In a previous post, I outlined what it is that lures so many entrepreneurs and startups into the “Crowdfunding Trap” — the place where you think you’ve caught the big prize but later find out you’ve gotten yourself stuck. In this post, we’ll examine what makes you get stuck. What makes the trap snap?
The viciousness of the crowdfunding trap lies in the delay of its release. You can grab the baits and for months live in a belief that you escaped the trap, only to find yourself helplessly stuck when it’s too late. On top of that, you probably made the whole thing worse all by yourself by not recognizing you were going to get stuck (or were possibly stuck already).
Here’s the trap in a nutshell: crowdfunding campaigns inhabits a goal conflict between
a) commitments you’ve made to your backers, and
b) what you think is best for your company on a long-term basis.
Because crowdfunding platforms are optimized for projects, not for companies.
The Goal Conflict’s Three Questions
This goal conflict consists of at least three equally difficult questions that, not managed correctly, individually can trigger the trap. Let’s look at them one by one.
1. Do we ship exactly what our backers have backed or what we can sell to a larger audience?
Backers inherently back an unfinished product. This is more true for campaigns that are run to raise funding for the completion of a product, but to some degree also true for campaigns that look like plain pre-order campaigns. As the development of the product continues, fueled by funding and feedback from backers, chances are you will be tempted to adjust its design and its features along the way.
You may want to improve the product, based on feedback and insights during the process. But is that in the best interest of your long-term company strategy? Or should you split your product versions and ship a first one first and a second one later?
Conversely, you may want to strip the product of some promised features or details, because you discovered their cost/benefit didn’t make sense. But how fair is that? Your backers gave you money for shipping a certain product, so how will you motivate that they get something inferior?
In general, sticking too hard to what you believed when you launched the crowdfunding campaign is not a smart business decision for your long term building of your company. It essentially means that you ignore facts that you know would make your product better, more efficient, cheaper or have some other desirable value. It means you deliberately produce and ship something that you know is not the best you can do. This might possibly make some sense if you have no intention of continuing your business after you’ve fulfilled your backers’ orders, but for anyone looking to build a long-term company it’s disastrous.
With that said: don’t screw over your backers. Manage expectations and make reasonable promises from the start. Be transparent of your intentions. Communicate and motivate when new facts make you adjust your course. And be prepared to compensate backers whose expectations you can’t satisfy.
But don’t ship bad products.
2. Do we satisfy backers’ thirst for insights in the process or do we protect trade secrets?
Some backers just want you to ship your product, and couldn’t care less about who you are, how it’s made or why you can’t simply ship it in a brown paper bag but have to spend time on an unnecessary gift box. Many backers though, at least in the “original” style of crowdfunding campaigns (ie not “pre-order”), back you just as much or more for the opportunity to peek behind the curtain and understand more of what processes lies behind the creation of the product.
Just speaking for myself, I think I’ve backed most campaigns on Kickstarter only because I’m curious on how you go about making an Android-powered laptop, an independence movie or a spatula. Of course I want as many updates, comments, blog posts, emails, Youtube videos as possible!
But I also understand that not everything can be shared to everyone all the time. Any project needs some level of control over its sharing of information to not become a chaos of conflicting ideas, lack of focus, anxiety or wasted time. Even more so for projects with an ambition to transform to actual companies with investors, employees, suppliers and customers. How you plan and execute your communication and your sharing of information can have serious impacts on your room to maneuver in the world outside of your crowdfunding campaign.
As a default, transparency is great. But not sharing every piece of information doesn’t make you suspiciously secretive. It’s just common sense. Plan your communication for your long-term future, not only for satisfying backers’ thirst of process insights.
3. Do we spend resources on backers or on future customers?
The question on what product to ship, the one for the backers or the one for the bigger market, is only the tip of the iceberg of a much bigger question. The bigger question is this: how do we best spend our time and money after the campaign has launched, after it has ended, before we ship backers’ products and during the lifetime of these products?
This question is important, because a crowdfunding campaign consumes resources long after its launch. Before you even ship the product, you will have to spend time and money on development, production, communication, as well as overheads like salaries, rent, travel (those Shenzhen flight tickets ain’t cheap!) and everything else you hopefully budgeted for prior to pricing your crowdfunding pledges.
It will be tempting to spend 100% of the available resources on fulfilling every backers’ requests ASAP. They have after all given you their money to do this. (And, honestly, it will feel pretty nice to get those “why are you not shipping yet!” emails off your back.) But you’re building a company for the long-term here, one that is supposed to serve a larger market, maybe with a range of other products. And so there are lots of business processes going on in parallel with the strict backers-related processes. There are talents to hire, taxes to file, employees to manage and potentially VC investors to pitch, all while you balance the needs of your backers with the needs of your company.
Ideally, the crowdfunding campaign and its backers can act as a catalyst for the company and spark ideas and processes that wouldn’t have been there without the campaign. But if the needs from that successful campaign you ran and from the backers that are so vocal start to overly impair the development of the company, it’s a bad sign that you’ve gotten yourself caught in the moment of a crowdfunding campaign. Or, should we say, trap.
Avoiding the Crowdfunding Trap
To sum up, there are at least three things to consider when trying to avoid getting stuck in a crowdfunding trap.
Set the Purpose
Decide what your campaign purpose is. Is it to build hype? If so, why? (Some reasonable answers to the why can be to gain awareness for an upcoming VC/angels round, to impress talents you want to hire or to build a sales funnel for future sales).
Is the purpose of the campaign to fund your company? If so, what will the funding have to cover?
Is your purpose to validate the market? Because if it is, you should lower your expectations and not lock in resources to tests whose result you can’t trust.
Under-promise and over-deliver
I almost cringe writing this, because it’s such an overused and obvious statement that there is no-one who hasn’t already heard it or wouldn’t agree. But the point is that it’s a) many times harder than most people making this statement seem to understand and b) very important.
To make a promise that shoots below what you think you can deliver, you will have to know what you can deliver in the first place. When setting up a crowdfunding campaign, you don’t. Over-delivering, on the other hand, assumes you are in perfect control of the exact level of quality and timing with which you ship, and that you can swiftly and inexpensively just bump it up a notch if you feel so inclined. A nice thought, but rarely the case for a crowdfunding campaign. (Or possibly for any hardware product.)
Nonetheless, managing the promises and your delivery is key to succeeding with your campaign while utilizing its effects in a positive way for the building of your company. Tread lightly with the promises and you will keep some leeway to manage the delivery as you see the process unfold.
Build a company, not a campaign
If what you want to do is to build a company, then build a company. Deliver on your promises to your backers, but put the company’s long-term best first. Consider every decision not only from the backers point of view, but from your future self as a business owner. Be good. Don’t screw anyone over, including yourself.
Your company is not a crowdfunding campaign.