The Perils of Crowdfunded Innovation

Your crowdfunded innovation may be desirable and viable, but is it feasible?

How many of us react to crowdfunding videos

Crowdfunding platforms like Kickstarter and Indiegogo have skyrocketed in popularity over the last few years. If you have an innovative product idea that you want to validate and bring to market, you can:

  • Produce a high quality video
  • Launch the campaign
  • Receive money (funding / preorders)

But all is not well in crowdfunding land. Many high profile campaigns have failed after raising hundreds of thousands of dollars. Scams aside, I think there is a deeper misunderstanding here at play.

This is because crowdfunding validates most of the desirability, some of viability and none of the feasibility.

The Perils of Crowdfunding and Feasbility

Desirable Viable Feasible

I’ll use a business model canvas from Alex Osterwalder to frame desirable, viable and feasible assumptions below.

Desirable Viable Feasible Business Model Canvas from Alex Osterwalder

Most of Desirability

Crowdfunding generates a large amount of evidence around desirability, because it is testing your value proposition with customers in the market.

Crowdfunding answers open questions to assumptions around:

  • Does anyone care about the problem you are solving?
  • Are they excited about how you solve the problem?
  • Are those who care available online?
  • Will those who care accept your method of distribution?

Some of Viability

Here is where we start getting into trouble. The buzz from a strong desirability signal and people throwing money at us does not necessarily mean that we are in the clear.

Crowdfunding only creates evidence around the revenue stream, but not the cost structure.

You still need to do your homework on the costs incurred on the back end.

  • Are these costs higher than your revenue?
  • Do you have insights to know what it takes to create the product?
  • What costs, beyond crowdfunding, will you incur to market the product?

None of Feasibility

You’ll notice that I’ve left the feasibility circle and the key partners / activities / resources boxes blank so far.

This is not a coincidence.

Crowdfunding does not address any of these aspects of feasibility.

When I extract these assumptions and map them with teams, it’s a red flag for me if all of our important and unknown assumptions are around feasibility.

We have a lot of feasibility risk here

You’ll still need to carry out feasibility experiments in addition to your crowdfunding campaign, such as:

  • Prototyping — If your solution is hardware, then sourcing standard parts and 3D printing what you need to ensure it is feasible. If your solution is software, then using existing products and services wired together with a bit of custom code as a proof of concept.
  • Letter of Intent — Getting beyond verbal agreements to determine if your partnerships are fiction or reality. Get things in writing asap.
  • Cost Modeling — Write down back of the napkin numbers on your marketing, legal, logistics and development costs. Is this a crowdfunded business or is it just a hobby?

Crowdfunders Are Early Adopters

Along with the feasibility risks, crowdfunding still comes from relatively small pool of people who repeatedly back projects.

They are early adopters.

Crowdfunders = Early Adopters

Be careful not to locally optimize your product for these early adopter crowdfunders.

Validate the initial offering but don’t place all of your focus into implementing their feedback.

Corporate Crowdfunding

If you work at a corporation, you can even crowd fund new ideas outside of the popular crowdfunding platforms. It’s a legitimate enough approach now with social proof.

Betabrand is still one of my favorite examples of this trend. They have their own crowdfunding platform where they co-create the solution. Many of the feasibility assumptions are addressed because Betabrand has the know-how to create and manufacture clothing following the campaign.

Crowdfunding Is Still Worth It

I still believe that crowdfunding is a genuine mechanism for testing your product idea in the market. You have to see it for what it is though, as a way to test most of desirability and some of viability, but not feasibility.

Shout out to Alex Osterwalder who touched on this topic during his workshop at the Lean Startup Conference. Our conversation over breakfast at The Grove in SF contributed to me writing this article.

If you would like to learn more, visit the Precoil library where you can access free lean startup and design thinking tools, templates and videos.