Is KickStarter Dead Yet? Pros and Cons of Crowdfunding

Last summer I wrote a blog post that, at the time, I didn’t publish. I showed it to Mike @recantha Horne and we both agreed its natural tone would come across better as a talk, not a blog post. Last weekend I had a chance to deliver this talk at the Raspberry Pi Birthday Weekend in Cambridge. I managed to get an audio recording (thanks to @AndyBateyPi) to which I have synchronised my slides in the video below (26 minutes including questions). Enjoy…

Also Available As Text

If you prefer the (slightly fuller) original written version, the text follows. It isn’t an exact match of the talk, but it’s close enough…

Some people think that crowdfunding is only for little guys to fund large projects that they can’t afford to develop on their own. That certainly seems to be how crowdfunding came about. But it isn’t always used that way – particularly by creators who keep coming back for more.

I’ve heard the opinion voiced in the maker community that ‘once you’re established you should fund your own projects’ and that it’s somehow ‘not nice’ to crowdfund after this initial period. But what is the time period? What is the financial threshold above which it’s ‘not nice’? Or is it based on how many crowdfunded projects you’ve done? How many can you do before it’s ‘not nice’? Who decides the threshold? Or is it just a load of rubbish spouted by people who don’t know what they’re talking about? Let’s see.

Whilst it’s certainly true that some projects could be funded without using crowdfunding platforms, there are many reasons why a product inventor/developer may choose to KickStart a project instead. In fact, once you’ve read and understood them, you might be forgiven for thinking they’d be mad not to. Here they are…

1. Does the world want this?
2. How many should I get made?
3. Why not use that mailing list?
4. Buzz-building
5. It’s fun
6. I don’t have the money
7. I can’t/don’t want to risk it
8. Positive cashflow

So let’s look at these points in turn.

1. Does The World Want This?

No matter how good you are, how much experience you have, or how confident you are in your idea, you can NEVER be 100% sure that your product will fly. We all get things wrong. Some ideas are ahead of their time. Some ideas just plain suck. Using a crowdfunding campaign is a great way to ask the world if it wants a particular ‘thing’ to exist right now.

As long as a decent number of people (>1000) view your campaign page/video, you can be sure that you will get an honest answer from people voting with their wallets. It’s extraordinarily hard to take money off people online unless you offer something they really want. So if people go for your crowd-funder you know your idea is a ‘goer’. If they don’t, either your idea or your marketing sucks (or both). You need to find out which – and fix it before you try again. Having some brutally honest friends helps a lot here.

If the project fails to be funded, you might take a knock to the ego, but at least you won’t take a big financial hit – which would take longer to recover from.

2. How Many Should I Get Made?

One of the lovely things about crowdfunding campaigns is that you know how many units you’ve ‘sold’ before you even have to order the parts. For electronic components and PCBs, you start to get interesting price breaks if you order 1000 pieces. So if your campaign shifts 800 units and you think you can stock 200 more, you might be able to get a much better deal on your buying. Crowdfunding removes the uncertainty here. With the RasPiO Duino campaign I was able to order £3.5k worth of ATMEGA chips, at a good price, the day after the campaign finished, knowing that the campaign money would reach me before the credit card bill needed paying (although I had reserves to cover it).

3. Why Not Use That Mailing List?

Every direct marketing book I’ve ever read talks about selling more to your existing clients. Why? Because you already have a relationship with them and they bought from you in the past. They know what to expect. They ought to be a much easier sell than people who’ve never heard of you before.

A crowdfunding campaign is a great excuse to mail your list. If you’ve done KS before, you’ll have a list of backers from previous project(s). If your previous backers had a positive experience and like your new idea, they’re very likely to back you again.

But I wouldn’t think it’s a good idea to mail a list on a project that hasn’t yet completed shipping. You’ll just appear greedy and people will want to know why you’re spending time on a new project before you’ve finished this one. Personally I doubt I would be too keen to pay out a second chunk of cash to someone who hasn’t yet sent me what I bought from them last time. Maybe that’s just me? I don’t know.

4. Buzz Building.

There’s something about the magic formula of a crowdfunding campaign that galvanises people into helping. I’m not sure if it’s the “small guy going it alone” thing that people want to get behind? Maybe it’s the fact that it’s quite easy to back and support a campaign – particularly if you’ve previously set up an account on that platform. Crowdfunding really helps you unlock the potential of social media because it gives people easy ways to back and share your project.

Perhaps it’s the target and the time limit that focus people’s attention? It’s probably a combination of all of the above. It’s a magic formula though – even if we don’t quite know exactly why it works. Having a crowdfunding campaign really helps create the kind of buzz that “the small guy” could never really hope to achieve all alone – even a small guy with a lot of blog traffic.

There’s definitely a feelgood factor about helping to make a project happen and watching it come to fruition. You don’t get this in any other way, which leads me on to…

5. It’s Fun – For You And For Backers!

Shortly after my first KickStarter project was fulfilled, I launched my second campaign (RasPiO Duino). One of the backers wrote to me telling me he was backing me again because he’d enjoyed the experience so much on the previous campaign.

This was a complete revelation. He actually said he’d enjoyed watching the project come to fruition as much as he enjoyed using the product. That was a total eye-opener. I realised that, for some people, owning the final product is not necessarily the main payoff. Perhaps this is why 12.6% of the backers on the RasPiO GPIO Ruler have backed >50 projects. Yes you read that right. 118 ruler backers have backed more than 50 KickStarter projects. (I think I’ve only backed 35 myself.)

People like being involved and ‘looking over your shoulder’! People like feeling that they helped to make something useful happen. People like seeing how you cope with the ups and downs and get over the hurdles.

That’s why good and frequent communications are so important and that’s where so many projects get it wrong. I try to make my updates informative, entertaining and punchy. But then I’m a professional writer, so perhaps have an advantage over your average creator. Still. You have to use all your advantages in this world. Communication with your backers is vital. Do the best you can.

Think about it. If you’re building a long-term business, your current backers are your future evangelists. Why would you NOT want to keep them in the loop? (Well it’s scary for starters – but you’ll need to get over that.)

Running a crowdfunder is also an enormous adrenaline rush for the creator – particularly if you end up with a blockbuster. It’s compelling – you could even say it’s addictive? Most people who run a successful crowdfunder seem to come back for more. After having a blockbuster with my first, I was quite glad to run a couple of small ones. I’m not sure I’d want to run another blockbuster campaign alone though – it’s too much load on one person (raising £100k in four days generates an awful lot of correspondance).

6. I Don’t Have The Money (to fund it myself)

Even the hardliners would agree that this is a good reason to crowdfund. It’s probably the reason crowdfunding was developed in the first place.

If you simply don’t have, or can’t get, the money to create your project, crowdfunding is a great way to get it done if you can sell your dream to others. It’s not a free ride though. It takes hard work to get the job done right.

7. I Can’t/Don’t Want To Risk It

Not all products are a hit. Of the seven PCB products I’ve done in the last couple of years, three or four were real winners and the rest simply weren’t. None were a complete flop, but some things just catch the market’s enthusiasm more than others. You can’t always predict which way it will go.

I don’t know about you, but if I spent £55k buying 1000 sets of parts when only 50 people actually want the product, that would spoil my day.

So when it comes to investing £55k in developing a product, or getting to the magic ‘1000 pieces threshold’, wouldn’t it be great if there was a way to get people to vote with their wallets if they want it to happen? Oh yeah! There is. Let’s crowdfund it :) No need to take that big risk (although you exchange it for other risk(s) by crowdfunding).

8. Positive Cashflow

This is an obvious benefit. In crowdfunding you get the money (or the certainty that the money will be here in 2-3 weeks) before you have to spend it to order the parts. Many businesses ‘go under’ with a full order book because cash is flowing out faster than in. Having a positive cashflow is really healthy for a business. In fact, if you never have to borrow, it’s pretty hard to go bankrupt – as long as you’ve got your numbers correct and you’ve left enough margin for errors and changes. Having the money up-front can be a massive boost.

You’d Be Mad Not To – Right?

So, having read through those eight reasons, you might be thinking why would anyone NOT want to use crowdfunding to get their products developed?

Well everything has a flip-side. Actually we have eight negatives to balance our eight positives…

1. Risk Mitigation May Not Be All That It Seems
2. It’s Fun, But…
3. …It’s Not ALL Fun!
4. Confidentiality Risk
5. Crowd Control
6. Mixed Usefulness Of Interaction
7. It’s Not A Panacea
8. You Can’t Please Everyone

1. Risk Mitigation May Not Be All That It Seems

You like the idea of eliminating financial risk right? Well get this. Here’s something I didn’t realise until I was in over my head. But it’s worth knowing up-front. It’s no secret that you lose about 10% ‘off the top’ in fees, finance charges and VAT. (It varies between platforms and countries).

But you might not have considered that, if you have a blockbuster project, raising, say £250k, that’s £25k of fees. OK so far? Where’s the problem then?

It’s simply this. If you find out at some point that you can’t complete your project and need to refund your backers, you’ve just lost £25k. EEK! But you crowdfunded to eliminate risk! Sorry. You can’t eliminate risk! You merely changed the nature of the risk. OK I admit. In many ways it’s a better risk, but it’s still a risk. But it’s one you wouldn’t likely spot unless you’d been there. There were times during HDMIPi when we wondered if we’d be able to get it done (at all – let alone on time). But refunding is really not an option on a big project.

2. It’s Fun, But…

Yes. It’s great fun when the ticker is going up at full tilt and people are saying great things about you, writing nice blogs about you and your ego is stoked to exploding point with all the attention. Actually it’s BLOODY WONDERFUL! And don’t ever let anyone tell you otherwise. The world loves you and believes in you and wants to give you their money. There’s nothing quite like it – and I think that’s the part that “serial creators” get hooked on. I’m writing this paragraph exactly one week into KS #3, which made funding in 22.75 hours and is at 200% and 777 backers, seven days in. I haven’t thought about a great deal else in the last seven days. It’s fairly all-consuming.

So yeah – it’s fun, but if you embrace it as intensely as I do, you wouldn’t be able to have a campaign on the go all the time.

3….It’s Not ALL Fun!

You will have to field questions, suggestions, comments and criticisms from the public and your backers. Most people are lovely, but a small percentage can be unpleasant and unkind (usually when things go wrong or you miss your delivery estimates) and you wish you could ‘fire’ them as backers. You can’t! (Well you can refund them, but they can still leave unpleasant comments.)

Once they’ve given you money, people can have a tremendous sense of entitlement and can be total jerks. Sometimes you have to accept you’re going to be misunderstood – and not fight back. Fortunately it’s only a small minority.

What I tend to do is… swear loudly and viciously to myself (or to my mates in a private chatroom) and then type something nice. My policy is to agree with everyone and diplomatically commit to nothing! It’s clearly the best policy, but it goes against my grain. I’d really rather be able to tell people I don’t like to “Foxtrot Oscar”, but you just can’t do it. In an ideal world, and if my business grows to allow it, I would hire someone to handle ‘customer relations’ for me. I can do it tolerably well, but it drains my emotional tank a lot more than it should, which indicates to me that I’m the wrong person for that job.

Let me give you an example. You just posted an update with your latest design. Someone makes a completely retarded suggestion to change something that would screw it up completely. What you’d like to say is…

“That’s a damned stupid idea if you spent more than 2 seconds thinking about it.”

…so you pop off to the chatroom to laugh about it with your mates. You’ve vented, blown off your excess steam. You go back and type…

“Thank you for the suggestion. It would be nice to be able to do that, but I think we probably won’t be able to include it because…”

And that’s fine – as long as you don’t have to go through that process 20-50 times per day. It wears you down after a bit and you start ignoring people – which isn’t really a good thing either – but eventually you have no choice. Better that than be rude.

Interactivity is great while things are going well and people are being nice, but if you get long delays or other issues and people start venting their frustrations at you, you’ll probably wish you’d never used crowdfunding to bring your project to life.

Your rise and your fall is all out in the open for all to see. There is no ‘quiet graceful fail’. If you want to avoid the risk of a spectacular public failure, you’ll have to find another source of funding.

4. Confidentiality Risk

Crowdfunding, by definition, is out in the open. Not everything has to be open source or even fully open specifications. But you can’t sell your idea without ‘putting it out there’.

In tech, very often, people like to keep things ‘close to their chest’ as long as possible for competitive advantage. This can’t really be done with crowdfunding. So there is a risk that someone else will come along and copy your idea. But at least, once you’ve got the crowdfunding money in your bank account, you know you’ve made enough sales to cover your development costs.

But the ultimate nightmare would be if someone else took your idea and got it done quicker/better/cheaper than you.

I haven’t heard stories of this happening yet though, so it’s perhaps not a big deal?

5. Crowd Control

This reminds me of something Eben Upton once said in a talk…

“The Open Source Community is not your bitch. It does what it wants to do.”

If you swap “Open Source Community” for “Crowd” it still holds true. You need to keep the crowd, which means the backer community you’re creating and, to an extent, the public, on your side. This means good, transparent, regular communication on your part. It’s particularly scary when things are going badly, and very tempting indeed to remain quiet. But the truth is…

As a whole, your backers are quite forgiving and intelligent enough to know that things go wrong, delays happen and so do mistakes.

Some individuals won’t get it, but collectively, in general the backers will get it. Some of the more enlightened ones will even help support you by explaining things to the others. So you owe it to them to be as honest, open and transparent as you possibly can be. This is extremely scary and makes you feel extraordinarily exposed. But, as long as they feel you are ‘on the level’ with them, you’ll keep the crowd on-side. This is vitally important because…

If the crowd turns against you, you’re borked.

“Borked” may not have been my first choice of words for that sentence, but it’s a printable substitute. There have been projects where a cascade of people have demanded refunds (which you’re not obliged to honour, but it’s sensible to) and it turns into something akin to a bank run. You can avoid this by keeping them informed and treating them right. But it isn’t always comfortable.

6. Mixed Usefulness Of Interaction

There’s no doubt that you will get some ideas that you hadn’t thought of from the backers. We’ve already dealt with the lousy ones. Some ideas will look good and some will actually be good suggestions.

There is an inherent danger in the crowdfunding process that you will be swept into agreeing to add a feature because it sounds useful and you think it will be easy to incorporate without breaking your budget and timetable.

Just remember that ideas are cheap – essentially free – although people think they are valuable. Transforming ideas into reality in a way that makes people want them that is the valuable part. Most inventive people I know have far more ideas than they will ever possibly have time to implement (I know I do). The skill is in identifying the winning ideas and ignoring the rest. You need to apply that same sort of filtering to the ideas you get from your backers. Ignore the siren call of the tidal-wave of emotion that’s enticing you to promise cool features that will end up biting you in the backside.

7. It’s Not A Panacea

Hear me loud and clear on this one. If you’re unknown and lazy, you’ll fail! There are whole websites devoted to mocking crowdfunding projects that never got a single backer. If you’ve successfully done one before, you should be OK though.

Too many people think that crowdfunding is a magic bullet and an easy way of taking money off the public. Let me assure you that it most certainly isn’t.

The first thing to realise is that although crowdfunding sites like KickStarter (KS) and Indiegogo (IGG) are great, they will not do your marketing for you.

If you are not known in your field and you don’t have a following, the chances of success are quite low unless…

• you can get support and endorsement from hugely popular websites in your field
• your project is just so darned appealing that everyone wants it

It really isn’t just a question of shoving it on KS/IGG and sitting back to watch the money roll in. A successful campaign takes a lot of work to manage actively and seek out promotional opportunites.

But many people who have spent months and years building up a following with their blogs/vlogs and web-sites have found that it can be a highly effective way to generate an income to enable them to go full-time.

8. You Can’t Please Everyone

You can’t please all of the people ANY of the time – just do your best and you’ll find that most people will appreciate it and continue to be your loyal supporters, as long as you are nice about it.

The great thing about crowdfunding being so open is that you don’t have to lie and pretend to be something/someone that you’re not. Be true to yourself. Then those people, who gather around you, like you for who you are and what you do, rather than some bogus professional persona that you have to act out. That would be so tiring!

So Should I Crowdfund Or Not?

Only you can answer that, but hopefully the above pros and cons will help you to be able to decide. But most importantly of all…

• Be yourself
• Do good things
• Do your homework
• Get the numbers right

And the people and the results will follow.

Summary of Alex’s KickStarter Projects

Some Pertinent KS Statistics