The majority of crowd-funded product projects I’ve backed fail in predictable and preventable ways…
- Ready, set, fail.
They have everything ready to go for mass production with manufacturing and shipping partners. Once the campaign closes, manufacturer goes out of business taking lots of the money with them. They can not find new manufacturing partner because product really can not be made and shipped at the promised price point. Backers get back pennies on the dollar. - Too Much of a Good Thing.
Real product and they know they can make 20 in the basement in a couple of weeks, but end up with 1,000 orders and no experience on how to ramp up. In the post campaign euphoria, they quickly waste most of the money frantically and inefficiently ordering materials and equipment. Years later the orders are still being filled slowly and sporadically. - Seemed like a good idea.
Had built prototypes and all the remaining issues seem trivial. They aren’t. In the weeks following the campaign, they start trying to put together a final shippable product and find blocking problems at every turn. There is a reason no one ever made this product before – and it is not because no one ever had the idea. They end up shipping basically a box of parts that can not be realistically made into the promised product. - Someone else thought of it first.
As soon as campaign closes, they get served with a patent cease and desist. The money is spent on lawyers. - Sucker.
There is no real product – just a few paragraphs of text that sound superficially like a great idea. They take the money and run.
The root cause of all these failures is misplaced incentives. Founders get all the money up front, and so have absolutely no incentives to plan correctly, execute quickly or efficiently, or satisfy backers1.
These could all be mitigated or prevented by proper project management. I’d call it something like “KickStarter On Track” and it would be an opt-in feature.
Every KickStarter On Track project would additionally have a list of specific milestones, each with a date and a disbursement amount and recipient. The very last milestone would always be “Backers agree that project is complete”, and the disbursement would be any remaining balance to the project creators.
Some examples of milestones might be…
| Date | Milestone | Amount | Recipient |
|---|---|---|---|
| 1/20/2014 | Tooling and setup fees | $1,000 | Fei Wu Tap and Die |
| 3/15/2014 | Raw materials for 1st run | $4,500 | Sunny Day Plastic Corp |
| 4/12/2014 | Packaging and Shipping | $1,200 | Boss Fulfillment LTD |
| 5/1/2014 | Project complete | (balance) | Founders |
Practical benefits of the On Track system:
- founders do not see any money until backers are satisfied. You can still have project failures, but now the incentives are in the right places.
- when projects fail, they fail quickly and predictably (at least compared to the infinitely long failure arc of the current system)
- residual funds are available for an orderly refund process at each possible failure point
But I think the real benefit of the system is that is requires people to actually think concretely about these steps rather than just imagining their end goals. This can make all the difference.
Working World is a micro-lending non-profit. While they do provide money like lots of micro-lenders around these days, Working World is different. The money is ancillary to their mission. The real value they provide is project management. When a borrower shows up and asks for $500 to buy a new printing press, they ask stuff like…
- When are you going to make your first payment?
- Where will you get the money for that payment?
- Do you have customers for these products?
- How long will it take you to print these products once you get the press?
- Do you know how to operate the press?
- Do you have ink?
- Where will you get money to buy the ink?
- Where will you get money to fix the printer when it breaks?
They don’t know anything about the printing press business, but often just asking the questions will completely change the outcome of the loan. By nailing people down to common sense specifics (“If it will take you 1 month to complete your first order, you can’t make your 1st payment in 2 weeks”), they end up making much more realistic loans and have fantastic repayment rates.
Why would KickStarter do this?
Eventually people like me are going to get tiered of funding failed projects.When that happens, the party is over.
This could also help KickStarter differentiate themselves from other crowd funding sites and offer a high value, low risk experience to backers.
Finally, they could charge an overhead management fee that would be an additional revenue stream.
Why would a founder do this?
The obvious reason is that it will make the campaign more attractive to backers. Less obvious is that (I think) most founders are well intentioned and they want their projects to come to a happy completion. Hopefully they will welcome any help they can get.
Who would decide a Milestone has been reached?
The crowd-ish way would be to to have backers vote on it. Want the backers to approve your “completed molds” step? Invite them to a meeting where you let them touch them. When 30 backers tweet and Instigram about how awesome the molds came out, the rest will happily agree. This crowd auditing system is very hard to cheat and leverages the best of crowd wisdom. You’d want to build a nice site to make all this interaction easy, but KickStarter needs this anyway.
Any time a milestone date expires, the default action would be to refund the balance of funds to backers. Backers could also consent to extending deadlines if the founders could convince them to.
Couldn’t you do do this as an external site not affiliated with KickStarter?
Sure! You would need to get people to trusty you – which you could maybe do if you are already an established project management entity.
KickEnder.com would be a great domain- alias, it is taken.
Let me know when you get it up and running!
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1 Ok, they may have some non-financial incentives like being good people, and having good intentions, and wanting to reserve their reputation so they can successfully fund future campaigns. In practice, these non-financial incentives do not seem help much once the campaign is over and the money is gone.