Charged Up: It's time crowdfunding companies change their strategy

When darlings aren't darlings anymore

It's easy to see why crowdfunding is so compelling. You, a mostly regular - yet astonishingly good looking - person can contribute to a company and get them off the ground. If you like the idea, you can just give them money and watch them rise to success. Plus, you'll get some cool perks for helping out. And you get to actually own the product before everyone else.

The reality of crowdfunding is frustrating. There have been countless horror stories of people funding projects that excited them, only to see them flame out. Either the company disappears or the product is besieged by delay after delay. Add two more departed souls to the list this week.

Read this: Catching up with successful crowdfunds

OSSIC was a wildly successful in crowdfunding its 3D headphones for VR. It raised over $2.7 million and had an innovative, unique, interesting product. Now the company is gone, having unfulfilled 99% of its orders because it can't raise another $2 million to complete manufacturing.

It's a similar story with Martian, a company that's made smartwatches - more recently stuffing voice assistants in them. Despite raising $300,000 earlier this year and shipping 480 new smartwatches, it's also run out of money to complete manufacturing.

The old adage in Silicon Valley is that hardware is hard, yet we constantly see crowdfunding campaigns coast by on hope. That their special little product is such a good idea and will change so many lives that it'll bring enough attention to pay for itself. Or, and stop me if you've heard this before: The company's founders have been burned by crowdfunding campaigns before, so they know how to avoid it this time.

Charged Up: It's about time companies mature their wearable crowdfunding strategies

Those assurances aren't assurances anymore, and it's time for companies that are looking to crowdfunding to take more mature approaches to launching their projects. How can they do this? It's simple.

One: underpromise. If you think you can ship your product in six months, tack on another four months - at least. You don't have the benefit of toiling away on something in secret for months or years, burning through resources to make something great. You need a deadline, and you need lots of time in case something goes wrong.

Two: remember that you'll need to iterate. Hardware goes through a series of revisions and testing before it's truly ready to ship. ANTVR recently told Wareable that its first Kickstarter campaign experienced issues because it didn't have experience manufacturing, so it relied on backers to essentially tell them what was wrong so that they could fix it in subsequent generations.

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Three: think five years into the future. We here at Wareable have interviewed no end of crowdfunding companies for our weekly Crowdfund This feature, and we're constantly surprised at how many campaigns don't quite know what they'd do should their current product be a success. These are important questions. What happens when your product reaches its sales peak? How will you continue to bring in revenue? What's the next exciting thing you can build toward, to perhaps bring investors on board?

Four: remember that the cost to assemble and manufacturer your product isn't the only cost you have. It's exciting, we know. It's easy to want to take on thin margins to sell more stuff or to get more people to back your product. But just pump the brakes a little. Consider that you may not get it right the first time, that you may need to iterate, that you may have angry customers and you may need to replace some products. Plus, if you get bigger you'll have salaries to pay for. You don't want employees working for free if you run into financial trouble, do you (as it happened at OSSIC at the end)?

Kickstarter itself has looked into programs to help give backers a better idea if a company is mature enough to be able to launch a crowdfunding campaigns. It now has badges that lets you know how realistic a company is and what phase they're in, though these badges are only for companies in Kickstarter's Hardware Studio program.

The worst part? Every horror story turns another potential backer away from future projects, projects that could actually be successful and change or influence industries - like Pebble and Oculus. To be that successful though, it's going to take companies that take a mature, realistic approach to crowdfunding.

TAGGEDWearables

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  • scatterthought·

    Thanks for writing this. I'm amused that the title closely matches my comment on your OSSIC article, so I'm guessing you've had the same concerns.

    Crowdfunding platforms need to do more to educate people during the transaction process, so that people understand the inherent risks before they throw money at something. Instead, it's treated like a simple purchase from Amazon, and thus people are shocked and outraged when they don't get what they thought they ordered. It seems silly, but many consumers need to be protected from themselves.

    I also think that Kickstarter and IndieGoGo should do more to regulate creators. For example, I'd set maximums for campaigns and not allow them to collect more than that. It could be as simple as, "you can collect up to 10x your goal." If a creator thinks there will be huge demand and they can handle it, they'll have to set an appropriately high goal. No more of this, "we asked for $5,000 and you gave us $500,000!" stuff, only for the creator to realize that they can't produce on that scale.

    Pebble did this with their first campaign. When they crossed the $1M mark, they stopped taking pledges to ensure that they wouldn't let down the people who got them off the ground. Now, creators are more likely to add additional reward tiers with delayed shipping dates, so that they can collect as much money as possible. That's always a red flag to me.