Kickstarter is awesome. For those of you unfamiliar with Kickstarter, head over to their website and browse around for a little while. You'll quickly get the idea. For those of you who have participated- either by funding a project, or by submitting a project, you know what I'm talking about. Kickstarter is awesome. The concept is simple- provide a platform where people with creative ideas can show them to the public and beg for money, and let ordinary people participate in the rewarding process of making it happen. Until just recently, this process took place behind closed doors with angel investors and venture capitalists. This new "crowdfunding" is a completely different way of going about the funding process. It puts idea people in direct contact with the consumer. It allows people who may not have trust funds to participate in making somebody's dream a reality. It is a beautifully simple way of letting the market decide which ideas are worthy of making it beyond the napkin sketch, and into our lives.
From a designer's perspective, I can tell you that this model has several appealing features:
1. It allows the designer to fund his idea without having to give up equity.
This is perhaps the greatest downside to bringing investors on board to fund a project. Risk deserves reward, and usually the only compensation that a startup can offer an investor to counter the risk that they take is an equity stake in the company. The potential downside, though, is that once equity is divided, creative control is spread around. This is not always a negative, and equity partnerships are often a fantastic way to leverage the knowledge and experience that the investor brings to the table. For the designer who doesn't want to give up equity, though, crowdfunding offers a solid way to keep that equity while raising the necessary capital.
2. It puts you in direct contact with your customers.
One of the hurdles that a designer must overcome is figuring out who the potential customers are, and how best to get the design to them. The customer might be the lady buying the product at the store, the kid shopping online, the couple going to an art gallery, concert goers, or the grandma with a passion for beatboxing. As a designer, you must find the people interested in what you have to offer, and communicate your design with them. With kickstarter, people who are genuinely interested in your design are the ones that will fund the project. This is your customer base. If it takes off on kickstarter, it will succeed on the open market. If it fails to achieve the funding necessary, perhaps the project needs to be reevaluated.
One of the reasons to raise startup capital is to secure enough funding to cover initial orders for product. Manufactures are not charities, and initial orders can be very expensive. Consider the iPhone 4. Estimates put Apple's preorder at about 600,000 units. I don't know what the FOB pricing is for the iPhone 4 at Foxconn in Shenzhen, China, but it has been estimated that the parts alone cost $187.51. Add labor, manufacturing, shipping, and duty, and the landed cost could reasonably be on the order of $300 per unit. That means that the opening order for Apple would cost $180,000,000. That's a lot of cash to lay out. The beauty of kickstarter is that you can treat the funds raised as pre-orders. This is a popular way to reward donors- offer them a free product for their contribution. This, my friends, is a pre-order.
All this is just talk. Let's look at how these 3 points apply to a real world project funded through kickstarter.
LunaTik and TikTok by Scott Wilson of MNML in Chicago have taken the blogosphere by storm. As of press time, the project has raised $765,354 of the requested $15,000. Clearly MNML has hit a home run with their design, and this project will be a great commercial success. By funding it on kickstarter, not only did they get the capital necessary without giving up equity, but they confirmed that their product has a large, passionate market. They have essentially sold several thousand units before ever producing one. They didn't have to give up equity, they confirmed that their product has a strong market, and they secured the pre-orders necessary for a manufacturing run.
Kickstarter is a very successful implementation of the new crowdfunding model. It is a way for people with ideas to connect with potential customers, and get the funding and initial market research necessary to move their projects forward. We at Swarm are excited about this potential, and have 2 projects that we're planning to launch using Kickstarter. One is internal (the bottle opener seat collar), and one is for a client. We think that this is a powerful platform to help launch products, and will use these two projects to test the waters. Stay tuned as we'll keep you updated as we go through the process!