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Crowdfunding or Accepting a loan for product manufacturing

AbdullahR

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Oct 30, 2018
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I need about $45k to have my first shipment of products manufactured. I need help deciding about how to go about getting it. I have thought of two routes so far:

  1. Crowdfunding - Spend around $1000-$3000 of my own cash on samples from the manufacturers, shoot commercials, photoshoots, etc. in order to run a crowdfunding campaign doing PRE-sales. The problem with this, is It'll take longer to get to market.
  2. Take a loan - I have someone in my community that will loan me the $45k and they are only expecting a 10% return when the company becomes profitable. This will get me to market faster, but I'll owe money. And Also, I know that @MJ_DeMarco speaks of the client taking the backseat when having an investor.

I've been working on the product idea over the last 2 years passively. Got branding done, contacted a few manufactures, etc. After reading both TMF and Unscripted i've decided to go accelerate it as it follows the NECST commandments. Even though it's not a brand new idea, i feel that I have a niche market that will get behind it because of the branding, being an excellent product, and other variables that I will skew. Everyone that has encountered the branding that I have presented so far for the product loves it.

I have the skill sets to create marketing/sales funnels, websites, google analytics, etc.

Does anyone have some advice on either two?
 

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TooSlow

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The big appeal of going the crowdfunding route is that it proves the market for your product without needing to risk a large chunk of capital up front. I would rather find out it won't work by spending a few thousand of my own money, than borrowing 10x that of someone else's.
 

SRathwell

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A few thoughts....

There is a lot more to crowdfunding than just throwing a couple grand at it and everyone signing up (learned this on the hard way). You need to bring your crowd to the crowdfunding. This take both a lot of time and money. There is ton that goes into a successful campaign long before the Kickstarter page is made....

With taking the loan my other concern is have you tested the market at all? With sample products or even setting up a landing page/funnel to test how many people will actually see the value and part with their money? Without soft proof you may be jumping the gun a little.

I do not want to sound negative because it looks like you have taken a lot of action and are on the right track. With your skill set my first step would to be try and get some soft proof or get some samples made and try to sell before dropping 45K....
 

SYK

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Agree with the above. Go in with the view that you’ll only get 10% of traffic organically from Kickstarter/Indiegogo and you’ll have to bring the other 90%. There’s so much noise on the platforms now.

If you go crowdfunding, email list is everything. And, like it or not, Facebook ads play a massive part of it. All up I probably spent about $10k to raise $120k. Not saying I did everything right, but just an indication of ROI.
 

AgainstAllOdds

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  1. Take a loan - I have someone in my community that will loan me the $45k and they are only expecting a 10% return when the company becomes profitable. This will get me to market faster, but I'll owe money. And Also, I know that @MJ_DeMarco speaks of the client taking the backseat when having an investor.
Is it a loan + equity? Or an investment for equity?

Because trading 10% for $45k pre-launch isn't bad. That values you right off the bat at $450k.

99% of designs and ideas are not work $450k.
 
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AbdullahR

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Oct 30, 2018
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Is it a loan + equity? Or an investment for equity?

Because trading 10% for $45k pre-launch isn't bad. That values you right off the bat at $450k.

99% of designs and ideas are not work $450k.
Actually, its only a loan with a one time 10% return. No equity. This makes it even sweeter. But as mentioned above I may need to spend $3k of my own money and sellout first.
 
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AbdullahR

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Oct 30, 2018
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A few thoughts....

There is a lot more to crowdfunding than just throwing a couple grand at it and everyone signing up (learned this on the hard way). You need to bring your crowd to the crowdfunding. This take both a lot of time and money. There is ton that goes into a successful campaign long before the Kickstarter page is made....

With taking the loan my other concern is have you tested the market at all? With sample products or even setting up a landing page/funnel to test how many people will actually see the value and part with their money? Without soft proof you may be jumping the gun a little.

I do not want to sound negative because it looks like you have taken a lot of action and are on the right track. With your skill set my first step would to be try and get some soft proof or get some samples made and try to sell before dropping 45K....
This is sound advice. I have a few options for testing the market. I could order product samples. Then attempt to sellout on the website. I can spend $1k-$5k on x samples. I'd have to make a decision on what is most important. I could get the same quality materials placed into the product for the range of $1k-$5k. What I'd be paying for is the quality of the packaging. The lower amount I spend, the less quality packaging I could have. The higher I spend on the same x amount of products the higher the quality the packaging. My tiers would be like this:

$1K - Lowest grade of packaging (low but acceptable)
$3k - Middle grade of packaging
$5k - Highest grade of packaging

Which of the grades would you recommend for a test?
 

iizu

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I'd say take the money also.

But try to get atleast some market validation before you get the loan.

Depending on your product, it can take a lot more money than your original quote/estimation from the supplier.
Because 45k$ sounds like custom molds and tools...
 

Autoblow2

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May 29, 2014
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Based on my experience, your best option given the facts you explained is to take the money AND go the crowdfunding route at the same time. I crowdfunded my first product, the Autoblow 2 on Indiegogo back in 2014 and ran a few other campaigns before our current one, Autoblow A.I.

I had the option in 2014 of a high interest loan to get the funding I needed (an advance on merchant processing at 25% for 9 months) or crowdfunding. I went with crowdfunding and was very happy I did so. I later found that a successful crowdfunding campaign with an interesting product will almost always become news generating sales, backlinks, social proof, and if you do it properly, profit.

But if your product is not unique or newsworthy, crowd funders will not back it and you'll have a website dedicated to your failure that will stay online forever, hurting your future sales. I had one campaign for a vibrator called Slaphappy that I later realized was not so innovative and we barely met our goal of $15,000.

That said, a no-risk loan (except perhaps your reputation and community relationships) of 45k where someone asks just 4.5k IF you make enough money to pay it back sounds almost too good to be true so there's no reason to turn it down. But if you can parlay that into a successful crowdfunding campaign, you will win double.

It does depend though on how much of a pain in the a$$ the person will be who lends the money. If you think they won't be on your a$$ all the time (and they understand there is a possibility that they could lose their entire loan amount), take the 45k.
 

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