Many entrepreneurs are using crowdfunding campaigns to raise
the profile of their nascent businesses and products, while also raising funds.
But the tactic sometimes backfires when a startup isn't prepared for the demand
that follows.
Consider the plight of Radiate Athletics and its co-founder
Kenneth Crockett Jr. , whose $55 workout shirts feature "thermochromic"
technology so that the fabric changes color during a workout, which the company
says shows the muscles that are being used the most.
Last year, Mr. Crockett set out to raise $30,000 on
Kickstarter, where backers contribute to projects in exchange for rewards,
ranging from token coffee mugs to preordered goods and services. Once on
Kickstarter, Radiate began a one-month campaign in which it promised to provide
one shirt to anyone who gave the company more than $29. Its reward for the top
tier, those who gave $5,000 or more, was 10 shirts and a tour of Radiate's West
Chester, Pa., offices.
Mr. Crockett hoped the strategy would help the fledging
company to gain attention for its product and pay for its first production run.
Until that point, Mr. Crockett had made samples of the shirts by hand in his
basement. He figured Radiate could produce small batches of the shirt at a
small South Carolina apparel manufacturer.
By the time the month ended, in April 2013, Radiate had
raised $579,599 from 8,556 contributors, many of whom opted for more than one
shirt. And that's where everything started to fall apart. Radiate, just three
years old and with three full-time employees, was suddenly on the hook to
deliver more than 30,000 orders, some by August 2013, as promised in its online
pitch to contributors.
But in June 2013, the South Carolina manufacturer informed Mr.
Crockett that it wouldn't be able to handle the order. In September, he found a
new manufacturer in China that could produce 30,000 shirts in a single week.
The dying process again caused setbacks, mainly because
Radiate had promised shirts that were machine washable. To do that, Mr.
Crockett said the manufacturer required a hefty investment in high-pressure
dying equipment. Still, shirts made in early production runs at the China plant
are hand-wash only, according to the label.
When an advance run of 3,000 shirts came through that
December, Mr. Crockett said he and an assistant hand labeled and shipped orders
through the U.S. Postal Service. Now, more than a year later, about one-third
of 30,000 orders from the Kickstarter campaign haven't shipped.
The problem mushroomed into a public relations fiasco after
angry Kickstarter backers, posted complaints on Facebook, Twitter and other
websites. Until this week, a product fulfillment center was withholding the
last 30% of the orders until Radiate settled its bill of roughly $40,000.
In an analysis of more than 471 fundraising projects on
Kickstarter that promised goods, study found that only 25% deliver them on time.
As crowdfunding becomes more commonplace, consumers are starting to treat it like
a service, rather than a fundraising tool. As such, they expect the same level
of service from an early-stage venture, as they do from Amazon or eBay.
Kickstarter, which takes a 5% cut of raised funds when a
project meets its target, leaves it to fundraisers to settle any conflicts with
their contributors. The site itself doesn't offer refunds. There's risk
inherent in creating anything new, but that the system overall works remarkably
well.
Click
here to access the full article on The Wall Street Journal.