Brendan Green is a former hardware startup founder, led Advanced Manufacturing Operations at Instrumental, and is now a VP at an aggregator of DTC brands. These are his learnings from manufacturing products in China at scale.
Q: Tell us about your experiences with manufacturing.
I was formerly a Project Coordinator and Communications Manager at a life sciences company before founding a toy company called DigiPuppets. At Instrumental, I work with engineers at product companies and manufacturers to deploy Instrumental equipment and provide ongoing support. Across these roles, I have worked with smaller factories, subcontracting manufacturers, manufacturing agents, and very large contract manufacturers with multiple factories. I’ve had lots of first-hand experience with the pains involved in getting products made - mostly in China. I speak Chinese fluently.
Q: What are some common misaligned expectations?
Many people expect that the factory will help you solve problems, but sometimes they won’t - or they won’t do it as you expect. Across all factory sizes, as a product company, you need to understand where responsibilities lie and how much problem-solving is yours to handle. Unless you’re a large company or have a special arrangement with the manufacturer, you should plan on having the right tools, people, and expertise through multiple issue-finding builds (e.g. EVT, DVT, PVT) to smooth things out on your own.
The biggest reason is that most factories have very small operating margins. As a result, manufacturers often don’t want to be involved in the prototyping or problem-fixing realms at all. They want you to come with the materials list, procedure, etc., nailed down as much as possible so you can hand it over and have them just get started. That’s because every little thing that needs fixing can be money lost for them.
Here’s an example: When I was working on my toy company, DigiPuppets, we used a substrate mixed with an additive. The additive was not uncommon but was always used on the inside of products and was never on the outside where it was subject to a finishing process, such as painting. However, we were applying finishing paint, something no one had ever really learned how to do before. We got through prototyping pretty fast, but when we started building, we had a problem near the end where the material started cracking after the painting process. No one had ever used this material how we were using it, so we had to figure out the root cause ourselves. We tried many different painting processes - varying heats, thicknesses, curing times, etc. Eventually, one of our factories said “This is too much; we don’t want you as a customer anymore.” In this case, it worked out because they weren’t a great partner, and we found a better one, but it was a stressful process.
Q: Why is it so important to have someone spot-checking on the line?
Many reasons. For one, because margins are low, some factories try to make money by substituting cheaper parts or materials for the ones you specify if you’re not checking. This is important, especially if you’re subject to regulatory requirements.
Second, when you start making something, there’s only so much you can communicate without being there in person. You can draw and send CAD, but there’s nothing that compares to being there in person and making sure they get those first units right so they know how to do things. That’s most true at the beginning; if you’re going to be there at any point, the beginning is the most important time. (You should always be there, but the beginning is the most critical in that respect.)
Third, there are just some issues that are impossible to catch if you can’t see them. You have to be there when things go wrong, standing on the line, watching them happen. Another way this shows up is that units might fail a test, but there could be so many different reasons they failed that you have to fly someone out to the factory to walk up and down the line trying to figure it out. This is where something like Instrumental comes in handy because it gives you a record of everything that happened on your assembly line.
And last, when things do go wrong, factories are reluctant to admit it. They have quotas they need to make, and their salaries and livelihoods are based on this, so it’s understandable. As a result, they will often try to fix things without telling you. This could happen by substituting a part, taking out a part, or coming up with their own solution. Often this is done with the best of intentions for your product, but if you’re not there to see this, you could get something that doesn’t work, doesn’t work as intended, or worse - fails tests.
Q: How are manufacturing companies organized?
Factories are not monolithic - they’re all tied to each other. In China, factories are clustered depending on what you want to manufacture. Textiles, hardware, even pool tables - for anything you want to make, the factories for that vertical are often located near each other. That’s because having all the raw materials, components, etc., together in one area is convenient because you have a lot of suppliers nearby. That also means there’s competition for those suppliers nearby, which makes it easier for you as a product company to compare your options.
When working with a factory, you must be careful about who actually produces your product. It becomes even more important with a complex product or a product with regulatory/safety requirements because larger factories (especially if you’re not a high-volume customer) may push your product out to their subcontractors without telling you. The subcontractors are smaller factories that don’t always have the same level of quality and aren’t always subject to the same labor practice standards. The big factories may not want you to know what they’re doing for two reasons. The first reason is that they’re doing something they shouldn’t. The second reason is that they’re protecting a strategic advantage. For example, the painting of the toys we were making was hard (we were painting onto silicone rubber, and that’s a highly specialized skill that is a source of competitive advantage). Our manufacturer wouldn’t tell us their painting supplier because only a few factories can do that, and they wanted to make it hard for us to build somewhere else. The factory wants to be a key player. Unfortunately, you won’t understand the whole supply chain in a case like that.
Q: How should product companies find and establish partnerships with manufacturers?
It depends on how experienced your team is. If you’re fortunate enough to be part of an experienced team – engineers, product, and operations folks – then it’s likely that you or they have a list of manufacturers they’ve worked with before or contacts who can help. Similarly, if you have experienced investors backing you, chances are they have manufacturers they know and have previously worked with. However, if you don’t have these connections, I would strongly consider getting an agent to help you. While it takes time and effort to find a good one, if you don’t have the experience and you don’t have an agent, there’s a very high chance you’ll get taken for a ride. Agents help you source factories - they serve as the middleman. They have well-established relationships with factories large and small. They will help you from prototyping through mass production, spot-checking, and logistics, and they usually only charge 10-12% on top of the factory cost. An agent won’t solve all your problems - but for companies with limited experience, it can be worth the money. You absolutely cannot produce something in China without people on the ground, so unless you’re planning on moving there or having a rotating roster of people there, it’s worthwhile to have someone who has both experience and relationships.
Agents also have power. If you’re a smaller company with limited experience producing your first or second product, you won’t have the leverage and economy of scale to drive prices down. But if you work with an agent, they can tell the factory, “We throw you a lot of business every year, so even though this particular deal isn’t huge, you should give us a good price so we keep sending you business.” That’s important - you want to cover your bases in the power dynamic. That said, I cannot stress enough that (as with any partner) you should qualify and hold your agent accountable throughout the relationship.
You must also prepare yourself when you talk to factories, especially during your first build. Recently economic growth in China has slowed. Between low margins, increased competition, and lower demand, many factories will underquote to get your business in the first run. Then in your second run, they will raise the price by 50% or 100%, which can mess up your unit economics. If you don’t have paperwork that prevents these price increases, you should have backup plans in case you need to switch factories. Agents can help with this.
Q: Who should you focus on developing relationships with when you go to the factory for a build?
It depends on the factory's size and the build's size. When I worked with smaller factories, I always took the top-down approach, working first with the factory owner (because you could get the most done that way). Small factories are pretty centralized, so the owner usually knows everything. If your relationship is good, you can call them anytime. Most importantly, you can access the line, which is a big deal to ensure things are done correctly. Access to the line is also important for spot-checking, especially if you’re not a huge customer for the factory. Then from that relationship, you can work your way down to the factory managers if there are multiple factories, the line managers, and the shift managers. In big factories, you generally start with the program manager. The titles can differ, but there are nice parallels between the product company's position and how factories usually set things up.
Q: Any final advice?
I want to mention the importance of befriending the people in the factory - the workers, the managers, everyone. They’re generally nice, interesting, fun people and often do thankless work. Showing interest in what they’re doing and explaining why you’re there and helping them, being an asset to them, and grabbing a drink with them if they want can go a long way. Especially in China, with empowered people in the organization, you can get a lot of business done over a bite to eat or maybe a karaoke song. I’ve closed many deals and gotten many discounts over a few beers and singing some songs!