How to deal with good salesmen

I was working with a company and did a custom product design for them. The company owner was a really good salesman and was offering to provide money for inventory and help me get setup. A really nice guy wanting to help out new businesses....

However the product design was done and his company had confirmed the operation and he requested a quote. Since I had invested my money in inventory anticipating this I was able to provide as quote. I also informed him that with parts shortage the lead time and price could increase on future product orders. At this point his panic set in and he said he needed to make sure there was supply. So I suggested ordering at least 1 year of product to manage the current semiconductor part shortage (2021 part shortages). I gave him a quote for the units with a non-refundable down payment large enough to cover the inventory costs.

This is usually in business where things get interesting. That is you determine if the person is all talk or is willing to put money behind their business. As it turns out this company was not willing to invest the small sum of money.

The next day I was contacted and was told that their engineering team had decided that they needed a different design and the product I had made would not be good enough. However they would be happy to have me design a new product to their new specifications and then they could order units. For those that don't know this is the kiss of death. Basically you get in a never ending design cycle trying to meet changing requirements in hope of future sales. This always ends badly for everyone involved. So how can you prevent this cycle?

With a good salesman this can sound very attractive offer. However here are some tricks to help you when dealing with such salesmen. and prevent the requirements change death spiral.

1. If the salesman starts asking about your cost of product and how much money you need, then you know it is a bad thing.
   Your business is your business, not theirs. They do not need to know your inventory cost, profit margin, etc. They need to know what your product does, the price and lead time. Do not give them any information about your business because they will try and use that to beat you down on price.
2. When you look at a deals, draw a line between you and them. Look at what crosses the line in both directions.
   For example if they have not given you any money and you have given them products for testing. Or if you have not received enough orders and money to pay for your development costs then you know it is a one sided relationship. How long can you provide with no income?
3. Do not do custom product development without a purchase order and down payment.
   The down payment can be refundable or partial refundable, however you never want the one sided relationship where you are putting in the time and money on speculative work for someone else's business. This is an investment in their business not yours.
4. Look at their engineering team, if they are inexperienced consider not doing the work.
   Inexperienced engineers will give you wrong or just bad specifications such that when you are done and ready to sell the product, they will discover their mistake and how product will not work.
5. Never fund your engineering on prospects for future sales.
   This is a trick of a good salesman, he may even believe it themselves. Basically they tell you how many units they are going to be selling and tell you how profitable it will be for you. To help here, say you know your are right and this will be very profitable. Therefore why don't we share the profits, you pay for engineering costs and I will reduce my profits by 50%. This way you will come out ahead on volume. If they can not afford to pay for your engineering costs then walk away.

Requirements/Specifications

Engineers I know often say the problem is that the customer does know the requirements or specifications for what they want/need, this is true. However it has never happened in 30 years that someone has provided requirements and not changed them. That is change in requirements and specifications always happens. The question is how to manage the changes and when the requirements are good enough to start engineering.

Note that their is a difference between product engineering and prototype engineering. Prototypes are build to answer questions, like can this design meet specifications, "will this really work". The prototype engineering is often labeled as research and development work. Product engineering is where you design a product to be produced in volume.

Analogies

The analogy you have all heard me use is that building a product is like building a house. That is you need to architect your product like you would a house. Most electronic product development business fail because they skip the architectural phase and think they know exactly what they want and want to go directly to production. If you believe this then get fixed price quotes to design your product from three different engineering contract houses. If they will not quote the work, then you are not ready.