The Problem With Kickstarter

1/17/13Follow @ByteLight

Kickstarter helped pioneer crowdfunding for creative projects. It has been enormously successful. The Kickstarter model is to set a fundraising goal. If the project meets its goal, the money is transferred to the creators to fund the development of the project. Kickstarter collects a 5 percent fee, the creator gets funding, and the backers get the satisfaction of sponsoring a new idea.

For creative projects this model works well. As long as the creator is genuine, you can expect that they’ll deliver something. An aspiring director is probably going to make a film. Sure, it might be bad. But that’s the only risk you take.

Hardware projects are different. Hardware is hard. Things blow up. You get sued for patent infringement. Going from prototype to mass production is an enormous challenge. You need the help of experienced industrial designers, engineers, and manufacturing experts to make everything work. Inventory costs and cashflow management become an issue. For the types of companies that go on Kickstarter, they often don’t have the expertise required to successfully deliver on their promises. Delays are inevitable.

The massive Kickstarter projects like Pebble, OUYA, and Formlabs inspired hardware innovators all over the world. It created a gold rush of project creators.

But some people had no idea what they were getting themselves into. The formula for success was to create a slick video, get coverage on high profile blogs/publications, and leverage social media. The problem was that backers were being fed false promises. They’re expecting to receive a fully functional consumer product. The reality is much different. The Kickstarter model of collect money first, deliver product later doesn’t work for these types of projects. The failure of over 75 percent of Hardware and Product Design projects makes this clear.

This presented Kickstarter with a problem. It doesn’t keep track of projects after the funding is delivered.  It doesn’t monitor progress, offer assistance, or enforce refunds. Yet all of the top 6 funded projects are Hardware/Design. It’s a lucrative category.

Kickstarter recognized this—and changed its guidelines to make it clear that consumers shouldn’t expect fully finished products. Like many others, we respected the new guidelines. We spent a lot of time and effort making sure we conformed to the rules. We only showed actual ByteLight enabled hardware from our lighting partner. We didn’t offer bulk quantities. And we felt our project goal was in the spirit of Kickstarter—opening our technology to early adopters, developers, and makers.

But given all of the recent controversies surrounding Kickstarter, I can’t say we were shocked when we were rejected.

We asked for some more specific feedback, but received a similarly vague response. Our correspondence was identical to that of some other rejected projects. We felt like we were dealing with the government, not a pioneering Internet startup.

I applaud Kickstarter for making a choice and sticking to its identity—a funding platform for creative projects. But it hasn’t gone far enough.  We aren’t the first technology company to waste our time making a campaign. Kickstarter has taken a half-measure when it comes to hardware projects. It should take a full measure—and remove hardware as a category.

The fund-first-deliver-later model doesn’t work as well for technology as it does for creative projects. But a different model might work. The model pioneered by Lockitron. Batch orders. Collect payment information, but only charge customers when the product is ready to ship. This forces project creators to use efficient, rapid production methods. Customers can rest assured that they won’t be charged until the product is being shipped.

Of course, the hard part about this model is that there isn’t an established community of donors, like on Kickstarter. But I don’t think this is a huge concern. Most project discovery happens via social networks and press. As long as tech blogs continue to cover innovative projects and people want to talk about innovation, there will be an audience.

We think that’s a good thing.

The Self-Starter Movement

The problem that Kickstarter solves for hardware startups is demand prediction. Inventory is expensive.

We already sell enterprise solutions. But we weren’t sure if there was an audience for ByteLight in smaller quantities. We’ve got innovative technology with new capabilities. Inbound requests on our website are one thing. But putting down payment information is something else entirely. By collecting payment information upfront, we can work out the logistics of producing a batch of ByteLights without the burden of large inventory costs. Maybe there’s an audience for hacker kits? Maybe there’s an audience for a consumer version? Crowdfunding is a low-cost way for us to answer those questions. We can’t wait to see what happens.

We’re incredibly thankful to Lockitron for kicking off the self-starter movement by open-sourcing selfstart.us. We’ve forked their project to add some new features. These include support for different tiers of projects and the option to limit each tier.

We hope the self-starter movement continues to move forward. Given the success of app.net, Lockitron, and Lumawake, we’re confident it will. Early stage hardware companies deserve to control their own destiny. And regardless of what crowdfunding platform you use, the community always votes.

Dan Ryan is the co-founder and CEO of ByteLight, a Boston-based startup that provides indoor location with lights. Follow @ByteLight

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  • Tomáš Dostál

    Seems to me like this article was written just from disappointment that your project was not approved o Kickstarter, rather than objectivity. Instead of upsetting about the result I would recommend to go over to IndieGoGo or other well established crowdfunding website which has not-so-strict rules.

    As you say, you have product done and even already selling one. I don’t really see reason for crowdfunding campaign. As you say, you would like to pre-pay your orders, put aside that you are not able taking risks, this could be done by simple pre-order landing page for your product. I sense that there is something else behind it, and I would not be surprise if its the fact that you can actually make much more money than you really need…

    And last note. The open-source system for crowdfunding is quite nice, but at the same time it is yet another cancer for web. It will have exactly same effect on internet as had last year boom of discount sites (systems like Groupon). Millions of crowdfunding websites will appear (because who wouldn’t want 5% form $10m campaign right ?) and then silently die off. Result of this will be unpopularity of crowdfunding, only systems with good processes (yes like kickstarter) will survive, but they wont enjoy so much popularity anymore because people won’t back projects anymore (actually its starting already, recently I saw campaign where girl is asking for money to get breast implants… actually her breast were not even that small).

    Crowdfunding is an amazing idea, unfortunately due to article like this and open source half-baked solutions like selfstart.us it will eventually die. I guess good that we are launching our campaign within a month :)

    • http://twitter.com/myDanRyan Dan Ryan

      Tomas,

      It’s clear that Kickstarter is focusing on creative projects. The founders have creative backgrounds. And their 2012 summary was notable in that it didn’t mention any of the massive hardware success stories (Pebble, Formlabs, Ouya, etc.)

      Our experience is part of a trend for hardware companies to move away from Kickstarter and host their own campaigns. Note that I don’t believe that selfstarter.us is the final form of this. It’s an evolutionary process – and an opportunity for a new startup with a different model.

      What that model looks like is still up for discussion. I look forward to seeing how it unfolds in 2013. Best of luck with your campaign!

  • http://virtuousgiant.com Nathan Hangen

    We had a similar experience. Though we were not rejected, we were turned off by the application process. In the end we decided to build our own solution – http://ignitiondeck.com

    • http://twitter.com/eperlste Ethan Perlstein

      Nathan, I was recently involved in a recent crowdfunding success in the science space — http://www.rockethub.com/projects/11106-crowdsourcing-discovery.

      I like the idea of an independent platform like Ignition Deck, which is especially attractive as I contemplate raising 10x or more in future crowdfunding campaigns. The 5% fee + 3-4% transaction costs taken by third-party crowdfunding portals doesn’t seem to be worth it once one has had initial success with running a crowdfunding campaign.

      Why should I pay a 5% fee if project discovery is driven as you say (and our own data confirm) by referral traffic over 95% of the time, and alternatives like Ignition Deck exist?

      • http://virtuousgiant.com Nathan Hangen

        Very neat project, and congrats on your success. You are absolutely correct – that 5% is very costly, especially if you don’t necessarily need any of the benefits that the big platforms provide.

        • http://twitter.com/eperlste Ethan Perlstein

          thanks! that’s what I’m trying to figure out now — what are those benefits? Name recognition certainly but that’s overrated unless you’re a novice crowdfunder. Hosting I guess is what it comes down to. But as long as one has the capacity to deal with a lot of a sudden surge of traffic, something like Ignition Deck is a perfectly acceptable substitute it seems. Or am I missing some other benefit of a third-party crowdfunding portal?

          • http://virtuousgiant.com Nathan Hangen

            Hosting helps. I worked on the Star Citizen project (we built a custom ID version for them) http://robertsspaceindustries.com/star-citizen and ran into some scaling issues, but that was with a ton of traffic. Most people won’t have that problem. Name recognition is another. Right now KS is cool and hip. I think there’s room for innovation in that category though. Other than that, there really isn’t much. They don’t help with fulfillment, and they don’t provide any insurance or protection for buyers or sellers. Those are two areas I do think someone needs to address, and quickly.

          • http://twitter.com/eperlste Ethan Perlstein

            Those were my impressions, too. Thanks!

    • Mike

      FYI: Your Demo “Support Now” button links to a 404 page.

      • http://virtuousgiant.com Nathan Hangen

        Thanks for the heads up. Somehow it lost a page template assignment. Fixed now.

  • http://www.dailygrommet.com Jules Pieri

    I don’t believe that independent efforts for crowd-funding are the way to go. Having worked with the kind of indie companies that innovate hardware for the last four years, I know that the vast majority of them lack meaningful marketing expertise. Their independent campaigns would be doomed to failure. Aggregating demand is the whole point of these funding platforms….going solo is just going solo.

    The natural evolution in the space is simply for IndieGogo, CircleUp, RocketHub or other platforms to sweep up the product hacker population. These projects and innovators won’t go away. We are seeing a record number of patents over the last two years. Why? Access to technologies like 3-D printing means they are only going to increase. But they will need funding.

    What really interests me are the businesses that are forming to respond to all these new products and emerging companies. Getting the product into initial production is hard, but making a business of it is much much harder. THAT is where really interesting opportunity exists….to help these products scale.

  • timrpeterson

    That people succeed on Kickstarter MUCH more by marketing over by delivering the actual product is increasingly a problem for Kickstarter.

    I’ve funded like 10 products, I universally get shit tons of email but rarely get the product.

    • http://virtuousgiant.com Nathan Hangen

      I’ve been lucky so far. The only product I haven’t received is the Instacube, which is still on schedule. You’re right about the email though.

      • http://twitter.com/eperlste Ethan Perlstein

        what is the ideal email update frequency?

  • http://www.facebook.com/JohnHaugeland John Haugeland

    Wait, so.

    New businesses fail at 90%, and that’s seen as just business.

    But if new businesses start at 75%, then there’s a problem with kickstarter?

    More like there’s a problem with your expectations.

  • http://twitter.com/andyidsinga andyidsinga

    it seems that for your company finding a way to do small run experiments without breaking the bank is key. this is probably more story building and customer development and prototype dev than inventory managment

  • http://thelastmileblog.com/ Tom Stitt

    Another way of looking at the Kickstarter problem with hardware projects is that many of the hardware project contributors are not “accredited” – meaning the contributors don’t understand the risks, timing uncertainties and failure rates common to all new hardware projects, especially from startups. Kickstarter could do a much better job of requiring backers – contributors to hardware projects – to explicitly agree (series of short, explicit, annoying disclosures requiring more than a click) to the likelihood of failure, missed deliverables and/or receiving a product that is still in beta or very different from the concept. Instead, the pitch presentations on Kickstarter are designed to convey an Amazon-like shopping experience with an easy click-to-back experience. (Note: Backer on 4 Kickstarter hardware projects – all had glitches, delays and the stuff that is common to every hardware project.)

  • John

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  • http://www.dragoninnovation.com/ Scott N. Miller

    From our vantage point at Dragon Innovation, we see a huge hardware
    wave coming and expect it to continue to grow. It is easier and cheaper
    than ever before to get to a functional prototype by using 3D Printing,
    Arduino, TechShop, GitHub and the online knowledge base.

    However, going from the prototype to the “shelves” is still a long and complex
    journey. I’ve been on this journey from both sides – as an entrepreneur
    at iRobot building the Roomba, and now as a member of the Dragon Innovation team, helping startups create and execute a manufacturing strategy.

    Dan is totally right that hardware is harder and has different requirements from other crowdfunded projects. We’re presently working on a solution to address
    this gap.

  • http://www.facebook.com/onehundredthirteen John McConnell

    if you’re interested in starting a kickstarter project then have a look at mine!

    http://www.kickstarter.com/projects/2063627285/kickstarter-graphics-kit

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  • SillyGal

    I think the worst thing about Kickstarter is all the SPAM you receive once you sign up. Random companies all promising to give your campaign the boost it needs if you just pay them X amount of $. Even when my project was fully funded, I received those kinds of emails. Non-stop. For weeks! Not to mention that once your project is funded, you don’t have the option of ending it early. That’s annoying. And now that my project is funded, I’m still waiting a full 2 weeks to receive the funding.