Why We Decided Not to Launch Our Hardware Product The Kickstarter Way
Almost every company that is producing a new physical product these days at least considers launching a pre-order campaign on a crowdfunding platform like Kickstarter or Indiegogo.
First of all, both Kickstarter and Indiegogo have done a lot to enable physical product startups to launch and be successful. Most of the hardware entrepreneurs I know do decide to launch this way because it has many seriously valuable benefits, such as access to the Kickstarter brand and the potential to access to millions of early adopters on Kickstarter platform if you begin to trend.
There are over 200 projects that have raised over $1,000,000 on Kickstarter, and over 3,900 who raised more than 100,000.
So with all of this success why wouldn’t a physical product company like Pillsy choose to follow this path. Here’s a list of reasons why we decided not to follow them with Pillsy.
We Wanted To Reduce Risk For Our Customers
The main issue I had with Kickstarter cycle is that it has now become the norm to pre-sell products that often have a wait time of over 12 months. This was not the original stated intent of the platform, which was originally intended to help people who had fully developed products to get the capital to complete their first production run. Instead, it seems to have morphed into a platform that caters to people who have fully developed marketing campaigns using Kickstarter to raise riskier capital from customers that they then decide to use to develop their products.
There are a lot more companies that fit into the “idea” stage than the “production ready” stage, and so the current system probably drives a lot more revenue to Kickstarter, but it also places more risk on their customers. For companies, the good news about this is that customers on Kickstarter may be more prepared to absorb the bad news about shipping delays that come up due to any of the many problems that can arise when creating a physical product. This can be valuable when the reality is that there are hundreds of dependencies on the success of the project, with any single dependency having the ability to delay shipping.
Our team did not want to abide by the “sell it first” approach that is essentially putting the majority of the financial risk on the customer when it comes to whether or not the product will ship. Instead, we decided to take the “old school Kickstarter” approach, which meant that we took on most of this financial risk ourselves by accepting paychecks for over a year that are a small fraction of what we’ve received in the past. The other capital we needed we raised from investors, not customers. We were much further along than most Kickstarter projects when we launched — we had already completed tooling and had spent many months testing our software with real customers by the time we took a single pre-order. The primary reason for taking pre-orders was to help us get a better picture of how much inventory we should order in our first production run.
While there is always a risk of delay, we made sure that there was zero risk that customers wouldn’t receive their order due to technical risk.
We Wanted To Stay Focused On Shipping As Quickly As Possible
Kickstarter certainly provides greater sales upfront. My estimate is that we would have done 50% to 100% more sales had we gone that route
When I began looking into the Kickstarter process the primary issue I had was that I saw that many companies do well on Kickstarter initially but fall into the trap of being a “one and done” products. While an excellent Kickstarter marketing campaign is great traction, it isn’t replicable. Months of time is spent creating a campaign that will only be alive for 30–60 days. After that an effort needs to be made to build a new website and process; this isn’t a big deal if you’re planning on taking 6–12 months to ship your product but it doesn’t leave enough time to setup a new process if you’re planning to ship in 1–2 months, like us. The majority of what you do setting up the Kickstarter marketing campaign is not useful once the campaign is over.
We Wanted To Keep Our Costs As Low As Possible For Customers
Over the past few years the bar has been raised in terms of the quality of the content and marketing that’s required to perform really well on Kickstarter. While there are stories of founders with impeccable marketing skills who can do everything themselves, the reality is that most of the highly successful campaigns invest tens of thousands of dollars into their videos and other marketing efforts prior to being successful on Kickstarter.
Prior to our launch a dozen different firms reached out to us that claimed to be experts in marketing on Kickstarter campaigns. Some appeared to be very credible and had established track records. Others were less credible. There were differences in how much risk they were willing to take with us, but the one thing they all had in common was that all of these firms was that they were asking for a significant chunk of the campaign proceeds (on top of the fees that Kickstarter takes). Unless we truly knocked it out of the park we realized that working with these firms would mean a) we needed to raise our prices to our customers beyond what we wanted b) we could end up selling a lot of product without making much of a profit (something that can add to executional risk) or c) all of the above.
One of the more credible Kickstarter marketers candidly told us that unless the product truly goes viral, like FidgetCube, that most of the best-performing products tend to cost over $200. Why? Because a certain amount of gross margin is required in order for digital ads to be effective. And because digital ads are getting to be more expensive than ever, so it’s simply difficult to make them work well for inexpensive products.
Kickstarter Doesn’t Bring That Much Traffic for Most Companies
People who have been successful on Kickstarter will tell you that while Kickstarter will bring some of the traffic, it’s still on you to provide most of it yourself, whether this is through your email list, PR or paid ads.
If you can create trajectory that looks like you are getting a lot of activity and strong conversion rates then Kickstarter’s own algorithms will send additional traffic. If you are doing really well then Facebook will send traffic too. This makes a lot of sense but in most cases you must bring a strong email list prior to launching on Kickstarter in order to have any chance at all of this happening.
What is a strong email list? We were advised that you could expect anywhere from 2% to 10% of your email list to convert to being a customer on the first 1–2 days, assuming that you have a strong value proposition and a reason for them to purchase early (e.g. a limited number of “Early Bird” deals). So if your goal is to get 1,000 orders in the first couple of days you’ll probably need an email list of at least 20,000 people. While I’ve heard stories of products that really resonate with an audience in certain tight-knit communities on Reddit or Facebook that’s not necessarily an easy task for most companies. In comparison, we’ve found that Pillsy resonates with a lot of different types of people but they are not necessarily all in the same circle. Unless you have a pre-launch post go viral this generally means a lot of time spent posting in forums, or a lot of money spent buying digital ads to generate email signups, which we were told have an average marketing expense of $1-$2 each when they are converting well.
The Tech Press Doesn’t Cover Kickstarter Launches Like They Used To
When we engaged with tech journalists we were told that they no longer were willing to break the news about a product launch on Kickstarter unless the campaign was already wildly popular, with the rationale being that there were too many Kickstarter launches that had failed to deliver. This made sense but it also created a Catch 22 in that press coverage could be one of the best ways to generate email list signups cost effectively.
Unless you are already crushing on Kickstarter, press becomes a better option when you have a pre-production sample that you can take to your press interviews. We did this and ended up getting launch coverage by Mashable, The Verge, Geekwire, and even the Wall Street Journal. Prior to lining up our meetings with journalists we made sure that the press broke at the same time on our launch day, when we also switched over to a new ecommerce website.
Competitors Use Kickstarter To Decide What Products They Want to Knockoff
One problem that many Kickstarter successes (sometimes because of their success) is dealing with a rapid influx of knockoffs. For example, after the FidgetCube’s success on Kickstarter a competitor began shipping a product very similar to theirs before they did.
Kickstarter Isn’t Great For Health Products
Lastly, Pillsy is a health product, and the reality is that health products don’t tend to do as well with pre-order campaigns. I’m not totally sure why this is but some Kickstarter experts have mentioned that for many people Kickstarter is also partially about ego gratification in that Kickstarter backers are very publicly showing their support for a cause, or a sweet new product that they believe supports their identity as an early adopter. In contrast, health is typically a more private issue; most people are not interested in flaunting a product that is associated with a health issue to the entire world even if they may be willing to discuss it privately within a smaller circle.
Conclusion
In the end, we decided in pushing towards shipping our product as quickly as possible. In our case this meant working on a website that we could continue to use rather than launching on Kickstarter, although I do believe we would have sold more PillsyCaps in the short term if we had done so. The other benefit of this is that we will soon be on Amazon, where people can get 2-day shipping and where reviews will stand for themselves. The decision of whether or not a company should launch their product on a crowdfunding platform like Kickstarter or Indiegogo is going to be different for each company.
I’d personally love to see some systems put in place by Kickstarter and Indiegogo to reward companies that have more fully taken care of their manufacturing risks. They currently provide 3rd-party verifications, but I’ve not seen or heard any evidence of this being valuable to the company (in fact, it may end up adding cost). If these companies truly believed in reducing risk to the end-customer they could put more of their money where their mouth is, such as by meaningfully reducing fees to companies that meet shipping deadlines or by providing additional traffic to companies that have proven they are ready to ship. In my opinion it would be a better situation for customers if companies that used their early investor money to get manufacturing setup were rewarded with traffic and impressions over companies that used investor money to build email lists, if doing so was at the expense of being production ready.
Over the past 5–10 years it’s gotten more expensive for smaller companies to generate awareness and growth online. I believe there are a few drivers for this, including the success of major “platforms” keeping a strong grip on their ability to control and siphon our collective attention. At the end of the day there is a limited supply of consumer attention and financial resources with more companies than ever going after it. Platforms like Kickstarter, Indiegogo and Facebook that influence and ration where our online attention goes are now monetizing this at unprecedented rates. It’s making it more difficult for startups like Pillsy to find cost effective ways to grow.
Our decision was to try to invest a larger portion into building a great product than we did into creating massive pre-order campaign, with the idea that reviews and word-of-mouth will help us drive adoption more cost effectively once we’ve made it through the difficult period of getting to market. I’ll never know if launching on our own site was the “right” choice but onward we go.
