The Kickstarter Model

As the new sensation sweeping the nation, Kickstarter is making dreams come true for many entrepreneurs and product designers. Its unique model allows for a passionate community to financially back an idea to its completion. Here’s how Kickstarter describes itself:

What’s Kickstarter?
Kickstarter is a funding platform for creative projects. Everything from films, games, and music to art, design, and technology. Kickstarter is full of ambitious, innovative, and imaginative projects that are brought to life through the direct support of others.
Since our launch on April 28, 2009, over $500 million has been pledged by more than 3 million people, funding more than 35,000 creative projects. If you like stats, there’s lots more here.

The success of their model comes from the way they engage their audience. The term “crowdfunding” is often thrown around when discussing Kickstarter. Crowdfunding is essentially the democratic way of choosing what succeeds and what doesn’t. But instead of voting with ballots, the constituents vote with dollars. Every dollar goes towards meeting a project’s goal. If the project reaches or surpasses its goal, the project creator gets all the funding it raised. If the project does not reach its goal during the predefined specified time frame, then no money exchanges hands.

This democratic funding model can be applied in a number of different scenarios. I’ll go over two of them.

As companies look for new ways to innovate upon their existing processes and culture and to develop new products, the Kickstarter model may work in their favor. A company reaps many benefits by allowing employees to innovate an idea and then post it for peers to vote on.

  • New streams of ideas: often in large companies, an employee may have a great idea but nowhere to take it. Implementing a Kickstarter within a company provides a place for these ideas that otherwise would never be surfaced.
  • Sense of ownership: allowing employees to vote on what a company pursues and produces, gives employees a sense of ownership that is lost amongst highly bureaucratic businesses. When employees feel involved, they’re more likely to contribute their best to reach shared goals.
  • Cross-divional engagement: The voting process can be shared amongst every aspect of a business, not just silo-ized to IT or Marketing. Everyone in the business has a say in what money-making projects are being developed.

This next part is an aspect of the Kickstarter Model that I can really wet my whistle on.

I was perusing TechCrunch and I read this article about Gustin, a San Francisco denim startup. Gustin started as a high end denim jean designer and sold their jeans to boutiques in L.A. and NYC at around $200. According to the article:

Gustin got its start on Kickstarter, becoming one of the first fashion companies to do so. It raised nearly $450,000 from more than 4,000 backers to shift its high-quality denim brand from the traditional retail model to a fully online, direct-to-consumer and crowdfunded model.

Since Kickstarter isn’t a store, they created their own model for their products. On a regular basis, Gustin posts different denim designs on their website. Customers then back the design. If the design gets fully backed within their set period of time, then all the backing turns into product orders. Gustin then orders the raw materials and begins producing. 6 weeks later the backer receives their jeans. They recently added button down shirts to their repertoire.

What does this mean for them as a company? Gustin always has demand for their supply because they only make the exact amount the consumers want. They’ve created a perfect market for their brand. Businesses would love knowing the exact demand for their products and Gustin knows theirs! They don’t have to carry any inventory, a good or bad reality. Good because they lower their overhead but bad because they can’t exchange products for consumers.

I’ve been trying to think of what products or services could benefit from this business model. Maybe a movie theater has its local patrons vote on the movies it shows? If you have any ideas, be sure to leave them in the comments below!

Here are some articles:

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