Resource provider’s perspective

Although no further cooperation with the European manufacturer is now possible, Kevin retained a personal relationship with one of the factory owners. I secure Kevin’s permission to approach the owner to study the stakeholder’s perspective on the same case.

entrepreneur] the prototype for [product #2]. We agreed to that [the entrepreneur] could use our factory, for a very small fee – we only took the cost that it takes to use the people, and we actually opened up the factory for him to develop this product.” (Thorsten, 200319) Thorsten has both personal experience of being an entrepreneur, and professional experience of working with other entrepreneurs. He therefore has a good understanding of why a start-up firm – any start-up firm, not just Kevin’s – needs special norms and conditions of cooperation. Kevin needs a lot of support and lacks finances. Thorsten empathizes with Kevin’s situation and is ready to invest some resources at the start:

“[our investment] was, maybe EUR 1000, because that is what was needed. I do not really remember; it is such a small amount of money… For us, it was actually more like trying to support, and not trying to earn a lot of money. We were just looking into what it could mean, we were not having full capacity at the factory, so… Now, today, we could not have done it, now the cost would have been much higher. But due to the fact that we had some capacity in the factory, we thought – OK, let’s do it.” (Thorsten, 200319)

Guided by his willingness to share experiences and help out a promising entrepreneur, Thorsten enters the cooperation believing already from the start that it might be a priori more beneficial to Kevin and his firm than to Thorsten’s business:

“…it is a big difference to produce your product in [our factory], which is the same time zone and only two hours [to go there] … I think from practical perspective, to be a prototyping factory, or a lab, or whatever you call it, and also trying to make it industrialized, i.e., trying to make the first production batches, I think it was probably rather good for him and the team, to work there. […] I think they gained quite a lot from developing the product on a short distance, and we did not have any expectations that the business would continue.”

(Thorsten, 200319)

A common understanding of stakeholders’ roles – where one is resource recipient and the other is resource provider – enables many compromises over the cooperation.

6.3.2.2 Understanding the conditions as the cooperation progresses

Thorsten believes that a prerequisite for a successful and sustainable business relationship is frequent and open communication regarding the conditions of cooperation and mutual expectations, and both parties making an effort to establish such communication right from the start. During the cooperation, Thorsten and Kevin have regular and open discussions regarding the cooperation:

“It is better to be honest, we had this discussion with [the entrepreneur] where we said – this is how we evaluate your situation: you have good possibilities to develop your product here, however, we would not be really that cheap that you might be able to find in [other countries],

where I think some of this stuff is done. So, then it is better to be honest and not try to fool anyone. We know that at some point you will take your product somewhere else and try to benchmark, that is what anyone would do. Is it not just better that we just conclude that this is how it is? But, we will do the development for you, anyhow, since we have a capacity. If you pay for our working time, and the material, of course, and then we can do it.” (Thorsten, 200319)

Already from the start, Kevin’s product made a solid positive impression on the market and consequently on the manufacturing partner. There has been a reasonable expectation of the rapid turnover growth, as Kevin had projected. However, over the cooperation Thorsten has had reasonable doubts based on the past experiences:

“… [it] is very common when you start something up – there, he had very high expectations on sales, but it never came in the beginning. And because of that, we went in to the very low… To be honest, this has been a very low margin for us. … it was OK to do it, because we also had a contact and we learnt a lot about and from. But, if we would have had a full production and limited capacity, we would never be able to do it, with these low margins that we brought on the product. But now, I mean, when you start something up, you look for businesses that might be something in the future…” (Thorsten, 200319)

Thorsten’s intention is to support Kevin up until the point when it did not make economic sense for either party to continue the cooperation. As a part of a compromise based on solidarity and effectual consent, over the cooperation, the production facilities at Thorsten’s factory are partially readjusted to match the upcoming needs of Kevin’s firm. As the cooperation progresses, this becomes another reason to question the low compensation and the firm’s slow growth in the form of turnover from sales:

“…we quite quickly understood that we could not meet his requested cost price in the factory, and we were very clear on that this is probably not the product that is fitting very well into our production. We were lacking some of the equipment, and so on, and because of that the cost price became quite high. And I knew the price that he wanted to have on consumer market, which means that we could already conclude that we will not be able to produce it.

But we said – OK, fine. We do not think that you will use us anyhow. We do not have expectations that you will place any orders later on, because of that you have to pay our very low cost for development.” (Thorsten, 200319)

As the factory gains traction with other larger and more resourceful customers, the window of opportunity is closing, and prices for services provided to Kevin have to be adjusted accordingly. The propriety of means for acquiring and managing the factory’s resources is questioned. Not only was the financial compensation not up to the desired level, but, as Thorsten evaluates, Kevin also failed to meet the explicit commitments as per the formal agreement. Thorsten mentions that impossibility to plan for production

volume caused problems and extra expenses, as the factory had to buy in and store the materials and invest in additional equipment, not being sure of when and if Kevin will use these:

“… [Kevin] always had a problem – which I also understand – to commit to volumes. Which is also the problem I can understand… […] that is also why at some point we decided that he had to buy the raw material, because… You know, if we agree on a business deal, and you say that you project that you will sell for X number of thousand kronor, then of course we also buy all that material, so that we have it on our stock. We have invested for him for quite a long time. That we solved… and I think it is also quite understandable, that if you do not commit for volume that you project for the long time, then of course you have to take some of the investment into materials. So, that we agreed on, that was done, I think, after a year or so, that he had to pay for the material.” (Thorsten, 200319)

During the cooperation, there has been additional side product development. As Thorsten explains, development of additional products was only regulated by a non-disclosure agreement that Kevin required. The rest of the terms were considered part of the initial cooperation agreement, and they were only regulated by verbal consent.

In practical terms, the development project meant that Kevin got to use the factory’s facilities at a fixed low price to prototype the additional products by themselves.

Thorsten evaluates this positively, as Kevin’s hands-on involvement saves resources for the factory:

“…we really appreciated that they were really engaged into product development. That I think was also a big difference, because when we do the product development today, we are getting a brief, discussing the material qualities, and then we do most of the development ourselves and we present the alternatives to the customer. That is maybe also because those organizations are quite big… That is another way, but in [Kevin’s] case, he and the team were very much engaged in details and so on, which I think was good.” (Thorsten, 200319) For Thorsten, the factory’s agreement to provide Kevin with resources for side product development was primarily guided by a willingness to help out the long-term partner.

Thus, the stakeholders’ role integrity is preserved mid-cooperation, even when the factory’s flexibility diminishes and expectations of more thorough planning become stronger.

6.3.2.3 Understanding the conditions at the end of the cooperation

Further into the cooperation, it becomes ever more apparent to Thorsten that Kevin’s projections for the firm’s sales turnover over time will not be met, and the factory needs to take decisive steps towards prioritizing other customers. Thorsten makes a decision

to not extend the cooperation agreement once the initially agreed validity term was running out:

“…we were actually the party that took the initiative to cancel the contract, that, of course, I do not think that [Kevin] liked it so much. But, since we were coming closer to the contractual length, and we were not reaching the volume that we said, we just decided that we do not want to continue the contract, and said that we would like to have those clauses and conditions that we had in the contract to be executed.” (Thorsten, 200319)

Even having decided to not continue working with Kevin, Thorsten evaluates that the factory’s overall goal for the cooperation – to find novel ways to successfully collaborate with product-development companies – is fulfilled. Through the cooperation with Kevin, Thorsten and his factory could define and verify a suitable business model for upcoming collaborations of a similar nature:

“The good thing from it is that one of the customers that we have today, which is then more or less giving the majority of volume to the factory […] …I think that this work with [the entrepreneur] has helped us to be better in how to take in and develop a product together with another party.” (Thorsten, 200319)

One of the important conclusions for Thorsten is that as long as the factory can fill its capacities with orders from established market players that can commit to secure production volumes and sales turnover, such customers should be and will be prioritized. Thorsten’s manufacturing business has developed and grown well over the past years. Any bootstrapping entrepreneur interested in potential cooperation with the factory would now need to have a much stronger offer that could meet the advantages of running collaborations with established market players:

“…we started with zero in 2013, and I think 2018-2019 we are around 20 million in sales.” (Thorsten, 200319)

“…that was a strictly business decision. By that time, we also started to grow the volumes with some other companies. And to be honest, if you have to choose to load your production with high margin products or low margin products, then you have to choose those with high margin.

So, that was also the profitability decision on our side.” (Thorsten, 200319)

Thorsten stays open to collaborations with firms similar to Kevin’s – resource-constrained product-developing start-ups at early stages. However, the agreements for such collaborations, he believes, have to be much more formalized and explicit in the future:

“…one learning for us is that I think we can probably work with more start-up companies, but we should be then clearer on that, we should never listen to projected volumes. Instead, we should do it like this that – OK, we will develop it together with you: either we can do the development for free, if you commit to a volume, or you have to give us a part if your business will be successful in the future. I think this would be a smarter way of working, because that would mean that the entrepreneur does not have to pay, we can open up and we can take some risks, but we need to make sure that we will have some payback in the future.” (Thorsten, 200319)

Thorsten does not think that the doors to possible future cooperation with Kevin’s firm are completely closed. On the contrary, he shares that he would gladly join forces again, but only on the premise of the parties approaching the work as equal partners and for as long as the offer is economically attractive and able to withstand competition with the factory’s existing customers:

“…either you have to charge quite a lot for product development, and then you do not bother about taking the part in the future products or volume, or instead you can give away the product development, but then of course you would like to take part in the future growth and profitability. And then you also share the risk with the client. I think if we started over, we would probably be very clear on how we should work. And, to be honest, I think we would not have had any objections to work again with start-ups, if they could accept this kind of set-up. The problem is that when you are an entrepreneur, you would not like to give away that easily something that is your idea and your baby. So, it could be very difficult to convince, I think, a company or an entrepreneur to do it like that. But I think, for us, we have learnt to be very much clearer and more straightforward with expectations, and financing stuff and so on.” (Thorsten, 200319)

Thorsten mentions, however, that he does not believe that this could interfere with potential future business.