The Inside Scoop is a series that chronicles the ups and downs of starting a Direct-to-Consumer (DTC) apparel company from scratch...in the middle of a pandemic.
Heather and I are two Stanford GSB students with a kickass idea and some early validation, so raising money should be no problem right?
As Heather mentioned in our “3 Things You Need to Start a Business” post, institutional money has super high return thresholds. Since consumer businesses don’t sell for 30x next year’s revenue unlike SaaS companies (more like low single digits), we knew that we had an uphill battle coming to fund this company.
We realized after a few initial conversations ended in “Wait, why is this different again?” that the concept wasn’t resonating with many of our potential investors. We also had some advisor fairs where we saw (only a few!) men avert their eyes and run in the other direction. We came to the conclusion that in order to show that women really want this product, we needed to prove it. Every consumer investor wants "traction" before investing. How do you get traction if you're bootstrapping? Pre-orders could work - you get the cash you need to build your products, but executing a pre-order strategy requires you to build that functionality into your online experience AND train your customers to wait weeks for products.
That’s why we’re turning to crowdfunding. Crowdfunding allows us to be funded by women who believe in our concept and want to see it in the world. But, contrary to popular belief, crowdfunding does not mean free money. There's a 5% platform fee, ~3% payment fee, and a discount to incentivize customers to pre-order. The good news? Any crowdfunding platform already has built the pre-order functionality with their pledging. They have also trained their backers to wait months for product delivery, which is extremely helpful for our first run. We want to put out a product that women love, and having a bit of wiggle room to put out fires feels like a gamechanger! Crowdfunding also allows us to build a community of early adopters who will become our sounding board on what to make next. Feedback is a gift, and we want our community of early supporters to keep giving.
We went through a few crowdfunding platforms to figure out which one might be the best fit for Frankly. Here are some of the pros and cons for each platform.
- Largest user base
- Well-known crowdfunding platform
- Leader in the space
- Almost no cap on what you can raise (a good number of million+ dollar campaigns)
- 70% male base
- Mostly tech products
- Inability to use Facebook pixel for re-targeting post-ads. Note - Facebook pixels allows you to better understand what actions your customers are taking after clicking on your ad. It's a super powerful tool that allows you to be smarter and more analytical about what ads you're serving
- Email address access only after funding period closes (difficult for email marketing).
Fees: 5% Kickstarter fee, payment processing fee of 3% & $0.30 per transaction
- Female-centric user base
- Larger base of resources and training on platform
- Investment by platform into campaigns
- Less well-known site
- Generally lower amounts being raised
Fees: 5% fee, payment processing fee of 2.9% & $0.30 per transaction (BUT - feel good because they pay forward 20% of their profits from fees directly into live campaigns on the site!)
- Facebook pixel compatible for re-targeting
- Well-known crowdfunding platform
- 40% female customer base (much higher than Kickstarter)
- Immediate access to email addresses (immediate ability to communicate outside of platform backer communications)
- Smaller built-in audience than Kickstarter (supposedly about a third of Kickstarter)
- More charitable campaigns (versus product-led campaigns)
Fees: 5% Indiegogo fee, payment processing fee of 2.9% & $0.30 per transaction
Why we decided to go with Kickstarter
Heather and I believe we’ll hit our goal using any of the three platforms, but the biggest potential for upside is on Kickstarter. This seems to be a function of the comfort level with the platform, the higher bar for products on Kickstarter, and audience size. We wanted to have the opportunity to go big, versus just hitting our goal. Despite the lack of re-targeting functionality, we decided that "Kickstarter" name recognition in ads would make up for it. There are so many barriers to actually making a purchase, and we wanted to remove as many friction points as possible. Kickstarter is the most well-known platform, so at least we know the platform won't be the reason why you won't back our project :)
Kickstarter Learnings So Far
1. You need to prepare for months before launch: Videography, photography, copywriting, and editing all take more time than you think. Budget in more turnaround time and multiple rounds of edits.
2. You will likely spend more than you expect AND bring in less than you initially expect: Videos, product shots, and lifestyles shots add up, and we haven't even talked about your models, hair and makeup, or set. Shipping, packaging, and care cards aren't free either. Throw in a discount (99% of Kickstarters have one) on top of your fees, and you're going to be shaving dollars of your top line too.
3. Growth marketing agencies have changed the game: They are in charge of almost every "viral" campaign these days. They can help your headline number a lot, but you give them 30% of any pledge attributed to their campaign on top of providing a calibration period fee and marketing budget.
So here it is: our official announcement that the Frankly Kickstarter launches Tuesday, October 13th. Mark your calendars! We're counting down the days!
The Frankly Founders
Have you run a super successful crowdfunding campaign recently? Comment or drop us a note at firstname.lastname@example.org. We would love to chat with you more.