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Crowdfunding – Congress Didn’t Kill All of It

Reading Deborah Jacobs The Trouble With Crowdfunding on Forbes I cried and shouted. I cried because Congress killed the equity crowdfunding golden goose, a goose who could have helped many fellow startups. Jacobs is indiscriminate, so I shouted. She doesn’t draw a line between equity and Kickstarter-like reward-based funding. Curagami decided equity and crowds weren’t for us. We weren’t sure who would be willing to jump through so many hoops for so little return, but we were out. There are many types of crowdfunding and not every kind is suffering from pains and arrows so brutally inflicted by Congress.

Crowdfunding Mythbusters

The irresistible force myth is a much-perpetuated legend. Create something so viral and unique people will flock, compete and work hard to over-fund your brilliant idea. These exceptions keep the myth alive. Kickstarter receives press and more traffic when something big happens. Big get bigger thanks to algorithms, homepage changes, email blasts and social media.

For every “viral” campaign such as Pebble Watch, $10M raised on an ask of $100K, there are thousands of products making just enough to get funded. Most funds come from an entrepreneur’s network of friends, family, and friends-of-friends. Seeding your campaign – getting at least 25% is in the bank before you launch – increases success exponentially.

Campaigns raising 25% or more in the first week are 80% likely to hit their target and be funded. The web’s “see the explosion” dynamic means scale is contagious. When a crowdfunding gauge is rolling like a slot machine size brings interest, traffic, and conversion. The big get bigger fast.

Kickstarter and Indiegogo tune algorithms to predict the next exception. They predict the next explosion. They feed the bear. On the web hype is a snake eating its tail. Any successful crowdfunding platform employs predictive analytics to know where to place their bets.

People get hit by lightning too. Planning on such unusual events is a bad business strategy. Even if your campaign doesn’t hit the Kickstarter’s lottery, there are many valuable marketing lessons to be learned. The cheapest proof of concept available is creating a Kickstarter or Indiegogo campaign. However, don’t misunderstand “reasonable” to mean “easy.”

Crowdfunding Is and Is Not

Crowdfunding isn’t an effective funding tool for startups. Equity funding can’t scale with rules imposed upon it. Since the creation of rapid scale is the web’s main juju equity funding is dead on arrival. But that doesn’t mean crowdfunding is over or even diminished. There are benefits to tapping the crowd wisdom.

Benefits of tapping crowd wisdom for any startup company, idea or product.

  • Cheap feedback engine
  • Tests across entire idea
    • Distribution Channels
    • Marketing
    • Sales
    • Customer Service
  • Identifies and empowers via 1:9:90 Ambassadors Rule

Feedback Engine

Real-world customer and strategic feedback is the most valuable thing every startup needs. Idea intoxication means most startup entrepreneurs focus on the wrong things in the wrong ways. And yes I write that last sentence from hard-won idiotic experience. And the idiot is me (lol). If no plan survives the first contact with the enemy neither does what a startup thinks about products, markets or customers.

Mike Tyson was right. Everyone has a plan until hit in the mouth. Feedback is a great cornerman capable of splashing water, encouraging, and pivoting an entrepreneur’s dream to survive and thrive. Kickstarter and Indiegogo provide legitimacy by forcing entrepreneurs to think like customers, to be empathetic and listen.

Most entrepreneurs will raise most of their money from family, friends, and friends-of-friends, but using a recognized platform for their “ask” creates legitimacy. Earn trust, feedback and money are the real business every business is in even if many don’t understand or recognize it. No new enterprise begins with enough trust, following, and legitimacy.

That’s why we suggest using Kickstarter or Indiegogo (or GoFundMe or whatever). We make that suggestion knowing that most money will come from relatives and friends. When a startup forms their new idea, product, or service into a Kickstarter campaign marketing begins. Marketing, in a social media and always-on Internet world, is conversations, not lectures. If you can use other people’s platforms (OPP) to create an efficient and cheap feedback loop, DO SO!

The Whole Megillah

The Pebble Watch campaign is an intricate Swiss watch-like example of startup marketing done right. Every startup has a handful of needs including:

  • Distribution partners
  • Public Relations
  • Discovering and Empowering Their Influential Ambassadors
  • Testing Features and Benefits
  • Developing A Fast Feedback Loop

And the Pebble watch team used Kickstarter to answer every marketing need beautifully:

  • Distribution partners – buy enough and you’re a Pebble watch distribution partner
  • Public Relations – purchase a custom one-of-a-kind watch and light up your social networks when it arrives
  • Discovering and Empowering Their Influential Ambassadors  – review who gave you money, look at their profiles and find the influencers
  • Testing Features and Benefits – frequent updates reinforce the “we are in this together” idea
  • Developing A Fast Feedback Loop – nothing better than finding your 1:9:90 Ambassadors to make marketing easier

The 1:9:90 Ambassador Rule

The 1:9:90 Ambassadors Rule says 1% of a website’s visitors will contribute user-generated content (UGC), 9% will support the site especially when it comes from the 1%ers and 90% of visitors read and are more passive but no less significant contributors. We refine the 1:9:90 Rule into the 1:9:90 “Ambassadors” Rule because some visitors to your site have massive social media following and can help big time when asked and empowered.

Recently another myth died hard for us – the “everyone is equal” myth. We thought “viral marketing” meant stringing a daisy chain of advocates together. Supporters willing to tell their friends about our products are invaluable, but the daisy chain is dead. We looked carefully at our own experience and did some reading coming to an inescapable conclusion – your stuff goes viral when adopted by one or more “power users.”

Inside of your 1%ers there are two, three or five special people. People others follow in droves, listen carefully to what they share, and who act on what they hear. Oprah doesn’t simply have millions of followers. Oprah’s followers ACT on her suggestions. Inside of your 1% there is a handful of mini-Oprah you must discover, empower, and form a trusting and mutually beneficial relationship with them.

But there’s a problem. Most “power users” don’t want to feel used, exploited, or pimped. Show your appreciation by following them, sharing their ideas, acting on suggestions, and praising the difference they’ve made in your startup. Here is our favorite example of how to thank a power user on Oprah’s Super Soul Sunday.

Super Soul Sunday logo image

Executive Summary

In summary, equity funding via crowds on the web is a non-starter. Don’t waste your time. Rewards-based crowdfunding is a great tool. Expect to work hard as your startup learns empathy, listening skills, and how to earn trust, advocacy, and money.

Crowdfunding Bold Book image

Bold by Steve Kotler includes a great crowdfunding game plan. It is a must-read for any startup entrepreneur wondering if and how Kickstarter-like funding could help.

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