In late 2014, Dustin Sell did the unthinkable.
As his Kickstarter campaign to raise funding for his clever Wi-Fi-connected pour-over coffee brewer was nearing its goal of raising $150,000, he pulled the plug. Even though he was nearly certain to receive the money he had asked for, Sell realized it wouldn't be enough to bring his vision to reality.
So instead of taking the cash and simply not delivering to the hundreds of people who pre-ordered his Bruvelo coffee brewer, Sell cancelled his Kickstarter campaign and went back to the drawing board.
Now, a little less than a year later, he's back on Kickstarter, hoping to deliver to the world a better way to make a single cup of coffee. This time Sell wants $1 million, but he's a much safer bet, having learned from his previous experience. And if he gets the cash, he seems poised to change how at least a segment of the home brewing market works.
What happened the first time?
Having a good idea for a product and being able to execute on that product are entirely different things. The most famous example on Kickstarter may be myIDKey, which pulled in over $500,000 on the crowdfunding site and another $3 million in venture capital, according to Ars Technica, only to never actually release a product.
That's what would have happened to Sell had he taken the money they first time he attempted to launch Bruvelo.
What they didn't tell the start-up CEO was that the real price to make it at the scale he needed wasn't in line with those estimates.
"I was reaching out to contract manufacturers, sharing product details, and they would give me estimates," he told the Fool. "They came back and told me they thought it was a product which could be sold for $300."
"Maybe I bought the sales pitch too much," he added.
Had Sell decided to move forward at the volume he needed to fulfill his Kickstarter campaign, he would have had to spend "about $1,200, way out of the price range," and that wasn't a number he could afford to move forward with.
That's when he made the painful choice of cancelling his campaign to come back to Kickstarter with number that reflected reality.
What is Bruvelo?
Bruvelo is a single-cup coffee brewer that connects with your smartphone or tablet. It's a pour-over brew system with a built-in grinder with "perfectly optimized ratios, temperatures, and steep times," the company said on its Kickstarter page.
Sell wants to offer an alternative to Keurig Green Mountain's (NASDAQ:GMCR) ubiquitous K-cup single-serve brewers, because he believes that grinding your own beans is essential to producing top-quality coffee.
"I have without question noted that Keurig is creating a market of people who don't like Keurig," he said. "People are realizing that there's better coffee out there."
What's happening now?
After he pulled the plug on his first effort, Sell not only re-engineered every aspect of his brewer, which actually grinds the coffee beans for each cup it makes, but he also lined up his manufacturing and locked in pricing. He also decided it was important to share the info with his potential backers, which he does in an extensive breakdown on his campaign page.
Many of those costs are fixed, such as $175,000 for tooling and $300,000 for raw materials to fulfill the orders. He knows that asking for such a high number may shock the crowdfunding audience, which is used to "the onslaught of Kickstarter campaigns saying they can bring something to market for $50,000 when in reality they're just using Kickstarter purely for marketing reasons."
Sell has decided to hide nothing from his potential backers and based his campaign on actual costs. It's a risky move that should be the blueprint for how funding campaigns for physical goods funding operate on crowdfunding sites.
The future of Bruvelo
Sell has learned a hard lesson, but he deserves credit for absorbing the cost of his own mistakes and not pushing them off on the backers of his first campaign who could have been left with no product and little to no recourse. The events of that aborted fundraising effort, however, forced the fledgling coffee brewer to more fully understand his market, which will shape the company going forward.
He learned, for example, that most items on retail shelves sell at a markup of 8 to10 times what it costs to make them. That makes Bruvelo, which is a high-end, niche product, unlikely to quickly reach the volume needed to be a mass retail product. Instead, should he get there, he expects to work with a limited amount of high-end retailers.
"You have better markup opportunity," he said. "That's way down the road. I'm thinking about it, but baby steps."
For now, Sell hopes he can apply the lessons he learned into delivering Bruvelo to its growing number of backers. If he does, he'll be breaking the mold a little bit, showing that crowdfunding need not just be about generating hype -- it can also be a platform for good, well-reasoned ideas to find like-minded supporters.
Daniel Kline has no position in any stocks mentioned. He is considering backing Bruvelo as he owns an awful lot of single-cup coffee makers. The Motley Fool recommends Keurig Green Mountain. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.