- You will likely run into problems with manufacturing. These problems are exponentially expensive, meaning, they get grow with every unit you sell! You have to be aware of all the potential pitfalls so you can avoid the manufacturing death spiral as much as humanly possible.
- Having a buffer in the bank is a great idea. Build investment contacts before your campaign and then raise money immediately after your campaign ends. With positive energy and excitement from a successful campaign, money will be cheap. It’s much harder to ask for money (on your terms) when the shit has hit the fan and you’re about to go broke.
- Building relationships with people on the other side of the world is incredibly difficult. This difficulty is multiplied if you have never manufactured anything before. Find someone with existing relationships that you can leverage.
- Manufacturers will always push you to make your product easier to make, which is not necessarily better for the customer. Be prepared to push back if their design suggestions are not aligned with the customer.
- Always be in touch with your backers. This rule is especially true when things go south with manufacturing. Get ahead of any problems by being upfront, raw, and honest. It doesn’t take much time to send an update.
About this episode
Sometimes things go wrong…
Who are we kidding, EVERYTHING goes wrong! It’s crowdfunding….
Which means it’s likely the first time you have built and audience, reached out to media, made a sales video, or even designed a product. You’re going to mess a lot up.
But of all the mistakes you can make, screwing up manufacturing is possibly the easiest to do and also the most catastrophic for the viability of your business after a successful campaign.
That’s because mistakes are compounded with every unit sold.
So, the greater the “success” of the campaign, the bigger the hole to climb out of.
This is how the Manufacturing Death Spiral happens.
You’ve probably seen the Manufacturing Death Spiral from the outside multiple times because it always looks the same:
- Entrepreneur creates amazing gadget, raises millions! Smiling faces everywhere!
- A few months in, announces delays in shipment
- 6 months in Entrepreneur falls off the face of the planet
- Backers up in arms
- A few months later, TechCrunch reports company is folding
- Viability of Crowdfunding called into question by media
So what do you do when you don’t have the money to fulfill the orders you have because you find out your manufacturer’s quality is not up to par, or you didn’t price things out properly?
(…avoid the pitfalls in the first place… but more on that in a moment)
Michael Mataluni was the COO of the thingCHARGER, a brilliant and beautifully designed adaptor that lets you neatly charge all your devices while keeping your electrical outlets free.
thingCharger was in the midst of a Death Spiral of its own after a hugely successful, $600,000 raise. They had problems with the quality from their manufacturer and had to ultimately cut ties.
While trying to solve the problem, shipping delays, and subsequent backer complaints rose to such a level that he had to hire a team of people to handle them, which further strained the cash-strapped team.
It got so bad, they fell almost a year behind shipping at one point, that they didn’t have the money fulfill their original orders.
They didn’t know how to get angel investment and certainly weren’t in much of position to negotiate if they did.
But Michael Mataluni and the thingCharger team were able to regroup and fall back on their strengths while shoring up their weaknesses through effective partnerships.
Fast forward to today and they have since raised an additional $11 million over two separate crowdfunding campaigns:
- An additional $1 million on Indiegogo (for a total of $1.6 million) in a second, third party hosted, campaign
- $10 million on a self-hosted crowdfunding campaign
…and most important of all, they have manufactured and shipped over 250,000 units to their (now) very happy backers.
So how did Michael and the thingCHARGER team stop and reverse the Death Spiral?
What mistakes did they make after their original campaign and how can you avoid them?
Listen to find out!