Kickstarter ALWAYS Works: A Cautionary Tale
Hello Mayday Fans!
Well, we have had a crazy week. Bucket King 3D was initially rejected by Kickstarter as being too similar to the previous version that, while not widely available, was around in some form. We actually got a lot of attention on social media about it after we posted a “behind the scenes” look at getting rejected by Kickstarter HERE. After modifying some things and talking to Luke over at Kickstarter we were able to get the project approved and we happily launched the campaign on March 30, 2017. We had high hopes for this game and have already finished the files and redesign, thinking it would do really well on Kickstarter and that would be that.
Well here we are 18 hours into the project and we are about 37% funded with just 52 backers. This isn’t terrible and surely the project would meet its initial funding goal within perhaps a week of the launch. In fact two of our last three projects did just that, not great, but good enough to at least fund. For H.I.D.E and Macroscope we ended up funding by over 200%, but it is time to face the harsh reality of this business. So hold on while we pull the curtains back on some of what goes into the minds at a small board game publisher and see for yourself…
Kickstarter: For Better Or Worse
We sometimes hear comments like:
Why would you, an established publisher, use Kickstarter? You’ve had 39 successful campaigns for crying out loud, isn’t that enough? Why not leave it alone and leave Kickstarter to the newbies for which it was intended? The spirit of Kickstarter is being sold out to big-time corporations and sellouts! Keep it pure!
So what is wrong with that? Well nothing really, if backers don’t like our products then they won’t succeed on Kickstarter. But who is to say what is a big company and what isn’t? Should Cool Mini or Not (CMON) stop putting up multi-million dollar campaigns? Should the makers of Exploding Kittens really need another project on KS? Did the makers of the Pebble Watch really need 3 Kickstarters for over $10 million each? Wait a second, Pebble essentially went under and sold out to FitBit for $40 million bucks and their last project will be refunded. In the Kickstarter business there seems to be no such thing as “too big to fail” and there are far bigger players than Mayday out there running projects over and over.
But that isn’t really the point is it, the real question is why would a company with years and years of track record like Mayday need to use Kickstarter at all. The answer is two-fold. First, we are not as big as we seem. This may sound silly, but Mayday has just a handful of employees and even with lots of Kickstarters under our belt, we still need cash to start new projects. We are a small family business and don’t want to get into details, but consider the public information of a very similar company, Tasty Minstrel Games. If you didn’t know, TMG has done 28 projects compared to our 39, but has raised over $2.5 million on its projects (compared to our less than $1.5 million. Sounds like a lot right? Well fortunately TMG is offering shares of its stock to the public right now HERE and has disclosed that they did $1.4 million in sales last year and had a NET LOSS of $7,000, while the year before they had sales of $1.6 million and an over $75,000 LOSS. Just check their Schedule C up for public consumption (no we aren’t giving away any secrets here, it is public knowledge) and you’ll see what sort of industry this is. All of us rely on Kickstarter for cash to keep the doors open. Mayday isn’t very different from TMG in that regard. We have to pay salaries, rent, overhead, all the stuff neither you nor we like to think about. You may see Kickstarter as a cash cow but it isn’t the answer to life, the universe and everything it may seem. That would be 42, sorry I let the nerd out. 😊
But on to point two: We rely on Kickstarter to know how many copies of a game to produce, or if we should produce them at all. Consider these examples:
• We expected to need to print between 3,000-5,000 copies of Viceroy before Kickstarting it. It did way beyond our expectations and we ended up printing 12,500 copies on the first print run because the Kickstarter showed us the demand for this game was much greater than we expected. Thanks Kickstarter, you saved our bacon by helping us to know to print MORE!
• Weykick only came to us because the project did so well initially. In fact, we sold out and were poised to put in a large reorder and were about to pay over $50,000 for it when we launched a reboot of the project (HERE), but it failed to gain traction with our audience and we actually canceled the project and the order. Sure the project “failed” but it saved us $50,000 of inventory that we believe we would have had a hard time selling, so that is a WIN in our book!
So even when a project “fails” that helps us to know we should scale down a game or consider cancelling it. And so we come to it….
Kickstarter: Till Death Do Us Part
So now we come to it, our current project. Bucket King 3D is all but wrapped up in terms of our development. The files are ready and we are ready to hit “print” at the printer. Due to our licensing agreement we would need to produce a certain minimum number of copies, and the cost of the printing and delivery of these games is over $20,000 USD. So how is it looking for us? Well after a day and a half of Kickstarter we have about 50 backers for about $1,600. About 1/3 of our “goal” but well short of the $20 k we will have to pony up to buy our first shipment. Worse, we are financially obligated to pay ½ of that $20 K up front before production and the rest before the project would even fund, so our next cash flow would take a serious hit. That is something we are willing to do if a game is going well and we feel the demand is there. But once again, Kickstarter is coming to our rescue. Should we fork out $20,000 for this game when the project is creeping along? Would you? We just can’t do it, it isn’t financially responsible. But even in this decision, Kickstarter is a WIN in our books because it helped us make a tough decision. It really made the decision much easier because the market, the world really, is telling us to scrap this project.
Is this because of our presentation? Is it because there is a downturn in Kickstarter in general? Is it because of some other factor? We really don’t know. We just know that the Kickstarter mojo is weak with this project and we are not above turning tail and running for the hills. We will live on to fight another day and have several other games ready to go that we believe will do really well.
So when will Mayday be “big enough” to stop using Kickstarter? Consider one final point.
The Cost of Capital
Let’s assume we want to print 2,000 copies of a game that costs us $5 per unit to produce. That is $10,000. We have to pay the factory that money before we get the games. We could take out a loan from the bank, but no bank would loan even an established company on such a venture unless they are already chalked full of financial stability. Even then they would probably charge us 8% or more on the loan. We could put it on a credit card for 12-20% interest, or we could take on a partner and raise capital like TMG is doing now, but then we would have to split our profits of the company forever. The owners could pony up extra money to invest in the business, but that also has a cost to it for the owners. I guess you could say use the profits from one of your previous games right? But that money is almost certainly spent on salaries and game development costs like artwork and graphic design too.
No matter what size your company or who you are, everyone has a “cost of capital” or the cost it takes to do any financial thing. Even huge companies like Microsoft or Apple have both equity and debt on their books because they figure the lowest cost of capital is a mix of both debt and equity. Well Kickstarter allows us to give up about 8% of the asking price of a game in exchange for the ability to fund a game. Sure that is a high cost, but it also comes with security in knowing you have some demand for the game and some knowledge of how many you will have to produce. All of this is exactly the same for the largest KS project or the smallest first time creator. We, all of us, have a cost of capital and all of us have to decide how to fund the venture.
For Mayday at least, we don’t see there ever being a time when another form of acquiring capital will be as beneficial as Kickstarter. Because thanks to this model we can gain the capital we need to make new products while gathering essential information about the market appeal of our offerings. If that means producing tons and tons more than we expected like with Viceroy, great… but if it means cutting our losses on a project like Bucket King, so be it.
Either way, we are here to stay on Kickstarter until some other way of raising funds comes along that is more appealing. Wanna loan us a buck now? We don’t want a loan, but please jump over to our WEBSITE and pick up a game if you’d like, we would love that!
Oh, and any KS backers who want to get the old version of Bucket King, jump over to Eagle’s website and pick up a copy. You’ll love it!