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.

——–

Data table here:

**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.

But I wrote a post about an iterative, process-oriented approach to high-tech sales and marketing on 2.9.9.   Shortly thereafter, Andrew Beinbrink, CEO of the interesting San Diego start-up SportsTV, introduced me to Seal Ellis who introduced me to Steven Blank’s book The Four Steps to the Epiphany, which sounded an awful lot like what I had blogged about.  Whew.  Oh, and Steve’s even got a new blog.

Eric Ries melded Blank’s customer development with Agile product development methodologies and lo and behold, when it comes to Internet-based products, we’ve got a whole movement going on here.

My thoughts were initially guided by a paper I read in 2005, The Enterprise Sales Learning Curve (ESLC), written by Mark Leslie and Charles A. Holloway, subsequently published in the Harvard Business Review in 2006.   This was the first paper I had seen that clearly articulated the gap between high tech marketing and sales methods and well, reality;  the reality defined by customers. You know, the people with the money.   Let it be known that 1) you should read the paper, and 2) there was a decent amount of buzz in 2005/6; but now, not so much.  Will customer development have a similar fate?

There are some differences:

• Scope: Blank’s customer development takes on a broader scope, i.e., not only sales and marketing, but a system for integrating customer input into all business operations.
• Timing:  Adherents to Customer Development are primarily Internet-based businesses, which has an advantage in terms of customer outreach, as well as testing and implementation compared to software companies, who were the primary audience for the ESLC paper.

Sean Murphy kindly pointed me to several other sources of people thinking along a similar vein, including the  “Sell, Design, Build” model from the SyncDev team at http://www.productdevelopment.com/ and Bijoy Goswami’s “Demo, Sell, Build.”

I enjoyed Goswami’s bootstrapping video series and particularly appreciated his quoting E.P. Box regarding these types of models:

All models are wrong.  But some are useful.

The similarity between business models and scientific theories is that they both (may) accurately describe the past.  The difference, however, is that good scientific theories predict outcomes.  IMO, this is what is most interesting about the Internet based Lean Start-up model, is that we can produce a test of the theory that can be replicated, rather than merely construct a model that more or less describes the past.

That being said, we can never achieve the predictability of manufacturing models which served as the premise for both ESLC and customer development.  Humans, despite what the Invisible Hand aficionados wish to believe, do not behave in a way that approaches the definitiveness of mathematics.  Hence, all models based on such, will in some way come up short.

Not that key lessons can’t be learned.  What strikes me, however, about both the ESLC and Blank’s Customer Development, is the presumption that businesses deploying these models have not only been funded, but likely have finished product.  Again, the nice thing about the Internet model being played out today, is that this is not necessarily true.  Entrepreneurs, rejoice!

But what is scary, in my opinion,  is that businesses continue to get funding despite the fact there’s no real evidence that a market exists other than what was written down in the business plan.

Are you kidding me?

More on that in a future post.

To make a short story long, it is looking to me that for Internet-based start-ups, the Lean Start-up model is proving useful.