Why is Crowdfunding Failing Crowds?

Lately it seems there is no end to the tales of crowdfunding projects gone wrong — especially for hardware products like the notorious Coolest cooler which found fame through its astronomical funding success through the popular crowdfunding site Kickstarter. When it comes to crowdfunding, the traditional marker for success has typically been measured by the nose-bleed altitudes of money raised. Only recently has reality set in as to how difficult it can be to successfully deliver a functional product to customers both on-time and for the advertised price. My heart sinks when I read these stories because I believe that most of these crowdfunding fails are largely preventable by doing some simple preparation and planning with the help of experts.

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” — Abraham Lincoln

While we don’t know exactly what happened behind the scenes to produce these spectacular failures, what I gather from my own personal failures and experiences is that at the very basic level there was a huge gap between expectations (what was promised) and reality (what was or wasn’t delivered) — which equaled unhappiness for all.

From price increases, to never ending delays, to complete bankruptcy in many instances, backers find themselves frustrated, disappointed and just plain losing their money. Don’t get me wrong, there are in fact many crowdfunding success stories, the most famous being Pebble’s smartwatch. Done right, crowdfunding not only helps an individual or company launch their product, but it can also be an extremely effective marketing multiplier. But to really get things right, you have to set yourself up for success through experienced preparation and planning.

“Vision without execution is just hallucination.” — Henry Ford

Most entrepreneurs will agree that they love to chase the bright and shiny things so we must give credit where credit is due. The marketing for “successful” crowdfunding efforts has typically been done very very well. Rarely do things or ideas go viral anymore without a carefully crafted and orchestrated marketing effort. Where successfully crowdfunded projects typically fail to deliver is usually during the less shiny and more mundane part of getting a product to market — the product development, manufacturing, logistics, etc. — the stuff that happens after funding. Let’s face it, for most entrepreneurs the details of execution are tedious, energy sapping, and just plain boring. When it comes to physical product or hardware development, the small details are the big details and everything about the execution has to be carefully prepared and planned as you cannot simply download a software patch by Internet when products don’t function 100%. So what can be done?

START BY ANSWERING SOME BASIC QUESTIONS

  • Who will complete the design of your product so that it can be manufactured?
  • Will you need to have the product tested and certified to meet government mandated safety requirements?
  • Where will you manufacture and who will do it for your?
  • How will you ship, warehouse, distribute and sell?
  • How will you manage orders, inventory manufacturing planning, etc.?
  • How will you deal with returns?
  • What will you warranty?
  • Who will do all this work?

KNOW YOUR COSTS

  • How much will the product cost to design so that it can be mass manufactured?
  • How much will it cost to test and certify?
  • How much will the manufacturing tooling cost?
  • How much will it cost for packaging, shipping, import duties, customs clearance, etc.?
  • How much will it cost to warehouse and distribute?
  • What will is cost to employ people to oversee all this work?
  • How long is your cash conversion cycle — time from when you pay the manufacturer to receiving money from customers?

…so that you can then select a selling price that will provide you with adequate profit and cash flow. Set the selling price before know the above will almost guarantee bankruptcy immediately upon attaining your funding goal because you will have no hope of delivering for the promised selling price. Might as well close up shop at this point.

MAKE A PROJECT PLAN AND SCHEDULE

  • How long will it take to complete the design for manufacture?
  • How long will it take to make any tooling, test it, tune it, etc?
  • How long to complete a manufacturing run, ship it across the ocean, and distribute it to your customers?
  • Have you put contingencies in place to account for the unforeseen. Don’t do this and you are merely fooling yourself and your customers.
  • Who is responsible for executing each job or task and have you properly communicated your expectations and requirements — in writing!

And if you are one of those entrepreneurs that doesn’t like the details of execution, better find someone who does. Find a person or company that has real-world expertise and experience in executing hardware product development and manufacturing. This Entrepreneur magazine article is full of great recommendations for who to turn to for help, including some of our more well known competitors such as Dragon Innovation, Bolt and Predictable Designs.

We’d love to hear your crowdfunding story. What did you learn during your experience?

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