Crowdfunding vs credit/loans?

[seedjar]

So, between http://www.edn.com/article/470126-Voices_15_steps_to_starting_your_own_electronic_kit_business.php and then [url]http://blog.ponoko.com/2010/11/16/ten-rules-for-maker-businesses-by-wireds-chris-anderson-—-rule-1/[/url], which I found here while looking for prior discussion on the former, I'm suddenly feeling a bit disillusioned about the feasibility of my aspiring kitbiz. I'm not as concerned with making money as I am successfully developing my project and releasing it for others to use, and have wondered for some time if a crowdfunding banned on Kickstarter or similar would be a viable option. Does anyone have insight into this approach?
~Joe

[nootropic]

Why do you feel discouraged? I think Kickstarter can be a useful way to, in effect, take preorders (but I've never used it). But bringing a product to market doesn't need to cost that much money, so I would try to do it without borrowing. When I started my small kitbiz, it required less than $800 to get things moving, and in hindsight I could do it for less. How much do you think your startup costs will be, and why?

[lyndon]

Why the disillusionment? If you're not too concerned with making money, that's pretty realistic since most people won't break even. Kits can be a great way to experiment and share the process with others while getting enough income to offset your expenses. It doesn't have to be a full time business or even a profitable one.

What are you concerned about?

[seedjar]

My hesitation comes from my lack of resources. I spent the past month or two gathering parts for prototypes, but have been hung up at obtaining the passive components. My problems are largely subjective I'm sure; I seemed to have a lot of momentum when I started and now that I've reached a hard spot I'm kind of pouting.
But I'm uneasy about launching a Kickstarter banned before I can show what I'm doing. I've read pretty much all the advice on Kickstarter and the stuff they link to, but I'm still not quite at the point where I feel comfortable coming up with my own game plan.
Startup costs are hard for me to get a handle on. I think my parts costs should be less than $30 per unit, but I haven't yet put everything into a spreadsheet and worked it out precisely. So by the formulas I've found, my retail cost would be around $75 and I'd need about $800 in parts for an initial run of 25 kits. But I also need to update my tools, my parts estimate doesn't include an enclosure (which this particular project really should include,) and I should have some cash on hand to at least tip my friends and colleagues who have been supporting me with advice, web design, etc.
Then there's one big, very real hurdle. I'm out of work due to chronic health problems and welfare doesn't exactly pay for hobbies or entrepreneurialism - it barely pays the rent, actually. I hate it, and I wish I could do something else, but with my condition it's very hard for me to work a regular schedule; without $1700/mo. in prescriptions I don't stand a chance of holding down any jobs available to me for more than a few months, and I would tank what little health I have in the process. I had to drop out of college for this reason, so my chances of obtaining a full-time job with medical benefits are slim.
As a result, I'm utterly dependent on state assistance, which I would probably lose if people started sending me money for kits. But this is one of the few things I can do independently, even when I feel sick, and I've come to see it as my best chance at remedying this situation without resorting to robbing banks or arch-villainy.
So in addition to the cost of my product launch, I think I'd need to factor in $3000-$5000 for 6-12 months of living expenses, and that's where I start to get really uncomfortable with doing a Kickstarter launch. I feel like my project and the related ones that will come after have real potential for a kitbiz, but if I tip my hand too soon I could end up on the street and with somebody else turning a profit on my idea. Someone could snipe my idea if I do nothing, too, so I suppose that's a poor reason to shy away, but the prospect of falling flat on my face is pretty scary in my situation.
Sorry for rambling, but things are kind of complicated as you can see. I appreciate your consideration.
~Joe

[westfw]

Running a startup (or kitbiz) is usually not considered less stressful than an ordinary job, and includes a lot of effort directed in areas that aren't "the fun part." I think that expecting such a thing to replace ordinary income (state-provided or otherwise) while running at near-hobbyist levels (25 kits/month?) is not very realistic.

state assistance, which I would probably lose if people started sending me money for kits.

I would look seriously into the exact legalities on what you would be able to do without endangering your assistance. I would HOPE that such would not be in too much jeopardy as long as your total income is significantly less than minimum wage ($5000 in 6 months is well below MW, right?) But this is the government we're talking about, so who knows whether the rules make sense or not. Sigh.

[seedjar]

Well, I'm not really expecting it to replace my income - I'm hardly even expecting it to supplement me. But I do think there's a (perhaps remote) possibility that it could become much bigger than I'm anticipating.
More than any sort of financial boon, I would like to make this project into a sort of portfolio/resume item; something that I can get under my belt to show that I at least kind of know what I'm doing in the EE world. Even if it's a total flop commercially, if I do a good job on my design and documentation it will be a good demo of what I can do. And, so long as my prototypes don't self-ignite or anything disastrous like that, they'll at least make useful tools for my own purposes.
So, I guess my game plan at the moment then is to continue with the design and development on my own while I more fully weigh my options for the business side of things. If the idea is so good that it sells itself, then I suppose I won't have much risk going to market with it when the opportunity arises. And otherwise, I just won't sweat it.
As for stress, believe me, with my medical condition, I could be cleaning out septic tanks while making credit card collections calls on my hands-free and be relatively stress-free, so long as I'm my own boss and setting my own schedule. I know it's going to be hard, and aggravating, but really I don't have any other reasonably choice.
Thanks,
~Joe

[westfw]

It seems to me that a nice thing about crowdfunding is that it is simultaneously advertising, pre-order, and funding. If you KNOW you can make 500 widgets for $10k, then if you can crowdfund 500 "purchasers" (who commit at least $20 in return for a final product) you're in the black and you have it made (even if there's not a lot of "profit" in there.) This makes it ideal for certain types of projects where the startup costs are significantly larger than the incremental costs - publishing a book, anything that involves molds or dies. It's less ideal for things that have tiered production costs; I suspect that Gameduino (funded at better than 10x its target) did some serious rethinking - making 600 copies of a board may have higher profit margins than 60 copies, but it's almost a different problem...

[richms]

It would be awesome if there was something like kickstarter but you could have multiple tiers, so people could say commit to buying one tier 1 priced item, or 2 if it gets to the second tier etc, then each tier is a quantity and a price, so they will fund the first tier at $40 a piece for 100 units, the 2nd tier being $30 a piece for 200 units, 3rd tier being $25 a piece for 400 units etc.

That way you dont have to worry about overpaying on something that will go to a massive sucess, but still can have the possibility of buying something if it doesnt make it to the persons wild expectations.

[seedjar]

I'm pretty sure Kickstarter lets you do precisely that, rich. Most people set their tiers to static prices, but I've seen many that have little kickers for extra parts or international shipping with instructions to just add a little onto the base donation. While there are tiers, there's minimal structure to the payment system - you can pledge any value. Even if the first tier is all the way up at $25, you can give just $1 if you choose; you just can't complain in that case when you don't get any goodies.
~Joe

[seedjar]

west - that's a good point, and one that I've yet to really come up with a real solution to. I can easily imagine being overwhelmed by demand. I'm not sure it would be a bad thing really, but it wouldn't be fun, that's for sure. The closest thing I have to an answer is a number of friends who know how to solder but are relatively clueless about electronics and would be amused to use their skills on something more constructive than rebuilding a guitar amp.
~Joe

[ryochiji]

One thing to remember about Kickstarter: they can reject you.

I submitted a proposal hoping to, well, kick start my kitbiz through them, and my proposal got rejected. No explanation beyond "not a good fit."

Definitely submit a proposal if you think it makes sense, but make sure you have a back-up plan in case your proposal is inexplicably rejected.

[itcamefrommars]

When it comes to legitimate assistance programs - your assistance amount is usually based on your other sources of income.
Depending on what program you receive assistance from - the amount of other sources and the reporting of them can affect your assistance amount differently and even those numbers can change every year.

In the past I have received disability assistance for serious health issues and it could be a catch-22 sometimes to gracefully and financially get out from under that. I am personally very "closed source" regarding my personal income and the additional assistance that I am temporarily taking advantage of.... however -
I'll p.m. you with my email to extend an invitation to you if you'd like to discuss some private notes and ideas about this kind of stuff... btw, I am starting kitbiz too... from a very similar (if not same - I'm not sure) financial point of view.

cheers! and just take a break when you feel burnt out. I've had a few designs "sniped" out from under me... just improve it or twist it into something even mo betta! I mean, I came up with the calculus... and got design sniped by TWO other guys! Then I invented differential geometry!

cheers! - mars

ps there are also grants out there for small biz for assistance receiving folks... I wish I knew of that back in the day!