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Brants Rant

How to Raise Micro-Capital Online with T-Shirts

Very recently, the Diaspora project (advertised as "the privacy aware, personally controlled, do-it-all distributed open source social network") on Kickstarter has caught the attention of the Twitterati, and has blown past its goal of raising $10,000 by June 1st 2010, by having raised $138,961, as of this post.

The way it works is this: people who create projects to be funded by micro-capital on Kickstarter offer differing levels of sponsorship.  The more you pledge, the more you get.  In this case, if you pledge $10, you get a CD (with the source code), a note from the Diaspora team and a bunch of stickers.  If you pledge $2,000, you get the same as well as phone support, hosted service and a computer.

They seem to have done a few things right, either intentionally or unintentionally.  (Most likely a combination of the two.)  They appear to be riding a recent upswell in anti-Facebook sentiment with regards to privacy (or lack thereof) in a select minority of techie folks.  Their video pitch seems to have hit the right chords (moxie, passion, hard-core geekiness), which appears to resonate with many of the same people.  Lastly, I think their dandelion logo/look is, in a word: cool.  (Get it?  Seeds of a diaspora?)

But that is not what this post is about.  This post is about how to raise micro-capital via clever pricing and bundling strategies.

Now, check out this chart I slapped together.  It shows the Number of Backers per Pledge "Bucket".  One might expect, very reasonably I would add, that the number of backers declines as price increases.  In other words, you observe the classic, negatively sloping Demand Curve you learned about in Econ 101.  As price increases, demand lessens.

But here it doesn't quite do that, does it?

Now, take a look at the chart below, and see how that translated into revenue.  Shooting from the hip, one might expect, in terms of revenue by pledge bucket, to see a bell-shaped/normal distribution.

But we don't, do we?

So in this case, the secret of their success is a pricing/bundling strategy that uses t-shirts as social proof of geekiness.  Or another way to look at it is:  the Diaspora team has utilized Kickstarter to sell +$40,000** worth of t-shirts!

My gut tells me that the Diaspora team hit some sort of nerve that has nothing to do with the potential success or failure of their project.  People think the project is cool and sticking it to The Man (i.e. Facebook), whether or not these guys succeed or fail is almost irrelevant.  So, if I think the project is cool and if the project is likely to provide me substantial geek street cred -- well then, what better way to demonstrate my geekiness/validate my support for Diaspora then by sporting a Diaspora t-shirt.  And looking at their de facto marketing materials, the t-shirt is likely to look good.

And if I want that t-shirt, I'd better pony up $25 for it --- which, incidentally, seems like a fair price for a t-shirt.  And apparently, I am not the only one who thought that way.

Lessons learned:

  • If you can harness yourself to a growing/popular social trend, you may benefit in an extraordinary manner.
  • You need to think of pledges/sponsorships in terms products, pricing and value.  In other words, WIIFM (What's In It For Me?).
  • People get value from feeling that they have done their part (sticking it to Facebook), even if it doesn't amount to anything concrete (aside from a t-shirt).  You can and should capitalize on that.
  • Don't forget about reference pricing.  My reference price for a generic "cool" t-shirt is around $20.  Meaning, that is what I would expect to pay in a store for a t-shirt that was adequately "cool".  The Diaspora t-shirt, in that light, seems like a bargain.

Full Disclosure:  The only reason I noticed this pricing strategy was because I actually pledged $25 because I wanted a t-shirt (and I think about pricing stuff all the time).

For the record, I actually don't think that a self-hosted peer-to-peer social network will get off the ground in circles other than amongst hard-core geeks.  As someone mentioned on a Quora thread, no one actually wants to host their own social network on a server under their bed.

But I still think these guys are worth backing.  And are cool.

Lastly, I don't think this sort of hyper-success is easy to replicate, if at all -- but that doesn't mean you shouldn't think about your pricing/bundling strategy if you are trying to raise micro-capital.

Before I forget, you should check out the pricing page for book Brant and I wrote.  Not only should you check it out, but you should go buy a copy of our book.

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Data table here:

Number of Backers: 766 634 1,550 261 161 43 5 4
Pledge Amount: $5 $10 $25 $50 $100 $350 $1,000 $2,000
Sub-Total: $3,830 $6,340 $38,750 $13,050 $16,100 $15,050 $5,000 $8,000
Percentage of Total: 4% 6% 37% 12% 15% 14% 5% 8%
*Grand Total: $106,120
Total Number of Backers: 3,424
*Will not match total pledged on http://ht.ly/1KK1b as pledge amounts are "$X or more"

**Actually more since anyone pledging at $25 and above gets a t-shirt.

***The actual numbers in this post are already outdated, but conclusions are the same. Will update later.

Startups: Don’t Hire a PR Agency

I hope my PR friends won’t hate me after this post, but the point needs to be repeated: Startups should not hire PR agencies. It seems not a week goes by without hearing about young companies blowing huge wads of cash on “marketing” they’re not ready for. Some entrepreneurs get in this fix because they fail to distinguish between PR and other marketing tactics. They know intuitively or are told they ‘need marketing,’ but the first thing they think of is PR. As I’ve mentioned before, PR <> Advertising <> Word of Mouth <> Social Media, etc.

Before you hire a PR agency or even consider PR, the first thing you need to understand is what you are trying to accomplish, what is your objective. Second, you should consider whether that objective is right for the stage of your business. If you are an early startup, pre Product-Market fit, or even pre “Sales and Marketing Roadmap,” you should not hire a PR firm.

Cement Mixers and Customer Development

Brant and I have finally finished our book, The Entrepreneur's Guide to Customer Development:  A cheat sheet to The Four Steps to the Epiphany, within which we have included interviews from successful entrepreneurs in order see if their startup experiences mesh well with Brant's and my interpretation of and experiences with Customer Development.  (I won't beat around the bush, while our interviewees may not have called it Customer Development per se, they certainly practiced elements of what Steve Blank has codified as Customer Development in almost all but name.  And without exception, they applied fierce and relentless skepticism to all aspects of their businesses.)

We've had the pleasure of speaking with Jeff Smith (Smule), Fabrice Grinda (Zyngy, OLX), Ranjith Kumaran (YouSendIt), and Bruce Moeller (DriveCam).  We've condensed their experiences into case studies which are featured in the book.  However, there was so much great material, we simply could not include all of it.  Therefore, I'd like to take this opportunity to share an insight that came out of our interview with Bruce that we found quite edifying, one that goes to the heart of the Customer Development methodologies.

Background:  DriveCam uses video technology, expert analysis and driver coaching to reduce claims costs and saves lives by improving the way people drive.  From the DriveCam website:

DriveCam's palm-sized, exception based video event recorder is mounted on the windshield behind the rearview mirror and captures sights and sounds inside and outside the vehicle. Exceptional forces such as hard braking, swerving, collision, etc. cause the recorder to save critical seconds of audio and video footage immediately before and after the triggered event.

[Emphasis mine.]

Bruce shared an interesting story about how assumptions made in the lab, based on data and "sophisticated" math undertaken by "sophisticated" analysts, fared in the real world of cement mixer trucks.  Remember, the DriveCam device's core feature is to record audio and video when triggered by exceptional forces such as swerving.  When DriveCam went after the cement mixer truck market, they calibrated their devices based on the assumption that cement mixers would flip only if subject to a large sideways g force.

Seems reasonable, right?  After all, cement mixers are big, heavy trucks, and not to mention, filled with, well, the eponymous cement.

Turns out, not so reasonable after all.

Bruce recounted that when one of their first customer's cement mixer trucks flipped over, the DriveCam device had failed to record what had occurred and what may have caused the accident -- the customer was irate and Bruce was more than a little embarrassed.

Turns out that (outside of the lab!) cement mixers trucks can flip at very low speeds (1-2 mph) while at normal g forces when encountering things in the chaos of the real world, very ordinary and common things such as soft road shoulders.  Bruce's customer knew this and was counting on Bruce and the DriveCam team to know this as well.

Lesson learned:

"My philosophy is you don't know what you don't know and if you were ever right in a given moment, and if your guesses were ever true it would be serendipitous.  You must attack your assumptions at all times. My basic tenet: question yourself, because the world is ever-changing.”

-Bruce Moeller

For more insights that speak directly to the Customer Development processes, please purchase The Entrepreneur's Guide to Customer Development:  A cheat sheet to The Four Steps to the Epiphany.

“Intermediate” MVPs

At Eric Ries' fantastic Lean Startup Conference last Friday, I had the privilege of working the Customer Development panel.  While the translation to video is a bit tough due to awkward dead air while questions were being asked (Sean Ellis thankfully repeats the questions), I'm proud we closed the day off with a full session's worth of questions from the attendees.   After all, that's who the conference was for. Perhaps more of these can be sprinkled throughout the day in the future and even include a means for remote viewers to ask questions.  What do you think?

I liked one question in particular, because it concerns something I've been thinking about recently.  Erin Turner asked about landing pages as Minimum Viable Products (@23:05 in video).  I didn't opine, though I would have enjoyed challenging my friend David Binetti with an alternative take, and since the subject is covered in my new book, The Entrepreneur's Guide to Customer Development, I missed an opportunity for shameless self-promotion.   One that I will now partially remedy.  ; ) Continue reading ““Intermediate” MVPs” »

Natural Experiments in Product-Market Fit: How to know you don’t have it.

I attended the most recent Startup2Startup event and after the presentation, the discussion turned to how one might define Product-Market Fit and what might serve as a proxy for Product-Market Fit, given various types of business models.

The Sean Ellis 40% rule-of-thumb was quickly invoked as were other ideas.  However, I thought it worthwhile to share one insight that came from an experienced start-up entrepreneur at the table.  While we were talking about triangulating on the various signals available to an entrepreneur as to what constitutes Product-Market Fit, he recounted a story -- really an accidental natural experiment -- on how he unequivocally learned his start-up hadn't achieved Product-Market Fit.

To wit, his site had gone down for a few hours, and he hadn't known about it.  In the interim, there had been nothing but silence.  None of his users had squawked or had made it publicly known that the site was down and they were angry/frustrated/furious/going to switch providers/fed-up-with-this etc., etc.

This lack of frustration/noise is a data-point.  In this case, it meant his start-up had a ways to go on iterating to finding Product-Market Fit.

As a contrast, we might choose to look at what happens when Twitter goes down.

So, for the more intrepid of you out there, perhaps try "accidentally unplugging" your servers and see what happens.  (Clearly, this has significant risks such as alienating users, but it may be a useful signal to know when you don' t have Product-Market Fit, if you were wondering.)

BTW, I believe Dave McClure has advocated a very similar idea with regard to features.  If I recall correctly, he suggests removing features from a web app and waiting to hear if users complain loudly.  The intensity of the complaint is likely correlated with the usefulness of the feature.

Is My Poem Lean?

Lean is not about the funding you take,

The size of your sales force, the money you make.

Lean is not how much money you spend,

That you like your product and so does your friend.

To test your guess and iterate,

To kill your favorite feature your customers hate,

To exercise ideas, removing the sheen,

That is what makes a startup lean.

My VentureBeat Marketing and Customer Development Articles

A new way of looking at sales and marketing

Upside down world map
Have you ever viewed a world map where South is up? It’s a useful frame of reference, since our Eurocentric view of North as “up” and South as “down” is really just an arbitrary one (a sphere has no top or bottom – nor left or right for that matter). Perspective affects our perceptions...

But what if we turn the funnel upside down?

For most entrepreneurs, the top of the [sales] funnel represents the world-at-large.  It’s unfiltered; it’s not segmented.  In a traditional funnel, the mouth at the top is wide open for attracting both suspecting and unsuspecting potential customers (aka suspects) into the sales process.  Marketing’s job is to find and lure live bodies into the top, while sales is responsible for to pushing ‘em through.  Continue Reading

How to avoid being blinded by the idea aura

The glow of a new, sure-fire idea is a wonderful feeling. You feel you’ve discovered something (or some angle) that no one has ever imagined before.  As you expose that idea to the light of the day and begin vetting it and taking it to market, though, that enthusiasm can dim...Your product or solution fights more than just competitors. It also battles all of the other problems your prospective customer faces. While your awareness of the problem and the weight you grant it is relevant, that doesn’t accurately predict how important it is to others – even if they ‘fit your profile.’

you must conquer the “status quo coefficient”

In fact, one of the most difficult dilemmas entrepreneurs face is determining whether fading excitement is part of the natural decay of the creation process or because the idea – ultimately - is a bad one. Continue Reading

The hidden secrets of market research

The last time I checked, the world’s population was around 6.8 billion.  If only 0.1 percent were to visit your website… and if you were to convert only 1 percent of those to paying customers… and they each paid $2 for a Thneed, for example, then revenues would be over $135M. (And everyone knows you could get way more than 2 bucks for a Thneed, which everyone needs!)

I can prove anything by statistics except the truth.

To some, market research only goes as far as finding a really big revenue number to put on the TAM (Total Available Market) slide of their business plan or investment pitchContinue Reading

Is social media worth your marketing dollars?

As social media has reached mainstream consciousness this year, businesses have been inundated with the message that they must immediately get on board or risk doom and calamity. The hyperbole (and the frenzied buzz it creates) is confusing and many businesses could use a practical guide on how to evaluate social media and how to engage – if it’s appropriate.

It’s amusing to hear that “Word of Mouth” is new.

So the first benefit of using social media in your marketing efforts (and the first thing to keep in mind) is that social media systems are designed to facilitate person-to-person communication, as opposed to traditional media and most first generation web efforts, which are predominately one-way communication.  Continue Reading

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