It all began on a sunny 28th of April 2009. 3 colleagues, Charles, Perry and Yancey – the three Kickstarter Musketeers – launched a platform that shortly after disrupted the traditional investing paradigm. What if, they asked themselves, off-the radar projects could be brought to life via crowd-funding?
Today, 5 years after this question and a $55,492 potato salad later, you, I and millions of others now ask ourselves:
How has Kickstarter been able to:
– Attract 7,400,000 interested backers?
– Generate 73,466 backed projects?
– Accumulate $1,391,685,950 – a.k.a as a billion dollar plus dollars – in investment?
Today we are going to reverse engineer the million, sorry, billion dollar business model that made Kickstarter a royal flush. 3, 2, 1 and go!
1. Value Proposition
In business it’s all about perceived value. You want to be successful?
You must be able to make the customer believe that you offer the best benefit to cost ratio for their desires! When you do this, you have a positive value proposition, and the first step towards success.
So how did kickstarter step into success? Perry Chen, the founder of the founding fathers had the vision of developing a unique platform. What was this? Crowdfunding for off-the radar projects. Without competitors in its niche market and a win-win price proposition, the three Kickstarter Musketeers were able to create a positive value proposition and permeate the fortressed membrane of the competitive investing industry.
2. Target Customer Segments
So the three Musketeers found their value proposition. What’s next? Well the next key is pretty self-explanatory. Know your customers. If you want to continue living in success avenue you must be able to continuously
anticipate and deliver the changing desires of your customer base. Kickstarter was able to do this by modeling its idea according to two reinforcing and brilliant concepts:
1. Self-tuning customer base – Kickstarter was able to identify that the project creator, backer and the friends of both were all potential customers thus the customer base continuously fine-tunes itself. Yes, this is the Maserati of system modeling.
2. Network Effect – the other brilliant and reinforcing concept is the network effect. As Kickstarters creators base increases so does the value proposition to the rest of creators and backers thus the more valuable the company becomes.
3. Distribution Channels
Having covered the importance of creating value and identifying customer desire patterns we now encounter the next step, how do we reach the creator and backer a.k.a. customers? Should we offer the service directly to the creator and backer? Should we reach them through a second actor?
Kickstarter decided that both methods of distribution aren’t mutually exclusive and decided to cash in on both. On the one hand, in uses its web page to create exposure and provide the service. On the other, it uses the marketing initiatives of creators and backers as a means of actively promoting its services in second actor platforms like Facebook, Twitter and Instagram. GENIUS. Kickstarter created the hydrogen bomb of marketing, a relation where the success of its company is interlinked with the success of its customers.
4. Revenue structure
Probably king to the 7,400,000 backers reached is Kickstarters kicking revenue structure.
Imagine you went to the Bank of America, entered through the marble door and headed to the first bank clerk: “hey I want to receive funding but I will only pay interest if my project is successful”.
Pause for laughs. Well at kickstarter such a revenue structure is not part of a joke rather the rules of the game. Kickstarter receives 5% of all successfully funded projects. That’s it. If the project doesn’t reach the minimum backing, the creator and backer leave free of charge. Whilst at first this revenue structure seems ludicrous, it’s Einstein material. Why? It creates a win-win situation with low exit and entry costs for creators and backers. This promotes project creation and thus encourages free advertising and the network effect.
5. Cost Structure
So yes, the revenue structure is jaw dropping but what about the cost structure? It stands to expectations. For starters Kickstarter profits from its customers for advertising thus marketing costs are almost null. Other main cost centers, servers, storage space and office and datacenter rent payments remain low in relation to revenue. Why? 40% of all project are funded thus a positive resource output to input relation exists.
6. Core competencies
Kickstarter has been able to ensure a competitive advantage by building a broad customer base. Like Facebook, Twitter and other social media platforms, the more customers attracted the more valuable the service becomes and the greater the barrier of entry.
This and Kickstarter’s ability to cater the psychological needs of its customers – self realization and sense of belonging – make the company a gem.
So this is how the Kickstarter business plan has guided them to success and a billion dollar checklist (for your use) – unique to Kickstarter’s business model is its ability to offer a positive value proposition through the creation of intertwined interests and its innovative revenue proposition.
BONUS – the power of Kickstarter at its best, the coolest cooler!
Photo: Courtesy of visual pun.ch @Flickr