John Paul Mendocha Discovery Case Study

$1 Discovery Turns into $660,000, with a 16 year tail…

Discovery Case Study: Manufacturer X wins Customer Z

As I started to work with Manufacturer X, it became clear that we needed to get a contract with a major defense contractor if we were going to be successful.

We only had a couple of minor problems. Problem Number One was that we had no reputation as a company in the market, whatsoever. Problem Number Two was , we didn’t have a product to offer, just services. This made Manufacturer X not easy to position back to the customer.

We located an opportunity with Customer Z in Southern California. My extensive experience working with various groups inside of this facility meant that we had a chance. As we described what could be done the question became: How would the opportunity look? Would we be billing time and materials? How competitive would we be compared to all of the other job shops that were out there? And what was the lowest common denominator? Clearly not a winning hand.

My suggestion was that Manufacturer X should take a decidedly different approach. Bill the client for the end result, and therefore avoid all of these seemingly endless cost overruns that Customer Z had experienced over the years. We would also, through a process called Discovery, define exactly what that end result was going to be and get agreement before we, in fact, started billing them.

Now, while this sounded very good to the Friendlys, the contracts people we’re not impressed whatsoever. We had to find a different way to get past this gauntlet.

Along with my expertise, we had a manufacturer’s rep, Brad, who knew this crew very well. As well as the team at Manufacturer X. However, his feedback was decidedly negative on many levels. His statement was that even if we got through this Discovery Process, the customer would never pay over $100,000 in non-recurring engineering.

He insisted that the customer would, inhale the design and manufacturer the end result at the cheapest possible price. So how would we be making money? And therefore, how would he be getting compensated for doing the deal?

If that wasn’t bad enough, the engineering manager, Rick, who I had known since 1987, expressed that he didn’t believe that they would ever pay over $225,000 non-recurring engineering costs. He reiterated what the rep, Brad, said, that we would never get a shot at doing the manufacturing.

The beauty of the Discovery Process is that it allows you to officially become a vendor. To work closely with the team and prove your value, all the while being paid during the process.

This changes the playing field dramatically. Though this one would be a tough one, it would prove that the Discovery Process is a superior means of showing value and increasing influence inside of accounts.

Whether you charge for Discovery, or do one for free, as long as it is agreed that you are providing value, it will have its desired effect. We had all the odds against us in this opportunity. However, it was a make or break for Manufacturer X.

My approach was to offer to do a Discovery valued at $35,000 for just $1. However, that would only be for the first month and the customer had no obligation beyond that bill. They had to treat it as if they were paying us $35,000. That meant that there had to be a commitment by management to the process and working with us as we needed. We got agreement on that and they started to process the paperwork for $1.

It was rather ridiculous arguing with the contracts manager about the terms of when they were going to issue us the $1 check and how we were going to invoice them. We still treated it as if we were getting $35,000.

We worked very hard during that first month and we achieved our stated goal. As we delivered the information for the Discovery, they couldn’t believe the quality of the insights and most importantly how well everything had been put together.

I used that $1 purchase order as a Contracting vehicle. I had them amend it for the second month, which was for $35,000. Now we were being paid as we should be. That $1 Discovery resulted in taking $1 and turning it into $660,000 before production units we shipped.

By the way, Brad the rep couldn’t believe his eyes and ears that we were able to extract that much money from the customer. He still remained negative about the long-term prospects of this opportunity. A fortuitous thing happened however; because we had started with only $1 and were negotiating almost continuously during this process, we talked about how much of the intellectual property was really ours and not theirs.

It was agreed that we would share data rights on a 50/50 basis. Those data rights meant that we were going to be manufacturing this item for a considerable period of time, and that because of that we were now in a very advantageous position.

We also were careful in what we negotiated those data rights to look like, because it was all about the design itself. We carefully excluded any of the testing software and system to do the testing. This meant that for the next 12 years they came to us, year in and year out, and purchased product from us. This is the power of the long sale.

What makes the story even more astonishing is not the several million dollars in sales that were created, it is the fact that when the upgrade to the technology needed to take place, we were in a sole-source position. They couldn’t buy from anyone else besides us.

We completed a contract that was over $700,000 with non-recurring engineering costs, and received an initial production run of 175 units at $5,500 a piece for a total of $962,500. Oh, and those data rights on the new updated part number – We Own 100% of those rights.

So a $1 Discovery turned into 16 years. And us counting our ongoing cash flow ever since.