The Blog

Crowdfunding is no panacea

Posted by Tom LarsenDec 17, 2014 Marketing, Operations, Organization, Planning, Product Development, Sales 0 Comment

Lots of product developers are convinced that if they do a crowdfunding campaign of some kind at Kickstarter or Indiegogo, that their golden path to success will lay itself out before them. For many that turns out to be the yellow brick road to a meeting with the Wizard of Oz, whom we all know carries no weight whatsoever.

Crowdfunding concept written on a blackboard with chalk

These campaigns are at best marketing tools to get consumer or more accurately funder enthusiasm and at worst, pre-sales events that create a whole host of unexpected problems pushing on supply chains, testing the inexperience of the product developers and irritating a community of enthusiasts.

In my opinion, the best way to start a company is to “grow” it. Just as the term implies, growth happens when some small thing, a plant or a critter, goes through stages of its life, becomes educated through those stages and becomes better capable at each subsequent stage.

What the crowdfunder is seeking is to set off an explosion, to create an immediate and significant place in the market, generally because they have been convinced that scale matters.

The U.S. did not get to the moon by starting with Apollo. By running a hyper-successful crowdfunding campaign, a product developer misses all the mistakes that can happen along the way. I can certainly hire companies or people with experience (part of what we provide), but, few have any resources so they “wing it” thinking they can work it all out.

Newsflash: That practice causes really big problems and when those problems arise, it tends to alienate the exact people that trusted them in the first place – those early adopter funders. To most of these folk’s credit, at least they do not generally become as irrelevant as vaporware, but, many come pretty close.

The best outcome for a crowdfund campaign can be to achieve exactly what the campaign design should be – enough funders and revenue to produce the initial product in the quantity that the product developer has planned. To simply add a zero to a production run is easy, but, not for the supply chain. Those issues become part of every step of production.

A campaign looking for $30,000 at an average of $50 per funder is 600 funders. The hyper-success of $300,000 is then 6000 funders! That’s going to be 6000 shipments. That is going to require 6000 pieces. It is 10 times as much volume manufacturing time. It’s 10 times the number of people who may become impatient because delays have happened at the factory that had committed to 1 week production but now needs 6 weeks of production time because getting parts in that volume takes longer. The list goes on and on.

As much as we all would love to simply be able to create a 10x increase in our business, you have to have a robust infrastructure to accommodate it. Sometimes 10x is spontaneous combustion that goes past the limit. At what risk are you willing to have the limits pushed to the edge and possibly compromise the very thing you set out to do?

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