Infrastructure Is Huge Challenge For Crowdfunders

A couple of weeks ago I took at look at the future of self-publishing and as I was writing it became clear that there are a lot of parallels with the future of crowdfunding. Like self-publishing, crowdfunding needs a reliable infrastructure to support project owners, but where self-publishing can tap into existing professional communities, there isn’t a similar eco-system of businesses that provide services to the crowdfunding community.

Self-publishing’s advantage is that there is already a flourishing network of author services companies and freelances who are doing for traditional publishers exactly the same kind of work that self-publishers need, in almost exactly the same kind of way. Any self-publishers with the resources can hire the same editors that work on mainstream titles. They can work with author services companies as a one stop shop for editorial, book design and even marketing, dealing with a single project manager instead of a raft of freelances. No such facility exists for crowdfunders.

This is, at its most obvious, because crowdfunding projects are all different, with different rewards and creators in different locations. But there are activities that all crowdfunders need to do: they all need to produce a convincing pitch video, they all need to cost out their reward levels and find suppliers, they all need to manage their backer’s data, they all need to deal with fulfilment. Each crowdfunder has find, and forge relationships with, suppliers and service companies who know little about crowdfunding and who may be reluctant to work on a project-by-project basis, particularly with small budgets.

For many project creators, this is all stuff that they just find a way to do, somehow, anyhow. If they do hire in expertise, it’s done on a case-by-case basis. As far as I’m aware, there aren’t any crowdfunding service providers who act as project managers to assemble a team with the right talent for a given project. This is almost certainly because to do so would be expensive and many projects are run by people who are short of cash — that is, after all, why they are crowdfunding their project and not just getting on with it.

But as crowdfunding becomes more mainstream, projects will grow in size. In the publishing category especially, most projects are quite small, typically a few thousand pounds/dollars, with very few larger projects (Order of the Stick springs to mind). But we’ve seen that projects in other categories are raising substantial sums and I see no reason why that won’t eventually happen with publishing too.

As crowdfunding matures and as larger projects become more common, I suspect that we’ll start to see a more business-like model emerge, and that includes the development of specialised crowdfunding support services. There’s an opportunity here for companies that already do what crowdfunders need — video, copywriting, project management, fulfilment, etc. — the question is only whether they will grasp the nettle and put together an offering that specifically meets those needs. Part of grasping that nettle may be innovative payment structures, particularly for work that must be done before a project is launched. Perhaps there’s a ‘No funding, no fee’ model to be explored, or work could be done for a percentage of the final amount raised with big hits subsidising failed projects.

But I think companies that specialise in the services needed after a project successfully completes, especially large projects, are the ones that will likely be the first to move into the crowdfunding market. Project and supplier management, backer data wrangling and fulfilment are all areas where large projects can need help and where professional expertise can save both time and money.

This fascinating article by Kyle Vanhemert about Jon Fawcett’s Kickstarter project to fund an iPhone charter, Une Bobine, really should be required reading for everyone thinking of crowdfunding. In it, Vanhemert describes the problems Fawcett came up against after his initially modest project overfunded by $211,465. Said Vanhemert:

For Fawcett, the last year has essentially been the process of discovering all those little places where things can go wrong. It was a crash course in everything it takes to put a product in a customer’s hands–and an education in how that can end up being so expensive. “I finally understand why the retail cost of a product is so much more than what the manufacturing cost is,” he says.

“We added up our entire supply chain, from the very first raw materials supplier all the way to the consumers hands, and there’s 15 steps,” Fawcett explains, summing up the hard work. “Fifteen different people who have to get paid, from the time we say ‘build this’ to the time the consumer buys it.”

About a third of that is manufacturing; another third is worldwide shipping logistics; the rest involves getting it from the final warehouse into the consumer’s hands. But it all happens only after the Kickstarter has been a success.

Self-publishers might not have complex supply chains to manage, but even scaling from 100 books to 1000 books is a challenge. And if you start adding in other reward items like bookmarks or T-shirts or fridge magnets it can get very complicated very quickly. Soon, you’re looking at a scale that goes beyond what’s doable in your living room with a few friends to help.

Fulfilment is, therefore, likely to be the first area where we see existing companies being courted by crowdfunders and, perhaps, putting together packages specifically for the needs of that market, and I’ll be writing more about fulfilment in my next post. But crowdfunding is still, like self-publishing, very immature and there’s a lot of opportunity there for businesses willing to help creators put together compelling projects, and to understand and deal with the challenges of overfunded projects.

Source: Forbes – Suw Charman-Anderson
Link: http://www.forbes.com/sites/suwcharmananderson/2013/06/30/infrastructure-is-huge-challenge-for-crowdfunders/

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