Consider, if you will, the
case of Ossic, a start-up company that was promising to make headphones
superior to anything currently on the market. If I’m reading the Business Insider story correctly, the idea was that the company would measure the
customer’s head and ears in order to produce a customized fit, resulting in
headphones that both sound better and are more comfortable to wear. The pitch
was apparently convincing enough that investors contributed more than $3 million
USD through their Kickstarter page, and another 22,000 people paid to pre-order
the product before the company had produced anything other than an ad campaign.
Everything seemed to be going well until the company announced that they had
spent all of the money and would be shutting down operations without actually
making any headphones…
Anyone who has been reading
this blog (assuming that anyone has been reading this blog) probably saw this
one coming. I’ve already brought you stories about failed Kickstarter projects
to create watches, board games, movies, audio recordings, and plush toys, not
to mention Go Fund Me projects (the charitable equivalent of crowdfunding) that
also came to grief. What makes the Ossic project so remarkable, from where I’m
sitting, is that even assuming that most of the pre-orders were for the company’s
cheapest product, we’re still talking about somewhere above $4.5 million USD,
which doesn’t include the $3.2 million they got crowdsourcing or the “millions
of dollars” they claimed to have raised from conventional sources…
Even assuming that the
company was exaggerating about their conventional funding, not to mention their
claims that all of their employees had been working without pay for six months
to try and fulfill their commitments to the investors, one still has to wonder
how they managed to squander something in excess of $8 million without
producing more than about 250 demonstrator units (to attempt to generate
additional sales/investments). Did they underestimate the production costs, the
time it would take to establish a revenue stream, or the overhead it would take
to get fully operational? Did their business plan include paying very high
salaries to their senior management team, their engineers, or their marketing
personnel? Did they even have a business plan?
Another interesting question
would be where they found 22,000 people who have never heard the often-quoted statistic
that 90% of all entrepreneurial start-ups fail. One might reasonably assume
that with the stories of failed crowdfunding projects now bouncing all over the
Internet, people would be more cautious about spending money on a product that
might or might not actually exist, but that does not appear to have been the
case here. Even granted that the product descriptions were highly appealing (“Like
virtual reality for audio!”), I have trouble picturing paying $200+ for a
product that does not currently exist from a company I’ve never heard of
before. Admittedly, I refused to pre-order the Apple Watch, either, and that
seems to have turned out all right, but I still have to wonder…
I don’t imagine that anyone
out there spent their rent money pre-ordering headphones, and it’s even harder
to believe that anyone would contribute money they couldn’t afford to a
crowdfunding project. What concerns me is that if projects like this one keep
getting this level of negative attention, there is a real possibility that
people will stop supporting new companies, either through crowdfunding and
pre-orders, or possibly through more conventional channels. If that happens it
seems highly likely that the rate at which new entrepreneurial ventures fail
will exceed 90% - and there’s no telling how many deserving products or
companies will never get their chance…
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