Players at the value chain start have the most bargaining power and usually have one of the highest profit margins. Further down the value chain, players will have lesser and lesser bargaining power and lower profit margins.

Companies have to manage both the upstream and downstream value chain. Upstream value chain refers to the supplies needed to make your product. A downstream value chain refers to getting the product to your customers.

Here is an overview of Pirate3D’s Value Chain with the various stakeholders.

Its upstream value chain refers to its printers' raw materials and manufacturers.

A single party or multiple parties can achieve this function, and both have their pros and cons. The risk is distributed among numerous suppliers or manufacturers, but quality control must be carefully monitored. However, having only one supplier allows you to consolidate the order and negotiate for lower costs but increases the risks of relying on only one supplier or manufacturer.

Project creators must be aware of what they seek to achieve through their Kickstarter campaign and focus on achieving that goal. Below are a few reasons for launching a Kickstarter campaign.

(A) Convert supporters to loyal customers

Business owners should seek to use crowdfunding platforms to build a group of supporters for the project or idea, eventually converting them into loyal customers.

(B) Assess demand for the product & gather feedback

Having a Kickstarter campaign is a great way to assess if there is a demand in the market for your product. A Kickstarter campaign also allows you access to feedback from the actual users of your product. However, not all feedback you get will be feasible, and business owners should carefully assess the feasibility and costs involved in implementing the feedback.

(C) Build media coverage for business expansion and fundraising

Businesses can use Kickstarter as a platform to garner media attention on the company and leverage it for business expansion and fundraising.

A Kickstarter campaign is a controlled project with a specific end (the fulfilment of rewards to backers), and creators should strive towards that. However, in the case of Pirate3D, continuous modifications to their original design at the request of backers, such as ABS support and a heated bed, made that goal more challenging to achieve.

Enhancing a product for a crowdfunding project with massive demand from the community spelt trouble for Pirate3D. The failure to budget correctly and price it right will be further discussed in the next point.

An example of a startup that successfully used Kickstarter to raise funds is BOW. BOW launched a Kickstarter campaign in April 2017 with a goal of SGD 15,000 for its Quiver bag, a multifunctional sports bag. Its campaign was highly successful, meeting its target within three days and raising a total of SGD 60,982 by the end of its campaign. With a successful campaign, founder Mandy Chan realised market demand for her product and decided to leverage her company's hype to raise funds. The company is now backed by Quest Ventures, a Venture Capital firm that has also backed companies like Haulio, Vulcan Post, Carousell, Burple, Shopback, 99.co, and Carro. According to HerWorld magazine, BOW valued around SGD 2.5 million (USD 1.83 million) in September 2020.

Hardware development usually involves:

• A longer cycle with sourcing raw materials, suppliers, and manufacturers.
• Checking production capacity.
• Prototyping.
• Product testing.
• Checking product safety requirements and compliance with licensing regulations.

Such changes to the hardware are more complex to implement than software development.

When announcing features such as Acrylonitrile butadiene styrene support and hotbed upgrades, Pirate3D failed to consider the feasibility of the implementation and product safety requirements. Before making these announcements, it had not done enough due diligence on these factors. Thus, while Pirate3D’s approach to continuously implementing upgrades might be feasible in software development, it is not in hardware development.

The key differences between software and hardware development are summarised below.

Pirate3D might not have foreseen the limited production quantity as one of the risks to their business, which ultimately led to the downfall of their Kickstarter project as they could not deliver their products in the timeframe they had promised and ruined the company’s reputation.

With a price tag of USD 347, Pirate3D’s printer was only 16% of competitor’s Makerbot USD 2,200 price tag and was highly underpriced. According to Pirate3D, this price just covered production costs with a small margin for business operations. Pirate3D’s Buccaneer printer eventually retailed for USD 799, a difference of USD 450 from its initial Kickstarter price.

The constant upgrades that Pirate3D made to its printer further raised the cost of production and the research and development expenses. It is important to remember the purpose of your Kickstarter campaign. If the goal is to evaluate customer demand for your product, you should stop setting new milestones once you have reached your campaign goal. You can always launch another Kickstarter campaign for future versions of your product based on the feedback you have gathered.

With the error in product pricing, every Kickstarter order by backers would have incurred a loss for Pirate3D. As such, the success of its campaign would have resulted in huge losses for the company.

It is important to remember that the success of a Kickstarter campaign is just an indicator of the consumer demand for the product. Business owners should focus on delivering the products and promises to backers before enhancing their offerings.

Through the review process, businesses can identify:

Besides the success of their Kickstarter campaign, little was mentioned about the milestones and achievements of Pirate3D’s printer and its product delivery. Unfortunately, there were also reports of constant delays to the delivery dates.

This suggests a need for Pirate3D to set up a control system and implement processes to monitor key financial and project metrics. Some key questions to ask when setting up financial and project metrics include:

Things could spiral downwards quickly without such a control and monitoring system. These processes were especially important in Pirate3D’s case. They were venturing into both hardware and software development and needed to ensure the commercial viability of their business as a small startup.

The company’s culture also plays a vital role in the establishment of a control system to monitor the key financial and project metrics, and business owners should ask:

As highlighted in point 2, startups should start small and celebrate small victories. Ensure that the company reviews both what went well and went wrong after your Kickstarter campaign. With the insights from the review process and the information gained from the checklists in point 5, you can consider the following when pricing your product.

Suppose your pricing remains competitive against other competitors after establishing the price of your product and factoring in all the associated costs. In that case, you might consider marking up the price of your product to have a higher profit margin as it serves as a buffer for costs or expenses that were overlooked and were not accounted for in your budgeting. This is important, especially when a company starts, as you might not account for all possibilities when starting.