Building buzz helps entrepreneurs hit crowdfunding goals

A crowd of people from above

Entrepreneurs who conducted successful crowdfunding campaigns to support new product development took the early step of engaging with “aficionados of their technology,” says University of Oregon researcher Alex Murray.

A key component of that approach, according to a new study led by Murray in the journal Organization Science, was that the emerging companies tweaked their prototypes using an active and open exchange with those potential end users.

“We all know creating a buzz matters, but how do you successfully do it?” said Murray, an assistant professor of management who teaches entrepreneurship in the Lundquist College of Business. “We wanted to understand the processes, such as who you get involved and when, that help make it happen.”

Most earlier studies have explored how companies seek initial financial support with established professionals such as venture capitalists and angel investors. Early studies of online fundraising, which is growing and attracting broader support, have focused only on certain characteristics: how many times a person smiles during a pitch, language used and geographic location.

In his study, Murray and his co-authors, Suresh Kotha of the University of Washington and Greg Fisher of Indiana University, compared the strategies of eight companies that used Kickstarter between 2012 and 2014. The crowdfunding platform has generated $4.8 billion in nonequity financing for more than 178,000 campaigns as of this month.

In the study, the eight unnamed early-stage companies were paired for comparison based on four prototype categories: household gadgets, board games, smartphone camera lenses and 3D printers. All of the companies had innovative and creative products, Murray said.

Three successful steps emerged: community building to establish psychological bonds with individuals who are knowledgeable about a product; engagement that fosters social identification among those individuals; and using that engagement to leverage proof points with others.

One successful company reached out to a National Geographic photographer for input about the prototype for its new smartphone camera lens. After interaction with the founders, the photographer took the prototype on a field trip and talked about the new lens with other photographers. That led to helpful feedback and photos that the company then used for its subsequent crowdfunding campaign.

Another company reached out to potential end users, relying heavily on descriptions of its prototype’s potential and responding privately to some emails. However, the company did not encourage and make use of the feedback. Its subsequent campaign was not as successful.

Companies that interacted effectively with key stakeholders generated heightened interest and anticipation ahead of their crowdfunding campaigns. As a result, Murray said, they were best equipped to attract news media coverage about their new products.

“Generating interest in the domain of an early prototype is critical,” he said. “We found that when companies generate feedback and excitement early on, the people with whom they engage will, in turn, evangelize about the product in their networks and that will grow interest in it.”

Sharing a prototype of a new product with others outside of a company, however, may be risky, requiring a high level of trust and sufficient protection of intellectual property, Murray said. In a follow-up study now under review for publication, he explores that issue.

—By Jim Barlow, University Communications