Master Thesis - Reward-based crowdfunding on Kickstarter (Mila Valcheva and Julia Bondareva)

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1 Executive Summary The purpose of this thesis is to improve understanding of the novel phenomenon of reward-based crowdfunding. We investigate how creators can exploit the full potential of their creative idea on the Kickstarter platform. In order to do that, this paper combines existing theories within the fields of entrepreneurship, startups and marketing communication, and applies them to the phenomenon of reward-based crowdfunding. Moreover, this paper includes a crowdfunding expert’s point of view on the phenomenon in Denmark. Interviews with eight Danish creators of Kickstarter projects are analyzed in order to gain insights into the campaign process that these creators undergo from the birth of their idea until the end of their campaign. Out of these eight cases, four are in the process of collecting funds (at the time of the interviews), and four are successfully funded. The main findings suggest that in order to exploit the full potential of a creative idea on KS, creators must adopt a startup mindset in the ‘Pre-planning’ phase of their campaign. Moreover, it has been discovered that creators possess four obligatory entrepreneurial characteristics that serve as the basis for bringing a creative idea on Kickstarter. Furthermore, the research reveals that ‘uncertainty’ characterizes the ‘Pre-planning’ phase, and is being replaced by ‘learning’ in the ‘Execution’ phase of a Kickstarter campaign.
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Transcript of Master Thesis - Reward-based crowdfunding on Kickstarter (Mila Valcheva and Julia Bondareva)

  1. 1. 1 Executive Summary The purpose of this thesis is to improve understanding of the novel phenomenon of reward-based crowdfunding. We investigate how creators can exploit the full potential of their creative idea on the Kickstarter platform. In order to do that, this paper combines existing theories within the fields of entrepreneurship, startups and marketing communication, and applies them to the phenomenon of reward-based crowdfunding. Moreover, this paper includes a crowdfunding experts point of view on the phenomenon in Denmark. Interviews with eight Danish creators of Kickstarter projects are analyzed in order to gain insights into the campaign process that these creators undergo from the birth of their idea until the end of their campaign. Out of these eight cases, four are in the process of collecting funds (at the time of the interviews), and four are successfully funded. The main findings suggest that in order to exploit the full potential of a creative idea on KS, creators must adopt a startup mindset in the Pre-planning phase of their campaign. Moreover, it has been discovered that creators possess four obligatory entrepreneurial characteristics that serve as the basis for bringing a creative idea on Kickstarter. Furthermore, the research reveals that uncertainty characterizes the Pre-planning phase, and is being replaced by learning in the Execution phase of a Kickstarter campaign.
  2. 2. 2 Acknowledgements First, we would like to thank our supervisor, Tore Kristensen, for his excellent guidance and help during this project. We are very grateful to all the project creators we met during the process of writing this thesis and thank them for the interesting discussions about crowdfunding on Kickstarter and their own projects in particular. The valuable inside information they provided inspired us and greatly affected the direction of this paper. We want to thank Michael Flarup for his meticulous presentation of THERMODO, Nicolas Aagaard for his interview regarding PLUK and for the prototype products he gave us, Troels Fonsboel for the fascinating discussions regarding his WALLZ project and also gifting products to us, Chris Gojal Krogsgaard for her extensive help with interviews, presentation and email correspondence regarding the BAKE ON project as well as the gifted products, Jess Christian Fleischer for sharing with us the success story of SON OF A TAILOR, Jens Juhanson - the Online Coordinator for ME MOVER, for also sharing the success story of that project, Marcus Vagnby for discussing the VIA 3-IN-1 project, and Nikolaj Bak for the interview regarding SITPACK. Lastly, we want to thank Casper Arbll, a Danish crowdfunding expert and founder of HeartReacher, for an interesting and inspiring discussion on crowdfunding and the campaign process. Finally, we would like to thank our family and friends for their continuous support and patience during the writing process.
  3. 3. 3 Table of Contents Executive Summary.......................................................................................................................1 Acknowledgements ........................................................................................................................2 Table of Contents...........................................................................................................................3 Glossary ..........................................................................................................................................6 Tables and Figures.........................................................................................................................7 1. Introduction ........................................................................................................................8 MOTIVATION ........................................................................................................................8 NON-LINEAR APPROACH ....................................................................................................10 ERROR OF THE THIRD KIND (E3) .........................................................................................10 PROBLEM FORMULATION...................................................................................................11 RESEARCH QUESTION.........................................................................................................11 2. Literature review ..............................................................................................................13 3. Theoretical Framework ...................................................................................................17 PART 1: Entrepreneurship................................................................................................18 CREATOR AS AN ENTREPRENEUR............................................................................18 PART 2: Startup..................................................................................................................21 DEFINING A STARTUP ..............................................................................................21 CUSTOMER DEVELOPMENT APPROACH...................................................................24 PART 3: Marketing Communication................................................................................25 CAMPAIGN DEVELOPMENT......................................................................................25 ONLINE COMMUNICATION.......................................................................................26 4. Method...............................................................................................................................28 INTERPRETIVIST APPROACH ...............................................................................................28 OBJECTIVITY OF INTERVIEW KNOWLEDGE ........................................................................29 RELIABILITY .......................................................................................................................29 VALIDITY ............................................................................................................................31 GENERALIZABILITY ...........................................................................................................32
  4. 4. 4 5. Data Collection..................................................................................................................33 SECONDARY DATA..............................................................................................................33 PRIMARY DATA...................................................................................................................33 Interviews................................................................................................................34 Interview structure...................................................................................................37 CODING OF THE QUALITATIVE DATA..................................................................................38 6. Analysis I ...........................................................................................................................39 CROWDFUNDING ON KICKSTARTER...................................................................................39 CREATORS CHARACTERISTICS..........................................................................................43 DISCUSSION PART I.............................................................................................................59 7. Analysis II..........................................................................................................................62 Campaign process ..............................................................................................................62 PHASE 1: Pre-planning......................................................................................................62 PRODUCT DEVELOPMENT ..................................................................................................63 VALUE PROPOSITIONS........................................................................................................70 CAMPAIGN LAUNCH PREPARATION ...................................................................................77 DISCUSSION PART II ...........................................................................................................82 PHASE 2: Execution phase................................................................................................85 CUSTOMER DISCOVERY .....................................................................................................86 COMMUNICATION ..............................................................................................................92 DISCUSSION PART III ........................................................................................................101 8. Conclusion.......................................................................................................................110 FURTHER RESEARCH ........................................................................................................113 Bibliography...................................................................................................................114 Appendices APPENDIX 1: THERMODO PRESENTATION TRANSCRIPTION APPENDIX 2: PLUK INTERVIEW ABSTRACT APPENDIX 3: ME-MOVER INTERVIEW ABSTRACT APPENDIX 4: WALLZ INTERVIEW ABSTRACT APPENDIX 5: VIA INTERVIEW ABSTRACT APPENDIX 6: BAKE ON INTERVIEW ABSTRACT APPENDIX 7: SON OF A TAILOR INTERVIEW ABSTRACT
  5. 5. 5 APPENDIX 8: SITPACK INTERVIEW ABSTRACT APPENDIX 9: CASPER ARBLL INTERVIEW ABSTRACT APPENDIX 10: BAKE ON FOLLOW UP INTERVIEW ABSTRACT APPENDIX 11: WALLZ FOLLOW UP INTERVIEW ABSTRACT APPENDIX 12: CAPITAL C MOVIE ABSTRACT APPENDIX 13: PANEL AFTER CAPITAL C APPENDIX 14: KS VIDEO TRANSCRIPTION APPENDIX 15: CODES AND CATEGORIES APPENDIX 16: STRUCTURE OF CODES AND CATEGORIES APPENDIX 17: INFORMATION ON THE ESTABLISHMENT OF THE COMPANIES
  6. 6. 6 Glossary The abbreviations used throughout this master thesis are listed below. Abbreviation Description CF Crowdfunding DDI Design-Driven Innovation DK Denmark DKK Danish Krone EUR EURO GBP British Pound KS Kickstarter ROI Return on Investment SME Small and Medium-sized Enterprises UK United Kingdom USD United States Dollar
  7. 7. 7 Tables and Figures The tables and figures used throughout this master thesis are listed below. Table 1: Previous Research on Crowdfunding and Own Contribution Table 2: Presentation of the Chosen Cases Table 3: Theory Overview Table 4: Creators Characteristics Table 5: Ethos, Logos, Pathos in the KS Videos Table 6: Overview of Execution Phase Findings Figure 1: Campaign Process Figure 2: Holistic View of Findings
  8. 8. 8 CHAPTER 1 Introduction MOTIVATION The idea of crowdfunding is not something new - Mozart, Beethoven and other 18th century authors would go out to the audience and offer subscriptions for people to gain early access to a new concerto or get their names on the first edition1 . Even though crowdfunding has been in the shadow for the past hundred years, the idea came back into the spotlight in 2008, when Obama managed to raise 48% of the total USD 118.8 mio for his election campaign from donations less than USD 2002 . We direct our attention to one particular crowdfunding platform, Kickstarter (from here on we refer to it as KS). Perry Chen, one of its founders, expressed a great amount of joy about bringing back crowdfunding in some way by introducing the KS platform3 . KS is a global reward-based crowdfunding platform, founded by Perry Chen, Yancey Strickler, and Charles Adler in 2009 with headquarters in New York City (U.S). It is the biggest platform supporting reward-based crowdfunding4 , and came to Denmark in October 20145 . The founders of Kickstarter explain it as: more than just a funding tool. Its a community of millions of people who love to share and support creative things.6 The platform is a novel way of funding creative projects through the direct support of online users, also referred to as backers. The funded projects can be from any of the following categories: Art, Comics, Crafts, Dance, Design, Fashion, Film & Video, Food, Games, Journalism, Music, Photography, Publishing, Technology, and Theater7 . Since the launch of the platform (2009), more than 7 million people have pledged over $1 billion and funded more than 70,000 creative projects. Out of those 7 million, over 2 million are repeat backers8 . So far, about 44% of Kickstarter projects have reached their funding 1 Chen, Perry. How to Change How Ideas Are Funded. Video Published on 24 Jun 2012. Available at: https://www.youtube.com/watch?v=OHhq-NuG4ps 2 Source: http://www.emandp.com/post/single/political_crowdfunding_and_the_election_that_could 3 Chen, Perry. How to Change How Ideas Are Funded. Video Published on 24 Jun 2012. Available at: https://www.youtube.com/watch?v=OHhq-NuG4ps 4 Source: http://crowdfunding.about.com/od/Crowdfunding-definitions/fl/What-is-rewards-based-crowdfunding.htm 5 Source: https://www.kickstarter.com/blog/kickstarter-in-scandinavia-and-ireland 6 Source: https://www.kickstarter.com/help/handbook/hello 7 Source: https://www.kickstarter.com/rules 8 Source: https://www.kickstarter.com/help/stats
  9. 9. 9 goals9 , which is an optimistic success rate for the platforms future. If a project is successfully funded, Kickstarter applies a 5% fee to the collected funds. There are additional 3-5% payment processing fees10 . Empowered by Web 2.0, KS allows project creators (a person or a team behind the idea) to receive monetary contributions from many users, referred to as backers, often in exchange for future products or other rewards. Each Kickstarter project has a clear funding goal and deadline set by its creator, and if backers like a project they pledge money for its development. Projects can offer different rewards - a creator's chance to share a piece of their project with their backer community. Typically, these are one-of-a-kind experiences, limited editions, or copies of the creative work being produced11 . It is important to differentiate reward-based crowdfunding from equity-based crowdfunding, as the latter focuses on the exchange of equity for investors money. Reward-based crowdfunding is a novel approach that gives hope to people who cannot or choose not to follow the traditional way of funding their idea. A crowdfunding platform, such as Kickstarter, enables project creators to go directly to the crowd and convince people all over the world to like and support an idea that cannot come alive without their help. What makes Kickstarter attractive for research is not only that it is the dominant crowdfunding platform, but also the way it helps project creators deliver innovative ideas in front of a larger audience. Some of these ideas get overfunded by 1000%, some barely reach their goal in time, and some get little to no support - the crowd is the judge (by crowd is meant people all over the world that are at the same time potential backers). We set on a journey to discover how not only we, as researchers, but also entrepreneurs and people in general can understand the crowdfunding phenomenon and its potential. As a side note, it is important to mention that from now on, we refer to reward-based crowdfunding simply as crowdfunding. The Kickstarter platform (KS) is our point of departure and we will dive into its good qualities from the point of view of one of its founders. Based on the data we collect, we identify and work with the concepts we consider most relevant for our research problem. 9 Source: https://www.kickstarter.com/help/faq/kickstarter%20basics 10 Source: https://www.kickstarter.com/help/fees 11 Source: https://www.kickstarter.com/help/faq/kickstarter%20basics
  10. 10. 10 We set to investigate reward-based crowdfunding from various theoretical perspectives in order to explain the dynamics behind it. Despite the enormous potential for research, academic literature on the phenomenon is scarce. We take the stand of explorers and hereby argue that uncovering even a small part of the grey areas of the phenomenon can help tremendously other researchers learn how the phenomenon is changing not only human lives, but also society as a whole. This naturally requires us to adopt a non-linear approach to crowdfunding. Since we construct the knowledge as we see the need for it without suppressing the context itself, we acknowledge that the approach itself will be subjective and individual, but we consider it more appropriate for this novel phenomenon, as we simply cannot deliver content in a linear way so that it fits all creators on KS into one size format. NON-LINEAR APPROACH We apply a non-linear approach to learning, as we consider it very situational. Each of our 8 cases focuses on individuals who experience crowdfunding in a distinct social and psychological way. Their experience is entirely unique, which is why we do not expect to find a one size fits all solution. At the same time, non-linear learning about crowdfunding can be explained through the prism of the experiences of various creators on KS. We will direct our attention to the patterns that emerge, and the deviations from them. The main area of investigation in this paper is the Danish project creators on KS and their KS campaigns. A KS campaign refers strictly to the activities involved in a project within a limited period of time, which is the funding period. From now on when we talk about a Kickstarter campaign, we will also refer to it as a project. ERROR OF THE THIRD KIND (E3) Ian Mitroff (1998) argues about the importance of The Error of the Third Kind (E3) in the business world, which is also known as solving the wrong problem precisely. Mitroff (1998) argues that it is better to get an approximate solution to the right problem, rather than provide an exact solution to the wrong problem. In order to tackle E3, problem solvers need to challenge their own ideas and assumptions. The way project creators on KS perceive their own product and present it in order to draw attention to it might not be the same as how the audience sees it. Often little thought is given to this sort of misinterpretations. As will be seen in the Discussion Parts I, II and III, it becomes necessary for project creators to further explain their idea and their products use and functionality in private messages or in form of updates on their KS campaign
  11. 11. 11 page. Project creators have to not only attract as much attention as possible to their video and campaign page, but also to do so without formulating their idea incorrectly and thus confuse a large pool of their potential backers. In case of the latter, the author proposes that the only solution is to frankly admit any mistakes to avoid compounded problems. E3 can be applied to the case of project creators on KS, under the assumption that they think they already know best how to design their product, how much time they expect to allocate for communication with backers etc. While some of these assumptions can be correct, it is important for these creators to challenge themselves with basic questions about the business they are in, their mission, who their prime customers could be, how their product would be perceived by others and other E3 issues. PROBLEM FORMULATION We believe that due to the novelty of KS in Denmark, Danish creators do not fully understand how crowdfunding works. In order to uncover that, they actually need to perform an extensive research on the subject and read tons of materials with recommendations, which is an endless exercise. We therefore ask ourselves - is it not possible to actually provide a simpler answer to what is really important in the crowdfunding process. We consider using the creators own experience and learning in order to partially uncover an answer to our question. What we expect to find here is that more often than not project creators would have gone further and performed much better in their crowdfunding campaigns had they known more about crowdfunding itself. This study will help project creators gain better understanding of crowdfunding on the KS platform. Despite having the campaign guidelines provided by Kickstarter, and a huge database of successfully funded projects to compare with, project creators might not fully understand the dynamics behind crowdfunding due to its novelty, and therefore might not utilize the full potential of the KS platform for the successful outcome of their campaigns. RESEARCH QUESTION We as researchers also need to avoid making the E3 when formulating our problem statement. We approach the problem by exploring the phenomenon while keeping an open mind and reflecting on the findings afterwards. Considering the scarce research on the topic, we will aim to simply provide an approximate solution to the right problem:
  12. 12. 12 RQ: How can creators exploit the full potential of their creative idea on Kickstarter? We formulate three sub-questions, which will help us answer the RQ: 1. Do creators possess entrepreneurial characteristics? 2. What goes into the pre-planning of a KS campaign? 3. What are the specificities of the campaign execution?
  13. 13. 13 CHAPTER 2 Literature Review Our first step is to explore what has already been done by other researchers in relation to crowdfunding. Due to the novelty of the phenomenon, previous academic contributions on the subject are somewhat scarce. We have identified three significant academic papers relevant for this master thesis - Belleflamme et al. (2014); Mollick (2014); and Kuppuswamy and Bayus (2014). The first two papers contribute with findings related to the analytical understanding of crowdfunding (Mollick 2014) and why project creators choose to either use reward-based or equity-based crowdfunding (Belleflamme et al. 2014). The latter covers a number of important findings on reward-based crowdfunding and the creators of the projects. Kuppuswamy and Bayus (2014) take a different perspective on crowdfunding and focus on the dynamics of backers support during the time of campaigning. Moreover, all three papers investigate cases or data from KS, which is consistent with our research cases. We start with the definition of crowdfunding, which both papers reflect on. Belleflamme et al. (2014) assess the phenomenon from an entrepreneurial finance perspective, as an open call event, mainly Internet-based, for acquisition of financial resources either as donation or in exchange for some kind of reward to support initiative for particular purpose. Mollick (2014), on the other hand, points that an attempt to formulate a definition would be limited, because general and academic comprehension of crowdfunding is continuously evolving: Crowdfunding draws inspiration from concepts like micro-finance (Morduch, 1999) and crowdsourcing (Poetz and Schreier, 2012), but represents its own unique category of fundraising, facilitated by a growing number of internet sites devoted to the topic. As in any emergent field, the popular and academic conceptions of crowdfunding are in a state of evolutionary flux that makes complete definitions arbitrarily limiting (Mollick 2014:2). Together with accentuating the interdisciplinary aspect of the phenomenon, the author provides a broad definition in an entrepreneurial concept that gives space for the flux of the concept - crowdfunding in this case is seen an activity by individuals
  14. 14. 14 and groups (for profit) to fund their ventures by turning to rather small monetary contributions from quite a large number of individuals on the internet, without the typical financial middlemen. It is worth noticing that both papers research crowdfunding in entrepreneurial context and acknowledge its crucial role as a novel funding mechanism for new ventures that otherwise would be unrealized, and simultaneously proceed beyond this point of view. Belleflamme et al. (2014) propose two types of benefits for the creators: monetary and nonmonetary, where the latter is classified as crucial and is about building a community around a crowdfunding project. Mollick (2014) as well outlines the distinctiveness of the phenomenon, but in different settings. He perceives it not only as a funding tool, but also as a specific path for user innovators to transit into entrepreneurship. He provides an example of the fifty highest funded projects on Kickstarter in 2012, out of which 45 have transformed into ongoing entrepreneurial firms. Moreover, Mollick (ibid) outlines other purposes of crowdfunding, such as demonstrating demand for a proposed product and marketing. Kuppuswamy and Bayus (2014) investigated funded KS projects and showed that other backers funding decisions, what the authors call social information, play a key role in the success of a project. In relation to the social information, the authors have found strong evidence consistent with the goal-gradient hypothesis (Hull 1932; Kivertz et al. 2006 in Kuppuswamy and Bayus 2014:3). In simple terms, backers support for a project in general increases steadily as it approaches its end goal. In addition, the authors have discovered that potential backers are not influenced by the total number of backers supporting a project, but by how much of the funding goal has been pledged. Another important point for this master thesis is the findings by Kuppuswamy and Bayus (2014) that further backer support is positively related to project updates, and that project creators tend to post updates during the first week and the last three days of the campaign period. Creators are also inclined to use updates more aggressively as their project gets closer to its goal, but the authors conclude that project updates at any point of the campaign period are positively related to backers support. Community creation is an important companion of crowdfunding, and in relation to this Belleflamme et al. (2014) suggest that backers are not exclusively motivated by financial benefits of receiving a product at a reduced price. They are also interested in the community benefits, which are linked to the consumption experience and the feeling of being privileged to
  15. 15. 15 be a part of a community for a crowdfunding project. In the absence of these non-monetary benefits, crowdfunding would correspond to merely seeking money from a bank or a large investor. Mollick (2014) portrays backers as both patrons and consumers, emphasizing that they are in fact early consumers and in this regard enjoy such benefits as early access to the product, reduced price, or other benefits. Mollick (2014) concludes in his paper on a number of important and relevant insights that he has found to influence crowdfunding campaigns. Firstly, creators of the campaigns should look for ways to signal preparedness and utilize social network in order to gain connections to funders and endorse a projects quality. Secondly, setting appropriate and contemplated goals will allow to deliver the product on time to the funders. And lastly, planning of these goals and the campaigning process is crucial in determining the outcome of a campaign in terms of monetary success or failure. e Mollick (ibid) deems necessary to research how entrepreneurs signal quality, legitimacy, and preparedness in the virtual setting of crowdfunding. This can be investigated in terms of existing communication theories applicable in this virtual settings. Moreover, Belleflamme et al. (2014) suggest a secondary function of crowdfunding apart from raising money, which has to do with entrepreneurs information motivations. Under this perspective, crowdfunding can be used as a promotion tool, as a method to assist mass customization or user-based innovation, and/or to gain deeper understanding of consumers preferences. Thus, the firms can employ crowdfunding to test, promote and market their products, or as a means for creation of new products or services altogether. Moreover, Belleflamme et al. (2014) state the need to connect research on crowdfunding platforms that intermediate between entrepreneurs and potential backers, creating a two-sided market. It is furthermore suggested by Belleflamme et al. (ibid) to investigate entrepreneurial learning from the crowd in crowdfunding dynamics. In Table 1 we present a visual overview of the literature review by authors and add our own contribution to the research on crowdfunding. In this paper we also build on some of the perspectives from the three authors, and these have been marked in yellow.
  16. 16. 16 Authors Mollick (2014) Belleflamme et al. (2014) Kuppuswamy and Bayus (2014) Own contribution Crowdfunding perspectives Micro-finance and crowdsourcing (interdisciplinary) Reward- and equity based crowdfunding Dynamics of backers support Entrepreneurial characteristics of the creators Entrepreneurial context - funding of ventures Entrepreneurial finance perspective Social information and goal gradient Evaluation of the Pre- planning and Execution phases of a campaign Innovators transit into entrepreneurs Monetary and nonmonetary benefits for creators Potential backers influenced by % of funding goal reached rather than total number of backers Startup perspective Demonstrates demand for a product Backers enjoy community benefits Further backer support is related to project updates Backers as patrons and early consumers Crowdfunding as a promotion tool Creators need to signal preparedness Entrepreneurial learning from the crowd Planning of goals and the campaign process is crucial for the success Table 1: Previous research on crowdfunding and own contribution; Source: own creation.
  17. 17. 17 CHAPTER 3 Theoretical Framework We have clarified what we already know about the phenomenon from previous research (Chapter 2). A lot of good knowledge on entrepreneurship, startups and marketing communication already exists but our study will combine it in a way that can explain new findings about crowdfunding, which is the reason for doing our research. We want to discover how creators can exploit the full potential of their creative idea on Kickstarter. The theoretical discussion follows three parts - Entrepreneurship, Startup, and Marketing Communication. The theories within are chosen on the basis of the data we collected, as Arthur Conan Doyle states: It is a capital mistake to theorise before one has data (in Smith et al. 2012:17). We combine and interconnect the chosen theories related to the three parts in order to investigate and interpret different elements of the phenomenon. Firstly, we discuss application of the concept of entrepreneur to the 8 creators and present distinct characteristics of these creators. Consequently, the Startup part focuses on application of a startup perspective to the process of developing an idea into a KS campaign, incorporating the learning process from the creators perspective. In the Marketing Communication part, we will apply a communication perspective to the process of crowdfunding. Below we present a visual overview of the Theoretical Framework in Table 3. THEORETI CAL PARTS THEORETIC AL THEMES CONCEPTS ANALYSIS ELEMENTS Part I: Entrepreneur ship Creator as an entrepreneur Entrepreneur (Heebll 2008; Shaw et al. 2005; McFadzean et al. 2005; Brem 2008) Creators Characteristics Part II: Startup Defining a startup Startup (Ries 2011) Uncertainty (Ries 2011) MVP (Ries 2011) Proposal (Verganti 2009) Borderline (Verganti 2009) Early adopters (Ries 2011) Validated learning (Ries 2011) Product development
  18. 18. 18 Feedback (Ries 2011; Mullins and Komisar 2009)) Customer discovery Part II -//- Customer development approach Customer discovery (Blank 2006) Customer discovery Part III: Marketing Communicati on Campaign development Value proposition (Osterwalder and Pigneur 2010) Advertising campaign (Pelsmacker et al. 2010) Unique and emotional selling propositions (Pelsmacker et al. 2010) Ethos, Logos, Pathos (Higgins and Walker 2012) Value Propositions Campaign launch preparation Part III -//- Online communicatio n Online communication (Guldbrandsen and Just 2011; Spencer and Giles 2001) Wired audiences (Spencer and Giles 2001) Communication Table 3: Theory Overview. Source: own creation PART 1: Entrepreneurship Part 1 is inspired by the works of John Heebll (2008) - Knowledge-based Entrepreneurship, McFadzean et al. (2005) - Corporate entrepreneurship and innovation part 1: the missing link, Shaw et al. (2005) - Corporate entrepreneurship part 2: a role- and process-based approach, Schumpeter et al. (2003) - Entrepreneur. CREATOR AS AN ENTREPRENEUR Novelty of crowdfunding as a phenomenon does not only open research opportunities, but also urges us to regard it in non-conventional ways. We start with a theoretical discussion of the intrinsic nature of the creator as an entrepreneur. In this master thesis we consider the individual creator as the cornerstone of any crowdfunding activity on KS and believe that creators characteristics are distinctive and resemble those of an entrepreneur. Brem (2008) argues that there is a tendency in literature to emphasize the concept of entrepreneurship and pay little attention to personality-driven or psychological characteristics of an entrepreneur. We expect to discover certain similarities in the behaviour of creators and entrepreneurs, based on which we will formulate characteristics of a creator. McFadzean et al. (2005) highlight the problem of identifying an entrepreneur due to the lack of generally accepted standard definition of the concept.
  19. 19. 19 We are influenced by the view of Powell and Bimmerle (1980 in McFadzean et al. 2005) regarding two sets of intrinsic attributes that initiate entrepreneurship - descriptors and precipitating factors. Importance of examining an entrepreneur as an individual has furthermore been stressed by Brem (2008), who notices a trend in literature to focus on the concept of entrepreneurship rather on the entrepreneur. Therefore we choose to investigate characteristics of the individual creators as entrepreneurs, which can be summarized and visualized in Table 4. Set of attributes Element Variables Descriptors Individual characteristics Entrepreneurial alertness, wide social network, and prior knowledge of markets and consumer needs Personal fitness Work hard and have an understanding family Knowledge and skills Own abilities, partners Precipitating factors Motivation Intense need for freedom, finds joy in creating, desire to see concrete results, earning a living by doing what you love Table 4: Creators Characteristics. Source: own creation. The first set of attributes includes such elements as individual characteristics, personal fitness, knowledge and skills, and each of these elements consist of one or several variables, which will be discussed in more detail below. Individual characteristics relevant to our 8 cases are entrepreneurial alertness, wide social network, and prior knowledge of markets and consumer needs (Ardichvili and Cardozo 2000 in Shaw et al. 2005; Heebll 2008). These traits are fundamental for recognition of opportunities, accommodating the emergence of new ideas, and exploitation of their value (Shaw et al. 2005). When considering entrepreneurial alertness, we focus precisely on creators recognition of opportunities, which arise when they identify a pain that they want to solve. We use Heeblls definition of a problem, which precedes the birth of a good idea: A problem is a need, a demand or some pain put into words. Thus, the problem formulation is the art of turning the recognition of a need into an exact and quantified account of what the pain is about (Heebll 2008:50). The author emphasizes the importance of identifying the pain in a market, and that in itself is the
  20. 20. 20 most difficult and time-consuming part of the creative process. Therefore, only when creators understand the nature of the problem, will they be able to solve it. In the analysis we will clearly demonstrate how each creator has identified a pain, whether their own or a customers. Personal fitness refers to the creators ability to work hard and have an understanding family (Heebll 2008). We expect to discover that campaigning on KS takes a lot of time and is hard work. Therefore, not only should the creator be able to perform under conditions that require an exceptional effort, but we also assume that he/she needs support from close family members to be able to do that. Knowledge and skills include the following traits: own abilities, extent of network, and partners. Many ventures are founded by a team. The benefits of having a partner is that the entrepreneurs access to networks increases, as well as the knowledge and skills available with each new member (Heebll 2008). The second set of attributes, precipitating factors, focus on motivation as a necessary characteristic (McFadzean et al. 2005 and Heebll 2008). Heebll (2008) proposes a list of possible motivations of an entrepreneur, from which we deem important: an intense need for freedom, finds joy in creating, and desire to see concrete results. We supplement the above motivations with McFadzean et al. (2005), who state that entrepreneurs are driven by two set of goals: financial and non-financial goals. According to the authors, evidence suggests that the non-financial goals prevail with entrepreneurs. We believe that for the creators the most important motivation would be passion to make the idea come true. We assume that most of the creators would like to be able to earn a living by doing what they love.
  21. 21. 21 PART 2: Startup Part 2 is inspired by Eric Ries (2011) - The Lean Startup, Steven Blank (2006) - The Four Steps to the Epiphany. Successful Strategies for Products that Win, Mullins and Komisar (2009) - Getting to Plan B. Breaking Through to a Better Business Model, Roberto Verganti (2009) - Design-Driven Innovation. Changing the Rules of Competition by Radically Innovating What Things Mean, DEFINING A STARTUP The reason for looking at startup theories is that the process of designing, making a prototype, preparing a campaign, contacting the media, and other elements discovered from the data closely resembles the process that entrepreneurs go through from their idea to making a venture. In his book The Lean Startup, Eric Ries (2011) regards startups as human institutions operating in the context of extreme uncertainty. Ries (ibid) reflects on this uncertainty by concluding on a common characteristic of most startups - they do not know precisely who their customer is (despite having some ideas about who they will be), they do not know how the product should look like exactly (and how it will change due to feedback), and they use a just do it approach. In this regard, Ries (ibid) highlights the importance of finding the early adopters instead of the average customer when dwelling in the ocean of uncertainty. Early adopters are the customers who feel the need for the product most acutely (Ries 2011:62), and because of that they are more forgiving of mistakes and more eager to provide feedback than average customers. Startups early contact with potential customers merely reveals what assumptions require the most urgent testing (Ries 2011:88). Creators get the chance to understand who these early adopters (backers) are and to know them better during the campaign period. The goal of such early contact with customers is not to gain definitive answers. Instead, it is to clarify at a basic, coarse level that we understand our potential customer and what problems they have. With that understanding, we can craft a customer archetype, a brief document that seeks to humanize the proposed target customer (Ries 2011:89). Ries (ibid) views products as experiments, which in turn enable learning necessary to build a sustainable business in the long run. This learning is vital for startups, and we expect to find that it will be much more valuable to the creators on KS than money, as it reshapes their future
  22. 22. 22 actions. The author argues that the main focus of startups is to receive feedback on the idea as soon as possible. Mullins and Komisar (2009) further complement the importance of quick feedback by underlining how the speed of bringing a product to market is related to a better chance of customers preferences still being the same as during the design phase of the product. In order to generate feedback, it is important to find customers that will engage in this process. On KS, the offered product is what Ries (2011) calls the minimum viable product (MVP), the first product (batch one) which enables fast learning. The author notes that the MVP lacks many features that may prove essential later on it is inadequate to build a prototype that is evaluated solely for internal quality by engineers and designers. We also need to get it in front of potential customers to gauge their reactions. We may even need to try selling them the prototype (Ries 2011:77). And this is exactly what crowdfunding does. KS provides creators the opportunity to go and see for themselves whether their business idea has a potential for growth, and therefore business decisions during (and after) a campaign can be based on first- hand knowledge. Ries reflects on the traditional approaches of interaction design and design thinking as being highly experimental and iterative, using techniques such as rapid prototyping and in-person customer observations to guide designers work. Yet because of the way design agencies traditionally have been compensated, all this work culminates in a monolithic deliverable to the client, which means that suddenly the rapid learning and experimentation stops; the assumption is that the designers have learned all there is to know. For startups, this is an unworkable model. The author argues that No amount of design can anticipate the many complexities of bringing a product to life in the real world (Ries 2011:90). In contrast to the traditional approach of bringing an idea to market, we consider crowdfunding as a novel approach, which directly involves potential customers. This idea is not new in the academic circles, as we discovered that Roberto Verganti (2009) argues for tossing away the traditional approach of bringing an idea to market by instead speaking of proposals that radically change the meaning attributed to products in an ever evolving business context. We take as our point of departure the view that that project creators on KS bring their ideas in front of an audience (on KS and outside of KS) by precisely making such a proposal in the form of their KS campaign.
  23. 23. 23 Roberto Vergantis idea of proposals (ibid) inspires us to think of this as a novel way of companies pushing forward their vision to an audience, while operating near a thin borderline of uncertainty whether these ideas could potentially become real through KS or not. And some ideas that will never do, because they are too far from what customers are ready to accept or want. We believe the same logic applies to crowdfunding when a creator presents the idea to an audience of potential backers. The project creators operate in the land of consumers desires, which is still mostly undiscovered. In order to reach peoples hearts, creators choose the novel path of crowdfunding to live out their dreams, but these proposals, however, are not dreams without a foundation. They end up being what people were waiting for, once they see them (Verganti 2009:10). Furthermore, customers often seem to love these proposals much more than traditionally developed products based on conventional market research of consumer needs. Operating near the borderline is beneficial for startups. Verganti (ibid) explains this as an opportunity to learn where the borderline actually was, in case of a creator failing to crowdfund his/her project. By learning about the borderline, the creator can perform better with the next project, and probably better than the competitors. Such type of proven learning is referred to by Ries (2011) as validated learning. He underlines that validated learning is important in order to gain an understanding of the customers and is an essential competitive advantage for startups. Validated learning is the process of demonstrating empirically that a team has discovered valuable truths about a startups present and future business prospects (Ries 2011:38). Ries (ibid) points out that getting to understand potential customers and their needs at a basic level is a good starting point. Inspired by Ries (ibid) reasoning of why startups fail, we can apply the same logic to investigate important elements of pre-planning a crowdfunding campaign that if not executed correctly would have a negative impact on the campaigns execution. These can be summarized into the following: lack of a good plan (lack of pre-planning in the case of Kickstarter projects), lack of a solid strategy (lack of prepared stretch goals, updates, failsafe plan), lack of thorough market research, and unwillingness to learn from customers feedback (acquired during a Kickstarter campaign).
  24. 24. 24 CUSTOMER DEVELOPMENT APPROACH In Four Steps to Epiphany, Steven Blank (2006) argues for a new entrepreneurial model that shifts the focus away from the rather traditional product development approach to a customer development approach. Whereas the product development model is used by almost every company when launching a new product, the same model is causing startups to fail miserably, because it ignores the fundamental truth about startups - the greatest risk in startups is not so much the product development but the lack of customers and a proven financial model. We appreciate the novelty of the customer development approach and find it especially valuable in relation to crowdfunding. The mere concept of crowdfunding and the traditional product development approach are mutually exclusive. In Blanks point of view, the difference between the new and the traditional approach is a matter of winners and losers. We are only investigating the Customer Discovery step (which is the first step from the model), because we want to investigate whether the creators identify key visionary customers, their needs, and whether the product solves their problem, and you start development based on your initial vision, using your visionary customers to test whether that vision has a market. And you adjust your vision according to what you find out (Blank 2006: 31). What we expect to discover is that the main purpose of a KS campaign is to get access to potential customers, the backers. We cannot investigate the other 3 steps of the Customer Development Approach, as they happen after the Execution phase of a campaign. What happens with the campaigns after the KS timer hits 0 (the campaign period is over) is not included in this paper.
  25. 25. 25 PART 3: Marketing Communication Pelsmacker et al. (2010) - Marketing Communications. A European Perspective, Guldbrandsen and Just (2011) - The Collaborative Paradigm: Towards an Invitational and Participatory Concept of Online Communication, Spencer and Giles (2001) - The planning, implementation and evaluation of an online marketing campaign. CAMPAIGN DEVELOPMENT A KS campaign can be treated as a marketing/advertising campaign, because it follows similar development path of pre-planning, launch, and end, and has to do with attracting backers in order to reach its main objectives. Osterwalder and Pigneur (2010) stress the necessity to make a value proposition to potential customers in order to attract them. A value proposition can be described as a bundle of benefits offered by the company to serve the customers needs. In the context of crowdfunding, it is important for the creators to make a clear value proposition to the potential backers to make them support the idea. We look into the advertising objectives of the 8 KS campaigns, which point to the reason why creators communicate, what is their goal. The message strategy reveals what is going to be communicated to the consumers. The message is very important because it has to be convincing. The customers should clearly understand why they need the product, why it is special, what are its benefits, and what value it offers. Among other things, Pelsmacker et al. (2010) states the need to think about media coverage of an advertising campaign, and we can apply the same logics to a KS campaign - the creators need to spread the word about their campaign. Simultaneously, the advertising message should not confuse consumers and therefore it can promote a functional benefit (unique selling proposition, i.e. USP) or a non-functional benefit (emotional selling proposition i.e. ESP). In crowdfunding the message is often communicated in the video, which is in the beginning of every KS campaign page. We expect to find that project creators indeed focus on either a functional or a non-functional benefit. Furthermore, special skills are required for production of a campaigns video, which means that the video is often carried out by technical experts. We will investigate whether this is the case on KS.
  26. 26. 26 In relation to the videos appeal, we will include Aristotles rhetorical appeals to ethos (credibility), logos (reason), and pathos (emotion) (Higgins and Walker 2012). Ethos suggests of the credibility of the creator clearly stated in the video, in other words anything that might reveal his reputation and work experience. Logos means that a campaigns video appeals to the logic of the potential backers and clearly highlights the problems that the product solves and its functionality features. Lastly, pathos of a video appeals to the backers emotions invoked while watching the video, and is represented by sympathy, desires or fears. We expect to find that pathos prevails in KS videos, which makes them more convincing. ONLINE COMMUNICATION It is important to clarify the sort of online communication that takes place on a crowdfunding platform, such as KS. Guldbrandsen and Just (2011) mention five distinct features of online communication that distinguish it from the more traditional mass and interpersonal communication. First, it is observed to be negotiable and uncontrolled. Internet facilitates the creators easy access to backers all over the world and allows them to constantly generate content, which cannot be controlled by anyone at the moment of its production as well as at its reception. At the same time this content is negotiable because it can be stored, edited, replicated, deleted and restored by both creators and backers. Secondly, enabled by Internet, online communication is not dependent on any temporal or spatial constraints and can develop rapidly at any time from any user, based on the fact that all projects are international. The third feature is that communication is hypertextual. The concept of hypertextuality refers to users ability to actively read available links/references as a part of a complex and interconnected network of links and nodes, among which users move at ease (Gaggi 1997 in Guldbrandsen and Just 2011). In relation to that idea, users, in our case both creators and backers, can be passive or active information seekers on KS (Spencer and Giles 2001). The next characteristic of communication is its hyper- public nature, which facilitates participation on a much larger scale, integrating what used to be private into the public sphere. Lastly, the authors describe it as a two-way mass communication, where an individual user interacts directly with a few actors and at the same time indirectly with the majority, and this view is furthermore supported by Spencer and Giles (2001). The above features lead to what Guldbrandsen and Just (2011) call the collaborative paradigm.
  27. 27. 27 We understand communication as a process, which has certain implications for crowdfunding. We expect our data to demonstrate an ongoing interaction between creators and their backers, as they share and exchange meanings through a collaborative, interrelated and creative flow of communication. However, despite their willingness to participate, users (in this case backers) are forced by KS to overcome one barrier of communication - they need to first back a project in order to become part of and communicate with its community. Therefore, we argue that online communication also differs in the context of crowdfunding on KS in the sense that this open invitation to participate is conditioned by an entry fee and is therefore not free. But there are nodes outside of KS where communication about a project also takes place and that is also open and uncontrolled. Spencer and Giles (2001) advocate for the importance of pushmi-pullyu12 , where successful marketing depends on pushing great online content that can be pulled by the audience. Here the authors pay specific attention to what they call wired audiences, which can be very effective in pulling the content. By wired audiences are meant specialists and opinion formers, such as journalists, and in the case of KS opinion leaders like forum administrators, journal editors, bloggers, other creators etc. According to Spencer and Giles (2001), it all comes down to research, which is considered the key to planning, implementing and measuring of a campaign. As we have previously discussed in Part 2: Startup, it is very difficult for startups to conduct such research, because they do not know exactly who their customers are, but they have an idea of who they might be. However, this perspective on startups does not eliminate the possibility of conducting a limited market research on alternative solutions and potential customers. 12 From the film Doctor Dolittle, describes a two-headed creature that advances as long as they push and pull in one direction (Spencer and Giles 2000:288).
  28. 28. 28 CHAPTER 4 Method INTERPRETIVIST APPROACH We view the phenomenon from an interpretivist approach. We will focus on searching subjective meanings and focus on the social side of crowdfunding, resulting in details of project creators subjective perspectives on crowdfunding as the cornerstone of our analysis. Reality in this case is socially constructed and subjective, which will require us to look at the way creators as social actors perceive the phenomenon and what they have learnt about crowdfunding through their experience. Because research is value bound, we are also subjective and part of the phenomenon (especially as being backers of two of the case projects). We will focus on small samples and in- depth qualitative data from interviews. Our interview questions will in turn shift to a more detailed view of creators personal experiences, resulting in different findings about them as entrepreneurs and what motivates their actions. In this exploratory empirical study, we seek new insights about the novel and evolving phenomenon of crowdfunding with the use of multiple campaign cases on Kickstarter. In doing so, we question what is happening during the crowdfunding process and assess the phenomenon in a new light. Moreover, the advantage of the exploratory research according to Saunders et al. (2009) lies in its flexible nature, which not only provides a deeper understanding of the phenomenon, but also helps to progressively narrow the focus of the research. To better conceive the complexities of the phenomenon, we build on previous research and investigate the substance from project creators perspective, and supplement it with a crowdfunding experts point of view. Validity of the results will be discussed in Research Reflections (Subchapter 4.2).
  29. 29. 29 OBJECTIVITY OF INTERVIEW KNOWLEDGE It is important to address the epistemological question whether knowledge produced through our interviews can be objective. Qualitative research distinguishes between different meanings and uses of objectivity. Objectivity can be viewed as freedom from bias, which implies that we produce reliable knowledge not distorted by personal bias and prejudice. Another use of objectivity is being reflexive about our own contributions to the production of knowledge, acknowledging that we can only make informed judgements based on our prejudices in order to understand the phenomenon. We focus on objectivity in terms of allowing the object to object borrowing the idea from Latour (1997). We attain a degree of objectivity because the objects (in this case the human beings - interviewees) reveal themselves by countering (objecting) our preconceived ideas. This is also the reason why it proved a challenge to strictly follow the prepared in advance interview questions during the interviews. Instead, we seeked and encouraged rare and extreme statements, allowing interviewees the maximum protesting and capacity to surprise and exceed what we as researchers had to say. Thus semi-structured interview technique allowed us to uncover themes and concepts unknown to us during the course of the interviews. The world is always greater than our limited representations of it, which we constantly remind of during our data interpretation in the analysis. RELIABILITY Reliability refers to the ability of our data collection technique and analysis to result in consistent findings, or similar information revealed by other researchers. One concern is whether our interview subjects might change their answers with different interviewers. Because we were not aiming to obtain feelings and emotions of the interviewees, but mostly information regarding their KS experience, we evaluated that it would be suitable to use English instead of interviewees native language. We believe that the timing of the conducted interviews when the campaign is still ongoing does influence interviewees answers, which is demonstrated in the two follow-up interviews in two cases - Wallz and Bake On. We attribute such difference to the fact that the interviewees knowledge of the phenomenon grew with their experience during the process. In other words, they knew more and could give more detailed accounts of the phenomenon with each day (Wallz and Bake On). This is not to say that their answers changed considerably, but rather that their answers were based on different details from their
  30. 30. 30 experience. At the same time, we are convinced that the interviewees, whose campaigns were already successfully funded months ago (Thermodo, Me-Mover, PLUK, and Son of a Tailor), provide similar answers as the creators of the ongoing campaigns (Wallz, VIA, Bake On and Sitpack), even though interviewees, creators of the successfully funded campaigns, would always be able to reflect on their experience in a retrospective way and have a clearer grasp of the whole picture. At the same time, we acknowledge that interviewees, creators of the ongoing campaigns, are not able to reflect fully on their experience until their campaign is over. However, as Saunders (2009) points out, our findings from the semi-structured interviews are not necessarily intended to be repeatable since they reflect reality at the time they were collected, in a situation which might be subject to change (Marshall and Rossman 1999 in Saunders 2009:328). Because crowdfunding is a dynamic process that is constantly changing, and KS as a digital platform undergoes changes as well, we argue that reconstruction of our interviews by other researchers might lead to different results than the current and also different interpretations. Another aspect is the interviewer reliability, related to imposing our own beliefs and frame of reference through the questions we ask, as well as our interpretation of the responses. Our leading questions may influence interviewees answers, if these questions are not part of an interviewing technique. Weiss provides a different angle on the subject (1994:13) and emphasizes the importance of grasping the storyline as it evolves during the interview, and thus not following the structured questions, because the fixed question-open-response approach would have succeeded in getting a headline but would have missed the story, and we are interested in the story. We conduct semi-structured interviews, which allows us to have a partial control of the interview setting and flow, but simultaneously leaves enough space to manoeuvre between the known areas and the dark spaces of their experience. We are particularly interested in the latter, because we are convinced that discovering and acknowledging what we dont know contributes to how convincing our findings are. While coding the same interviews, different researchers are likely to produce non-identical codes (Subchapter 5.3 Coding of the Qualitative Data). Too strong emphasis on reliability might hinder our creativity and variability with fixed and predetermined structures. Instead, these are more
  31. 31. 31 likely to follow when we are allowed to implement our own interview style and follow our own promising hunches to contribute to the overall production of knowledge in the matter (Brinkmann and Kvale 2015). When deciding how many creators to contact and what method to use for the analysis of the interviews transcripts, we considered Brinkmann and Kvales (2015) the 1000-page question. Inspired by that idea, we thought about the method of analysis before we collected the data. We decided to interpret the analysis as we go, while pushing forward some of the pre planned analysis parts as the interview situation evolved. This in turn made our final analysis a lot easier to manage as it was already based on solid ground. The authors argue that the ideal interview is already analyzed by the time the sound recorder is turned off and this is exactly what we aimed at. We chose just enough interviewees for the research to be reliable, but also just enough to be able to process it in a coherent and meaningful way. VALIDITY To validate is to check, to question, and to theorize the interview findings. Validation is embedded in all stages of the production of knowledge, which leads to transparency of the research procedure and convincing results (Brinkmann and Kvale, 2015). Concerning the validity of interview answers, we consider the possibility of our interviewees not relaying the whole truth about facts and experiences, but we consider their statements expressing the truth of their view of themselves. In order to validate what they said, we often asked the same questions in different parts of the interview, and if some of them changed their statements, we would ask them to clarify their answers. In the case of Me-Mover, since the project creator (Jonas Eliasson) was unavailable for an interview, we provide the point of view of one of his employees - Jens Juhanson. This might raise certain validity concerns regarding his answers distorting the truth about what really occurred based on his personal experience and his interest in presenting the best image of the company and his employer. However, Jens joined the company a few months before the campaign, and as an employee he was also an important part of the journey of Me- Mover and provided valuable help and knowhow in bringing it to life during the campaign, therefore we will consider his answers convincing and relevant.
  32. 32. 32 Validity refers to our ability as researchers to gain access to the interviewees knowledge and experience. We conducted the interviews by carefully clarifying our questions, probing the responses meaning, and discussing the topics from various angles. However, Saunders (2009) points out that qualitative research using semi-structured interviews will not be able to be used to make statistical generalisations about the entire population...where this is based on a small and unrepresentative number of cases. This is often the situation when adopting a case study strategy (Yin 2003 in Saunders 2009:327). This view is further supported by Weiss (1994), but we must admit that through customization of each interview and our attempt to uncover the full story, meanings and feelings of the creators, we are very much aware of the specificities of each single case. Therefore, with the help of the triangulation method (Saunders 2009), we are able to cross-check the data and avoid the above-mentioned issues. GENERALIZABILITY The next question we need to consider is whether these results can be generalized to other subjects, contexts and situations or are they of a local interest only. From a humanistic and behaviorism point of view, every situation and every individual person are unique (Brinkmann and Kvale, 2015), however certain common characteristics and repetitive patterns of behaviour emerged from the analysis. We can generalize based on certain entrepreneurial characteristics that the KS project creators are likely to possess. Moreover, we can generalize on the campaign process itself, as there are certain elements that need to be considered in a certain timeframe. We believe that our findings from this interview study and can be used as a basis for other similar cases within the context of crowdfunding. Because we are dealing with human beings and human affairs situated in local contexts (Flyvbjerg 2006 in Brinkmann and Kvale 2015), we argue that the context-dependent knowledge we produce is more valuable than searching for general and universal truths. Furthermore, we are able to generalize by choosing an extreme or critical case - WALLZ, a black swan based on which we can logically deduce what is valid for all other cases and falsify any taken-for-granted assumptions (preplanning of a campaign is critical for its successful funding).
  33. 33. 33 CHAPTER 5 Data Collection In this exploratory empirical study, we aim to build on previous evidence about the nature of crowdfunding from three perspectives - entrepreneurship, startups and communication. We use both primary and secondary data. The collected data is both qualitative and quantitative, with main focus on the qualitative data. The data will be described in more details below. Next, we describe how the data is being collected and coded. An interview structure is then presented before we introduce a small experiment conducted as part of one interview. SECONDARY DATA Our goal is to understand what actually happens during the crowdfunding of a campaign on the KS platform. During our initial research online, we discover two youtube video presentations with one of the founders of KS - Perry Chen, who explains the vision behind KS, what the platform stands for and what it wants to achieve. We also find more information on what to look out for when making a crowdfunding campaign from various articles online. Moreover, we learn about KSs planned launch in Denmark on 21st of October 2014, which gives us the idea to include ongoing campaigns to our research. We expect that access to such will be vital to experiencing first-hand the intricacies of the campaign process from day 1 and also enable us to draw a more detailed picture of the changes occurring during the process, particularly in between the first and any follow up interviews we get access to. Additionally, we collect available campaign data from some of our 8 cases. Additional data on crowdfunding is based on the Capital C movie, which was crowdfunded on KS, and is about crowdfunding. PRIMARY DATA The primary data in this thesis consists of 7 interviews with project creators on Kickstarter: 3 successfully funded projects (Me-Mover, Son of a Tailor, PLUK) and 4 ongoing projects (Wallz, Bake On, VIA, Sitpack), 2 follow-up interviews (Wallz, Bake On), 1 presentation of a successfully funded campaign (Thermodo), and 1 interview with a
  34. 34. 34 crowdfunding expert (Casper Arbll). Interviews Our sampling technique is in line with Weiss (1994) categorization of potential respondents. We identify two relevant groups for potential interviews. The first groups representative is an expert in the field of crowdfunding and also the founder of a consultancy firm on crowdfunding in Denmark - Casper Arbll. The second group consists of people directly affected by the phenomenon we want to investigate, and who can provide inside information about the campaign process based on their experience, namely the creators of KS campaigns. We assume that these two groups can provide a broader panel of knowledgeable informants. We expect that each respondent views the topic from a different perspective, thus contributing with new aspects of the phenomenon. As a first step to acquiring specific information on crowdfunding in Denmark, we conduct an extensive online search of the upcoming crowdfunding events in Copenhagen. As a result, we attend a Meetup13 on Sep. 24th, 2014, organized by members of the Danish Crowdfunding Association and supported by the Danish Chamber of Commerce14 . This is a public presentation specifically on the subject of reward-based crowdfunding, featuring one of the successfully funded campaigns on Kickstarter - Thermodo, by the Danish company Robocat, whose product is a temperature measuring device for smartphones. This presentation acts as an inspiration and as base for the following interviews, because it provides details on all three stages of a crowdfunding campaign on KS: before, during and after. It lasts approximately two hours and is very thorough, its purpose being to finalize and perfect the full story of the journey of Thermodo in one final recorded version. After uncovering some of the basics of reward-based crowdfunding and details from the campaign process from a project creators point of view, we next focus our attention on face-to- face interviews with other Danish project creators. Our first consideration is easy geographical access to the project creators, which is why we focus only on KS projects from Denmark. The projects are selected on the basis of several variables: campaign status (ongoing, successfully or unsuccessfully funded campaigns), industry type, and product price range. Application of such 13 Source: http://www.meetup.com/Copenhagen-Crowdfunding-Meetup/events/206349322/ 14 Source: http://www.meetup.com/Copenhagen-Crowdfunding-Meetup/members/?op=leaders
  35. 35. 35 variables allows us to also eliminate the possibility of having near duplicates (Weiss, 1994), and instead focus on gaining new insights into the phenomenon from each case. Establishment of such variables enables us to identify and analyze both similarities and differences among the projects relevant in answering the research problem. We email 17 selected interview candidates, following up with a phone call. We start by contacting a total of 7 creators of successfully funded Danish projects, 3 of which agree to an interview. It is important to mention that our decision to include also ongoing KS projects into our sampling is entirely due to KS coming to Denmark. The sample of ongoing campaigns coincides with the initial hype of this new phenomenon in Denmark, to which we attribute the positive answers from 4 out of 7 contacted project creators despite them being very busy during their campaigns. We also attempt to reach out to 3 project creators of unsuccessfully funded projects, but none of them replied. We conduct a total of 7 interviews from creators of both ongoing and successfully funded projects. All interviews are conducted throughout the period of three months - September, October and November 2014. Table 2 represents an overview of the actual interviews and the selection variables. The reason we do not apply KS project categories is because it does not give any valuable information due to the fact that most of the cases fit the same design category, therefore we divide them by industries instead. Name Company referred to on KS KS Products Name KS Product description Industry type Successfully funded (SF) or Ongoing (ON) Product Unit Price on KS (USD) Michael Flarup (creator, interviewee) Willi Wu (creator) Robocat THERMODO Electrical thermometer for a mobile device Technology SF 19 Nicolas Aagaard (creator, interviewee) Kre Frandsen (creator) FACO CPH PLUK Hanging fruit basket Product design SF 35 Jens Juhanson (on-line coordinator, interviewee) Me-Mover ME-MOVER Step driven vehicle Transport SF 899
  36. 36. 36 Jonas Eliasson (creator) Troels Fonsb (creator, interviewee) Troels Fonsb WALLZ A set of colourful cubes for creating wall art Home decor ON 22 Marcus Vagnby (creator, interviewee) Karina Mencke Vagnby (creator) ShapingYourDa y VIA 3-IN-1 LAMP A lamp with three changeable light shades Product design ON 134 Chris Gojal Krogsgaard (creator, interviewee) Gojal Krogsgaard BAKE ON TEA TOWELS Screen printed baking tea towels with step-by-step recipes Product design/home decor ON 18 Jess Fleischer (creator, interviewee) Andreas Langhorn (creator) Jess Christian Fleischer SON OF A TAILOR Premium handcrafted T-shirts tailored in customers size Apparel SF 57 Nikolaj Bak (creator, interviewee) Jonas Lind Bendixen (creator) Mono+Mono SITPACK Foldable seat on a stick that fits in a pocket Furniture ON 20 Table 2: Presentation of the chosen cases. Source: own creation. It must be noted that the creators of the successfully funded projects had to set up a company abroad in order to run their campaign on KS, because KS was not in Denmark. The remaining 4 projects are based in Copenhagen, Denmark, launched their campaign after the arrival of KS to Denmark, and were still ongoing at the time of the interviews. The recorded interviews are transcribed partially, which allows us to cut away any small talk, side topics and sensitive information out of ethical considerations. At the same time, we are aware that by doing so we put our interpreter lenses on, however we still believe that this method provides similar results to the analytical process researchers undergo when analyzing full transcripts. We supplement the creators interviews with a crowdfunding experts point of view to gain additional insights on the aspects of the phenomenon in DK.
  37. 37. 37 Interview structure We aim at loosening the borders of the traditional semi-structured interview. The conducted interviews do not strictly follow the order in which we preplanned to ask our questions, because the interviewees quite often gave thorough explanations that already pre-answered some of our later questions. At times we had to ask again by rephrasing some questions in order to confirm that we understood the response correctly, and to ensure that the questions were understood by the interviewees. Firstly, we focus our attention on finding out how the creator got the idea to design and produce their own product. By asking such a question, we simultaneously gain information on the creators background, which will allow us to make a creators profile in the analysis. Secondly, we inquire on their reason for crowdfunding the project. The next step is to gain insights into their pre-planning process and their considerations for the needs of the customer. We also ask the creator to describe their customer/user and their needs. Another question is on whether they have protected their product from being imitated, due to crowdfunding being an open process where information becomes publicly available. Subsequently, we inquire into any professional help they have received in planning and preparing of the KS campaign, and particularly the campaign video. This question is important in regards to the creative execution of the campaign page. Furthermore, we complement that area by also focusing on storytelling in the campaign, which includes not only the video, but also the updates and taking the backers along the projects journey. Another important question is on tipping off the media before and during the campaign, with supplementary questions of blogger contacts and social media, which follow naturally during the interview. We also ask the creators why they limit their funding period to about 30 days, depending on the particular case. We aim to find out whether their decisions have been influenced by KS guidelines and rules, and indirectly discover what sort of comparison they did with other projects in their preparation. In regards to the Execution phase of the campaign, we ask how much time they spent on campaigning, or in other words communicating with the backers and posting updates. Lastly, if the campaign has finished successfully, we ask on the interest for their project after the end of the KS campaign - this includes potential investors and distributors, media etc. If the campaign is still ongoing, we inquire of the creators plans for the future.
  38. 38. 38 CODING OF THE QUALITATIVE DATA Based on suggestions from Harding (2013 in Brinkmann and Kvale 2015), our first step is to read the transcripts and identify initial categories, write codes alongside the transcripts, review the codes and categories, and then look for larger themes and findings in each category. An important critique of coding (MacLure 2013 in Brinkmann and Kvale 2015) is that it reinforces certain epistemology, reducing multiple meanings of long interview statements to what can be captured into a few simple categories, which betrays the indescribable nature of reality. We are aware that certain meanings can be lost or omitted based on what we as researchers deem important to be coded. This points to us being biased by our own perceptions of the content. The coding is both concept-driven, derived in advance by using existing theories, and data-driven - arising ad hoc during the analysis from the interviewees own idioms. Coding of the qualitative data is centered on data from the 8 chosen cases - 7 face to face interviews and 1 live presentation. We do not include data from the interview with a crowdfunding expert in the coding, but it will act as a supplementary data in the analysis. The goal is to find repetitive patterns and consistencies, while staying alert for any deviations. The summarized version of the coding system can be viewed in Appendix 15 and in full details in Appendix 16.
  39. 39. 39 CHAPTER 6 Analysis I In Analysis I we first view crowdfunding on Kickstarter from the perspective of one of its founders, Perry Chen, and this would provide the reader with a more general outlook on the specificities of this platform. We will do so by implementing secondary data from two Youtube presentations with Perry Chen, as well as secondary data from the platform. Next, we move to a more specific view on crowdfunding by drawing the attention to 8 cases. We will examine these project creators characteristics in order to answer the first sub-question: Do creators possess entrepreneurial characteristics? CROWDFUNDING ON KICKSTARTER What better way to explain crowdfunding on KS than take the words of one of its founders for it: When we started Kickstarter our goal wasnt to start another company. It was to create a way for artists, musicians, filmmakers, chefs, craftspeople, designers, adventurers, and other creative people to fund and build community around their ideas. A belief in the immeasurable importance of art and creativity is core to who we are as a company. Our mission is to help bring creative projects to life. We exist so that other peoples ideas can exist. We've remained independent and founder-led so that we can pursue this mission fully15 . Perry Chen explains that KS is a fundraising platform for creative projects16 , where people put their creative ideas and ask the audience, the community, creators fans and friends, to help fund the project. Funding on KS is not investment, because nobody gets a stake, and it is neither a donation. Perry Chen explains that usually people tend to shy away from the word donate, but the transaction happening between a creator and a backer lies somewhere in between patronage and commerce. It is a trade - backers receive goods or services in exchange for their money, but this kind of trade is associated with risk since it is based on the promise of the creators. 15 Source: https://www.kickstarter.com/blog/not-just-another-company 16 Chen, Perry. How to Change How Ideas Are Funded. Video Published on 24 Jun 2012. Available at: https://www.youtube.com/watch?v=OHhq-NuG4ps
  40. 40. 40 Funding on Kickstarter is based on all-or-nothing rule, which means that project creators get to keep the pledged amount only if the project reaches its goal within a limited funding period, current average being 30 days. The all-or-nothing rule has certain advantages. First, It's less risk for everyone17 . This means that backers get to keep all their money if the project fails to reach its goal, and at the same time this protects the creators from the difficulty of keeping only part of the funds while still having to complete the project. Second, the all-or-nothing rule motivates people to spread the word if they want to see the idea come to life. And lastly, It works. Kickstarter points out: Of the projects that have reached 20% of their funding goal, 81% were successfully funded. Of the projects that have reached 60% of their funding goal, 98% were successfully funded. Projects either make their goal or find little support. There's little in- between.18 Kickstarter also points out three rules19 that must be followed: Projects must create something to share with others. This rule points to the necessity for projects to have a general plan of what they will accomplish and how they will do it. Projects must be honest and clearly presented. The second rules emphasizes the importance of trust for the creation of community around the projects. Whenever projects aim to manufacture something, Kickstarter requires that project creators show prototypes so that the project can build trust and present facts without misleading the backers. Thirdly, Projects cant fundraise for charity, offer financial incentives, or involve prohibited items. Kickstarter refers financial incentives in the sense of equity or repayment and offers a list of prohibited items20 , some of which are political fundraising, resale, contests, coupons, and gambling. Unless limited for backers only, anyone can read comments and updates within each KS campaign page, see a list of backers, where they are from, and how many other projects they have backed. One important limitation is that only backers are allowed to comment on the campaign page, which gives communication a quality of being exclusive, such that creators can directly talk to their paying customers, rather than everyone else. During the campaign period, creators have at their disposal project video stats provided by KS for tracking and monitoring all the numbers of their project. And there has been a significant growth of the KS market during the past two years. The number of backers has increased from 2,2 mio (2012) to 3 mio (2013) and 3,3 (2014). The total amount 17 Source: https://www.kickstarter.com/help/faq/kickstarter%20basics 18 Source: https://www.kickstarter.com/help/faq/kickstarter%20basics 19 Source: https://www.kickstarter.com/rules 20 Source: https://www.kickstarter.com/rules/prohibited
  41. 41. 41 pledged has increased from USD 320 mio (2012) to USD 480 (2013) and more than USD 500 mio (2014). At the same time the number of successfully funded projects has increased from 18,109 projects (2012) to 19,911 projects (2013) and 22,252 projects (2014). It is clear that the market has a lot of potential and is constantly growing. In the section Creator Handbook, KS explains the importance of updates: Throughout the life of your project, youll be communicating with backers and keeping them updated on your progress. Thats where project updates come in. Theyre your projects blog, and how backers can follow along with you from start to finish. Being part of this journey is one of the best things about Kickstarter!21 . Three kinds of updates are further pointed out. Updates that build momentum are about informing the backers about new developments and funding milestones. Updates that share the process is about keeping backers in the loop after the project is successfully funded. Updates that celebrate success after the project is successfully funded become part of a fully customized spotlight page - a central hub for news, updates, links to your finished work, and anything else you want people to know. Perry Chen also talks22 about the meaning of donating small amounts, like the average $25 pledge: What small amounts allow us to do is to be really disruptive. The traditional approach is to look for an investment, and when we are talking about investing relatively large amounts of money, it is a very high bar and the question is whether this will return the money, or whether this risk is worth the reward. Since KS is not about investment but about small amounts, when looking at projects backers simply have to decide whether they like the person and their passion. KS is trying to facilitate a low-cost and low-friction way of people helping each other to make an idea come to life. One year later, in 2013 the average pledge fluctuates around USD 7023 . Perry Chen also give the 99% example, which illustrates the high bar of investment versus the low bar of affinity. This 99% is what I believe the amount of ideas that are not conceived to generate revenue. The overall majority of ideas are not conceived to generate revenue. Now many are contorted to generate revenue because they must. And its not always bad. But ideas by 21 Source: https://www.kickstarter.com/help/handbook/updates 22 Chen, Perry. How to Change How Ideas Are Funded. Video Published on 24 Jun 2012. Available at: https://www.youtube.com/watch?v=OHhq-NuG4ps 23 Chen, Perry and Isaacson, Walter. Kickstarter and the Economics of Creativity (Full Session). Video Published on 29 Jun 2013. Available at: https://www.youtube.com/watch?v=3R7mTFHEs1k
  42. 42. 42 nature do not necessarily have a revenue generation part of them as they come out of your brain. And so were trying to really not just serve the 1%, because musicians and filmmakers they are often in business and they like making money off their art, but also theres a lot of ideas that we have, so to say, for the most part have, you know, no desire and relatively little hope of generating revenue and they also need sources of funding. Raising, for example, four times more money than the funding goal, according to Perry Chen talks again to whether this is charity or something different, and why I think this kind of underlines that its something different. Because people didnt stop giving her money, that means that they were receiving value from participating. Perry Chen explains that KS is about pure creativity, which can be found in many categories, not just art or film. The founders of KS realized that creativity in itself is a niche. People who come to the site, they are not like I just wanna look at film, or I just wanna look at music. They wanna see creativity, they wanna see passionate people, theyre not just interested in categories and things in tiny little boxes. Perry Chen also reflects on the traditional model of working on a concept, building it, and then releasing it on the market, hoping that the world embraces it. And I think a lot is lost there I think youre working a lot in the dark, youre working a lot in a vacuum, and as you all know as creative people its very hard to work in a vacuum, feedback is really important.24 And its important to get that feedback and support before the release of the product. In June 2013, a year later in a different session with Walter Isaacson (president and CEO of the US based Aspen Institute - an educational and policy studies organization25 ), Perry Chen adds to his former explanation of what happens on KS that it is not simply an idea or a project that is being put out there, but a proposal to people. What makes crowdfunding on KS fundamentally different is the web and the speed with which information is able to move through, what Perry Chen calls a social graph, a network of people on the web. According to the founder, KS started as a funding platform, but has evolved into something larger than that, namely creating communities around each project. Many project creators do not realise this inevitable feature of 24 Chen, Perry and Isaacson, Walter. Kickstarter and the Economics of Creativity (Full Session). Video Published on 29 Jun 2013. Available at: https://www.youtube.com/watch?v=3R7mTFHEs1k 25 The Aspen Institute: http://www.aspeninstitute.org/what-we-do
  43. 43. 43 KS in the beginning26 , thus it seems that the creators are unable to plan in advance the necessary activities needed to sustain and nourish their projects community. CREATORS CHARACTERISTICS We want to investigate the individual creators, but at the same time we are curious how many of them actually resemble entrepreneurs. Anyone can launch a campaign on KS, but not every creator is an entrepreneur. Moreover, when we examine creators characteristics, we will approach creators of a specific project as a team and therefore one entity, even if there are several people in the team. Based on all collected data from the 8 cases and combining theory from Powell and Bimmerle (1980 in McFadzean et al. 2005), Brem (2008), and Heebll (2008), we study characteristics of the creators focusing on the four e