On this episode of Dear Strategy, we analyze a story about a company that launched a product through a crowdfunding site but didn’t ultimately deliver the product that they originally promised. What exactly is this trend all about and when should companies consider using it?
Back in 2017, I co-hosted a podcast called Making It Real. It was a limited run of about 60 episodes or so, and the idea was to explore the idea of product entrepreneurship (i.e. people who had successfully brought new product ideas to life without the backing of major corporations). Perhaps not surprisingly, what we found after dozens of interviews (all of which are still available online), was that a key ingredient in the recipe for many of these small businesses could be found in the world of crowdfunding.
For those of you who may not be as familiar with this concept, crowdfunding happens on sites like Kickstarter and Indiegogo, and involves (mostly) start-up companies pitching their product ideas to would-be customers with the goal of enticing them to back those ideas in the form of prepaid orders (effectively positioned as “donations” and “rewards”). It’s a fairly brilliant concept, actually, because product entrepreneurs get some upfront funding without having to give up any stake in their respective businesses, and backers get the satisfaction of being both supporters and early adopters of clever new product ideas that they believe in. There are, of course, other crowdfunding models out there, but this is the one we’re going to focus on here.
For a product nerd like me, you can see how backing crowdfunding projects could become a pretty addictive pastime. And, so, after talking about crowdfunding week after week on my podcast, I started spending quite a lot of time on all the best crowdfunding platforms looking for cool new ideas to back. And, I have to say that most of what I chose was pretty darn exciting. Until, one day, my luck ran out…
The product was a new type of microphone. And, without naming names, let’s just say that this microphone was going to do things that no other comparable microphones could do at the time. With an established brand, a working prototype, and some really snazzy videos to help pitch their story, it seemed like a no-brainer to back this company. So I happily plunked down some of my hard-earned cash and waited for them to deliver on their promises.
And I waited…
And I waited…
And I waited…
Finally, after several months of what I considered to be some fairly understandable delays, the product was ready. It arrived at my house and everything looked fantastic. And it even worked! Great start. But that was pretty much the only great thing about it. As I dug deeper into all those extra features that were promised, the shine quickly started coming off the shoe. In the end, what landed on my doorstep was just another ordinary, everyday microphone – just like every other microphone that was already out there. The company had delivered a working product; it just wasn’t the product that they had promised. And so began a barrage of complaints, criticisms, and refund requests from a whole slew of backers just like me who felt cheated by the whole ordeal.
But as painful as it may have felt at the time, the reality is that none of us were ever really cheated at all. We just didn’t fully understand what we were getting ourselves into. And, my guess is, neither did the company that we were supporting.
As a backer, there needs to be a realization that when you support a crowdfunding project, you’re not actually purchasing a product – you’re supporting someone’s vision of a product. And that vision may or may not ever fully come to fruition. Does it suck when a company doesn’t deliver on its vision? Absolutely. But that’s the chance you take when you play in that arena.
On the flipside, companies need to realize that when they accept someone else’s money, those people are going to expect to get something in return. And when companies make commitments as to what that something might be, they’re going to lose a lot of credibility if they don’t deliver on those promises. So, although those companies may not be putting any financial collateral on the line, they’re actually putting up something far more valuable – the reputation of their brands
And that brings us to the question of which companies should be considering utilizing the crowdfunding model:
If a product is in the very early stages of design or development, crowdfunding becomes a far riskier proposition for all parties involved. Backers may not get their rewards, companies may tarnish their brands, and, all of this could end up being far more damaging for companies than taking on a little bit of financial debt.
However, if a design has already been proven and initial prototypes are already in hand, then I would say that crowdfunding starts to become a much more attractive option. In this case, companies are essentially asking their first adopter customers to help fund their initial manufacturing runs. And, for the companies in question, that can be a much more lucrative scenario than having to take on debt or seek out investors who are going to want some ownership stake in return.
As for my microphone dilemma, I can’t say that it ended particularly well for anyone involved. The backers received a relatively inferior product, and the company received a relatively painful black eye. But I sincerely hope that they can take that as a lesson and make a success out of their next product. Because, as I look back on the situation with clearer eyes, I can see now that I wasn’t actually purchasing a product, I was helping an interesting new company get off the ground. And, as I dictate this article into what I consider to be a less than stellar microphone, I’m still rooting for that company to knock their next product out of the park.
Listen to the podcast episode
Dear Strategy: Episode 106
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Bob Caporale is the founder of Strategy Generation Company, the author of Creative Strategy Generation and the host of the Dear Strategy podcast. You can learn more about his work by visiting bobcaporale.com.