project_proposal_-_nick_stamelos.docx

8/14/2019 Project_Proposal_-_Nick_Stamelos.docx

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1 Nick Stamelos - 23303049

Project Proposal

Nick Stamelos

2330349

27/11/2012

Word count: 4000


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(1) One Laptop per Child, 2012. [online] Available at: [Accessed 20 November 2012 ].

Proposed Title of Project:

The Kickstarter Era: Crowd funding and its success as a business model

Introduction:

Crowd funding is a fairly young topic in the business and marketing environment; it lacks

both substantial research and a database of academic information. We are proposing a

research project that will help with the exploration of this topic, its theoretical roots in service

marketing ,e-marketing and venture capitalism; as well as the understanding of its success

rate as a funding method for online entrepreneurs and start up businesses.

It is important to understand why consumers invest in projects and businesses online, without

caring about the possible risks they might encounter. Even though the amount of money that

is invested does not ever surpass $10,000 for an individual, overall as a crowd projects have

been funded to almost $20 million in a space of one month. Crowd funding might have verysimilar factors that charities do, however with the rise of social networking and online

communities it has evolved in a sort of micropayment venture capitalism movement

(Castellucio, 2012). In the following pages we aim to understand and identify key factors

concerning crowd funding, key players involved with crowd funding, and possible problems

that we will aim to research during our project.


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(1) One Laptop per Child, 2012. [online] Available at: [Accessed 20 November 2012 ].

Literature Review:

Kickstarter has been up and running since 2009, with a very unique business model that has

taken the internet by storm. Known as Crowd funding, its sole purpose is to allow people to

collectively gather their funds in order to invest them within an organization or in some cases

other people, with the sole intent of supporting their efforts towards creating a service and/or

product (Ordanini, 2009). Following the last few years, crowd funding has become an

integral part of how businesses make their decisions. Crowd funding has enriched and

empowered the role assigned to consumers (Lusch et al, 2007).

Those individuals, who pool their funds together usually online through a service such as

Kickstarter, are also used as a method of networking. As donators they become much

attached towards a project and so start to spread, through word of mouth, a flurry of

information to their friends and colleagues. Similarly to crowd sourcing, crowd funding

borrows many of its elements from that framework (Dell 2008), in crowd sourcing

individuals attempt to solve problems within a community as a collective mind. In crowd

funding, instead of generating an idea to solve a problem, the crowd generates the financial

support for an existing proposed solution. A perfect example of how crowd sourcing and

crowd funding derive from each other is the One laptop per child(1) organisation; when

confronted with the problem of a lack in educational technology within third world countries,

individuals gathered together to find a solution. Once they figured out what they needed, they

began crowd funding their project, by accepting donations from anyone willing to invest in

the project through pure goodwill.

This is not to say that those who provide the projects with a monetary fund do not receiveanything in exchange; on the contrary, that is where crowd funding is greatly more

advantageous than crowd sourcing. Once you have invested your money as a consumer,

especially on sites such as Kickstarter, you will not only receive the product/service you are

backing up but also have a say in its developmental stages. On the side of the organization, or

the individual with the idea, having crowd funding as a business model helps with the

outsourcing of entrepreneurial risks to the consumers who provide the monetary funds for

investment. The organization will require almost no capital to begin their project, and the risk

of investment will fall upon those who back the said project.

Crowd funding is a fairly young topic within the area of literature, however it has been

widely connected with service marketing. For years now service marketing has always been

connecting the customer with the service, giving importance to the role a customer plays to

the provision of a service (Blazeivc and Leivens, 2008; Bitner et al.,1997). As Meuter et al

(2000) has stated, every action that involves the delivery of a service is always affected by a

certain degree of customer participation; either by having them provide information to the

service organization or by involving themselves directly with the provision of the service

itself (Fang, 2008). While in concept crowd funding sounds like the ideal model for an

organization, when considering the customer it suffers from a few drawbacks. A customer

may be able to contribute with their funds, personal experiences and direct involvement witha project; however they will become plagued with thoughts of uncertainty and an increase


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responsibility towards the overall outcome of the project they are backing (Bendapudi and

Leone, 2003). More importantly a customer participating in crowd funding, is directly

connected with the contribution of ideas towards the design and final outcome of a project

(Moeller, 2008) which can increase pressure on the decision making process, since the final

product/service will be tailored to the general collective needs of each participant.

In an ordinary organization the creation of a new product and/or service requires a capital in

order to begin aspects such as research and development. Such funds are provided by

stakeholders, loans acquired from banks and in some cases sponsorship. Upon acquiring these

funds, the development of the product/service will be initiated and over the course of its

development stages it will be tested by focus groups. Once the product has been tested and

prepared for mass consumption it will reach its final stage. On the other hand crowd funding

platforms, such as Kickstarter and Indiegogo, aim to simplifying the above steps and combine

the responsibilities of each stage to three different groups (Ordanini et al., 2011)

The groups are divided by contributors, each group of contributors are responsible for a

different aspect of the business plan; the groups are as followed:

A founder, those who provide an idea or project that needs funding. A funder, those who financially support a project. A crowd funding organization, the company that brings the first two groups together.

The founders function as the providers of the product and/or service, they use crowd funding

as a method of directly accessing their target market and gaining financial support from their

potential customers. They work directly with the funders, the individuals who collectively

gather the monetary funds required for the founders product/service to come to fruition.

Funders often bear the risk of investing with a product/service that might not be complete yet,

however they do it under the pretence of a certain reward. They follow the development of

the project and help with the production of the output (Ordanini et al., 2011); additionally

funders can provide assistance with the testing of a beta version and more importantly they

can provide social networking for the project by recommending it to their close circles.

Funders provide both the financial aid the project requires and, for no additional cost, allow

themselves to be used as data for the development of the product or service. In order for these

two groups to meet they require a platform for business and transaction, that is where the

crowd funding organization comes in. Predominantly online, these companies sole purpose

is to bring together individuals who seek to fund their projects through crowd funding and

those who are interested in supporting such projects through either financial funding or even

social networking (Ordanini et al., 2011).

Kickstarter Inc. is one of the most successful crowd funding organizations currently available

to the public. It functions by allowing individuals to create campaigns, or projects that have

end goals with various levels of funding and support. Each level of support includes an ever

increasing pledge amount that offer more benefits to the funders. Benefits such as early

access to a product, or maybe the operating system development tools for hardware devices.

Projects however do not always achieve their goals, and that is where most of the risk in


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(2) Crowdsourcing, 2012. [online] Available at: [Accessed 20 November 2012 ].

investing as a crowd funder comes into play. There is never a guarantee that funders of a

project will receive the benefits they deserve, since business ventures can fail at any given

time for any kind of reason (Wong 2012). Research conducted by Ethan Mollick (2012), an

assistant professor at the University of Pennsylvania showed that of 471 projects that fell

under the design and technology category, those more associated with a final hardwareproduct, 75% would suffer from over ambition. Over ambition can be the most common

problem with campaigns on Kickstarter, considering a product is required to go through the

process of design, manufacturing and distribution many founders underestimate the required

time to deliver their goods. Causing 75% of all projects that deliver a form of physical goods,

in return for a pledge, to fail at meeting their own deadlines.

Kickstarter is not entirely suited towards dealing with problems such as failed projects; with a

5% commission on funds raised by successful projects, it does not require itself to police

every single project on the website. There is no real need to mediate and the responsibly of

refunds falls upon the project owners, who again are not set by any terms and conditions toprovide a full refund to their funders (McCracken 2012). Kickstarter might be in the

forefront of crowd funding, but in the end, it is still a business of its own.

Just like any other business, Kickstarter aims to protect itself and other venture capitalists

from direct competition. As a crowd funding platform, Kickstarter prohibits the funding of

projects such as social networks and e-commerce sites (McCracken 2012). If an individual

has the idea for an innovative new social networking method, that might even overthrow

Facebooks monopoly, they will not be allowed to create and fund their projects using

Kickstarter.

However due to the nature of the internet, and the fact that we have finally entered an era of

Web 2.0, e-commerce and e-marketing are on a high rise. Competition and alternatives to

Kickstarter are already booming, and as of this year crowdsourcing.org (2)states that there are

approximately 452 different crowd funding platforms available to the public. With an overall

increase of 91% towards crowd funding and an astonishing 1,187,000 projects successfully

funded, this business model is becoming a direct competition to old fashioned venture

capitalism.

Crowd funding is also an interesting method for already successful entrepreneurs to gain

funding for their own personal projects. Charlie Kaufman, a famous screenplay author whohas written movies such as Being John Malkovich, presented a very unique idea for a movie

that he wishes to create. By going onto Kickstarter and requesting direct funding from his

target audience, he is able to avoid mediators such as publishers, keeping the films original

idea still intact.

Crowd funding does not have to be predominantly through platforms such as Kickstarter or

Indiegogo, it can be used by almost any organization that can provide a perfect risk for

reward balance. Wikipedia has used crowd funding in order to keep the website running and

to improve the overall user experience. A crowd can also affect many other aspects of daily

life, members of Twitter have become be known to expose breaking news stories faster than


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(3) Giveforward, 2012. [online] Available at: [Accessed 20 November 2012 ].#(4) Anon. (2011), Dutch financial supervisors focus on crowd funding,International Financial Law Review, Vol. 30 No. 6, pp.

134-135.

traditional news organizations manage to (McCracken 2012). Social networking has also

become a method for crowds to boost products, services, videos, articles and many other

items that are reaching popular culture statuses.

Crowd funding can be used for absolutely any reason, project, idea, or solution to a problem.

Sites like GiveForward(3)have even begun to change non-profit organizations and the way

they function. With the use of crowd funding on GiveForward donators can finically support

people in need of medical help. In its pure form, the concept is an extension of community

fundraisers that would be often held by close members of a person in need (Sisler 2012);

however this platform brings together individuals who do not necessarily seek any reward but

they knowledge of gratification.

That is surprisingly not the most innovative use of crowd funding, the Dutch Authority of the

Financial Markets had recently created a platform where private parties and companies could

borrow and lend money, through actions such as crowd funding, sourcing and peer to peer

financing(4) ;providing an alternative method to financing private ventures. This is the first

type of crowd funding that offers the funders with business equity; many lenders will be able

to either receive interest on their investment, parts of the proceeds in a newly established

business or even shares of the business itself.

The phenomenon of crowd funding has been called a novelty in many different literatures

(Ordanini, 2009. Mollick, 2012. Fang 2008. Ordanini et al., 2011) and that it has begun to

resemble venture capitalism, just on a different medium. However crowd funding and its

various internet-based platforms, such as Kickstarter, are only 4 years old and have barely

been studied properly.

So knowing where to start is one of the first steps towards accurately executing our research.

We believe that whenbreaking down the word crowd funding, the most important aspect to

research is the crowd. By understanding the consumers thoughts towards participating in

such communities, where belonging is enough to give an individual the incentive to

contribute, we can begin to fully gauge the effects of websites such as Kickstarter.

We know that consumers have a selection of needs and wants that have to be fulfilled within

their own psyche in order to receive certain ego-boosts and gratifications. When looking at

Maslows (1943) hierarchy of needs we can identify that, after the basic secular needs such asfood and safety, the mind requires a sense of belonging, acceptance and the need to be unique

as an individual.

This is where the incentive to contribute comes into play; individuals, who give towards a

community, by either being an active member or simply donating towards the cause, are

affected by their own psychological needs of self-actualization. These people are influenced

by their sympathy, empathy, guilt, happiness and identity (Gerber et al., 2012) which give

them the motivation to participate within a community for the sole purpose of improving the

way they feel.


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134-135.

They begin to feel like they belong to a community which accepts them for having the same

interests and in turn makes them unique towards people outside of this circle.

Kickstarter comes and alters this formula by providing a service that satisfies an

individuals consumer wants and a very basic level of their needs. For example whereas sites

like Spot.us and Firstgiving rely on the altruistic motivations of individuals to donate their

money with no expectations of any tangible reward (Burtch, et al. 2012; Smith, et al. 2012);

and websites such as Wefunder offer consumers the opportunity to become investors by

providing their own monetary funds towards a venture, which in turn rewards them with

some sort of equity and/or profit sharing agreement (Agarwal et al., 2011). Kickstarter offers

the individual a tangible good as a reward for their funding but also creates a connection

between the founder of the project and the funder. This relationship provides the people

partaking in a project with the psychological satisfaction of having contributed towards a

community of like-minded individuals.

The interactions between the consumers who fund the projects and the individuals who set up

these said projects vary greatly depending on the context and nature of the funding effort

(Belleflamme et al.,2012) and thus also change the way that a consumer will pick a project

to interact with. Depending on what type of individual the consumer is and what they want

from the venture itself, will dictate the level of involvement that they will provide towards a

project; and in turn gauge the relationship that project funder and project founder will have

with each other.

A project and the interaction that individuals will have with it are broken down into two

groups, the project nature and the attitude of the funder. The nature of the project can range intypes but frequently follows three distinct approaches; the first approach is that of a charitable

nature, which aims to raise funds for a good cause. This approach allows the funders to take

on the role of a philanthropist,who does not expect any return from his/her donations but

rather gains the satisfaction of being empathetic and the ability to tell others of his/her

charitable exploits.

As such the interaction between a funder who donates money for a charitable cause and the

project itself is high due to the fact that the funder is not expecting anything in return but

rather is truly interested in seeing a possibly less fortunate situation resolve itself. So they

keep themselves involved with the project, sometimes donating even more or spreading the

word, until they see it come through.

Another approach is that of an artistic nature, that caters more to the ego and social persona

of an individual. These types of projects gratify the self-image of an individual by giving

them the ability to be a patron of the arts and contemporary activities. The funder will give

money towards a project that might help their favourite artist create a new gallery show or in

the case of Entheon, which raised $210,127, a whole infrastructure dedicated to an art

movement; or they might fund the creation of a film/play. The outcome of each individual

who has committed money to an art project will be a small reward to show for their donationsbut ultimately it is very similar to the charitable approach.


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134-135.

In the way that the individual does not get anything major in return but rather has the ability

to show-off his/her commitment to the art world. The involvement and relationship that the

funder will have with the founder is going to be fairly low considering that the funder will not

have a direct say as to how the art project should be undertaken. Considering that most

projects are already set up and just require the monetary funds.

The last approach involves the creation of services or tangible goods, which is currently the

most widely used approach by most project founders looking into the use of crowd funding.

With this approach the funders are ultimately provide monetary support towards the creation

of a project such as a cookbook, an e-ink wristwatch or even a video game. In turn they will

gain

y called reward-based crowd funding, is the most prevalent as of the time of this writing. In

this approach, funders receive a reward for backing a project. This can include being credited

in a movie, having creative input into a product under development, or being given an

opportunity to meet the creators of a project. Alternately, reward-based crowdfunding treats

funders as early customers, allowing them access to the products produced by funded projects

at an earlier date, better price, or with some other special benefit. The pre-selling of

products to early customers is a common feature of those crowdfunding projects that more

traditionally resemble entrepreneurial ventures, such as projects producing novel software,

hardware, or consumer products.

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We have been aiming to understand exactly how such a business method is so successful and

have been left with many questions. We hope that through this research project we will be

able to re-evaluate existing projects and identify the exact aspects that have been makingcrowd funding so successful.


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Methodology:

Our aim for this research project will be to understand how crowd funding functions, what

topic it has evolved its theories from, the reasons as to why it has become so successful in

such a short period of time and how it might change the market in the next ten years. Crowd

funding as mentioned before is a new phenomenon, which has not been studied thoroughly

by many academics, therefore it is crucial that we adopt the current research methods used in

the few researches that have already been undertaken.

To begin we identify that our research questions are of a broad nature and might yield data

that will require further in-depth analysis of a theoretical nature. The research will be

structured in such a way that we can to continue the previous studies done by various

academics, and attempt to fill in the gap of knowledge on the subject.

We want to identify key factors towards the possible creation of a crowd funding framework,

as well as understand the key characteristics of different types of crowd related businessmodels, such as sourcing, funding, and peer to peer.

Research Question 1:How and why do consumers participate in crowd funding andsourcing?

Research Question 2: Why have businesses begun to use crowd funding? Research Question 3: What factors make crowd funding a viable business model?

Due to the nature of our research we will be adopting a grounded theory approach

(Eisenhardt, 1989), we will first perform a qualitative research in order to gather information

and data that we will then sort into key points. This way we can group all relevant data into

similar concepts, which can help us categorize them and in a way reverse engineer our

hypothesis. We want to use the grounded theory approach in order to generate or discover a

theory behind crowd funding (Glaser and Strauss, 1967). The grounded theory approach is

an ideal method of exploring the behaviours of groups in a setting where there has been little

exploration of the contextual factors that affect an individuals decision to seek orparticipate

in crowd funding (Crooks 2001).

We want our research objectives to be realistic and achievable, and so we have tailored them

to fit exactly the needs we believe will answer our research questions.

1. Examine the attitudes and motives of individuals who participate in crowd funding.2. Discover the key factors that make a business owner turn to crowd funding.3. Identify the roots of crowd funding, and its possible theories.4. Attempt to create a framework for understanding crowd funding and its effectiveness.5. Identify the key characteristics of crowd funding, crowd sourcing and peer to peer

business models.

Our research will be undertaken in a qualitative method, with the use of two data collection

mediums and two different targets. First we will undertake an in-depth interview of six

different organizations and/or individuals who have sought the use of crowd funding for their


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projects. We want these interviews to be performed on a one to one basis in order to properly

discuss our research questions with the interviewees. Our questions will be non-structured

and open ended so that we can modify them depending on our data needs. However we want

to adopt a funnel method, where we begin with broad questions that prompt and probe the

individual about their company and/or product; following that we can internally developcategories for our questions and begin to narrow down the area of interest that concerns our

research objectives. We will select these companies and/or individuals through various

different crowd funding sites and we will make sure that their project has not yet been funded

successfully; in order to understand why they have decided to use crowd funding and if they

believe it will work for their project.

The sites that we will be using are as followed:

Kickstarter

IndieGogo Quirky Rockethub

We have decided on these sites because they are the top of the market, and they offer a

balance between types of projects and amount of participation. Our key variables when

selecting our six interviewees will be:

1. Project is not older than half a month.2. Project is requesting no more than $100,000.3.

Project either offers a service or a tangible product.

We have selected these three parameters for the reasons that they will help us find the perfect

candidates for interviewing. We want the project to be fairly young so that we will be able to

follow its progression; we also do not want it to exceed the $100,000 funding request because

we want the projects to be small start-up businesses rather than goliath business owners

looking for funding of a personal project. Lastly we want the project to offer a final service or

tangible goods, so that we can again follow its progression from prototype to final outcome.

We also aim to invest in all six projects in order to understand ourselves how the process of

being a crowd funder is like, and document weather the final product/service was exactly as

promised. Each interviewee will be contacted and interviewed online, through a videocommunication program such as Skype, and the data will be both recorded visually and

acoustically. The interviews will last 30 minutes each, with an extension of 15 minutes

depending on the outcomes and/or the length of the responses.

Our second research stage will be conducted with three focus groups, of six people each.

Each group will consist of different target interviewees. One group will consist entirely of

individuals who have crowd funded before, so that we can gather data on their ideologies,

and reasoning behind investing in such a wide variety of ventures. The second group will be

one that has never heard of crowd funding, or has minimal information on the subject. We

want to see exactly how their reactions will be towards the concept and what their thoughts asan average consumer will be to investing their monetary funds in small low risk business


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ventures. The last group will be divided into two sides, individuals who have crowd funded

before, and individuals who have either no idea or minimal information on what crowd

funding is. We are choosing to have a balance between the two in order to see exactly how

crowds will react to possible persuasions from one another. Will the individuals who have no

idea of what crowd funding is, be more prone to try out such investment methods or will theythink that those who invest are just wasting their hard earned money?

The focus groups will be conducted in either a university owned venue or a hotel/conference

hall that will be able to accommodate 18 people. The focus groups will each last 60 minutes

and will be following a semi structured approach, where there will be a pre-written set of

guide questions that will be used in order to begin a discussion between the interviewees.

Thanks to the nature of social networking, our candidates will be selected provided a small

questionnaire in order to find individuals who:

1. Have crowd funded before, through sites such as Kickstarter.2. Have never heard of what crowd funding is.3. Are willing to participate in a focus group.4. Are free to attend the focus group during a predetermined date.

Using social networking sites such as Facebook, we will send out the small questionnaire and

hopefully gather our 18 individuals. If that does not succeed we will then use university

forums such as CUSU to gather our interviewees. As with the previous method, our data

collection will be done by recording both video and audio of the focus groups.

Each participant will be asked beforehand if they mind being recorded, and a consent form

will be provided. In the case of an interviewer not wanted to be recorded, we will use a

transcriber to manual record, in typing, the whole conversation. This implies for both the one

on one interview and the focus groups.

Upon collection of the data it will be complied and analysed by myself with the use of

appropriate data analysis programs best suited for qualitative data. Once the data has been

fully analysed it will be cross checked by my self and two other peers in order to properly

understand the information that has been gathered. As such we will avoid miss interpretations

of the data and any possible biases that might arise due to my involvement in the research.

Once the data has been properly viewed and catalogued we will then go ahead and compareour findings towards the answering and completion of the research questions and objectives

we have set for this project. We aim to begin the research in the month of March and

continue up until the deadline of September. This will give us enough time to conduct all our

research, compile our data and prepare the report. As a personal rule of thumb, we will

attempt to complete each activity half a month before our set due dates in order to give

ourselves a small buffer period to prevent any mistakes or last minute changes.


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References:

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in co-production,Journal of Marketing, Vol. 67 No. 1, pp. 14-28.

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93 No. 2, pp. 59-60. [Peer Reviewed Journal]

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womens health,Health Care for Women International, Vol. 22 No.1, pp. 11-27

Dell, K. (2008), Crowdfunding, Time, 15 September, pp 51-52.

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NY.

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from service-dominant logic,Journal of Retailing, Vol. 83 No. 1, pp. 5-18.

Mollick, Ethan R., The Dynamics of Crowdfunding: Determinants of Success and Failure

(July 25, 2012). Available at SSRN: http://ssrn.com/abstract=2088298 or

http://dx.doi.org/10.2139/ssrn.2088298

McCracken, H. (2012), The Kickstarter Economy, Time, Vol. 180, Issue 15, pp. 32-36.

Meuter, M.L., Ostrom, A.L., Roundtree, R.I. and Bitner, M.J. (2000), Self-service

technologies: understanding customer satisfaction with techinolgoy-based service

encounters",Journal of Marketing, Vol. 64 No. 3, pp. 50-64.

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March, p. r3.

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transforming customers into investors through innovative service platforms,Journal ofService Management, Vol. 27 No.4, pp. 443- 470.


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Sisler, A. (2012), Crowdfunding for medical expenses, Canadian Medical Association

Journal, Vol. 184 No. 2, pp. 123-124.

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No. 4, pp. 72.

project_proposal_-_nick_stamelos.docx

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