Launching a Product - Do I need a manufacturer before launching a crowdfunding campaign?

Hello, my name is Ian Peterman. I'm CEO and founder of Peterman Design Firm, and today we're going to talk about manufacturing and crowdfunding. So a lot of people approach it from different ways, and I can say that there's definitely a better way to do it. So I've even been approached by companies that have launched a crowdfunding campaign, got funded, exceeded their expectations, and didn't have manufacturing set up. And there's a great example of this going wrong, and there's many other factors, but the Pebble Watch launched was at the time the largest successful Kickstarter ever to have happened. They raised millions and millions of dollars. I think it's over $14 million, and there are people that never got the product because they just couldn't actually handle producing the amount of products that they ended up pre-selling. So one of the biggest things to remember about crowdfunding is you're really pre-selling. You aren't raising money. It's not a cap raise, it's not a VC round, it's not an angel investment. You are pre-selling. That's the whole point. That is the platform. And so, you know, you can get away with it in some cases. You can get away with it because you end up not selling very many, or you barely reach your, your goals. Or maybe you were one of the smart people and you decided to give yourself a really long lead time, and you told your customers it's going to be a year before you get your product. But even with a year, if you're not fully engineered and if you don't have manufacturing in place, then a lot of roadblocks can come up that will potentially impact your customers' expectations and faith in your product. So one of the things that I always tell clients that— or anybody that talks to me about, I want to do crowdfunding— my approach to that, to ensure that the expectations you set with your customers— because that's what the people giving you money on crowdfunding are, they're your customers, they're not just friendly donors, they are expecting something out of the deal. And you have to deliver on that. And so your expectations, if you set them well and you have everything in place in order to ensure that you know that you can actually meet their expectations, then you're in a good place. And so the way I do that with clients is make sure the product is fully designed, make sure it's engineered, basically do everything except actually produce the product. So that means supply chain is in place. That's You know, your product can be made, your product can be shipped, your product can be quality controlled, your product can be returned. It means that you have a pretty much fully functional company. You just haven't made any product yet except for some prototypes. You definitely need to have prototyped before you launch, and that all needs to happen before you launch. Ideally, it happens before You even start telling people publicly that you are going to be launching, because a lot of crowdfunding, most successful ones, they have a huge amount of groundswell marketing that happens beforehand. So it's 2, 3, 6 months of building up hype, then launching a Kickstarter or Indiegogo or another platform, and then that's how they are able to get that hockey stick growth in their funding on those platforms is because of all the work they did for the months before then. And that's how you, you can basically get the most out of that, that kind of system. When you do all that and when you invest all the money in that in order to have a very successful crowdfunding campaign, the worst thing that can happen is for you to promise people product in 6 months have sales and preorders that are what you'd be considered very successful. Maybe they're 10 times more, 2 times more, 100 times more. It doesn't matter. But if it's enough that it actually reaches a tipping point where your product, your manufacturers, even if you have them, can't handle the production rate that you need to be at in order to meet your customers' needs. And as soon as that happens, you have an immediate breakdown with your customer base, and you want to avoid that because you can turn into a very public display. And Pebble is one of the case studies since it happened to people on what not to do in a crowdfunding platform, and you don't want to be the people remembered as a case study on how to not fail or how to fail. on a crowdfunding platform. You wanna be able to make sure that you can meet those needs. And so this manufacturing component, it seems like an easy throw-on add-on piece, but it can take 6 months to source, vet, run production prototypes, and actually have a product ready to launch. And so when you only give your clients, your customers on crowdfunding, oh, we're gonna launch it in 6 months, That's not enough time to even ship it. That's enough time to source and make sure you have a manufacturer. And then it's going to take time in shipping, depending on where you get it manufactured. If you get it made in China, it's a whole other set of— outside of the country where you are actually based in, there's a whole different set of requirements and time allotment that you need to add into there. And so if you're a US-based company, North America is pretty safe for manufacturing in terms of shipping time, but as soon as you leave your continent especially, it gets drastically harder to get product to you quickly, or it gets very expensive. And the other thing you can end up doing is not actually making money on any of your pre-orders because you have to spend more on shipping, you have to expedite the process, and expediting the sourcing and manufacturing of your product and building all the tooling and things like that is going to increase the chance that you end up with bad product. So you're going to have tooling that's possibly mismade because you're trying to rush and you forget some piece, or it literally is just because everybody is rushing, something is dropped, something is missed, and you end up with tooling that you just spent half the money you got from your campaign and it's wrong. And now you're not going to make any money. You are going to lose money on what looks like publicly a super successful campaign. You will actually end up having to borrow money in order to not be the people who can't deliver, and you want to avoid that. So those are areas that are really important. For manufacturing and why I don't ever recommend going to a crowdfunding campaign and starting one without having manufacturing set up already.