Why Kickstarter projects fail
In the past few years, we’ve seen a major proliferation of hardware projects, especially thanks to the growing popularity of Kickstarter. Kickstarter is a great platform, but it has a downside: everyone can use it. No qualifications are necessary to start a project. If you can convince the public, they’ll fund your idea.
This article is intended for you, the customer, the person behind the wallet, who needs to decide to whom the money should go. I want to explain what it really takes to make a hardware company. I hope to give you a good reference point so you can make more educated decisions in the future.
Before Kickstarter, the rule of thumb was to not invest in hardware companies; because it involved a huge commitment and great risk. For example, if a software company doesn’t work, you basically spend the money on employee salaries.
But if you invest in a hardware company that fails, you are left with hundreds of thousands of dollars worth of parts, and hardware that suddenly is difficult or impossible to get rid of. A scary proposition for anyone willing to invest.
Since most Kickstarter hardware projects fail, or encounter huge delays, the only thing that we’ve learned from the Kickstarter platform is that those investors who advised us to stay away from investing in hardware companies were right. Hardware is not a good investment if you don’t have every single thing planned out to the smallest detail. In software, if one plan doesn’t work, you can change direction. With hardware, that’s basically impossible.
Before we go any further, I’d like to give you some idea of who I am. I’ve worked with two hardware companies; my best friend is an electronic engineer who works with hardware startups, and I have another contact who is an industrial designer who works with startups and big companies. I’ve seen the process, and I’ve heard countless stories about the luck of understanding for the hardware business.
Prototyping is easy; production is not
Creating a working prototype is fairly simple. You buy all the parts, design a PCB board around them, put it all together, write some software, and after a few months, everything seems to be working.
The thing that people are not aware of is what the term mass production really means. I’m not talking about just the electronics, but also the case, packaging, logistics, customer support — just to name a few. Not to mention that the main goal of mass production is to lower the cost as much as possible.
People who start hardware companies with no prior experience don’t take all of these things into consideration. CEOs will think that if they make working prototypes, they’ve made it. This assumption is far from reality.
To make sure that we are on the same page, I’ll answer the question: What is a working prototype? It’s the final product in it’s raw form. It might look like the final device, but in reality…
…the electronic parts are not yet optimized for cost or assembly time.
…the case wasn’t made with the final cast die.
…the software requires further rewrites.
But a working prototype will give the team a good idea of whether their vision actually makes sense. But this is just a small milestone that will cause an avalanche of new issues for the team, because at this stage, people will be able to use the product and see what works and what doesn’t.
The first issue — lowering the price
Lowering the price is paramount. Otherwise, there are no profits; and with no profits, there’s no company. So a company needs to not only start looking for cheaper components, but they must also buy them in bulk.
But there is a drawback. After spending weeks chasing down cheaper parts, they have to redesign the whole board, because they’ve been unsuccessful at finding the parts from the original design. This will force them to rewrite parts of the code on the device to accommodate the new parts. Which will also mean more testing to be done, and more months over budget.
Normalize the parts
This may sound strange, but there are times where it’s more economical to have a greater number of parts than fewer; the skill is finding the sweet spot.
Imagine this situation: After months of searching for cheaper parts, the team sent the project to a production company. Those guys told them that they have two options. They could make the board cheaper but longer (less product produced per day equals less units sold), or they can make it faster but more expensive, which has its own drawbacks.
This happens because of the pick and place machine, which is nothing more than a device that picks components from a roll or tray and places them on the PCB board. Each machine is different; some can handle 20 parts, others accommodate 100. The number of parts you have in your design will dictate which option you’ll choose.
An experienced electronic Engineer would use one resistor type and connect it in a series to get the right value. By doing so, only one slot on the pick and place machine is used.
Here’s another example: With LEDs, instead of having different colors for different scenarios, a electronic Engineer would choose one color (the best will be the least expensive color), and just label it or make it blink in a different pattern, to indicate different states.
But now, again, if the startup lacks experience, and they are back at square one, redesigning the board to make it cheaper to produce.
Production companies are old and experienced
Interestingly, today’s production companies ask startups about their marketing plans. It seems odd, but the truth is that they need to see that the company will be able to sell over 10,000 units with ease. Otherwise, there might be issues with payments. If the team is caught off guard, they’ll have even more delays down the road. Instead of discussing the contract, they have to go home, and come up with a marketing plan that will look credible.
Parts are not just there for your taking
Another challenge is the availability of your parts. This might sound strange, but electronics parts are not just there, waiting for someone to buy them. Depending on what you want, a company will produce a batch only after they’ve received an order. This is standard procedure if a part is not in high demand, or the company had to ramp up production of a specific part for a big client.
The market can change on a whim, and this is something that startups have no clue about. They think that if they have the money, they’ll get what they want. Sadly, that’s not the case.
Time to package the electronics in something
Creating a plastic case which is not just a small square box is a challenge on par with the one concerning the electronics. Again, this is something that needs to be mass produced, and because of that, there’s an insane amount of issues involved with it.
The production of a casting die is slow and laborious; once made, it’s the last thing that you would want to change. You can change the die only by removing material from it, and it costs thousands of dollars to do it, plus adding weeks of extra time.
Not to mention that once the design is done, the company that will create the die, will also have to spend weeks optimizing the design to make sure the mold will use only the right amount of plastic, and cool at the right speed after casting. If not, the case won’t fit.
With a software project, if they have to make a big change, it’s not the end of the world. Not understanding this can cause huge delays in the project that may be impossible to work around.
The last big surprise for startups
Eventually companies will have to work with external contractors, either software companies that build the mobile app for the hardware product, or contractors who build custom machines used in production or testing.
Sadly, the majority of these companies will fail during the startup phase, adding huge delays. For example, software companies will promise that they know what they are doing, and in the end won’t be able to deliver on the promise. Experts in production equipment will create devices that don’t work as expected.
This truth always shocks startups, especially when they think, “I’m working with a company that specializes in one thing, and they call themselves experts in that field.” The CEO will lower his or her guard, and realize that there’s an issue only at the very end.
If you are a backer or investor, check for this red flag!
Now you’ll have a boilerplate the next time you go on Kickstarter and see a cool idea that may be worth backing. With this knowledge, if you back the project, you’ll have a better understanding when the company starts writing about delays, because they will — the only way they could deliver on time is if they already have the product ready, and are using Kickstarter as a marketing stunt. In any other situation, expect delays, redesigns, and numerous issues.
Some good questions to ask yourself:
- Are they being backed by an investor, and if so, by how much?
- Do they have a marketing plan for after Kickstarter?
- Are they asking for less than one million dollars? If so, it will be hard to pull it off.
To sum it all up
I hope this article provides you with a good basis to understand the world of hardware. It is far from being complete…but I believe I’ve put down a good foundation for you to think about.
If you have questions, or need clarification, ask in the comment section below.