Deconstructing Kickstarter: Sell Your Product for $10,000 (or $99)
We amassed 13,695 data points on reward levels and backers from the most successful projects on Kickstarter (those that raised at least $100,000) and dissected them.
One surprising thing we found was the $10,000 pledge level is one of the highest revenue generators, and so was $99, even though a lot of campaigns ignored it. So among your pledge levels, try to include $99, as well as a pledge level for really wealthy (and excited) backers.
Secondly, the top campaigns limited their pledge levels to about 10. So remember to simplify what you offer, and avoid confusing your backers.
Top 10 highest revenue-generating pledge levels
The highest revenue-generating reward levels aren’t always the most popular. Some are the highest priced. The $10,000 level was the 5th-highest revenue generator. Getting this right depends on thinking about your demographics (in this case, wealthy fans) and how to appeal to them. At the $10,000 level, you’re not just selling them a product. Based on our data, you need to rally them around the success of your idea, sell them the experience of meeting you, and reward them with public recognition.
The last two are really a different business altogether. The Fitzroy film project raised almost a quarter of its 72,000 pounds in funding with pledge levels of 1,500 pounds ($2,400) or more, promising major backers a role as producers of the movie and a profile on IMDB. (Even more extreme, TechShop raised 91 percent of all funds for its Menlo Park branch through a $250,000 pledge from Intel on Indiegogo.)
Let's take a look at the pledge levels Kickstarter creators rely on most:
The 10 pledge levels most popular with project creators
What backers choose is something else. Interestingly, backers often choose the $99 reward level even though it doesn’t make the top 10 for project creators.
Anecdotally, we see most backers opting for the minimum price level that will bring them the product being made. Nearly 41,000 Pebble backers chose the $115 reward level, which was the lowest at which they could buy the watch. Project creators should think seriously about that minimum pledge level. Adding peripherals can boost it, and dialing up the most popular pledge levels by a few dollars can have a huge impact on total funds raised.
The 10 most backed pledge levels
Finally, let's look at how many pledge levels you should have. Projects with between 9 and 11 pledge levels belong to an elite group in terms of revenue raised. While it’s hard to draw definite conclusions from this, our hypothesis is that backers, like most people, have a hard time making choices. Decisions cost us time and energy. Our theory is that projects that simplify and reduce the number of pledge levels may be more successful at winning supporters over.
Number of Reward Levels vs Revenue Generated:
A few caveats: It's impossible to measure separately the diverse factors that make a Kickstarter project succeed. Pledge levels are just one piece, and here we are simply presenting choices made by some successful projects in cumulative fashion. So take it with a grain of salt. Salt tastes good.
On the high end, the long tail is massive since Pebble blew their campaign out of the water by raising $10.3 million. As often as possible, we’ve tried to offset such statistical outliers by using medians rather than means for our average numbers. (Thanks, Pebble.)
Our data is based on 841 Kickstarter projects that raised at least $100,000. Click here to see it.
Winners’ Averages
The median number of backers per project is 2,102.
Taken together, the top projects raised 985% of their initial goals.
The median market-validating project raises $171,009.
Successful projects have a median goal of $75,000.
The median reward level is $150.
Click here to learn about Airbrite, a YC 12 company. We make Celery, an easy way for startups to take pre-orders, as well as an order-processing API for developers.
What Is Crowdfunding Good For? Derisking With 'Venture Consumers'
If you’re a startup founder, crowdfunding serves several purposes.
Some people are looking for money to make stuff. Others want media attention before they sell. Almost everyone is searching for proof that they have a market. All three things — money, market and media — will help you build your business and win over later investors, if you need them.
First, crowdfunding backers agree to take a small piece of the risk by making a pledge. It’s easier to convince 1,000 buyers to clear a $100 hurdle than to persuade one seed investor to commit a few hundred thousand. Crowdfunding distributes the risk of a startup just like mutual funds distribute the risk of a public company.
Other people’s money is always a way to derisk. That's why, when a bunch of venture capitalists take 5 percent of a startup, and no one takes the lead, you know they're not convinced it will succeed. Crowdfunding backers are doing the same thing: they're "venture consumers." You just need to convince them the reward is worth the uncertainty.
Second, one of the biggest risks for any startup is finding a market. Hardware is called hard for a reason. With software, it’s fairly easy to make something, test market appetite, and make it again in tight iterative loops. Hardware is more like Hollywood — a long time goes into making anything, even flops.
But crowdfunding platforms give makers market validation before they actually make a thousand widgets, a priceless reassurance that their instincts are correct. Pre-orders extend that validation, which is extremely valuable in the eyes of venture capitalists. You can show them you’ve gone from throwing spaghetti at the wall to knowing exactly what people want, and cooking it.
Third, crowdfunding campaigns are media events par excellence. They’re a great excuse to drum up press around the adventure of entrepreneurship, prove the vitality of a local business scene, and stoke hometown pride in a local gal (or guy) done good.
Priming the media with your campaign is one essential piece of a marketing machine you’ll perfect over many months. Above all, remember that the media need you to do something before they can report it. That action is called a “hook.” A crowdfunding campaign is a perfect hook for a story, and perfect hooks won’t walk through your door every day.
Most startups that have built something good confront the risk of being ignored. They need to find their customers and make sure the right people know they exist, and when startups first begin, they face the world's deep indifference. Crowdfunding platforms like Kickstarter give you increased exposure, reducing the chances you’ll pass unnoticed. They get people excited about you, for a while. You need to seize that moment, and build on it, before you're forgotten. The more you can show you have a following, the more everyone will want a piece of you.
Crowdfunding is a strange mix of trade finance and performance art, and any campaign risks failure. But if you run its monthlong gauntlet and emerge a winner, you’ve established a track record that will show others how betting on you is a risk worth taking.
Click here to learn about Airbrite, a YC 12 company. We make Celery, an easy way for startups to take pre-orders, as well as an order-processing API for developers.
Chargebacks are basically refunds. But they happen before you ship. A customer asks for the funds that were transferred by credit card, the ones and zeros that moved from their account to yours, to be returned.
Nondelivery is a perfectly good reason to get your money back. People aren’t used to waiting, and most of the time, they shouldn’t. Software companies deliver their product via download in a few seconds, established online retailers will ship in a day. But early-stage hardware startups can take anywhere from six months to a year to deliver the product they raised crowdfunding to make, because they’re still in the process of manufacturing it for the first time. And their customers sign on for that.
But customers, by definition, are people who change their minds. You can’t blame them, you can only brace yourself. Most of them probably don’t realize that chargebacks will hurt the businesses that took their initial payment. Others didn't read your ship date until after they bought. And that's not their problem, it's yours.
Imagine you're one of your own customers: You just let someone take your money, realize you won't get anything for a long time, and when you try to find a phone to call, you can't. (A surprising number of startups don't list a number.) What's your next step? You call your bank and cancel the order.
Those chargebacks will burn you. Credit card companies generally cap the amount of chargebacks at 1-2 percent of a company’s total transactions. If your chargebacks exceed that, they limit your ability to process payments from their cards. Which means you won’t be able to sell online, a recipe for bankruptcy.
Crowdfunded businesses making a product for the first time need two things: the ability to accept payment and order information, and the ability to avoid chargebacks during the long manufacturing periods. (That also applies to going on back order after you run out of inventory.)
Most of the time, we don't shamelessly promote ourselves on this blog (we do it subliminally instead), but this is our moment to shine. Celery lets you do take orders and avoid chargebacks, and that's what makes it great.
With us, you can capture demand immediately after your crowdfunding project ends by taking orders. While those orders will contain credit card information, you don’t have to charge customers until you’re ready. That's usually around the time you ship. Which means that during the months that you're wrangling with the factories, freight forwarders and packaging makers to get your product delivered and delivered perfect, you don’t have to worry about chargebacks shutting you down.
There are two other solutions, both of them flawed. One is to just take your customers' money when they order, and bet your business that 1 in every 100 people will not change their minds. That’s what most payment processors do, and it's an option offered by Shopify. The other is to take only your customers' email addresses, and then ask them to give you payment information when you’re ready to ship. That’s another Shopify option. But it means you have to convince them to buy twice: once when they first express interest, and again when you ship. It’s a good way to lose clients.
Of those two options, one leaks customers, the other risks getting shut down by credit card companies. Neither is true pre-commerce or pre-ordering. We understand crowdfunded companies and early-stage hardware makers, and we've designed order-processing software that supports your business even if there are production delays. With Celery, you can take all the payment and order information you need, sidestep chargebacks, and still capture payments and orders without having to revalidate your sale.
Click here to learn about Airbrite, a YC 12 company. We make Celery, an easy way for startups to take pre-orders, as well as an order-processing API for developers.
What Crowdfunders Can Learn From Friendfunding and Change Heroes
Taylor Conroy, the guy who founded Change Heroes, has something to say about crowdfunding. A successful realtor cum social entrepreneur, Conroy brought the acumen of a salesman to a higher cause: building schools in Africa.
But Change Heroes does more than raise money to build schools, and it does more than hit up your friends. It helps you communicate in a highly effective way, with a method based on the work of Robert Cialdini, the author of “Influence: Science and Practice.”
First, the startup’s crowdfunding platform helps you make and send 10-second videos to every friend on your list. While the novelty of video may eventually fade, very few projects do it now, and cinematic outreach has a better chance of affecting the emotions of potential backers than boilerplate copy. The videos are personalized, so there's no hint of automation hovering over them, unlike email. For about 30 friends, Change Heroes says you’ll spend about three hours making the videos, each one a personal invitation to back your cause.
That may seem like a lot of time, but having a committed group of backers from day one is worth the effort. It lends your campaign the early momentum it'll need to inspire backers you don’t know personally, and to attract media attention. Projects whose funds languish in the double digits days after launch are first pitied, then ignored.
We’ve discussed the medium. Now let’s talk message. In this talk, Conroy dissects how he learned to communicate in ways that motivate backers, providing this text message as an example:
The words in black type are mine. Many, but not all, of the ideas come from Cialdini. Let’s go through them one by one, starting at 10 o’clock:
Liking: This may seem obvious, but people respond better to those they like. So instead of nagging potential backers or telling them what you need, reach out to people who like you, and then emphasize your connection. Remind them why they liked you in the first place, and explain how this project is, essentially, your baby: an outgrowth of your life and thought. Personalize the communication. At the very beginning of a campaign, this will probably involve writing unique, individual messages to people whose support you want. The more you give to them, they more they will want to give to you.
Social proof/Group mentality: Me, you and everyone we know (including Miranda July) look to others for cues on how to behave. Group action confers importance. We depend on the behavior of others to guide our own, allowing peer pressure to steer our actions both consciously and unconsciously, for good and evil. That was the idea behind the 1927 song “Fifty Million Frenchmen Can’t Be Wrong,” as well as countless advertising campaigns that use trendsetting celebrities to prove a product’s desirability. What’s important to note, though, is that the more your backers identify with the social group cited, the more powerful its influence. Friends and family work better than Frenchmen, for your purposes. Mais oui!
Commitment: Change Heroes uses powerful implicit assumptions to drive home the idea that “we are going to do something together.” They're not asking if you want to. They're assuming you do, and that makes you want to. Presented with an inevitability, more people join than resist, especially when it’s for a good cause.
Tangible Outcome: One of the problems with charity in particular, and marketing in general, is people don’t fully understand what they are being asked to do, or why it matters. Often, the goals presented are too abstract. In fact, a lot of money that goes to charity ends up being spent on advertising and overhead, rather than good works. But concrete goals can be powerful motivators. In Change Heroes' case, they promise to build a school and educate 1,000 kids with your money. A physical object, a larger objective and a precise headcount. Some crowdfunded projects help you sleep, others aid creative work. Make sure you talk about the concrete thing, the people it helps, and the purpose it serves.
Micro-Giving: Donations are like chores. If you break them down into small pieces, they’re more understandable and doable. Ask someone to give $300 and they may think they can’t afford it. Ask them to give $3.33 per day, as Change Heroes does, and the cost may seem within range.
Reciprocation: This is one of the most powerful of Cialdini’s ideas. You’ll have to read his book to get a fuller picture. The gist is that humans like to settle their debts and fulfill their obligations. No one wants to be the jerk who tells his friends to screw off, or leaves his family to fend for themselves. He owes them something. Change Heroes’ take on this idea is interesting, because most North Americans don’t owe African children anything, not in the strict sense. But on a moral level, it’s easy to argue that every child should have the opportunity to go to school, and in that light, Change Heroes calls them “deserving.” Those kids deserve something, and we are the ones who can give it to them. How you make use of this idea, of course, will depend on the goals and ideals your project serves.
Recognition: While a lot of marketing is focused on gadgets and features, many of the benefits that users derive from their purchases and donations are social. It is the glow of being involved with something worthwhile, doing good, living a life with purpose and serving a larger cause. Whether that cause is art, justice or third-world education, often the best way to give your backers the full benefit of their donation is to give them a place in a Hall of Fame, or otherwise thank them publicly. Change Heroes did it in their first text message, and they continue to do it on their website.
In August, I made a major mistake, and some people on the Internet got angry. Very angry. I apologized, kept my head down and tried to forget about it -- until The New York Times called. You can read their article here. It's a great article about the city, and a fair piece about me.
Here are a few takeaways from what we refer to as the incident:
Hatred is disproportionate. In my blog post, I offended people. That was unquestionably wrong. Even after I realized how wrong it was, I was not prepared for the death threats. People literally said they would take my life for the dumb opinions I had expressed. They thought moral offense deserved lethal retaliation. In their anger, they became examples of the misled, impulsive person they wanted to kill. There are no good guys in this scenario.
Sometimes everybody hates you. I managed to offend women, the homeless, native San Franciscans, bicyclists and even the tech community. It was like the stock market in 2008: everything was bad, and everything was correlated.
Hatred lasts a long time. When something goes viral, there's no deleting it. It has a life of its own. Even after you realize you're wrong and try to make it better, people keep hating. I was still receiving hate mail weeks after I took the post down. I'll probably receive more today. So no matter how obscure you are, if you screw up, you'll probably get noticed.
Hatred doesn't care who you are. There are several other Peter Shihs on LinkedIn who probably deserve apologies. They were completely innocent. But online justice is vigilante justice, and vigilante justice doesn't care about false positives. It just lines people up and shoots them.
Hatred doesn't care who you are, even if it correctly identifies you. People hated me because they thought I was a tech millionaire from New York trying to destroy San Francisco. I'm not. I've spent half my life in the Bay and less than six months in New York. I don't have millions of dollars. I'm the co-founder of a one-year-old startup, which means I spend a lot of time thinking about how not to go broke. Most of my working life I've been glued to a screen, coding. I have no plans to destroy San Francisco, ever, and the rents are killing me, too.
Sometimes there's nothing you can say. The rivers of vitriol I unplugged would not stop gushing no matter what. No dialog could be constructive. The only possible response was an apology, and silence.
There are reasons why people hate. I spent a lot of time thinking about them after I became a poster boy of the tech Borg. Until then, I was just a guy who coded a lot. My main source of news was hackurls.com. I wasn't really aware of the huge divide that separates the tech scene in San Francisco from people outside of it. I was so deep inside one community I couldn't see out. Inside the tech scene, hackers mostly pay attention to their differences -- there are surfers and musicians and bikers and hikers and they don't necessarily think: "I represent a group deeply resented by the rest of the city." Now I'm aware of that divide. That's probably the best thing I got out of my mistake. A lot of people are probably yawning now. For them, this is nothing new. Just think of it as a small step for mankind, and a giant leap for me.
After the storm blew over, I went to a homeless shelter to volunteer. I wouldn't call it penance, exactly, but I wanted to see for myself. What I found were great people, urgent needs, and some really dedicated organizations. To anyone in tech who's not aware, here's one: Episcopal Community Services' shelter, Next Door.
The most important thing I learned is that there are ways to work together, which we need to do if we are going to live together. Tech isn't going away. No one else is either. So we need to build bridges. If anyone has a great idea, let me know. To anyone outside of tech who thinks we're all bad, here are a few tech companies doing some good (I take no credit for them whatsoever):
Routesy is a great add-on to public transport.
Handup.us is helping the homeless in San Francisco.
Lyft and Zipcar cut down on driving and car ownership.
BikeShare is great.
Watsi is curing people.
Change Heroes is building schools.
Khan Academy is teaching kids.
Charity Water is digging wells.
Kiva goes without saying.
The last lesson I drew from all this is that my role should be to build something positive, and not tear things down. That's what I'll be working on.
How to Sell Your Crowdfunded Invention to Best Buy
Contents
Finding Buyers
Persuading Buyers
Packaging is Persuasion
Demographics Have First Names
Sell Sheets
(This post arose largely, though not wholely, from conversations with and webinars by Karen Waksman, founder of RetailMBA. Mistakes are my own.)
Finding Buyers
To get onto Best Buy's shelves, there are two things you need to know: who to contact and how to convince them. Let's tackle who to contact. First, be glad: buyers have never been easier to contact. Many of them are on LinkedIn, where you can search by company and title. Here's a list of senior buyers at Best Buy, for example.
Just make sure their title aligns with your product. Don't send the gal in charge of "Over the Range Microwaves" your pitch for a better toaster.
Various directories, whose buyer lists can cost hundreds of dollars, also index buyers at US retailers. They have the advantage of being up-to-date, as retail buyers are in a high-churn job market:
RetailMBA
Chain Store Guide
The Salesman's Guide
Public libraries, especially in large cities, often carry buyer guides as reference works as well. The San Francisco Public Library, for example, allows you free access to the lists.
A final way is to meet buyers is in person. Most retailers have vendor days, or buying days, details of which they publish on their blogs and in their vendor rules. That's when the buyer's representatives meet with potential vendors for a few minutes at a time. Some of them, like Ace Hardware, will charge you money for the chance.
Persuading Buyers
Let's say you've found your buyer. The next thing you need to know is how to communicate with them. Remember, first of all, their goal is to make more money for their chain store, and yours must be to help them do that. Which means convincing them your product serves their customers better than what they currently sell. So you need to understand their stores, their offering and their demographics, in order to reasonably say your product fits in and will drive traffic to their outlets.
An excellent piece of advice from Karen Waksman at RetailMBA is to walk the aisles of the store you'd like to be sold in. Go to the section of the store where your type of product is sold. Note the kinds of people in the store, the competing products on the shelves, and how they are packaged. Then take it one step further: buy your competitors' products and take them home. This will come in handy when you get to the next step.
Packaging is Persuasion
Packaging may seem like a secondary consideration to entrepreneurs, who spend years perfecting the product they sell. The long efforts of invention and manufacture, the competition and logistics of delivering a physical object to thousands of consumers around the world all seem to take priority.
But surfaces are just as important, because people buy the packaging, not the product. You have approximately 2.3 seconds to convince them as they browse the aisles. Your product is one of hundreds in a chain store like Best Buy, so you're competing at another level. High school valedictorians get into Harvard only realize they are suddenly below average. The competition surrounding your product on the shelves of Best Buy will be just as fierce, and rising above it is largely a matter of how well you decorate your wares. Packaging is the act of selling, crystallized. It is salesmanship in cardboard and plastic.
Waksman pointed out that six things mattered in packaging: size, shape, color, user-friendliness, marketing copy and theftproofing. When you analyze your competitors' packaging in Best Buy, you should take it as a reflection of what the retailer wants. This is the packaging that made the cut. To stray from it wildly would be to sabotage yourself. So buy the stuff, take its measurements and analyze according to those six aspects. Reverse engineer it. Then go make your own.
Demographics Have First Names
Next, understand Best Buy's customer demographics. Like all major retailers, the company has made a study of the people who shop there. By understanding their needs, it can sell them more, and so can you.
Internal documents obtained by retail blogs in 2008 contained the profiles and nicknames of the four major groups that walk through the chain store's doors.
They include: Buzz the early adopter, an urban male between 23 and 30 whom they dubbed the "Urban Trendsetter"; Carrie, the "Young Urban Female," who is dating Buzz for all we know; Maria, the "Middle American Female," who probably wants in-house installation, according to the documents; Ray, her counterpart, who represents about 20 percent of all Best Buy sales; and finally the Empty Nesters, Helen and Charlie, who are probably looking for deals and shopping for gadgets to send their grandkids. The point is that you know these people. So think about them. Get inside their heads. Anticipate their likes and dislikes.
If you can demonstrate an understanding of what these people want, how they live, and what images, objects and ideas appeal to them, you are well on your way to selling what you make.
Sell Sheets
Communicating your message to chain store buyers requires more than emails and cold calls. It hinges on a single document known as a sell sheet.
A sell sheet is a one-page pdf with an image of your product, its major advantages in a few bullet points, its measurements, and the purpose it serves. Your entire invention is conveyed in a few sentence fragments and one compelling photograph. Short, sweet and unmistakably clear. Show them what you offer, tell them why it's good and give physical specs so that they can know where it will fit in the end user's home, as well as on their shelves.
Once you know what your target sells, how they sell it, and have condensed your entire pitch to a one-page sell sheet, you contact the buyer and ask them if they would be interested. If the answer is yes, they you move on to the paperwork.
If they don't, you either improve your pitch or seek greener pastures. As Waksman notes, there are hundreds of retailers in the United States, and most potential vendors only pay attention to the top five, which means that they are largely ignored. You should be starting with the smaller stores to prove to the larger ones that you have a market.
Which raises an important point. When you contact a buyer, you're not pitching a product, you're pitching more sales. You're selling sales, so to speak. That means you should show them everything you've done to promote your product so far, and everything you plan to do to promote it once they place an order.
You can tell them, for example, how much you've sold, other channels you're using to sell, your media appearances, and how the reviews rate you on Amazon. Show them you have a plan to succeed, regardless of their decision, and that you are bringing a customer base to them.
Yes, it's a Catch-22. You need the chain stores to reach your customer base, and you need a customer base to get on the chain-store shelves. You are responsible for driving demand. The more of it you have, the more people will want to help you.
Click here to learn about Airbrite, a YC 12 company offering an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
The Best Way to Price Your Video Game on Kickstarter
On Wednesday, we showed how Kickstarter largely serves as a springboard for crowdfunded video game projects. Now we’re going to take a look at how the most successful projects are structured, with a focus on their pledge levels.
We looked at 121 video game projects that met their goals to raise $100,000 or more. We broke pledge levels into ranges, since pricing across projects varied a great deal.
Those ranges were:
$0-$10
$11-$50
$51-$100
$101-$500
$501-$1000
$1001-$5000
$5000+
The most successful pledge level ranges were $11-$50 and $51-$100, in that order. The first raised about $46,000 per pledge level in the range, and the second raised only slightly less at nearly $43,000. Below $11, the amount raised was trivial. We’ll let the numbers speak for themselves.
Pledge levels between $11 and $500 accounted for 87 percent of all the money raised by Kickstarter video game projects. Those are the backers you want to think about the most, understand the best, and incentivize most effectively. Slightly below $100 is usually the minimum pledge required to get whatever the project is producing.
Notice how pledge levels between $1001 and $5000 are relatively ineffective. Yes, they helped the $100K club raise $2.7 million altogether, but considered singly, they only drew about $9,132 each time they were used. On the other hand, the $5000+ pledges do almost as well as pledges between $501 and $1000. What does that mean exactly? There’s a niche group of backers willing to spend A LOT of money for recognition and access to the creators. It's called conspicuous consumption -- you can read about it here. Like a mirror of America itself, the middle has hollowed out, and only the mass and luxury markets remain.
In the case of Ouya, last year’s largest video game-ish project, these trends were scewed up one pledge level. Ouya got 63,000 backers to pledge a total of $8.5 million last year. Let’s look at the pledges they made. Their most popular level was $99 for a basic Ouya: it attracted 46,125 backers and raised $4.6 million dollars, more than half their total. They also sold a limited edition in the last week of the campaign for $140. It was essentially the same, drew 7,750 backers and landed Ouya a further $1.1 million. Those two pledge levels accounted for two-thirds of Ouya’s funds. There’s something to be said for timing, and scarcity.
In the graph below, the columns are pledge levels starting from $1; the rows are Kickstarter categories; and the cells are the number of projects in each category that used a particular pledge level. Video game projects, like most others, tend to price in $5 increments, with $1 being the obvious exception:
We think that's a mistake, and we'll tell you why next time.
CAVEAT: This should go without saying, but... There are other factors that make Kickstarter projects succeed — pricing is not the only one by any means. Obviously the quality of the promotional material, the experience of the project leaders and the nature of the game itself all contribute a lot, and are probably more important than pledge levels. Other authorities will have more insight on those issues. But we have data. And because pricing is easily quantifiable, you can see trends and make comparisons more easily, which is what we’re trying to do here.
We launched our new e-commerce API today and need your feedback!
Click here to learn about Airbrite, a YC 12 company offering an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
John Shi didn't plan to become a garment maker. He studied philosophy and economics in college, interned in finance, and got a job at Amazon after graduation. But something he saw in an old Japanese picture book on east coast schools intrigued him.
Contents
Finding a Factory
The Reddiquette of AMAs
Fulfillment
Modern-Day Garmento
Amazon's Death Star
Competition
Most Helpful Tools
In Dartmouth's college bookstore, Shi saw hoodies selling for $70. Not worth it, he thought. So he created his own line of men's knitwear, and sold the sweaters to his classmates. Now, he's almost a year into his startup, Hillflint, and launching a Kickstarter campaign for a noncollegiate sweater, the Mark 1.
John Shi: I sold the first batch to my class, 2012, and lost about a dollar and change per sweater. But a lightbulb went off that there was a space for high-end knitwear sold direct to customer. It had to be minimally designed, and the company had to be really lean, so we could focus all the energy and design on sourcing the best material. Then we went to Princeton, then Yale, and now we're entering the general market.
Finding a Factory
Most people know Alibaba as the eBay of China. In fact, the e-commerce platform is a strange hybrid of ad revenues and third-party vendors. One of its specialties is manufacturing. If you want something made, that's where you go. (Remember to click on suppliers in the menu to the left of the search box.)
You find a hundred factories in various countries and send a hundred emails. Then you try to find out which ones are trustworthy. That's the most naive, basic way to do it. But it's costly to prototype again and again.
The real problem is that startups don't know how to find a good factory. There's a lot of noise that takes time to wade through. The biggest contract manufacturers, the ones who work with Ralph Lauren, won't give you the time of day, so you need to find a small, dependable one.
When Hillflint got started, they were working with a yarn manufacturer in New Jersey. The yarnmaker had their own buying agents in China, Italy and South America. So Shi uses their yarn in exchange for their sourcing network, and can take advantage of their economies of scale. We tag along on their shipments from the UK and China.
People who only want to produce a small run of garments as prototypes should use a factory in the US, because the minimum order level is lower, there's no language barrier and there's less risk. Maker's Row is a good place to find those. It connects entrepreneurs with designers, pattern makers and manufacturers. We had some good conversations there.
When you scale, look at South America. They're making shirts already. You tell them: "When Brooks Brothers orders one hundred yards of material to make shirts, just make an extra five yards and we'll buy that from you.
The Reddiquette of AMAs
People on Reddit are burned out on insincerity, and they're sensitive to promotional stuff. They want people to succeed, but you need to engage the community. They get a ton of people making a thinly veiled attempts to advertise, where all they do is link to their Kickstarter campaign and list their pledge levels.
Promoting your brand can be your implicit goal, but you need to frame it right. We sent a private message to the monitors of the male fashion advice subreddit and said "Hey, we've been working on this for 10 months. We've taken previous feedback from Reddit and incorporated it into the sweaters, and we're really pumped about it. We'd love to get feedback on the concept from this community but we don't want to spam anyone. Would it be OK to do an AMA to collect their thoughts?"
They didn't expect anything. They'd posted to reddit four or five months before and didn't get much response. But this time, the idea was more fleshed out, they knew their own product and what they wanted.
The monitors said yes, and said publicly they approved the AMA. Which was one reason why it went well.
We got some really good questions and about 100 people signed up in a day.
Anybody can post an AMA. It's just a question of whether people are interested in what you have to say. The normal cadence is you schedule one. You say I'm going to log on tomorrow between noon and 5pm. But because we're small and I'm not a public figure, I thought we'd just post it in the morning and I'd check in throughout the day, rather than be on continuously.
Fulfillment
I worked for Amazon after I graduated, and did some inventory management. When you run a startup, you want to maximize free cash flow and not have unhealthy inventory sitting in warehouses. For the first seven months, I was picking and packing everything myself and or outsourcing to my younger brother. Now I'm moving everything to a fulfillment and logistic company called Symphony Commerce. They take a 15 percent revenue share on each sale, but they have their own warehouses and picking and packing centers. It's not just Shopify."
Modern-Day Garmento
[Ed. note: In the latter-half of the 20th century, U.S. manufacturing, and particularly textiles, saw a decadeslong decline. From its peak in 1979 to its trough in 2009, manufacturing saw 41 percent of all jobs evaporate. The textile industry, once a vibrant part of New York City and with factories up and down the east coast, saw jobs plummet 63 percent in the eight years leading up to 2009. Since then, some textile mills have seen a light rebound, largely due to cheap energy from fracking.]
There's a garment-making renaissance in America. The barriers to starting a brand are going down. But it's category specific. Button-downs, shirts, ties -- you make them really well in the US. Pants are OK, maybe 7 out of 10. Bonobos had a lot of problems with quality control in the US. With knitwear, US manufacturing is not there. There are a few mills left: a couple in Massachusetts, one in North Carolina. They don't have the high-end Italian and Japanese machines. Even if you source really nice yarn, the product is really scratchy. The price to quality ratio in America is tough. But it's very possible to source globally.
Amazon's Death Star
Amazon's a great company. But if you are trying to sell a commoditized product, you cannot compete against them. They will crush you. If you're trying to be the next NewEgg, or any business where you sell other people's brands, you'll have a really hard time. And if you do start getting a ton of traction, Amazon will drive you out of the market. The can be very price competitive.
They have a vigilant retail buying team (which I was part of), monitoring pricing on other platforms, and they will undersell you. If Amazon's prices are not lower, they also host third-party vendors that have very low prices and consistently win the buy box. That means you're associated with the yellow buy button when the customer clicks buy. It's almost always the lowest price possible. Amazon is willing to accept a loss per sale to win trust.
One powerful way to set yourself apart is to create a proprietary product that you control exclusively, which cannot be sold anywhere else, including Amazon. That means creating something and vertically integrating. You design it, you manufacture it, you sell it online. The way to stay competitive is by being able to say: You can't get this on Amazon.
Amazon is not doing that, because they want to sell everything. They have an extreme focus on the focus. With Zappos, they set the gold standard in customer service. You cannot be a player these days without offering free customer returns.
There's a misconception that being an e-commerce brand and cutting out the middle man improves the economics of your offering. I don't think that's true. Because you need to handle logistics and returns.
Another way to distinguish yourself is to generate great content and build an audience. An example would be MrPorter. They have a very well done website, great customer service, nice packaging, great returns and cool creatives. Their product and lifestyle photography is awesome. They're carving out a niche in high-end men's fashion retail.
Competition
We get emails everyday from students at other colleges asking us to make sweaters for their schools as well. But it's a limited market and there are licensing issues. Certain monopoly players in college athletic apparel are applying pressure to licensing offices. They've got deep ties to Ivy league schools and they've convinced a few to revoke our license. Then they reverse engineered our sweaters with lower-end materials like cotton to loss lead us. Competition's always a good thing, but you've got to be ready to fight.
Most Helpful Tools
Pre-orders: Celery "Being able to run a Kickstarter after Kickstarter is really helpful. We built over half of our runrate over Celery. Any tool that allows you to maximize cash flow and reduce inventory risk is probably good when you're starting out."
Financial modeling, record-keeping: Excel "When you're saying -- "We have five mills with different costs and quantity breaks. Who's the cheapest?" -- being able to map that out is really nice. Or say we have 300 orders. I'll pull that in from Celery and feed it into my label printer through Excel."
Promotion: Photoshop "I use Photoshop for promotional graphics on our website, cleaning up product photography. All the photos that you see of our products on a white, blown-out background: that's me and a piece of posterboard using Photoshop. Typography, the Kickstarter page, elements of the website. I'm not a pro, but it's been really helpful. Treehouse has some good tutorials, but you really learn by doing."
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
If (Developers == Decisionmakers) {They Buy Better Tools;}
B2D is a new series about winning developers as customers and keeping them happy. Well, maybe not happy … temporarily appeased.
Programmers will tell you the reason they're replacing chief information officers in choosing third-party software is because CIOs don’t understand what’s going on.
So let's talk scarcity. For the skilled labor force of Silicon Valley, it's a seller's market. The money gushing into tech means demand for developers is outstripping supply. Really good ones were rare to begin with, and now they are like elephants on the Serengeti. Only the big guns take them home.
The best can quit their jobs today and find new ones next week, or tomorrow. When those developers can make or break your startup, you try to give them what they want.
What they want, generally, are better tools. They want less agony. Less buggy, crappy, legacy code; less half-baked vaporware. They don't want tools limping along under technical debt that make them want to shoot themselves on a daily basis.
So third-party software with a lower agony rating — or god forbid, the capacity to delight — has an easier time finding a market, because that market, suddenly, has a voice.
It used to be you could throw together a minimum viable product, test on a few users, hire a huge marketing team, and pray for recurring sales. The marketing guys would badger and hound CIOs with glossy brochures and endless powerpoints and booze until they sold something that was probably suboptimal, and the CIOs would buy it because they heard it worked. They didn’t understand the pain or didn’t care.
But with the ongoing shift in power towards engineers, certain B2B businesses have to communicate and market their products in a different way -- or die.
Those companies used to win new customers buy writing puff-piece marketing copy, with the API documentation as an afterthought. Now the APIs convert customers, and the glossy marketing stuff is just there so the CIO can save face as he signs the check.
A new marketing model has developed. It’s not B2B or B2C — it’s B2D.
D stands for different. Developers are more critical than most end users. They don’t pay attention to promises and pathos. Go ahead and try that, and you'll see.
That's different from non-developers. Non-developers respond to ads that entertain, inspire and probably feature celebrities they aspire to be. You’re selling dreams and feelings.
They don’t really pay attention to specs and features. Sure, you can sell them on speed and volume. But it’s a mistake to talk to them about how you’re five times faster than the competition. All companies say that, and no one believes them, and most consumers don’t care anyway.
With developers, you do talk about product features. And you do more than talk about them. You make statements developers can test and prove to their satisfaction. They are deeply, deeply skeptical. When you show them something, their first thought is it doesn't work, and their second is they could have done it better.
So how do you deliver a gee-whiz moment with your product? You show developers what they can make with it.
The cynic might call these developer stunts. Build another Twitter in two screencasts to put yourself on the map. It's just a disguised form of advertising. Fine. No one promised you your product would sell just because it's good. You have to go out and sell it. Advertising is just a way of making sure people know about that good thing you just made. The only difference is that “buy me” gets translated as “look what you can build.”
Click here to learn about Airbrite, a YC 12 company offering an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
Kickstarter: it's the world's dominant crowdfunding platform. But what, exactly, is it good for? Let's start with their own statistics. (Go ahead, click on "Show Categories" under Projects and Dollars, and you'll see Kickstarter's most successful sectors.)
While Kickstarter doesn't break the data down further, Airbrite does. "Kickstarted" video games, for example, do extraordinarily well. We analyzed video game projects that netted more than $100,000, and the average, for that tier of video games, was $630,000.
Every medium is in love with itself. Novelists write novels about novelists writing novels; Hollywood makes movies about making movies; and rock bands sing about rock. So it's only fitting that the massively multiplayer online role-playing game known as Kickstarter would be particularly successful at funding more of the same.
One hundred thousand is an important number for crowdfunded startups since it's roughly the minimum they need to prove they have a market. Entrepreneurs who raise much less than that will struggle to keep their businesses afloat.
Of the 840 projects we analyzed in the 100K club, video games had the most backers in total, at almost 1.4 million. And the category's 122 projects in the 100K club raked in more than $77 million.
Yes, the Kickstarter campaign to raise the most money was for the Pebble watch, and the one with the most backers was The Veronica Mars Movie Project (91,585!) -- but taken together, gamers are spending more on Kickstarter than people shopping for narrative films, hardware or technology.
As if to remind us of the fact, last year, the video game microconsole Ouya managed to raise $8.5 million, coming in second place and taking more money than Veronica Mars, backed by 63,000 people.
So what, exactly, makes successful video game projects tick? In the next post, we'll breakdown their pledge levels and the money raised per level to see which were the most popular.
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
How to Hack the App Store and "Cure" Snoring: Hibermate's Chris Thomas
If Chris Thomas ever writes a memoir, one chapter will have to be "How Google Instant Changed My Life."
Thomas was Googling "earmuffs" when the search engine's autocomplete came up with "earmuffs for sleeping." Not the too-cold-to-sleep kind of earmuffs, the too-loud-to-sleep kind. The only search results were ear plugs.
Contents
Snoring: "A Huge Problem for Couples"
How to Hack the App Store
Top Partners
Thomas works in online marketing, so he probably pays more attention to Google Instant than most people. For those with ears to listen, it's an oracle of market demand.
With a prototype and a patent application in hand, that hint would become Thomas's Kickstarter project. He took Hibermate, a sleep mask with sound-blocking earmuffs, to the crowd-funding platform to raise money for a first batch of 8,000.
Thomas had been thinking about sleep for a long time.
In the early 1990s, he was working nights as a graphic designer for a pre-press company in greater Melbourne. Getting off work at 8 a.m. meant he had to sleep through the day, or at least try to. But his apartment faced a busy road.
It so happened that Thomas's father ran, with his other son, a factory that die cut foam. They made cups to fit Thomas's ears, and with time, sent more for his colleagues on the graveyard shift.
"Originally, it was a headband with some foam over the ears. I sold that for about 10 years. But people complained that it didn't block enough sound."
That was version no. 1, and for 20 years, it did the trick. Version no. 2 -- inspired by Google -- is more ambitious.
Now 47, married and a father, Thomas raised more than $110,000 in his Kickstarter campaign last summer. Celery has helped him take tens of thousands more in orders. By the end of the year, Thomas will quit his day job to run a sleepware company with thousands of clients around the world.
"My father was an engineer," Thomas said. "In the factory he used to run with my brother, he would invent all kinds of electrical bits and bobs that would make machines run better. Over the years, I had these crazy ideas where I'd say: "Oh, I should try that." Hibermate is the first invention I've seen through end to end. I don't think it's ever too late to mix things up a little bit."
Snoring: "A Huge Problem for Couples"
The National Sleep Foundation says more than 18 million American adults have sleep apnea. That's another way of saying they snore. You can try stop snoring in many different ways -- decongestants, chinstraps, pillows, mouthpieces, nose armor, wrist bands that apply electric shocks -- when there are that many cures, it usually means that there is no cure at all.
Hibermate's stance is that while snoring may not be stoppable, one's bedfellows don't have to hear it.
"We got an email just yesterday from a woman who said she hasn't been able to sleep in the same bedroom with her boyfriend for three years because she snores and he's a light sleeper," Thomas said. "We had another from someone who got engaged and moved in with their fiancé and said they're thinking about breaking it off because of the snoring. It's a huge problem for couples."
In America, there are about 40 million people who work night shift every day, Thomas says. Members of the military, who may sleep several to a room, have also placed a lot of orders.
"One of the best bits of advice I've ever been given is 'Make meaning, not money,' " Thomas says. In this case, he hopes meaning will mean saved marriages, and fewer mistakes on the job, and a more rested fighting force.
How to Hack the App Store
One of the main lessons Thomas has taken away from his work in SEO is that the App store is hackable. And since everyone else knows how to game it, you should, too. Here's what you do:
First, choose the right keywords. If you jump on your phone right now and start typing in keywords that relate to your idea, you see the app store make suggestions. Take those, and use them liberally in the title of your app, but don't go bananas. Get it right before you submit, because you can't update the title of the app ever again.
To get the long tail, you type in your main key word -- say, augmented reality -- and after it you type each letter of the alphabet, one after the other, to see what suggestions you get for "augmented reality a," "augmented reality b" and so forth. Then take the 4,000 words of copy you're allowed to describe the app, then sprinkle you keywords there as well. Use all the tags.
Apps' ranking in the store doesn't seem to be influenced by the rating of the app by users, but it is influenced by download velocity, so you need social media and other mechanisms to drive people to download it en masse right after it gets posts on the store. If you have a download page on your site, like brandname.com/download, then redirect it to the app store to add that traffic. If the app's ranking starts to rise, it takes care of itself.
[Ed. note: One last method to increase the downloads of your app, aside from organizing a mafia of your friends to do it, is to update the code every two weeks, even if you don't change much. If you send in some minor improvements, the app appears in the list of recently updated apps, and customers are reminded to use it. People like what's new. You need to remind them that your alive, and keep the pulse going.]
Top Partners
Product Design: Cobalt Niche "They made the KeepCup. I told them I needed a soft earmuff for sleeping. A year later, I held a prototype in my hand and I said: 'This is it, they've done it.' "
Patent Attorneys: Actuate IP "I asked them if I'd be infringing on anyone's patent. They said you should be good to go. Once I had the prototype, they filed for the provisional patent."
Mentor: Bob Beaumont
Sourcing Agent: Bluegum "They're accredited with ethical-clothing bodies. We could have got the masks even cheaper, but we chose not to."
Supplier: Baron Rubber "They supply medical-grade silicon to companies around the world."
Startup Community: HUB Melbourne
Local Assembly: Brite Industries "A workshop for folks with disabilities. They do a great job."
Fulfillment House: Shipwire
E-Commerce: Celery "We've raised about $30,000 with Celery post-Kickstarter."
Key Quotes
Why China: "We had a quote to get the mask manufactured in Australia and China. The Chinese were one tenth the price. We had to go with that."
Total costs pre-Kickstarter: Almost $50,000
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
Partnering, Prototyping and Skipping Kickstarter: A Q&A With August Smart Lock
You may not know Yves Behar, but I guarantee you've used something he designed in the last 12 months. His firm, Fuse Project, has done electronics for GE, recycling containers for Coke, medicine bottles for Tylenol and speakers for Jawbone.
Instead, August's system uses Bluetooth to sync with your phone, and a mobile app lets the lock's owner draw up a list of people whose phones count as keys. Those virtual keys can be good for a day, a month, a lifetime, or just the length of your birthday party.
The lock is a small piece of a larger trend in automating the home, and part of a push by technologists to create an "Internet of things." That is, dumb objects like doors can be made to sense and communicate, and this simple extension of technology actually creates an information system out of the formerly inert physical world.
While this may seem like a visit to Tomorrowland, it's really just a tool with a basic purpose: greater control. An August Smart Lock, for example, can tell you who entered your house while you were away, and how long they stayed. When that person no longer needs a "key," they're simply removed from the lock's list. No tracking people down, no copied keys floating around.
And that, in fact, was what inspired Johnson to develop the lock. The serial entrepreneur had lent his keys to a housekeeper, only to discover that they were passed to the cleaner’s family. Keys may have a life independent from us, but smart locks, at least, will listen when they’re spoken to.
While the August team has been working on the lock for about two years, it was Jason and Yves's moment in the spotlight in May, when they launched at D, that proved a turning point.
AllThingsD
"When we learned we were launching at AllThingsD, we realized we had to become a much more mature company much faster," said Joe Aranda, a founding team member focused on August's operations, who agreed to do a Q&A with us. "We found out about three weeks beforehand that we'd be doing an onstage demo. That was completely nerve-wracking, because you're just a couple feet away from some of the most influential people in tech: Aaron Levie, Elon Musk..."
When you launch at D, he said, you're embargoed until the day you present, meaning you can't release any product news to other media or the public. "We were completely stealth before that. No one had heard of the brand."
After a media blitz, the company received more than 30,000 pre-orders for a product set to ship in the first quarter of 2014. August processes those orders with Airbrite.
Prototyping
"For an early-stage hardware company, it's all about defining what you're not going to do," Aranda said. "You're working on a short schedule with limited resources. So we reached out to Airbrite because we knew it had the feature set we wanted. We just thought 'Let's not waste time, because we've got so many other things to work on.' "
"The biggest difference between early-stage hardware and software companies is that with hardware, you're looking at a significantly longer turnaround time for prototyping," he said, explaining the tight time constraints. "A lot more thought and planning need to go into sourcing materials and making sure everything is tight. It takes months, whereas with software, putting out a new version takes days."
Not every prototype can be manufactured smoothly, he said. So hardware startups need to design for an efficient manufacturing process. Some metals might be easy to source for prototypes, for example, but become quickly unsustainable when producing a minimum order of 30,000 locks.
Skipping Kickstarter
A long list of angel investors -- Jay Adelson, Matt Mullenweg, Rick Marini, Zack Bogue, Matt Ocko, Aileen Lee, Mike Marquez, David Spector, Jeff Clavier, Tony Conrad and Nicholas Negroponte -- contributed to August's $2 million seed round. Those funds allowed the lockmaker to bypass crowd-funding altogether. While Aranda is a Kickstarter fan, he says managing expectations during and after crowd-funding can be difficult.
"The customer experience is a big gamble. Ship dates can get pushed significantly. And when you're the fund-raiser, Kickstarter supporters are with you every dirty step of the way," Aranda said. "There are companies that need Kickstarter to show market validation. We weren't one of them. Kickstarter is a great resource, but it's not for every company."
Partners
Asked if he had advice for hardware startups poised to take the same path, Aranda highlighted the importance of swallowing your pride and asking for help from experienced firms.
"Align yourself with partners who've done it before," he said. "Our fulfillment house, Rush Order, has been great. The mechanical engineering firm we work with, Surface Ink, has pointed us toward good manufacturers, and been there for product advice."
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
Crowdfunding is hard. You spend weeks trying to raise money for your dream. You plan everything months in advance, and when the race starts, you tweet, call, beg, plead and scheme to raise the money it’ll take to make your dream a thing, something real.
Because if you don’t raise the money, you have to start over, or maybe you never start at all. Those funds are market validation, a sign to investors that people want what you’re promising. So day and night you pour yourself into fund-raising. You hardly think about the day Kickstarter ends, it’s so far away. It’s too painful to think about the finish line when there are so many laps to go.
The thing is, the day your Kickstarter campaign ends isn’t the finish line. It’s the start of another race. If you raise money right, you’ll have about two seconds to congratulate yourself, and then you’ll be running again. This time to deliver the goods.
There’s life after Kickstarter, and that life takes planning if you want it to go well. Not planning for the campaign to end is like not planning for a baby because the pregnancy is stressful.
But that baby, your business, will need things from day one. One thing it needs is a way to process orders. Orders are how people tell you what they want (your products), and where to send it (their shipping address). If you just finished a Kickstarter campaign and haven’t made anything yet, those orders will be pre-orders.
Every day you don’t take orders is a day you don’t capture demand. The pre-orders are like food for your baby. If you can’t take orders, you’re in trouble. People are e-mailing you asking how they can buy your cool new thing. And you’re e-mailing them back saying thanks it’s not ready yet, dumping their e-mail address in a Google Doc and hoping you keep everything straight.
There are better ways.
Airbrite works with a lot of crowd-funded Kickstarter and Indiegogo graduates. This year, we made Celery, which is an easy way for startups to take pre-orders. We were the first company to help them make the leap from crowd-funding to full-fledged business. Now, companies like Pebble, August Smart Locks and 3Doodler use our business management system, which automates orders and other workflows.
In 90 seconds, you can set up Celery, and you’ll never miss another order. We’ll be there to help you keep track of who asked for what.
The moment to start planning for orders is near the end of your Kickstarter campaign. Yes, life is crazy, but you need to prepare for demand to pour in as soon as you meet your funding targets.
This post is the first of a series, based on our experience with thousands of successful businesses, that will show a few things you can do to get luck on your side. Plan for success.
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
Kickstarter has great ideas about how to raise funds. They tell you what you must do to be accepted by Kickstarter, and what you should do to succeed there. But they don't tell you everything.
It's $100,000.
That's the line most successful businesses cross in their fund-raising. It's just rule of thumb, of course. There are notable exceptions. We work with some of them. But as a rule, when you're seeking market validation, $100,000 says you got it.
We work with and analyze thousands of crowd-funding graduates of Kickstarter and Indiegogo. We see what sells and what doesn't. Raising funds in the ballpark of $100,000 or more is the chief metric we use to calculate a project's likely success.
If you raise that much or more and don't screw up, chances are you'll make a go of it. If you're very far south of 100K, you need to rethink your fundraising tactics or your product or both.
OK, data time: Of the 50,881 successfully funded projects on Kickstarter, 917 have raised $100,000 or more. That's about 2 percent with business-grade demand. The Kickstarter categories with the most 100K+ projects were games, technology and design, with film and video a distant fourth.
An Airbrite analysis of more than 550 of the most successful Kickstarter projects over the last two years shows that, on average, those projects have about 5,900 backers, while projects that fall short of the threshhold have on average about 2,900, or less than half. Backers in the 100K+ category tend to spend about $86 apiece. That’s right. More than 100K in baby steps. But notice that, if you can convince 5,900 people to commit $86 apiece, you just raised yourself more than $500,000. It's harder if you're charging $8.
Sure, not everybody wants to turn their Kickstarter project into a business. Maybe you're making a movie, or just building a cool gadget for yourself and a few backers. That's great. We still like you. But this post was not written with you in mind.
Instead, it's for makers and nascent businesspeople who regard Kickstarter as their pre-seed round.
So what are you supposed to conclude? Most people raise money for what they need. If they want to make X number of widgets, they raise Y amount of money. Sometimes that's $100,000, sometimes it's less.
We're saying if you want market validation, then at a minimum you should raise money for $100,000 worth of widgets. If you set your sights lower than that, you can't be sure you have a market, even if your campaign is successful. Don't sell yourself short.
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
Team, Tools, Momentum and Money: A Q&A With 3Doodler
Contents
Order Quantities and Shipping
Communication
Building a Team
Social Media
Biggest Challenge
Automating E-mails
First Steps
Money
E-store
Anticlimax
Useful Tools
Maintaining Momentum
Airbrite: When did you start planning your transition off Kickstarter?
Daniel Cowen: About two weeks before our campaign ended.
When’s the ideal time to start planning?
Before you start Kickstarter. When you begin to go through the motions of planning life after Kickstarter, you realize there are things you should have done before you started.
Order Quantities and Shipping
Some projects will realize they should have never allowed people to order multiple quantities. It can cause all kinds of complications.
You also need to look into the microdetails of shipping rates. If we had thought about that ahead of time, certain aspects of Kickstarter would be completely different.
Communication
In terms of the handover, you need to communicate and let people know there will be life after Kickstarter. We started sending updates about a week before the end. Some of your Kickstarter supporters are not checking their messages everyday: some are checking once a week and some not at all.
We sent our backers a seven-point update. We wanted to help them transition to our other social media channels, because some of them were only following us on Kickstarter and we didn’t want to lose anyone when we moved beyond there.
We also wanted to make sure that everyone who had pledged extra money hoping they would get two units knew that they would only be getting one unit, which is all we could promise.
You’re going to end up working with a lot of third parties. You need to manage expectations with them as well. Our plastics suppliers like us because we plan ahead a lot.
And put one person in charge of answering all messages, because then they can make sure that everything gets replied to (even if they don’t reply to each message themselves and instead field them to the team).
Building a Team
So you’re saying hiring a community manager early on is really helpful.
Yes. We sat down with our board after the Kickstarter closed and told them about our plans to build the team. We were overambitious. We thought we needed a 12-person team. Later we realized we only needed a 6- or 7-person team.
One board member said: “You need to hire people who are really flexible.” You’re not in a big organization where everyone has defined roles. In some ways, you have to behave like a real company in terms of image, reputation, liability insurance and logistics. In other ways, you’re still a down-and-dirty startup.
For example, Faraz is a designer, and he can code our website and he manages our e-store. That’s pretty versatile. Laura, her expertise is in accounting, but I know that she can set up RMA systems and write an awesome blog piece if I’m ever swamped.
So when you’re planning your team, pick people who can wear different hats, pick people you’ve worked with before, pick people you trust, and pick people who’ve been on part of the journey with you.
When you’re transitioning to life after Kickstarter you’re going from a phase where you’re superexcited and everyone loves you to a world where you have to deliver a product and keep your audience up to date.
After a successful Kickstarter, you’re launching a product and building a business at the same time. Just doing one of those things is stressful enough.
The first thing we did was we took people like Faraz, who’d been working with us, and we let him know that we wanted him to come on full-time.
If you don’t have a team that has been on part of this journey with you and knows what’s going on, then you’re going to be spending a lot of your time educating and training people. Which you just don’t want to be doing when you’re going from launch phase to shipping and business-building phase.
Social Media
The next point is: communicate with your audience.
What’s been the most helpful channel for you?
Facebook.
More than email?
No. Email and Kickstarter messaging are extremely helpful. You have to realize that to email 25,000 people with something like Mailchimp will cost you tens if not hundreds of dollars a month. Whereas with Kickstarter messaging, you can email as many people as you like for free — forever. And most tend to read their Kickstarter emails.
Facebook is our most vibrant social channel. Twitter is more of a place where we can be responsive. We use Twitter to keep our ear to the ground, respond to queries.
If you don’t know what you’re going to do with a channel, don’t put it out there. You can always tell people about it later. We weren’t ready with our blog, so we didn’t mention it.
We probably overcommunicate sometimes. You should keep communication meaningful. If you weren’t doing that on Kickstarter, you probably learned pretty quickly to update people, because they demand it. So keep reading that comments wall, and keep replying to people the same way you were doing Kickstarter.
Automating E-mails
As far as emails go, help yourself out. If you’re going to be building a business and customer base, you won’t have time to give everyone that same personal touch like you could at the beginning of Kickstarter. But you still want to give some of it.
We personalize every message to people, but we do have some standard answers, because the questions are sometimes predictable: Where’s my package? When is it arriving? I see there are spaces open on the Kickstarter wall when it closed — may I have that space? We’ve had that question about 500 times. Mostly people are just really pleased to get a response, because you often don’t get responses in this day and age.
Biggest Challenge
Right before the Kickstarter project ends, in those final two weeks, what’s the biggest challenge?
Daniel: There were a number of logistical and organizational challenges. But we got so slammed earlier on that we had worked out systems to fix that. We were not expecting 2000 customer service emails in the first two days of the campaign!
The one thing that happens in the week you close a Kickstarter is you get a lot of questions: When will you ask for my address? Will the item be on time? What will the retail price be?
Faraz: We tweeted the most epic FAQ page I’ve ever seen in my life. 51 questions. If even 10 percent of the people communicating with us went to the FAQ page, it helped us tremendously.
Daniel: We went through this horrible period on day two or three when we were no longer able to keep up with emails. And we said to the community: “Guys, we’re going to have to go silent for about two days, because we need to get back on top of our emails and put a FAQ up.”
That open communication was appreciated so much that people started answering each other’s questions on Kickstarter. Then when we put the FAQ up, it was so popular — and we communicated it properly — that the backers would know which question to refer someone else to when a new question came up in the comments. So harness that community. They really want to help. They want to see the product succeed. And they’ll help you do it.
A lot of the best ideas we have are inspired by backers. Like sending extra plastic with the pens. A tiny group was asking for that, but we looked at it and thought it could be good. They had a desire and we worked out how to fulfill it. That’s your job as a company.
Someone else was asking for conductive plastic. We hadn’t worked that out yet, and another person in the community suggested they use conductive paint. Awesome suggestion, and that’s what we recommend now when people ask. A lot of the ideas from the community inspire us.
First Steps
What was the first thing you did after it closed?
We did three big things. The first was to lock down the people we really wanted on our team.
The second was that we started in small, incremental ways to behave like a company. We knew we were going to need help, so we found someone who we knew would be a great board member, and appointed him.
We started looking into how we were going to structure this thing so we wouldn’t get caught out with structuring and financial issues. That stuff takes months to get ready, so the sooner you start, the better.
Money
How does that money arrive in your bank account?
Good question. Everybody thinks you’re suddenly rich. They think you’re sitting on $2.34 million, and that you can suddenly give away loads of free stuff, hire loads of people, throw money around. But you’re not.
You’re sitting on $2.34 million of risk, and 10 percent of that has already been taken by Kickstarter and Amazon. And you realize very quickly that now you have to produce a lot of pens.
It takes 14 days after Kickstarter closes for it to hit your Amazon account. After it hits your Amazon account, you have to deal with all kinds of inefficiencies in the banking system to get it to your account.
So if you have fees or bills to pay, let people know early on that it takes at least two weeks to send those funds. And make sure you have all the banking stuff set up.
E-store
So you lock down the people you want to hire, you start behaving like a company… what’s the third thing you did?
Daniel: The third thing was the e-store. We stupidly thought we wouldn’t have to set up an e-commerce platform straight away. We thought “We did a Kickstarter, anyone who wanted a pen could have got in. In a few months, after we work out the shipping prices and the tax, we’ll set up an e-store.”
With Kickstarter you get a flat-rate shipping fee. But when you look at the different e-commerce platforms, you realize for every state and certainly for every country you may want to charge a different amount for shipping. And you haven’t even worked out who’s doing the shipping, so you don’t know what fee to charge.
Faraz: It sounds like such an easy problem to solve. But when I started looking at these e-commerce solutions, I was shocked that we couldn’t charge shipping and tax later.
Daniel: We went through all the big guys and it was the same. So either you don’t open an e-store until you work it out, or you charge a flat rate, throw in shipping and say “On some we’ll lose money, on some we’ll make money.” As we started looking into shipping costs, we weren’t willing to take that risk.
And the longer we looked at them, the more we realized this wouldn’t be a matter of putting an e-store up in a couple weeks or months. It could take even longer. You can’t truly run an e-commerce site until you know how your supply chain and logistics will work. We needed a solution quicker.
That’s when Faraz and I started looking at every email we’d got, every overture from e-commerce companies, we started doing our own research, and then your email came through. The timing was uncanny. We were knee-deep in the bureaucracy necessary to set up an e-commerce site and so frustrated that we decided we were going to build our own system.
We got the domain name waitlisted.co, and we were going to set up a system similar to when you’re in a bakery and you get a ticket to wait. That was the icon. We probably spent two or three days talking about it, laughing about it, having people tell us we’re stupid for doing it.
The good news is we got your email. I was like “Is this for real?” You were gearing it toward makers, and I understand that — it takes makers time to make stuff — but that wasn’t what got us. I remember thinking “So we can charge people money now? How do we tell these guys they’re exactly what we need without sounding too desperate?”
So we played it kind of cool, but we knew that if you could really do what you said you could do, then it was perfect.
Faraz: A lot of Kickstarter companies rush into this e-commerce thing, but e-commerce is a beast of its own. You’ve got to think about usability, the email campaigns associated with it, design identity, whether it fits your brand. Celery was awesome because we could keep our usability, keep our brand identity and still implement it pretty seamlessly.
Were there any other platforms that came close to what you needed?
Some other companies were asking for us to fill in a shipping table, and that wasn’t something we could do. Your customer service made us feel really comfortable, and we thought if there’s ever an issue, it would be taken care of.
Anticlimax
What was it like after you wrapped up your Kickstarter campaign?
Emotionally, I knew what would happen after Kickstarter. There were people on the team who wanted to maintain that crest of excitement, but you can’t, it’s not possible. Things are meant to dip back down. You should be grateful when they do, because it gives you time to regroup, plan, and actually get work done.
One person was saying we need to be posting on Facebook and maintaining that excitement, and I said “No, we need to do the opposite. We need to avoid annoying people.” Now let’s get on with our work. It’s a series of marathons with sprints in between. Be grateful for downtime. It’s fine. That’s a really good place to be in. You know there will be more coverage and hype down the line if you do things right.
Useful Tools
Aside from Celery, what tools have you found to be really useful post Kickstarter?
I’ve got Hootsuite open right now. I use it to keep my ear to the ground. I have it set up for mentions. So if people are talking about us and don’t know we have a Twitter account, I can catch them, like them, respond to them and they’ll know we’re there, we’re listening and they can communicate with us.
Laura used to do lead generation on Twitter. It’s really powerful. Dick Costolo defines it as the world’s biggest town square.
You can search any geographical area for any term people are talking about. So I have searches set up for 3D Pen, 3D Doodler, because people misspell it, and for some hashtags we’re experimenting with.
Here’s where it gets really fun: If we’re doing an event in Seattle in three weeks, I can set up a search for Seattle and 3D Printing. And if there’s someone really into 3D Printing, I can reach out to them and let them know we’ll be doing a demo.
That is Twitter at its most powerful and it’s not hard to do. That’s the town-square analogy: You can walk anywhere and have a conversation with anybody on Twitter.
We’re using Desk.com for customer service. We looked at others and made a snap decision. I really like their user interface. Their pricing plan was transparent and made sense. I took it on as a trial and stuck.
We use Mad Mimi for some newsletters, Mailchimp for others. Mailchimp is great, but sometimes it has too much functionality. There are times when you just want to send a beautiful, simple newsletter. That’s what Mad Mimi lets you do. It doesn’t have the most features, but it does what it needs to do extremely well, just like you guys.
What we use internally for project management is iSticky. It’s a collaborative sticky note system that sits on your desktop and mobile. We tried basecamp and asana. Why would we use iSticky that when asana sends you updates? Here’s why: when you’re busy, people forget to log into asana or open the application window for basecamp. iSticky literally sits on your desktop and lets you create a sticky for each member of your team.
Maintaining Momentum
What have you done to keep the momentum going post Kickstarter?
A lot of things. The hall of fame is big. It’s our way of saying thank you.
First we set up an e-commerce store. Then we compared ABS and PLA. We wanted to help our users choose between the plastics, but also wanted to set an industry standard, and it’s at the top of Google. It’s a beautiful infographic Faraz made.
Then we had to decide what extras to give people. Once we locked down a supplier for the plastic, we gave everybody a bonus pack, which they were ecstatic about. We did a production update and gave people a sneak peak of the pen.
If your product is hardware, there will be people watching you, and you need to worry about copycats. So you want to do updates about production without giving too much away. You want to keep your community happy, but you don’t want to give your competitors an advantage. In our update showing the shell of the pen, we only took a photo from one angle, and there are some surprises installed that we didn’t reveal.
We’re laying the groundwork to be a central point of information and a creative hub. We’re looking at what people respond to: is it photos of what people have made, is it pieces on the industry?
Has there been anything that’s showed particular promise?
We wanted to give backers some sort of plastic bonus. We had extra plastic in the same color and we had glow in the dark, and we were asking ourselves: “What’s the best way to do this and really give people what they want?”
We put out a Kickstarter update out asking them to air their views. And we asked them to do that on Facebook. That migrated a lot of people in one go. We had them writing and liking on a platform where a lot of other people are writing and liking. It also made them feel involved and gave them what they wanted, which was glow-in-the-dark fluorescence.
Some people complained, because they weren’t on Facebook. You should know that the majority of your backers won’t post and are silent and just happy that they’ll be getting their product. Then there’s a core that are very vocal and engaged, and you need to listen to them, but you also need to keep them in perspective.
Do you expect to see momentum similar to what you had with Kickstarter again?
We may get it when we ship and people starting making things with their pens. The general level of momentum will go up. Once people begin using their pens, the momentum will rise and there will be customer service requests. Our downtime will disappear.
(This interview was conducted before 3Doodler shipped their first batch of 100 pens last month.)
A farewell GIF:
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
Seeking Fulfillment: An Interview with Rush Order's Dana Madlem
Shipment Flow
Factory
Freight forwarder
Fulfillment house
Outbound Shipping
Retail Distributor
Starter Retailers
Larger Retailers
Chargebacks
Promotion
Fraud
Packaging
Startup Phases
Money to Manufacture
Software
Decline of DIY Fulfillment
Sales Tax
Audits
Jurisdictions
Liability
Use Tax
Returns
Rush Order's History
Shipment Flow
1. Factory
Selection
The factory you choose depends on what you make. Accelerators like YCombinator and consultants like Dragon Innovation help startups find the right ones.
Location
Startups tend to have their products made in China, Taiwan, Mexico and onshore, in the U.S., where manufacturing is making a comeback.
The costs of prototyping and production have come down here, and being close to the manufacturing process is crucial. You see most factories in California, New York and midwestern states like Illinois.
Manufacturing flaws
Manufacturing quality is one of the biggest challenges startups face. Just because you're working with a fantastic contract manufacturer doesn't mean the product will meet expectations. A team member should be on the factory floor as each batch is being made. You need to be able to test and remanufacture cost-effectively.
Even the most successful consumer products can get messed up by the factories. We had one case where the wrong firmware was shipped and we had to reinstall it on tens of thousands of items right before the holidays. Another time, the glue just fell off the packaging.
Batch size
Small batches and large batches are two fundamentally different processes. It's much easier to make a product in smaller quantities. Your product could be perfect in a 1,000-unit batch, but at another level of magnitude, things change.
Nominal vs. real cost
There's a difference between the "hard" cost of manufacturing in China, which is always lower, and the real cost, which is up for debate. The real cost can rise based on manufacturing flaws and the expense of monitoring production, which are lower in North America. "Sometimes the problems from the factory are like playing whack-a-mole."
Trade-offs
There are trade-offs in quality and price, and some startups focus on the latter. Even if the factory is fine, the components it uses to hit a price target could be faulty.
2. Freight forwarder
These guys carry your product on a pallet in a container ship from the factory to the destination port and through customs. Here are the top four:
UPS Supply Chain Solutions (SCS)
Fedex Trade Networks
Kuehne + Nagel
K & L Freight
3. Fulfillment house
These guys store it, then pack and ship items as orders come in. They basically run an order management system (OMS), or warehouse management system.
Most fulfillment houses are roughly equal in their ability to competently deliver goods at competitive prices. At Rush Order, pricing is variable. When you do a lot of business, they charge more, when you're doing less, they bill less. "Putting things in a box isn't the hard part," Madlem says. "It's finding all the channels you can sell through. At first, everybody sells direct, but then you find other channels, and target new geographies."
When startups are shopping for a fulfillment house, he said, they should ask these questions:
Is this a good cultural fit? If your head of operations doesn't get along with the warehouse manager, communication dwindles and mistakes happen.
Is the fulfillment house flexible? Startup strategies change from day to day. Some fulfillment houses are designed to serve multinational corporations that are slow to move, while others are oriented toward smaller companies, which may need to access new markets tomorrow. Not being able to change direction can be fatal. "If you hire the wrong vendor, you might not be alive in a year to take advantage of whatever savings they offered you."
Does the fulfillment house have its own software development team? Ask them to describe the developer team and its capabilities. Many houses buy off-the-shelf solutions that are only meant for certain use cases. If they can adapt their software to yours, that eliminates many order errors, which are expensive. Ask the fulfillment house who's on their software dev team, and what each person does. Bad data integration leads to bad customer experiences, and if you're not delighting your customers, your business is at risk.
Is it close by? When you're starting out, you want to be able to visit your inventory.
4. Outbound shipping
This can be the postal service or freight carriers. These shippers include both UPS and Fedex, mentioned above, which some startups choose for both freight forwarding and outbound shipping to consolidate their spend and get better rates.
5. Retail Distributor (or direct sales)
Starter retailers
Brookstone and Amazon Web Services are good places to start. Once a startup reaches a certain volume of sales on Amazon, an Amazon rep calls you to buy your product in bulk and ship from their warehouses.
Larger retailers
Online
Sometimes large retailers want to test a product online only, so you'd be selling at target.com, walmart.com, costco.com
Drop-shipping
When startups sell their product via large retailers' websites, the retailers usually don't hold the goods in stock. They are shipped directly from the startup's fulfillment house with packaging and labels that make it seem as though they were sent from the retailer. "We pretend that we're Walmart." The big advantage: there's no transfer of inventory.
Chargebacks
Most major retailers have between 50 and 150 pages of rules that a fulfillment house has to follow to ship to them. The rules include the size of the packaging slips, where they're placed, what information they include, whether the bar codes are right. Break the rules and the retailer deducts money from what it owes you. That's called a chargeback.
Retailers whose businesses are in trouble make more (and more frivolous) chargebacks, which come out of the startup's pocket. Fulfillment houses will argue their case and appeal chargeback decisions. You have to be able to defend how you shipped and whether you did it correctly.
Retailers also scan the web for a product they sell to see if it's being sold for less anywhere else. If a startup undersells the retailer -- chargeback again.
Promotion = Retailer Credits
Getting a large order from a retailer doesn't mean your product will sell. You need to make sure your product is visible in-store. That means the retailer has to promote it over competing goods. To convince them to do that, you pay them with what's called a retailer credit; i.e. they pay less for your product and keep the difference.
In addition, startups need to be selling other places, selling through Amazon, and using PR to make sure shoppers know their product when they see it on a shelf. Customers have to recognize it immediately or it gets lost.
Order and Credit Card Fraud
Fraudulent orders are a major problem and, paradoxically, a good sign. If people are ordering your goods through front companies using stolen credit cards, that means your product has gained enough visibility that fraudsters know they can resell it on eBay.
Here's how it works: A fraudster, usually in Nigeria, finds a front person, usually in Florida, to order multiple items from you under expedited delivery. Shipping addresses in Nigeria are immediately flagged, so Nigerians set up front organizations in the United States. Zip codes in Florida are the worst. Usually the American buyers are part of a "work from home" scam where they order and reship goods. This kind of fraud tends to happen in year two rather than year one of your startup. If your product is fenceable, you know you've come a long way.
When Rush Order sees the signs of fraud -- Florida zip codes, multiple items, expedited delivery, order velocity from certain cards -- they call the customer to confirm that they're legitimate. It's more often a team of people than a lone wolf. The front people in Florida don't always know they're participating in a fraud; they may be unwitting mules.
Restitution
You need a strong system to screen fraudulent orders. When the real holder of a credit card sees erroneous charges, the payment processors make them whole by taking money out of your account. Which means the startup no longer has the product or the money. If more than 1 percent of a startup's orders are fraudulent, the payment processors can simply refuse to do business with you. "It's up to the vendor to not sell something to a crook."
Rush Order spots fraud that gets past payment processors. Those processors are checking to make sure credit card numbers and addresses are valid, but good fraudsters know how to steal both. PCI compliance is key to stopping bad orders.
Packaging
Packaging isn't too important for online sales since it doesn't convince anyone to buy your product. You put something in a box and you ship it. Just remember it gets beat up more when it's sold online, so make the box strong.
Before you approach retailers to sell your product in-store, you need to envision how it will grab shoppers' attention and fit on the shelves. Bricks-and-mortar retailers have packaging requirements and preferences. You may have already designed your packaging, but they will ask you to reconfigure it.
The Sightline Group: This company helps you decide how to package your product to comply with retailers' requirements. They're experts in pulling demand through retailers.
Kent Landsberg sells packaging worldwide. They make what you need, but they can't always tell you what will work best in certain retail stores.
Decisions cascade. Product design impacts packaging, because you need certain kinds of packaging to sell to retail vs online, and packaging impacts shipping costs. So think ahead.
Startup Phases
During their first phase, startups concentrate on product. On building something excellent through its first and second generation. That's why they outsource fulfillment. Early on, it's about delighting customers with the product and customer support.
Later on, their focus turns to optimization. They start asking themselves how they can shave costs from their supply chain and operations. That's also the stage when they think about going global.
Money to Manufacture
Just being able to make enough product can strain a startup's funds. "Our clients typically go on back order," meaning their customers' orders are not immediately fulfilled. Startups will raise funds just to be able to meet demand. It's a form of trade financing: usually equity, sometimes debt.
If you can make more products in your factory, you start to see economies of scale, since you're lowering the cost per unit, widening your margin, and making your business more profitable.
But economies of scale only start to kick in at tens of thousands of units per month, and then again at hundreds of thousands per month. First batches are usually between 1,000 to 15,000, so scaling takes a long time.
Software
Startups usually begin by keeping their accounts on Quickbooks. It's a basic package that shows you "we made money, we spent money" and not much more.
Quickbooks is not built for hardware startups. Companies want visibility from the factory floor all the way through to fulfillment. Then startups want an ERP (enterprise resource planning) solution like Netsuites. They'll bring that in-house and add headcount to implement ERP.
Before a startup gets its own ERP, fulfillment houses will track their goods. A factory in China will call Rush Order, for example, to say they shipped the product. A couple weeks later, it shows up in in a forty-foot container in the US.
The Decline of DIY Fulfillment
Five or ten years ago, Rush Order had to convince a lot of startups to work with a fulfillment house, because founders wanted to set up a warehouse in their living room or garage and ship from there. This led to what Madlem jokingly refers to as "child labor," because the founders' children were packing boxes.
Some of those startups wouldn't put bar codes on products, since they knew exactly what they were shipping. But when they started selling to retailers, they had to scramble, because the retailers, of course, didn't.
Bar codes are also useful for tracking where product gets sold, which in turn is necessary when you're dealing with a sales tax audit. It's easy to get into trouble.
Sales Tax
Audits
Successful startups should expect to see an auditor walk through their doors at least once every three years. For every transaction, you need to be able to say what you remitted to each level of government, and it's best to know what those taxes are upfront. Without the right compliance in place, startups will typically over- or under-estimate what they owe the state, and both have their drawbacks.
Jurisdictions
Startups are usually obligated to pay sales to multiple jurisdictions for every transaction, depending on where the goods are shipped from, and where they're shipping to.
Those jurisdictions include states, counties and cities. Even on the municipal level, the sales tax can change from one block to the next; e.g. different hospital districts within a town can add surcharges.
Rush Order updates its sales tax data weekly from Avalara, a tax compliance firm based on Bainbridge Island, Washington.
Liability
Some e-commerce solutions -- Shopify, and Magento, if it's not customized -- oversimplify the sales tax that startups need to pay, which can lead to nasty surprises down the road; i.e. the auditors telling you to pay them back taxes.
Use tax
If you send free samples of your product to people -- journalists, for example -- you're still on the hook for use tax. It's not a sales tax, since no sale takes place. But since a company derives benefit from the gift (by receiving press coverage, say), local governments tax the benefit, usually based on the cost of goods sold.
Returns
Startups usually rethink their returns policies, which can be costly. When that happens, they also need the fulfillment house to help them implement changes. Here are a few questions you should ask yourself about returns:
How long do you make the warranty period? The shorter it is, the less it costs you.
Do you send out advanced replacements or wait for the customer to return the defective unit?
What do you do with the returned goods?
Put them back on the shelf
Inspect and refurbish them
Throw them away
Recycle them
Return them to the factory
Return them to the clients’ office to have engineers look at them
Send engineers to Rush Order to inspect them
Do you have customers pay for shipping and handling returns or make it free?
How do you find out why customers are returning goods? And how to you compare that data to your tests on the actual unit returned? This leads to changes in customer service rep training and technical changes in product design and manufacturing. Rush Order's call-center manager spends a lot of time advising clients’ engineering departments.
Rush Order's History
In 1989, Jim Chapman and Doris Kanemura founded Rush Order, which is headquartered in the south bay. They began as software makers working in artificial intelligence, and adapted their software to manage orders for friends. Parts of the original code are still in use. Today, Chapman is CEO, and Kanemura is VP and general manager.
Rush Order's main warehouse is at its headquarters in Gilroy. It has other warehouse operations in Wappinger Falls, New York; Stratford, Ontario; Rotterdam, the Netherlands; and works with partners in the Asia-Pacific region.
While the company can't reveal supply chain details of many of its current clients, it helped launch the Palm Pilot, Jawbone, the Flip Video Camcorder and Roku.
Click here to learn about Airbrite, an order-processing API for developers. We also make Celery, an easy way for startups to take pre-orders.
