Crowdsourcing and Its Impact On Product Creation

on February 10, 2016
Reading Time: 2 minutes

In the many years of working with companies developing consumer hardware products, few developments have had such an impact on the creation process as crowdfunding. Adding a crowdfunding campaign, such as Kickstarter or Indiegogo, has now become as important and as routine as the other steps in the development cycle.

On the surface, crowdfunding seems like an easy way to raise money and avoid giving up equity. It’s also a way to get initial feedback from potential customers about your idea, a real-life marketing test before you’ve built your product. A positive response can validate a product idea and encourage more investors. A lackluster one may mean the idea doesn’t resonate and may not be as good as you thought. It reminds me of companies in the 80s that put a tiny ad for a product in Popular Science to see how many people would order it before it was even developed.

Raising money for hardware has always been a problem with venture investors, whose dislike for hardware products goes back to before the disk drive industry. So crowdfunding has become a welcome alternative. While investors may dislike hardware, millions are anticipating the next hardware gadget, and plenty are willing to fund it.

But, I’ve found the money raised is accompanied with some serious issues that significantly affect the creation process. I call them “Kickstarter dollars” and they have a lower exchange rate than normal dollars.

In the usual creative cycle, a product is announced after its design is conceived, engineered, samples built, tested and refined few times. Based on market testing and feedback from alpha and beta testers, the product usually goes through a number of changes. Its cost and schedule are the outcome of all of these activities.

The product comes to market when it’s ready, not on a predetermined date. The design process follows a logical, proven path. Cost accounting and establishing the MSRP is not done until the design is completed, the manufacturer has had a chance to build a few hundred units, and negotiations take place. There’s just no way to accurately estimate the cost of a new product before it’s designed.

But crowdfunding flips this around. Rules require the product specs, cost, and schedule are committed near the beginning of the development process, often before its features are set, staff hired, a manufacturer has been selected, and the costs have been determined. As a result, the campaign makes commitments often impossible to meet.

Developing a product is quite complex and creates a lot of pressure on the team members. Adding the element of crowdsourcing adds even more. Everything is being done under the scrutiny of the backers. While they have no visibility in day to day issues, you can feel their presence, their need for frequent updates.

When the product takes longer, costs more, and the pressure mounts, the company is more likely to make decisions based on schedule over function or quality. The product released is more likely to be flawed.

The biggest problems occur when crowdsourcing is done by those with limited experience developing a product and they create unrealistic goals. More times than not, the product will never see the light of day. At last count, about 70% of the campaigns that were funder failed to deliver the product.

The outcome for products designed by experienced design teams who are better able to estimate and plan have a much better chance for success, with or without a crowdsourcing campaign. They know that the crowdsourcing campaign is the easy part of the development cycle.