In our ongoing series based on a recent hsDNA episode with Global VP/GM Design, Development, and Human Factors Tor Alden, “5 Traps Startups Need to Watch Out for When Engaging with a Product Design Firm,” we’re exploring the top 5 traps one by one for deeper understanding.
Previously discussed traps included Trap 1 – Not Planning & Understanding the Medical Product Development Process and Trap 2 – Not Building & Scaling the Right Team.
Today we dive into Trap 3 – Underestimating Monetary Resources.
Developing a medical product is a complex process that involves multiple stages, from research and development, which uncovers the unmet need, to clinical trials and FDA submissions. There are so many paths a program can take that startups risk falling into the trap of underestimating their monetary resources. The simple method to avoid this is to plan for contingencies throughout this process.
Key considerations to plan for monetary resources:
Overestimate the estimated monetary needs at the start. Funding is your rocket fuel!
Startups sometimes fall into the trap of assuming that their original projections and development plans will see them through to the finish line—that they will reach the moon in one shot. What if you miss that moonshot? What if you are left without fuel? Where do you go from there?
Beliefs that lead to unrealistic monetary resources
- Having unrealistic or overly optimistic estimates
- Trying to do more than you can with a budget
- Expecting everything to go right the first time
- Not planning for changes to scope or pivots
- Not understanding a complete product development & regulatory process
- Underestimating expenditures
Tips to aid in a plan with strong expectations
- Plan your development with realistic expectations
- Understand the funding pipeline: F&F, Angles, Grants, Series A, B, C
- Understand timelines and costs
- Prepare for the valley of death
- Find the right partners for your stage of development
Time = Money; developing a medical product is a multi-year process.
The development process includes research & definition, concept development, system architecture, concept refinement, and design & development.
After the initial development, clinical trial, manufacturing, and FDA submission, followed by marketing and sales.
A typical startup will not know the full scope of development until a user requirement specification (URS) of your product requirement specification (PRS) is completed. For this reason, it is important to understand that initial proposals are estimates.
In the Request for Proposal (RFP) phase, most reputable firms will provide free estimates in the form of a Time and Material (T&M) project coupled with a Statement of Work (SOW). As most projects are complex, firms use multiple phases to gate the development. The phase structure varies by firm, but most use five phases, including Strategy & Planning, Research & Definition, Development, Pre-Production, and Realization.
The first phase is designed to understand the scope and start to develop the preliminary PRS and URS into a document that will start your Design History File (DHF). As these specifications are developed and refined over phases of concept development, the initial schedule/proposal will likely change (higher or lower). This is a huge point that startups overlook when budgeting.
One of the classic mistakes startups make is believing everything will go according to plan and that the proposal is a “Fixed Bid”.
While in most SOWs, phases are typically fixed, changes in a previous phase may change future phases. Also, any changes during an existing phase that are approved by the client will initiate a project change request (PCR).
Thinking that the budget you are given at the beginning of a project is fixed puts your financial plan at risk. Be conservative in your budgeting and plan for a 15-20% buffer for things you did not expect. This is not to say that all projects will go over; however, it will protect you from facing zero cash flow mid-phase.
Keep in mind that a trusted partner will always provide you with timely “earned value” (EV) reports. EV reports are an excellent indicator of the project’s status during each phase. These reports can provide senior management with forecast values and stakeholders the current project status. Items tracked can be:
- Current status of work completed to date
- Cost Variance and impact to project budget
- Impact on the overall project budget
- Corrective action plan, if needed
“Spend time to plan and understand the process that’s necessary to get from an idea to a commercial product,” Tor points out. “Building, planning, and scaling the right project plan and team is critical; I can’t underline that enough. The right team, with the right schedule at each stage of the process, will gain favorable status with the investors. VCs are extremely aware of how teams are built and managed. A strong team makeup and plan will get you better financial results.”
Prototyping Process & Terms
- Proof of Concept (POC) – Sometimes referred to as breadboards. A method used to weigh the risks and benefits of different design concepts ultimately, testing the feasibility of an idea before developing it further.
- Aesthetic or Ergonomic Models – Used for the early evaluation of human factors and design. Typically, non-working.
- Alpha Prototypes – The earliest form of working embodiment that is not yet production-ready or has production parts. Note: You could go through more than one Alpha in the development process
- Beta Prototypes – Final prototype before manufacturing. The degree of readiness for manufacturing and validation is high and will represent the final product.
- Minimum Viable Product (MVP) – These are production-ready with a minimum subset of features. Note: There is a risk that an MVP will become obsolete if the feature sets grow.
“Because timelines and budgets are tight, the natural tendency for a startup is to say, ‘I want to get everything into the prototype. I want to just make it as feature-rich as possible.’ The challenge with that,” Tor explains, “is that when you try to work out the prototype and figure out where some of the challenges lie, it gets much harder to evaluate the root cause of that problem. This is where smaller POC prototypes become advantageous. For example, when working on a complex diagnostics product, we want to minimize the number of features we put in so that we can identify how they’re working and qualify them. Once we qualify them, we combine them into what we call an alpha prototype, which is the most realistic-looking, non-production-ready prototype. And then, eventually, after several alpha prototypes, we will get to a beta prototype. Understanding the pathway of getting through these prototypes, that there are going to be a lot of prototypes throughout the process, is the biggest challenge startups have.”
Tip from Tor:
“What I recommend to all my clients,” he explains, “is using the “Jacob’s ladder” approach when building out the program. Basically, treat every “end of phase” as a potential stopping point. This way, if you must stop for a while, for funding or other reasons, you do not roll back. Make sure that when you’re developing a prototype or a deliverable, once it’s complete, it’s at a point you do not have to go back. Document the process in the quality system. This way, if you need to raise more funding, you have a starting point to offer and share with your investors.
“You never want to have to stop development because you ran out of funding halfway through a phase. Then you’re back to square one. So, we work very hard with our clients to make sure that when we manage our project schedules and budgets, we don’t fall into that sort of area where we can’t stop a program elegantly and be able to restart it again.”
Managing the “Valley of Death” between design and manufacturing
“The way I look at managing the valley of death,” Tor explains, “is thinking about how you’ll get from getting your Beta Prototype through FDA approval, clinical trials, and into a qualified manufacturing partner.
“After development, you have clinical trials, FDA submissions, marketing, and sales—that’s the valley of death, what lies between design and manufacturing. You need to consider and have costs built into your budget for these things.”
While it may seem daunting to transition a product from a prototype to a production part, the right development partner can lead the way; providing general tooling and manufacturing evaluations up to full production assistance. Thanks to early manufacturer engagement, speedy time to market, excellent quality, and swift deployment are guaranteed.
Partnering with a medical device design firm can help you better see and understand the entire process from start to finish, as well as set realistic expectations for every step along the journey. The right design firm has the knowledge, experience, and capabilities to lead and guide you through timelines and processes, as well as funding opportunities.
Working with the right development partner early in planning as well as having realistic budgets and timelines can prevent you from falling into the trap of underestimating development costs and reveal the best path to innovation.
Statements of Work and detailed development timelines will define your goals and provide customized opportunities early in the project, including those surrounding monetary resources, reducing risks down the road.
To dig even deeper into underestimating monetary resources, listen to Tor’s entire talk at “5 Traps Startups Need to Watch Out for When Engaging with a Product Design Firm”.