From the Shop: Crowdfunding is weird.

After seeing the response to last week’s blog post about the the idea of doing a kid’s boat, this week I started taking pre-orders for the Mosquito Burrito.  There are two competing factors leading me to take this approach.  1) I really, really want to make this boat.  The more I think about it, the more I want to do it.  2) I’m not in a position to do another “I’ll eventually break even” project.  If I get enough support for the project, I’ll make the boat.  If not, everyone gets their money back and it gets shelved indefinitely.  So that makes it my first attempt at “crowdfunding” a project.  That’s gotten me to pondering the basic notion of crowdfunding, and I’ve come to the conclusion that crowdfunding is weird.

The model of how a new product comes to market is pretty well accepted.  A company or an entrepreneur develops something through various means- testing, focus groups, feedback, etc- finances the production through either borrowing money from a bank or investor or from their own capital, puts it out into the market, and says “you should buy this.”  Sometimes it works, sometimes consumers just laugh at it.  The crowdfunding model turns that on it’s head.  An entrepreneur comes up with an idea, develops it to varying degrees, and then says to the market “I want to make this, are you interested enough to support it and help me make it?”  Now we all get to have a conversation about what gets produced.  I’m in a position where new boats come with a hefty price tag to put into production- I was probably in to the Condor for $50-60,000 before the first production boat hit the water.  So for me, being able to have a real conversation about what people will buy- not just what they want to see me make- is incredibly appealing. That all makes sense to me, the downside is it largely only captures the opinions of the early-adopters.  The vast majority of consumers are accustomed to the “you should buy this” model;  not in that they want to be told what to buy, but they want to see it and touch it and have their early-adopter friends show them what it does first.  You either need to convince enough early adopters that your idea is revolutionary, or you stick closer to the status quo and hope to bring those farther along the curve on board.

There’s another really strange aspect of the crowdfunding model, and that’s what I’ve been pondering a lot;  the idea of “ownership.”  There’s this odd thing on Kickstarter where you can  give your hard-earned money to a project and receive no tangible reward.  Before I dive into that too far, let’s look at the fundamentals of a transaction and “value.”  Bear with me here, this is where it gets weird….A transaction occurs when both parties feel that the value they’re getting is equal to or greater than the value they’re giving up at that time.  If I give you a $5 bill, and you give me five $1 bills, we’ve executed a transaction were what we have given up is equal to what we get in return.  Now let’s say I’m really, really, ridiculously thirsty, and I want to- no, need to- buy a drink from a vending machine.  All I have is a $5, and it doesn’t take $5’s, and all you have is four $1’s.  The value of this transaction is obvious you to, you come out a dollar ahead.  In this case, the drink might be worth the extra dollar to me.  If I’m thirsty enough, it probably is.  The canoe I sell you- is worth more to you than it is to me- otherwise you wouldn’t buy it, and I wouldn’t sell it.  There’s one more transaction we should look at.  I have $5, you have 4 $1’s, and I need one $1 bill to buy that soda (aside:  I actually don’t really like soda).  You say “Don’t worry about it, I’ll just buy it for you.”  If we accept that people act in their own self interest, why would you do that?  The answer is the feeling you get or the story you tell yourself about helping out your friend or doing a random act of kindness for a thirsty stranger is worth more than $1.

Coming back to crowdfunding, part of the story the supports tell themselves- and those seeking the fund try to sell- is “you helped make this happen, you “own” some of it.”  I still own the mold for the boat, and the inventory, and any profits I may or may not eventually make from the project; you get what’s basically just an emotional stake in it.  If you buy one of my yet-to-be-designed $50 Mosquito Burrito t-shirts, when you see a youngster out of the water with his family in his shiny new appropriately sized canoe, you get to tell yourself, “I helped make that happen.”  The economic question then becomes, “is that feeling worth more than $50 minus the value of the t-shirt?” (Assuming you don’t intend to use the $50 credit toward the future purchase of a Mosquito Burrito.)  Compared to the traditional model of an enterprise bringing a product to market, it seems like an odd arrangement to me, and I guess that’s part of the reason I haven’t done a straight “give me money for this project” option.  We’ve all been told you can’t buy happiness, but it’s asking you to put a dollar value on warm fuzzy feelings.

Circling back to the actual Mosquito Burrito project for a minute, I’m realizing from a strategic standpoint, I’m doing a few things wrong in my approach at crowdfunding this.  First, it’s the wrong time of year.  Much of the east coast is currently getting socked with snow, so putting your kiddo in the water is probably not foremost on your mind.  With holiday gift season coming upon us, it’s also not necessarily the best time for families, especially those with young children, to be spending on a big item that won’t actually be available for several months. But in order for the boat to be ready for warm weather, I need to get the process started now.  As I said earlier, I really want to see this happen, so I’m willing to be flexible in terms of deposits.  The really great thing about doing it this way is we can have a conversation about it.