Crowd Funding, entrepreneurship, Rants

Crowd Funding as MVP

I recently posted a rant my thoughts about the current trolling in the crowd funding discourse, and in the discussion that ensued on Facebook, Lukas Imrich shared a video interview which made me think and reflect some more. I’ve attached it below. Watch it for yourself.

I have the greatest respect for Mark Suster as an entrepreneur and investor. I really treasure his insights. I also have great respect for the theories and methodologies of “competing against non-consumption and “jobs to be done” of Clayton M. Christensen. I teach them to startup founders and corporations.

Let me be crystal clear: When I talk about the benefits of crowd funding for bootstrapping and validation, I’m talking only about crowd funding without selling equity.

I argue selling your actual product or service is a great way to bootstrap and validate your business, in effect using crowd funding as a channel for taking pre-orders.

I make a clear distinction between trying to crowd fund an idea or a vision and crowd funding a real product or service. That is to say, I think there is a real difference between selling your product or service (asking in effect the market to pay for it and help you validate if they will buy it) as the reward or perk you offer instead of offering ephemeral perks and rewards not directly related to your product or service (which will not help you validate if people will buy it).

Jobs-To-Be-Done Theory

“If I had asked people what they wanted, they would have said faster horses.” -Henry Ford

“Disruption happens when companies use technology to help customers “achieve what they already had been trying to do.”” -Clayton Christensen

The theory simply asks, “What job your product is hired to do?” And if you want your customers to switch products you need to ask, “Why would they ‘fire’ the other product and ‘hire’ yours?”

Competing Against Non-Consumption (disruptive innovation)

True disruption occurs when companies compete against non-consumption. “A new-market disruption is an innovation that enables a larger population of people, who previously lacked the money or skill, now to begin buying and using a product and doing the job for themselves,” – Clayton M. Christensen.

If you’re an upstart chasing after the non-consumer, the great news is that your audience is non-discriminating. They want something easy to use and they want it cheap. They’re not expecting that same level of quality and performance. “Because,” says Clayton M. Christensen, “something is so much better than nothing.”
(Business Innovation Factory, 30.01.2006)

I think it’s obvious that Crowd Funding fits the properties of a disruptive innovation and I don’t think anyone is arguing otherwise.

However, (or perhaps not that surprising as Suster is already vested in the world view of the incumbent as a VC) Suster and Christensen seem to ignore the disruptive power of crowd funding as seen from the side of the table of the entrepreneur.

I sense the classic argument we always hear from the incumbents in the talk between Suster and Christensen: It always seem to revert to the argument of quality – as if that is all there would be too it.

We’ve heard this before.

Remember the records industry? “Who would like mp3 files when you can have quality audio on CDs?” Turns out the story was rather people want the freedom of choice to select just the good songs without the 10 other crap fillers on a CD, and would quite eagerly sacrifice audio quality for the ability – hence Napster was wildly successful, hence they sued Napster out of the world BUT without taking over the space of Napster, still not recognizing what people want, what the new opportunity offered them.

And we’ve seen how this turned out before.

Instead of seizing the opportunity for themselves, iTunes, Last FM, Spotify, Amazon, Pandora et al came in and screwed the records industry out of the opportunity – and no one was sorry for their loss but themselves.

And it’s the same old story, same old arguments which are today being bandied about in the discourse about with Massive Open Online Course (MOOC), but that’s a different albeit highly related discussion. Check out Clay Shirky’s post on MOOCs for more on that topic.

Christensen teaches us about the concepts of “jobs to be done” and “competing against non-consumption”. As far as I can tell, Crowd Funding without selling equity is doing both for the entrepreneur very well.

To the best of my knowledge, crowd funding without selling equity is:

  1. Getting the job done for entrepreneurs of getting early stage funding, or perhaps more precisely validating their product in the marketplace (explicitly or implicitly) without substantial financial risks and without taking a lot of time producing something first that perhaps the market doesn’t want (negating risk and time to market or failure for the entrepreneurs).
  2. Enabling entrepreneurs that otherwise would not get the attention – let alone the funding – of a VC, bank or angel, effectively competing against non-consumption (lower barrier to entry for entrepreneurs).
  3. A highly valid MVP (Minimal Viable Product) when used correctly.

As an entrepreneur, you no longer have to ask the incumbent private equity gatekeepers for permission to play. You now have the option to walk it alone.

If you fail, there’s little to no downside. It’s a learning experience. You’ve only lost face. Get used to it! Now pick yourself up and play again. And again.

If you’re successful, maybe you won’t even need an investor at all for scaling or at least you’ll have revenue from sales as a bargaining chip to get the term sheet you want.

Am I saying that the VCs will go the way of the Dodo? No. The way of the record companies? Most likely.

VCs will have their place and will still be a highly valid or even the only right play for some types of ventures, just like the elite schools of Stanford and Harvard will not go out of business because of MOOCs.

I am saying that crowd funding without selling equity is a powerful disruptive tool for entrepreneurs.

It is enabling many more entrepreneurs to succeed that wouldn’t otherwise be able to play.

And it will enable many more entrepreneurs to FAIL – and fast, before they have spent all their savings, bet the barn, lost their spouse and spent a good part of their life building something that no one wants.

And that’s all good:

For the VCs that will be able to fund more validated businesses and proven entrepreneurs instead of throwing spaghetti on the wall to see if it sticks (perhaps at the cost of less proprietary deal-flow).

For the entrepreneurs that get to play without asking for permission and again and again ad infinitum with little or no cost and risk to learn, learn, learn.

And for the world that will hopefully see more value generated, more new jobs as a result of the lower barriers to entry for more people.

Do listen to anybody that tries to tell you otherwise – just don’t take their advice. You no longer need their permission. JFDI.

Failure, hustling, Lessons Learned, pitching, startup

On failing: Crowd funding an iPhone app on IndieGoGo

My entrepreneurial buddy Francis and I tried to crowd fund a startup. It was an iPhone app. More specifically, an Instagram for one second videos. We failed. Spectacularly.

But don’t let that discourage you from trying. Here are some of the lessons we learned.

Update: For validation of our concept, see now twitter owned Vine and Cesar Kuriyama’s 1 Second Every Day that emerged over six months later.

Boot Screen

Recap for new readers: In the summer of 2012, me and Francis decided to experiment with crowd funding. We’re both busy running a couple of other startups, but since we were both n00bs to this crowd funding thing we thought we’d better get some experience and without potentially involving our main brands.

In short, we were trying to crowdfund an app to shoot and share videos composed of one second shots – six months before Vine and One Second Everyday. (I still remember people laughing at the idea back then…)

Roughly speaking there are two main types of crowd funding: 1) Funding against selling equity, percentages of shares that is, in your company 2) Funding against selling perks, products, merchandise, hot air and bridges in London – for no equity whatsoever. As we are both stingy bootstrappers, we liked the sound of the last option.

We decided go with IndieGoGo since you needed to be a US citizen to use Kickstarter at the time – or find someone with one willing to be use as a proxy, which would raise all sorts of other issues like liability, legality and added costs in fees – and the potential of a 3rd party effectively being able to hold your money hostage if successful.

Here’s what the last iteration of the video pitch on IndieGoGo looked like:

Starting out, we had some assumptions and there were a few things we wanted to test and (in-)validate:

  1. Is it possible (for us, right now) to crowd fund (without equity) the development of an iPhone app?
  2. Is there any interest in this product in the market?
  3. How efficient is spamming, mailing, tweeting, posting and otherwise contacting friends, fools, families, bloggers and journos?
  4. What is the conversion rate from blogs and news sites when and if we get published?

The tl;dr answers:

  1. No
  2. Yes
  3. Abysmal
  4. Disastrous (extrapolated)

Read on for the more longwinded answers and conclusion.

As luck would have it, during our campaign I also got the chance to ask IndieGoGo co-founder Danae Ringelmann (@GoGoDanae) in person at a panel on Crowd Funding of startups in Europe moderated by Mike Butcher (@mikebutcher) at the Campus Party EU in Berlin.

Mike Butcher moderating panel on Crowd Funding at Campus Party EU in Berlin

Danae was kind enough to sit down with me after the panel and give me more advice on our crowd funding campaign. Here’s what we learned from her:

  1. For a very successful IndieGoGo campaign example, look at Satarii Star.
  2. Add as much as possible to the story of “what’s in it for me as a backer”, “only you make it happen”, “if you help this happen you will be able to do X and Y”, focus on the emotional appeal. Think Apple.
  3. If you can, show “what’s in it for me” in images to help emotionalize it.
  4. Ramp up the communication about what is going to happen if you fail to raise the target amount and make sure to communicate the consequences.
  5. Reach more than $ 1.000 before pushing to the press.
  6. Reach out to people who have already pledged for stories and testimonials, publish their stories about why they believe in you.
  7. You can extend the running time of a campaign. Get in touch with IndieGoGo support if you need to extend the time.
  8. Keep pushing press although they don’t react at first. Just keep it up and ping them back on any kind of updates.

BONUS (and this is from me, not from Danae): Pay or raise the plus $ 1.000 yourself with family and friends you will pay back if you can and if you’re going for a campaign that gets to keep the money regardless if you reach your goal and consider the PayPal fee marketing expenses. I’ve heard this trick is more the rule than the exception on IndieGoGo.

It’s evident to everybody by now that we were spectacularly unable to fund the development of the OneSec iPhone app. Was it because it’s the wrong product? We don’t think so based on the feedback we are still receiving. We still think there’s a great opportunity to be had here. We have not given up on it.

Could we have kept on going, extending the campaign, applying and executing on the knowledge that we gained on the way? Certainly, but we decided to call it quits and call it a #fail. We had learned a lot about doing a crowd funding campaign and it was time to move on.

In the course of the campaign we were tweeting, retweeting, blogging, mailing and Facebook posting night and day. Manually and automated. We spammed around 680+ journalists in an email blast. We posted tips to about 20 of the top tech trend agencies. We filled special interest forums. We instagrammed. We YouTubed.

Here’s the results:

And how did this convert? The honest answer; We have no direct way of measuring it as IndieGoGo doesn’t offer standard referral analytics. You can track how many tweeted and posted your campaign to Facebook using the share buttons on the campaign page – but that’s it.

Having no referrer data is insane if you’re somewhat successful and want to identify where the traffic is coming from and what to focus on. Luckily for us, we were complete failures and measuring conversion of referrers when you have zero effects is pretty easy. We still would have loved to see which source drove the most traffic – if any, though. (See Francis’ posts on stats on publishing and conversion for more on this subject).

The lesson to us was pretty clear that spamming journalists and getting some publicity didn’t convert into any pledges.

We probably also launched our publicity efforts too soon, before we had reached $ 1.000. Next time we’ll consider paying this amount in ourselves and considering IndieGoGo’s cut as marketing expenses.


So what do we think were our biggest mistakes and lessons learned? What would we do differently next time?

  1. We failed to explain the product well enough
  2. We failed to make an emotional connect with more potential users and backers
  3. We failed to identify the target user segments and multiplier groups
  4. We failed with the tongue-in-cheek, no-budget style whereas more successful campaigns have had more of a serious and solid narrative with polished video content

In hindsight, it’s clear we failed to explain the product to people in the pitch video. Talking to people, the single most frequent first response is “I don’t get it”. Then we take the time to explain it and then they are like “Oh, I see. That’s cool”. We could have made a more detailed demo – especially detailing what we’ve planned for the super-easy editing and the social sharing aspects of it. Making an extensive demo would have taken considerable more time and effort than we already put it, but doing a campaign over again we’d probably start with explaining the product in more detail.

We failed to make an emotional connect with potential users and funders on two levels. On the one hand successfully conveying why we’re doing this, why we believe in this and what will happen if we don’t get funded. On the other we also failed to explain and “sell” the “what’s in it for me” the “how this makes my life better” to the potential backers. Doing it over, we would focus on how the product improves the user’s life like keeping more in touch and more up to date about your life, lives of friends and families, sharing more with others instead of your videos just gathering virtual dust on SD cards and hard disks, Apple-style with people showing real-life use-cases.

Starting out, we spammed targeted our friends, families and fellow entrepreneurs and things looked good for a while. Then as the campaign progressed, growth quickly leveled out as we didn’t manage to identify and branch out to new potential groups of users that would love our product and to other communities who’d be interested in seeing us succeed. Next time, it would probably be smarter to to do some research, tests and cohort analysis to find those groups up front before launching the campaign, having an actual plan on who to market it to, where they are, how to best reach them and how to better enable them to engage with and share the campaign.

In conclusion if we could have invoiced all the work we put in as regular consulting hours with normal customers, we’d probably made more than our original target for the funding campaign. But don’t let that deter you from trying. Just avoid doing the same mistakes we did.

For further reading on lessons learned, make check out Francis’ “Tales of Creation” where other entrepreneurs share their experiences and insights.

Stay tuned for the next installment, in which we perhaps test and learn how to fund an iPhone app – an Instagram for one second videos – with private investors for equity.

Until then, I’d love to know what your experiences with crowd funding are. How did your campaign go? What did you learn? What do you think we did wrong? Share in the comments or join the conversation on Hacker News.

OneSec screenshot 2

Update: We were approached by a major investor in [insert name of massively successful camera product brand here] after we had decided that the experiment had run its course and shortly before the Vine app hit the street. Of course there is no telling if that conversation could have gone anywhere interesting – or not – had we decided to revive it and press on. However, perhaps the last lesson learned was that these things take more time than you think. To create and manage – but also for your message to reach out to interesting new places. And just as you are about to lose faith and passion, your luck just might turn if you stick to it. However, we had already decided to kill it as we had run out of personal interest and passion. With the release of Vine immediately after, that decision was reconfirmed for us and I don’t think we regret killing it.