Posted At: March 18, 2013 1:44 P.M.
by Claudia Calhoun
Answer this question: how are ideas for new inventions birthed? Simple – by coming up with solutions for the everyday problems of common people.
What is not simple, however, is how these ideas transform from concepts in the minds of inventors into actual, working products. From concepts to prototypes and eventually to products sold in stores, new inventions require a lot of money. One single invention that solves a minuscule problem could cost thousands of dollars in order to make a prototype, as well as testing it to see if it would even sell in the marketplace. This money doesn’t even include the hundreds of thousands devoted to advertising, public relations and marketing to create a brand identity and brand awareness. For an inventor, this is a steep mountain to climb. Add on the stress and pressure of investors and the simple solution has become a problem itself. This is the problem that Kickstarter is helping to solve.
Kickstarter is a funding platform for creative projects. Its website is a launch pad for new products, music, movies and just about any new invention imaginable. Launched in April 2009, Kickstarter now has 46 employees that work in a tenant building on New York City’s Lower East Side. Since its creation, there has been more than $500 million pledged by 3 million people for over 35,000 projects around the world.
What makes the Kickstarter website attractive to these starry-eyed creators is its flexibility. Project creators set their own funding goals and deadlines. Most goals are pretty safe (only a couple thousand dollars) and usually have a deadline of about a month. What is even better is that project owners keep 100% ownership of the project and only pay a 5% fee to Kickstarter if it is successfully funded. For backers of the projects, it is all-or-nothing. Backers’ credit cards are not charged unless the project reaches its goal.
The story of a creator
For Ashley Rose, creator of Bella Bare Wear, Kickstarter was the perfect solution to grow her business. Rose was frustrated with the difficulty of changing her new daughter’s diapers when she was wearing a swimsuit. Most baby girls’ suits were one-piece. With only one way to put them on and take them off, she began realizing what a pain these swimsuits were, and knew there had to be a better solution. If other baby clothes could have snaps to make diaper changes easy, why couldn’t girls’ swimwear? This is how Bella Bare Wear was born – a solution to an everyday problem.
“I started [the business] in 2009 very small,” Rose said. “I wasn’t looking for anything big. I designed the suits on my own and had one lady to do the manufacturing. I had a website and did expos, but I realized I was spending way too much time away from kids with little to no payoff.”
Soon after starting Bella Bare Wear, Rose’s husband went overseas, which put the business on hold. Shortly after his return, they relocated to Huntsville, Ala., because of his job. However, after a long move from Michigan, putting her business on hold, and the birth of her second daughter, Rose still had many asking her to start selling her swimwear again.
“I knew this time that I didn’t want investors. I still wanted it to be small,” Rose said. “That is what brought me to Kickstarter. I could start my own project, gain backing, but not have the worry of investors.”
Through her project, Rose was able to raise money, get presales and gain brand recognition, while also sending many “mommies” to Kickstarter, a website normally dominated by men.
“There are not many mommies on Kickstarter, so I used blogs and Facebook to send moms to my page,” Rose said. “I like to think I did just as much for Kickstarter and its business as it did for me and my business.”
The business of strategy
The business strategy of Kickstarter and how it helps fund projects is what is especially intriguing. Dr. Lonnie Strickland, Miller Professor of Strategic Management at the University of Alabama, dives into the individual aspects of the business and analyses what advantages and disadvantages are given to Kickstarter, the creators and the backers.
“If it hadn’t been for someone with a good idea and technology, this business wouldn’t even exist,” Strickland said. “But it’s all about risk. It would be easy for me to give you $10, but it would be harder to give $10,000. I’d ask more questions and try to find out why you want me to give you money.”
Because of the low amounts creators ask for, it is easy to give the small amounts just to see what would happen and if the project will actually be funded.
“It gets people involved and watching to see if [creators] meet the goals or not,” Rose said. “If everyone else is backing it, it validates that it is a good idea. It’s psychological.”
Strickland relates this concept of watching something grow to another well-known example in today’s society — the lottery.
“The greed factor is the reason why the lottery is fun,” Strickland said. “It is easy pay $1 for a ticket and guess what you would do with the money if you won.”
By playing off human patterns, Kickstarter has created a business that taps into the mind just as much as the wallet. It is human nature to want projects to succeed. Humans hate failure, sometimes even more than they love success. It is why there are “no-risk” guarantees. What better way to use this emotion than to offer an all-or-nothing option to backers and promote a “low risk start-up” to project creators.
The downfall of this genius strategy is competition. Dr. Strickland said it best when he mentioned that getting into this business of platform funding is rather simple.
“It is the use of new technology and relatively low risk. All you need to do is create a website that’s only cost would be buying the domain name,” Strickland said.
The simplicity of creating a new site results in a ton of clutter in the industry. There are going to be a few very strong competitors that are well-known and trusted by customers, but there will also be a ton of scammers and fake sites that will start to dilute the trust of the industry for both backers and creators.
“Take Amazon for example. If you are an Amazon client, then if you buy something and it’s defective, you filter the claim and return it through Amazon to make sure it’s corrected,” Strickland said. “But with these websites, what is the filter? How do you know you will get your product and you aren’t getting scammed? Getting into it is easy; being accountable is hard.”
Since there are already competitors that exist and even charge a lower percentage to creators, Kickstarter has set itself apart by creating standards to ensure trust in the minds of backers and promote responsibility in its creators. In August 2011, Kickstarter began to require creators to set estimated delivery dates on all products. In May 2012, the organization also began to require design and technology products to have documents explaining the creators’ background and experience, a manufacturing and production plan, and a working prototype. By using public relations to promote the advantages of Kickstarter versus other sites, it can prevent creators from going to other sites or even posting the same product on multiple sites.
Every new invention starts with a problem, and Kickstarter is no different. The problem is people want to fund their ideas, like Ashley Rose and Bella Bare Wear, but they do not want to lose ownership to greedy investors. The strategy is creating a funding platform that allows creators to retain complete ownership, while only paying a small fee to the site. For Rose, using Kickstarter paid off to the tune of $21,236 and 252 backers.