Outsourced Product Development Gaining Popularity Among Small Businesses

Sramana Mitra

Wednesday, March 12th, 2014

A great product idea alone is no guarantee of success for an entrepreneur. The time taken to develop a product and take it to market within reasonable costs is a key aspect.

Steve Owens, a serial entrepreneur with more than 20 years of experience, was always frustrated by how long it took to put good product development teams together and bring a product to market. And each time, he had to incur fixed costs for setting up the infrastructure and developing the product. All this reduced the flexibility and risk-taking ability of his startups and got him thinking.

Outsourced Product Development

To provide a solution to these problems for his fellow entrepreneurs, in 2002 Steve started a product development service company Finish Line Product Development Services. Finish Line develops technology products for small companies in the down hole tool and machine-to-machine (M2M)/Internet of Things (IoT) technology markets.

Finish Line’s pricing model is economical and well suited for small businesses running on low budgets and time constraints. It charges only for the hours they work on the project and provides written estimates for each phase of the project. Typically, their customers are able to break even on their investment in less than a year from product launch, and sometimes just a few months.

Its overarching strategy is to develop products for small businesses where they have a very high degree of existing expertise and reference designs. This strategy allows them to develop the product for significantly less cost than its customers can in-house.

Using proven processes and creative solutions, Finish Line converts product ideas into innovative and cost-effective products. It has technical expertise in low power, long life battery operated devices, RF communications, low cost wireless sensing and communications products, machine controllers, motion control, and power solutions. It caters to product development challenges in a wide range of industries including oil and gas, industrial and manufacturing, electronics and controllers, and healthcare and life sciences.

In addition to these segments, it also offers specialized services in niche technology areas like low-cost RF communications, remote monitoring, industrial controls, and Internet connectivity.

Since inception, Finish Line has worked on more than a thousand projects for more than 200 small companies. It has also incubated two startups, WellTronics and EnerTrac. WellTronics, which provides cost effective technology solutions like FloDrift to the oil and gas drilling industry, was sold to National Oilwell Varco.

EnerTrac, a provider of propane tank delivery automation systems and leader in the rapidly growing M2M market, with annual revenue of more than $2 million has raised more than $8 million from three venture capitalists.

As its clients have grown, so has Finish Line. Revenues are now a little more than one million dollars a year.

Steve says Finish Line does not have a clear direct competitor in its niche. Though there are several other product development companies, unlike Finish Line, they are restricted to narrower technologies and platforms. The main challenge or competition it faces is from potential client companies hiring their own engineers.

Outsourcing product development (OPD) is proving to be a sensible strategy for staying ahead of competition and ensuring timely product releases. Other factors driving its adoption are the lack of talent at a single location, lower costs for better quality, and higher business flexibility.

According to a recent Gartner report, the global IT outsourcing market is expected to increase 2.8% over the year to reach $288 billion in 2013. For the R&D/product engineering services market, a recent IDC report forecasts that customers will increase their outsourcing spend in 2014 for these services and the market will reach approximately $66.2 billion in 2017.

Further, IDC forecasts fairly robust growth in the long term as technology product customers continue to move away from a labor arbitrage approach and award long term outsourcing contracts for their product development, engineering and innovation work to outsourcing vendors.

Overall, the OPD trend is gaining speed in the small business sector. For a long time, we’ve seen the trend develop very well in the software industry with companies like Persistent, Symphony, Globant, etc. Now, the trend is crossing over to a broader realm of hardware, manufacturing, etc. More specifically, into the domain of small, innovative companies.

Courtesy: Small Biz Trends

About Sramana Mitra

Sramana Mitra is the founder of One Million by One Million (1M/1M) initiative, a virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategist who writes the blog Sramana Mitra On Strategy.