The Seven P’s of Crowdfunding

(Excerpt from EDCO Bend Pubtalk, Feb 26 2015)

Thanks very much for the invitation to speak tonight about the insider experience of a crowdfunding campaign. Because I love a snappy aphorism, I came up with an expression that I hope you will take away with you, and use as you plan or evaluate future crowdfunding campaigns.

Let me explain. My Dad’s name was Pete. Pete was a Navy man, and a firm believer in the principle of continuous improvement; and he passed along to me his formula for getting a job done, and getting it done right the first time. Lauren, he said, never forget the 7 P’s: Proper Prior Preparation Prevents Piss Poor Performance. Repeat. Now those seven words could not be more applicable to the task of running a successful crowdfunding campaign. No amount of preparation is too much, because once the ball drops and that 30-day clock starts ticking, there’s nothing you can do but react.

But I realized I could go old Pete one better, and came up with the Seven P’s of crowdfunding, which go like this: Pitch, Promise, PR, Premiums, Process, Performance, and Passion. We’ll talk through those seven elements now, and I’ll illustrate their impact with some pithy comments from several successful crowdfunding veterans.

1. Pitch – This is the whole package, the website and video, the thing that you hit the “Go” button on and hold your breath. It better be good, because you are competing for eyeballs even before you start competing for money, and there are a lot of other worthy projects out there at the same time. And that doesn’t take into account competition from Reddit, Buzzfeed, and whatever championship game is on that day.

So what makes a successful pitch? It’s hard to predict, and honestly sometimes the big winners and surprising losers seem totally random. But I think the winners have a few things in common:

  • A focused pitch, driving toward a single outcome, that
  • solves a problem, and
  • is offered at the right place and time (especially if the product has an element of seasonality), and
  • appears to be likely to succeed – that is, shows signs of being a quality project.

Your pitch contains multiple signals about the quality of the effort in its totality, which can result in a network effect: signals of a high-quality project attract early backers who act more like investors (assessing team, market, barriers to entry, etc), and these people act as influencers of later, more casual, backers. Your pitch has to succeed with these early assessors before it can gather viral steam and generate social success. So investing in high-quality video and copywriting is likely to pay off.

The most important element of your pitch that is under your control is the video, so I wanted to pass along this wisdom from Mitch Daugherty at Built Oregon, whose Kickstarter video is just so beautiful it could make you cry:

Take your time, script it out, and do it right. Seriously. Your video is what people will watch, especially if you have a long page of copy. We could have just shot the video primarily in PDX and use stock video snippets of other parts of Oregon, but by scripting out the vision first, we realized immediately that what we want to build on kickstarter and beyond needed a more in-depth and compelling story. So we took our time, drove the state, and got 40 people and 30 companies into the video. That video will define you so make sure what you show is what you are going to deliver.

2. Promise – Unlike other ventures, in a crowdfunding campaign the learning about what it takes to deliver follows, rather than precedes, the promise to deliver. And since you don’t know what you don’t know, how can you tell if your promise is grounded in the real world? Do you know the cost to manufacture/create/deliver the goods? How quickly can you pull the production trigger, and what are the upfront costs to do so? Can you handle storage and shipment of the goods? Can you scale your process if your campaign blows up? (This can be significant, as we’ll see in a later section).

Lynn Le from Society Nine had this to say about the Promise:

Make SURE you have your product development process going already. It is okay if you still have just protos, or phases of protos; if you have your final sales samples done and all it literally takes is the push of a button to go on a production order, great – but whatever the case, product development needs to already be going. That way you can manage transparency with your backers, AND they feel like they are on this journey with you.

Even the Kickstarter handbook strongly suggests that you underpromise, and overdeliver – and give yourself some breathing room besides.

3. PR – Press and Social

When you see the amount of press that a hot Kickstarter campaign generates, it’s easy to think that “if you build it, they will come.” But in reality, the process of pre-loading press has to start months before the campaign launches. Bloggers and mainstream writers in every domain are completely inundated with press releases every day, and it can take multiple contacts and inside networking to get their attention. And once you have their attention, you have to fit in their editorial schedule, which may be planned well in advance. Then once you launch, you have to keep the ball in the air so they will write about you again. All this takes so much more time than you ever think it will, and can be white-knuckle to the finish.

Adam Smith from DIY Floral Grid had this to say about press:

Don’t assume that early press will lead to more press. The first day of my campaign, I achieved nearly 35% funding.  I was pretty confident that with recognizable names already promoting the campaign + a decent amount of early funding, that I’d be able to drum up a lot more press once the campaign was live.  I was very wrong!  The rest of the month was a slow and grueling march to the finish.  I did get some smaller outlets to promote the campaign, but nothing very substantial.  All the other outlets I approached either already had promotional calendars planned out, or they weren’t interested in promoting a campaign that was partially started (bottom line – don’t underestimate a PR person’s desire to ‘break news’).

And Matt Stormont from Togetherfarm said:

 I took time prior to launch to ask key supporters for help if need be.  I called upon these strategic supporters at plateau points during my crowd funding project to help keep the momentum moving forward.  At the time, I didn’t know if this strategy would work, and it did!

Now let’s talk about Social Media, especially Facebook. A Wharton study from last year found a strong correlation between the number of Facebook friends in a founder’s account linked to a Kickstarter campaign, and the success of that campaign. So it’s no surprise that Coolest Cooler’s Facebook page has 84K likes, and very active updates. Exploding Kittens’ Facebook has 109K likes, and Ouya’s has 102K. These levels correlate closely to the number of backers each project ultimately signed up, but the process of building that Facebook presence started long before the crowdfunding campaign launched.

Adam Smith again: I learned the hard way that not all press is created equal.  I actually pushed my launch date forward because I had commitment from a major magazine to promote my campaign. I didn’t want to miss out on their offer, because I was sure that this single bit of promotion would be my biggest driver of backers.  Ultimately, they promoted the campaign via Twitter, which in my opinion (now) is worthless in actually driving action and traffic.  Even with a huge audience, I didn’t get more than a handful of click throughs from Twitter.  Almost all of my traffic came from Facebook and Blogs.  If I had to do it over again, I would focus specifically on getting featured blog posts which would then be shared via Facebook. Luckily, I got big bumps in traffic thanks to Vern Yip from HGTV and the Beekman 1802 Boys.  Their fans not only supported my campaign, they shared it with their networks robustly.

4. Premiums – rewards should offer some kind of value or connection to the project, be cheap and simple to source and fulfill, and offer an opportunity for multiple contacts between the campaign and its backers. Wacky rewards may even lead to additional press, which can drive traffic to your campaign. But beware of complicated rewards or too many premium levels.

Mitch Daugherty from Built Oregon had this to say about premiums:

Sure, make them fun, but also know how much you want to raise and which buckets you foresee getting the most support from and create rewards to drive those buckets. Also, make sure you can deliver your rewards in a timely manner. This is super critical.

5. Process:

So what are those 30 days really like? Do you just sit around and boggle at the dollars rolling in to your Kickstarter account? I read about one company that rigged an air horn to sound every time they received a pledge – can you imagine a worse price to pay for each incremental success? I guess they dropped that after a little while.

Matt: I look at a crowd fund project a little like riding a bull.  The rider thinks he has a certain amount of control, but the bull disagrees.  A crowd fund project has a mutually agreed starting point, but the end destination is always a surprise.  Hang on tight and enjoy the ride!

Adam: One other major lesson I learned is the value of teamwork.  I did everything in my campaign myself.  Product design, my video, setting up PR, responding to backer emails, fulfilling orders…literally everything.  And it was exhausting and insanely stressful. Looking back, I know many of my friends and family would have loved to be a part of it, and I probably missed out on some great talent to help in areas that aren’t my strongest.

6. Performance – this ties back to Pitch and Promise – did you have real visibility into what it would take to deliver the goods when you launched your campaign? Did you raise enough money to fulfill your premiums as well as perform whatever you promised in your pitch (see how that all ties together?). Keep in mind that your platform plus your billing processor will take a chunk of the proceeds – do you have enough left to perform and still turn a profit?

The Wharton study I mentioned earlier found that, while most campaigns do end up fulfilling their promises to backers, nearly 75% of successfully funded projects experience some delay in fulfillment. It’s interesting to note that, according to the study, the degree to which a project is overfunded often predicts the likelihood that fulfillment will be delayed.

Let’s take Coolest Cooler as an example. The campaign raised 26,000% of its goal, pre-selling its product to 62,000 backers. The product was originally promised for February 2015, but recently announced that it would slip to July. The company has justified the delay by adding a lot of improvements to the product, which is great for people who got in at $185. But certainly the Bill of Materials has gone up – the post-campaign price was originally targeted at $300, but is now $399, a 30% increase at retail – so whatever margin the product had at $185 has been eaten into by increased cost of goods, outside management fees, expedite costs, etc – all times the 62,000 pieces that the company needs to deliver ASAP. And this doesn’t factor in the reputational cost of having such a high-profile campaign run into performance problems.

Coolest has done a great job of communicating about their delay and offering a lot of transparency into their process, even posting a “countdown to delivery” on their webpage. Since the majority of crowdfunding projects experience some sort of delay in fulfillment, Coolest is in good company, and once they deliver their amazing product, all will be forgiven. But I imagine these are some heart-pounding times at Coolest HQ.

And since we’re talking about heart, let’s talk about #7, Passion – the most important element of your crowdfunding campaign.

Why is passion, genuine passion, so important? Because you’re not just asking people to give your product a try, or support your cause, or help your company make its next payroll – you’re asking them to have faith in you, and that requires authentic devotion to your cause and the kind of powerful communication that can only come from the heart.

Here’s Lynn from Society Nine again:

You *have* to know the heart of your brand – because the heart of your brand connects to your consumer. That is the key reason why we got so many allies in different communities – real women, real fighters both pro and non-pro, who were ready to step up to help us succeed. I’m not just talking pro fighters, but allies EVERYWHERE. The heart has to be defined by core values, and a key mission. You have to live and breathe by this credo. The first product I ever created for Society Nine was actually our brand manifesto. Whatever we created – a hoodie, boxing gloves, doesn’t matter – it needed to ooze this.

I don’t know what I could possibly say to improve on Lynn’s words, so I will leave it at that!

My heartfelt thanks to the Kickstarter vets who told me their stories to help prepare for tonight, to you for coming and hearing them, and to EDCO for providing this wonderful forum for learning, connecting, and giving back.

So go forth and crowdfund, have fun, and never forget the Seven P’s!