Enabling a Lean Startup Approach to Hardware – with Indiegogo Head of Global Growth Sandy Diao

· The Boss Interview,Indiegogo,Hardware,Xiaomi,Shenzhen
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The Harbinger recently spoke with Sandy Diao, Head of Global Growth for Indiegogo, a leading crowdfunding platform that has raised over $1b for product innovators. In this interview, Sandy shares her insights on how Indiegogo differentiates by building up a suite of services that addresses the entire lifecycle for hardware companies, how to leverage Indiegogo for market validation and pre-sales, and the role of Shenzhen and Chinese manufacturing in accelerating price, product, and business model innovation.

Transcribed by Shaolong Lin and Yang He; Edited by Tina He

Link to SoundCloud (here), also available via Apple Podcasts, Google Play, etc.

[Editor's note: this interview has been edited and condensed for clarity. The opinions expressed in this article are Sandy’s own and do not reflect the views of Indiegogo]


Introduction to Indiegogo

Adam: Hi Sandy – could you start by explaining what Indiegogo does and how it compares to the other crowdfunding platforms out there?

Sandy: Sure. I think of Indiegogo as a launch pad for the next innovative product. Indiegogo was founded in 2008 as a fund raising platform for the arts, for independent projects that would otherwise not be able to find funding (e.g. from traditional venture capital). In addition to that, it’s a type of fundraising mechanism that allows you to directly access your customers or your fans. In 2015, we started to see that there was a very strong sticking point with companies offering products and tangible rewards to receive support from their backers donated in the form of dollars. And it was really at that time that we had some of our early, monumental hardware successes on the platform, including: Jibo a home social robot, also Skully an AR motorcycle helmet, etc.

So fast track to how we are doing now, Indiegogo is used by small and medium sized startups, to large enterprises like Bose and P&G alike, and it’s used as market validation to test whether or not these new products that we want to offer to consumers are compelling to them, and also a great way for you to get early market traction. So one of the ways Indiegogo really stands out is that we focus on helping businesses build their businesses effectively. Instead of considering crowdfunding as a one-off sales event, we think of it as the first step to gaining market traction. There’s a lot more to come after the initial crowd funding – you actually need to ship products, rebuild relationships with logistic partners, shipping partners, manufacturing partners, and with distribution partners. We care about the entire lifecycle and we put a big emphasis on enabling and facilitating business success throughout that process.

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(Source: Indiegogo.com)

Adam: So does Indiegogo focus primarily on electronic products and smart hardware? For example, whether it’s Kickstarter, or Gofundme, often times they crowd fund for events, for music, or even personal initiatives and activities.

Sandy: That would be correct in terms of our positioning and who we serve best. I think that we don’t have a rule on our platform that you can’t fundraise for the other things, but given our resources, the way that our page and our entire backend is set up, it’s more conducive to companies offering a product–to set up their SKUs, shipping status, etc., and everything else that’s evolved in building and delivering a product.


Crowdfunding Value Prop For Hardware Companies

Adam: So for Indiegogo, in terms of how you differentiate against some of the other crowd-funding platforms, is that based on having a better product and set of services specifically built for the types of product companies you typically crowdfund for?

Sandy: That is correct. And I want to expand a bit on that point. Our platform is made for the product builders and makers, and we strongly believe that service is at the core of everything that Indiegogo offers. We really understand who our customers are. For example, in order to help more Chinese brands and manufacturers export their brands to western countries like the US or Europe, we’ve created a special program called Indiegogo China Fast-Track that enables a company to go from zero knowledge of how to set up a campaign to launching one that raises millions of dollars. One part of this special program is in-language services: being able to provide materials in Chinese language, being able to understand the unique needs and hurdles of working in a foreign country and foreign market. So we really do tailor all of our services wherever possible to the customer that we want to help succeed.

Adam: We all know that Shenzhen (or China in general) is a manufacturing hub, but when it comes to selling to other markets, there are a number of different areas that require localized expertise – e.g. marketing, understanding the local taste and culture. Can you give a specific example of a company you’ve worked with that’s been through the China Fast-Track initiative… can you provide a bit more detail on the steps and various services you provided along the way?

Sandy: Sure, I can share the story of our work with CKCOM, a client of ours and an audio product manufacturer based in Shenzhen. When I first met with the team, it was very clear to me that this distribution company had always been an OEM. They would effectively white-label their products to other brands so that other brands could sell their products, but they have never had a direct channel to consumers. As an OEM, you have really low margins, so it’s very hard for them to profit easily unless they have very large purchase order volumes. I’ve seen companies in Shenzhen that have struggled with such problems for over a decade. They want to transition from being a middleman to having their own brand. It’s aspirational, it’s good for business, and it helps them to produce longer term value, so that when they release new products in the future, they don’t have to rebuild their customer base every single time.

So CKCOM approached Indiegogo, and we were able to help them pair up with marketing agencies, and also help them identify the specific products that they should launch and offer to US customers. And as a result of that effort, they not only were able to increase their profit margin by over 300%, they were also able to create this evergreen brand that they are now able to use to build out a team, attract talent, and continue to build their operations in the US.

One of the critical roles that Indiegogo played in that situation was being the platform that helped facilitate this. If Indiegogo didn’t exist, CKCOM’s next best alternative would be to hire someone like a Stanford or Berkeley grad, someone who was completely bilingual and able to work with both sides of the market, and as you know, that is sort of a unicorn talent. It’s someone that is really hard to come by, and even in the case that they wanted to have this job, how do you convince them to work for me instead of another big Chinese technology firm...

Adam: From what I hear, it sounds like Indiegogo is a very valuable platform that offers early stage companies or some larger companies that are testing their new products a way to really quickly iterate on their ideas. Essentially, getting out a product, getting a market feedback, and really minimizing the cost it takes to launch while also minimizing risk.

Sandy: Right. Another case study that exemplifies this is Bose. They’re already one of the world’s largest audio products makers, and most already know them for the headphones that they sell. Normally for them, if they want to roll out a new product, it would be in the form of a brick-and-mortar roll out. So they’ll determine a few major regions, pick out a few hundred stores to roll out the product, lay down the manufacturing capital, put the units in the shelves, and they use that to test whether or not a product will actually sell.

There are three problems in this strategy. First off, it takes a really long time. Second, they spend a ton of money on that upfront rollout. And third, they actually don’t get the direct customer insights because it is Target or Walmart that is actually selling the products, so you don’t know who the end customer is. So Bose decided to run an Indiegogo campaign for a new product that they were offering, and they were able to bypass all three of these barriers, and decide whether or not to invest in R&D on a completely new product within a span of three months, versus potentially three years.

Adam: That’s a really good example. If you want to test and quickly iterate, it seems that Indiegogo is a really good place to start from. But assuming that the company using your platform wants to scale beyond your platform, where do they go next?

Sandy: Great question. I think the answer is that it really varies depending on the company’s goals. And for instance, I have some clients whose goal entirely is to verify whether or not they are making the right decision, and it could be that they have already decided to build this team, and they just need a different iteration of the product, and yet there are other teams that they have already decided they want to completely roll this out, but they just want that a little bit of initial market traction to gain more internal resources. So it really depends on the company’s individual goals.

I find also that, a lot of the Chinese companies I work with tend to steer on the later side of the distribution strategy, so they have already distributed the product in China, and it’s been a success, and they want to offer variation for a global customer. So normally in those situations, crowd-funding becomes an entirely marketing and branding campaign.


Crowdfunding & Pre-Commerce

Adam: That’s interesting. So I noticed a company called Mobvoi (出门问问), and they sell this wireless ear bud now called TicPods. This is a relatively established company that’s done crowdfunding before, and they’ve raised millions of USD this way. So for them, it seems that they are using Indiegogo as an actual sales channel, a sustainable one.

Sandy: Yeah, I would almost think of it as pre-commerce. Pre-commerce, we find, is typically used in two ways. First, it can be a bit of market validation in the sense that you want to test all of the value propositions that you have put together for these customers, and you have a strong idea in mind of who your customers are, and now it’s time to use crowdfunding as a distribution channel to reach those customers. So it’s a little bit of testing around of everything you learned, and hopefully you go out of the gateway with all the right messaging and all of the right channels.

The second piece of that is sales, pre-order sales, as some people call it, and this contributes to your annual revenue goals. It’s a great way to gain a large amount of sales through short period of time. Crowdfunding is a tool that has a countdown between 30 to 60 days, so it’s almost like a flash sale event, and you get people excited to purchase today and right now. You also are able to showcase and reward your customers for backing you early by providing them with discounts. So there are all these e-commerce tactics and tools that you can use to generate more sales [during a 30-day crowfunding campaign] than you might be able to generate in potentially a 6-month period.

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(Source: Indiegogo.com)

Adam: You mentioned the e-commerce component. Indiegogo creates a ton of value, particularly to those hardware companies we talked about earlier. If you’re a Chinese company trying to enter the US market, I really can’t think of too many online channels. I mean there is Newegg, Amazon, Ebay… and of course Amazon being the largest. Just thinking about it, if some of the companies that come through Indiegogo experience good success, generating millions of dollars of revenue from that, do you ever see Indiegogo become more of a e-commerce platform in itself, and if so, what would it takes for to compete against the likes of Amazon?

Sandy: Well, Amazon has a concept called Amazon Launchpad, which I recommend to a lot of the clients that I work with. Amazon Launchpad is a section on the site for what’s hot and new to the platform, while Indiegogo is a hardware-focused distribution channel. When you go on Amazon wanting toilet paper, that’s intention-based shopping behavior. However, Indiegogo is more of a site for users that may know what they are interested in, let’s say audio for example, but perhaps are also interested to see what’s new in the market.

Furthermore, technology is constantly developing, and we all want to make sure that we are using the most cutting-edge tech out there. So you don’t come to Indiegogo necessarily with the intention that you want to buy a robot that also has Skype voice call capabilities, but you come to the platform and you see it, and you realize that the use case resonates with you, and then you purchase it. And we call that discovery-oriented shopping. If you have an earlier hardware product… Indiegogo is really valuable because it helps you knock down those adoption barriers by aggregating those early adopter buyers and surfacing your products to be discovered.


The Impact of Shenzhen and Chinese Manufacturing

Adam: Based on what we’ve seen, many of the companies that are selling these new hardware products on Indiegogo are Chinese, not all of them, but a large number. I was just curious, despite their best efforts at localized marketing and branding… from a user’s perspective, do they care that many of these products are made in China, made by Chinese companies?

Sandy: All manufacturing roads point to Shenzhen. Whether you are an innovator in the US or Europe, the supply chain goes back to China at some point. You take your first trip here, you land and you are just blown away by everything that's possible. What I really want to emphasize is that China is not necessarily what people thought it to be years ago.

What's interesting for Indiegogo as a crowdfunding platform that very proactively features Chinese products, is that our users see the Chinese companies as more capable of effectively managing their supply chain, reducing cost, and ensuring production in ways that non-Chinese companies can't. For that reason, we find that Indiegogo is able to create a balanced, level playing field for [Chinese companies] in a way that I believe many other platforms are not able to do, even Amazon and other big platforms that focus on mature product sales.

Adam: Let's focus a bit more on Shenzhen in general. For those who have never been there, can you describe the supply chain, what really blows you away there?

Sandy: The supply chain in Shenzhen is at your fingertips. Your manufacturing facilities and all related resources are next door. When you go to Shenzhen and you attend any form of the meet up or events, or even just go meet a company, the first thing they will say to you is that they can drive down to their factory that is 40 minutes away from here to show you how things are going. That's the luxury of manufacturing and developing the products that we will never have here in the United States.

For anyone to manage manufacturing from a world away is incredibly difficult and often times out of your control. For someone based in the US you’d need to hop on a plane and fly to Hong Kong then cross the border to Shenzhen and then from Shenzhen take a taxi-cab down to your plant. I think the access to your entire supply chain within a 40-minute ride is incredible and it allows companies there to be extremely fast, extremely lean, and generally be capable of capturing market opportunities when it comes to creating products around big trends in a way that I don't think is possible here in Silicon Valley.

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(Source: China Sourcelink)

Adam: What does such manufacturing capability allow Chinese companies to do in terms of new product or business model innovation? For example, Xiaomi started off selling smartphones, and eventually started investing in a lot of smart hardware companies and created an ecosystem around that. They are now one of the largest sellers of smart hardware and IoT devices in China and increasingly going overseas. That's just one example, but in general what should a Western audience aim to learn from such developments?

Sandy: Xiaomi is a good case study. Xiaomi has achieved brand recognition and trust for all of its products. If you are a 3rd party brand and you get absorbed into Xiaomi ecosystem, you get to tap into their massive distribution system through physical stores and online channels, and branding via media outlets that achieve your customers' trust right away. One of the ways that they are able to do that is through price innovation. It's offering a product that a customer really wants at a really low price and at a quality that they trust and they deserve.

Here at Indiegogo that’s a trend I identified a few years ago. In 2015 we saw the first variation of a smartphone gimbal stabilizer being offered at $300. With a year’s time, a Chinese company was able to innovate on that and offer a product at half the price. The reason that is so important is because a product is innovative not necessarily because its technology is great, but because it's commercially viable. You can put the product into the hands of the customers and have them actively use it in their lives. I think that's one thing that Xiaomi and a lot of the Chinese hardware companies taught myself and a lot of companies on our platform nowadays.

Adam: Can you talk more about how that could be brought to the US. Is that model even possible in the US?

Sandy: Just my perspective, but I believe that the US retail and ecommerce industry has evolved into a state that is quite different from China.

One of the primary differences is based on how centralized channels of distribution are in China, where they focus on removing barriers of adoption through lowering the price point and making it affordable to the mass consumer. While in the United States, the retail distribution network is incredibly decentralized. In order to meet your revenue goals, you not only need to sell your own brand through the website, you also have to distribute on Amazon. For example, Newegg is servicing those interested in computer components and gaming devices, but they also have Best Buy for consumer products at a lower price point. There isn't really an all-eggs-in-one-basket strategy for distribution in the US as there is in China. With Xiaomi’s distribution, you can afford to put all your eggs in one basket… you get funding, branding, customer trust, distribution.

Adam: Could we see concepts like the Xiaomi store coming to the US? The concept of having an outline store where we can experience a lot of cool and smart hardware products whether it's from China or not, enabling users to actually play with a lot of things and then make a decision to buy.

Sandy: That touches on the idea of O2O marketing that does not happen so much in the US. From a marketing standpoint that would be an online-to-offline cross-platform retargeting & remarketing. Let's say you saw an ad online on Wechat or on the website, you want to try out the product in a store and you purchase it. In the US, we call a form of this “reverse show-rooming”, and one of the examples of that is BestBuy. You don't really buy things from BestBuy anymore unfortunately, but you like to try it out and see if you like it. If you do you will price compare with Amazon and you will buy it there.

In terms of showcasing hardware products, there's much to be desired. There have been a few companies here like B8ta. Target also has its own IoT smart hardware showcase, BestBuy, Bed Bath & Beyond are also trying something similar. Everyone understands that with smart devices they need to showcase how they work, otherwise the majority consumers won’t be convinced to make the purchase. One of the challenges is that the product requires so much demonstration and explanation that just putting the product inside a showroom does not help customers understand how it works. One way that some companies are trying to solve this offline retail challenge in the US is using the format of videos and more interactive media. There are existing companies offering solutions such as VR goggles, VR videos and even AR displays to showcase those interactive situations, but I think that how that become successful remains to be seen in the United States.