Releasing new product to market, get credit from bank or use crowdfunding?
CuriousOne
Posts: 931
Hello.
First of all, I'd like to thank everyone @ Parallax. Without your brilliant product with best documentation - Basic Stamp, I would never learned how to work with microcontrollers and this product would never be made.
To say long story short, I have built full featured (features like separate user profiles, detailed control of each step, etc all were copied from lab grade $3000 PCR machine) PCR Thermal cycler, which I intend to sell for $199. This is much more cheaper than cheapest commercially available Cycler from openpcr.org ($599). My product is 90% complete - all critical hardware blocks built and tested, practical tests conducted and two working prototypes are currently working at local university in 24/7 mode. The decisions to be made, are minor, like shape of enclosure, resolution of screen, control button location and so on. But still, all above requires time, which translates into money, needed for my family. So I have two choices, get credit from bank, or start online campaign for funding on kickstarter or similar. As I'm old fashioned, I would prefer bank, since terms are straightforward, and no monthly or weekly reports/updates needed and no time spent on PR, website maintenance and so on. On the other hand, as I can see, a lot of crowdfunded projects get much more funding than intended, which in my case, will translate into faster turnaround, better manufacturing capacities and higher revenue for me. What do you think?
First of all, I'd like to thank everyone @ Parallax. Without your brilliant product with best documentation - Basic Stamp, I would never learned how to work with microcontrollers and this product would never be made.
To say long story short, I have built full featured (features like separate user profiles, detailed control of each step, etc all were copied from lab grade $3000 PCR machine) PCR Thermal cycler, which I intend to sell for $199. This is much more cheaper than cheapest commercially available Cycler from openpcr.org ($599). My product is 90% complete - all critical hardware blocks built and tested, practical tests conducted and two working prototypes are currently working at local university in 24/7 mode. The decisions to be made, are minor, like shape of enclosure, resolution of screen, control button location and so on. But still, all above requires time, which translates into money, needed for my family. So I have two choices, get credit from bank, or start online campaign for funding on kickstarter or similar. As I'm old fashioned, I would prefer bank, since terms are straightforward, and no monthly or weekly reports/updates needed and no time spent on PR, website maintenance and so on. On the other hand, as I can see, a lot of crowdfunded projects get much more funding than intended, which in my case, will translate into faster turnaround, better manufacturing capacities and higher revenue for me. What do you think?
Comments
I have no idea what a "PCR Thermal cycler" is so with that intro you get no funding from me.
Which ever way you go, bank, venture capital, crowd funding, it helps to have a bit of a track record in whatever it is you want to do so that people who might put their money up have some confidence in your abilities.
Of course on KickStarter and such you can skip that track record thing. A really cool video might pull it off
More seriously, the magic thing about KickStarter, for example and the only one I have "invested" in, is that you can fly your project idea there with a minimum of up front expense. If there is a lot of interest and you meet the goal then you can go ahead. If no one cares you don't meet your goal and perhaps forget the whole idea. Potential investors keep their money and it has cost you little.
It's a good way of gauging interest without having to spend a ton of cash.
Contrast to the the venture capital investment where you can end up busting your guts to build the product, because the investor wants a return, even when it's obvious the idea is a dud.
Contrast to a bank loan where the bank will want you to pay back all the money you borrowed no matter what happens. Nightmare.
OK, I just googled "PCR Thermal cycler". It's not clear to me how that can attract the mass grass roots support of a KickStarter or whatever.
So I see.
Sounds like everything the "crowd" needs to convince them to put money up for a KickStarter or whatever campaign.
Not.
What is the pull here?
C.W.
Now even I want one!
Here's the cheapest one:
https://www.kickstarter.com/projects/minipcr/minipcr-a-dna-discovery-system-for-everyone?ref=nav_search
Then I got sidetracked on YouTube:
https://www.youtube.com/watch?v=rVwBtIdPxXI
(11 dumbest Kickstarter FAILS!)
If we are scratching our heads as to what you are doing because you have managed to bundle all your excitement and knowledge and teaching and selling into two words "this product", then it may prove to be slightly more difficult going with crowd-funding. Bank loans require a bit of sell too, but to pay the bank back requires a lot more sell on the product end, otherwise you may have to sell what you have.
My best advice is take time to do it yourself off you own back, prove it, and then it becomes a lot easier to see what's needed and to get others interested.
Kickstarter or other investor = their money.
When possible, you want to go with their money, not yours.
If the cheapest competitor is $599, why on earth do you want to sell yours for $199? Is yours junk? Is it only worth 1/3 of your nearest competitor? Why does it cost so little? (No need to tell me; it's what you need to tell your investors, because they'll be asking this question.)
Let's assume it does what the $599 model does, in which case you're definitely in for a lot of work selling the idea to banks and investors. You need to sell them on why you should charge so much less. Is the market at the very bottom significantly large that you want to go after it? They'll want to know why your product isn't worth the $599 of your competitor by comparison, or they might suggest they're not interested if it's only in the "hobby" market.
Your bank, or any individual investor, will also ask you about product liability. Sounds like this could be considered a medical device. Whatever your price, even if it's to amateurs or schools, you need to factor in the cost of liability insurance. Not that you can get it, mind you, if this is to be sold as any kind of diagnostic tool, rather than for its pure educational value. For many types of investors, no insurance = no backing.
Given your pricing, and the issues banks and investors have with anything related to devices with medical uses, Kickstarter is your probably best bet. You can have buyers sign waivers, and your target audience of experimenters, students, and early adopters is appreciative of low-cost alternatives.
I still only have a vague grasp of it but that Open QPCR is such a sexy piece of design work you can't help but want one.
For some, probably irrational reason, I find the term "biohacker" a bit disturbing. Who knows what the Maker movement will come up with when we have "Bio Makers"
I think I'll stick to silicon. I't hard enough to make programs for that never mind hacking on DNA.
Setting all that aside, go with crowd-sourcing unless you want tight control of intellectual property that a private enterprise might offer.
If you go to a bank for financing, they will want collateral. That means putting up your home or other hard-earned assets in case of default. Or they might just give you a credit card with 18% interest. The beauty of crowd-sourcing is that you have patrons that are willing to take a chance and can be far more forgiving than the conventional business community.
Of course, you still have a ways to go with presentation for crowd-sourcing. You will have to educate the average person on why they might want to buy in.
What do you mean when you say "I want to make firmware and hardware design public" and "I'm applying for several patents"?
Those two statements seem contradictory to me. I read "public" and think sharing, open source, creative commons... I read "patent" and think closed, private property, keep away.
Will that expense be worth it? It's generally held that patents are pretty ineffective for the small guy. Venture capitalists seem to like to see patents, they see it as some kind of concrete property that they are spending money on. Something to protect their investment should the venture become huge. Something to sell and get some of their money back with when it all goes south.
Will crowd funders be attracted by a closed, proprietary offering? My impression is the majority of crowdfunders like openness.
Can you really make the thing, production quality, for so little?
The one patent application is for PID system (well not exactly PID, but I don't know how to name it yet) with zero overshot. It can be used outside PCR of course. Another patent is for led wavelength modulator.
It should be noted that our family owns small shop, where we manufacture signs, souvenirs, engrave on tombstones and so on. So we have CNC, engraver, router, milling machine, lathe and so on, all of which I'm using for small scale production. With current payload, without harming main business, I can roll out 2 PCR's per week. But for larger quantities, I'll need to outsource manufacturing.
That doesn't mean that you shouldn't change the plan if it is imperfect. It does mean that you should trying to change the plan before you fully commit to it, and that you should add in extra time and extra capital for high risk factors.
My own feelings are that bringing a product to market is one of the most brutal experiences one can imposed on oneself. Doing the advanced work of creating a business plan and having a crowd-sourcing enterprise critique it may just make the whole experience a lot nicer. It wouldn't hurt to have other business savy people read what you propose -- a CPA, a business lawyer, and so on. You are going to be held liable for taxes, likely over several years. And you want to be sure you have a good idea of the repercussions of failure might be. Many professions might provide free initial consultations as a successful outcome may convert you into a paying customer.
In the USA, the Small Business Administration might even provide a mentor (in the form of a retired volunteer businessman) for free.. worth considering.
Remember that an advantage of crowdfunding is not just the funding, but the crowd part, too. Simply by adding your project to Kickstarter (or similar) you've brought it to the attention of many possible buyers. Outside of a crowdfunding platform, what's your plan for marketing your machine?
Anything else will require a ton of pre-work in developing a business plan. All investors, including a bank, will want to see how you've calculated your market, and why you've picked $199 as the sale price. Given usual markups, to account for common business expenses and a decent profit, that price suggests you can make the machine for about $50. They'll quiz you incessantly to account for every dime that goes into running your business, not just what it costs to make one machine.
Banks don't tend to loan money for projects, but for businesses. They want you to already be in business, or else have a very good track record of running a similar business in the past. If your situation qualifies for either, make an appointment at your bank and strike up a relationship. Discover early if your bank even lends for the type of business venture you are building. You can use the free SBA services to help you create the business plan you'll need.
One alternative is to get an unsecured credit card and use it to kick start your business. It's an alternative, but I don't recommend it unless there's nothing else available to you.
Loopy has also given you excellent advice. There are long term ramifications you need to consider.
Their objective is to reduce the failure rates of new enterprise, but in some instances participation results in an SBA low interest loan as well.
Entirely relying on one's own efforts is hit or miss. SCORE doesn't cost anything but your time and effort and increases your chances of success. SCORE will keep your intellectual property confidential.
https://www.score.org/?gclid=Cj0KEQiAwPCjBRDZp9LWno3p7rEBEiQAGj3KJiBGbj2RVnWD5tSnPatvcZ8pIQIahb6WihdP3DAiqOQaAn_y8P8HAQ
If the $199 selling price is a good number, the input costs should be something in the order of $50 - $75. It also seems that you will be in a bit of a niche market so you won't be building very many per week; essentially this will be small scale manufacturing. With good control of when payments are due, even working with a line of credit would be feasible. But, it means you have to be realistic about how much stock to have on hand and how much money to get from customers up front. ( at least cover input costs).
The finalizing of the enclosure, display and operator interface can take much longer that you imagine. If it becomes a custom designed enclosure, there will be lots of dollars spent!
As to open or closed source, it begs the question when you say "all were copied from lab grade $3000 PCR machine". It is conceivable the owners of that IP might be a bit put off that you've released their ideas into the wild.
And, make use of all mentoring and small business assistance programs in your area.
Cheers,
I had no idea - thanks Loop!
:thumb:
Here's a thread from a Canadian kid out of high school (spoiler, NOT Parallax) who's also very excited about bringing his product to market: http://www.picaxeforum.co.uk/showthread.php?26810-THANK-YOU!-couldn-t-have-made-this-without-all-the-help-from-this-forum!
An LED lighting system for the underside of longboards (skateboards). Looks like he did a nice job.
Tom & Bill, support your fellow Canucks!
There's another funding alternative which could have significant benefits. Before I disclose it, keep in mind I don't know anything about the market you target. This alternative would be to combine with a supplier already making money in the industry, and have them use your product as their latest one. I have seen hundreds of hopeful projects come through Parallax in the last 17 years. I've seen lots of personal fund spent the wrong way, too fast or too slowly, and not yield the results. Depending on what you expect to do for the marketing, accounting, and sales it could be far more productive to combine with a company already serving the industry. You'd make a royalty agreement with them (don't be greedy) for 5-10% of their revenue (post-discount) and work closely with them to own the whole market. In the end, a 5-10% margin can be very good after expenses are considered by doing this on your own. Building a market from nothing can take a lot of time.
Parallax has many products with this specific business model. You're familiar with our RFID Readers, right? They're the most popular in the market place and we've managed to dominate really nicely by providing code examples for all processors including Arduino. These were designed by Joe Grand and manufactured by Parallax. We have about ten other products in the same category.
Ask yourself what aspect of this you really do the best, and what you want to do. Do you want to do design and fabrication? Do you want to be a salesman too? Do you want be an accountant? How about hiring people? Depending on what you want to do and how much you can handle your time being sliced for these different efforts it could prove very worthwhile to focus on what you do best.
There were many excellent points above and I agree with many of them, particularly those stated by Gordon.
Ken Gracey
A. Worked with Mother Earth Productions, Eugene, Oregon that sold Warner Brothers Records on the idea of promoting new music releases on a T-shirt and helped with the printing of the first run of 10,000 T-shirts to promote the Grateful Dead's release of Skeleton Rose album.
Results...
An inspection visit from Bobby Skye of Warner Brothers Records resulted in no further orders. Instead, Bill Graham created his own production line through Winterland Productions using the same equipement and sourced his T-shirts from our original supplier, Steadman Mills. The Grateful Dead went on to produce many T-shirt promotions with Steadman T-shirts. Mother Earth Productions also was the first to commercially use photo separation images on T-shirts as their were no standard dyes available, we just mixed existing dyes by eye and proved that it was possible. Mother Earth Productions went broken, but the recording industry and concert circuit locked on to T-shirt sales as a cash cow.
B. Worked with a major mylar balloon manufacturer that created the whole concept including pattens for manufacture. The company sold mylar balloons nation-wide to major amusement parks and even major car manufacturers.
Results...
Two competitors evolved that completely ignored the issues of patent right, as they had deep pockets for legal battles. One was a major union pension fund. Rather than fight in the courts, the company was left to compete on the open market and make a profit rather than waste its profits in litigation. The owner of the company I worked for manage to make quite a bit and build a nest egg before getting out of the business. But not before he was well mauled by the competition and partners that came in an forced him out.
+++++++++
The point here is that expecting competition to behave nicely is not going get a startup anywhere. A good idea is not enough, you need a good business plan to turn a profit.
Just ask yourself where the original owners of Starbucks are today?
Also, you can't just buy good advice.
Just consider Parallax's own experience with Europe's mandate for lead-free integrated circuits. Parallax spent a lot of time and money with consultation and followed the trend to set up a second lead-free production line. This was many did. But it took only a few months after the change-over to realize that all the consultants and industrial advice was absurd and likely driven by hopes of selling more production equipement. Parallax and everyone else quickly abandoned the idea and just went to one product that complies with lead-free and is accepted world-wide. The lesson learned is an old one, duplicate and parallel inventories are a huge waste of resources. But the real lesson is that consultants may strongly mislead an enterprise just for the sake of making consultant fees.
Having a retired business executive as a mentor is one of the few genuine opportunities to get good sincere help.
Interesting, that's the first I have heard of Parallax ever having 2 dedicated lines, one leaded and one lead free. That must be going way back....
There is no reason to have separate lines to manage two process alloys, but you do need a controlled changeover process to prevent cross exposure. For tin lead product, you can use lead free parts, so inventory can be used for both processes.
Not all consultants are bad, but it is buyer beware. When some big event attracts people to go into consulting, things start to get stupid. I think we all recall the Y2K buzz.
Other People's Money = OPM (pronouced 'opium')
Some info on work progress, just if anybody interested:
Preliminary enclosure design created, and two U.S. based companies offered quite competetive prices, even for small volume production. The minor problem is that, if enclosure is made from polycarbonate, it can be only transparent, which is of course quite trendy in consumer devices, but I'm not sure that it will not be considered as sign of cheapness by scientific society. Polycarbonate can be reliably painted only in volume, so there's no way to make it opaque. Another supplier offers aluminum enclosure in desired shape, but to fit the bill, I have to use their enclosure already manufactured, which will be about 60% empty.
Looking into past, I can say that, most terrifying and nerve-spending was mechanical part - it took me about 1 month just to develop lid hinge, so it will be easy to produce, be reliable and won't cost too much!
For the distribution channel, I've talked with a company which does supply of educational/scientific equipment to apropriate users. They don't have any PCR in their stock list, since, due to high pricing, very few customers would like to buy it, but they are quite positive about my product and will assist in initial offering to their customers and will include PCR in their mail-in catalog.
I also talked with Polymerase supplier, and some mutual agreement of how we foresee our partnership is achieved.
Ummm... But he isn't one of the original founders of Starbucks. And he isn't originally from Seattle. From Brooklyn, New York. Seems to have been somewhat on the lookout for a business to takeover from the inside from the start.
http://en.wikipedia.org/wiki/Howard_Schultz
I do admit he had a better vision of where Starbucks could go in coffee, but the point is that the original owners were pretty much pushed out. Did they benefit as much as Mr. Schultz? I don't believe so. They went over to Peet's Coffee & Tea.
http://en.wikipedia.org/wiki/Peet%27s_Coffee_%26_Tea
"He needed $400,000 to open the first store and started the business. He simply did not have the money and his wife was pregnant with the first baby. Jerry Baldwin and Gordon Bowker offered to help."
It was the original owner's choice not to pursue this alternate venture, but he was still willing to help Howard with funding. How could he not benefit from that non-bridge-burning act?