What Happens After the Crowdfunding Party?

The growth of crowdfunding, especially by Kickstarter, has been great to follow and has helped many new products and businesses come into existence. To start with, Kickstarter grew from nothing to 197,852 projects and $1.47 Billion in a matter of 7 years. Second, it initially gave artists, and later product designers in particular, a way to gather backers interested in their projects, to help make things happen as a group. Third, and this mostly effects the creation of physical products, the access to means of production both in terms of digital and physical products has gotten infinitely better over the last few years.

There are some limitations to crowdfunding, however. One of the most important things to keep in mind is that the Kickstarter audience is mostly 25 to 40 year old men who are interested in new technology and who have extra money to spend. Second, getting physical products manufactured is still very hard. It went from incredibly hard to just hard, and this remains the number one reason why crowdfunded projects on average are 10 to 12 months delayed when delivered to their backers. Third, there is a lot of work, and increasingly investment, required to run a successful crowdfunding campaign. This has resulted in teams led by experienced entrepreneurs now getting seed funding from investors which is then used to run the crowdfunding campaign, which in turn is used to secure a much larger round of funding.

As I see it, an interesting area today is to combine some elements from crowdfunding with well-known parts of e-commerce to create small product businesses. First, using the access to manufacturing that already exists in traditional sourcing industries, combined with the large amount of manufacturing done by some of the successful crowdfunding campaigns, a very large range of products or variations of products are available to be sourced. And in many cases they can be had with relatively low minimum order quantities, the minimum number of items that can be purchased. Secondly, even though crowdfunding as such is not fully embraced by all customer groups, and especially age groups, the concept of pre-sales seems to have a fairly solid understanding among most customer groups. And this is the key element – being able to test interest and get commitment before and during a production run enables small volume businesses to get off the ground. Thirdly, this allows businesses to run in batches, where a batch starts with a marketing campaign generating pre-sales, followed by a production run and finally fulfillment. Some businesses run just one or maybe two or three batches per year, and make for very successful small businesses that are fairly low risk.

To me, by far the most interesting aspect that has come out of crowdfunding is this ability for small companies selling physical products to get off the ground. And by using only elements of the crowdfunding model, in ways that help them build sustainable businesses instead of one-off novelty item businesses.

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