When Kickstarter Campaigns Go Bad
Crowdfunding site Kickstarter seems like such a great way to bankroll a business undertaking. Come up with an idea, make your pitch, and watch the money that you need to undertake your new venture come rolling in.
What happens when fans do their part, but you don't?
That's the question that Aarti Shahani raised on NPR's All Tech Considered blog, and it's a good one. Kickstarter began as a site to fund creative projects of all sorts, not as an investment platform for businesses. Entrepreneurs began to use Kickstarter to fund specific projects, which is allowed under the site's rules.
The amounts of money that can be in play are significant. Julie Uhrman wanted to create a new video game console and sought $950,000 to do so. She got $8.6 million from more than 63,000 backers. Of this number, 46,124 paid to get a console and controller.
It's a smart variation on the idea of getting advance payments from customers to help underwrite a production run or acquisitions of inventory for a large order. However, if you've ever taken part in a Kickstarter campaign, you're probably familiar with a nagging voice in the back of your head asking, "What happens if they don't do what they say they'll do?"
As AllThingsD quoted Wharton business professor Ethan Mollick on the subject of Kickstarter policing listings: "Enthusiasm is ahead of [the] tools. So, Kickstarter is a very minimal system in some ways. It's not really built to police itself."
And according to Shahani at NPR, there have already been cases of Kickstarter campaigns going awry. Entrepreneur David Barnett raised almost $18,591 in mid-February 2012 for an iPhone case. (Shahani reported that a year had passed, but the timing on Kickstarter suggests 7 months.) Nearly 500 backers expected to get a case, but none have shipped.
Pebble Technology, which raised more than $10 million by May 18, 2012, for a customizable smartwatch, has finally begun to run test shipments through its fulfillment house, though, according to comments, the shipments do not contain actual product.
Many things can go wrong between taking an order and manufacturing a product. Here are some points to consider when going the Kickstarter route:
Set the right expectations.
If you know anything about custom manufacturing, particularly the outsourced variety, you know the lag some entrepreneurs have experienced between taking orders and getting something to market doesn't seem unreasonable. But most consumers won't know this. Let them know, realistically, just how long getting their product might take.
Get enough money up front.
One of the worst things you could do is set a low pledge amount in hopes of getting people to sign on and fail to raise enough capital to fulfill your end of the deal. Better you don't get the project funded, no matter how dear it is to you, than to get too little and find yourself unable to deliver.
One backer suggested to Pebble that updates every two weeks would be a smart move. Absolutely. Even if you do give people a realistic time frame in advance, keep in touch so they don't start to think you've skipped town.
Realize you're under a microscope.
Using Kickstarter puts you squarely in the public eye. At all times, conduct yourself appropriately and do your best to keep your backers satisfied. If not, you're building quite the bundle of negative PR that could turn up in a search every time someone looks for you or your company.
It's always great to find a new tool for making your business successful. However, you always want to make sure you know how to use it safely.
ERIK SHERMAN | Columnist
Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.