by David Burkus
There’s crowdfunding and then there’s crowdfunding. While most startups who set up pages on Kickstarter, Indiegogo or a host of other crowdfunding sites are looking to hit a specific goal and then get started making their project a reality, a new crop of businesses are using the platform for as a wholly different business model: selling their product before it exists.
It’s a model that isn’t entirely new — software companies have long used “vaporware” campaigns to get an injection of cash by selling software before it’s available. However, these new businesses are doing with tangible products what had only before been done with software. The most recent standout in the class of “vaporgoods” is Coin, which straddles the divide between software and hardware. If you haven’t seen the promos yet, Coin is a new device that aggregates all of your information from credit, debit, and even loyalty cards and can be swiped just like a regular credit card. Coin’s makers first launched a $50,000 crowdfunding campaign and, after hitting their goal inside of 40 minutes, are continuing to take pre-orders at half the future retail price. It’s unknown how many units of the device have now been pre-sold. However, the real success isn’t in the amount of cash Coin raises; it’s that the minds behind Coin have proven there’s a market demand for their product using the only research method that counts: the market itself.
Coin’s pre-existence sales push the concept of minimum viable product (MVP) even further. When Eric Reis was popularizing the concept of an MVP, the guiding principle was to build and release a product with as few features as possible, and then use the market’s reaction to gauge how to refine the product. Coin has managed to test the market without ever actually releasing the physical product. It’s important to note that they undoubtedly developed and tested prototypes, but many customers made the decision to pre-order without ever holding a prototype. In addition to the benefits of an MVP strategy, Coin’s strategy allowed them to mitigate our internal bias against innovative new ideas. Often when a new product, creative work, or ideology is released, the initial reaction isn’t as strong as the creators hoped. Most studies show that 50% or more of all new product launches fail.