Saddling Up – How An E-Bike Kit Maker Has Used A Crowdfunding Variation To Build Market Share
Crowdfunding has provided a launchpad for countless manufacturing businesses. By now, most of us know the routine. A company offers a product through a crowdfunding site, takes payment from interested parties and then uses the cash to fund production. A few weeks or months later, the customers receive their products. Usually associated with early-stage companies, it’s a tried and trusted way of funding manufacturing while keeping upfront costs to a minimum.
But can you use the crowdfunding model – or something that looks very like it – to support a manufacturing business on an ongoing basis? Or to put it another way, we live in an age of instant gratification, so once a business has sold its products to an audience of early adopters, can it expand its sales operation to a bigger market using a pay-now-get-it-delivered later approach?
Well, U.K.-based e-bike company Swytch is having a good crack at growing its market share using what is admittedly a variation on the crowdfunding theme.
Founded in 2017, Swytch offers kits that enable its customers to convert their bicycles into fully-fledged e-bikes. Its main selling point is that the kits can be fitted to any bike.
And to date, the company has made significant progress in a growing – but some would argue, still relatively nascent market.
In 2021, the company sold 15,700 units in the UK, representing – according to company figures – a one-in-fourteen share of the e-bike market. Looking at the current year, CEO and co-founder, Oliver Montague says the business is on course to secure a 10 percent market share. Initially, the company was supported by an £800,000 angel investment, This was augmented in March of this year by further angel funding of £3.95 million.
But as Montague explains, while $3.95 million represents a significant sum, the company is now going abandon a prudent approach to funding production and growth.
A graduate of Oxford University, Montague begin converting push-bikes into e-bikes first for himself and then for friends. Demand grew and he found himself running a small business. From there he began selling third-party e-bike kits. “By 2016, I was selling about 300 e-bike kits a year,” he says.
The next step was to design and sell his own e-bikes. To do that he founded a company in 2017 with two co-founders. An engineering graduate – albeit one who went on to work for professional services company PWC – he designed the kits and sold them through IndieGoGo.
“In 2019, we improved the product significantly and that’s when we really began to grow,” he says.
The company also devised a business model that cuts costs for buyers while maintaining a balance between payments coming in and the outflow of manufacturing costs.
E-bikes are quite expensive pieces of kit. A glance through the online pages of UK retailers suggests that buyers should be prepared to pay something in the region of £2,000 for a pretty good machine. When bought upfront, Swytch conversion kits aren’t particularly cheap either, coming in at around £1,000,
However, there is an alternative. As Montague explains, in a conventional retail model, a manufacturer will sell through a distributor who goes on to supply retailers with markups along the way. The advantage of doing it this way is that the bikes can be sold in big, or relatively big, numbers, but everyone takes a cut of the pie.
Swytch’s model – echoing crowdfunding – is to invite customers to become their own distributors. Or to be more precise, they are invited to band together with others to pre-order bikes that can then be manufactured in batches. “If 5,000 people get together we can sell it to them at the trade price,” Montague says. “We know that every bike we manufacture that way has a customer.” In practice, trade price is about 50 percent of the normal retail cost.
Alternatively, when kits are available, they can be bought by individuals at the normal retail price.”
This model has provided the company with a way to grow cost-effectively and today a part payment of £150 is charged upfront with the balance due on delivery. Montague also argues that the gap between ordering and delivery time – a period accepted by those who sign up for it – makes it easier to manage supply chains. If problems arise they can be sorted out within the expected delivery time period. Indeed, even if delivery is later than expected, customers are likely to be understanding. “If the expected delivery time is three months, then an extra few weeks is nothing,” he says.
Having said that, Montague stresses the importance of good customer service, not least to keep buyers informed about the progress of their orders. “We have invested heavily in customer service and it’s all in-house,” he says, adding that the company does attempt to go the extra mile. He cites the example of kits being delivered personally by staff when orders had come in late.
So what of the future? What will the £4 million pay for? Montague says he has told his team to think as if this is a company that has little money to spare. The angel cash has to be used carefully on initiatives that will drive growth. He cites examples such as hiring a CFO – which would ultimately raise revenues or building a manufacturing plant in the UK to cut freight charges.
But is there growth in the market? Montague says there are plans for a Swytch Bike – rather than a kit – although much depends on how the market develops in terms of the ratio of conventional bike to e-bike sales. In the meantime, the company is planning for more growth in Britain and elsewhere with the pre-order model playing an important role in managing an upscaling of capacity.