Sell Before You Build: Proving Willingness-to-Pay
As I've already discussed in “How to Develop Consumer Hardware” and “De-Risk Your Market First”, proving willingness-to-pay (WTP) is a crucial step in your early stage development process as a way to diminish risk and attract funding. To recap for those unfamiliar with the term, it is literally just that: the willingness of your target audience to pay for the product you're building.
Paying being a broad term here: it can be buying, renting, leasing, … Proving it involves being able to demonstrate you can make actual — money-in-the-bank — sales on the product idea you're working on.
But I can hear you thinking: how the hell do I go about that? Especially with a hardware product? I'm not gonna build it to prove I can sell it so I can start building it, right? What kind of circular logic is that? Lucky for you it's become even easier than it ever was (while it's still pretty hard to achieve). You don't need a real, physical product to make your first "sales", especially in the age of the internet, generative AI and photorealistic product renderings (think CGI for industrial designers), …
WTU vs. WTP
Before we go any further I want to address a very important rookie mistake I see early stage startups make constantly when in customer discovery mode and they're running lots of interviews. They often conflate willingness-to-use (WTU) with willingness-to pay and there's a BIG difference!
With WTU you're by default asking people about a future scenario and people suck at predicting their own future behaviors. In interviews you should always be asking about past facts rather than future potentials. I typically demonstrate this through a silly example when I'm teaching a class, I ask them "how many of you would consider buying peanut butter in a bio shop?" Almost half the class's hand go up like clockwork. However, when I follow-up with "And how many of you have ever bought peanut butter in a bio shop?" I'm left with a couple of doubtful hands at best and crickets at worst (sneaky, I know).
Another problem with asking people what they want (besides functional fixedness) is that actions speak louder than words. What people do is always more factual than what they say they'll do because really simply: saying is conjecture and doing is fact. "Do" is better than "say".
Another prime example of this is Philips holding a focus group when they were developing a new line of coffee makers in which they wanted to propose a new color scheme that was very trendy that year. When asked about it, the majority of participants were very excited about the new color and confirmed they would definitely buy one in that color. At the end of the session they were met with a surprise gift for their participation when exiting the buildiung. It was — you guessed it — a coffee maker. But here's the twist: they were given a choice between a standard black model or one in the new fancy color.
A staggering 90% of people chose the black one… Again, action over words.
You just can’t trust folks these days…
Now while very true, this often causes people to dismiss talking to your customers all together, but that's throwing out the baby with the bathwater. If you get shit information, it's because you're asking shit questions.
Regarding WTP, in theory you can also ask about it, but it's not much better than trying to prove WTU in the fact that — as discussed — it can't be considered proof at all. Hence, WTP is inherently linked with "doing" as far as I'm concerned, this will become important when discussing your options on how to go about it.
Even when done right, WTU is a always weak indicator for future product succes, while proving WTP is a strong predictor.
Fake it 'till you make it
And I mean that quite literally here, "making it" as in making your actual product, that's what you do at the very end when you've de-risked your market, requirements and your concept. And the "fake it" in this case is very much about producing visual materials to simulate the existence of your product.
Let me be perfectly clear: it is in NO WAY about faking technological performance for garnering investor’s money in order to further delay the discovery and accompanied reckoning of your inability to deliver on your technical promises. Because that's called fraud, just ask Elizabeth Holmes.
Don’t be a fraud, kids!
The obligatory legal disclaimer aside, back to proving WTP. There are three main concepts at play here (and I'll tell you how to get the optimal combination of all of them in the end):
Waitlists: Building a (e-mail) list of people that show interest in your product-to-be and gaining insights by interaction through e-mail or forum-like environments e.g. Facebook groups.
Mock Sales: also known as "fake door testing", is about setting up a fake environment where the buyer is unaware that the product they are purchasing doesn't exist (yet).
Pre-Sales: pretty well-known: getting an actual partial or full pre-payment months (or even years) before it is launched in exchange for certain benefits (early bird discounts, exclusivity,…) where the buyer is aware of the risk.
There are also two variables to consider: physical or digital. But since for both of them you'll need some form of visual assets, I'll be mostly talking about digital since physical typically more geared toward specialized B2B markets (using physical sales and letters-of-intent) while we're all about that consumer hardware here. The principles are in fact transferrable so we'll focus on digital sales for consumer hardware in this article.
Going digital all centers around setting up a landing page: a simple one-page website that clearly explains your value proportion, showcases your product and offers visitors an option to buy your product. Using crowdfunding platforms can also be a viable approach, but I'd advise to steer clear from that at first, I'll get to that later.
Showcasing your product before you have one is becoming increasingly easier with the advent of generative AI and the levels of photorealism digital product renders can reach these days. You can even go the old-fashioned route of building a looks-like model. Something we did for several projects such as the smart steamer, an ice-cream machine and an autonomous snow blower.
Ceci n’est pas une ice cream machine
All of those were just empty shells with some shiny lights in them and the occasional servo motor (or in the case of the snow blower a functional snow auger that was ripped out of an actual snow blower). Needless to say these routes are bit more expensive, but they do offer a lot of extra value in getting to bring them to trade shows, investor pitches and combining them with any works-like prototypes you might have. It's also much easier to create multiple types of media, especially video.
Now, for the purpose of initial WTP, I would always advise to stick to a limited number of visuals created through renders, actual photographs, genAI and Photoshop. Or you can take on the Dropbox example where they were able to gather 10,000 signups with just a video that explained the concept of their product, without ever showing a (fake) product to begin with!
Waitlists
By far the most low-effort to set up and I would advise anyone to get this up and running ASAP. Here, your landing page might not even show the product itself yet and simply describe what it is your working on (but some visuals are always a plus) with a box for visitors to leave their e-mail if they're interested. This useful for building a marketing list later on, discovering the type of people that show interest and communicating with your potential audience.
Unfortunately, not very useful for proving WTP as you’re much more (trying) to measure WTU, and even at that, it show interest at best. Another downside is that you might be gathering feedback from people that have no proven WTP, which typically results in lower quality feedback, feedback from paying customers > interested folks, always!
Mock Sales
A key element of the mock sale is that you get people up to the point in your fake webshop that they pull out their credit card, fill in their details and click the buy button. At which point they'll receive a message like: 'We're currently out of stock" or "currently not available in your region". No money is ever really exchanged and everyone can go on their merry way, but you've just proven that an actual sale would have gone through! As such, it's crucial that they go through the payment info process and click the buy button as opposed to just clicking a homepage "buy now" button and calling it quits.
How many of you haven't gone through an entire checkout with no intent to buy and stop at the last minute? This often happens when people are looking for more clarifying information on pricing, options, delivery,… but it doesn't prove WTP.
Chances are you've already been on such a website yourself as it is a common tactic, even among large established companies that are experimenting with new corporate ventures under a fake brand.
The downside is that it's much more difficult to pull off with high-priced items, as this typically requires a longer discovery cycle from customers and if things like reviews of the product don't exist, it becomes a tough sell.
Now there are some (unjustified) fears with this approach, which I'll try to address:
"It feels dishonest". To that I say: get off your high horse. Nobody's harmed, no money is taken and everything is perfectly legal. An alternative you can consider to address this (beside getting that stick out of your ass) is just going the community building route with the waitlists and being very transparant about the fact that there is no such product just yet. If they’re interested they can leave their e-mail address (which I would advise to also ask after the "out of stock" fake-out).
"We are exposing our idea". Well yeah, no shit, how else do you hope to sell something later down the line? A lot of founders fall into this trap that they can't talk about their idea in public, let alone show it. Working in "stealth mode" out of fear of people "stealing their idea”. This often results in refusing to do any marketing until the product is completely finished and ready to ship (just FYI: a very, very bad idea)
This is very much a result of the spotlight effect bias, where people have the notion that others think about them (or their company) much more than is the actual reality. Just think about how much you in actual fact think about others: it's very little and the same is true the other way around. It's also closely related to the misconception on the First Mover Principle (or Fallacy as I like to call it).
The reverse is actually much more often true and setting up a onepager like this will increase the chance of scaring off other potential contenders. Think about it: what's the first thing you do if you come up with a new product idea? Google it to see if it already exists, right? So imagine your fake website is out there, indistinguishable from the real thing and a potential contender stumbles upon it? Chances are they'll be more discouraged then when they find nothing!
This is a form of confirmation bias that I'd like to dub the "Perceived Market Saturation Effect", as first coined by me, right here, you're welcome in witnessing such a historic event.
"We're losing a potential customer". Here's another bias kicking in, known as the loss aversion bias. This is the human tendency to have feelings of (potential) loss outweigh those of (potential) gains, often by a factor of two or more!
They've done experiments that people were given a choice of receiving a piece of chocolate or a mug, they always chose the chocolate. But in another case they were given a mug and a week later were asked if they wanted to trade it for a piece of chocolate: almost no-one went for that deal! If that sounds crazy, that's because it is, so get over yourself. Those people will find their way back, especially if you snag their email address in the process.
But as much as I'm telling you to nut up or shut up, I'll be coming with a nice best-of-both worlds scenario later in the article. So let's move on to:
Pre-Sales
Most well-known and made famous by platforms as Kickstarter and IndieGoGo. The model has been widely adopted by several industries and not just startups. As it is famously employed by Tesla: whenever they're building a new car, they get paid upfront. But the same is even true for game developers, where before only for the realm of the indie gamers, even Triple A studios are applying the tactic.
But a word of advice here: make sure your customers are very aware of the fact that they are taking an inherent risk. They need to know that the product doesn't exist yet, it might change in looks and functionality and that they might lose their money.
Even though Kickstarter themselves are very upfront about it, in my experience, people still don't get it. We've run campaigns where people were upset when we couldn't deliver to their country after all, and even if we didn't have to, we gave them a refund and they still weren't happy. It's even come to the point that the CEO of Kickstarter once called out an interviewer when asked about the risk of people losing their money, he simply replied: "We're not fucking Amazon". And you have to make damn sure your audience knows this.
Wait, what?
Another thing to take heed from: Kickstarter is not a funding platform. I know that's what you think it is, but it's not, so don't use it that way. Seth Goden even famously said it should be called "Kickfinisher", and I agree as I see three ways of using the platform:
As a research tool: This can be done when still very early stage. This is when you launch a campaign with no intention of reaching your goal, you just want to gather feedback from the community and if you’re lucky it might hit the goal. But honestly that's more a curse than a blessing at that stage. I would also never suggest using it for that if you're not willing to spend a lot of advertising budget. This makes more sense for that larger corporate venture that want to test a new product idea under a fake brand before entering the development phase.
As a marketing tool: Typically if you have a moderately successful campaign, the money coming in pays for the marketing spend. That's right, that money doesn't go towards development, it’s often a net zero operation. BUT, you did sell a bunch of units (granted at no profit) and created a lot of awareness for free.
As a cashflow optimization : Remember the Kickfinisher comment? If you prepare it well (and I'll tell you how in the elusive "fourth option") Kickstarter (or IndieGoGo) can be a powerful tool to boost initial sales. But you should be pretty far along in the development process in order to reduce the risk for people forking over a lot of cash in pre-sale. The goal is to drum up the cash to go to final manufacturing and invest in CAPEX such as injection molding tooling and setting up an assembly line. Again this would mean that the cash will most likely not produce any (extra) profit, but it's simply a cashflow optimization.
The Fourth Way: The VIP Customer
Now this one is really cool and combines all the best bits of all of the above, I would strongly suggest for all aspiring consumer hardware entrepreneurs to setup your landing page this way once you've proven willingness to use and have a half-decent concept ready. This approach isn’t mine, but I picked it up when working on the Ngrave crypto wallet when they partnered with Launchboom.
If you don't know: Launchboom is a company that does a no-cure no-pay approach to helping you setup a crowdfunding campaign. But to mitigate their own risk they first do what's known as a "TestBoom" where they try to predict the potential succes of the campaign. This process in a way recreates the actual crowdfunding process on a smaller scale on your own website rather than getting tied up in the platform too soon.
Here's how it works:
Credit: Launchboom
First, you have the typical landing page, explaining the product (and being upfront that it doesn’t exist yet) and a box to leave your email. But in this case it's to already reserve a product for when you launch and to take advantage of a huge early-bird discount.
Second, people get the offer to obtain the discount by becoming a VIP Customer through the (refundable) deposit of 1 USD. But they just as well get the option to kept in the loop via e-mail without placing the deposit. After this they get added to a VIP Facebook Group (or something similar) where you can engage with them directly and keep them up to date of the project.
Credit: Launchboom
Now here's the cool part: if people do go through the effort of taking out their credit card and paying even one dollar, they are 30x as likely to purchase your product (or back your campaign) when you launch than anyone else! This is again that loss aversion bias kicking in, and it even works with very small dollar amounts.
The next cool part is, once you have enough of them, you can use their emails to generate "looks-like" audiences in social media advertising tools too target similar people. The mind-blowing thing is that they saw conversion rates of these ads skyrocket from a typical 2-3% to 10-30%!
This means that when you get people to pay you a dollar upfront, it can indicate a 1/3 chance that they actually buy you product when it launches. It's the perfect low-risk, low-hassle WTP indicator.
Credit: Launchboom
Quiz > Survey
A quick and absolute gem of a bonus tactic that I would advise you to add on to each one of these types of one-pagers is a quiz. People friggin' love quizzes, while actually they're surveys in disguise!
Does any of this sound familiar? "Calculate here how much money you might save with our water installation!" or "Which of our products is right for you? Take the quiz!".
In doing so, you're gathering a whole lot of information about these potential buyers. We did a similar thing with the autonomous snow blower where we collected info over the size of their yard, the number of winter days, the amount of snowfall, if they had a garage,… you name it. All to get an idea of the requirements in terms of battery life, docking station size, power usage, …
Imagine that you can cross-reference this with your VIP customers? That would give the best dataset imagineable to build the perfect product!
So what are you waiting for?
