Crowdfunding, through sites like Kickstarter and Indiegogo, provides entrepreneurs and hardware startups with a way to raise funds without going to venture capitalists – and giving away a piece of the action, not to mention often significant control – or into their own pockets.
But like most other aspects of starting and running a business, there are dangerous, even business-killing, uses of crowdfunding best avoided if possible.
Crowdfunding can be a tricky task, especially when dealing with a hardware product.
"With the 20/20 of hindsight, we wish we had been much further along in development when we went to crowdfund our first product, the Jorno foldable Bluetooth keyboard," says Scott Starrett, CEO and Founder, Cervantes Mobile, which creates and sells "design-centric mobile accessories."
Cervantes Mobile launched its Kickstarter campaign for the Jorno in 2012, with a then-estimated "expected-to-ship" of April 2013; keyboards began shipping in March 2015.
But, recalls Starrett, "After we successfully raised $100,000, we then experienced many delays in engineering and production, and basically spent two years continuously apologizing to backers about the delays."
Basically, Starrett says, "The chicken-and-egg problem with hardware crowdfunding is that you need the cash to finish development, but you need to have a product ready to ship in order to get the cash. Backers are reluctant to give you their money if the project is too early-stage. So each project needs to find a sweet-spot of getting far enough along in development that the timeline risks are relatively low.
"This was definitely our biggest lesson," Starrett says. "It made our backers angry and made us feel horrible about taking their funds and then offering only delays. Thank goodness we finally shipped."
I personally saw the Jorno at the Consumer Electronics Show in Las Vegas, in January 2015. In my April 10, 2015 ComputerWorld.com roundup article, Pocketable productivity: 5 folding keyboards for your smartphone, the Jorno shared first place (in my opinion) with the Zagg Pocket Keyboard, and when I tote a keyboard around for use with my smartphone, the Jorno is generally the one I add to my pocket or bag.
Crowdfund for Sales if Possible, for Development if Necessary
If you are fortunate enough to not need the funds for development, says Starrett, "then obviously the best scenario is to just use the crowdfunding platform as a launch vehicle for sales.”
This makes sense – you’re accumulating pre-orders.
“The crowdfunding platforms offer an enthusiastic customer base, so it's a fantastic place to gain initial sales – especially if your product can land a coveted spot on one of the platform's curated lists or homepage."
Delays Can Happen, Be Sure Backers Understand the Risks
Delays may be unavoidable, so it's essential that potential backers – such as people reading your crowdfunding listing – understand the nature of the beast.
For example, Starrett points out, "there are real timeline risks about hardware since the device has to be perfect when you ship. With hardware, there's no way to email a 'patch' to fix anything. So you have to be certain that the product is ready for prime time. It's actually the number one reason that some hardware projects experience significant delays. Or never ship."
And because this risk is so significant, "you need to specifically call it out in the crowdfunding page, even if you think you are 'close' to shipping," says Starrett. "That last 0.1% of development can cause the whole project to stumble. It could be design surprises, manufacturing issues, regulatory issues, import/export issues, et cetera."
Or it could be something completely outside of your control, like floods ruining your manufacturer's facilities, or shortages in a key component.
"'Hardware is difficult' is a Silicon Valley platitude, but they are right," says Starrett. "The crowdfunding aspect can complicate the 'messiness' of hardware development, since you are taking backers' money on the expectation you will ship in the very near future."
Still, Starrett says, "I still say go for it, if you truly have a passion for your product. Just know it may not always be smooth sailing, and do your homework so you know what to do and what to expect."
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