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Project update 10 of 38
You may hear the term "risk management" from people in suits, giving an interview or just throwing around some clever words on financial channels. All it means is that you think about as many bad scenarios as possible, and plan for them accordingly. We did this analysis before crowdfunding, and, as you may expect, we were unable to predict them all. In this update, I want to share our experiences with you, in the hopes that you can avoid them if you find yourself in such a situation.
If you are one of our backers, a little spoiler for you: everything is OK, but delivery time has been increased by about two weeks.
So, here is a review of the past week’s key events.
We received approximately twice as many orders than expected. So, we need to produce a bigger batch, which will take a bit more time. In our production plan, we mentioned a "pilot run" and a "main batch." Originally, the pilot run was estimated to take two weeks and was our basic scenario, and the main batch allowed three weeks more (five weeks in total). These timelines included a bit of a buffer. However, with our current number of orders, actual production time will be somewhere in the middle — about four weeks. Crowd Supply crowdfunding rules allow you to use your money as soon as you’ve achieved your campaign goal. We raised our campaign goal of $35,000 two weeks into the campaign, gaining us about 26 days. That is, theoretically, we were able to start production much earlier. But we didn’t start earlier, and now I realize that was a bad idea. The reason we didn’t start earlier is because it was really difficult to estimate the final number of orders we’d gather in the remaining 26 days of the campaign. If we didn’t produce enough boards in the initial batch, subsequent batches might have been substantially delayed. In retrospect, it would have been better to start the initial batch right away and plan from the beginning to produce a second batch.
Well, we did one childish mistake here, but I should describe it as it might help other small teams to avoid it. We created our company, StereoPi, LLC, along with a bank account in December 2018. A week before the end of the campaign, I asked our New York partners to check that the account was ready to receive funds. We got a surprise here. It appears that our account was not monitored for several months, and a monthly fee was charged several times, dipping the account balance into the negative. So the account appeared to be frozen. I said, "Okay, let’s fill up our account so it has a positive balance, maybe pay some additional charges and unfreeze it." At the bank, they asked us to fill out some paperwork and wait a couple of days for the result. After a couple of days, the bank said the account was not frozen, but closed. On the next visit, we clarified that a closed account is not useful to us. The conversation was not exactly productive and went something like this:
Us: "We can’t do anything with a closed account, so please open new account for us."
Them: "No, we can’t, as you already have an account."
Us: "But it is closed now."
Them: "No, we can’t."
The situation appeared unsolvable. It was the evening of Monday, March 11th, the campaign had already ended, and we had no account to receive the funds and start production. We decided to go to several banks’ offices the next day to ask if any of them could open an account in one day. On Tuesday, we found such a bank, obtained account details, provided them to Crowd Supply, and they transferred the funds. On Wednesday morning, we saw money in our account.
The obvious, but important, conclusion for us from this story: fill up a new account with several hundred bucks right after opening, and always monitor your account. In the end, the problem was solved, but we lost some time. Below, we go over how we can get some of this time back.
Usually wire transfers between banks take one day. You send money today, and the other party will receive it tomorrow. But we wanted to send funds to our manufacturer faster, so we used a trick which may be useful to you in the future.
To do this accelerated money transfer, you need the receiving party’s bank to have an office in your city. The procedure is simple:
The result was that the money was in our manufacturer’s account in approximately an hour.
As mentioned above, two factors contributed to our production delay: an increased number of orders and time lost on bank account problems. We saved one day on the money transfer to our manufacturer, but we needed more.
When considering risks before a crowdfunding campaign, you cannot predict all possible scenarios and expenses. That’s why you have to prepare some financial reserve for unexpected situations. We had built-in such a cushion, and used a sensible part of it to buy some time for us.
I asked our manufacturer if there were options to decrease production time without reducing quality. It became clear that any obvious solutions (like partial production and delivery) did not give us any serious time bonus. But the manufacturer proposed their "express service," which, in some production operations, would put our order first in their production queues. This is a costly option, but we decided to use it, as it will save us more than a week.
Conclusion: when conducting risk management exercises, try to ask for all available options from your partners. We didn’t know about the "express service" option until we asked.
That’s all for this update, but we’ll be back next week with another! In the meantime, feel free to get in touch with any questions or your own stories of lessons learned during manufacturing.