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The ABCs of R & D : Design Firm Learned Pros and Cons of Heavy Investment

CALIFORNIA | LEARNING CURVE: Edge Industrial Design
Group

March 25, 1997

Edge Industrial Design does the design engineering for products such as audio speakers, home fitness equipment and mountain bikes. Manufacturers turn to Edge to ensure that their products look attractive. Vice President Robert Hess has learned a great deal about the benefits--and the risks--of investing significantly in research and development to keep his firm competitive. He was interviewed by Karen E. Klein.

In our field, we have found that we must do a tremendous amount of research and we must invest heavily in keeping up with the latest technology.

We found out early on that if we did not do extensive market research on what makes a product attractive and what features make it sell, we would run the risk of getting something wrong in our designs.

We also found that if we could prove that our productivity would increase with the purchase of new technology, we had to find a way to afford it. We could not put it off, especially if it would help our clients get their finished products to market faster.

There are lots of good market studies that show even overspending your initial R&D budget to get a product in on time has significant pluses, especially if you think you've got a winner. You know your competitors are rushing to get their product on the market before you do. That is why we try to get every product we work on to market within nine months.

Of course, the amount we have spent on the latest computer technology and the most innovative software has increased our overhead significantly. We had to find a way to overcome that or we would not be able to stay profitable.

One way we have found to balance out these purchases is to build the cost into the client's bill. When the design business was done on a drawing board with a pencil, I might have been out of line to charge for the pencil. But now we have a $25,000 workstation with $20,000 software on it that costs $5,000 a year just to maintain. I have to find a way to recoup the cost of that.

So if an operator works for an hour at that workstation as part of the client's job, that time will be reflected in the client's bill.

In terms of research, we build that into all phases of our design. First, before we even begin to design a product, we start by looking at the competition. Once we know what is already out on the market, we develop several potential themes for what the product will look like. Then we conduct market focus group studies using computer technology that creates 3-D images of our designs.

Finally, we do "post-mortem" research for ongoing clients. This is where we talk to retailers who are carrying the product and get their opinions on how well it is selling.

Every firm has to find a balance between the expense of research and development and the competitive edge it will give. This is part of the nature of the business world today, not only for technology companies like ours, but for any small business.

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AT A GLANCE

Owners: Robert Hess and Jonathan Oswaks

Nature of business: Product design and engineering

Location: Shadow Hills, near Sunland

Founded: 1993

Employees: 16

Annual sales: $2.25 million

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