Epic Kickstarter Failure – Why The Zano Drone Crashed and Burn!

 

Another major Kickstarter project failure. This time it was the Drone. They blew away their funding goal and raised over $3.5 million to make a tiny drone with huge capabilities. This was in January of 2015. With over 12,000 backers and cash in hand, The Torquing Group set off to deliver on the project.

 

Flash-forward to November 2015, with only a handful of the promised 12,000+ drones delivered, the company announces they are shutting down. As you can expect, all the backers who shelled out $100s to be the first to own the revolutionary drone are furious. But what happened?

 

Statements from the company on Kickstarter cited upgrades to the drone implemented in the design lead to delays in the project, as did an automatic testing rig. In addition, hardware expenditures and manufacturing issues were to blame. To show how the money was spent, they posted a pie chart of where the money went. The largest expenses were “Stock & Manufacturing”, “Gross Wages” and “Purchasing Taxes”.

 

 

From the chart, it is hard to tell exactly how much money was spent on each so we broke it down into actual money spent instead of percent (assuming all money raised was used).

 

 

Kickstarter took $177,819 in fees that left The Torquing Group with $3,449,694 to complete the project and deliver the drones to their backers.

 

Now let’s look at some of their claims and if the account supports their released statement on reasons for failure.

 

Upgraded Components – Timeline Delays

The cost of delays could be calculated looking at monthly expenses. This would include wages, rent, income tax, etc. Our best guess is this amounts to about $65,000 per month based on using 11 months the project has been running. Their initial estimated deliver was June 2015. As of November, the project has been delayed by 5 months, costing them $325,000 in additional monthly expenses.

 

Automatic Testing Rig – Financial Impact and Timeline Delays

The timeline delays were already covered, so what is left in this claim is the financial impact of the automatic testing rig. First question is whether or not this rig was even necessary if they haven’t been able to mass-produce the drones. But assuming it was necessary, how much of a “financial impact” does the rig have. This is really a black hole so let’s assume a very complicated rig and estimate they spent $50,000 to develop and build.

 

Hardware Expenditures

The item cited for the increase in cost was the requirement for “lighter plastics and larger propellers”. If they were making the propellers themselves, this should be a minor increase in cost. The tooling cost would be relatively the same as the smaller propeller so would not be the cause. A expensive plastic resin would only slightly increase the cost per part and can’t see this causing a huge financial impact. Off the shelf propellers come in many different sizes and materials but at wholesales should be relatively cheap.

Assuming what would be a large increase in cost per propeller of $1 per part, to fulfill the 12,000 drones (4 propellers each), an increase of $48,000 would have been incurred. Most likely there was a mistake where the smaller propellers were already ordered or made prior to realizing they did not provide sufficient lift. This would a much larger unexpected cost but was not mentioned in the company’s statement.

 

Manufacturing – Unable to calibrate the product at scale

Now let’s address the part of the company’s statement that is really concerning and appears to be the largest issue causing the folding of the company. Ramping up to mass production only to find out you didn’t do a sufficient tolerance stack-up analysis or testing to insure the product will work during manufacturing. Basically, they go to make the final drones to find out they won’t work.

 

They stated that the tolerance mismatch “affected the basic performance of a high proportion of production units.” Failing to analyze the entire variation of the components is a basic failure in basic engineering. Making a single or a couple working prototypes is easy. If the components you are using don’t work,  you can just swap it out for one that does. This works for one, maybe even 100 units. When we are talking about 10,000 units, this no longer works. If they individual components were not specified correctly and tested, you have a time bomb waiting to go off. For the Zano drone, the mismatch in tolerances must have been huge to have it affect the number of components they claim.

 

At this point, they are dead in the water. They have spent all of their money and ordered raw materials from which they are unable to build working drones.

Summary –

 

From analyzing the statement released by The Torquing Group, an estimated $423,000 of unexpected expenses can seen or about 12% of the available capital for the project. Every project should have a cushion built into the budget but that might not have been the case here. The biggest failure seems to be after all of the work and effort, the lack of a sufficient tolerance stack-up analysis cause the $1,635,938 spent on useless stock and manufacturing to be the real culprit of the Zano Drone’s demise.

All estimates and analysis were performed based on limited information released by The Torquing Group. Please contact us with any inaccuracies.