Israelis – my people – are usually very innovative, working constantly to develop the next great idea. Sometimes these ideas become successful products and sometimes they don’t. One of the latest ideas from Israel trying to make its way into the first group is the cardboard bike.
There’s only one little problem: Its developers might have chosen the wrong platform to bring their product to market – crowdfunding.
It all started when Izhar Gafni, the inventor of the cardboard bike, and Nimrod Elmish the CEO of Cardboard Technologies were looking to raise $5.5 million to build a factory. They thought a crowdfunding campaign might be a good fit to raise at least some of the money given the nature of the product.
“Because we want to include as many people as possible in this green revolution, we launched this Indiegogo campaign. The funds we raise will allow us to establish the first cardboard bicycle production line, thereby creating jobs, affordable transportation and a cleaner environment,” explained Elmish.
On June the cardboard bike crowdfunding campaign was launched on Indiegogo with the goal of raising $2 million in 45 days. With the buzz already building around the cardboard bike and the promise of a sustainable bike with a low $20 price tag, this goal seemed challenging but feasible.
Yet, with all the enthusiasm around the product the campaign didn’t seem to generate much excitement. A few days ago, after raising only $41,000, Gafni and Elmish cancelled the campaign. “We listened to you, our greatest supporters, and will re-open our Indiegogo campaign once the factory is up and running and can offer lower prices and a three-month delivery time. That is the beauty of crowdfunding,” they wrote.
So what went wrong exactly? How come the cardboard bike didn’t have the same outcome as runaway successes like the Veronica Mars’ crowdfunding campaign?
One factor in the failure of the campaign was the price of the bike offered to participants in the campaign – $290 for bike that will be delivered no earlier than March 2015. “The cost of the bike produced in the plant is lower, but contributors understand that the price they pay is necessary to enable the company meet its vision,” Sarit Harel, VP of Marketing at Cardboard Technologies told Israeli newspaper TheMarker.
Elmish added that the $290 bike offered on Indiegogo is basically a collector’s item. He added that in the future the bike would cost approximately $100 in the developed world, enabling the company to sell it at a much cheaper price in developing countries. “A buyer of the bike in the Western world would know that he basically donating two pairs of bikes in developing countries where the bike will be sold for $30-$50 dollars,” he said.
The crowd didn’t buy it. According to Fortune Magazine, of the 5,000 cardboard bikes up for sale at the $290 asking price, only 24 had been purchased by July 1. The company responded with lowering the bike’s cost to $135. “We listened to our community, we took their comments to heart and lowered the price, even if it means the onus of raising the additional capital falls on us,” Elmish told Co.Exist.
This strategy didn’t work either and the campaign managed to raise only $17,000 more before the campaign was completely stopped a couple days ago. The problem, I believe, was not so much with the price tag of $290 in itself as much as it was with the value-for-contribution the bike $290 donation level offered. Cardboard Technologies was asking supporters to take the risks associated with waiting for a factory to be built *and* pay almost three times the price for the product. Usually, crowdfunding campaigns for products offer a discount on the merchandise, or at least a special limited edition.
Now, funders don’t always expect a deal. In the case of the Veronica Mars Kickstarter campaign, 135 people donated $400 just so Kristen Bell and Rob Thomas would follow them on Twitter for one year and 100 people paid $500 to receive a 15-second outgoing voicemail message recorded for them by Kristen Bell.
So apparently people are willing to contribute a lot of money on crowdfunding campaigns and receive gifts with little market value. The thing is that the market value isn’t as important for many people as the value they perceive from the gift. That’s where the cardboard bike failed – it just didn’t generate enough value to justify the $290 price tag. And ultimately customers weren’t interested in subsidizing the cost of the factory.
For those who did care about the market value, the whole idea of paying $290 for a product they were told was going to cost $100 (or even $20 according to many media reports) didn’t make much sense. Prospective supporters also didn’t seem to be impressed with the TOMS’ style model, where they pay more so people in developing countries will pay less. First, $30-$50 is still an expensive price for a bike in developing countries which puts the whole thing into question and second, the part people like about TOMS or Warby Parker is that they pay a great price while doing a good thing – this sort of win-win proposition was missing here. Finally, Gafni and Elmish missed the subtle fact that the buy-one-give-one model offers customers a chance to give a gift with their purchase, while a high price tag is just a high price tag.
All in all, it looks like people might not be as excited about cardboard bike as Gafni and Elmish thought they were. This is another classic example of the curse of innovation, where new products fail because developers systematically overvalue the benefits of the new innovation relative to what an objective analysis would suggest, while consumers systematically undervalue them.
While this crowdfunding campaign failed, I have a feeling this is not the end of the cardboard bike. As Gafni and Elmish wrote they will be looking to partner with equity investors to build our first production facility. One name already mentioned is Jeff Schwartz, the former CEO and president of Timberland, who committed to invest an undisclosed sum in the project.
While crowdfunding remains a great tool for entrepreneurs looking for funding, the failure of the cardboard bike shows us that mastering it is an art in itself and can be a difficult task even for smart people who know how to make bike from cardboard.
[Image Credit: Cardboard Technologies]
Raz Godelnik is the co-founder of Eco-Libris and an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and Parsons The New School for Design, teaching courses in green business, sustainable design and new product development. You can follow Raz on Twitter.