Scaffolding: Construction work at the Lehrter Hauptbahnhof, Berlin. By Tup Wanders, via Wikimedia
So. You have an idea. You're sold on crowdfunding. Now you're ready to jump in headfirst. Where do you start? In this part of the crowdfunding series, I will cover how to get ready to launch your project.
There are two sides of launching: Structural work (the boring stuff) and Storytelling work (the exciting stuff).
Structural work refers to the way you set up your project to operate. This includes figuring out how much money you should raise, how long your project should run, how to set up your Reward Tiers, looking into patent protection, etc. It's boring stuff, but extremely necessary to make sure things run smoothly.
Storytelling work is how you will describe your project to the world. This involves shooting a video, what types of images you should use, writing copy, etc.
There is a lot of ground to cover for both of these aspects, so we're going to split them into two parts. This part will focus on building your structure.
Note: From here on out, this series will focus mainly on running Kickstarter projects. They are the go to site for product designers, and it only makes sense to talk about how to work within Kickstarter's parameters. However, there is a lot of overlap in how Kickstarter works and how other crowdfunding sites work, so even if you launch your product on another site, you should still get something out of this.
But before you start...
Every product design Project Creator should first decide what phase they will launch their project from. Lets go back to that development timeline I talked about last time.
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I launched my own project somewhere between the Proof of Concept and Refinement phases. At that point, I had a working proof of concept, quotes from vendors, and a pretty good sense of how my Stylus Caps were going to be made. The reason I turned to crowdfunding was that I had gone as far as I could go on my own money. I had a lot of work and several surprises still ahead of me, but looking into crowdfunding was the only way the project was going to continue.
A proof of concept is a prototype that mostly looks and works like the final product will. It exists to tell you that your idea works, that it's manufacturable, and to communicate to others what your intentions are. It should answer most, if not all, of your questions of how you will proceed with your development. You will also need it to help you demonstrate your idea in the video that will be on your main project page.
Production quotes are cost estimates that you receive from manufacturers that tell you how much it will cost to produce your idea and how long it will take to make it. Its good practice to get multiple quotes and make sure you have trust in the people you will eventually work with. Make sure you put all of those quotes plus any other anticipated costs, including shipping, into a Bill of Materials or BOM, that will give you a detailed look at how much money it will take to make your idea.
So what phase should you launch from? Manufacturing? Refinement? Proof of Concept? Obviously, the further along in development you are, the less chance for delays and surprises you will have.
My recommendation is to do as much as you can on your own dime, before you try to crowdfund your product. The further along in the process you launch, the more predictable the outcome and timing of delivering your project will be.
At minimum, you shouldn't even consider launching until you have a working proof-of-concept and production quotes. Launching with anything less is asking for a world of pain. You owe it to yourself, your manufacturing partners, and your future Backers, to know if your idea will work and how much it will cost to produce. Once those things are in place, you can think about how to set up your crowdfunding structure.What should my fundraising goal be?
This is both a straightforward and complex question to answer.
The straightforward answer is: You should try to make as much money as you need to get your idea made and shipped to your Backers. Realistically, you probably need a little bit more than what you think because of unexpected costs.
Anyway, lets say you've done your homework. You got quotes from manufacturers and you have figured out your approximate shipping costs. This leads you to estimate that it will cost about $25,000 to get your project off the ground. Great. $25,000 it is.
This is where it starts to get complicated.
KIckstarter takes a 5% cut of anything you make. So out of your $25,000, they get $1,250. $25,000 is now reduced to $23,750. Then Amazon gets their cut, which is an additional 3-5% out of the original amount you made. (Amazon does the transaction handling for all Kickstarter pledges). Let's say they take a full 5% to be on the safe side. Another $1,250 and you are down to $22,500. Buzzkill.
What you want to do instead is aim your goal for what will be remaining after Kickstarter and Amazon collect their fees. In this case, if you are looking for $25,000 your goal should really be $28,000, because that would leave you with $25,200 after fees.
Now lets see if I can confuse you a lot more. Funding goals have a psychological factor as well: for your potential Backers.
If your goal is to make $10,000 in 30 days, that will be easier to hit than trying to make $100,000 in the same amount of time. Obvious, right? It's also harder because Backers want to support things that they think they will be successful. If a project is successfully funded, they can reap the rewards. Since meeting a $100,000 goal is harder, it will also be harder to find the amount of Backers who believe your project will be successfully funded. I didn't say impossible, just harder.
As of February 2012, the top 20 all-time funded design projects on Kickstarter had an average fundraising goal of $27,975. Of the top 20, only six had set a funding goal of $35k or higher, and only one of those five, the Hidden Radio, had set a goal over $100k (their goal was $125k). All of these projects raised $125,000 or more, and three of those projects raised $900,000 or more.
In my opinion, KIckstarter best serves projects seeking funding goals in the $100–$75,000 range, with projects in the $10,000–$35,000 range being in the sweet spot. Projects needing $75,000–$150,000 range are certainly possible, but not without 1) A killer idea 2) in a big market (read: Apple accessory market) 3) with a major effort to get a ton of blog coverage.
If you need to raise a minimum of $150,000, crowdfunding may not be the right avenue to get the money you need, but like I said before, not impossible. Just two weeks ago Double Fine Studios, a video game developer was able to raise over $1,000,000 in less than 24 hours annihilating their goal of $400,000. That is far and away a Kickstarter record and thus far an anomaly, but its encouraging that larger scale projects are starting to gain traction.
One final thought, because I don't want you to walk away with the wrong lesson. All of these projects in the top 20 handily beat their initial goals, but the point is that their goals were met, allowing them to complete their projects. Do not game the system by having a crowdfunding goal that is less than what you predict you will need to complete your project. If you need $100,000, try to raise $100,000. Do not try to raise $50,000 with the hope that you might get $100,000.
What you should think about is this:
1.) Is my fundraising goal going to let me complete what I start out to do?
2.) Do I feel that my goal is attainable? If not, should I re-scope the project, stick to my guns and try for the larger reward, or scrap it all together?
How long should my project run for?
On Kickstarter, projects may only run for a maximum of 60 days, and they make a pretty compelling case to run for just 30 days.
Kickstarter says:Statistically, projects lasting 30 days or less have our highest success rates. A Kickstarter project takes a lot of work to run, and shorter projects set a tone of confidence and help motivate your backers to join the party. Longer durations incite less urgency, encourage procrastination and tend to fizzle out.
I completely agree with this.
Figuring out your Reward Tiers is easily one of the trickiest parts of setting up a project. Reward tiers are listed in the right hand column of Kickstarter pages. They are the levels that people can back your project at. For example, for just $1 I can be a Backer that just allows me to see all of your project updates. For $20, I can get your product. For $35, I can get 2 products. For $80 I get 3 products plus dinner with the Project Creator. And so on.
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Reward Tiers are set up at the sole discretion of the Project Creator. I highly suggest digging through Kickstarter and seeing how others have set up their own tiers. Back a few projects. See what the process will be like for your future Backers.
Before I get into my own thoughts on how to setup your Reward Tiers, we need to talk about two of the most unusual parts of running Kickstarter product design projects: Shipping Costs and the Survey. Not understanding these two things in-depth prior to setting up your Reward Tiers will prove to be incredibly painful down the road. Believe me, I have the scars to prove it.
When you back something on Kickstarter or any other crowdfunding site, there is no shipping selection menu. Let me back up.
When you shop for something online, you usually shop with only the price of that item in mind. Say you are looking to buy a t-shirt that costs $20, you generally perceive the cost as just $20, right? Of course there are shipping charges and maybe tax involved, but people will fixate on that first cost and then pick their shipping option in the shopping cart.
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If the cost of shipping was included in the price upfront, the perceived price might jump to $25 or even $40 if you need to ship something to another country. $25 is a greater mental barrier to overcome than $20. This is shopping psychology 101.
Back to crowdfunding. There is no shipping selection menu. Here is what someone sees when they back a project on Kickstarter:
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This gives Project Creators three options when setting up their reward tiers. None are ideal.
Option 1 - The "really bad" option: Ask your Backers to manually add in the cost of shipping to their pledges.
This was the option I picked. Several other product design projects have gone this route as well. On paper this makes sense, but from what I can tell, it backfired in every case.
With this option, you list your reward tiers as what the actual item costs. So if you want to sell an item for $20, you list the tier at $20. You then add a disclaimer to each tier saying that Backers must add the cost of shipping into their pledges. Backers have to do this manually. So if the cost of shipping is $5, they have to add in their heads ($20+$5=$25), and then type that into the pledge amount box.
The reason you would want to do this is because this is how all e-commerce works: select an item at a price you are comfortable with, select shipping, checkout. The problem is no one expects to have to add shipping by manually typing something into a box because we're all trained to look for that shipping selector. If we don't see it, we just think there are no shipping costs. Awesome! Except if you are a Project Creator and need that shipping money.
At least half of my Backers missed that they needed to manually add in the cost of shipping, which meant that I needed to send out several updates explaining that they had to do this. This ended up pissing off a lot of people and made me look like an idiot.
Once the funding deadline came, Backers no longer had the ability to update their pledges to include shipping, so I needed to send out individual PayPal invoices to the 15% of my Backers who still hadn't updated shipping.
This created a tremendous amount of unnecessary work for me and my Backers and I still grind my teeth when I think about it. The bottom line is you should not set up your shipping like this.
Option 2 - The "less bad" option: Include the cost of shipping in your Pricing Tier.
This goes against logic and years of Internet user habits, but it will make life so much easier for you and for your Backers. This is the option that I would choose if I were setting up a project right now and in fact, this is also the way that Kickstarter now recommends setting up projects.
With this option, you list your Pricing Tiers with the cost of shipping included. So if the item costs $20, and shipping costs $5, you list the tier at $25. This makes the perceived cost of your Pricing Tiers higher, which could discourage some Backers from pledging, (Backer thought process: "I could get something like this for $20, why should I pay $25?) but it reduces your workload on the backend by a lot and will not annoy your Backers.
Of course, its actually more complicated than this. The cost of shipping your item varies between sending it domestically, sending it to Canada, or sending it internationally. Shipping within the US could cost $5, to Canada $10, and International $15. This makes figuring out one flat shipping rate tricky, especially when you can't predict how many of your Backers are coming from outside the US.
Going on my own experience, about 30% of my Backers were Canadian or International. I don't know if that is common or not, but it seems like a safe percentage for you to work from as well.
Let's do the math. If you had 10 Backers, 7 would come from the US and 3 would come from Canada or International locations. If shipping costs $5 to the US, $10 Canadian, and $15 for International, that would average to $7.25 of shipping costs. So your pricing tier would be Price of Goods (say $20) + Shipping ($7.25) = Pricing Tier ($27.25). Round that to a whole number and you have $27.
Again, its not ideal. US based Backers end up having to unnecessarily pay a bit more for shipping, which sucks. The overall cost to back your project will seem higher, even though it's not. But the frustration you will save yourself and your Backers is well worth it.
Option 3 - The "hybrid bad" option: Include the the cost of shipping for US Backers and ask International Backers to manually add their shipping cost.
This option ensures that the majority of your Backers will not have to worry about adding or being overcharged for shipping, but still asks a sizable portion (perhaps as many as 30% of your Backers) to add shipping. A lot of design projects go down this path, and as best as I can tell they still have the same issues that Option 1 has. Bottom line: pick Option 2.
Another weird quirk of crowdfunding: When someone backs your project, the only information they give to Kickstarter is the Reward Tier they are selecting and their credit card info. They are not able to give you their address and they don't make detailed selections such as if they want a specific color or size.
Addresses and detailed selections are given when Project Creators send out a survey to their Backers. Project Creators are only allowed to send surveys after their project has been successfully funded.
If you don't plan for the survey before you launch your project, it will have major implications for how much work you will have later on. What you need to know before you launch is what information from your Backers you will need right away, and what information you will need later.
As a Project Creator, you want to wait until you are ready to ship your product out to your Backers to send the survey. Why? Because a lot of people change addresses between the time they back your project and the time that you are ready to ship. If someone moves after filling out their survey, the only solution they have for updating their address is directly emailing Project Creators. This creates about 10 minutes of work for Project Creators per address change. I estimate that at least 200 of my Backers moved after I sent out surveys—that's a minimum of 33 hours spent just on updating addresses. Trust me. You really don't want to send that survey out too early.
However, if you give your Backers options, for example: different colors or sizes of your product, you need to know the quantities of each variation right away so you can place an order with your factory. That means you need to send out that survey as soon as possible.
You can see the dilemma right? If you send the survey too soon, you'll have to deal with a lot of Backers that have outdated addresses when you are finally ready to ship your product. Send the survey too late and you won't know what quantities you need to produce.
The way you should deal with this is to separate your Pricing Tiers by the details that you need to know for placing orders.
For example, say you designed a widget, and you want to offer that widget in red, blue, and green. You will need to know as soon as possible the quantities of each color you will have to produce. What you want to do is create three different tiers, one for each color.
This method allows you to figure out your order quantities prior to sending the survey because all you need to do is just look at the number of Backers you have for each tier.
One last thought about Shipping Costs and Surveys
There are a lot of unique things about crowdfunding. Some are so, so good. But some drove me up a wall and became an impetus for writing this series. When I launched my project, there was no guidance on how to avoid these missteps. Project Creators have been making the same mistakes I did when dealing with Shipping Costs and Surveys, but no one talks about them. If we get this out in the open, we can create a better experience for Backers and Project Creators alike.
But the bottom line is the methods for dealing with the interface shortcomings I have described here are hacks at best. The same mistakes keep being made by Project Creators because the current implementations make no sense. Shipping and surveys need to be re-thought. Adoption of some common practices already in use for years by e-commerce websites would eliminate most of these headaches overnight. For example, just adding a shipping selection menu would instantly fix that issue.
We're still early on in the development of crowdfunding and more likely than not, these problems will be addressed.
Ok. Back to what I originally wanted to talk to you about...
Your Reward Tiers
As I was saying, Reward Tiers are the levels that people will back you at. You want to make it very easy for people to understand and find what it is they want to back.
Here is the basic structure most Reward Tiers take:
This works pretty well, but of course there are variations. Some projects will have multiple Extras Tiers. Some will be composed of only a Main Tier and eliminate the other tiers. I've seen projects with 20 tiers and projects with just 1 tier. It's up to you to decide what is the best way to adapt this framework to your own project.
A few more things to think about:
- The Main Tier is the focal point for backing your project. Its the first tier that your product will be available and where most of your Backers will end up supporting you. If you get stumped on how to set up your tiers, start with the Main Tier, and then work your way out.
- Tier Pricing. Again, you will want to start with your Main Tier and work your way out from there. The sweet spot for Main Tier pricing on Kickstarter seems to be in the $15-$70 range, with $25 being the, uh, sweetest spot. Anything above $70 moves into "I really need to think about this before I back you" territory, but its not impossible to attract Backers to something $100 and above. The Hidden Speaker, for example, had a Main Tier that started at $99, and did extremely well.
- Keep it simple. We designers have a tendency to want to create the perfect, all-encompassing vision right from the get go. Resist the temptation to create an entire product line in just one crowdfunding project. It's hard enough getting a first run product through production. In the immortal words of Ron Swanson, "Never half-ass two things, whole-ass one thing." Besides, too many Reward Tiers just ends up confusing people.
One last thing: Patents
If you feel like your idea is something you might want to patent, look into getting a provisional patent right before you launch. A provisional patent acts a inexpensive (couple hundred bucks) placeholder for a full blown patent. It marks a date in time as when you started to look for protection and gives you one full year to decide whether you want to invest the several thousands of dollars it takes to get a utility patent. Its a good way to give yourself the breathing room to figure out if you need a patent in the first place.
You can file for a provisional patent all by yourself using a site called legalzoom.com. Think of it as TurboTax for patents. It steps you through the process of writing a provisional and then files all the necessary paperwork for you. I used LegalZoom before I launched my own project and was happy with the results. Later on when I decided to go for a full utility patent, my attorney was able to use the provisional I had created as the basis for the work she needed to do.
Next up - Prepare to launch your crowdfunding project: Build your structure.