Last week, I wrote about the challenges of running a successful crowdfunding campaign, and that entrepreneurs who are lacking in ample funds and a sizable network would be better off attempting to license their ideas. However, that's not to say crowdfunding and licensing can't be used in conjunction. In fact, crowdfunding has a powerful benefit beyond raising capital that's not often discussed: Successful campaigns demonstrate proof of demand.
Let me explain. To successfully license an idea, an entrepreneur must take away as much risk as possible for a potential licensee. Companies need to know that consumers want the product. Even more crucially, are they willing to reach into their pockets to pay for it? There's no better way of confirming that yes, they are, than running a successful crowdfunding campaign. The proof is indisputable--and highly compelling.
But, you may be thinking, if my crowdfunding campaign is so successful, why would I then bother trying to license the idea? For Eskil Nordhaug, the creator of the StayblCam, a compact portable video stabilizer for smartphones and action cameras like GoPro, the decision came down to scalability.
"A lot of the videos on YouTube and America's Funniest Home Videos are so shaky, it's hard to tell what's going on," Nordhaug explains. "I thought, there has got to be a way for people to make better videos."
He didn't find anything that solved this problem in the market, so he started dabbling with product design in his garage. In late spring of this year, after spending months drumming up interest in his product by sending prototypes to influential bloggers, Nordhaug launched a campaign on Kickstarter. Four weeks later, he had raised $123,000--exceeding his goal of $35,000 by 350 percent.
"I thought the idea was cool, but I didn't know if other people agreed. I wondered, 'Is this something that is needed?'" Nordhaug said. "Personally, I had to get market validation before moving forward."
But in the back of his head all along, he said, he had been thinking about ultimately licensing the idea. At this point, he estimates the StayblCam is "99 percent complete" and intends to begin shipping pre-orders in two to three weeks. But despite the fact that orders keep rolling in from around the world, he's begun looking for the perfect licensee. I think he'll have a few to choose from. Shortly after his Kickstarter campaign ended, international distributors from Brazil to the Middle East began contacting him--including, he says, one of the largest distributors of camera and tech products in Japan.
Nordhaug knows his limitations. He can't scale up fast enough to meet demand and cement the StayblCam as the original of its kind in the eyes of consumers, the way how GoPro is thought of as the action camera, even though there are others.
"I could scale up, but it would take me a long time, cost a lot more money, and require a lot more resources," Nordhaug said. "If other imitators get there ahead of me, I will stand by what I have created on my own--but I think the beauty of a licensing deal with a big partner company is that it will give me a much stronger foothold in the marketplace."
In this day and age, speed to market matters most. Partnering with a powerful licensee who has established worldwide distribution channels and shelf space is the best way to get a product out fast.
Nordhaug said he wasn't particularly surprised by the reaction his campaign received on Kickstarter, because he put a "ton of work into preparing for it." As a result, he's now in an incredibly advantageous position when it comes to negotiating royalty rates with potential licensees. He's already proven that consumers want the product. Now he's in search of a partner --"preferably, the bigger the better"--to bring it to them. His campaign worked. It got their attention.