Deciding to Crowdfund

Author Gravatar Image MARC BARROS
To crowd-fund or not, that is the question most hardware startups eventually ask themselves.

A start-up you have no idea if people will buy your product. You may spend countless months researching your customers. You may even get dozens of customers to say "Yes, I would buy that if you made it." But until you ask them to put real money down you have no idea if it will sell. And without paying customers you don't have a business.

Crowd-funding provides you with the opportunity to validate if real customers will buy the product you are working on. But crowd-funding isn't a decision to take lightly. If done right, it can be lightening in a bottle. If done wrong, it can be incredibly painful.

With that in mind here is a quick guide about why you should sell your product before you make it, why you shouldn't, and what to watch out for.

Why You Should

A direct relationship with your customers is the most valuable relationship you have. Using retailers to launch your product has become an unnecessary and expensive layer between you and your customer. Some of the hottest product companies today (e.g., FitBit) started as internet-only brands.

A few reasons you should:
  • You want lots of customer feedback during the development process.
  • You need to validate that people will buy your product, which can decrease your burn rate and increase your company valuation. Oftentimes investors, retailers, and even suppliers won't believe you until they see real sales.
  • You want to know the customer demand before you spend money building it. Production costs are not cheap and spending money making the wrong product can kill you. Additionally you will learn what your early customers love, hate, and want in your product.
  • You want to build community around your product. Having people cheering you on gives you a running start into the market. The large players will eventually copy you so the strength of your customer community matters. Assuming you have limited marketing dollars when you launch, you need every advantage you can get in reaching customer mind share.
  • You believe in an open culture, customer relationship, and development process. If you want to build a totally open company there is no more open you can be, than allowing the world to watch as you create your product.

Why You Shouldn't

Letting the world know about the product you are making is not for everyone. It's an incredibly vulnerable way to come to market, requiring you to share with the world the good days and the struggles you are going through. Especially if your team does not have years of experience bringing a high-quality consumer product to market, it can be a humiliating, multi-month experience.

On the other hand, the momentum you may have already built with your investors, team, suppliers, etc. can come crashing down if your project flops. The response may not even reflect true market demand, but it will make you second guess what you are building and why. There are dozens of products that weren't even accepted to Kickstarter, but on their own were a huge success.

A few reasons you shouldn't:
  • You don't want to be open. If you want to keep new product ideas away from your competitors or large companies who can either copy you quickly or create a lot of distracting noise. Apple protecting itself from fast followers is an extreme example.
  • You have an existing product in the market and the news about a next version has the risk to tank sales of your existing model.
  • You just raised a significant round of capital and already set big expectations for your yet-to-be-released product. Every investor is different, but negative momentum before you ship can be a big problem, especially if your revenue plan and burn rate will be significantly different.
  • If you don't understand what it really takes to make the product you're showing. If you don't deeply understand the open items and you don't have a supplier on board who you have validated can make this product, you could promote a product that can't actually be made.

Best Practices

Getting the product up online and telling everyone about it is the easy part. If it's unique enough the word will spread quickly for you.

Once people give you money your product is real and the relationship changes from fans to customers. As a customer they expect great service, accurate information, and to be dealing with a reputable company. If not done right, you can turn thousands of potentially happy customers into an angry mob.

Some best practices:
  • Be very honest upfront about how far you are, what is left to do, and how long it will take you to finish. Take the most conservative schedule you have, add 50% to it and use that as your initial timeline. People are happy when you ship early, but never understand when you ship late.
  • Share both good news and bad news along the way. No news is bad news. Remember your customers are following your journey so post photos, videos, and write about what is going on. You don't need to make it a status update, but instead walk them through the process.
  • Have a plan for when things go wrong. Unless your team has done this multiple times before things will go wrong. You should have an internal plan about how to handle it as well as a communication plan both with your customers and your retailers.
  • Build a real team or hire firms that have brought high-quality, high-volume products to market. Just because your friend's friend makes products in Asia doesn't make him/her qualified. You might want to ask other entrepreneurs who have had success on Kickstarter who they are using.
  • Don't ship crappy product. The longer customers wait the more you will be judged when it finally ships. You CANNOT ship a half-baked product. Even if it means cutting the features in half you are way better off to ship a product that does a single feature very well then shipping a product that barely delivers multiple features.
  • Have an idea of what you want to do after the Kickstarter haze fades. Do you want to build a mega consumer brand like Jawbone, do you want to raise serious capital like Turtle Beach, or keep it small focused on selling direct and making awesome product like Minimal? There is life after Kickstarter and you want to have a plan for how this will jump start the next phase for your company.
Conclusion
If I were to do it all over again I would have sold our initial camera before we made it. As two guys in a garage it helped to validate we had something real. But at the same time I would have done things very differently. I would have been more upfront with what we did and didn't know and I would have given ourselves a lot more time to bring the product to market.


Without selling our VholdR camera before we made it, we never would have gotten Contour off the ground.

Last updated on 2014-04-05 at 05.12.50 PM Published on 2013-10-15 at 01.31.48 AM