Kreyos is a crowdfunding cautionary tale.
In 2013, the company raised over $1.5 million on the crowdfunding site Indie GoGo to fund the creation of a more sophisticated smartwatch. A year later, a few customers received their watches. But many other didn’t, and, well, they weren’t too happy. The company closed down at the end of last year.
Kreyos CEO Steve Tan tried to place the blame on the manufacturing company he partnered with, but he admitted that Kreyos had practically no technical or manufacturing experience in house. “We are a marketing team with very limited hardware experience,” he wrote in a blog post about the affair.
Sadly, this isn’t an isolated incident. There are so many other examples of crowdfunded vaporware. And even successful projects, such as the Pebble smartwatch, often end up shipping very late, thanks to production issues. The problem is that many creators just don’t know what they’re getting themselves into.
“Every time someone says ‘hardware is the new software,’ I cringe,” says Bunnie Huang, the co-creator of the open source Novena laptop and co-founder of the defunct hardware startup Chumby. “People don’t appreciate how hard it is to move atoms from point A to point B.”
The promise of crowdfunding is that it empowers small time entrepreneurs, artists and makers to create new products that would never gain backing from traditional investors. But failures, along with the relentless number of new campaigns launched each day, threatens to scare would-be customers away from crowdfunding altogether. A Portland, Oregon-based company called Crowd Supply wants to change that by helping crowdfunders like Huang overcome the hurdles they typically face.
Crowd Supply is a crowdfunding site for physical products. The company now offers over 50 items, including another open source laptop, jackets, a fancy coffee press, a brand of hot sauce, and a tiny open source computer-on-a-stick reminiscent of Google’s Chromecast device. But Crowd Supply doesn’t just help creators raise money, it helps them develop and ship their products. You can think of it as a product consultancy, e-commerce store and crowdfunding platform rolled into one.
The Oculus Example
As the Kreyos tale shows, many creators simply don’t know much about product development. In some cases, creators faced engineering challenges they handn’t counted on. Others underestimated manufacturing costs. Some found that shipping was vastly more expensive than they expected.
Then there’s the ones that were perhaps too successful. Oculus, which raised $2.4 million on Kickstarter for its Rift virtual reality headset before selling to Facebook for $2 billion, is the most obvious example. Many backers of the crowdfunding campaign felt like investors in the company. Selling to a large corporation felt like a betrayal of the crowdfunding spirit. It wasn’t just the fact that Oculus backers felt left out of the acquisition. It was the dawning realization that the Rift would have been made with or without their involvement. Today it’s not uncommon to see crowdfunding campaigns for products—from films to video games to smartwatches—from well established companies or creators that could probably find conventional financing on their own.
The projects on Crowd Supply, on the other hand, probably won’t exist without the funds raised through the site. But the company is also dedicated to making sure that the products sold through its site actually ship. To that end, Crowd Supply helps creators find manufacturers, estimate prices, market their campaigns, manage orders, and, ultimately, mail products to customers.
Since it provides so many services, the company is more selective about who it works with. Unlike other crowdfunding sites, you can’t just sign-up and post your campaign, you need to apply first. Once a project is approved, the Crowd Supply team works with creators to make sure they have a good sense for their funding goals, costs, and price point. The company then helps build the crowdfunding campaign, including designing the project’s funding page and doing professional product photography of prototypes.
Though Crowd Supply doesn’t have the brand recognition that Kickstarter or Indie GoGo have, Lifton claims that, thanks to selectivity and marketing help, projects listed through the service are about twice as likely to reach their minimum funding goals and raise about twice as much as the average Kickstarter project.
The company doesn’t do any manufacturing itself, but it can help creators find manufacturers. And once a product is manufactured, it’s sent to Crowd Supply’s headquarters where its fulfillment team actually handles shipping out all the products. And unlike other crowdfunding platforms, Crowd Supply offers ongoing sales even after the campaign has ended, so that you don’t need to find another e-commerce system to sell your product.
Crowd Supply takes a cut of the initial crowdfunding campaign, but doesn’t get any equity of the companies whose products it sells, nor does it retain any intellectual property. For ongoing sales after the fundraising period, the company operates more like a traditional retailer, buying products at a wholesale price.
E-commerce is a core part of the company’s DNA. Co-founder Lou Doctor started an online bicycle shop called Velotech in 1999, which became the first piece of an e-commerce mini-empire. Another part of that empire was a company called Cart Logic, which Doctor co-founded with Scott Torborg to build a common platform for his online stores.
In 2012, Doctor and Torborg started thinking about the way the site worked from an e-commerce perspective, and how’d they’d do things differently. Soon they met Lifton, who had worked as a product engineering consultant and had become frustrated with how many Kickstarter products were funded but never shipped.
The team was spurred on by a 2012 blog post by the Kickstarter staff titled “Kickstarter is not a store,” in which the company distanced itself from failed hardware projects and outlined new rules aimed at better educating customers about the risks of hardware projects. Crowd Supply launched six months later, heralded with a blog post titled “Crowd Supply is a Store.”
Crowd Supply’s breakout success was Huang’s Novena open source laptop. The device features a custom built motherboard that Huang and collaborator Sean “xobs” Cross created themselves. The two released the designs so that anyone can see how it works and make sure that it hasn’t been designed with government back doors in it. The pair also built the rest of the machine out of other open source hardware wherever possible.
The project garnered significant press coverage, and helped attract more privacy-centric products to the company’s stable, including the USB Armory computer and another open source laptop called the Librem 15.
The Novena campaign was a big success, fetching more than $782,525. But Huang was reluctant to crowdfund the project at first. After he and Cross published photos of the Novena, many people started asking them to start a Kickstarter to make the machines available to a wider audience. But Huang resisted. As the founder of defunct hardware company Chumby, new how much work manufacturing and selling a physical product actually is.
But he changed his mind after Lifton called him out of the blue to ask him to offer the laptop through Crowd Supply. Huang was persuaded by the offer to handle fulfillment, which is a massive amount of work for a solo-entrepreneur to handle, and by the incredibly cheap UPS rate the company thanks to it being able to share an account with Doctor’s other e-commerce companies. “It sounded too good to be true,” he says. “But everything they said they would do they followed through on, which is rare.”
In the Niche
The Novena is a niche device. The fully assembled laptop cost about $2,000. That’s what you’d expect to pay for a Macbook Pro even though the Novena’s computing power is more inline with a high-end smart phone.
But there was enough demand for a hackable, open laptop that Huang and Cross were able to raise more than three times its goal of $250,000. And, as promised, the laptops are now shipping, though Huang and Portland based designer Kurt Mottweiler are still finishing up the hand carved version.
The Novena may not be the next Dell, but that’s not the point. The point is that Huang and company were able to fill a niche and, in so doing, prove that you can too. “A small group of dedicated people can do it,” Lifton says. “You don’t need a big company.” And that’s what crowdfunding is all about.