I’ve been thinking of various ways to validate a startup idea and Kickstarter stands out as an exceptionally interesting option. This idea isn’t strictly new, Justin Wilcox described the concept on his blog and at the 2012 Lean Startup Conference.

What is an MVP?

The term Minimum Viable Product is often abused. Sometimes used as a synonym for “prototype”, some so-called MVPs have an excess of fully-developed features that are irrelevant to testing customer interest. A common mistake is to assume that a MVP needs to satisfy a customer in order to be viable, which can easily lead to building a full prototype.

Eric Ries offers a concise description of how IMVU should have started, instead of building a prototype:

What we should have done, and what we did for a lot of features thereafter, is started with a landing page that promised people that product. Then we should have taken out the AdWords we were planning to take out, drive traffic to that landing page, and offer people to buy the experience that we are talking about.

What we would have found out if we were doing that experiment is 0% of people would have clicked through, which means it doesn’t matter what is on the second page.

A proper MVP just needs to test whether someone would pay for a product or service, it doesn’t need to include (and should not include) any of the actual features.

Enter crowdfunding

A Crowdfunding campaign is not a way to test an MVP, it is an MVP in its own right. Ideally, you should be able to launch and complete a crowdfunding campaign without building a prototype. In fact, the core features of a Kickstarter campaign are effectively the same as any MVP:

• A high level description of your concept
• A way for people to pay
• A time limit, after which point an unsuccessful campaign must be abandoned

Starting with a crowdfunding campaign instead of a prototype avoids many of the common lean stumbling blocks. When building a software prototype MVP, it’s difficult to decide how much effort should go into frontend design work. On one hand, any work that doesn’t add new functionality doesn’t seem to be minimal, so polishing an app’s appearance should be considered waste. But an ugly product is obviously unmarketable, so some amount of polish is important. With a kickstarter campaign, it’s clear that including a video dramatically improves conversion and is worth the effort. But it’s also obvious that spending 6 months of full time effort to craft the perfect landing page isn’t worthwhile. Preparing a campaign naturally forces you to focus on marketing instead of development, which is much more valuable in a startup’s initial stage.

The emphasis on collecting payment avoids another potential mistake. A landing page that receives 100,000 unique visitors in a month is impressive, but is ultimately a failure unless some of those 100,000 are willing to pay. Crowdfunding doesn’t force you to monetize your actual product immediately, but it does ensure that at least some of your customers are willing to spend money.

The time limit dramatically reduces your risks as a entrepreneur. Specifically, it limits your opportunity risk. If you launch a crowdfunding campaign and fail to meet your goal in the time alloted, then you have a pretty clear signal to move on and try something else. Successfully funding a campaign doesn’t guarantee that your target market is large enough to support a company, but it at least confirms the market exists.

What to offer in your campaign

Not only does a crowdfunding campaign replace building a prototype, it lets you consider prototype ideas that wouldn’t be commercially viable in their own right. For example, freemium apps are increasingly becoming the dominant model for mobile apps (freemium apps generate 69 percent of the worldwide iOS app revenue and 75 percent of global Android app revenues). I’d be hesitant to develop a free app without funding, but would be very happy to build a free app to meet a crowdfunding obligation. I could then expand that free app with premium features later, hopefully turning a small project into a sustainable business. Even if those premium features fail, at least I’d have the crowdfunding proceeds as compensation for my time. Alternatively, if you already had a moderately popular app, you could use crowdfunding to fund new features, thus ensuring that you only build new features that people actually want.

Nor is there anything wrong with using crowdfunding to raise capital for actual commercial products. Pebble is selling a watch for $150 after raising more than 10 million dollars on Kickstarter. Although part of me feels that collecting donations is more appropriate for artistic or free projects, the truth is that commercial projects are completely ethical. If your description is honest and backers contribute voluntarily, then you have no moral obligation to provide anything other than what you explicitly promise.

Defining your goal

Unlike a traditional crowdfunding campaign, the fundamental goal of a crowdfunding MVP isn’t to raise capital. Money is certainly appealing, but the real value of a successful campaign is knowing that other people value your concept and are willing to pay for it. Justin Wilcox described in his proposal how you can A/B test multiple campaigns to test different price points. Although I think that’s a great addition (especially considering how his test found a higher conversion rate for the higher price point), I don’t think determining how much someone will pay is as important at the initial stage as determining whether anyone will pay. I think there would be more value in A/B testing different marketing pitches than different prices.

I do agree with his advice to define your goal in terms of the number of backers (5,000 in his case) instead of some dollar value. Finding backers for your concept means that other people have and recognize the problem you are trying to solve. Knowing that, you can market more ambitious products or services to this base in the future (such as the premium features mentioned above).

Kickstarter and its alternatives

I’ve been using the terms “crowdfunding” and “Kickstarter” interchangeably, which seems fair given the company’s success in popularizing the concept. But there are certainly other alternatives, such as IndieGoGo and Selfstarter, which might be more appropriate. Kickstarter’s popularity provides immediate visibility for your project and their reputation adds legitimacy, but they do set restrictions that might preclude your project. In particular, their guidelines state: “Design and Technology projects that are developing new hardware or products must show on their project pages a functional prototype”. I’m unsure how often this rule is enforced, but it certainly seems to rule out our ideal scenario of launching a campaign instead of building a prototype. Depending on the complexity of your concept, you might be able to build a very simple proof-of-concept and then ask for funding to complete the feature set. Kickstarter also forbids concepts that require on-going maintenance, which eliminates most Software-as-a-Service concepts as well.

I don’t believe IndieGoGo has any similar restrictions. Selfstarter (as a DIY option) is certainly available for any project.

A place to start

I think this concept is particularly compelling because it offers non-technical founders a concrete place to start. Convincing a developer to build your prototype is difficult, especially if you only have a vague idea and no hard skills to offer. Creating a crowdfunding campaign requires you to clearly articulate your vision and to pitch your concept in an exciting way, which is exactly what you’ll need to do in order to recruit. A small amount of crowdfunding capital demonstrates significant traction, even more so than a lengthy waiting list on LaunchRock. More importantly, even a failed campaign isn’t a waste of time. The skills you need to successfully complete a crowdfunding campaign are easily transferable to marketing an early stage startup, so it’s certainly worthwhile nurturing those skills early.