Should You Sell Your Product Before You Make It?
There has been a lot of discussion in the media over the past year about Kickstarter. It has ranged between love for its disruptive potential to hate when companies fail to deliver on their promise, to analysis on why products on time is so hard.
Although this makes for great press, it isn’t the interesting story for an entrepreneur. I think the more interesting question is to ask: “Should you sell your product before you make it?”
As a start-up you have no idea if people will buy your product. You may spend countless months researching your customers. You may even get dozens of customers to say “Yes, I would buy that if you made it.” But until you ask them to put real money down you have no idea if it will sell. And without paying customers you don’t have a business.
To provide a little background, long before Kickstarter existed and long before Contour was a fast-growing company, we were thinking of ways to launch our first VholdR camera. Like most start-ups we were short on capital so we needed a way to verify the market need, prove to investors this new product would sell, and ultimately generate cash to buy the product from our supplier.
Keep in mind there were only two of us back then with a collective manufacturing experience of zero years, so naturally we thought our new camera was mere weeks away. Never expecting our plan could be derailed we decided we would announce the VholdR camera and begin taking $50 pre-orders on the product with the remaining $300 due when we shipped.
Because Kickstarter didn’t yet exist, Twitter was just getting started, and Facebook was years away from fan pages, we put the product up on our website. We proceeded to tell the press about it and thankfully they told all their readers about our new camera. To our surprise the response was overwhelming, especially for two kids in a cold warehouse. Within a month we had over a thousand customers who put a deposit down. In Kickstarter terms that was over $50K raised with up to $350K in total revenue once we shipped.
At this point we had spent almost a year making this product and overnight we validated that real people wanted our product. We were by no means ready for what would happen next.
Like a lot of Kickstarter projects, before they changed their rules, we showed cool CAD drawings of the product, made great-looking marketing materials, and put it out there as if we were ready for prime time. We assumed we would be shipping in a matter of weeks so we didn’t even think to create a plan in case there were any issues.
We began taking pre-orders in August. By the end of September we knew we had a problem, our supplier was nowhere near ready to produce the product. Not familiar with how production cycles work, we assumed they were on time with each of the phases they drew on the schedule they provided us. For a variety of reasons, they weren’t. Many of our challenges were consistent with what Twine faced in shipping their product, we had no idea what it took to ship a high volume consumer product.
October quickly became December. Christmas quickly slipped by and before we knew it we were into January with no VholdR cameras to ship. We wanted nothing more than to make a really great product, but now our supportive community of early customers had rightfully become an angry mob wondering if they would ever see their 50 dollars again or their camera.
Eventually we made it through and started shipping VholdR cameras by late January. By the end of Q1 we had fulfilled all the initial demand and began filling retailer orders we had been sitting on for months.
Fast forward six years and the world looks totally different. Massive social platforms have emerged, we have computers in our pockets, and crowdfunding has become a buzz word. Even with these new platforms and even with the tighter Kickstarter rules designed to protect its users, the same core problem exists for a start-up: You have no idea if people will buy your product until you start selling it.
And to make it even more challenging these social platforms have made the consumer voice so powerful it can catapult or tank your new product in a matter of days when it finally does come out.
With that in mind here is a quick guide about why you should sell your product before you make it, why you shouldn’t, and what to watch out for.
Why You Should
A direct relationship with your customers is the most valuable relationship you have. Using retailers to launch your product has become an unnecessary and expensive layer between you and your customer. Some of the hottest product companies today (e.g., FitBit) started as internet-only brands.
The solutions available to you today like Kickstarter or Self Starter can make it incredibly easy for your customers to learn about your product, learn about you, and make a conscious decision if they want to be involved. The publicized successes of brands such as Lockitron, Lunatik, Pebble, Elevation Lab, and Ouya are proving that customers want to get involved with your brand, even before your product ships.
A few reasons you should:
- You want lots of customer feedback during the development process.
- You need to validate that people will buy your product, which can decrease your burn rate and increase your company valuation. Oftentimes investors, retailers, and even suppliers won’t believe you until they see real sales.
- You want to know the customer demand before you spend money building it. Production costs are not cheap and spending money making the wrong product can kill you. Additionally you will learn what your early customers love, hate, and want in your product.
- You want to build community around your product. Having people cheering you on gives you a running start into the market. The large players will eventually copy you so the strength of your customer community matters. Assuming you have limited marketing dollars when you launch, you need every advantage you can get in reaching customer mind share.
- You believe in an open culture, customer relationship, and development process. If you want to build a totally open company there is no more open you can be, than allowing the world to watch as you create your product.
Why You Shouldn’t
Letting the world know about the product you are making is not for everyone. It’s an incredibly vulnerable way to come to market, requiring you to share with the world the good days and the struggles you are going through. Especially if your team does not have years of experience bringing a high-quality consumer product to market, it can be a humiliating, multi-month experience. Take Pebble for example, they have had to be incredibly transparent during their production process, while navigating negative press and managing over 11K comments.
The momentum you may have already built with your investors, team, suppliers, etc. can come crashing down if your project flops. The response may not even reflect true market demand, but it will make you second guess what you are building and why. There are dozens of products that weren’t even accepted onto Kickstarter, but on their own were a huge success.
A few reasons you shouldn’t:
- You don’t want to be open. If you want to keep new product ideas away from your competitors or large companies who can either copy you quickly or create a lot of distracting noise. Apple protecting itself from fast followers is an extreme example.
- You have an existing product in the market and the news about a next version has the risk to tank sales of your existing model.
- You just raised a significant round of capital and already set big expectations for your yet-to-be-released product. Every investor is different, but negative momentum before you ship can be a big problem, especially if your revenue plan and burn rate will be significantly different.
- If you don’t understand what it really takes to make the product you’re showing. If you don’t deeply understand the open items and you don’t have a supplier on board who you have validated can make this product, you could promote a product that can’t actually be made.
Getting the product up online and telling everyone about it is the easy part. If it’s unique enough the word will spread quickly for you.
Once people give you money your product is real and the relationship changes from fans to customers. As a customer they expect great service, accurate information, and to be dealing with a reputable company. If not done right, you can turn thousands of potentially happy customers into an angry mob.
Some best practices:
- Be very honest upfront about how far you are, what is left to do, and how long it will take you to finish. Take the most conservative schedule you have, add 50% to it and use that as your initial timeline. People are happy when you ship early, but never understand when you ship late.
- Share both good news and bad news along the way. No news is bad news. Remember your customers are following your journey so post photos, videos, and write about what is going on. You don’t need to make it a status update, but instead walk them through the process. Pebble has done it well, using the Kickstarter platform and also, I’m sure, periodic email updates. If you don’t do this, they will publicly have this conversation on Facebook, Twitter, etc. Also see Elevation Lab, Ouya, and Lunatik.
- Have a plan for when things go wrong. Unless your team has done this multiple times before things will go wrong. You should have an internal plan about how to handle it as well as a communication plan both with your customers and your retailers.
- Build a real team or hire firms that have brought high-quality, high-volume products to market. Just because your friend’s friend makes products in Asia doesn’t make him/her qualified. You might want to ask other entrepreneurs who have had success on Kickstarter who they are using. Here are a few firms who are doing it well:
- Don’t ship crappy product. The longer customers wait the more you will be judged when it finally ships. You CANNOT ship a half-baked product. Even if it means cutting the features in half you are way better off to ship a product that does a single feature very well then shipping a product that barely delivers multiple features. Remember your customers own iPhones, which means they will compare your products to what is in their pocket, even if they are completely different. Customers have very high expectations and you don’t want to do what Jawbone had to do in recalling V1 of the UP, especially if you haven’t raised serious capital. *To Jawbone’s credit they handled this incredibly well. Admitting you have a quality issue and taking the product back is amazing customer service.*
- Have an idea of what you want to do after the Kickstarter haze fades. Do you want to build a mega consumer brand like Jawbone, do you want to raise serious capital like Turtle Beach, or keep it small focused on selling direct and making awesome product like Minimal? There is life after Kickstarter and you want to have a plan for how this will jump start the next phase for your company.
If I were to do it all over again I would have sold our initial camera before we made it. As two guys in a garage it helped to validate we had something real. But at the same time I would have done things very differently. I would have been more upfront with what we did and didn’t know and I would have given ourselves a lot more time to bring the product to market.
Without selling our VholdR camera before we made it, we never would have gotten Contour off the ground.