was used to R&D. And subsequent versions as well until the final part is finished. And then from there. The machine shops produces the finalized part in the quantity in the 1000+ range or whatever was contracted?

Or will I be faced to pay $100,000 for prototyping and then another $400,000 for production? Instead of say...$10,000(with the above proposal) for prototyping and then $400,000 for production?

I'm just a young guy with very ambitious dreams. but I feel the only way to get an acceptable loan is if the bigging costs allowed to me test my ideas and theories. Because I don't seen any loan manager looking at what I'm doing, understanding it, let alone the fact of the market I'd be in isn't wildly viewed as anything good(large public misconceptions).

I understand that it also has to do with the complexity of the part being machined and material that will play the biggest role on costs. There's really only one part that is very complex compared to most of the other parts. And the complex part...will only need to be made ones..and the other(internal) workings parts are whats being tested and refined.

Do I have my head up my butt? Am I hoping for too much? Or would a company willing to contract the parts if in writing it states they were to help with lower costs of R&D if after...they were given a say...5 year contract producing 30+(which could grow to the hundreds) unique parts a year in the 1000+ quantity range?

Thanks for taking the time to respond. Any advice/suggestions would be appreciated.

[HuFlungDung]

It might be a tough sell, I think you'd probably have to show the job to a few prospective shops to find out if they are interested. In doing all that, the idea might get away on you, if its something really hot.

My feeling is that you need to sell the idea to other private investors first, to raise money for the prototype work. At that stage, then you simply shop around for a capable shop who quotes X dollars to do the work according to your specifications.

You need real solid models and/or good blueprints complete in every detail to be taken seriously by a prospective shop. Nothing turns me off faster than someone with a brilliant plan that is totally lacking in the nitty gritty details. An accurate cad model in 3d goes a long way to showing that things actually fit, and that shapes and relationships of parts are logical. If I actually have to take the time to really get your idea cooking in my brain so that I can design your part for you, its going to cost you.

Even private investors are going to want to see a really good cad design first, to know that you are serious, and have properly evaluated the details of the project. But the advantage of raising the money on your own is that you can be the boss of the project, and can take all the blame or all the glory for success. Machinists generally want to machine stuff without a lot of todo.

[High Seas]

2 simple means of protection while you shop around for support:

1. Google "Non-Disclosure Agreement" write one and get it signed before you show anybody anything.
2. Document your project - daily entries in a bound book stamped/signed - whatever your - inventor's notebook, if you will.

Now, go to the library, eBay, whatever, and get some invention guides etc - From Patent to Profit is not bad - and one of the key points he brings out - You gotta have a team of players - MARKETING is not Sales - but it doesn't happen without marketing and, as you recognize -- money.
You might research possible companies that could manufacture your part(s) that fit in their product line. You would be surprised how open they might be to fresh ideas form "outside."
Better still if you have mock-ups, certainly drawings - and very importantly - some Market Analysis - Like why the thing will sell! If you decide to go it alone - a good Market Analysis and a business plan, a suit and tie - might be the ticket to a loan officer - or some other venture capital.
Your idea of having someone buy into prototype and follow-on production is not a new one - it can work - but protect yourself!

Jim

[Geof]

You are asking that the shop finances your prototype work while you own the rights to it. I think it will be astounding if you get any shop to agree to this. I started my business making specialized equipment and prototypes, and on the few occasions I gave a customer a break it was clearly understood that we both had equal ownership of the design.

[Caprirs]

It sounds like you want $500K of work for $410K?

A company will agree to a low prototype cost if they get the contract to do the production work. The key word is "contract". That means a legally binding document stating they will get paid regardless of your ability to sell the end product. If the total cost of the project is $500K, you can barter to get the prototype for cheap and amortize the cost over the production pieces later. I would caution against this approach because it makes the production pieces more expensive which is less attractive to investors and customers.

I think this is the crux:

Now I understand no shop will quote me for 1000 parts, and then I say "I want one for that price". But would they be willing to if that "one part" was used to R&D. And subsequent versions as well until the final part is finished. And then from there. The machine shops produces the finalized part in the quantity in the 1000+ range or whatever was contracted? Or will I be faced to pay $100,000 for prototyping and then another $400,000 for production? Instead of say...$10,000(with the above proposal) for prototyping and then $400,000 for production?

Your "subsequent versions" is part of the high price. For example, if your part requires unique fixturing or tooling, each time you alter the design, new fixturing and new tooling may be needed. At the very least, each single R&D piece will require the machine to be setup and programmed. I have some jobs where it may take more than a day to do setup and programming. To make that one R&D piece, it's possible the shop spends $10K each time it re-designs and re-tools. Thus, the high costs of prototyping. And the emergence of "rapid prototyping" technologies.

Now, if instead of "prototype" you mean "first article", then the first piece can be included for a production price. Obviously, the catch is you cannot make changes to the design of the part at that point, only certify the first part meets the print.

[ctate2000]

What if you were to trade some of the "rights" or ownership of the product in exchange for work or price reductions. If the project has a lot of potential someone may be interested.

I know see someone has already suggested this approach. Maybe I should read more carefully.

[Noodles87]

Thanks for the replies from everyone so far.

HuFlungDung - There have been small companies with investors in the industry. The problem is those small businesses(With great products and ideas) seemed to go under. And it wasn't because they didn't have a marketable product. They were usually in most cases better than any of the "Big time" companies. The problem was with their investors pulling all the strings....or should I say tangling up all those strings preventing what should be getting done.

The other thing is. I don't feel investors would make decisions base on the right things(to me). I would think they're decisions are based on what gives them the most money. Now as an investor. That is your job. I understand that. But to me that isn't the way I'd like to represent my business. It's unfortunate that many companies in the industry today do that very thing. And I feel its shameful. I wont go into detail but because of the way the companies are acting...its hurting specific aspects of the industry and I'd like to be one of the first to change that.

Oh, and CAD models have already been drawn up.

High Seas - I've already got an NDA written up for when the time rises. And have been keeping "inventors notebooks". The only thing I haven't done is have them notarized.

I must say that the purpose of the patents isn't to get lots of money on royalties. The reason is to protect myself from someone else patenting it and them me ending up paying them for my own ideas. That is really it. Because sadly that's how the times have become...when in the past it was a free sharing of ideas with the sole purpose to improve everything they can with collaboration(I wish those days were still around).

Geof - I wouldn't exactly state that I'm asking for the shop to pay for the prototyping work. I'm asking if they'd be willing to not charge as much..if in a contract stated I would bring them 400k business a year(or whatever was agreed upon). The lower cost would help refinement and subsequent future business.

Caprirs - You made a good(to me) suggestion where the protying parts could be lesser in price but production part would be slightly higher to offset any loss. Now I do think this would be a route a company may be more willing to do as there isn't a loss of money to them. But something I'd have to think about in the long run. Because final production costs will play a large role in many aspects.

The good thing is. The part(during R&D) that is the most complex and would require possible 5 axis work and most setups. Is the part that wouldn't be refined in any way. Its the other parts that would. And can be done on most CNC lathes. Live tooling would cut down on setups of the shop supported it. and any chances would be very minuscule. A great thing I hope!

ctate200 - It would really depend on what "rights" were exchanged and what was reduced, etc etc etc.

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Oh and I forgot to mention. High Seas I'll also be having a Non-Competing Agreement drafted as well. I will need to cover my self in any way I can.

Thanks again for all who's posted so far.

[Geof]

Originally Posted by Noodles87 ....Geof - I wouldn't exactly state that I'm asking for the shop to pay for the prototyping work. I'm asking if they'd be willing to not charge as much..if in a contract stated I would bring them 400k business a year(or whatever was agreed upon). The lower cost would help refinement and subsequent future business....

Yes you are. If I make anything for a customer and do not charge the correct price; i.e. what it costs to make plus my normal profit, then I am paying part of the cost because it is money out of my pocket.

Your contract promising future business is worthless if you have no product ready to make and market and no assets that can be liquidated. You are unrealistic if you expect anyone to supply financing to develop your ideas without that person having the right to ultimate control.

Do a bit of reading on how Venture Capital companies work, and about Angel Investors.

[Noodles87]

Hi Geof. I understand how they work. Its why I find them unappealing as much as I do. I don't feel they'd hold the same values in respect to the business the way I would, if they had majority control.

Personally I feel if I were to find anyone to help. Anything thy would get in return is exactly what they gave. If it was a monetary investment. Then that is what they would get in return. Now because I'm speaking of investors here and not specially a shop. If an investor or group was to give $500,000. Then a return of 2,000,000 would be in order(or what was agreed upon). But to give full share of the company and them the right to shut things down...slow down processes..that is just something I'm unwilling to give up. If that means finding a financial backer will be much much more difficult. Then it may be. But I have my values and standards. To allow those to change...wouldn't say much about those exact standards and values I hold, would they?

As for a shop....allowing lower cost on work for pro typing and getting things rolling. I have realized I was asking too much. For them to just...lower prices for some possible business they could get from someone else(without loss) is meaningless. And I also realize that for them to go out of their way, they should be rewarded. Now I stand firm in things they wouldn't have. But to get back a larger financially reward then offered. Or exclusive manufacturing rights, etc, would be much more beneficial to them I would think.

If anyone else has comments they're very welcome. I apreciate everyones advice and comments so far.

[SORCHEROR]

let me say one thing about this,most shops are not willing to gamble on your gaurantee of more work on a new product,they know if it flops your gaurantee wont be wourth the paper its printed on for the simple fact you'll be flat broke,ive seen it happen time and time again,im merely stating facts from past experiences,prototyping is costly and time consuming

[Delw]

I have to agree with geof and SORCHEROR. I have seen way to many promises and only once someone who comes back. Machine shops are in the business to make money not give discounts. Just because we all ready have the equipment doesnt mean we can cut the cost.

Basically were in the business to make money. not make other people money on our expense.

[Noodles87]

You guys are right.

I still do not like the thought of some venture capitalist having major control of the business. It is however unrealistic to think that someone who's putting down majority of the money to get things going..not having some stake(control) in the business.

I have realized that my best bet is to find a partner. I think a partner would be more willing to put profit back into the business instead of their pockets. I think they would have better values in wanting to see a successful business. I would think the best person or persons to find would be shop owners. Their skills and knowledge would compliment what I would be capable of in the other aspects of the business.

Now I'm faced asking myself many new questions. Is finding a partner capable in the ways needed, possible?