Kickstarter Mythology Needs Some Retail Reality
July 10, 2015 3 Comments
(But let me be very clear. I’m NOT talking about Kickstarter art, music, and movie projects. It was designed for these and they seem to be running pretty well overall.)
I’m talking about Kickstarter campaigns that raise money by Directly Selling new Products that have never been built – and taking orders for lots of them. In the computer business we used to call this selling vaporware and investing in businesses dedicated to vaporware led to the dotcom crash. Segway and Google Glass were both massive vaporware disasters.
Now, by selling vaporware with Kickstarter, we’re seeing amazing train wrecks among the most highly successful money raising campaigns. These train wrecks are all made possible by the mythologies that drive Kickstarter and other crowd funding sites. (Incidentally, a comment below points out this is a far more dramatic version of the direct mail practice of “dry testing”. There is already FTC guidance on dry testing.)
The Mythology of Kickstarter for Inventors. Inventor mythology starts with a belief that it’s enough to come up with a good idea and some money to build it. And Kickstarter appears to “unshackle” inventors so this can happen.
On Kickstarter the belief in this myth continues far past when other funding opportunity would have confronted projects with reality. But who cares? If all Kickstarter projects did was help raise small amounts we probably wouldn’t.
But on Kickstarter, there’s no limit to selling vaporware – no control on how it works. So when someone goes out to raise, say, $50,000 to get started they can end up getting orders for 62,000 units while raising $13.3 million. (See the Coolest Cooler article link below.)
Unfortunately, an inventor prepared to confront manufacturing of 2,500 units is almost guaranteed to fail when they have to START their manufacturing with an instant delivery of 62,000. (At this writing, manufacturing reality has caused Coolest Cooler’s estimated MSRP of $200 to jump to $485 and they still haven’t delivered product but promise they will…soon. And their Kickstarter site says we should trust them – in June they built a production run of about a dozen.)
The Mythology of Kickstarter for Investors. On the flip side, many Kickstarter project investors want to believe they are on the leading edge of getting new things. Some fall prey to a mythology of helping the “little guy” against “the man”. Some also embrace a mythology that “big” companies are unfair and arbitrary and seek out ways to make it hard on the little guy.
For investors, there’s an implication that success on Kickstarter only comes to those who deserve it. Yet the sponsors behind your favorite project may be at Kickstarter because big time investors felt they didn’t have the chops to pull off a long term success. Those investors may not be right – but they’re probably right more than half the time.
Or, the people behind your favorite project might really be big money guys leveraging a Kickstarter campaign for easy money – investing heavily in promotion designed to drive up the amount of money raised. (Sony has to fund raise with Kickstarter? Really? See below.)
In Retail, There’s a “Gauntlet” of Hurdles to Prevent these Train Wrecks. Having spent my entire career with new products and the past couple of decades introducing new products at retail, two things are clear: First, of ALL marketing endeavors, new product success may be the hardest to come by – it’s very hard. And second, that success requires far more than a convincing video on Kickstarter pushed out via a cool social media campaign.
Before reaching the store shelf, new retail products pass through a gauntlet of cross-examination. Retail merchants and buyers are key role to this process. Each merchant has responsibility for bringing hundreds of products into a retail “mix” and ensuring that those products sell. This gives them a detailed view of issues like price, inventory and distribution as well as a big picture view of the competitive field for any product.
The Retail Gauntlet vs. Kickstarter. The gauntlet driven by merchants in retail starts where Kickstarter starts, but digs far, far deeper.
Product Appeal: At the top level, success reaching Kickstarter funding levels seems to confirm product appeal. That said, failing to succeed on Kickstarter doesn’t necessarily mean the product has no appeal. In order to succeed on Kickstarter your product must fit into a very narrow category of new products that pass virally – fit the social media model of promotion. Many, many good products don’t fit this.
Product Saleability: Beyond appeal, products need important high level features that consumers evaluate before purchase before they’re able to be sold. Success at reaching Kickstarter funding level probably tells us about this.
Product Satisfaction when Delivered: Even if you can sell a product, there’s no guarantee people will be satisfied once they have it in their hands. A retailer has to look far beyond mere saleability (which is hard enough) to whether the product is designed right & has the features needed for the vast majority of consumers to be pleased when they buy it. (There will always be people who don’t like a product – but that number needs to be very low.)
The question about “does it work once its delivered” is quite serious. I’ve worked with a few manufacturers who’ve bought products from inventors. But in every case the product needed a complete re-design before it could succeed.
Quality Once Manufactured. No matter how clever your design, delivering a manufactured product that meets expectations is tricky. There are thousands (tens of thousands?) of things where the reality of manufacturing can compromise a product. And all along the way the manufacturer is weighing added cost to avoid the compromise vs. the damage of compromise on saleability.
Company Ability to Manage…well…Everything. A product is not separate from the company making it. And while one company might succeed exceptionally with a product, that same product can fail badly were another company to attempt to release it. Why? Let’s call it “management” – the ability to get this specific product successfully to market. Merchants continually evaluate the risks in company management.
Company Financial Capability. There’s huge financial management required to bring $13M worth of product to market in one huge shipment. Not all companies have the ability to do this – and certainly it’s unlikely that a small company can ever make the jump easily.
Obviously, Kickstarter investors are in the dark about the vast majority of what it takes for product success. And the truth is, nobody should be able to receive $13M in orders before they begin delivering a product. Kickstarter has tried to avoid taking any responsibility in this process. But even if they don’t share responsibility legally, seems to me they share responsibility societally.
Where Retail’s Process Fails. Kickstarter clearly has a vaporware problem. And let’s be clear: not everything is perfect at retail. The biggest problem is that bureaucracies hate risk. So where Kickstarter projects are often crazy risks, bureaucracy can make a retailer so conservative that nothing interesting ever makes it on their shelves.
At retail it is also difficult to predict the demand that can be generated for a new product until it’s on the shelves. When picking the initial order size optimism can lead to ordering too much but caution can lead to ordering too little and losing the new product profit opportunity. Consumer research helps – but instinct, judgement, and luck are still required for success. (My agency is often engaged at this point because demand is far more reliable if you back the introduction with a strong, product oriented advertising campaign and the right spending. Supported this way we’ve seen some astounding new product successes – selling millions of units within the first 2 months of introduction.)
As a last note, even with a cautious retail process, some products will still leak through that have serious consumer problems or fail to deliver what consumers believe they should. But this is quite rare compared with the challenges at Kickstarter.
My Kickstarter Recommendation. Getting a new product to market needs to be tough – it’s how the market ensures a robust offering. I see a lot of product ideas that never make it to market. And the majority definitely shouldn’t. There are a few that are very disappointing because funding, management, manufacturing, advertising and retail didn’t all come together for the dramatic success that should have been.
But the big issue with Kickstarter is their vaporware problem – and Kickstarter should take steps to limit the money projects can raise prior to delivering the first significant orders. This would be relying on a truth from venture funding. When pursuing multiple rounds of venture funding, company valuation needs to increase with each additional round. So it’s important that the first valuation be realistic and grow as the company proves itself.
Kickstarter should put smart limits in place if they want to continue to play an interesting role in the success of new products. Until then, both inventors and investors need to watch out for the subtle seduction of Kickstarter mythologies. And each mythology should be balanced with an appropriate dose of common sense.
Articles on New Product Introduction Failures at Kickstarter
Oregon based Coolest Cooler raised $13.3M but had missed delivering in the promised summer 2014…and it’s still not on the market. (They are promising to deliver some in July 2015 – but as of early June they had just over a dozen assembled. Oh, and the cost has ballooned from $200 to $485. This is all looking bleak.) http://www.geekwire.com/2014/coolest-cooler-shipments-delayed-setback-record-breaking-9-2m-kickstarter-campaign/
The ZPM Espresso machine looked like a sure bet – except they can’t build them in quantity. This is an excellent New York Times article digging deep to look at the project. http://www.nytimes.com/2015/05/03/magazine/zpm-espresso-and-the-rage-of-the-jilted-crowdfunder.html?_r=0
Space Case Suitcase. This product is only beginning. But I’m very, very skeptical. Why? Because the video production values are too high and it’s far too much of a gadget for the brutal world of a suitcase. My guess? It’s going to be a bust. But the video sure is sexy… Space Case Suitcase
A Board Game Gone Bad. This inventor trusted a middle man to run their Kickstarter campaign. $120,000 was raised. And now the FTC has filed charges against the middle man because the product was never delivered – even though the inventor completed the design. http://www.katu.com/news/problemsolver/Case-of-Kickstarter-campaign-gone-wrong-plays-out-in-Portland-307072081.html Apparently he has now settled the case and admitted wrongdoing. http://blogs.wsj.com/digits/2015/06/11/man-settles-with-ftc-over-crowdfunding-case/
Here’s the “World’s Thinnest Watch” that is so thin it doesn’t actually exist. Raised over $1M http://www.pcworld.com/article/2938992/the-worlds-thinnest-watch-becomes-another-cautionary-kickstarter-tale.html
Here’s a summary article from 2012 that looks at the top 50 products – of which 84% were late. Here in 2015 the numbers appear to be getting worse. http://money.cnn.com/2012/12/18/technology/innovation/kickstarter-ship-delay/index.html
And these “Nine Reasons” gives substantial insight into why Kickstarter ships late…and other problems. http://money.cnn.com/gallery/technology/2012/12/18/kickstarter-ship-late/2.html
Here’s a Gizmodo article with a summary of another pile of failed projects. My (least) favorite quote: “Out of the 717 backers, only about a dozen have gotten the clocks. Apparently the guy has all the materials sitting in his house and is no longer working on the project.” http://gizmodo.com/7-crowdfunding-fails-that-will-make-you-think-twice-abo-1639106912
And Sony? Just because it’s interesting, here’s discussion of Sony using Kickstarter to raise money for video game development. Even here, all is not easy. http://www.gamechup.com/shenmue-3-kickstarter-picks-up-steam-after-ps4-physical-copy-announce/
Copyright 2015 – Doug Garnett – All Rights Reserved