Image via Rocio Lara on Flickr
In the last 24 months, countless hardware products have been launched via Kickstarter, Indiegogo, Crowdtilt, and other crowdfunding platforms. Of these numerous successful campaigns, many have gone on to raise significant rounds in an effort to capitalize on their momentum and bring their products to larger markets. Yet, despite the promising indication from selling a meaningful amount of preorders, these companies have had difficulty in gaining a larger foothold in the marketplace. Given that crowdfunding success generates significant press and awareness, not to mention actual, real life sales, it may be hard to conceptualize why these products struggle in the following months. Let’s take a look at some of the key factors that determine post-crowdfunding success, and why, more than anything else, it really boils down to your pre-campaign strategy.
Crowdfunders Tend to Be Early Adopters
File this one under “no brainer,” but lots of companies take this for granted. If your long term goal is to sell lots of your product to a lot of people, then validating your product with crowdfunders might not be the best way to go. Due to the nature of crowdfunding sites, success means getting a group of early adopters to pay in advance for a product that might get to them at some point in the next 12-18 months.
What does this mean for companies that crowdfund? It means that your early base of consumers are super early adopters, or people willing to throw money at an unknown quantity in the hopes it’ll deliver on its promises. Problem is, most of the consumer market doesn’t operate this way. And if your goal is to be a hugely successful company that sells lots of product you’re probably going to want to, at some point, engage the larger mass market.
You’ll want to keep in mind then, that most consumers don’t make purchase decisions based on the same set of criteria that early tech adopters do. They want proof, which comes via trusted reviews, mass media press, or from influencers they trust. In this case, the last group is most relevant.
During this crowdfunding boom, most companies have launched with the following strategy:
A) Get early adopters
B) Everyone else will follow the early adopters.
That’s great, if you were selling the next big thing in music, where trends start with industry influencers and trickle down to the mainstream. In new hardware products, though, the barrier to entry for the mass market is much higher, and therefore, the ‘early adopters’ that matter might not be the ones that back products on crowdfunding sites, but rather, more familiar sources like friends, family, and social networks.
A group of researchers from Oxford, Harvard, and other universities recently conducted a study of the influence of Facebook on purchase decisions, concluding that overall, people are more likely to follow the purchase behavior of their social networks than what consumer review sites say is the best service. Until you get your product in the hands of people who actually influence the purchase decisions of early mass market consumers, you’re going to be stuck with a small number of ‘early adopters’ as your core audience.
You Have to Finalize Your Product Before It’s Finalized
When you design a crowdfunding campaign, you have to have a strong sense of what the final, finished product will be, well in advance of when you’re planning on shipping. This means you are publicly presenting future potential features and functionality, with the hope that with a successful crowdfunding campaign, you’ll be able to deliver. These things are tough to project. Without meticulous planning, significant research, and some luck, your product is going to iterate fairly significantly right up until the moment you ship it. If not managed carefully, crowdfunding campaigns can end up locking you into a set of features for a particular price that you are ultimately unprepared to deliver.
Most Crowdfunded (Hardware) Products Don’t Ship On Time
Building products is hard. Doing pre-orders before you’ve fully built out the final specs, figured out the manufacturing process, contracted everything out, etc. is even harder. And when you can’t prepare for how many preorders you’re going to get from crowdfunding, it’s really hard to be prepared for what comes next. So what typically happens is, you throw up a speculative date on your crowdfunding page for 6-9 months into the future based on projected milestones and sales figures. But in reality, these are guesstimates at best, meaning you are putting significant pressure on yourself and your team to produce a product in a finite window. Unless you are certain what the final product will look like, including tech specs, bill of materials, and manufacturing process, you’re going to have an incredibly hard time shipping the product on time (if at all). There’s a reason that IndieGogo recently started testing crowdfunding insurance for projects that fail to deliver — backers are concerned with the legitimacy of the companies and products they are funding.
And delivering a product late has serious impact for future buyers. It plants doubt in the minds of your purported ‘evangelists,’ those early backers who you expected to drive demand through word of mouth. And more importantly, it gives your new target audience a reason to not buy from you — if you haven’t succeeded in shipping your product on time, why should they trust that you can get the product right at all?
Crowdfunding Is a Race to the Bottom
Most crowdfunding campaigns provide backers with significant incentives and/or discounts for backing a project. That’s great for gaining trust and building a strong relationship with your first buyers. Long term, though, it sets a precedent for how you want to price your product. It doesn’t force you to price at a particular level, but you’ll need to explain to Home Depot or Best Buy why they are paying a premium on your product when six months ago you sold it for significantly less. Again, it’s not an automatic killer, but it is another thing you’ll have to think about before launching your crowdfunding campaign so you don’t kill your chances of getting strong distribution deals down the road.
Mo Money, Mo Problems
Success is the hardest thing to plan for. When you launch your crowdfunding campaign, you try to set a realistic goal and then project other scenarios out, both good and bad. But ultimately, it’s impossible to know how many pre-orders you’re going to get. If you do an awesome job and do 10x your goal, that means you have to deliver something like 10x the amount of product, as well. And since we’ve already discovered that you haven’t finalized your manufacturing process and bill of materials, that’s a huge problem. Figuring out how to ship 1,000 units is one thing, but 10,000+ is a whole different set of considerations.
The reality is, any hardware startup is going to have to deal with these problems in some form. The point is not to avoid them completely (that’s not possible), but rather to minimize their impact on your product development and marketing strategy. Crowdfunding can be a great way to gain traction with a particular set of customers and garner press from industry outlets. But to succeed long term, you need to make sure that you have accounted for the kinds of problems that only present themselves after the fact.
Success doesn’t come from a 30-day spike from Kickstarter or IndieGogo, but long-term, methodical planning that accounts for how you’re going to attract the right audience and provide a product that delivers on its promises. This isn’t an attempt to discourage you from crowdfunding, but rather, a resource for realizing that when crowdfunding ends, the real work to stay relevant and successful is just beginning.