Diary of a Social Venture Start-up: Lessons from Kickstarter

The other day, I saw something interesting: Business Insider ran a list called "The Twenty Hot New York City Start-ups You Need...

The other day,
I saw something interesting: Business Insider ran a list called "The Twenty Hot New York City Start-ups You Need to Watch," and among the usual candidates (Foursquare, Hunch, Square, Etsy, etc.) was one name I was surprised to see-Kickstarter. I'm obviously familiar with Kickstarter, and you probably are too-you might have even read Zach Frechette's Kickstarter Roundups on this site-but I didn't know it was that Big Time. It's not that it isn't a great idea; it is. Or that it isn't far-reaching; it's that, too. It's just that Kickstarter is, at its core, a social venture, making its placement on a list of prominent startups all the more interesting.

Kickstarter refers to itself as "a place where people come together to fund and promote projects, and watch them grow." It's basically a start-up that helps power other micro-start-ups: a sustainable butcher, a documentary to increase awareness about the Guarani Aquifer, an urban farm, a public art project, etc. It's a neat idea, and one that gets applauded a lot in certain circles, but I wanted to know what it was that makes Kickstarter different-what brought them from being an interesting niche site to "hot potential investment opportunity." It turns out, the site contains a number of elements that can serve any social start-up well.

A Unique Idea

Kickstarter adds an interesting all-or-nothing twist to the funding process. If you don't fulfill your entire financial target before your project's time expires, you receive none of the money that's been pledged to you. At first glance, this seems counterintuitive to the idea of starting a project. If you're hoping to launch a community garden and you're able to raise 80 percent of the money, conventional wisdom would say that that's pretty solid progress. Kickstarter disagrees. According to the site, these are just the sorts of situations it aims to prevent. They explain, "If you need $5,000, it's tough having $2,000 and a bunch of people expecting you to complete a $5,000 project." This model demands accountability, which is important to any start-up. With Kickstarter, donors become empowered to demand, "All right, you've got your money-now go make it happen."

A Public Feedback Mechanism

The other good thing about all-or-nothing funding is that it's a way to provide immediate feedback on the quality of ideas. You sink or you swim. If your idea needs $15K and you only raise a few hundred dollars, it might not be the best idea, or it might not be presented in the best way possible. Kickstarter allows people to realize potential weaknesses before they've plowed a bunch of time and money into a project. This is important for any business. You're going to make mistakes; the key is realizing them before it's too late.

Obviously, the need for feedback doesn't stop with the funding process. One needs look only as far as the recent Google Buzz debacle to see how critical it is to understand the views of your audience. If you're screwing up, there's a good chance they'll tell you-or tell someone else-publicly. Is your web traffic slumping? Has a steady stream of donations begun to peter out? You'll never know why unless you've set up some kind of feedback channel.

Demonstrable Value

Funders on Kickstarter don't get tax breaks, but that doesn't mean they leave empty-handed. Each potential project comes with rewards for contributing various amounts. These can range from an acknowledgement in a book to a dinner with the project's founder to special progress updates. Obviously, donor rewards are nothing new. PBS has been rocking the tote-bag approach for decades. But it's not just about schwag, it's about showing people something for their money. The nonprofit charity: water does a superb job of this. From its stunning videos to photos they post each day on their Twitter feed, they allow donors to follow along and take ownership of the cause. As a social venture, that's the sort of connection you need. Emotional investment builds loyalty-and loyalty builds a business.

The takeaway: There's an old saying: "Good writers borrow from other writers; great ones steal outright." It's somewhat the same with businesses. It's always interesting to examine companies on the verge of success to see what you can learn. While I don't know if Kickstarter will fulfill the promise of a "Hot Start-up," I do know they've definitely got a lot worth paying attention to.

Image of Kickstarter co-founder Perry Chen via.