March 20, 2015

Improbable Insights : Episode 3 : Commentary

Oh yes, Episode 3 is out!

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I'm a partner at Lemnos Labs, an early stage hardware fund and incubator, so you might suspect that I'd be an ardent supporter of crowd funding. I'm not as much of a fan of crowd funding as you might suspect. I use crowd funding as a buyer, having purchased over 40 items on crowding funding sites like kickstarter and indiegogo. I've helped quite a few teams prepare their campaigns. I believe crowd funding is an excellent way to build relationships with early, beach-head customers. But I have four problems with the current expression of crowd funding:

  1. Crowd funding sites try to exist simultaneously as donation (patron) tools and as a pre-sales channel. But the customer expectations of those models are very different...
  2. Most consumers consider these sites pre-sales channels, but no one curates product offerings to make sure they are legitimate, of any quality, and have the ability to actually make the product they are representing.
  3. In the particular case of hardware, too many campaigns have their proceeds go to the development of the product, not the manufacturing. The campaigns hit their goal, but raise too little money to actually see the product through to completion.
  4. Product teams believe crowd funding success is automatically indicative of mainstream market success, failing to understand that the crowd funding demographic can be very different than the mainstream audience. Crowd funding does not guarantee product success.

Anyone who tells me that crowd funding is still a patron donation tool clearly needs to review the Pebble Time campaign. It, and many more like it, are clearly pre-sales campaigns! Their successes only reinforce to naive consumers that crowd funding sites are pre-order sites for commercial quality products. The problem is that many crowd funded products will either not ship or not ship at the quality level we expect of products sold at Best Buy or on Amazon.

I believe the above problems are solvable and hopefully will be addressed by an existing service or a new entrant. I wouldn't be surprised if smaller, patron campaigns for civic projects, the arts, etc. are eventually separated from pre-order campaigns from established companies. The expectations for each are different and need to be clear in both veins.

I think curation is critical but hard to implement. It is a value-add that consumers would pay for, IMHO. It hurts the entire crowd funding segment when a decent percentage of campaigns fail to deliver after taking money from consumers. Curation never can be perfect, but if you had no idea if x% of the auctions at Sotheby's were fake or would never be delivered to you, you'd stop buying there. I'm worried without curation the same thing happens to hardware campaigns. I'm already hearing about failure fatigue from leading tech bloggers like Ryan Block and Peter Rojas.

Curation also helps address the allocation of funds problem. Part of the curation or diligence process is determining if the team is far enough along to ship the product with their crowd funding or needs additional money to complete the product. And almost more importantly, if there will be any money left to run the company the day after they pay their contract manufacturer ;-)

I'm a optimistic realist when it comes to crowd funding. It has changed distribution and customer interaction, and helped bring great things to life. But as it grew, problems emerged that will have to be addressed for the mechanism to grow to the next level...

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I'm pretty sure there will never be the "perfect" headphones and that I should stop buying them. Yeah, right ;-) I tend to follow Marco Arment's can quest as a neutral, well-researched analysis. And I love Massdrop for amazing deals on headphones!

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