I'm in the early stages of Product Development for my idea. I'm starting to create it in Solidworks and I've invested 10 hours thus far. I'd really like to fund the molds/materials/shipping with Pre-Orders. Would it be viable to put up a landing page with a video and good copy explaining the product, along with Accepting Pre-orders to fund the project? I know that the best validation is people buying your product. If I receive Pre-Orders and the project goes dead can I just refund the pre-orders? (No harm no foul?) Anyone with similar experience?
Hi there - great question(s).
You "can" validate and fund projects at the same time. In fact, at some point the critical part of true validation is showing that quantitatively someone will pay something for your product/services. Now, whether you should fund while validating is the more important question. A lot of entrepreneurs look at the payment component as as round 2 or 3 validation point, and instead start with a tacit validation exercise, focusing less on business model (how much will someone pay for this and how will they pay?) and more on showing a consumer need/ability to target that market with your proposed solution.
In the example you use, if you do commence with taking pre-orders but ultimately the project falls through, you would and should be most inclined to fully refund their money (and stating that on the landing page could do wonders for your adoption of people pre-registering.) the reality is, unless you are showing a sample product or touting something that people can easily comprehend, the chances of you getting a volume of people (outside of your own network) to pre-order something from a brand new company might be on the slim side.
But let's say you do get people to sign up - the challenge is that you are using their cash to fund ongoing operations. So if the project falters or goes belly-up, the chances of you having all or even some of everyone's money might be slim. So this would be a reason to advocate potentially against using pre-orders (and collecting payments for them) to fund ongoing operations. A savvy buyer will note this too and may seek to avoid that risk altogether.
I could think of several ways you could fund ongoing operation with your product/early beta, but it really depends on 1) the product you're launching, 2) what your target buyers are, 3) your operational costs and 4) your goal of the beta/validation stages. It requires a bit of guidance and dialogue, but there are several options you should be able to choose from for funding, and if one of those is using pre-orders or the validation phase to generate funds, there are things you should strongly consider to protect yourself and your consumers.
Happy to hop on a call and discuss your idea and options further. Just follow the link and request a call!
For any fund-raising process, traction is the key. Since you are validating and cannot really talk about traction (so far), the next important factor is projections.
The way you prepare projections can be critical to raise funds in your case. If you need any any email in your pitch deck, you can setup a call with me! :)
Cheers, and good luck!
I've seen two companies with mid-seven figures funding, one of which I co-founded, fail first-hand. Neither of these companies validated the idea prior to building it. Based on these two experiences I'm a huge proponent of validating first, building second.
I think there are two common pitfalls that people with an idea fall into, when they choose to build first, validate second -
1 - If I think it's a great idea, there must be a lot of other people who do too.
I think this pitfall is caused mainly by the optimism that is naturally inherent in entrepreneurs. I personally have no shortage of ideas, most of which I believe are good ones :)
I took a course by Noah Kagan of AppSumo, where he suggests finding three paying customers, prior to building a product. When I started validating my ideas this way, prior to launching, I was surprised at how quickly I learned the lesson that just because I thought an idea was a great one, that didn't mean anyone else did.
2 - Building is more fun/satisfying than validating
When we're building something, we experience tangible progress and feel like we're exerting some degree of control over our future. Both of these experiences work powerfully on our conscious and sub-conscious mind.
As a result, it's easy to get pulled into a project, get enticed and distracted by the momentum that seems to building as we're making "progress", only to release the product to the market and have it fall flat due to lack of demand.
So, if it isn't clear by this point, my strong suggestion is to validate first, build second :) I think the good news is that the availability of crowdfunding platforms, landing page builders, etc., makes this approach easier than ever before.
You may also be surprised at how much work goes into validating your project, so you may still experience the satisfaction of feeling like you're making progress, if your idea begins to gain traction and/or you begin to interact and communicate with potential customers.
Good luck and always happy to discuss further on a call!