Our custom builds are small (dance game, small diorama scenes, etc.) but here's our process:
1. The Idea. Very simple, we have a billion of them. :-D
2. Mr. Frog designs on Lego CAD software (I don't know which one he's currently using, he's tried at least two.)
3. Mr. Frog shows me design, I make suggestions, we engage in largely friendly and mostly bloodless design "discussions", come to agreement.
4. He hands me shopping list for prototype, I sometimes faint over the prices of some of the parts he's using, we determine if we can go cheaper on anything, sometimes yes, sometimes no. Availability of chosen parts is even more important, since the ultimate goal is to take the custom into production and sell it many times.
5. I order or pull from our building box or inventory the parts we have agreed on.
6. When parts arrive, we sit down and build the model. At this point there are generally several design changes because we're EXTREMELY fussy that the model not only look great, but that it feels sturdy and "substantial".
7. Mr. Frog takes the prototype, with its design changes, back to the CAD and alters the design. Hands over new parts list, #4 is sometimes repeated.
8. I order parts for our first production run (generally 20 units).
9. While waiting for parts to arrive, I start working on any necessary decals. I create my initial vision, and my family then tells me where I went horribly, horribly wrong. I sometimes try to argue, but it usually turns out they're right. They're like annoyingly effective editors or coaches.
10. I finalize decals, we apply them to the finalized prototype and congratulate ourselves.
11. Parts arrive, we print up decals en masse, we spend way too much time taking cute photos, we upload item for sale.
12. We start over at #1.