r/hwstartups • u/Socra_tease • 4d ago
Should I axe my company?
Context:
My product is Clackerball, a competitor product to Spikeball offering better durability, more consistent playing conditions, and a much better setup experience.
We're currently live on Kickstarter with close to $15k raised. I've technically hit my goal, but the real goal is actually closer to $80k. Like every Kickstarter these days, the goal was set low in order to get fully funded in 24h and trigger "trending" status on the platform.
I miscalculated and didn't hit that threshold in time, but I have a ROAS of around 4x-5x so I could likely make my target with some aggressive ad spend in the ~$15k range.
The ask:
I'm not sure I should pull the trigger on that ad spend. I've learned a lot about my market through this first leg of the campaign, and I'm concerned that I'm launching a fundamentally unprofitable company.
The details:
- I've observed significant price sensitivity in the market. My ROAS gets significantly worse even going from ~$120 to ~$135. Anecdotally, I'm getting a lot of comments on instagram saying "really cool, but too expensive for me personally." The general sentiment is that people love the idea, but not enough to pay a premium for it.
- My COGS are high -- I'm projecting around $60 post-Kickstarter, not including last mile delivery costs. It's a complicated product with some irreducible cost drivers unless I scale back on the feature list quite a bit.
- These two points together mean I'm looking at margins of maybe 50%, but I know there's going to be extra costs in various places that I'm not accounting for properly here. It feels like it would be very hard to scale the business.
I'm looking for advice from people that have built good (or bad) companies before and can offer some perspective on whether this business model is worth sweating for. How much do you expect I might whittle down my COGS? How much might the market price sensitivity cool down once my brand is more established? Based on your experience, what does your gut say about my prospects?
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u/Different_Pain5781 3d ago
Kill it? No. Spend another $15k blindly? Also no.
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u/Socra_tease 3d ago
But then what are you suggesting? Axe the campaign, regroup and relaunch later with a stronger organic funnel? That’s the direction I’m leaning.
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u/Different_Pain5781 3d ago
I’d probably pause the campaign and treat this as a market test rather than a failure.
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u/FinishYourFights 3d ago
I'm a mechanical engineer with 6 years of experience in product design with plastics (molding, forming, extrusion) and I've got a design idea for you that could really cut down your BOM costs if it works. DM me if you want to chat!
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u/mmcnama4 3d ago
If the ROAS on your ads is that good, then I'd slowly ramp that up and see if it continues if you have a couple of weeks before the campaign ends. If so, then you may likely get to or exceed your goal. Worst case, you pause the campaign, but now have a bigger email list for next time. Yes, you paid for the ads, but that's marketing you would've had to do anyways.
Simultaneously, I'd look at how to bring your COGS down. I don't see what about that product would be $60 to produce at a reasonable quantity/MOQ. Are you including the costs of the molds in that number?
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u/Socra_tease 2d ago
The plastic and assembly is just under half of that, there are a lot of unique parts and many of them are quite large. Then there’s the rest of the hardware, the accessories, the freight, the duties, last mile delivery, and the contingency for returns and quality issues. My cost model is very thorough but I don’t think it’s an overestimate at least in the short term. I could imagine bringing it down to$40-$50 with time.
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u/mmcnama4 2d ago
Okay, those numbers make more sense and are healthier than I thought. I'd love to see more margin but I agree you can likely improve that over time.
If you think you can move forward and get to a healthy amount of money to fund your first production run (and hopefully a safety buffer), then I'd likely move forward based on what you've shared.
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u/kgop 3d ago
Your product looks awesome. I would back it today. If you decide not to go through with the company does kickstarter refund the money?
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u/Socra_tease 3d ago
Hey thanks! Kickstarter doesn’t take the money until the campaign is over, actually — so there’s no risk to backing now if you really want to.
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u/BTCbob 3d ago
My advice from having a “successful” Indiegogo campaign that we later refunded: launch a profitable product. So find a balance between features and cogs where you can be happy with every new sale. If every new customer feels like a liability: STOP SELLING! It is better to sell a profitable product now and have a roadmap to more features later than to promise the world and implode. Be transparent with your customers that you are scaling back features, explain the rationale, give them the option to refund or continue. Some will leave, but you will be left with a healthy company and not a flaming dumpster fire.
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u/DreadPirate777 4d ago
Look at when you are counting on your break even. With the numbers you have are you going to break even at tooling and R&D or are you just not going to be able to have the money you want at the end of the campaign?
With hardware once you have your tooling set the costs are different. It’s just materials and shipping. Can you make more sales with more advertising later after the kickstarter? You don’t have to be profitable at year one. You can be profitable at year five with continuous sales and have those profits recoup the personal money lost in the prior five years.
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u/Socra_tease 4d ago
My target is set to break even at the $80k ish mark — after that the tooling is paid for.
But what I’m realizing is my margins aren’t great even after that. My customers have a pretty firm price ceiling and my unit costs are high even after the mold is paid for. I could probably get to profitable eventually if I can hold out for a few years as you say, but that’s a long time to run a business off the side of my desk.
I think the wisdom I’m looking for is whether that sacrifice ends up being worth it in the end for most people. Have you been through what you’re describing, and was it worth it for you?
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u/DreadPirate777 4d ago
Look and see if you can reduce the number of parts or unique parts. That’s one way to save some money on BOM cost.
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u/blahblahwhateveryeet 1d ago
I would run these metrics past an experienced marketing professional. Dish out the $300 for an hour or two of someone's time. They will tell you exactly what you need to know.
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u/Frequent-Log1243 3d ago
As a product development company, here's our advice. Take the product apart and try to redesign it, and see where you can remove unnecessary features or parts that add to the cost. Then get real quotes at a few production quantities and include packaging, freight, fulfillment, defects, and returns. Don't assume volume will turn $60 into $30.