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Crowdfunding is killing the hardware revolution

Wed, 04/09/2014 - 11:48am
Melissa Fassbender, Associate Editor, @melfass

Positioning itself to save the “hardware revolution” from “prototype purgatory,” Dragon Innovation is a crowdfunding site for hardware – and only hardware. But with so much more.

“The hardware revolution has gotten a running start as new technologies like 3D printing have sped up the process of designing a prototype. New tools like crowdfunding are helping entrepreneurs build awareness for their product, gauge the market’s interest in the product, and raise the funds needed to manufacture the product,” explains Dragon Innovation co-founder and CEO Scott Miller. “This can all be done rather cheaply.”

However, Miller explains that while the process may be cheap, it has become increasingly common for companies to launch crowdfunding campaigns without a basic understanding of the manufacturing process. In turn, they have failed to deliver to their backers. “Hardware is hard,” he adds. “There are a lot of unknown unknowns.”

In uncovering these unknowns, many companies, including the notorious Lockpick, become bogged down by the demand, lacking a clear path from funding dreams, to reality.

According to Miller, entrepreneurs are running crowdfunding campaigns too early, before they have worked through the details of how they are going to manufacture and deliver the product. Consequently, start-ups sell a product they couldn’t possibly build. “[Kickstarter] doesn’t have safe guards in place, it’s easy to get in an uncomfortable position.”

While a campaign may raise more than a million dollars, and seem quite successful, many companies (like the Lockpick) can’t deliver, and fail before shipping starts.

“They find that there is much more to delivering a great product than a compelling marketing campaign. Some risk of delivery is expected in crowdfunding,” says Miller. “These are new companies doing something hard, which should be celebrated and supported. What is inexcusable is when the basic work was not done upfront.”

To facilitate the basic work before a campaign goes live, Miller and his team at Dragon Innovation – all of whom have backgrounds in hardware – provide entrepreneurs guidance from the beginning of their funding campaign through marketing and distribution. He has worked with companies such as Makerbot, Pebble, and Formlabs.

Dragon helped each of these companies, and others, take a deeper looking into their manufacturing process, from selecting a factory to breaking down the pricing of each component, labor costs, packaging, and markup. 

“In sum, Dragon served as an API for the manufacturing process, a process that is difficult to navigate in the hardware industry,” says Miller.

The company even goes as far as creating a line-by-line analysis of the bill of materials to make sure all costs are accounted for. They also looks at costs associated with shipping, like boxes, tape, and transportation. “Tooling is often forgotten,” Miller says, a cost that can range from $10,000 to $100,000. “We are going to make sure the product delivers, and bring the full force of our manufacturing know how,” he adds.

In order to make sure a product delivers, Miller views the company as a pre-sale store, where backers provide the money up front for a product to be delivered. A model that Kickstarter tries to avoid as they vehemently claim not to be a “store.” Someone doesn’t want to pay taxes.

“In the last couple years, the product development paradigm has changed fundamentally due to crowdfunding,” Miller explains. “You can invert the paradigm so that you can sell it first, and then if you are lucky enough and have a compelling product that people actually pre-buy before it exists.” A paradigm that has the power to save the hardware revolution from crowdfunding.

But why does the hardware revolution need saving?

“As more and more crowdfunding companies fail to do the upfront work, there is a very real risk that backers will become fed up that they are not receiving the product they bought and give up on crowdfunding altogether,” explains Miller.

“If failing to deliver to backers becomes a common practice, future entrepreneurs will have an uphill battle in gaining trust and financial support. With that, new innovations will be stuck in prototype purgatory instead of in the hands of a passionate customer.”

What are your thoughts on the hardware revolution and prototype purgatory? Comment below or reach me @melfass, or Melissa.Fassbender@advantagemedia.com.

To learn more about Dragon Innovation, www.dragoninnovation.com.

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