By Fredrik Gronkvist
Indeed, many Startups don’t even think about going to the bank, but see Kickstarter and Indiegogo as the only viable options to raise funds.
But it’s not only about the money. Crowdfunding sites enable business owners to get instant validation – and I think we all agree that the market itself is far more qualified, as compared to the average banker, to judge a product concept.
I think Crowdfunding is fantastic. It’s the future of business financing.
So, let’s assume that you get enough backers to pledge your project. What’s next?
Most likely, a year of frustration, delays and possibly even failure.
You’ve probably heard the stories of Kickstarter projects failing spectacularly, only within months of raising for beyond their pledging goal. According to a Kickstarter’s own assessment, that fail rate is 9%.
In this article, I will first explain why I think that is the case, and what you can do about.
What can go wrong after raising funds on Kickstarter?
Many of the products presented on Kickstarter are meant to be made in China. Getting products made in anywhere is not an easy task, and China is even harder.
There are two main scenarios:
a. Delays: The project takes much longer than expected, to the point where your backers even forget about you.
b. Costs running away: Without a properly cost calculation, you cannot estimate how much money you must raise to deliver on your promises.
Keep reading, and learn what you can do before, and after, raising money on Kickstarter, to offset the risk of delays and runaway costs.
1. Keep your product as simple as possible
Product development is a complex and time consuming process.
It can take months to find the right manufacturer and sample development can drag on forever.
Few projects are delivered on time.
One of the most common causes of delays, at least in my own experience, is that importers set their requirements too high for the first batch.
I give you two examples below:
a. Very specific material and component requirements can make it very hard to find a suitable manufacturer. Try to use materials and components that are in wide usage in the industry today.
b. The more features and design requirements you have, the longer it will take to develop acceptable samples. Try to simplify the product design and functionality as much as possible.
I’ve seen how importers get kind of obsessed with features that have very little impact on the market appeal of the product – even to the point where the buyer forgot why those requirements were put in the spec sheet to begin with.
Keep your first batch simple. Start off with a Minimum Viable Product (MVP), and add features to future versions of your product.
That way you can hit the market much faster – and fail faster, if that’s what it’ll come down to.
(Ever read the Lean Startup? If not, I strongly suggest you do. It’s written for primarily Entrepreneurs in software, but there are many great lessons for brands and eCommerce companies)
2. Start the supplier sourcing and product development process well before posting your product on Kickstarter
Many Startups greatly underestimate how it can take to take a product from the drawing board to the warehouse.
This holds true, even if you start off with the most basic version of your product.
Some companies don’t move an inch before they have the financial backing from their backers on Kickstarter. This is a huge gamble, as it’s impossible to predict how long it will take to get the product shipped.
It might take 6 months, or 18 months. Or, it might turn out that the product can’t be done at all. I’ve seen that plenty of times too.
By the time you raise money on Kickstarter, you should at least have a prototype ready.
You should also have price data, from more than one supplier. How else can you know if you are raising enough money?
Getting to the point where you have a product sample in your hand can easily take 6 months, or more.
While I understand that half the point with Kickstarter is to validate a new product concept, the risks of starting from zero with the clock ticking, overshadows that aspect.
3. Make a production and quality assurance plan
You got the money, and you have validated your product concept.
Assuming that you already have a sample ready, and a supplier waiting to take your order – you are good to go.
From this point, you will need to achieve the following:
a. Get your products manufactured on time, while still having a backup plan in case of delay.
b. Ensure compliance with all applicable product safety standards and regulations. This may involve both third party laboratory testing and the creation of mandatory documents.
c. Perform quality control on the products, to ensure that the goods are made to specification
d. Get your products shipped and cleared through customs.
If you get caught up with in delays, your entire project may derail. There are a few scenarios that can play out at this stage:
a. It’s common that manufacturers make promises on the production time that they cannot live up to, simply to get your order. Sign a contract that sets clear penalties in case of delay. This can incentivize the supplier to reveal the actual production time.
b. You need to have enough time to order a remake of the products, if too many quality issues are found during the pre-shipment inspection. You should at have at least a buffer time of 30 days.
c. You need consider the time needed for laboratory testing, a process that can take 2-3 weeks. You may also want to collect and submit batch samples before production is completed, in order to save precious time.
d. Make sure you have obtained all relevant import licenses and permits – and that you have a freight forwarder on standby, ready to pickup and ship your goods.
4. Calculate all costs involved
There are more costs than the unit price and freight cost to consider. The following must be priced in:
• Unit price
• Tooling and prototype
• Quality control
• Laboratory testing
• Customs duties and other taxes
• Customs bonds, permits and licenses
Do you have experience with importing “Kickstarter funded” products from China, or other Asian countries? Know someone that has? Please write a comment below. We would like to hear from you.
Fredrik Grönkvist is the co-founder of ScandinAsian Enterprise in Shanghai. Since 2010, he and his team have helped hundreds of companies worldwide, primarily in the EU and US, to develop and manufacture products in China. He is also the main contributor on www.chinaimportal.com, a leading knowledge base for small- to medium-sized enterprises importing from Asia. For further questions, you can contact him on www.chinaimportal.com/contact-us/.