Tag: Crowdfunding

Why crowdfunding scams are good for society

Yesterday I suggested a scenario about the Skarp laser razor campaign, in which the new device disrupts the current shaving industry giants. Well, that was yesterday. Less than 24 hours after I published the piece in this blog, Kickstarter suspended (a polite word for “dumped”) the project. The people behind Skarp jumped ship immediately to Indiegogo, and seem to be doing quite well in there – gathering approximately $10,000 every hour, for the past ten hours.

There have been several accusations by so-called experts and professional experts in the field of lasers and physics, regarding the feasibility of the laser razor. And yet, the suspension by Kickstarter was formally because of a very different reason: it turns out the Skarp team did not have a working prototype. Or maybe they did, but it was working so haphazardly that it could not be used for actual shaving.

So what’s going on here? Don’t the folks at Kickstarter consult experts before they agree to take up projects that may be physically impossible?

I believe they do not, and that’s generally a good thing.

In order to understand why I say so, let’s first try to see what purpose Kickstarter and crowdfunding platforms as a whole serve in society.

The Three Steps of Innovation

We often hear of the entrepreneur who had an amazing idea. A truly breathtaking invention formed in his mind, and he immediately proceeded to make it a reality, earning himself a few billion dollars and a vacation in the Bahamas on the way.

That, at least, is the myth.

In reality, innovation is based on three distinct steps:

  • Recombination of existing concepts into many new ideas;
  • Finding out which ideas are good, and which aren’t;
  • Rapidly iterating a good idea until it becomes an excellent one.

The Polymerase Chain Reaction (PCR) is an example for a unique recombination of existing concepts that changed the world. The PCR device is used in nearly every biological lab as part of the work needed to sequence DNA, to create new DNA strands, and genetically engineer bacteria, plants and even human cells. The technique was invented by Kary Mullis, who won the 1993 Nobel Prize in Chemistry for it, ‘simply’ by recombining existing techniques and automating them to a degree.

Many other winning inventions are in fact a recombination of existing ideas. Facebook, for example, relies on the recombination of a social network, the World Wide Web, smartphones, image and video storing, hashtags, and many others. Similarly, autonomous (driverless) cars are a recombination of computers, sensors, image processing, GPS, etc.

Since we’re constantly innovating, dozens (and sometimes hundreds and thousands) of new ideas are being added to the mix every year, and entrepreneurs are trying to recombine them in different and exciting ways to create new inventions. This is the first step of innovation: the frantic recombination of existing ideas by inventors from around the world.

The only problem is, most of these new inventions are, well, rubbish.

In his book “How to Fly a Horse”, Kevin Ashton (the inventor who gave the Internet of Things its name) details what happens to newly patented inventions in at least one firm – Davison Design. For the past 23 years, Davison mainly took money from customers to register their patents. Overall, its revenues equaled $45 million a year, with an average of 11,000 people signing with the company. How many people actually made any money from their patents and inventions? Altogether, only 27 people have seen any money out of their patents. The statistics, in short, are grim for any inventor. You may think the market is eager to use your new idea, but you can never tell for certain until the product is actually on the market. In fact, Shinkhar Ghosh from Harvard Business School has discovered that, “About three-quarters of venture-backed firms in the U.S. don’t return investors’ capital”. So nobody knows which idea is going to be any good: not even the big venture capitalists who invest millions of dollars in those ideas.

This is where the second part of innovation comes in: we have to winnow the good ideas from the bad ones. In the past, this function was only performed by government grants and investors. Distinguished committees would go over hundreds and thousands of idea submissions, and select the ones that seemed to have the best chance for success. Unfortunately, such committees are hard-pressed to support all the applicants, and as a result, 98-99% of ideas are refused funding.

Consider, on the other hand, Kickstarter and other crowdfunding platforms. In Kickstarter alone, 43% of campaigns reach their goals and obtain the money they needed to make their vision a reality. In a way, crowdfunding allows inventors to test their ideas: does the public want this new invention? Is it any good? Are people willing to pay for it… even before the factories have received the million dollar contract to manufacture all the parts?

In that way, crowdfunding platforms enable innovation by streamlining the second step: distinguishing the good ideas from the bad ones. And once a good idea has been found and supported – whether it’s an ice chest with a USB charger, or a pillow that covers the user’s head completely – the inventor keeps upgrading and changing the product so that it becomes better with each iteration. This is the reason that iPhone 6S is so much better than the original iPhone.

Innovation is the steppingstone on which our modern day society is built. Innovation leads to increased productivity, and as Paul Krugman says – “Productivity isn’t everything, but in the long run it is almost everything.” Innovative new companies are responsible for the majority of new jobs in the United States, and innovative ‘crazy’ ideas – the kind only few dared to support when they were originally proposed, like Airbnb or Google – have led to wholesale changes in the way society behaves.

Today’s new Google or Airbnb would not have had to look for elite investors: they could’ve went to the crowdfunding platforms to ask for assistance, and their chances would’ve been much higher to receive funding, at least in principle.

That is why Kickstarter is so important for innovation and for modern society: it allows the public to support many more innovators than ever before. And while quite a few of them are going to fail (probably most of them), the ones who make the big breakthroughs are going to change society. At the very least, even the fluked campaigns show the rest of us the value of some ideas. Overall, crowdfunding platforms move society forward.

The Bad Apples

“That is all just swell,” you might say now, “but how can we be sure that the projects on Kickstarter are not a scam? How can we know for sure that the Skarp laser razor isn’t a scam? The experts were all against it!”

Well, here’s a newsflash: when it comes to innovation, you can’t always rely on the experts.

There are plenty of examples that support this statement. Both Lord Kelvin (noted British Physicist) and the great astronomer Simon Newcomb dismissed any attempt to build a heavier-than-air flying machine, a mere two years before the Wright brothers demonstrated the first successful airplane. The British Royal Astronomer Richard van der Reit Wooley has declared confidently that “Space travel is utter bilge” – one year before Sputnik orbited the Earth. In fact, experts are wrong so often about the limits of possibility, that Arthur C. Clarke has issued his First Law about them –

Arthur C. Clarke's First Law. Originally from IZQuotes
Arthur C. Clarke’s First Law. Originally from IZQuotes

In short, experts can be wrong, too, even in matters as rigid as the laws of nature and the ways we can manipulate them. And it is so much easier to get social developments and innovations wrong, since there is no perfect model of the human mind or of society. And thus, no expert would’ve forecast with certainty that people will upload their photos so that millions can see them (Facebook, Flickr, Instagram), or share their houses (Airbnb) and cars (Uber) with total strangers. And yet, these innovative start-ups made it into existence, and changed the world.

That does not mean, of course, that the public should support every wily promise on Kickstarter. In fact, I think Kickstarter did a good thing when they removed the Skarp project because the inventors had no fully working prototype. In the end, crowdfunding platforms need to balance between the desire to protect their users from scams, and the fact that it’s very difficult to distinguish between scams and some extremely innovative ideas. At least in this case, it seems Kickstarter decided to err on the side of caution.

Conclusion

While many are asking whether the Skarp laser razor is a scam, it’s the wrong question. The real question is what purpose Kickstarter and other crowdfunding platforms should have in our modern society, and the honest answer is probably that the users of these platforms have a better chance of seeing their money dissipating into thin air – but altogether that’s a good thing, since more innovators overall get supported – and the few who succeed, change the world.

So go ahead: support Skarp on Indiegogo, or any other crazy idea on Kickstarter, Tilt and the other crowdfunding platforms out there. Buy that new (barely functioning) 3D-printer, the shiniest (and fragile) aerial drone, or that dream-reader that doesn’t really work. Go ahead – now you have the justification for it: you’re promoting innovation in society. Or in other words – bring on the scams!

The Laser Blade that Could Tear Down Gillette and Schick

Shaving is one of the great hardships of my life (and I guess I should consider myself lucky that this is one of my top worries). Up until recent years there have only been two giants in the shaving market: Schick and Gillette. Both are engineering their razor blades with space-age technology, promising you a blade that looks and feels as if it were found floating in space, shining magnificently in the Sun’s bright rays.

And it stings. Oh, how it stings my skin.

Both companies are trying to minimize cuts to their customers’ skin, obviously, but getting the nicking frequency down to zero is a daunting task, and probably impossible. We’re dealing with blades here, after all, sharpened to the point where they could (allegedly) cut air molecules in twine. As the book of Proverbs admonishes us: “Can a man carry fire in his lap, without burning his clothes?”

I would think that the burning clothes would be of the least concern to the guy carrying fire in his lap (please don’t do that), but the point is clear. You play with fire, you get burned. You play with razors, you get cut.

Well, then, why don’t we change the paradigm of using a razor blade for shaving? That’s exactly the idea behind the Skarp Razor project, which has recently surged to new heights on everybody’s favorite crowdfunding platform: Kickstarter.

The basic idea is pretty simple. Instead of blades, the Skarp ‘razor’ is utilizing a small laser beam with a wavelength that was selected specifically to cut human hairs. It does not cut or burn the skin, needs no shaving foam, and only requires one AAA battery every month. Those, at least, are the promises on the campaign site.

The Skarp Laser Razor - a virtual demonstration, from the Kickstarter campaign site.
The Skarp Laser Razor – a virtual demonstration, from the Kickstarter campaign site.

The inventor behind the new blade, Morgan Gustavsson, has worked in the medical & cosmetic laser industry for three decades, and invented and patented the most common method for hair removal using laser in cosmetic beauty salons. Now he’s perfected and miniaturized the technology (again, according to the campaign’s claims which should be taken with a grain of salt) to bring it to everyone’s households.

If the Skarp Razor actually delivers on the promises made, the consequences would be used, and would essentially disrupt the stagnated shaving industry. Schick and Gillette have both competed under a very limited paradigm: shaving is to be done with blades only. Their entire business model revolves around the sale of high-priced blades. How can they handle a competitor that sells only one razor that should last for nearly a lifetime of shaving?

Short answer: they can’t, at least not under their current business model. Unless they find a new breakthrough technology of their own, their business model will be disrupted within a year, and they may well find themselves on the ropes in five years or less. This may be yet another Kodak Moment: a huge industry giant in its field, which gets disrupted following an innovation that reaches to the masses (digital cameras in smartphones), and declares bankruptcy five years later.

The possible disruption of this $4.13 billion market reveals an important principle of today’s industry, which has been mentioned before by Peter Diamandis, founder and chairman of the X-Prize foundation and co-founder of Singularity University: “If you don’t disrupt yourself, somebody else will.”

This principle is particularly relevant in the case of Schick and Gillette. The two giants have not faced any real competition except for each other for a long time now, and were thus unwilling to change their basic operating paradigms. They innovated, decorated and re-innovated their blades, but they did not find new ideas and concepts to re-think the process of shaving. Now, when the laser blade makes an appearance, they will need to frantically look for new answers for the threat.

Of course, nobody can forecast the future accurately, and the new laser shaving technology defies any attempt at foresight right now because we don’t know how it works exactly. Furthermore, the initial product that will be delivered to consumers next year is bound to be in a preliminary state: primitive and rough, and almost certainly disappointing for the wide public. The Skarp 2.0 will be infinitely better and more suitable for the needs and wishes of the consumers – but only if the company survives the first disappointment.

Conclusion

We can’t know yet whether the Skarp Razor is about to disrupt the shaving industry, especially since at the moment it’s no more than a promise on a crowdfunding site. However, if the invention does have merit and proves itself over the next year, the shaving industry giants will find themselves in a race against a new technology that they were not prepared for. I, for one, welcome such competition that will lower the prices of blades, and force the old guard to re-innovate and rethink their existing products and business models. I don’t envy the people at Gillette and Schick, though, for whom the next decade is going to be a hair-raising rollercoaster.