Distributors see growing business from startups

“IoT is only going to continue to expand in driving more digital connectivity on a global basis and thus be a perfect environment for new companies to start with new and exciting innovations” – Paul Dosser, vice president, business development for Digi-Key

Many startups turn to distributors for help designing a new product, choosing the right parts for the design, and finding capable manufacturers to build the product, by James Carbone.

Startup companies with innovative ideas for new products are increasingly turning to distributors, not just for components for prototype builds, but for design, supply chain and manufacturing expertise needed to bring products to market.

Startups are looking for distributors to help select the right components and suppliers for design, review designs to make sure the product is manufacturable and to help manage the supply chain once the product goes into production.

Distributors believe that helping a fledgling startup develop and successfully bring a new product to market will result in a loyal, long-term customer that will purchase components from them for years.

The number of startup companies is growing because of the availability of online development tools and data sheets which make it easier to design and the accessibility of crowd funding sites to finance new product projects. “Looking at the list of Arrow’s top customers over the past five years, we have customers that didn’t even exist five years ago,” said Murdoch Fitzgerald, vice president, supplier marketing and engineering for Arrow Electronics.

He said Arrow has invested in programs and resources to support startups at any stage of development from concept through full-scale production. As part of that effort, Arrow has partnered with crowd funder Indiegogo with its Arrow Certification Program. Through the program, Arrow pairs startups with engineering resources, online design tools and product discounts to help entrepreneurs.

“We have seen nearly 8,000 start-ups enter the program looking for assistance and support to launch their products,” said Fitzgerald. “We see start-ups across multiple customer segments from medical devices to agriculture to communications to automotive,” he said. “We have yet to see a limit to the creativity in the technology space.”

Lacking resources
Startups often require technical and design help from distributors because they lack resources. “Often startups are resource limited and need to find and leverage external organizations to provide expertise and alleviate some of the workload,” said Fitzgerald. They often need help finding the right design partner and “selecting the right quality components,” said Fitzgerald.

Once a product is designed and moves into production, startups often require supply chain and value-added services. “Startups will require more assistance in both supply chain set up and in value-added services as they likely need to leverage more external support based on size and available resources than a traditional OEM that may have the capability to perform these in house,” said Fitzgerald.

Startups often need assistance managing parts availability issues. “While startups have smaller volumes, parts shortages or raw material constraints “can take down a production line” just as they can for an established OEM that may be buying large volumes. Both need help sourcing and planning to “minimize any supply chain hiccups,” said Murdoch.

Helping startups develop and bring new products to market builds “trust and loyalty with the inexperienced company and, in many cases, that does translate into sales. It’s a true partnership model,” said Fitzgerald.

More business from makers
Another distributor that is seeing an increase in business with startups is Digi-Key. Paul Dosser, vice president, business development for Digi-Key, said more design engineers are starting their own businesses, and the maker and IoT movements are resulting in numerous startups which need “efficient and easy access to information and products in a digital fashion.”

However, they also need help with design and production issues and turn to distributors for resources, services and tools. One service Digi-Key offers is, which provides startups with free EDA and design tools, BOM manager, free technical resources, reference designs, product training modules. The service can also suggest venture capital options. Such services are ”very much in line” with what startups need, said Dosser.

He noted that in some cases startups have the same needs as established OEMs. “For instance, a startup or a mature OEM doesn’t want full reels of parts or standard manufacturing packaging when a new product moves from design to preproduction/new product introduction state, said Dosser.

“Our value-added services of cut tape, Digi-Reels (small volumes of components on a mini reel for plug-and-play on auto insert equipment), and BOM manager kitting help a startup business keep excess inventory costs in check,” said Dosser.

When a product moves to production, depending on the volume needs, Digi-Key “can continue to support the requirements with our value add services or bring in our full offering of supply chain tools to aid in assurance of supply,” he said.

With a design review, “many times we are able to increase product performance and lower bill of material cost just because startups are not aware of all the options that exist” – Bob Merriman, emerging opportunities specialist at Avnet

Help with fundamentals
Bob Merriman, emerging opportunities specialist at Avnet, said that startups may have a lot of technical expertise about a product or technology, but lack the necessary knowledge concerning fundamentals of the supply chain such as component availability and lead times.

“For instance, in talking to startups, if we asked them ‘what are your lead times’ they may look at you like they don’t understand the question,” said Merriman. “The idea it could take 6, 12, or 20 weeks to get certain components is a very new concept to a lot of startups. They need help navigating the process,” he said.

Even if a startup is schooled in the technical aspects of the product under development, it may still need help designing the product. For those startups, Avnet offers design services. Merriman noted that with the acquisition of Premier Farnell, Avnet acquired internal design services.

“Avnet is able to do actual design, PCB layout, component design all of the upfront tasks that go into getting a hardware product ready,” he said.

In addition, Avnet acquired Dragon Innovation, a company that “helps folks navigate that journey from prototype to large-scale production,” said Merriman.

He said Dragon performs a “holistic design for manufacturability review.” Its mechanical engineers sit down and look how well the product can be manufactured and “offer some tips and suggestions on getting from making five of the new products to making 20,000,” said Merriman.
“We definitely recommend a design review to make sure things are good,” said Merriman. “Many times, we are able to increase product performance and lower bill of material cost just because startups are not aware of all the options that exist,” he said.

Besides providing help with design issues, Dragon Innovation also helps with sourcing materials such as plastics, rubber screws, housings casings, among others. “Dragon will actually help customers find all the materials they need to get their product produced and actually help with factory selection,” said Merriman.

“We have a team over in Asia with a request for quotation process from the factory,” he said. “They can actually embed in the factory for a startup.

The majority of startups outsource manufacturing because of the expense of setting up a factory. In addition, startups probably lack the understanding of issues such as the quality of order process, how production lines run and the challenges of getting finished products from the factory to customers, said Merriman.

“The majority of startups that we work with are looking for a partner to help with those types of services because they have never done it before and it is very complex,” said Merriman.

He added that startups may not be aware of the logistical challenges in bringing a product to market. “When we start to talk to them about their plans, how they are managing their orders, tracking production, we start to find that they may not be prepared for the journey ahead” and may turn to Avnet for help in managing those challenges.

Most distributors say that business with startups will continue to grow for years and will span a wide spectrum of vertical markets including industrial, medical, automotive, consumer and others. Many startups will be developments products for Internet of Things applications.

“IoT is only going to continue to expand in driving more digital connectivity on a global basis and thus be a perfect environment for new companies to start with new and exciting innovations,’ said Dosser.