Incentives do Work: Some Lessons from Crowdfunding


How people make decisions is a topic of constant study and reflection. Alone and together. For example, I've wondered when do individuals make better decisions than teams? Do people do what they in their process? Or is the process rigged to back the decision with data post-hoc?

I wrote an entire series of articles to zoom in and out of when and how people use information in marketing. Behavior is often automatic, and also cultural. Words have the power to persuade and close a sale, before anyone has reasoned on the details.

When researchers analyzed 45,000 Kickstarter projects, they found that positive words and expressions that communicate confidence, experience, and achieve emotional resonance work. Success follows a pattern.

Kickstarter CEO Yancey Strickler says that the success of their platform is based on people appreciating how a person, not a corporation or a VC-backed entity, is working to make something. There is a real appreciation for the spirit of wanting to make something.

Still, projects get funded based on several variables.


First a look at projects that rocked it

Exploding Kittens killed it in games. Raised $8,782,571 with a modest $10,000 goal. Three friends, one idea. Boom. The game's simplicity is likely part of its success. Five people play until they draw all the exploding kitten cards and only one remains the winner.  

Elan Lee, former game designer for Xbox, and friends Matthew Inman (cartoonist), Shane Small (Marvel and Xbox) decided to make a simple card game for weekend fun together. Then they took it to Kickstarter to see if it could be something other people enjoyed. They did. Hollywood came calling, too.

Other games like Fidget Cube and Kingdom Death Monster 1.5 did well by multiples of their respective funding goals of $15,000 and $100,000. The Cube raised $6,465,690, the Monster raised $12,393,139.

Design is another category that does well. Snapmaker's 3D printer 2.0 raised $7,850,866 from a goal of $100,000. WobbleWorks raised $3.9 million for their in two campaigns for the 3Doodler  with a posted goal of $60,000. Peak Design raised $32 million in 9 projects, each with a goal of around $500,000. The travel tripod was its most successful.

Fun and enjoyment are good allies in funding games. Established communities help a lot in design and technology. But what about categories that impact social good?


Using the right incentives

As I was researching successful campaigns, I came across a University of Bath study of more than 8,000 crowdfunding projects. Researchers found that what drive people to fund is self-interest. First tell me how the product works (and how easy it is to use), then I can consider how it saves the planet.

Talking too much about social or environmental benefits detracts from talking about the project’s goals. “A moderate emphasis on pro-social framing is beneficial but too much emphasis can backfire.” Here's another study on technology and design projects that confirms the finding.

Self-interest, properly understood, can help you make headway.

You can sweeten the pot. For example, increasing the affiliate percentage to influencers. Here's a team that raised as much money in the last two hours as they did in the previous 6. A lot more work went into broadening the audience and reaching out to people. This team was a few dollars from the goal and the danger was non funding.

But what if you can't have all hands on deck and put creative caps on last minute? Could incentives work in funding public goods?

Alex Tabarrok is testing an interesting theory: refund bonuses. Introduce them to pay out only if the project doesn't reach the threshold. He says:

The Kickstarter contract is useful but it’s still easy for a good project to fail because there are many equilibria with non-funding. For example, if I think that you won’t contribute then I may decide not to contribute and if I don’t contribute then you may decide not to contribute. Neither of us can do better by contributing, given the other person is not-contributing, and so non-contributing is a Nash equilibrium (see my talk at the Foresight Institute for more details).

Hence self-interest kicks in. Say I think you won't contribute, I will to grab the refund bonus. Likely, you and others do the same. The mechanism at play: reverse social pressure. Here's what the early experiment found:

  1. No bonus = only ~30% of socially valuable projects succeed vs. about 50% to 50- 60% success with bonus (regardless of the amount).
  2. More people contribute early, pushing the number up. To the point where additional contributions make sense to individual self-interest for the public good, pushing funding over the threshold.
  3. Some refund bonuses do get paid out. But raising the overall success rate makes the incremental cost worth it.

As someone pointed out in the comments, Kickstarter does have a similar mechanism to create incentive for early funders.


Applying incentives in your work

Commissions and referral fees are not a new thing. In some companies, employees receive a referral fee when making a successful recommendation. Terms do apply. Recruitment firms have percentage-based fees for retainer, contingency, and contract placements. Percentages vary. 

In the marketing world, agencies typically pay between 5 and 10 percent of the revenue they receive. With the higher end more common than the lower. Some pay nothing. Also, there's usually a 12-month cap. Some agencies have a stepped approach: higher the first year, then decreasing. The costs in many cases compare to those of outbound leads.

Referral fees can also create good mutual incentives. Instead of percentages, you could offer a fixed per project amount. Or issue a credit, if the referral came from someone with whom you do business.

What you need to think about is tradeoffs:

  • Compare sales commissions and referrals, consider the service component of each. What's your profit margin post-sale?
  • Consider length of the sales process from referral date. Did the project come after one or six months?
  • Decide when the fee gets paid. Wait until after you get paid? Is this a recurring service? Should you use a payment schedule? How do you handle money-back guarantees?

You could also decide to increase the amount you pay based on the number of referrals. There's lots of room to experiment. Also with payment form. For example, some consider “in kind” useful and appropriate to their situation. You can get creative.

I got paid referrals by colleagues, even with no formal or written agreement in place. Virginie Glaenzer and I are splitting in half the proceeds of the workshops we're running on Emerging Co-Creation. Its fitting with the purpose of co-creation. We're colleagues within this (and perhaps future) project(s).

Internet-native organizations can include a way to apportion payment based on contribution. David Hoffman on Digital Organizations (DO):

are collections of like-minded people with like-minded goals, that work together to make progress towards those goals. Unlike typical employment, DO’s don’t make you sign employment contracts and become exclusively committed to them.

DO members are free to fluidly move between DOs, contributing their skills wherever they fit. Rather than rigid, vertical corporate structures, DO work could resemble a flat mesh network of organizations. Interestingly, it’s likely that many DOs will share a significant amount of the same members.

These organizations allow people to contribute to several projects. If you work at a progressive company, you could be holding a traditional job and do specialized work at some stages of a project. The creator economy is experimenting on different formats.

Tina He writes about Decentralized Autonomous Organizations (DAOs):

DAOs can become a meta-layer on top of the idea exchanges of the world — a second home for those eager to make strides towards their goals, and know that the way to get there is not by oneself, but in a collective.  

The Internet challenged the idea of a “place.”


Lifting all boats

There's a lot more to explore than just remote work.

As I've been consulting in the last few years, I continued to talk to companies about roles I found intriguing. Not a single company proposed or agreed to a paid project to get to know each other. Instead, they went through protracted and expensive processes.  Time, attention, energy, and often lack of work (and results) badly needed. These are costs nobody measures. But they could kill momentum.

Not even companies that brand progressive and digital native take initiative on test projects. Why not? You get a completed project that was due yesterday, because that's typically when the requisition for the job comes. And someone earns a fair fee for their involvement.

It sure beats requiring free strategy work that helps nobody. Except it demonstrates lack of empathy on the person who thinks this is a good idea. Execution is critical. So, again, a bit of a waste isn't it?

A note on side projects. Working on side projects makes you more valuable to a company, not less. It's fascinating to me how companies view volunteer work differently than work compensated by someone else. Especially in a non-competitive activity. For example, authoring a book or a blog that earns some funds.

Much opportunity remains untapped. Most of the time the capitals and engines to turn them into money are wrong. But there's no excuse for being more creative with what we have right now. How we think about value is limiting. This is the new energy crisis.


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