The Problem with Pre-Funding
In September of 2010 we reevaluated the direction of the Design Glut brand, and made a strategic decision to move exclusively into jewelry, and away from housewares.
The new direction allowed us to streamline production, speed up the chain of logistics, and rapidly broaden our product line without raising overhead or taking on a large burden of inventory.
The new line of jewelry, “The Future is Shiny” achieved it’s goal: retain the signature Design Glut style: quirky, affordable, conversation-starting pieces, while at the same time, dramatically simplifying logistics.
Like many other product designers, we turned to Kickstarter for funding. Funding manufacturing runs is one of the hardest things to do as an entrepreneur.
For those not familiar with the payment structure of traditional manufacturing it goes something like this:
* MOQ: 10,000 units
* $ / Unit: $3.50
* Shipping: $1500
* Total: 10,000 * 3.50 + $1500 = $36,500
The entirety of that $36,500 will be paid at various stages throughout the production process with the final payment culminating at the moment of delivery. This is to offer some protection in the unlikely scenario that your entire shipment of candles melted within the freight from Shenzeng -> NY. Yes, this does happen.
This makes the barrier to entry for most designers almost impossible. And while everything is negotiable, if your MOQ could come down to 2500, your $ / Unit will most certainly go up by 10-20%. It’s a numbers game.
Finding cash to help fund a product you want to develop, no matter how successful you think that product could potentially be, is challenging. It’s high risk and lower reward. You have to deal with physical things. Physical things = sunk costs.
Keeping this all in mind, Kickstarter is something the product community has wanted, and needed, forever. And for us, it was OK. For others, it’s not.
We had manufactured many, many things before.
We allotted time for deviations.
We built shipping costs into the reward structure.
We picked an easy production process to fund.
And guess what, things still wen’t wrong. Most people unfamiliar with manufacturing don’t realize that products dont just materialize. EVEN in 3D printing, things go wrong.
Factories burn down, they explode, workers go on strike, boats crash, glaze sticks together, there is the Chinese New Year. I could go on forever. I will never forget the first time I signed a PO form with a manufacturer and noted the “we are not responsible for acts of god including but not limited to…” clause.
Things you could not possibly imagine and or predict, go wrong. That doesn’t mean it’s impossible, it just means it’s an interesting challenge to solve.
How do platforms like Kickstart and Indie GoGo differentiate between what is reasonable, and use that to make informed decisions on what projects to support?
How can pre-fund or pre-sale exist in tandem with managing expectations on delivery, speed, and quality?
Kickstarter has made it possible for people to make things, the challenge now, is to make sure those things get made.