Tuesday, February 7, 2012

Crowdfunding Revolution: Should I Do This?

Posted by Don Lehman |  6 Feb 2012  |  Comments (5)
Is crowdfunding right for your project?
From my introductory essay, you can already get the sense that I'm pro-crowdfunding. But let's be honest with ourselves, in an ideal world where everyone has access to easy, no-strings attached money, no one would look for outside funding. Just like seeking out loans or investors, there are pros and cons to crowdfunding your project. Here are the two big questions you should ask yourself prior to committing.
1) Do I have the time to make this commitment?
If you are funded, do you have the flexibility in your schedule, or at the very least, the willingness to forgo sleep for the several months it will take to get your project done in a timely matter? Once you get funded, you are on the hook to produce. Your Backers aren't just backing your idea, they're backing you—financially and emotionally. There really is a bond that Backers feel towards the projects they support and they want nothing but success for you and your idea. Real delays and setbacks can be tolerated, but you harm that trust by stopping because you get too busy or lose interest. Moreover, you risk not only damaging your reputation, but you give your Backers a reason to think twice before supporting other crowdfunding projects.
I suppose the real question to ask yourself is, "Do I believe in this idea so strongy that I am compelled to see it through, no matter what?" If the answer is yes, then...
2) Do I want to develop this publicly?
Developing something out in the open for people who have already pre-ordered your idea is THE major difference between a traditional product development process and one done through Crowdfunding. It's not for everyone or every project.
Let's start by thinking about the process of how things get made. Take this fairly typical, over-simplified development process timeline. Many design consultancies have some of variation of this on their websites, minus the dollar signs.
A chart like this looks fairly innocuous until you start thinking of the pain points in the process. I have highlighted those in red. For designers, the easy stuff is in the blue region. You have an idea, then you do some sketches and a 3D rendering. But any fool can have an idea and 3D rendering. At some point you pass the rubicon of moving from a concept to proving that your concept works. It's that process of turning nothing into something that's the real trick. If we're truly honest with ourselves...

...the timeline looks more like this. More heavily weighted on making the idea become a real thing than it is coming up with the idea and design. This is why it's so hard to manufacture stuff for lone designers and new companies. It takes lots of money, lots of time and it has lots of potential for costly mistakes.

In a conventional product development timeline, you don't sell the product until almost the end of the process. All of the fear, self-doubt and shouting at the moon in frustration has been mostly worked out and it just sort of magically appears on the marketplace. You have the luxury of being able to fail and iterate in private while maintaining the element of surprise with your competitors. Traditionally, the risk is after investing all this time and money, you don't really know for sure if people will buy it or not. How many products have you seen or worked on where the people involved in its creation were certain of its success, only to see it fall flat?
Now compare this with a Crowdfunding timeline:
This is where it gets interesting. Any point between having a "Proof of Concept" prototype and needing to start manufacturing can be a viable time to look into crowdfunding. Of course what this means is you are selling an unfinished idea (a risk to be sure) and potential competitors get to know your plans before you are ready to fully act on them.
You may lose the element of surprise and the luxury of being able to make mistakes in private, but what you gain is access to capital and confirmation that your idea may have legs in the market. I actually think that this part of crowdfunding, the "Let's see if it sells, before we make it" part is going to become attractive to not only small independent designers, but even small to midsize companies who need confirmation before they bet the farm on a new product.
The public aspect of crowdfunding development means that you need to keep your Backers in the loop of your progress. This can be alternately amazing and incredibly stressful. You're not only dealing with the ups and downs of getting something made, but you have a large group of people invested in your success, watching and critiquing your progress in real time. Basically it turns the design process into real time performance art. Most will be fully supportive of you, but an extreme minority will be highly critical of every misstep (SPOILER ALERT: You will have missteps.) in a very public way. To put it more succinctly, its the absolute best parts of the Internet, mixed with a dash of the absolute worst parts of the Internet.
Here is a good test for yourself to see if you can deal with this: Start out by reading the comments to posts on swiss-miss.com. Most everyone is super excited and just happy to be there. That will be like what 95% of the feedback you get will be like. Nice! Now go read the comments on any tech blog and imagine instead of flaming Apple or Android, they are talking about you and your idea. If you can stomach reading more than 10 minutes and not question humanity: Congratulations! You are an ideal candidate for crowdfunding!
To be a little more serious, I loved sharing my process and keeping my Backers in the loop of progress being made. In fact, this was one of my favorite parts of my project. Posting a video of a CNC lathe machining my product and seeing the lightbulbs go off for people who had never been exposed to manufacturing before was so freaking cool. There were the occasional nights when it was better to just shut off my laptop and go to bed than to confront the crazies, but overall it was a very positive experience. This open nature of the crowdfunding process is so unique, that I will devote an entire article on how I think you can do this effectively.
Lenny and Edwin of Teale setting up the Stylus Cap production.
At this point I should mention, it's incredibly important to have at least some past experience in bringing a design all the way through to market before starting a crowdfunded project. If you don't have that background, then at least make sure one of your partners or an outside advisor is available to provide expertise. The idea of "easy" money to fund something is really alluring to anyone with a brilliant concept, but when the going gets tough, you have to know how to navigate through development issues and be able to speak to your Backers with clarity and authority on where you are in the process.
The bottom line is this: The premise of crowdfunding projects implies that you feel very certain you can get your idea produced, as long as you can secure money from Backers. If you are confident in your experience and ability to manufacture something, plus are willing to be open about your progress with your Backers, while having a thick skin when things get bumpy, then you should consider crowdfunding.
What sites should I look at for crowdfunding my product design project?
Notice that I threw in the words "product design project." While there are many sites that are devoted to crowdfunding, and a couple that are interesting from a designer's perspective, the only one I would pursue in February 2012 for product design is Kickstarter. It has the traffic, the reputation and the track record of success that none of the other sites can come close to. I will go over a couple sites that will be interesting to designers, but then go into further detail about Kickstarter.
Where as Kickstarter only allows "creative projects" that it prescreens, IndieGoGo allows pretty much anything. Have a foundation or cause you want to start? Go to IndieGoGo. Want to get money to start your company? Go to IndieGoGo. Want money to get in vitro fertilization treatment? No seriously, go to IndieGoGo. Pretty much anything goes on IndieGoGo and that's part of the problem for designers: It's hard for someone to weed through everything to find your project. For some types of projects it's absolutely great, but for product design, it's difficult to get the same visibility (i.e. funding) you have on Kickstarter.
There are some interesting things about IndieGoGo. For one, you don't need to hit a funding minimum to get money. So if your goal is $15,000, but you only get $10,000, you still get the $10,000. On Kickstarter, you either reach your goal and get funded or you miss it and get nothing.
The other difference is IndieGoGo accepts all projects, where as Kickstarter screens and selects projects that will be allows to launch. If you get rejected by Kickstarter or are worried that you won't make your funding goal, IndieGoGo, could be the right place for your project.
A few additional facts: right now Kickstarter only supports campaigns that are based in the United States, whereas IndieGoGo allows over 200 countries to participate. Kickstarter also limits the amount of days your project can seek funding to 60, while IndieGoGo allows for 120 days. Kickstarter charges a higher percentage fee (5%) than IndieGoGo does (4%), and the 3rd party fees (charged by credit card processors) are also higher on Kickstarter (3-5%) than on IndieGoGo (2.9%).
In many ways IndieGoGo is to Kickstarter, what Android is to iOS. One has more options, one is more focused. Since I am more of the iOS mindset, my preference is for Kickstarter, however I could see why many others would be more interested in IndieGoGo.
Quirky isn't really a crowdfunding site, but if you have an idea, but not the know-how to get it made, it could be for you.
It works like this: for $10 you can submit an idea that gets reviewed and "influenced" by the community. People can comment on it and make suggestions on how to improve it. If it gets selected by both the Quirky community and internal team to be produced, you can earn 12 cents of every dollar the product makes from sales on quirky.com and 4 cents of every dollar at retail. Not a bad deal when you consider that Quirky is shouldering all of the development cost and risk.
This is where the action is for product designers. 2011 was a MAJOR year for design on Kickstarter. To give you a small sense of the crazy velocity Kickstarter is on, when my Stylus Cap project closed in March 2011, it finished #14 all time for funding dollars compared to every project up to that point. Now? It's #37 in just the Design category. All time, it probably doesn't even crack the top 200.
In 2010, there were only 235 projects launched under the Design category on Kickstarter. In 2011, there were 1,060 launched. Of those 1,060 projects, 319 were successfully funded, making a cumulative $9.1 million dollars.
To put that $9.1 million into context, in April 2011, Kickstarter celebrated it's second birthday. At that time, they reported that in 2 years, the design category had raised $3.6 million. (Of that $3.6 million, nearly a million of that was Scott Wilson's LunaTik iPod Nano Watch Kit in 2010, still the most funded project in crowdfunding history.) From $3.6 million in two years to $9.1 million in just one is pretty nutty. Let's compare Design, the #3 overall category on Kickstarter to the Film (#1) and Music (#2) categories.

Film and Music dwarf Design, but Design had a major jump in 2011. At the rate its growing, I would expect it to be much closer to Music's overall funding total in 2012.
What's really interesting is I think the total for Design could be a lot higher, depending on how you classify certain projects. There is another category on Kickstarter called Technology. Some of those projects are pretty geeky and meant for people to hack around with, but some of the projects seem indistinguishable to me from what I would call a Product Design project.
Back to Film and Music, I think a big reason why those categories have been so successful on Kickstarter early on, and will continue to be, is that if you are a filmmaker or a musician, you're much more predisposed to being scrappy when it comes to tracking down money to fund your projects. Designers tend to do more work for others than for ourselves, so we haven't had as much experience hustling for our pet projects, which makes this a new phenomenon for us and yet another reason why its so exciting.
Now as far as the reasons to why Kickstarter is such a success, there are a few small things that it does really well:
1) Kickstarter filters what projects get posted.
This is important because it keeps Kickstarter projects feeling like they are part of a conscious effort to curate the site and keep it interesting.
The first filter is that all Kickstarter projects need to be "creative" in nature. So: no causes, no humanitarian aid, no business startup cash, etc. Projects must produce something that can be shared in some way with the world and Backers: albums, films, artwork, plays, technology, games, products, etc.
The second filter is more subjective which means its a little harder to know exactly what it is, but I will do my best to try and guess: Projects get further reviewed by Kickstarter to see if they are worthy of being on Kickstarter. Meaning: Does the project creator seem to know what they are doing? Does the project fit the vibe of Kickstarter? It may not seem fair if you get rejected, but Kickstarter gives you reasons why you were rejected and encourages you to improve your proposal and resubmit. This is a good thing.
2) You only get funded if you meet a money threshold you set prior to launching your project.
For example: If you set your funding goal at $10,000, and you get $9,999 and below, you get nothing. The main reason for this is to prevent someone who wanted to raise $10k, but only got $5k, from doing a $10 project on a $5k budget. It also has the side effect of getting Backers invested in spreading the word out to their friends about the project to make sure they get their rewards.
However, you get to keep anything over your goal as well. So if you make $15,000, you get to keep that extra $5,000. Nice.
3) It's really easy to find and back projects.

Kickstarter has really perfected the experience of contributing money to projects. The layout is clean. Every project's main elements (the video, the pledge button, updates, comments) are in the same easy to find places. Moreover, it's friendly and non-threatening.
4) It's success has made it more successful.
Much in the same way Facebook hit a tipping point for becoming the de facto social network, Kickstarter is starting to hit that tipping point as well. As more projects get funded and are successful, even more projects get funded and successful.
5) It's not about the money.
I know I listed out all those fancy charts and numbers above and its true they all came directly from Kickstarter's site. They are consciously building a business and from everything I have gathered, its seems that they are turning a respectable profit (5% of every successful project goes to Kickstarter).
However, I don't get the sense from Kickstarter that money is what motivates them. If it was, they would have invited much larger companies to post projects long ago and been much more active in promoting projects that have the potential to make a lot of money. They seem genuinely interested in having every project succeed, big and small, because the journey is what matters to them. That ethos goes a long way towards giving them the trust that is necessary for both Creator and Backer involvement. There is a lot of Internet goodwill and trust built up for Kickstarter and that's a major reason why it's the only solid first choice to start with when you look into crowdfunding.
Next time: Preparing for Launch.

About Don Lehman
Don Lehman is an designer based in Chicago. In 2011, he founded More/Real and developed it's first product, Stylus Caps, which turn pens and markers into touchscreen styluses that work with the iPad. Stylus Caps launched on Kickstarter, reached 488% of its funding goal in just 30 days, and are now in production. Don has a BFA in Industrial Design from the Rochester Institute of Technology.

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