Crowdfunding began as a way for amateurs to fund their projects. When professional projects like the Veronica Mars movie started using it, many people complained. Today, however, the combination of crowdfunding and free software has made open hardware a reality, and is starting to create a new niche of small businesses. Prominent among those promoting this trend is Crowd Supply, a crowdfunding site that carries the approval of the Free Software Foundation.

Josh Lifton, Crowd Supply’s CEO, sees a natural connection between crowdfunding and free software. “Both rely on a distributed group of people,” Lifton observes, “most of whom have never met. Participants in both often get their start because of their own interests, and both, too, are motivated by a degree of idealism,” he continues. “[They] involve looking at the value of a product beyond its profit margin. It’s more about how does this makes life better – and not end up as just another piece of landfill.”

Crowd Supply was founded two and a half years ago by a collection of engineers and designers. Already developing a modern stenotype, Lifton and his team essentially created a site for the kinds of assistance that they would appreciate themselves. “We saw that people were starting to use Kickstarter and Indiegogo as product launch programs instead of just pure art patronage or charity,” Lifton says. “We intentionally started Crowd Supply as a product launch platform” – a set of services and expertise that first-time product producers could use to increase their chances of success.

Besides its specific focus on free software and open hardware, what makes Crowd Supply unique is that it is not just a site on which to post crowdfunding campaigns. “We only do physical products,” Lifton says. “We don’t do software, and we don’t do performance-based things. If you’re not shipping something to your customer, then we won’t do it. Everything else is built around that basic concept. We offer fulfillment services, we offer marketing, we add sales and e-commerce as one re-seller, and, of course, we help people.”

The Rocky Road to Market

Before working with a client, Crowd Supply analyzes its business plan carefully. Lifton describes its initial analysis as “a gut check for people who have no idea how to bring a product market. It’s not a deep analysis,” he concedes, “but no one else is doing it.” What Crowd Supply is looking for is “the story to be told around [a product],” how much its developers want to raise, and how realistic their plans are.

Sometimes, Crowd Supply rejects ideas out of hand, such as perpetual motion machines, at least one of which was actually presented to the company. However, according to Lifton, most of the campaigns it rejects have failed to validate their business plans by presenting their products to any sort of test group or trying to sell a test batch. “We never reject [campaigns] outright,” Lifton says. “We always give some sort of advice and suggest what can be done, so we will consider them again.” Crowd Supply does not get re-applications very often, “but it has happened.”

The clients for whom Crowd Supply is likely to work are usually “professionals who can design a product, but who don’t have the backing of a logistics framework to do accounting, source components, or things like that.” Often the clients they accept are engineers, and often they are working on their first product.

After working with more than a hundred campaigns, Crowd Supply has developed a strong sense of which are likely to succeed. “It doesn’t take us very long to assess where a product is when it comes through the door,” Lifton says. He has noticed two common trends among those whose campaigns succeed. First, they are usually “personally vested” in their product – not financially, Lifton is quick to explain, but in the sense that “it’s their passion.” Second, “they are catering towards a very well defined niche audience. You might think of the better mousetrap and think, ‘well, everyone would want a new mousetrap’, but in fact it’s hard to market to everyone. Instead, you should concentrate on a niche audience that appeals to people who want to put their money where their mouth is. They may not have a lot of money, so I wouldn’t consider them luxury consumers. I would instead consider them value-based consumers. Their values make them wait for the laptop or bicycle that matches their values.”

Outside of open hardware, an example of such a niche product is the Portland Press, a high-end coffee maker. As Lifton points out, people can buy a product with the same functionality at Kmart for one-tenth the price, but the Portland Press appeals to customers who appreciate quality. Similarly, inside open hardware, Librem, the free-software laptop that is probably Crowd Supply’s best-known campaign, appeals to those who support the Free Software Foundation’s ideals of consumer control, although Lifton suggests that it could eventually reach a much larger market if concerns about security and privacy continue.

Crowd Supply does not take equity in the campaigns it agrees to work with, nor does it manufacture anything itself, although it does pass along information about manufacturers that successful clients have worked with. It also gives advice in all the steps on the way to market, from manufacturing methods, to validating business plans via the initial campaign, to producing a second manufacturing run after the campaign. For example, instead of housing hardware in an injection-molded case, it might suggest reducing cost and adding value by building a hand-made case instead. Essentially, Crowd Supply fills in the gaps that would otherwise require more employees.

After the crowdfunding campaign, Crowd Supply might also offer advice about how to get a product into brick and mortar or online stores. It also retains the right to sell products on its own site, which provides much of its revenue. “We only make money if your campaign is successful.” Lifton says.

Throughout this process, Crowd Supply also tries to manage clients’ expectations. “It’s a huge leap to go from idea to prototype, another order of magnitude leap to go to production, and another order of magnitude to go from your first run to steady availability. And none of these things are particularly stable; it’s easy to slide back. That’s why many businesses fail.” At Crowd Supply, Lifton says, “we try to prepare people the best we can for each of those steps.”

The process is rigorous, but it seems to pay off. “The one thing that really sets us apart from everyone else is that one hundred percent of those we have funded delivered a product to their customers,” Lifton claims. Lifton also states that Crowd Supply’s open hardware campaigns have a 56 percent success rate – twice that of Kickstarter’s and several times that of Indiegogo’s.

Growing Pains

Lifton concedes that small businesses that sell open hardware face problems. In particular, preparing a product for market can be expensive, especially in the small quantities that most crowdfunding campaigns involve. “Maintaining the supply chain is a constant struggle,” Lifton says, and sometimes ingenious alternatives need to be found.

Similarly, new manufacturers can have trouble finding vendors willing to take a chance on them. For example, the Portland Press is now being carried by Amazon and Starbucks, as well as other boutique shops, but the Novena, a laptop that was an early success, is currently being carried only by Crowd Supply.

Still, Lifton suggests that the open hardware niche continues to expand, because it fills a need. Crowdfunding, he says, “is a way for people who would otherwise fall between the cracks of venture capital or bootstrapping to bring products to life.” Speaking of Librem, he adds, “I don’t think they could have gotten venture funding – not that I think they necessarily wanted to. The market for software freedom is now taking form in the minds of people who never cared about it before – not as freedom necessarily, but as security and privacy, and [as a way of] breaking the bonds of corporate ownership.”

In fact, Lifton says that “it’s not too long before alternatives to all those big companies will emerge. I think we have some of them already that have launched.” Yet even if that prediction turns out in a few years to be overoptimistic, one thing seems clear: Thanks to pioneers like Crowd Supply, open hardware is no longer a fantasy, but an increasingly plausible approach for small business.