How Crowdfunding is Disrupting the Nutrition Industry

Crowdfunding is a rapidly growing phenomenon. In just a few years, tens of thousands of
campaigns have been run, millions of dollars have been raised, and some high-profile
crowdfunding campaigns have even made their way into mainstream media outlets. (Amanda
Palmer’s album and OUYA, the open-source video game console come to mind…)

What has been less discussed is how crowdfunding is radically changing the landscape of some
seemingly rigid, slow-to-change industries (if you’re still in the dark about crowdfunding, there’s a great explanation here).

For years the process of bringing a health or nutrition product to market has been the same. Create a product, take on investment capital, bring the product to production, hire product brokers and distributors and finally…see it sold in stores. This model works, but there are some structural issues in this model that have a very real effect on the quality and pricing of the product that finally hits shelves.

First, there is pressure from multiple directions to sacrifice product quality in favor of lowering COG (Cost of Goods – the cost of raw materials, labor, other production costs). I’ve seen so many products that started out as exceptionally high quality and saw quality slowly erode over time, assumedly under the pressure of investors, distributors and retailers to lower COG.

Secondly, and perhaps more significantly – money never comes for free, and in the case of investment capital, it often comes with very meaningful “strings” attached. Investors want a return on their investment, and to ensure they get this, they generally want decision-making power. Occasionally, you’ll get a very knowledgeable, well-connected investor and this influence will be a boon to the company. Far more often, the involvement of an investor means influence from someone who, unlike the original founders of the company, is more obsessively committed to ROI than product quality and brand vision.

Generally, investors are older and have years of industry experience – which is a nice way of saying that they tend to think very conventionally about strategic decisions. There is no way around the fact that in most cases, especially in the nutrition industry, product quality goes down when investors come on board. When it was time for my company to take on investment capital to scale up production of our primary product, we were faced with this same scenario. We talked to several investors and had offers on the table to get the capital we needed to move to a larger production facility. The easy (and conventional) decision would have been to take the money and move forward, sacrificing a bit of control over how our company operated in the future.

Fortunately, we had something available to us that no company had before a few years ago. We had the option of crowdfunding. We’d committed the past two years of our lives to creating the highest quality product possible, we have personal connections with a lot of our customers and we use the product obsessively ourselves. The idea of being pressured to sacrifice product quality was something we wanted to avoid at all costs.

So we took the harder road, decided to put the scaling of production on hold for a few months and set to the task of building our crowdfunding campaign.

Our campaign launched last week and everything thus far has confirmed that this was the right route to take. We’ve structured the campaign such that we’re essentially just pre-selling product (at a discount) and offering extras to our supporters. We’ve had a flood of contributions and the support we’ve received from friends and complete strangers alike has been completely humbling. We’re on pace to meet our funding goal and 100% of the money we raise will have come from people who are aligned with our vision and believe in our product.

While it’s high-grossing art and technology campaigns that will always garner the media attention, some of the smaller campaigns are actually more indicative of the way crowdfunding is changing industries.

Projects like toxin-free popcorn, a beautiful pictorial yoga book, and a vertical window garden all stand out to me as products that would look very different if brought to market with the conventional model (if they made it to market at all). Our superfood energy blend is very much in this category, as well.

Crowdfunding is allowing entrepreneurs to bring their products to market exactly how they were envisioned, without sacrifices to quality made to appease outside influencers. Well-executed campaigns ensure that supporters return as customers, giving these young companies direct-to-customer sales to build on from day one. Bypassing the traditional broker-distributor-retailer avenue for distribution allows for far better margins and as a result, lower prices to customers and less pressure to reduce production costs. Perhaps most importantly, though, the direct company-to-customer relationship that crowdfunding fosters helps create interactive communities based on trust and mutual excitement.
In a sense, this is a trend that began with the early days of internet retail, but the creation of this direct relationship between passionate consumers and high-integrity companies is what makes crowdfunding feel like the catalyst for something entirely new.