CAREERS AND EDUCATION ISSUE: The ups and downs of entrepreneurship on Kickstarter
CAREERS AND ED Regan Long and Sarah Fenson have been brewing beer in San Francisco for seven years. It's their passion, but they didn't think it could be their business until recently. Friends and family kept insisting that their beers were pub-worthy, so last year they began the first steps toward opening a brewery.
They began hauling kegs to Dolores Park for free weekend tastings on the hill, leading small homebrewing workshops at the Underground Market, and getting as much feedback from locals as they could. In fact, they decided to call the venture Local Brewing Co.
Nowadays, the brews can be found on tap throughout the city. Due to the duo's limited equipment, they sell out quickly — even at their appearance at an SF Beer Week event back in February.
"We had restaurants asking us, 'where can we get more of your beer?'" Long told the Guardian. "So now here we are — with the demand but no real supply, until we can get our own brewery."
Enter Kickstarter, one of many new websites dedicated to an innovative online method of financing projects called crowd funding. The site began in 2009 as a place where creative types could go to pitch a project and ask others to pledge small or large amounts of money to see it through to completion.
So far, more than 10,000 projects have been funded and over $70 million pledged on the site.
Lenore Estrada, one of the three eponymous babes from SF's Three Babes Bakeshop, says that Kickstarter support determined their bakery's future. Estrada, Anna Derivi-Castellanos, and Katrina Svoboda began by selling pies on weekends in a shipping container behind a local café. After successfully raising $10,000 through Kickstarter they're now doing home delivery, selling through farmers markets, and considering opening in a storefront.
The plan worked, says Estrada, because Kickstarter's model forced the Three Babes to connect with San Franciscans who don't know about their pie-filled shipping container. "In the process of raising money we were putting out the word for our business and generating future sales and interest," she says.
But it doesn't work for everyone. Kickstarter projects must have a goal amount of money to raise and a time period in which to raise it (usually a month). People who want a so-called "creative project" to succeed pledge as much as they would like — but no one shells out anything unless the project reaches its goal. No achieved goal, no project funded.
Long and Fenson needed to raise $69,000 by July 25 to be successful but only drummed up $18,536 in pledge money. Most Kickstarter campaigns aim for $10,000 or less, but commercial brewing equipment does not come cheap.
Kickstarter's reliance on social networking to get the word out proved to be a problem for Local Brewing Co. "The biggest hurdle is getting people to the web after they've already seen and enjoyed the beer," Long said during their campaign. "Although people clearly like the beer, they aren't going from the bars to their computers to pledge as often as we had hoped. We're on Facebook and Twitter trying to promote through those channels and with email lists, but it's really about getting more people to know about the project and spreading through word of mouth."
Estrada says Three Babes Bakeshop's strategy relied almost exclusively on online tools to connect with pledgers. "We all did a really good job of marketing to our friends and various networks to try to raise money." She says the business connected its online campaign and potential pledgers by throwing a campaign party. Local Brewing Co. did this too — the practice has become an expected part of many crowd-funding business campaigns.
Johnny Travis, co-owner of the San Francisco t-shirt brand Fearless and Zealous Everyday (FAZE) Apparel, recently finished a successful Kickstarter campaign. FAZE has operated in San Francisco since 2007 and needed extra funding to make the jump beyond t-shirts to a fall-winter line including jackets and sweaters.
Travis says that, "with our particular project it was mostly family and friends. There were a few people from the Kickstarter community [who'd we'd never met] who donated, but the way we went about promoting the project was all electronic: email, Twitter, Facebook, MySpace, and telling coworkers and friends who would then tell others about the project. Kickstarter made a sort of camaraderie between us and the people who support us."
Travis says that in addition to widening his company's social base Kickstarter provided a way for FAZE to grow without giving up ownership or accruing debt by taking out loans. "Not giving up equity and ownership was really important to us. It's one of the reasons we chose the Kickstarter approach."
But there are significant risks involved in Kickstarter for both for the project owners and its backers. Kickstarter deducts five percent of a successfully funded project's funds, and the payment processor charges an additional three to five percent for credit card processing fees.
Owners often put a month's energy into a campaign only to fall a few hundred dollars short, gaining nothing. A little less than half of Kickstarter's proposed projects meet their needed goals.
"It's a nail biter," says Estrada. "We tried to make sure that we set a realistic goal."
In return for pledges, backers are promised a non-monetary item. Three Babes Bakeshop offered donors slices of pie, gift certificates for pie-in-a-jar up, even dinners for 10 (complete with a delicious dessert, of course). By giving non-monetary rewards the project owners maintain control of their money and avoid paying high-interest loans.
There has been speculation that business owners could have a difficult time fulfilling these reward promises during the initial start-up time after a project is funded. Kickstarter does not guarantee receipt of the rewards, nor does it ensure that projects will be completed once funded.
Like so many online sites it relies on member's own integrity and self-policing to ensure users are reputable. So far complaints have been minimal and the resulting funded projects satisfying for both owners and those who pledge.
"You need to know that what you promise is something you can reasonably follow through with," Lenore said. "If we thought, 'hey, we're just getting free money for our start-up and we don't have to repay anyone' we would be in trouble [as a business] even if we did meet our goal."
Travis agrees, "If you promise something and don't follow through, that just looks bad on you." All in all, he says using the site has been an affirmative experience for his business, giving FAZE the customer connection that defines many success stories.
"I would recommend it to many people, Kickstarter and the other sites like it. Just make sure it fits you and your brand," Travis says. "People have more satisfaction because they're behind something and they're getting a part of it in return. They're the evolution of our business."