2014-07-23

Co.Labs

Is This The Next Big Name In Crowdfunding?

The founders of Dragon Innovation say that inventors don't just need capital--they need valuable advice.



Hardware projects aren't just capital intensive--they take manufacturing experience. Unfortunately for most Kickstarter or Indiegogo projects, crowdfunding campaigns generate plenty of cash, but little in the way of expertise.

That’s where Dragon Innovation comes in: a kind of Quirky without the manufacturing. They help inventors hook up with Chinese factories, make reasonable product roadmaps, and help QA the design.

But oddly, its founders don't see Dragon Innovation as a Kickstarter competitor. In fact, the company collaborates with Kickstarter and is just as happy selling service packages as they are hosting campaigns. “We always joke that you can’t google ‘manufacturing’,” says Dragon Innovation cofounder and CEO Scott N. Miller. But actually, you can. Which begs the question: Is "crowdfunding advisory" a new kind of cottage industry, or can competent people actually figure this process out themselves?

A Crowdfunding Platform?

A year ago, Hammerhead signed up with Dragon Innovation to be a guinea pig as one of the company’s first crowdfunded endeavors. Their campaign for the bike-mounted Hammerhead Navigator was fully funded by late October. It achieved 130% funding despite asking for $145,000, a risky goal considering only 7% of Kickstarter campaigns asking for more than $100,000 are successfully funded. The platform has completed a total 14 campaigns to date.

Dragon Innovation was a great fit for the slick cycling device, but there was still concern about using a far smaller and newer crowdfunding platform than Kickstarter or Indiegogo. The rate to convert browsers to backers is 1%, says Dragon Innovation’s Miller, so a bigger the crowdfunding community will likely equal more funding from habitual backers who are browsing the site. This is critical, since a full third of funding should come from the crowdfunding platform itself, Miller reckons.

By sheer numbers, Kickstarter or Indiegogo would be the smarter choice. But the Hammerhead team knew they would need production advice. Hammerhead cofounder Piet Morgan researched the space--and found only Dragon Innovation advising and helping crowdfunding campaigns.

Morgan started talking to Dragon Innovation’s VP of Engineering Bill Drislane, a cyclist himself. The product made sense to Drislane. With his experience in manufacturing, he explained the challenges of the device to the Hammerhead team.

“When I first got in touch, I was just a guy with an idea,” Morgan says. “Something like Kickstarter is so big that there's not a tremendous amount of dialogue. Dragon Innovation was a much more active partner.”

Like many startups, the Hammerhead team had almost zero production experience. Dragon Innovation filled that gap. Once the Hammerhead team got onboard, Dragon Innovation set up a realistic production timeline, assured quality control, and secured a contract with the ideal factory to roll out the Hammerhead Navigator.

One of the Hammerhead team's bigger problems was naively believing the Hammerhead Navigator would market itself. Like the proverbial tree in a firestorm, Morgan says, they hoped that the Hammerhead Navigator would grow and get funded by organic brilliance. After a fully funded campaign, they're much more aware of the need to spread the word.

Now that they've run the crowdfunding gauntlet, the Hammerhead team might choose Kickstarter or Indiegogo for their next project. But that doesn’t mean their relationship with Dragon Innovation is over. While Dragon Innovation has offered production and manufacturing advisory services for years, they’ve refined their pre-campaign design review and cost estimates into a stylized badge that campaigns can display on other crowdfunding page: the Dragon Certification. That way, more experienced companies like Hammerhead can still get the personal advice and access to pick the Dragon Innovation team’s brains for lower cost--$5,000, a drop in the bucket for larger hardware campaigns. Given the quirky problems that spring up during every production, having that experience onboard is a helpful investment.

“I wasn't aware of the degree to which shipping to different countries needed different certifications--it helped make sense to me the need for certification logos,” Morgan says. But it wasn’t just a smattering of incidents that Dragon Innovation’s expertise aided the young team. “We have benefitted tremendously from off-the cuff help. We received tremendous value just from our relationship with them.”

How Crowdfunding Campaigns Dig Their Own Graves

Since the probability of successfully funding a campaign falls as the price increases, crowdfunding campaigns often intentionally lowball their funding requirements, hoping to hit their actual goal with excessive funding. Sometimes campaigns unintentionally lowball due to poor estimation. In his experience, Miller sees lowballing happen in over 70% of campaigns for either reason. At the end of the day, market forces pressure campaigns into setting their goal low.

The sobering reality is that crowdfunding campaigns only get one shot at wowing their backers, Dragon Innovation cofounder Miller says. If they fail at quality control, the brand is tainted. Since it takes about 12 weeks to get product runs back from factories, poor design or preparation that forces product re-evaluation and new production runs can decimate deadlines.

This is where inexperience hits crowdfunding campaigns hardest--the “unknown unknowns,” as Miller puts it, that creep up and cripple the naive. Dragon Innovation’s Chinese cell knows and has relationships with trusted factories; without that trust, campaigns don’t know if the factory they’ve been directed to gave kickbacks for their recommendation.

Dragon Certifications Raising The Tide

With all that expertise, it’s easy to point to Dragon Innovation’s 55% campaign success rate as a triumph over Kickstarter’s 41% campaign success rate. But that’s apples and oranges: Kickstarter has launched 160,000 projects over five years, while Dragon Innovation has only run 22 in its first year. The assistance and attention is what makes the difference.

And while they’ll continue to hold crowdfunding campaigns, Dragon Innovation is focusing on its Dragon Certification program to assist more companies and entrench its position as a hardware crowdfunding consultant. Dragon Innovation is working on about 30 Dragon Certifications right now.

There’s probably not enough data to definitively say that partnering with Dragon Innovation will increase odds of successfully funding a project. But Dragon Innovation’s wealth of production experience means that a Dragon Certification badge should inspire a backer with confidence that after it’s funded, a certified campaign will reliably ship the product on schedule.

And their experience is substantial. Cofounder Miller, a mechanical engineer by training, spent years as a Walt Disney Imagineer and an engineer for Hasbro. Then he jumped to iRobot’s Chinese division as they started production of their new project: the Roomba. Without really knowing how to scale, Miller grew production to 40,000 units a month and transitioned from VP of iRobot’s Asia Pacific region to R&D for iRobot’s next generation of robots. After 10 years at iRobot, Miller left to start Dragon Innovation--and brought many acquaintances from his Hasbro and iRobot days with him for Dragon Innovation’s U.S. and Chinese teams.

Since then, Dragon Innovation has worked with around 150 companies. Their first great partnership, the Pebble e-paper watch, scored almost 69,000 backers and raised over $10 million, the most financially successful crowdfunding campaign in history. With that crowdfunding clout, Dragon Innovation hopes to use its Dragon Certification as a new standard to raise industry expectations for the reliability and efficiency of crowdfunding campaigns.

Ideally, a company comes to Dragon Innovation 2-3 months before starting a crowdfunding campaign. To earn their Dragon Certification, the company learns about machine design and manufacturing until they gain a real understanding of how to bring products to life. In addition to the $5,000 fee, Dragon Innovation collects 2% of whatever the campaign raises beyond its goal threshold--a clear incentive for Dragon Innovation to train its certified teams for success.

On the other side of the campaign, after it’s been funded, Dragon Innovation’s Manufacturing Services is a separate advisory package. Got a production plan? Got a factory lined up? Can you trust that factory?

“For the equivalent to the cost of hiring a VP of engineering, you get 10 people with a range of experience,” says Miller of Dragon Innovation’s China team.

Logically, the Dragon Certification process should pay for itself as more and more campaigns exit the crowdfunding process prepared for production and to hit their deadlines. Far from encroaching on territory, Dragon Innovation has a good relationship with Kickstarter: Everyone’s aware of the manufacturing inexperience that has casts public doubt on crowdfunding. The Dragon Certification could be the pioneer of a line of third-party agencies that support the crowdfunding dream.

[Image: Flickr user Robert Baxter]




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