The Myth About Crowdfunding

For every ten people I’ve spoken with in regards to my product set, at least five will tell me to ‘Kickstart It’. You guessed it- from been-around-the-block VCs to serial entrepreneurs, it’s become a common solution to early stage validation and often times, funding. Most people think that using websites such as Kickstarter and Indiegogo are easy- You simply make a video about what you want to make or sell, and upload it to the site so people can give you money. Right?

Wrong. But before we take a look at why it’s not as simple as it seems, let me make one thing clear- Most crowdfunding campaigns end up losing money on pre-sold items. Yes, you heard me right. So if you’re thinking it’ll help you get funding, it might be easier to visit a angel funding forums or do a friends and family round. But if you’re looking for a marketplace to test out your concept and generate a customer base, it’s a great platform. You can also use it for price point testing, or for getting feedback from your target market. (Hint: It’s a great way to get validation BEFORE you start your fundraising.)

The other side of the coin that most of us don’t get to hear is that when the 1-year mark comes around, most ‘successfully’ crowdfunded companies and products can’t fulfill their preorders. Just take a look at Ed Carter’s board game, entitled ‘Glory to Rome’. He more than tripled his ask of $21K, but ended up receiving board games that were smashed up in transportation. He also didn’t outline shipping costs before doing the campaign, and in his promise to offer free shipping to all of his customers, lost money on almost every sale. Through the process, Carter also lost his job, house, and filed for bankruptcy.

There are countless other examples of crowdfunding horror stories, but the underlying mistakes are resoundingly similar. Most people think that simply drawing out a good graphic of your product or having a general idea of the materials needed will be sufficient to create and sell it. But by laboring under that delusion, they fail to pinpoint exact pricing for every aspect of their product COGS, from tooling to transportation. In doing so, they often incur expenses that are unanticipated, which can be majorly problematic.

Another good thing to consider is the volume of sales that you can handle. Say you have a million people sign up for your $50 product- Are you going to be able to send out that much product within a year? How can you set up tangible stops for how many pre-sale items you can give out?

So the lesson in all of this is: Learn and know your numbers. Do a couple practice runs with your manufacturer. Have every aspect of your supply chain figured out. Cut yourself a little financial slack just in case you get a poor shipment. And then do your Kickstarter, so you don’t lose face (or your job, your home, or your company) like the other guys.