BACKERS BEWARE: KICKSTARTER IS NOT A STORE* By 2015, the concept of “crowdfunding” had matured. According to Wharton School researcher Ethan Mollick, crowdfunding allowed “founders of for-profit, artistic, and cultural ventures to fund their efforts by drawing on rela- tively small contributions from a relatively large number of individuals using the Internet, without standard finan- cial intermediaries.” It was considered “a novel method for funding a variety of new ventures,” but it was not without its problems. Although billions of dollars had been raised for projects ranging from something as small as an artist’s video diary to large endeavors such as the development of a new product for accessing email or an award-winning film documentary, very little was known about the kinds of mechanisms that made funding efforts successful or whether “existing projects ultimately deliver the products they promise.” One example of this “new phenomena in entrepreneurship”1 was the story of Kickstarter. As of January 2015, Kickstarter was the largest U.S. crowd- funding site, with over 201,000 launched projects, over 7 million backers, and over $1.49 billion in pledged dollars— 87 projects had raised over $1 million each. Kickstarter also had a success rate of just nearly 40 percent, meaning 60 percent of the time the backers got nothing in return for their donations.2 What was this crowdfunding thing all about, and was Kickstarter truly a boon for entrepreneurs, or a bust for backers? “Kickstarter = Dumb people giving money to anony- mous people in hope of some goodies in an unspecified amount of time.”3 So read a comment posted in response to a story about one nine-year-old girl’s Kickstarter cam- paign. Mackenzie Wilson wanted to raise $829 so that she could go to computer camp and create her own video game. (She said her older brothers were making fun of her, and she wanted to prove that girls could do “tech stuff” too.) The trouble was that Kickstarter rules said someone had to be at least 18 years old in order to list a project, so Mackenzie’s mom, Susan Wilson, created the informa- tion listing. And Susan Wilson was a Harvard graduate and a known entrepreneur and had allegedly promoted her daughter’s Kickstarter campaign by tweeting celebrities like Lady Gaga and Ellen DeGeneres to elicit support. * This case was prepared by graduate student Eric Engelson of Pace University, Professor Alan B. Eisner of Pace University, Professor Dan Baugher of Pace University, and Associate Professor Pauline Assenza, Western Connecticut State University. This case was solely based on library research and was developed for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 2015 Alan B. Eisner. Whatever promotion Wilson did worked. The project launched on March 20, 2013, and within 24 hours it not only had reached its $829 goal but was on its way to getting 1,247 backers and $22,562 in pledges.4 It also received headlines because of the extreme public response—accusations of a scam and death threats against Wilson and her family. The majority of negative responses seemed to come from those who believed that Susan Wilson had misrepresented the nature of the project, that she had acted in bad faith— intending to profit from her daughter’s story—and thereby had violated Kickstarter’s project guidelines. Kickstarter clearly stated that its crowdfunding service could not be used for “charity or cause funding” such as an awareness campaign or scholarship; nor could a project be used to “fund my life”—things like going on vacation, buying a new camera, or paying for tuition. And a project had to have a clear goal, “like making an album, a book, or a work of art. . . . A project is not open-ended. Starting a business, for example, does not qualify as a project.” In addition, for Kickstarter to maintain its reputation as one of the top crowdfunding services, it had to make sure it kept control of how the projects were promoted: “Sharing your project with friends, fans, and followers is one thing, but invading inboxes and social networks is another.”5 Kickstarter responded to comments on the Wilson proj- ect by affirming its support, saying, “Kickstarter is a fund- ing platform for creative projects. The goal of this project is to create a video game, which backers are offered for a $10 pledge. On Kickstarter backers ultimately decide the validity and worthiness of a project by whether they decide to fund it.”6 However, backers and Kickstarter fans were concerned, with one user commenting, “It’s all of our jobs to be on the lookout for shady Kickstarters and personally I don’t want to see it devolve into a make a wish founda- tion for already privileged kids to learn how to sidestep rules of a website to profit.”7 And therein lay Kickstarter’s dilemma—how to provide a service that allowed fund- ing for obvious commercial ventures while also providing safeguards for backers. Kickstarter had remained a service business, collecting 5 percent of funded projects as a fee for this service, and had kept itself hands-off otherwise. However, in addition to getting comments such as the ones in response to the Wilsons’ project, Kickstarter had come under fire for pro- viding no guarantees that funded projects would actually produce promised items or deliver on the project’s goals. In September 2012, Kickstarter’s three founders had even had to create a specific blog post titled “Kickstarter Is Not

PART I: Read the case and provide a 500 to 700 word review of the case the report submission requirements.

PART II: After you have written a review of the case answer the following questions:

1-What makes Kickstarter entrepreneurial, and how is this strategy working for them?

2-List and define the three (3) characteristics of entrepreneurial leaders.

3-What approach does Kickstarter’s leadership appear to have regarding innovation, and how should this be managed? Explain in detail and provide a examples.

4-What is it about the initial strategic analysis process that helps a firm identify a business opportunity?

Referring to question 4 how might the external environment affect Kickstarter’s entrepreneurial strategy? Be Specific