Crowd-funding is popular. It is a very practical financing method for creators who want to bring their ideas to life. However, many projects fail and products are never delivered. Why? Simply because industrialization cannot be improvised. It is a complex process, which large manufacturing companies have difficulty mastering themselves (just look at the numerous product recalls for failure). So I’ll take an example and explain how operational excellence could have helped these creators.
The adventure of Tiko, a 3D printer
March 2015, three ambitious Niagara Falls entrepreneurs launched a Kickstarter project to industrialize their 3D printer prototype: Tiko. In only 3 minutes they found 400 backers who pre-ordered their product and quickly 16,538 people joined the project and raised nearly $3 million. Wow! This is a great start for a young company. They are proud, they are passionate, and they have redone all their calculations for parts pricing, assembly, etc.
January 2017: a comment on the site announces that feelings are mixed and that they are crumbling under the difficulties: in plain English, they are giving up. The money has evaporated and nearly 17,000 people around the world are pointing fingers at them! Sad end for such a beautiful adventure!
Economy of scale or just-in-time?
Unfortunately, due to inexperience, their first mistake was to order their parts in large volumes, to get substantial discounts and to save money. However, inventory has a significant counterbalance: one mistake costs more, because the entire inventory has to be taken back or thrown away. Unfortunately, this is exactly what they experienced. While improvising a mass production, they noticed design errors in both the product and the software. They spent months trying to fix their 3D printer with components and software, balancing the two, but not getting the expected result in terms of quality and reliability.
Just-in-time is the technique used by many manufacturers to limit the impact of inventory. Components are ordered, delivered and paid for as they are needed.
Buying products or negotiating contracts?
Then they discovered, despite the fact that one of them is of Chinese origin, that negotiating and purchasing components outsourced to Asia is not an easy thing. They had to deal with many quality problems and up to 10% of the batches were defective. Even worse, they didn’t know the component was defective until they installed it. In short, additional hours, increased production costs, and a collapse of their project’s business model.
Instead of looking at the price of the component alone, it should be evaluated as a whole, with the associated risks. For example, the failure rate, the ability to test, to return components, are all things that a buyer knows how to negotiate and learn to manage in a manufacturing process. To do this, she must know the principles of industrialization and evaluate the component, as well as its criticality in its complete environment. This is true for both products and services. Thus, the choices must integrate from the beginning the after-sales service and support.
Industrialization lead times
Finally, their highly technological product was not fast enough to adapt to new market entrants. Even if they delivered it perfectly functional, many months late, their product is already obsolete. The technology of 3D printers has evolved very quickly. Even if they invested ten times more effort and their own money, the product’s business model was outdated anyway, making it impossible to generate new orders to make the project profitable.
Should you invest in crowd-funded projects?
If you want to buy a product to meet a personal need, use online or traditional commerce. However, if you want to support young (or not so young) entrepreneurs, buy on Kickstarter or a social funding platform. A bit like a business angel, you risk losing everything, but above all you will have the chance to follow an industrial adventure from the inside!