Crowdfunding enables inventors to underwrite their development costs. Buyers beware.
Crowdfunding has become a powerful means for entrepreneurs to realize their new product commercialization ambitions. Are crowdfunded innovations also a great source of open innovation product finds? Maybe...or maybe not.
Curious to learn more? Read on, dear friends...
Crowdfunded Innovation: GoGo or NoNo?
Just a few years ago, entrepreneurs seeking to develop and introduce their new product were generally dependent upon raising funds through traditional means: assuming personal debt and hitting up friends and relatives for loans. Sometimes this approach generated the necessary bucks. More often, these efforts fell short and along with them, so did the inventor's dreams.
These days, online crowdfunding platforms such as Kickstarter, Indiegogo and others have provided entrepreneurial inventors a useful vehicle to promote their respective product visions and attract investment sufficient to cover their development costs. This approach has famously been employed to help fund a variety of creative pursuits, most notably Zach Braff's and Kristen Bell's independently produced film projects.
So, corporations that practice external innovation should be positively giddy about the promise of crowdfunded innovations, right? After all, crowdfunding enables inventors to close "technology readiness gaps" that otherwise would limit their ability to present credible offerings to corporations as prospective licensing candidates. Similarly, crowdfunding sites represent a virtual catalog of offerings for corporations to shop. The products depicted are routinely quite novel and don't yet have retail distribution.
There is one common problem shared by many crowdfunded innovations...and it's a big one. They usually aren't real products. By this, I mean, they represent the promise of a real product, but the product itself may not actually exist yet. They may even have a slick promotional video on their website to attract investment and pre orders. However, until these products actually ship, if they ever do, they are only a promise. Hardly the type of thing that corporations should bank on when doing new product planning.
Here's a recently publicized incident that should give would-be investors pause: a laser based hair removal product named Skarp positioned as a replacement for conventional blade based razors dramatically exceeded its fund raising goal, raising $2.5 million. After all, it's a terrific idea, right? Kickstarter delisted them when upon investigating them they learned they had not yet even devised a functioning prototype. Here is one write up on this case:
I know from personal experience that such concerns are well founded, if not necessarily as extreme as with the case I cited above. Over the past 3 years, various clients and I have targeted 3 different crowdfunded device products for sampling and possible licensing. We placed pre-orders based on the inventor's target ship timing. In each instance, the developers missed ship timing...in some instances by a mile! The first device was preordered in mid-2013, for shipment in 2014. 2015 is nearly over and we are still waiting. Same thing for another device ordered in early 2014 and yet another ordered in mid 2015 promising fall 2015 ships...still waiting.
Net, crowdfunding is an exciting new means for would-be entrepreneurs to secure funds necessary to underwrite their new product development costs. However, as they don't guarantee (timely) project completion, interested investors and potential corporate partners should approach these with caution and some healthy skepticism.
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