Searching for the Moon

Shannon Clark's rambles and conversations on food, geeks, San Francisco and occasionally economics

Selling stuff on Kickstarter is better than selling equity

Posted by shannonclark on October 10, 2011

Selling stuff on Kickstarter is better than selling equity for most startupsI’m writing a blog post about why the Kickstarter (and IndieGoGo etc) model is BETTER than if the model allowed for the sale of equity.

My main thesis is that if you are building a business you are in the business of selling something (at a price and in a volume that is sustainable and ideally scalable and growing over time).

If, in contrast, you are selling your business you are still in sales just now of equity not your actual product – and if you are great at that you likely won’t be great at your actual sales of your actual product.

Yes this is in contrast to the Silicon Valley mythos built up around press attention around each (hopefully larger) round of funding at progressively bigger and bigger valuations. Those are often examples of founders (and senior management) who are expert salesmen (and the occasional though perhaps to occasionally but that’s another post women) selling themselves, their brand and their “vision” over actual sales.

In contrast the Kickstarter model forces three key elements that are far more likely to lead to a successful business than if the model was instead focused on selling equity (as far far too many people IMHO keep proposing SEC regulations and opportunities for fraud be dammed).

  1. Selling your vision quickly and succinctly The forcing effort of a great, short video along with a well written description (plus ongoing engagement) should not be discounted. I would guess that a majority (a large majority) of the founders I talk to are unable to sell their vision in a short, succinct and compelling message. They ramble, they sell themselves not their product, they talk about the vision for their business over the vision for a specific product. In contrast success on a site such as Kickstarter is in a very large and real manner dependent on presenting a compelling vision about what you are going to make (and what you are offering to supporters) which is so compelling that enough people want to see the final product (and in most cases get it or a copy of it for themselves).
  2. Selling to actual customers something compelling enough to part real money from them The perks and stuff you offer on a site such as Kickstarter are really important, but notably the most successful projects often have very few levels of support. They aren’t trying to offer lots of levels with lots of unique perks, instead the successful projects tend to offer three distinct levels of support. A very low level that is just a few bucks and offers just credit/thanks or perhaps a digital only product (typically <$10). A middle level that offers the first production copies of whatever is being funded (typically $25-75 depending on the object often with a US and an International shipping option). This level doesn’t have to be complicated – offer the product you will be making (the very first ones to supporters) and some small (but next to no cost to you) extra as thanks. And a third level often $500 or higher that offers a limited number (typically) of unique special perks – original artwork, dinner with the founders etc. These levels however also don’t have to be complicated – keep it simple and focus on the actual product is the recipe many of the most successful kickstarter campaigns I’ve studied have followed.
  3. Promotion with a side of hustle and more promotion Key to successful Kickstarter campaigns, the ones that grow beyong a small number of friends and family are the active and compelling promotion of your campaign. You have a limited timeframe and a discret success metric (funded/not funded) which helps force entrepreneurs to keep promoting actively and often. Hustle wins here. Social media is likely important but equally (and perhaps even more important) is knowing which social media channels, especially which small niche channels will lead to success for your specific product. Knowing this is another thing that a majority of entrepreneurs I work with fail to know – they have an idea of who their customers may be (often very broadly defined – more than you would like to see say “everyone on the planet/Internet could be my customer…”) but almost never do they know where those customers are active online – their variations, niche site (podcast, blog, magazine, video series) loyalties etc.

Since the 1990’s I’ve been seeing proposals for sites that would allow for the crowdfunding of businesses – for the “democratization” of capital (and/or access to “IPOs” as it was deemed in the roaring 90’s) but all that attention to raising money all too often misses the real goal of a successful business – creating sustainable value.
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