THE DRIVE FROM KICKSTARTER TO PRODUCTION
The success of the Kickstarter campaign provided us all with a huge boost in confidence and morale. It brought us some stability and the ability to function beyond week to week. While not giving us enough money to complete everything we needed to do, we thought it would now be easier to bring in outside funding. Most importantly, it gave the company and its products some respect. Pono was now taken more seriously by our development partners, the public, and the press. We felt that there really was a community that cared about music quality, validated by the sizable number of people willing to vote with their pocketbooks. Neil’s message had resonated far and wide. Articles appeared about Pono’s success in a wide range of magazines, blogs, and online publications from around the world in dozens of languages. There was excitement, optimism, and a new urgency to complete the development of the player and music store.
KICKSTARTER DOLLARS
As beneficial as the Kickstarter funds were, they carried with it a number of obligations. “Raised $6.2 million” is not an accurate description. Yes, we received $5.6 million after Kickstarter and Amazon took their fees, but with the money came the obligation to deliver more than 15,000 players by a given date.
We estimated that our cost of manufacturing of the players and the shipping fees to be about $3 million, roughly $200 per player. That left $2.6 million to be used to finish the development, go into production, and begin to market it. I referred to the proceeds as “Kickstarter dollars.” In our case, 6.2 million Kickstarter dollars equated to 2.6 million real dollars remaining to be used for everything else—still a substantial sum that would allow us to move forward with thousands of enthusiastic supporters encouraging our efforts.
KICKSTARTER AND DEVELOPMENT
Kickstarter has radically altered the product development process. Normally, a product is announced only after its design is done, with samples built, tested, and close to being shipped. The product might even go through some changes, based on market testing and feedback from early testers.
The product comes to market when it’s ready, not on a predetermined date set months in advance. The cost is determined when the design is close to completion, the manufacturer has had a chance to build a few hundred units, and the manufacturing pricing agreements are negotiated and agreed to. There’s just no way to accurately estimate the cost of a new product six months before it’s completed.
Kickstarter’s crowdfunding flips this on its head. Its rules require that the product cost and delivery date be committed much earlier, before they’re known. Kickstarter’s rules encourage optimism and aggressive pricing. Once made, you can’t go back.
In addition, everything is being done under the scrutiny of the backers. While they have no insight into day-to-day issues, you can feel their presence and try to respond to their requests for frequent updates. While mostly very supportive, some in the community can be demanding and sometimes even hostile; a few expect to know every detail of progress and can easily arouse the suspicions of others.
Wariness on their part is understandable, because products introduced on Kickstarter generally have a poor record of being completed on time or even at all. Many campaigns overpromise because the companies have limited experience in delivering a product. On the positive side, we now had thousands of backers who had demonstrated their interest in high res, believed in our vision, and would become a community of supporters—all assuming we met our commitments and their expectations.
We were not overly concerned about being able to deliver the players. Our team was experienced and had developed scores of products, and we thought we were realistic about our timetable. But there still were many uncertainties about whether we could do everything we said we could, in the time we said and at the cost we committed.
In retrospect, offering the product for $300 was probably a mistake. It gave us too little margin to effectively sell at retail and barely enough profit to pay for all of the development, particularly for the escalating costs of building the music store, which always seemed to be higher than estimated. We chose a price low enough to make the campaign successful but not high enough to give us all the funds that we would need. Clearly, we’d have been much better off pricing the players higher, even if it meant selling fewer.
Our immediate goal was now to accelerate the development process to incorporate Hansen’s new design, build more prototypes, and prepare for manufacturing. Before the Kickstarter success, it was hard to take manufacturing seriously. It now became critical, with the commitment to deliver more than 15,000 units just six months away.