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!

Answered 7 years ago

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