The Lean Startup is considered by many entrepreneurs to be as monumental to the world of startups as the ideas of testable hypotheses, independent/dependent variables, and controlled experiments were to the scientific revolution.
In this book, Eric Reis the cofounder of IMVU, a social entertainment website that has over 100 million registered users, argues that rather than relying on entrepreneurial hunches and intuition to spur the development of new products, creators should apply the scientific method and conduct trial-and-error testing to figure out the products or marketing strategies that best resonate with customers. In addition, Reis argues that validated learning is more important than initial revenue for startup companies.
I’ve distilled his principles into actionable steps and have divided this article into the must-read sections for creators that: Are thinking of launching a crowdfunding campaign, are currently managing a campaign, and have recently finished running a campaign on Kickstarter or Indiegogo. You can view the sections below. Leave a comment with your thoughts!
Want to Crowdfund A Product?
Why is Learning More Important Than Revenue?
Let’s say you want to create a new website that allows students all over the world to exchange or sell used textbooks for a small fee. Why should students sell back their textbooks to the university bookstore, which gives them pennies. Why not cut out the middle man.
You begin looking up statistics regarding the number of used textbooks sold all over the world, the number of students attending colleges/universities, and you start to realize how many subjects and curriculums overlap. Wow! It begins to seem like a huge market opportunity. A website where students can go around the bookstore and sell textbooks to eachother. So what do you do?
Maybe you put together a really nice pitch deck that you show to investors, and since you’re a senior manager at a well-known company, you have the reputation and credibility from running other people’s businesses to raise a good chunk of capital.
You go about spending your newly raised funds hiring programmers, salespeople, customer support, and building company infrastructure. It might seem like you’re spending a lot of money, but since the market is SO large and you only need a small portion to become cash-flow positive, you’re not worried.
After 8 months, you launch your crisp software product, roll out ads on all the major platforms, get some news coverage, get a lot of traffic, and….no one uses the product.
You’ve spent a small fortune discovering a simple lesson. Maybe textbooks are not as much of a pain point as you imagined, up-to-date editions matter more than you expected, or there wasn’t nearly enough activity to cover your monthly costs, and it might take another few million to even find out if you can get that amount of activity. Essentially, you’ve learned some lessons at a great cost.
Learning Is the Foundation of Long-Term Growth
The quicker you are able to test your assumptions about your customers, be they readers of your new book, players of your game, or users of your software product, the better.
In many ways, creating a project on a crowdfunding site like Kickstarter or Indiegogo is the ultimate way to begin learning about your customer base. What websites do they find your project from? What questions do they pose in the comments? Which reward tier is most appealing and why?
Many Lean Startup evangelists will recommend creating a blog or a landing page to test out buyer behavior before actually creating a product. For example, if you were interested in creating a non-fiction book that includes quotes and success stories from the top businessmen in the technology field, you might first create a blog post with motivational quotes and two success stories, along with a link to the working title of your book.
After marketing this blog post on social media and relevant groups, if people read through it, share some of the quotes with their friends, and eventually click the working title of your book to purchase it, this is a great indication of consumer demand for this type of book. If people don’t spend more than 20 seconds on the page, as measured by google analytics, and take no actions, this gives you a set of new assumptions to test out. All this is done before investing the time to actually write the book and handing over money to cover designers and editors.
At the end of the day, you have a hypothesis about how people will react to a product and then you go about systematically testing this hypothesis out on a small scale before investing more time and energy into creating the product.
Seeing as all you need to launch a crowdfunding campaign is a video, a written pitch, and reward tiers, this is a great way to test out assumptions about your customer base. I highly recommend considering it as a way to gain marketplace feedback and test hypotheses.
Managing a Crowdfunding Campaign?
Develop an Effective Marketing Strategy With Test-Driven Decisions
When developing a marketing or sales strategy, I always write down 10-15 ideas and systematically test them out in the marketplace. I may have a hunch that a product would be better promoted with content marketing (blogging) than by attending networking events or going to trade shows, but I never know for sure until I try. Fast trial and error is at the heart of all learning. Try. Measure. Learn. Try again. But do it quickly.
When we initially met, the partners at 2&2 Labs always argued about the best marketplace, most important product features, or the ideal marketing channel to launch new in-house products. Now, we all contribute ideas and systematically test them out. We scrutinize consumer behavior and over time come to understand which activities yield the best conversions or traction. This may sound fancy, but it’s really the only way I’ve come across of building something that people want, and yes, it’s much easier said than done.
With regards to crowdfunding, it’s important to recognize that your marketing strategy may change over time as you discover better ways to promote your project.
Measure Backer Behavior and Adjust Accordingly
One of the most important aspects of the Lean Startup Methodology is to learn quickly and use that knowledge to inform your marketing efforts. You can drive a ton of traffic to your campaign page, or a landing page for your campaign, but if you’re not able to track the behavior of potential backers, it can be difficult to come to a conclusion regarding how people feel about your campaign.
Services like Bitly, Kickstarter/Indiegogo analytics, and Google Analytics can help you track visitor behavior. You can even analyze mouse moves, clicks, and scrolls on your landing page with ClickTale or MouseStats.
A lot of people ask for feedback on their Kickstarter or crowdfunding campaign on the KickstarterForum, but I personally think that creators should pay more attention to the actions of their customers rather than the words of their potential customers. Recently, some awesome giving members have been willing to share what they’ve learned from starting a Kickstarter campaign on the forum. Check it out :).
Focus On Traction, but Keep Testing
Once you find the ideal marketing strategy for your campaign, it can be tempting to keep executing those set of steps, whether it is to buy guest posts on relevant industry blogs or publishing an article that was written about you on social bookmarking websites like Reddit, StumbleUpon, HackerNews, Delicious, or social media groups.
The reality is that it’s important to keep testing new marketing strategies because you may face a pledge growth lull in the middle of your campaign and end up scrambling to find new ways to promote your Kickstarter or Indiegogo Campaign.
You may have gotten some awesome traction from hiring a PR firm and all the major blogs were writing about you in the beginning, but what happens when the newness wears off and you still have a week to go? Focus on the marketing channels and strategies that show promise, but keep testing and developing new opportunities!
After the Crowdfunding Campaign
First of all, congratulations on getting through a grueling 30-60 days. I think the most important questions when you look back should be 1. What assumptions did you have in the beginning that changed? 2. What did you learn about your customers?
How did your promotion strategy change over time, and what results did they yield? Can this information be applied to your business activities outside of Kickstarter or Indiegogo?
I encourage you to share your experiences on the KickstarterForum or to write at me sbriggman@crowdcrux.com to share your story.
Want to Learn More?
If you have not heard of The Lean Startup and would like to learn more about the product development strategies discussed in the book, you can view some sample pages here or check out the movement’s website. There are meetup.com groups all over the country that promote the Lean Startup movement ideals for starting and growing companies.
