Reaching break-even on a new car programme when vehicle sales approach 100 would sound like a pipe-dream at most automobile companies.
That is not the case at Local Motors, an automaker based in Arizona. The rugged, off-road Rally Fighter has already hit that target, says John Rogers, chief executive: sales from here start to make a profit.
It does not hurt that the car, which cost $3.5m to develop, sells for an average of $120,000, including optional extras. But the company would not have got to this point were it not for a radical new business approach that is also seeding wider experimentation among other manufacturing and online start-ups and starting to percolate up into the thinking of more established companies.
Companies such as Local Motors hope to draw their customers into their product development and make a long-held dream in manufacturing – mass customisation – a reality.
Traditional car companies “have lost the ability to innovate based on what people want,” says Mr Rogers, who adds that he is fighting the “juggernaut of scale”.
Local Motors’ tiny production runs will not give the world’s big carmakers any sleepless nights, though its business model highlights new methods that are behind a wave of hardware start-ups.
Two elements have combined to get the company to this point. The first involves the harnessing of an online community of enthusiasts to act as a combination of idea generators, designers and early customers.
Crowdsourcing – also known as co-creation – is nothing new in industries such as software, where the open-source movement first came to prominence with the rise of the Linux operating system a decade and a half ago. It has taken longer to move into the hardware world. But new ways of moving from design, through rapid prototyping to full production have changed that.
“Part of this is about the democratisation of design, where people have got more access to design tools that are increasingly inexpensive,” says David Stonehouse, technology and innovation expert at PA Consulting. “With the development of 3D computer-aided design (Cad) tools such as SketchUp on the web, and schoolchildren starting to play with 3D printers, everybody believes they can be part of the design process.”
Quirky, a New York-based company that uses crowdsourcing to build consumer products, has come up with more than 100 based on designs suggested by its outside inventors, from simple plastic kitchen utensils to a WiFi-controlled air conditioner developed in partnership with General Electric.
Other companies offer variations on the theme. For example, designers can send their 3D files to Shapeways, based in New York and the Netherlands, choose from a range of materials and then wait for the postman to deliver the real thing, made on the company’s sophisticated 3D printers.
Designers can also set up a shop on the Shapeways website, and the company will 3D print the product each time an order is received. Mr Stonehouse says this idea of personalisation – “I submit what I want and then a 3D printer or a manufacturer makes it for me” is a very interesting development.
A key element in the success of these ventures is “authenticity”, says Quirky co-founder Ben Kaufman, as this is vital to getting outsiders to engage with new products. They have to feel they are part of a genuine community of interest, not simply taking part in some elaborate corporate marketing exercise.
A sense of personal connection is key, he adds, before people will develop the level of trust needed truly to engage: “If we want them to give us their best idea, they need to have seen us or met us.”
Quirky uses live product evaluations once a week and other events to bring a more personal touch.
The question for companies such as these will be whether they can still engender the same passionate engagement as the number of people contributing to them gets bigger and individual members feel less of a sense that their own contribution is making a difference.
As Mr Kaufman puts it: “As the community grows, how do people think it’s not just a lottery?”
The second common feature behind hardware start-ups of this type involves the process of taking a product idea through to the point of manufacture. This involves the use of advances such as 3D printing to help with rapid prototyping, greatly streamlining the process.
Full production also draws on new manufacturing models that were not available to start-ups until recently. In the case of Quirky, that means tapping into a base of low-cost manufacturers in Asia, who can turn out its consumer products in volume.
Local Motors, on the other hand, has relied on innovations in machine tooling to develop its own small-scale production base.
“We needed to bring down the cost of tools to make hardware development more like software development,” says Mr Rogers.
A wave of innovations in computer-assisted machine tools is bringing down costs and making it possible to produce in much lower volumes, according to Jordan Brandt, technology futurist at Autodesk, the big US maker of design software.
These include combining 3D printing with older techniques, he says: a product made from a highly expensive material can be built up in a 3D printer before being fine-tuned in a milling machine.
Breakthroughs like this are also opening the way to producing better parts for older machines, making them more efficient. Printing a mould with thin air channels inside it, making it quicker to cool the part after each use, could raise the efficiency of an injection moulding machine by 30 per cent, says Mr Brandt.
Mr Stonehouse at PA sees a spectrum of development, with “people playing in different niches across it, but it’s all about moving towards flexible manufacturing, customisation and then finally towards personalisation”.
The spectrum ranges from people printing out things such as low-resolution toys on their own 3D printers, to companies such as Shapeways which group several people’s designs together, print them out and mail them back to the inventor, and finally to large manufacturers using 3D printing for sophisticated parts that may be one-offs.
All parts of this spectrum are in their early stages but will develop, he says. Domestic 3D printers will improve just as conventional printers have, expanding the possibilities for manufacturing at home. At the top end, he says, “consumer product companies will invest in flexible infrastructure which is all driven by connected manufacturing. They will be using things like fuzzy logic and loads of smart sensors to be able to optimise their manufacturing process to get the cost structure down to something close to the same as it is today, but every product could be different.”
Meanwhile, at Local Motors, new manufacturing techniques have made it possible to produce in what it calls “micro-factories” employing a maximum of 50 people, and as few as a dozen if they are not involved in product development. The company is working on opening its first overseas plant, in Berlin, and hopes one day to support a wide network of facilities serving highly local markets and interests.
“If you have a market for a few thousand items, you can serve it now,” says Mr Rogers.
Additional reporting by Andrew Baxter