Crowdfunding lets you test the market for your product before you even make it

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Date:
06-Nov-2013
Input sound file:
1001.MP3

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Session Name: Design by the Numbers: How the Crowd is Changing Creation

Announcer
Chris Albrecht
Katie Fehrenbacher
Mladen Barbaric
Danae Ringelmann

[commercial]
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Announcer 03:00
Please welcome your MC, Chris Albrecht, back to the stage.
Chris Albrecht 03:05
All right, how’s everybody doing? Can I compliment you guys? Not only are you a stellar audience, but you also quiet down real quick, that’s really nice. Thanks for all your help. I’m not going to go through all the housekeeping kinds of things, because we’ve been through it all day. Just a couple of things. The Wi-Fi, just in case you’re joining us right now, the network is GigaOM. The password is roadmap2013. Also we’ve had a lot of great activity today and if it wasn’t for a certain Canadian mayor, we probably would have been trending a lot higher [chuckles]. I got a big chuckle up there because that’s Matthew Ingram from Toronto. He’s here, everybody. You can follow us on Twitter @Gigaom, and if you have a comment, question, or something related to the conference today just hashtag #Roadmap2013.
Chris Albrecht 03:47
We’re going to move right into the next talk – Design by the Numbers: How the Crowd is Changing Creation. That’s going to be Katie Fehrenbacher talking with Mladen Barbaric – Founder and CEO of Pearl Studios, as well as Danae Ringelmann – Founder and Chief Customer Officer for Indiegogo. Please welcome our next panel to the stage [applause].

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Katie Fehrenbacher 04:07
Hello again. Like Chris said, we’re going to be talking about design by the numbers and how the crowd is changing creation. Like you’re saying, Danae Ringelmann, she’s the founder and Chief Customer Officer of Indiegogo. You guys, I’m sure you have all heard of Indiegogo that launched in 2008 and they have 150,000 campaigns so far and distributing millions of dollars per week through crowd funding, and 7000 campaigns are active currently at any one time on the site. And Mladen Barbaric, he’s the founder and CEO of Pearl Studios and Pearl Studios worked on– he let up the design of the Misfit Wearable Shine device, which actually he’s wearing right now on his lapel. It’s one of the most successful campaigns on Indiegogo today, Misfit raised $845,000. I thought it’d be really interesting to kind of pick their brains about how the crowd funding process is changing design. So what do you think that Indiegogo and crowdfunding in general has opened up for the design community? What are you guys offering to designers that wasn’t available before? And also from a designer perspective, what is new about crowdfunding that was never offered to you guys before?

[crosstalk]
Mladen Barbaric 05:41
I’ll go first [chuckles].
Danae Ringelmann 05:42
You go first.
Mladen Barbaric 05:43
I’ll go first. In creating Shine, we were doing something quite different, we were taking a bold step in design. We were trying to do something elegant and different, and it was really hard to know how people were going to react to that and Indiegogo was a great place to vet that to validate the concept, the design, the features or lack thereof, which accessories we should make, which accessories we definitely shouldn’t make, and then price elasticity. It really helped educate us faster in the process so that we could iterate faster, refine faster, and get to a successful product faster.
Katie Fehrenbacher 06:33
Okay, so kind of a validation process. You were telling me backstage there’s 1,000 iterations of the Shine that you went through. Tell us about that.
Mladen Barbaric 06:42
Sure. Shine looks very simple. It is this little disk and it’s just a piece of metal and when you tap it, it lights up and there are 12 lights that go around. When you set your goal on your iPhone, Shine tells you how you did compared to that goal based on the number of lights that light up. Once it’s complete, you’ve completed your goal for the day. It’s a really simple way of communicating the goals.
Mladen Barbaric 07:13
It also looks extremely simple, it just looks like a little disc, right? However, to make this is extremely difficult. We did a lot of iterations. There’s literally a box of 2,000 iterations of Shine at our office, because the execution was so difficult. To invest that time and that effort, we really needed to know ahead of time, ‘Is this worth it? Are people going to respond well to this?’ And what we learned was, absolutely. People loved the effort. People loved the interaction with it, the fact you can wear it anywhere, the fact that it’s waterproof. That’s another thing that we validated. We didn’t know if that was important or not to people. We didn’t know if they were going to swim with it or not swim with it, and so by answering, ‘Yes, it’s important,’ gave us a little work [chuckles]. So we’ve gone through a lot of testing. We’ve pressure tested it 50 meters underwater, and for that in development that takes a lot.
Katie Fehrenbacher 08:22
Danae, is that a common story? Are designers kind of going on with an idea and a prototype and then fully fleshing it out through the crowd funding process?
Danae Ringelmann 08:32
Yeah, we’re seeing a lot of especially designers in product. Designers use Indiegogo as a market testing, a market validation platform. A couple things that are unique about Indiegogo is that we’re completely open. We don’t have an application or curation process up front. We empower anybody to start a campaign, which really gives everyone an equal opportunity to get their idea off the ground and then validate it through true members, through people voting with their dollar.
Danae Ringelmann 08:57
The second thing we offer is a ton of flexibility. So both in how you raise money, whether it’s fixed funding or flexible funding as well as flexibility in the campaign itself. So the way that Mladen and Sonny Vu and his team were able to learn the pricing, learn the features, learn the extra accessories was through the perk system. At Indiegogo, we allow perk swapping, bundling, things like that, so you’re actually able to test things real time.
Danae Ringelmann 09:24
There is a story where you guys turned to your funders and asked, ‘What other accessories would you like?’ And they all said, ‘Oh, we want bracelets and necklaces.’ And you were like, ‘Well, let’s put it to the test.’ So in mid-campaign, you threw up a new perk for necklaces and it got claimed overnight. It happened so quickly that you discovered a whole new revenue stream that you never knew existed, which you wouldn’t have been able to do if you had to have launched your campaign in a fixed way or with fixed perks that you couldn’t change.
Danae Ringelmann 09:49
So it’s a nuance, but we’ve built the platform so that people can swap perks off of the same product for example at certain price point. Once they sell out a limited number, you can offer the exact same product at a higher price point and really start to test the pricing and willingness to pay. What we’ve learned through Misfit Shine, I was just in Australia this morning actually and I met a campaign owner there and for his LED light cube, he used the platform to really understand the features. He had a trade-off between greater battery life and more power, and he went to his funders, the early funders who were behind him, and they voted with their dollar and told him what features they wanted.
Danae Ringelmann 10:32
So essentially, what I like to tell people is exactly what– this is directly a quote from Sonny Vu, which is your partner whose amazing. “Indiegogo made you guys smarter faster.” So by the time you launched, you had all the data to validate what kind of conversion numbers were there. We provide a lot of data on our dashboard to allow you to see how many views convert to funders, where’s the funding coming from, what countries, who your social amplifiers meaning people who are driving refers to the platform and driving contributions. We actually had another campaign I just met last week, it was called Conscious Step. It’s basically using socks to raise awareness about a couple nonprofits. They learned through their data that the same number of people of the United States were viewing their campaign as in Australia, but the conversion in Australia was 50% more than the US. And so they actually learned that Americans are cheap. We don’t like to pay very much for socks, or at least a lot less than Australia’s. So that data they took then to distributors to show what kind of effort they’d have to do in the marketing to actually convert into sales. That’s all data you can take and then take to attract traditional investment, to attract distributors, all that kind of stuff. The beauty of it is when you’re an open platform like Indiegogo, you don’t have to ask permission from anybody. You can just get going and prove it and basically carve your own path, which is really empowering and really awesome.
Katie Fehrenbacher 12:00
And Indiegogo is kind of markedly different from Kickstarter. I know you kind of had these philosophies early on about particularly the flex funding so you can keep the funding even if you don’t reach the target campaign, and there’s less restrictions on it. Particularly, Misfit originally I think went through Kickstarter or was looking at Kickstarter and then it didn’t have a fitness section.
Mladen Barbaric 12:22
Right, and Kickstarter was just better known at the time, so we didn’t know about Indiegogo as much.
Katie Fehrenbacher 12:28
Can you talk a little bit about the philosophies behind why you made those decisions versus Kickstarter?
Danae Ringelmann 12:36
I started working on what became Indiegogo probably back in 2001, 2002. I was the daughter of two small business owners here in San Francisco actually, and I watched them struggle for 30 years, because they could never get there business really growing because they could never access a tradition lone. They were kind of locked out of the traditional system, and so I actually went into finance after college to really understand how money flowed and how decisions got made.
Danae Ringelmann 13:02
I’d help filmmakers and theater producers on the side and actually started to fail for the exact same reasons my parents failed, which was we just didn’t know the right people. We didn’t know the venture capitalists, we didn’t have the right network. So I kind of had this culminating moment where Arthur Miller had given me and this director permission to produce a one night event with an audience like this, and get actors to volunteer their time to read a play. At the end of the night, my goal was to get the investors to write a big check and turn into a full blown production. I worked months on it, and it all went to nothing. The investors actually loved the play, but they had different objectives. They didn’t really know me and I didn’t have the strong relationships there. I was pretty naive back then, this was over 10 years ago, but it was in that moment that I realized that the reason finance is broken is because the people who want the ideas to come to life – in this case, it was the audience and the play and the actors – did actually have the power to make it happen. So I wanted to go and start a company to put the power back in the hands of the people to decide which ideas and businesses and creative projects and nonprofits and everything should come to life. And that’s when I quit and did it.
Danae Ringelmann 14:08
So I met my cofounders, they had been experiencing very similar frustrating experiences with raising money for their endeavors. Slava, my cofounder, he had been raising money for charity, and Eric, for theater. So together we were like, ‘We need a platform that truly democratizes finance.’ We saw eBay doing it for commerce and YouTube for video distribution. So if there’s a place where you can buy anything from anybody, why can’t there be a place where you can fund anything from anybody? So we created this open platform where anybody with an idea could create a campaign and give it a go, and anybody could find what mattered to them. It’s very core to our philosophy, that’s why we’re– a lot of people call us the YouTube for funding. You don’t have to ask permission to upload a video. You don’t have to ask permission to upload a create-a-campaign.
Danae Ringelmann 14:51
What was driven out of there was again disrupting this whole financial ecosystem which was built on gatekeepers. It was built on the system of people, third-party decision-makers basically making guesses and deciding who has the right to raise money and who doesn’t, and who has the best potential and who doesn’t. Finance essentially has been a system where ideas that are funded are the ones that these individual third-party gatekeepers think are the ideas the world wants. We wanted to create a system where finance brings ideas to life that the world actually wants, and let’s put the power back into the hands of the people to decide. So what’s cool about it is that on Indiegogo, you can create a campaign overnight and get it going, and you will thrive fully based on your own effort and merit and what the crowd is saying.
Danae Ringelmann 15:36
We actually have people who don’t raise much money on Indiegogo and they come back with a huge amount of thanks, because what they’ve learned is that they had a product that nobody wanted or their messaging wasn’t working. They actually saved themselves two years of their life and all their life savings wasting on an idea that was never going to see the light of day. I’ve started to refer to Indiegogo as like– we all know lean startup methodology. This is like lean funding. If you can’t get money together, if you can’t validate your idea through people voting with their dollar pretty quickly, then maybe you’re not on something the world wants yet, and you have a little more work to do. That’s why it’s a really powerful platform.
Katie Fehrenbacher 16:12
And design and technology and products development, I think it’s in the technology section. It’s one of the fastest growing areas for you guys. Why do you think that’s happening?
Danae Ringelmann 16:19
Just in the last year, the dollars raised for design and technology has grown 1,000%. What I think is we’re seeing people like Misfit Shine leading the way and really embracing it as a market testing market validation platform, putting their ideas to the test, really gathering the feedback from funders and incorporating that into the design, and then launching with a fully robust product that they know the world actually wants.
Katie Fehrenbacher 16:44
One thing, I know there’s been a little bit of push-back particularly like the gadgets created on Kickstarter, or sometimes there’s been some campaigns where it ended up that the product developer couldn’t actually make it in that certain way or deliver it on time. What are the measures or strategies to kind of work with those types of issues? How do you reacts to those? And then I’m going to ask you about that second.
Danae Ringelmann 17:11
We’ve seen a lot of success, so we just focus on extracting best practices and we’ve done a lot of blogs. We’ve put out a lot of education around all of the intricacies of what to do before and after a crowdfunding campaign, so fulfillment to market testing and all this kind of stuff. We have a whole team dedicated to helping hardware designers, we’ve brought in a mentoring resident, which is an industry expert. Anybody in the world can sign up for office hours to help with the questions like, ‘How do I price my perks?’ to ‘How do I plan for fulfillment?’ to ‘How do I message?’
Danae Ringelmann 17:45
I think the beauty of being an open platform is that in being open, it’s very transparent. We don’t decide who’s there and who’s not, and so funders have a very transparent experience where they know that Indiegogo hasn’t necessarily endorsed any one campaign per se. They know that it’s an experience, it’s an opportunity for them to actually check out what is happening, but we have an open communication platform where we encourage funders to ask all of their questions upfront knowing that you’re funding something. You’re not buying something, you’re funding it. So if you have any reservations whatsoever, ask those questions up front.
Katie Fehrenbacher 18:20
So you help the product team, but also if they don’t meet the goal or they don’t do it on time, the risk is on the funder, right?
Danae Ringelmann 18:29
The risk is on the funder, but we do a lot of education to the campaign owner to help think through what’s the right deadline, what’s the right shipping schedule. We also encourage people to update their funders. We’ve had campaigns that– a great example is we’ve got hundreds of– You guys know Burning Man, right? Probably a lot people here go to Burning Man. So we’ve got hundreds of campaigns on Burning Man, and we had this one campaign, it was to raise money for a flying disco ball – Burners know that that’s totally normal [chuckles] – and they had raised all of their money and went to Burning Man. The winds were such that they couldn’t actually fly it, so it technically failed, and so because the campaign owner had been updating the funders throughout the whole process and they explained what happened, there wasn’t any problems.
Danae Ringelmann 19:21
Our research shows that people fund for four reasons. We call them the four Ps which is passion, people, participation, and the perk. Passion is they just love the idea. People is they love the people behind the idea. Participation is this idea of being part of something. Early adopters love to fund for this reason, because they want to be on the cutting edge of the latest and greatest technology. And then the perk is they actually want the thing. When funders fund, they fund for a multiple of those reasons all together, there’s typically a dynamic mix. So if you keep your campaign owners updated, you A: raise more money. I know campaigns that do three to five updates throughout their campaign raise an average of 250% more than campaigns that don’t do as many updates. So we train people through data and through education what the best practices are, but do leave it open to being an open platform. I think the more as we grow as an industry, the more best practices will evolve. And we share all that so that people can really hone in on doing a really good campaign.
Katie Fehrenbacher 20:29
Mladen, what do you think about that? As from a designer perspective, I know you’re a little bit worried about the kind of crowdfunding. If it becomes such that people don’t believe in the crowdfunding process will create the design. You work on a lot of campaigns for your studio.
Mladen Barbaric 20:45
So this is a real issue that we do have to solve. Between the platforms and the developers, we need to address how to differentiate to consumers what is real and what is not real, and I think for anybody that has done hardware products, they know it’s not a joke. It requires scars and requires a lot of work and a lot of experience. And some young developers that haven’t been exposed to the entire process simply can’t deliver on it, it’s impossible for them.
Mladen Barbaric 21:25
I recently saw one project where it was pretty much what we typically see as the iWatch rendering online that was, I believe on Kickstarter. To the developer community, we know they can’t make that, because we know exactly what it would take to make that, but the consumers don’t. Consumers look at the cool watch and they see something cool they want to support, and so what that does is it lowers the credibility of both the experience developers and the platforms. I think that’s something that we have to work on together to understand and to improve so that forward going, we can kind of sift out projects that are clearly not possible.
Danae Ringelmann 22:19
Yeah, it was interesting, we totally believe in open communications. So if you say, ‘Hey, how is that possible,’ ask the question and it’s public and the designers can answer it. A really interesting thing happened with– some of you might know that the JOBS Act got passed a year ago, and now that regulations are getting finalized and SECs moving forward with it, one of the stipulations they put in there for equity crowdfunding for platforms that want to offer equity crowdfunding – which is not just funding for perks, but actually for investments in an addition to perks – is you have to have an open communication channel, which I think was a great learning that they took and extracted from the perks systems that have evolved and are applying to equity. Because I think we’re going to revolutionize funding by increasing the amount of transparency in the process. It will empower funders and it will empower campaign owners to be really honest with themselves about what’s needed, how am I actually going to execute, which will then make everybody better.
Mladen Barbaric 23:23
There’s definitely a solution for this. We’re at early stages and crowdfunding has to evolve. We’re–
Danae Ringelmann 23:30
Yeah, it’s exciting. I know.
Mladen Barbaric 23:32
It’s exciting. We’ve established that it can fund small projects and we’ve established that it can validate bigger projects. Obviously you need some more funding to be able to execute all of these, but it’s giving a tool set to creators that is quite powerful. So as we continue to evolve, it should address that issue and maybe even open it to a larger audience.
Danae Ringelmann 23:57
Another area I think will continue to evolve too is this– In profiting in general, absolutely very rarely do you ever see a campaign that raises 100% of the funds it needs in totality. That just doesn’t happen nor do we believe it should happen [chuckles]. We actually encourage campaign owners to break down their funding goals into chunks and raise the amount of money they think they can raise right now and put to work right now to make traction in their project, and then to show something to funders so they can come back and do another campaign or use it as a way to attract Venture Capital or Angel Investment or what have you.
Danae Ringelmann 24:39
What we’ll see and what we’re starting to see and what we’re encouraging more of is both for campaigners that pick flex funding, which is the model where you get your money whether or not you reach your goal, or you pick fixed funding, which is the model where you only get your money if you reach your goal, which are actually on Indiegogo, flexible’s by far the more popular option, because fixed is only really right for people who know they cannot move forward on a project unless they get a minimum amount. But still, that’s rarely the whole amount for the whole project. But what we’re seeing is we’re seeing campaign owners that set their goals and set them at a minimum amount to move forward, and then they also set stretch goals. They aren’t very transparent. If we hit X, we’ll get this minimum amount done, but if we hit Y, we’ll get this much more done.
Danae Ringelmann 25:25
So again, it’s putting power back in the hands of the funders and the people to decide how successful and how much traction this project will be able to make. Many example of this is– it’s not a product one, but it’s another campaign owner I met last week. He launched a campaign in a tiny town in Tacoma, Australia because McDonald’s wanted to build a McDonald’s across the street from their local preschool and the community didn’t want it [chuckles] and so they did a petition, and then they we’re going to raise $2,000 to send the team to Chicago, which is where McDonald’s headquarters are, to basically protest and deliver the petition saying, Don’t build. The community got so into it that they blew past their $2,000 goal in like 30 minutes and proceeded to raise like $40,000. The reason they were able to go that far – which they were going for two, which is like tiny – was because they broke down all the amounts. So if we got $5,000, we’ll do this extra. If we get $10,000, we’ll bring our film camera with us to Chicago. If we get $20,000, we’ll do all this stuff. So they actually were able to make a documentary out of the whole thing, and it blew up in the press across Australia. Every person I met in Australia this week knew about it, and it really empowered this community to take the power back and decide what reality did they want. In this case, they did not want a McDonald’s. There’s nothing against McDonald’s, it’s just this community didn’t want it. So it just showed that when you have a platform that can bring people together who are passionate about the same thing whether it’s the Misfit Shine or not building a McDonald’s, anything can happen. It’s pretty cool.
Katie Fehrenbacher 27:01
We just have a minute or two left for my final question. What advice would you give to designers, product developers in the audience who want to use crowdfunding as a way to validate and launch products?
Mladen Barbaric 27:16
In my opinion, just about every startup that’s doing either software or hardware development should incorporate it into their design process. And using the validation and people voting with their wallets is now just such a great tool that if you don’t use it, you’re at a disadvantage. The only reason that you would possibly not use it is to hide the project. There are very few cases where that’s really advantageous to you, because by the time you have shown what you’re doing, you really should be far enough along that you have a shorter stretch to finish. That needs to be a part of most startups’ design processes.
Danae Ringelmann 28:07
Yeah. What we’re learning is that Indiegogo is becoming a place for people where traditional finance is not right for them. It’s a place for people with ideas where traditional finance – they’re not ready for it. And now it’s becoming a place for people who maybe don’t want traditional finance or don’t want venture capital. As we saw with the Ubuntu campaign which raised $12.8 million recently I think, which is the largest in history so far– but what I would encourage everybody to do is approach this as a learning opportunity as a market testing opportunity and really as a way to apply lean startup methodology in the funding context. You’re going to get very clear data from whether people fund or not, as well as data around pricing, as well as data around features, as well as data around qualitative commentary and feedback, which will just inform your whole marketing launch when you do go big. Or it’ll inform your venture capital pitch deck if that’s your path if you want to go that way eventually as well. But again, it just empowers you with education and insight about your own product and design that you couldn’t buy, and traditional finance can’t give it to you. Venture capitalists can only give you a vote of confidence, they can’t tell you who your market is. They can’t tell you what people will pay for it, they can’t tell you the reason people will pay for it. So that’s what you can get through crowdfunding.
Danae Ringelmann 29:44
And then in combination with venture, it becomes really sweet in that there is value to the traditional financiers and the relationships, and their expertise and stuff like that. I do see a world where the approach to financing, people are going to be taking a hybrid approach both using crowdfunding and traditional finances together. Another benefit of being an open platform is that Indiegogo is now becoming this incubation platform for traditional finance, and ideas are bubbling to the top making it easier for traditional financiers to discover the projects and ideas and businesses they want to get behind. But the beauty of it is that they’re bubbling to the top in a very merit-based way.
Danae Ringelmann 30:25
On Indiegogo, what we have is a whole system where just as we don’t pick and choose projects on our site, we also don’t pick and choose the projects we promote. All the campaigns that get promoted are campaigns that earn their way there. We’ve developed a thing called the gogofactor, which is like a Google page rank algorithm where the harder you work and the more engaged your audience is, the higher your gogofactor. And the higher your gogofactor, the more you get promoted. So really the hands of the power is literally in your hands and your audience’s hands, which I think has just never happened before. Finance has always been a system where the power’s in a few in a few people’s hands. What we’re doing is changing that and putting power back in your hands as the creators as well as your funders and your customers, which is cool.
Katie Fehrenbacher 31:02
All right, we are out of time. Thank you, Danae and Mladen, it was great. I’m sure you guys can grab them after outside if you have followup questions. Thank you.
Mladen Barbaric 31:13
Thanks [applause].

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