In the face of funding challenges, startup entrepreneurs have turned to the Internet to raise funds through crowdsourcing techniques and the leveraging of social media. “Friends and family” funding takes on an expanded meaning through crowdsourcing via the Internet. This post looks at some of the ways that a startup can crowdsource funds, and refers to some of the lessons learned by Zero Point Software, a game development studio.
A Sample Crowdsourced Business Model
An example of the crowdsourced funding model is one that Zero Point Software (ZPS) has adopted. Ars Technica recently highlighted ZPS’ current crowdsourced business model in depth, showing at least theoretically how any sort of startup could potentially bootstrap their business with the help of fans and well-wishers acting as micro-investors. In a followup article, Ars Technica also mentioned that ZPS had gone through financial difficulties, despite investments from several of the founders. These investments had not been enough to initially keep the studio going, resulting in bankruptcy, but now a business rebirth.
While what ZPS’ founders have gone through is unfortunate, it seems that they’re back in action and have embraced a crowdsourced business and funding model in a larger way. This is a model that can be adapted for several markets, by indie startups. In fact, indie filmmakers have successfully fundsourced in the past and are continuing to do so, using a variety of social media — including blogs, Twitter, and Facebook Groups or Fan pages — to reach micro-investors.
Writer/ Director Joss Whedon — best known for his involvement in the TV shows Buffy the Vampire Slayer, Angel, and Firefly, and the film Serenity — managed to crowdsource some of his projects by getting existing fans to pay in advance. He has also been trying prepaid subscription models for newer projects. Of course, Whedon has loyal fans who know what he’s capable of delivering to them and are often happy to pay in advance. Not everyone has the luxury of the same kind of notoriety.
So what happens when micro-investors crowdfund a relatively unknown project and those at the helm don’t deliver on their promises? Surely some people, maybe not all, will be unhappy. Given the power of social media, those that are unhappy can and will let others know. Obviously, you want to avoid that situation, but when crowdfunding is your only way to go, make sure you don’t abuse the business model. Here are some tips on the right way to to crowdfund projects and leverage social media, regardless of your industry.
- Have an overall crowdsourcing plan. Devise your plan, execute it, then revise it as necessary.
- Set a funding goal. Decide on how much of the expected budget should/ will be crowdsourced.
- State the ROI. Define exactly what each level of contribution will receive in return, then make sure micro-investors realize what they’re receiving for their investment. An investment does not always have a guaranteed return. If micro-investors are only getting a copy of the end product — e.g., a game CD, a film DVD, or access to a party — but only if the project is completed, say so. If they’re merely getting credit, say so, and say where credit will be acknowledged (website, game screens, film credits, etc.).
- Cast your net. Use social media such as blogs, Twitter, and Facebook to draw suitably interested parties to your project.
- Keep them interested. Keep a schedule for posting your social media updates.
- Keep building your social network. Encourage incoming web visitors into active members of your social media network, if not yet micro-investors. The more social media influence you have, the more likely you’ll succeed in raising crowdsourced funds. (Of course, the more capital you have upfront, the sooner you are likely to deliver on your product or service.)
- Convert them. How do you get people to pay for something that you “know” they’re going to like but haven’t really seen yet? You become what social media veteran Chris Brogan calls a Trust Agent. Show potential micro-investors why they’d be interested in participating, and why you are capable of delivering what you’re promising. Leverage social media as much as you can, without being too “market-y”. (Remember that social media “voice” is not “marketing voice”.) Get twittering about your game’s development. Have a Facebook fan page and remind your website’s visitors to join up. Have all members of the team take some time each week to be active on Twitter and your Facebook Fan page, answering questions and, in general, communicating.
- Offer merch to supplement buzz. Make t-shirts and other brand (yours) merchandise available for sale. Use Zazzle or some other e-merchant platform. Promote your merch through all your channels, online and offline. Don’t forget to get popular, sociable friends to wear your merch. For the right person, it’s worth handing them free stuff.
- Openly recognize supporters. You don’t necessarily have to recognize everyone that, say, buys a t-shirt or poster, but at least thank people collectively.
- Report on progress. Even micro-investors want to know what’s going on, especially if they’re waiting to enjoy the product you plan to deliver. Use your website, blog, Twitter, Facebook, relevant forums, a weekly e-newsletter and any other social media channel available to you.
- Bootstrap with another business. For example, publishing on the web has a low startup cost. If you can work it into what is probably already an intense schedule, you might be able to generate advertising or subscription revenues from a site that’s related to your current project.
- Re-invest a portion of actual revenues (not just the preorder funds) back into the project. This is just a standard business bootstrapping practice.
These tips are not suitable for every type of crowdfunded startup, so adapt them for your needs.
What Zero Point Software is Doing
The game development studio is already putting many of the above crowdfunding, social media and bootstrapping principles into action, as well as explaining why they’ve picked this business model. You can learn from the methods they are using are as follows:
- ZPS currently offers three types of medals, depending on your contribution amount. A “Spearhead unit” medal is $39 and gets a digital copy of their upcoming trilogy of games (PC). You also get a unique identity and a host of other benefits. For $25, you get a “Frontline unit” medal, a digital copy of the first game (PC) in the trilogy and benefits similar to Spearhead unit medals. Finally, “support medals” are $5 each, and if you have nine of them, they can be collectively converted into one Spearhead unit. Your “first support medal unlocks avatars in your profile.”
- They have both a Twitter profile and a Facebook Fan page.
- Their YouTube channel shows trailers for mini-games related to the main Interstellar Marines game.
- ZPS/ Interstellar Marines merchandise can be purchased at their Zazzle e-store. (The actual Zazzle link is reached from a redirect on ZPS’ site, but the originating link was broken at the time of this writing.) The merch shop has a wide variety of items, including the standard posters, stickers, ball caps, keychains, etc., but also skateboards.
- Openly recognizing supporters in a variety of ways.
What Zero Point Software is Not Doing
There are a number of things that ZPS could do that they appear not to be doing:
- Offer advantages to early supporters. In Ars Technica’s coverage of ZPS, they state that one of the founders made clear that micro-investors are not getting an advantage over future new players. I’m not sure that’s necessarily a bad thing, especially if they incorporate advantages in the right away. For example, the “support medal” donations could be converted into points and/or credits, both of which can be purchased by anyone in the future. If the points/ credits can also be earned in play, then any advantage micro-investors have could be later balanced.
- Provide weapons or armor upgrades, for the cost of credits, whether purchased or earned. They do have some limited form upgrades, but this could be leveraged further, in advance. (Although, if they don’t want to give early supporters any huge advantages, then I doubt they’ll do this.)
- Run other game-related websites (e.g., game development tips, workshops) to generate revenue to invest into ZPS. (At least, they’re not doing this as far as I’m aware.)
- Facebook and/or iPhone apps. Neither has to demonstrate the features of the full game, but should have something to get and keep people interested, possibly become micro-investors. Yes, both this and the previous item will take time away from development, but if the goal is to generate more awareness and thus more crowdsourced funds, then it’s a necessity. Consider hiring unpaid interns, if necessary.
- Tell more of a story in social media channels. They could build profiles of “characters” from the game, then sell these characters on t-shirts.