Founded in 2009 by Perry Chen, Yancey Strickler, and Charles Adler with a mission to help bring creative projects to life, Kickstarter uses an all-or-nothing model funding model (if a project does not meet its financial goal, no money changes hands between the creator and the backers funding the project). The company primarily makes money via transaction fees.
Elements
Analysis
Implications
Examples
Crowdfunding Platform
– Kickstarter operates as a crowdfunding platform that allows creators to raise funds for various creative projects. These projects can include art, technology, games, films, and more. – It connects creators with backers willing to pledge financial support.
– Provides a platform for creators to access funding for their creative endeavors. – Attracts a diverse range of creative projects and backers. – Acts as an intermediary, facilitating financial transactions and trust between creators and backers.
Creators use Kickstarter to fund projects like independent films, innovative gadgets, board games, and art installations.
All-or-Nothing Funding
– Kickstarter employs an “all-or-nothing” funding model, meaning projects must reach their funding goals within a specified timeframe to receive pledged funds. If a project falls short, no funds are collected.
– Encourages creators to set realistic funding targets and engage their networks to reach goals. – Provides backers with assurance that their contributions will only be used if the project succeeds. – Reduces the risk of uncompleted or underfunded projects.
If a project’s funding goal is $10,000 and it raises $9,900 within the timeframe, no funds are collected, and backers are not charged.
Rewards-Based Crowdfunding
– Kickstarter offers rewards-based crowdfunding, where backers receive tangible rewards or incentives for their pledges. Rewards can include early access, limited-edition items, credits, or other project-related perks.
– Attracts backers who are motivated by the desire to receive unique rewards tied to the projects they support. – Encourages creators to offer compelling incentives to attract backers. – Enhances the sense of community between creators and backers.
A creator raising funds for a new board game might offer backers exclusive game pieces, a signed copy of the game, or their name in the game’s credits.
Project Categories
– Kickstarter features a diverse range of project categories, including art, comics, crafts, dance, design, fashion, film, food, games, music, technology, and more. – Each category allows creators to showcase their projects to a relevant audience.
– Attracts creators from various fields and industries seeking crowdfunding for creative ventures. – Provides backers with a wide selection of projects to support based on their interests. – Enables Kickstarter to cater to a broad demographic of creators and backers.
Kickstarter hosts projects in categories as varied as independent films, innovative gadgets, fashion collections, and art installations.
5% Fee on Successfully Funded Projects
– Kickstarter charges a 5% fee on the total funds raised for successfully funded projects. This fee is deducted before funds are transferred to the creator. – In addition to the platform fee, payment processing fees are applied by third-party payment processors (e.g., Stripe or PayPal).
– Generates revenue for Kickstarter, making it sustainable. – Aligns Kickstarter’s interests with the success of creators’ projects, as the platform only earns a fee when projects are fully funded. – Allows creators to retain a significant portion of the funds raised.
If a project successfully raises $100,000, Kickstarter will deduct a $5,000 platform fee, and additional fees may apply for payment processing.
Global Community of Backers
– Kickstarter has a global community of backers from various countries who contribute to projects worldwide. – Backers can discover and support projects from creators in different regions, promoting international collaboration.
– Expands the reach of projects, enabling creators to attract backers from around the world. – Facilitates cross-cultural exchange and diversity in creative endeavors. – Enhances Kickstarter’s position as a global crowdfunding platform.
Backers from the United States might support a film project by a filmmaker in France or a technology project by a startup in Japan.
Value Proposition
– Kickstarter’s value proposition includes providing a platform for creators to access funding for creative projects, offering backers the opportunity to support innovative ventures, and fostering a sense of community among creators and backers.
– Attracts creators seeking funding and support for their creative ideas. – Appeals to backers interested in unique rewards and contributing to creative projects they believe in. – Creates a collaborative ecosystem that benefits both creators and backers.
Creators benefit from funding and exposure, while backers gain access to exclusive rewards and the satisfaction of supporting creative ventures.
Customer Segments
– Kickstarter’s customer segments include creators (individuals or teams looking to fund projects) and backers (individuals who pledge funds to support projects). – Creators aim to access crowdfunding, while backers seek to support and engage with innovative projects.
– Offers a platform tailored to the needs of both creators and backers. – Facilitates a direct connection between creators and their supporters. – Allows creators to reach a global audience of potential backers.
A filmmaker (creator) uses Kickstarter to raise funds for a documentary, and film enthusiasts (backers) pledge funds to support the project.
Distribution Strategy
– Kickstarter’s platform serves as the primary distribution channel for both project creators and backers. – Creators showcase their projects on the Kickstarter website, and backers browse and pledge funds through the platform.
– Provides creators with a centralized platform to present their projects to a wide audience. – Offers backers a convenient and user-friendly platform to discover, support, and track projects. – Simplifies the funding and reward distribution process.
Creators present their projects on Kickstarter, where backers can find, support, and engage with them, all within the platform.
Marketing Strategy
– Kickstarter relies on word-of-mouth, social media, and online marketing to attract creators and backers to its platform. – Projects are promoted by creators through their networks and social media channels to reach their funding goals.
– Leverages the power of social networks and the internet to reach a global audience. – Encourages creators to actively promote their projects to engage their communities. – Empowers creators to take ownership of their marketing efforts.
Creators use social media platforms like Facebook, Twitter, and Instagram to share their projects and attract backers to Kickstarter.
Competitive Advantage
– Kickstarter’s competitive advantage lies in its role as a pioneer in the crowdfunding industry, its global community of creators and backers, and its reputation for supporting creative projects across various categories.
– Positions Kickstarter as a trusted and established crowdfunding platform. – Attracts a wide range of creative projects and diverse backers. – Builds a network effect where more creators and backers join, enhancing the platform’s value.
Kickstarter’s competitive advantage is its well-established position as a leading crowdfunding platform for creative projects, benefiting both creators and backers.
Table of Contents
Origin Story
Kickstarter is a Brooklyn-based public benefit corporation and is best known for its crowdsourcing platform.
It was founded in 2009 by Perry Chen, Yancey Strickler, and Charles Adler with a mission to help bring creative projects to life. This means the platform is frequented by a diverse range of creatives, including musicians, filmmakers, comedians, journalists, and gamers.
From 2012 to 2017, Kickstarter embarked on an expansion strategy that saw it establish a presence in the UK, New Zealand, Australia, Singapore, Hong Kong, Mexico, Japan, and most of western Europe.
Kickstarter has become one of the largest crowdfunding platforms, and the place where many business ideas have been validated and launched. To gain a bit of context it’s worth looking at some of its key statistics.
Source: kickstarter.com/help/stats
Kickstarter revenue generation
Kickstarter uses an all-or-nothing model funding model. This means that if a project does not meet its financial goal, no money changes hands between the creator and the backers funding the project.
We established the all-or-nothing model when we launched in 2009 as a measure to protect creators, and to minimize risk for everyone. By not releasing funds unless a project meets its goal, this ensures that creators have enough money to do what they promised and they’re not expected to complete a project without the funds necessary to do so. This also assures backers that they’re only funding creative ideas that are set to succeed.
Thus, the company argues that this model increases revenue generation for both Kickstarter and the creator. Financial goals encourage creators and backers to rally together and create a sense of urgency. A sense of community is then created when both parties cross the finish line together and successfully fund a project.
For projects that are ultimately unsuccessful, Kickstarter does not collect a fee and the money is returned to the backers.
Transaction fees
For a project that does meet its financial goal, Kickstarter takes 5% of the total amount of funds raised.
A third-party payment processor also takes a fee of 3% plus 20 cents per pledge. However, small pledges under $10 have a discounted fee of 5% plus 5 cents per pledge.
For users in the United States, this third-party processor is usually Stripe.
In the case of $10,000 raised by 100 pledges, the creators will receive $9000. Kickstarter then takes a $500 commission and the payment processor another $500. Given its relatively low operating costs, the commission Kickstarter receives is relatively profitable.
Kickstarter maintains that its fee structure has set the industry standard for crowdfunded creator projects. In other words, the company believes in paying the creator as much as possible by eliminating the numerous intermediaries in a traditional funding process.
These include agents, distributors, dealers, record labels, publishers, and fiscal sponsors.
Benefit Corporation certification
In 2015, Kickstarter was reincorporated as a Benefit Corporation in the United States. This means the company gauges success according to how well it delivers on its mission. While profits are important, they are no more important than socially responsible decision-making and goals.
Key takeaways
Kickstarter is an American crowdfunding platform that was reincorporated as a Benefit Corporation in 2015. Its mission is to help bring creative projects to life for a diverse range of creators.
For successfully funded projects, Kickstarter charges a commission of 5% of the total amount raised. A third-party payment processor – usually Stripe – also takes a cut for facilitating the transaction.
Kickstarter encourages projects to become fully funded by creating a sense of camaraderie between backers and creators. Ultimately, this financially benefits both the creators and the company itself.
Key Highlights
Crowdfunding Platform for Creative Projects:
Kickstarter serves as a platform where individuals and groups can launch creative projects and campaigns to seek funding from a community of backers.
The projects span a wide array of categories, including art, design, technology, film, music, literature, games, and more.
Diverse Creator Community:
Kickstarter’s user base consists of a diverse range of creators, including artists, musicians, filmmakers, writers, designers, and innovators from various industries.
This diversity contributes to the platform’s eclectic mix of projects and ideas.
All-or-Nothing Funding Model:
The all-or-nothing funding model means that if a project does not reach its specified financial goal by the campaign’s deadline, no funds are collected from backers.
This model encourages creators to set achievable goals and motivates them to actively engage their community to reach the target.
Financial Protection for Creators and Backers:
The all-or-nothing model protects creators by ensuring they have the necessary funds to complete their projects if they meet their goal.
Backers are also protected as they’re only charged if the project successfully reaches its funding goal.
Revenue Generation:
Kickstarter generates revenue through commission fees on successful projects.
When a project is successfully funded, Kickstarter charges a 5% commission on the total funds raised.
In addition to Kickstarter’s fee, a third-party payment processor (often Stripe) deducts a fee of 3% plus 20 cents per pledge (with reduced fees for small pledges).
International Expansion:
Kickstarter expanded its reach from 2012 to 2017 by establishing a presence in various countries, including the UK, New Zealand, Australia, Singapore, Hong Kong, Mexico, Japan, and western European countries.
This expansion allowed creators from different parts of the world to access the platform and connect with backers globally.
Benefit Corporation Certification:
In 2015, Kickstarter became a Benefit Corporation, demonstrating its commitment to achieving its mission alongside financial success.
Benefit Corporations prioritize social and environmental goals while maintaining profitability, aligning with Kickstarter’s focus on creative projects and responsible decision-making.
Community Building and Engagement:
Kickstarter fosters a sense of community between creators and backers.
Successful projects often create a bond between the creators and their backers, who feel like they’ve played a role in bringing a creative idea to life.
Industry Standard and Disruption:
Kickstarter’s fee structure and all-or-nothing model have set industry standards for crowdfunding platforms.
The platform disrupted traditional funding models by directly connecting creators with backers, eliminating the need for intermediaries.
Support for Innovation:
Kickstarter has become a hub for innovation and experimentation, providing a space where unconventional and groundbreaking ideas can find support.
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.
In an asymmetric businessmodel, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a businessmodel. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.
In a franchained businessmodel (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
