The separate condenser showed dramatic potential for improvements on the Newcomen engine but Watt was still discouraged by seemingly insurmountable problems before a marketable engine could be perfected. It was only after entering into partnership with Matthew Boulton that such became reality. Watt told Boulton about his ideas on improving the engine, and Boulton, an avid entrepreneur, agreed to fund development of a test engine at Soho, near Birmingham. At last Watt had access to facilities and the practical experience of craftsmen who were soon able to get the first engine working. As fully developed, it used about 75% less fuel than a similar Newcomen one.
In 1775, Watt designed two large engines: one for the Bloomfield Colliery at Tipton, completed in March 1776, and one for John Wilkinson's ironworks at Broseley in Shropshire, which was at work the following month. A third engine, at Stratford-le-Bow in east London, was also working that summer.
Watt had tried unsuccessfully for several years to obtain an accurately bored cylinder for his steam engines, and was forced to use hammered iron, which was out of round and caused leakage past the piston. Joseph Wickham Roe stated in 1916: "When [John] Smeaton saw the first engine he reported to the Society of Engineers that 'Neither the tools nor the workmen existed who could manufacture such a complex machine with sufficient precision.
In 1774, John Wilkinson invented a boring machine in which the shaft that held the cutting tool was supported on both ends and extended through the cylinder, unlike the cantilevered borers then in use. Boulton wrote in 1776 that "Mr. Wilkinson has bored us several cylinders almost without error; that of 50 inches diameter, which we have put up at Tipton, does not err on the thickness of an old shilling in any part".
Boulton and Watt's practice was to help mine-owners and other customers to build engines, supplying men to erect them and some specialised parts. However, their main profit from their patent was derived from charging a licence fee to the engine owners, based on the cost of the fuel they saved. The greater fuel efficiency of their engines meant that they were most attractive in areas where fuel was expensive, particularly Cornwall, for which three engines were ordered in 1777, for the Wheal Busy, Ting Tang, and Chacewater mines.