Saddle Up – How an E-Bike Kit Maker Used a Crowdfunding Variant to Build Market Share

Crowdfunding has provided countless manufacturing companies with a launch pad. By now, most of us know the routine. A company offers a product through a crowdfunding site, takes payments from interested parties, and then uses the money to fund production. A few weeks or months later, the customers receive their products. Usually associated with start-up businesses, it is a tried and trusted way to finance production while keeping initial costs to a minimum.

But can you use the crowdfunding model – or something very similar – to support a production company on an ongoing basis? Or to put it another way, we live in a time of instant gratification, so once a company has sold its products to an audience of early adopters, it can then expand its sales operations into a larger market using a pay-now offer. get-it-it -delivered later approach?

Well UK based e-bike company swytch has done a good job of increasing its market share using what is admittedly a variation on the crowdfunding theme.

Founded in 2017, Swytch offers kits that allow its customers to convert their bicycle into full-fledged e-bikes. The main selling point is that the kits can be mounted on any bike.

And to date, the company has made significant strides in a growing, but, according to some, still relatively young market.

In 2021 the company sold 15,700 units in the UK, representing a one in fourteen share of the e-bike market according to company figures. Looking at the current year, CEO and co-founder, Oliver Montague, says the company is on track to secure a 10 percent market share. Initially the company was backed by an investment of £800,000 in angels, this was supplemented in March this year with further funding of £3.95 million.

But as Montague explains, while $3.95 million represents a significant amount, the company is now abandoning a cautious approach to financing production and growth.

Crowdfunding Roots

A graduate of Oxford University, Montague starts 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 started selling third-party e-bike kits. “In 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. Before that, he founded a company in 2017 with two co-founders. An engineer graduate — albeit one who went on to work for professional services firm PWC — designed the kits and sold them through IndieGoGo.

“In 2019, we significantly improved the product and then we really started to grow,” he says.

Business model

The company also devised a business model that reduces costs for buyers while maintaining a balance between incoming payments and production cost outflows.

E-bikes are quite expensive parts. A look at UK retailers’ online pages suggests buyers should be prepared to pay something in the region of £2,000 for a fairly good machine. When pre-purchased, Swytch conversion kits aren’t particularly cheap either, costing around £1,000,

However, there is an alternative. As Montague explains, a manufacturer will sell in a conventional retail model through a distributor who provides the retailers with price increases along the way. The advantage of doing it this way is that the bikes can be sold in large or relatively large numbers, but everyone takes a piece of the pie.

Swytch’s model – following crowdfunding – is to invite customers to become their own distributor. Or to be more precise, they are invited to pre-order bikes with others that can then be manufactured in batches. “If 5,000 people come together, we can sell it to them at the trade price,” Montague says. “We know that every bike we produce that way has a customer.” In practice, the trading price is about 50 percent of the normal retail price.

Alternatively, when kits are available, they can be purchased by individuals at the regular retail price.”

Manage delivery

This model has given the business a way to grow cost-effectively and today a partial payment of £150 is charged upfront with the balance due on delivery. Montague also argues that the gap between order and delivery time – a period accepted by those who sign up for it – makes it easier to manage supply chains. Should problems arise, they can be resolved within the expected delivery time. Even if the delivery is later than expected, customers will likely be understanding. “If the expected delivery time is three months, then a few extra weeks is nothing,” he says.

That said, Montague stresses the importance of good customer service, not least of all keeping buyers updated on the progress of their orders. “We’ve invested heavily in customer service and it’s all in-house,” he says, adding that the company does go the extra mile. He cites the example of kits that were personally delivered by the staff when orders arrived late.

So what about the future? What will the £4 million pay? Montague says he told his team to think this is a company that has little money to spare. The angel’s money must be carefully used for initiatives that will stimulate growth. He cites examples such as hiring a CFO – who would eventually increase revenues, or building a factory in the UK to reduce freight costs.

But is there growth in the market? Montague says there are plans for a Swytch Bike – rather than a kit – although much will depend on how the market develops in terms of the ratio of sales of conventional bikes to e-bikes. Meanwhile, the company plans more growth in the UK and elsewhere, with the pre-order model playing an important role in managing capacity scaling.