Real talk: 8 Tenets of Successful Crowdfunding Campaigns

An old Palette print that says We Love Kickstarter

A Palette print from our Kickstarter campaign in April 2015.

We launched our Kickstarter almost two years ago. It ended up doing quite well, but we’ll never forget the feeling of uncertainty before the campaign went live.

It's challenging to suppress fears like: "will people actually buy this?", "are we taking the right steps to launch?", and "if the campaign goes well… will we actually be able to deliver on all the promises we’re making?"

With a few recent high-profile failures, including Tiko, Peachy 3D Printer, Coolest Cooler, and Skully, we've put together this post to provide some suggestions that we believe all creators should take when creating, launching, and fulfilling crowdfunding campaigns — no matter their size.

This post can also be used as a reference point for backers, as backers should evaluate a campaign's credibility before choosing to back it.

Before we dive in, here's some context that can help frame our perspectives/assumptions:

  1. Palette: 3D Printing Evolved. Launched April 21, 2015. Delivery completed January 31, 2017.
  2. Original Delivery Date Completion: March 31, 2016
  3. Amount Raised: $231,000 Canadian. Approx. 261 Palettes sold.
  4. External Investment Raised: $2M CAD (Crunchbase)
  5. Full-Time Team: 3 pre-launch ; 18 upon delivery completion.

None of the content below is rocket science, but sometimes it takes going through the experience to connect the dots. This post focuses on the perspective of the creator and seeks to articulate things for them to consider when creating and fulfilling campaigns. We'll post in the future with more guidance on how backers should assess the legitimacy and probability of success of campaigns.

Let's jump right in: here are the most important things to consider when running a crowdfunding campaign.

Communication

This should be a given, but for some reason, it's not. Strong, clear, timely, and transparent communication is absolutely essential. Issues big and small can and will go wrong during your campaign. You'll see communication pop up a lot in this post.

The only reason your campaign exists is to fulfill your promises to your backers. As such, it's important to treat your backers with the highest level of respect. Your backers made your campaign successful, not you. Understanding this will help shift your mindset as to how to treat these individuals, and what they contribute to your project and your company.

Your communication should begin before your campaign launches, as this will help you establish your project’s online history, build your following, and start to build personal relationships with your soon-to-be backers.

During the months preceding your campaign, you should be publishing blog posts (of substance, not marketing speak) on your product development, product testing, manufacturing plans, and any in-person demos you may be holding. These posts should be done at a frequency of one post every week or two. This will allow potential backers to dig into your project before your campaign launches. You'll be surprised by how many superbackers will dig into the nuances of your deepest blog posts, and understand your project the way you do. Acknowledging this will bolster your transparency and help demonstrate your credibility.

Once your campaign launches, you must keep to a regular update schedule. We would suggest once/week during your campaign (if not more), and once per month (minimum) after your campaign ends. The content of these updates should contain the work that you’re doing to fulfill your campaign. Communicate nothing but the truth about what is going on: good or bad. Your backers will be grateful for for your frankness, and you as a creator will be better off in the long run. This brings us to the next point…. 

Honesty

If you don't know how to sign, you probably shouldn't tell people you do...

 

Many creators are scared of potential backer backlash should they need to announce delays, run into issues during the fulfillment of their campaign, or manufacturing issues when they’re bringing their product to scale.

One way to look at crowdfunding campaigns is that backers are buying into your company. As much as they want the rewards, they also bought into (and want to hear) your story: ups and downs, wins, losses, and everything in-between. If you end up failing (which many backers will actually understand, if you're entirely transparent), you will be grateful that you were honest and transparent from day 1. Pure honesty will allow backers to assess your actions from first principles. Problems arise, but if you provide backers with the right information to assess how you're dealing the problems, then they'll understand.

The pain you believe you are avoiding in the moment will come back to bite you 10x when the truth eventually comes out. Everyone always believes they will be able to figure it out, and while this is may be true, everything will be way easier if you're completely transparent during the fulfillment process. You, your backers, and your team will all be better off at the end of the day.

 

Working Prototype

Our team's prototype from ~7 months before the launch of our campaign

(This is really only applicable to product-centric campaigns and not more artistic, cultural, or otherwise 'creative' ones.) The first step to delivering a product is HAVING A WORKING PROTOTYPE. This step should be completed before you launch your campaign, as it will accomplish two things:

First, it will become your showpiece for the Internet. Your prototype can be the focus of your campaign, your pre-launch blog posts, your press demos, and your updates. Backers will love seeing that you have something real and tangible; they'll be that much more likely to support your campaign.

Second, it will improve your odds of successfully fulfilling your campaign. A working prototype can serve as a gate for your and your team for when you are ready to launch. If you can’t get a prototype working, you have no chance of manufacturing an end-use product. You will have enough post-campaign issues moving to manufacturing without adding another massive risk to your backers, and your reputation. 

Really, this point comes down to getting your product to a “demo” ready state. This means you’ve seen it work before, and you know you can get it to work fully (although, as is the case with prototypes, it will not be anywhere near bulletproof).

 

Track Record

Above: A beautiful, cheesy stock photo

 

Creators often think that the most important aspect of a campaign is getting in TechCrunch, or on Engadget when your project goes live. What a lot of people fail to understand is that a successful launch is (usually) built on relationships you have with your potential customers.

These relationships come through regularly posting content and engaging with the people who contact you and are interested in your campaign’s offering. TechCrunch is sexy, and it may help grow your campaign, but press alone is not enough to form the foundation of a campaign. The most effective campaigns are built on communication with your backers and potential backers: learning what they want, and making sure that your campaign addresses their questions and objections.

In-Depth Risks & Mitigation Strategies

On Kickstarter, this is the section where you articulate every possible risk and your team's planned means of mitigating them.

I remember being conflicted when we got to this section. I thought: “why is this here? Do I really need to talk about these things? Won’t it make people less likely to back our campaign?”

In hindsight, I believe this section is one of the most important (if not the most important), and one of the most revealing sections on the entire campaign page — if you know what to look for.

This section can reveal whether a creator tends more toward humility or hubris. If a creator does not give enough information for prospective backers to assess risks from first principles, they are probably overly optimistic or hubristic. For example, see if you can point out any actual risks and mitigation strategies pointed out below:

We’re working with trusted manufacturing partners with whom we have already signed agreements and are confident we can deliver on our promises.

Like any hardware project, there are risks and challenges associated with manufacturing and supply chain logistics. There is always a chance that unexpected changes or issues may arise during execution impacting the delivery schedule such as production delays or component shortages. Should this happen, we will communicate this to backers promptly and with transparency”

There is a mention that there may be issues, but on the area of the campaign that is meant to talk about the risks that are still present, there is no discussion of any specific risks. This section makes me lose faith in the creator's judgment, as a creator who is neither aware of potential obstacles nor comfortable communicating them does not reflect positively on their abilities to execute and communicate the challenging aspects of their campaign. There are always short-term pressures to be secretive, and if a creator does not lean toward complete transparency before things have even started to go wrong, then it is unlikely they will be transparent when things do go wrong (and make no mistake, things will go wrong).

Now for some things people don’t seem to like speaking about…..

Delivery Timelines

Many of the campaigns we’ve seen follow a similar schedule for fulfillment - we're guilty of following this schedule too, see our graphic below: 

Launch, manufacturing setup, certification and initial testing, batch 1, batch 2, delivery completed in <8 months.

Vastly different campaigns all seem to follow this same trajectory for how long their fulfillment will take — this trend is for two reasons:

  1. Creator Ignorance
  2. Backer Perception

We were definitely guilty of #1 with our campaign — not out of malice, but simply due to a relative lack of experience. Many creators are first-time entrepreneurs and have never gone through the process of manufacturing and delivering a product to their customers. Because these individuals are walking into the unknown, they (we) may misjudge what would constitute a realistic time estimate. Unfortunately, there is not much that these creators can do without going through the process, except educating themselves by speaking to people who have been through the process before. We sought a great deal of feedback and mentorship on this subject, and we were still off on our delivery timelines by ~9-10 months.

And number two…. This is the one people don’t like talking about. As much as creators may have the best intentions, they know that if their delivery timelines are too far out (1.5-2 years) that very few people will end up backing their projects. This causes a poor alignment of incentives when it comes to being honest on the creator’s campaign, as if they are not guilty of number one (ignorance), they are likely guilty of setting unrealistic timelines in order to fall within the “normals” for fulfillment timelines.

Both of these issues can be solved by creators getting further along in the development process before they launch their campaign, allowing them to see the manufacturing obstacles in front of them, or getting them close to delivery so the timeline they set on their campaign lines up with reality.

So — why do creators launch earlier than may be optimal?

 

Money

If we were all flush like Huell, maybe there'd be fewer early launches...

This probably doesn’t come as a surprise… but money usually has a lot to do with it. Creators usually take one of two paths: 1) they launch a Kickstarter to “raise” money for their company, which usually goes to paying their salaries, their team’s salaries, and their other expenses. Or, 2) they launch a campaign to prove demand for their product, and go out and raise external investment based on the purchases they get on Kickstarter.

So, what's up with path number 1? Launching to raise money.

This is a highly informative post by the team at Bolt (a highly reputable hardware accelerator) covering how Kickstarter is really just a form of debt. It's essential for creators to understand (and embrace the mindset) that crowdfunding campaigns are essentially a form of debt financing. Embracing this should guide creators in helping them evaluate appropriate means with which to use funds. Creators who think they can start paying salaries based on their Kickstarter sales expose themselves to time risk — any delays in fulfillment will be further exacerbated by the unexpected need to pay salaries and other fixed expenses. With few exceptions, money from crowdfunding backers should be used for variable costs (i.e., purely for the fulfillment of their products: BOM, COGS, labor), and not for product development, salaries, or other fixed costs.

How 'bout path number 2? Proving demand to raise external capital.

Many crowdfunding campaigns seem to launch as a result of creators experiencing chicken-and-egg problems. Basically, in order to build a functioning prototype, they need capital. In order to raise capital, they need revenue (or proof of traction/interest) — which they can achieve through crowdfunding campaigns.

So, what do creators do? Typically, they launch earlier than they should (out of a short-term need for cash), attempt some magic on the Internet (i.e., deceptive photo and video editing), and create high expectations for a product's performance (which they often cannot meet).

And while it's tempting to make it seem like things are further along than they really are (more impressive = more backers and more money, right?), creating inflated expectations immediately creates an unhealthy dynamic. The delta between backers' inflated perceptions of a product's capabilities and the product's actual capabilities creates something of a time gap: a fast-and-furious race for creators to improve the product's capabilities to meet these expectations. And if the creators reconcile a product's real and perceived capabilities quickly, they'll feel pressure to lie when they’re writing their updates. If their campaign closes and they backpedal, they’ll face immediate backlash (as they should).

Crowdfunding campaigns, money, perceptions, and timing are all a delicate balance: creators want their products to appear as impressive as possible — but if there's any technical risk with the product, (1) now might not be the right time to run a crowdfunding campaign, OR (2) being completely transparent (and certainly not intentionally deceptive) will result in a better outcome.

 

 

Expect Unexpected Manufacturing Issues

No one intends for things to go awry. But creators need to prepare for it.

 

This one is tricky, as even with a working prototype, financial plan, successful campaign, and generally knowledgeable and well-meaning people, manufacturing issues can still kill creators' campaigns.

We know how difficult manufacturing can be — especially for electromechanical and other "technical" products. It took us 1.5 years to go from 3 working products to 300 products (and a repeatable process). Our issues are pretty well documented in our updates (e.g., certification challenges, parts out of spec from our (vetted and highly recommended) suppliers, repeated QC failures, drive QC issues, issues with our drives systems).

So, what’s the caution/advice here for creators? There’s nothing you can do other than work through it. But while you're doing this, remember:

  • get help from people who have previously manufactured similar systems
  • make sure you have a sufficient buffer in your bank account (e.g., by raising external funding) so your company doesn't go under if/when you run into issues
  • be honest and transparent with your backers when you face issues, what those issues are, and your plans to fix them.

 

Tying it all together

Campaigns that fail from avoidable mistakes harm the entire community by eroding trust in crowdfunding campaigns. The onus to restore and improve trust is on all of us: campaign creators should minimize risks and be transparent, platforms like Kickstarter should continue to set clear expectations for creators and backers, and backers should demand more from creators.

Creators should seek to further minimize risks (i.e., develop working engineering prototypes that validate the riskiest assumptions) before launching crowdfunding campaigns. They should plan out their finances, act ethically, and communicate with their backers when issues inevitably arise.

Well-meaning, competent people who follow these guidelines will have higher chances of successfully fulfilling their campaigns (and launching companies). Even if they do fail, doing so ethically will help avoid falling into the ranks of the companies being targeted by class-action lawsuits and other campaigns from disgruntled backers.

— Chris from Mosaic



Image credits: Communication, Link; Honesty, Link; Track, Link; Money, Link; Coyote, Link.

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